Kentucky Fried Chicken Corp. v. Collectramatic, Inc., 87-226

• Decision Date: 25 July 1988
• Docket Number: No. 87-226,87-226
• Citation: 130 N.H. 680,547 A.2d 245
• Parties: KENTUCKY FRIED CHICKEN CORPORATION v. COLLECTRAMATIC, INC.
• Court: New Hampshire Supreme Court

Page 245

547 A.2d 245

130 N.H. 680

KENTUCKY FRIED CHICKEN CORPORATION v. COLLECTRAMATIC, INC.

No. 87-226.

Supreme Court of New Hampshire.

July 25, 1988.

Upton, Sanders & Smith, Concord, and James S. Yakovakis P.A., Manchester (Gilbert Upton on brief and James S. Yakovakis on brief and orally), for plaintiff.

Sheehan, Phinney, Bass & Green P.A., Portsmouth (Peter F. Kearns on brief and Stewart Paley on brief and orally), for defendant.

JOHNSON, Justice.

The defendant, Collectramatic, Inc. (Collectramatic), appeals from a decision requiring that it indemnify the plaintiff, Kentucky Fried Chicken Corporation (KFC), for amounts the latter paid to settle an action against it. The action in question was brought against KFC by the employee of one of its own franchisees and involved equipment KFC had purchased from Collectramatic. The Superior Court (Temple, J.) approved a Master's (Charles T. Gallagher, Esq.) report granting KFC's motion for summary judgment in the case on the ground that the agreement under which KFC purchased the equipment from Collectramatic expressly provided that Collectramatic would indemnify KFC under the circumstances in question. For the reasons stated below, we affirm.

In August 1972, KFC and Collectramatic (then known as "Commercial") entered into an agreement (hereinafter "1972 agreement") concerning, inter alia, KFC's approval of Collectramatic's Model 720 pressure fryer for use by KFC franchisees. Paragraph 17 of this agreement provided in part as follows:

"[Collectramatic] is not, and shall at no time represent itself to be, an agent or representative of KFC and will indemnify and save harmless KFC from any claim or action ... for products liability based upon this [a]greement...."

Paragraph 24 of the agreement further provided:

"[T]he provision[ ] of paragraph[ ] ... 17 ..., hereof shall survive the termination of this [a]greement."

In August 1974, KFC and Collectramatic entered into a second agreement (hereinafter "1974 agreement") approving terms for the sale to KFC franchisees of a number of Collectramatic products, again including the Model 720 pressure fryer. The 1974 agreement included no indemnity provision, and paragraph 14 of the new agreement provided in part:

"[t]his [a]greement contains the entire understanding between KFC and Supplier concerning the subject matter hereof and supersedes all prior and contemporaneous understandings or representations between the parties relating thereto."

In February 1973, Collectramatic sold a Model 720 pressure fryer to KFC Foods of Salem, Inc., a KFC franchisee, pursuant to the 1972 agreement. In April 1980, Joseph Wise, a KFC Foods of Salem employee, was seriously injured by hot grease that spilled from this fryer. Wise brought actions against Collectramatic and KFC, both of which the parties eventually settled. KFC paid Wise $60,000, and Collectramatic paid $50,000 to Wise and $9,000 toward a workers' compensation lien.

Following settlement, Collectramatic brought an implied indemnity action against KFC to recover the settlement amounts it had paid. This court eventually decided that action in KFC's favor. Collectramatic Inc. v. Kentucky Fried Chicken Corp., 127 N.H. 318, 499 A.2d 999 (1985). KFC then brought this express indemnity action against Collectramatic to recover, on the basis of the 1972 agreement, the amounts it had paid Wise. On the parties' motions for summary judgment in this case, the master found for KFC. At a subsequent hearing to determine damages, the trial court awarded KFC $85,272 ($60,000 for settlement and $25,272 for attorney's fees). Collectramatic then filed the present appeal from the master's decision with this court.

One would typically expect that the agreement in effect at the time equipment was bought and sold would determine the parties' rights and duties with respect to that equipment. Collectramatic contends, however, that the merger clause in paragraph 14 of the 1974 agreement clearly demonstrates the parties' intention that the 1974 agreement supersede all previous agreements, including the 1972 agreement. As a result, it argues, all provisions of the 1972 agreement became inoperative for all purposes when the parties entered into the 1974 agreement. Because the indemnification provision of the 1972 agreement thus became ineffective in 1974, and the 1974 agreement itself contains no such provision, Collectramatic takes the position that the master incorrectly found that it had a contractual duty to indemnify KFC for amounts the latter paid to settle claims for injuries which were not sustained until 1980. Indeed, Collectramatic argues, in light of the 1974 agreement's merger clause, the master's appeal to the 1972 agreement's indemnification clause was an appeal to inadmissible parol evidence. Collectramatic further contends that the master incorrectly found inadmissible under the parol evidence rule certain evidence that Collectramatic itself attempted to introduce in support of the above argument.

KFC, on the other hand, argues that the 1974 agreement was prospective only and had no effect on the parties' rights with respect to purchases and sales completed prior to August 1974. In support of its argument, KFC particularly emphasizes the prospective language employed throughout the 1974 agreement and the provision in paragraph 24 of the 1972 agreement that its indemnification clause will survive the contract's termination. KFC also contends that the master properly excluded certain evidence that Collectramatic sought to offer.

We note at the outset that both the 1972 and the 1974 agreements stipulate that their interpretation and enforcement are to be governed by the laws of the State of Kentucky. In considering similar situations, we have held that "[w]here parties to a contract select the law of a particular jurisdiction to govern their affairs, that choice will be honored if the contract bears any significant relationship to that jurisdiction." Allied Adjustment Serv. v. Heney, 125 N.H. 698, 700, 484 A.2d 1189, 1191 (1984). Because KFC and Collectramatic both have their principal places of business in Kentucky, that State does bear a significant relationship to this controversy. See id. We will therefore honor the parties' selection of Kentucky law.

Collectramatic correctly points out that, under Kentucky law, a court must construe a clear and unambiguous contract strictly in accordance with its written terms. Veech v. Deposit Bank of Shelbyville, 278 Ky. 542, 550, 128 S.W.2d 907, 911 (1939); O'Bryan v. Massey-Ferguson, Inc., 413 S.W.2d 891, 893 (Ky.1966). Moreover, when parties reduce their agreement to writing, all prior negotiations and agreements on the matter typically merge in that writing, resulting in an integrated contract. Jones v. White Sulphur Springs Farm, Inc., 605 S.W.2d 38, 42 (Ky.Ct.App.1980). Absent a showing of special circumstances, not suggested here, including fraud, mutual mistake, or illegality, the parol evidence rule dictates that evidence of prior or contemporaneous negotiations or agreements not be afterwards admissible to vary the terms of what the parties intended to be an integrated contract. See id. Finally, a merger clause is strong evidence that the parties did intend their contract as an integrated one. See O'Bryan supra; KFC Corp. v. Darsam Corp., 543 F.Supp. 222, 224-25 (W.D.Ky.1982).

These rules, however, do not require the conclusion that all provisions of the 1972 agreement merged in the 1974 agreement and that the former constitutes inadmissible parol evidence. As noted, when they reduce their bargain to a writing, the parties integrate in it only those prior agreements that they intend so to integrate. See Henry Vogt Machine Co. v. Thurstensen, 252 Ky. 161, 166-67, 66 S.W.2d 77, 79 (1934); Menefee v. Rankins, 158 Ky. 78, 82-83, 164 S.W. 365, 367 (1914). In order to determine whether, or the extent to which, a later writing merges or integrates prior agreements, the court must interpret the contract in keeping with accepted rules of construction. See O'Bryan, 413 S.W.2d at 893. Thus, it must not only strictly construe the contract where its terms are unambiguous, O'Bryan supra; Veech supra, but, where ambiguities are present, it must interpret clauses in light of the parties' intentions as they appear from the contract as a whole. Veech supra; Ex Parte Walker's Executor, on Petition, 253 Ky. 111, 117, 68 S.W.2d 745,...