Planters Gin v. Federal Compress

Decision Date09 July 2002
Citation78 S.W.3d 885
CourtTennessee Supreme Court

Michael B. Neal and Daniel W. Van Horn, Memphis, Tennessee, for the appellant, Federal Compress & Warehouse Company, Inc.

Allan B. Thorp, Memphis, Tennessee, for the appellee, Planters Gin Company.


ADOLPHO A. BIRCH, JR., J., delivered the opinion of the court, in which FRANK F. DROWOTA, III, C.J., E. RILEY ANDERSON, JANICE M. HOLDER, and WILLIAM M. BARKER, JJ. joined.

This appeal from a denial of summary judgment arises from a contract dispute between Planters Gin Company and Federal Compress & Warehouse Company, Inc. Federal Compress & Warehouse Company, Inc. leased warehouse space to Planters Gin Company. At issue is whether an indemnity clause holding Federal Compress & Warehouse Company, Inc. harmless for "any liability or loss" arising out of the "use of the premises" and requiring Planters Gin Company to carry insurance on the contents stored in the warehouse bars recovery against Federal Compress & Warehouse Company, Inc. for damages caused by negligence occurring in an adjacent storage compartment. We find the contract unambiguous and valid. Accordingly, we hold that the indemnity provision limiting Federal Compress & Warehouse Company, Inc.'s liability is enforceable and bars recovery under the facts of this case. The Court of Appeals's judgment against Federal Compress & Warehouse Company, Inc. is reversed, and the judgment of the trial court is reinstated.

I. Facts and Procedural History

Federal Compress & Warehouse Company, Inc. (Federal Compress) is in the business of warehousing cotton; it stores this cotton for cotton gins and cotton farmers under bailment contracts. Additionally, a small portion of its business is from leasing warehouse space to tenants. Federal Compress has warehouse facilities in five different states, one of them being the Bodley Plant in Memphis, Tennessee.

The Bodley Plant consists of a 228,000 square foot warehouse, built in the 1920s. It is divided into seven interconnected compartments. Though initially referred to as "sheds," the company began referring to the individual compartments as "buildings." Each compartment shares common walls with at least one other unit. The walls between the units are firewalls; internal doors connect the compartments. The plant is serviced by one parking lot, one loading dock, and one rail spur.

The compartments are numbered one through seven.1 Compartments one through three, being in somewhat of a triangular arrangement, all share common walls and a common sprinkler system. It is these three compartments, referred to in the contract documents as "buildings," that are at issue in this case.

On August 22, 1994, Planters. Gin Company (Planters Gin) entered into a contract leasing compartments one and two (approximately 61,000 square feet) from Federal Compress and used these units to store cotton. The adjoining compartment three was neither leased nor used to store cotton at the time in issue. As in all of Federal Compress's leasing agreements, Planters Gin, the tenant, was responsible for insuring the contents warehoused at the plant. The lease also required that this insurance coverage contain a waiver of subrogation clause as to Federal Compress.2 Planters Gin maintained an insurance policy on its stored cotton;3 the insurance on the building's physical structure was maintained by Federal Compress. Under the leasing agreement, the maintenance of the water sprinkler system was also the obligation of Federal Compress.

Between 8 p.m. and 9 p.m. on Sunday, October 27, 1996, heavy rainfall from a storm caused the roof to collapse over compartment three. The weight of the collapsed roof caused a water pipe in the sprinkler system to break. Water from the pipe and rainwater poured onto the floor of compartment three and seeped through the wall and doors into compartments one and two. Though Federal Compress had contracted with Wells Fargo Alarm Services, Inc. (Wells Fargo) to immediately notify the company of any water released through the sprinkler pipe system, no notification call was made by Wells Fargo. Consequently, the broken pipe and the resulting flooding of the affected compartments was not discovered until the next morning at approximately 6 a.m. By that time, the stacks of Planters Gin's cotton in compartments one and two had absorbed the water and were damaged in the alleged amount of $250,000.

Planters Gin, acting on behalf of its insurance carrier, filed a complaint grounded on negligence against both Federal Compress and Wells Fargo. Planters Gin alleged that Federal Compress was negligent in both the maintenance of the roof over compartment three and in monitoring its sprinkler system. Both defendants denied liability for the damage to the cotton and filed motions for summary judgment. The trial court found that the contract between Federal Compress and Wells Fargo created no duty to Planters Gin on the part of Wells Fargo. It also found that the indemnity clause in the leasing contract between Federal Compress and Planters Gin prevented recovery against Federal Compress for damage to the cotton. Accordingly, both defendants were granted summary judgment.

On appeal to the Court of Appeals, the summary judgment granted to Wells Fargo was upheld. However, after holding that the indemnity clause in the lease between Federal Compress and Planters Gin limited only that liability associated with the lease of compartments one and two, the Court of Appeals found that the damages arose out of Federal Compress's maintenance of compartment three. Consequently, it reversed the summary judgment granted to Federal Compress. Both Planters Gin and Federal Compress requested permission to appeal. This Court granted Federal Compress permission to appeal; because Planters Gin's application was denied, Wells Fargo is no longer a party to this case.

II. Standard of Review

The issues accepted for review by this Court are limited to the legal effect of the contractual provisions allocating risk between Federal Compress and Planters Gin. This case comes to the Court on a motion for summary judgment, a procedure utilized in cases where a just and speedy determination may be reached without the expense of trial. See Evco Corp. v. Ross, 528 S.W.2d 20, 24-25 (Tenn. 1975). Summary judgment is appropriate, however, only if the moving party demonstrates that there are no genuine issues of material fact and that the party is entitled to judgment as a matter of law. Tenn. R. Civ. P. 56.04; Webber v. State Farm Mut. Auto. Ins. Co., 49 S.W.3d 265, 269 (Tenn. 2001); Byrd v. Hall, 847 S.W.2d 208, 210-11 (Tenn.1993). Because summary judgment involves only questions of law or the application of the law to certain facts, the trial court's grant of summary judgment in this case is given a de novo review without any presumption that the trial court's conclusions were correct. Cowden v. Sovran Bank/Central South, 816 S.W.2d 741, 744 (Tenn.1991).

III. Contract Construction

The legal effect of the terms of a lease are governed by the general rules of contract construction. Cf. Waddle v. Lucky Strike Oil Co., 551 S.W.2d 323, 326 (Tenn.1977). Thus, the outcome of this case rests on a contractual interpretation of the leasing agreement between Federal Compress and Planters Gin. In "resolving disputes concerning contract interpretation, our task is to ascertain the intention of the parties based upon the usual, natural and ordinary meaning of the contractual language." Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn.1999). This determination of the intention of the parties is generally treated as a question of law because the words of the contract are definite and undisputed, and in deciding the legal effect of the words, there is no genuine factual issue left for a jury to decide. 5 Joseph M. Perillo, Corbin on Contracts, § 24.30 (rev. ed.1998); Doe v. HCA Health Services of Tenn., Inc., 46 S.W.3d 191, 196 (Tenn.2001).

A court's initial task in construing a contract is to determine whether the language of the contract is ambiguous. Once found to be ambiguous, a court applies established rules of construction to determine the parties' intent. "Only if ambiguity remains after the court applies the pertinent rules of construction does [the legal meaning of the contract] become a question of fact" appropriate for a jury. Smith v. Seaboard Coast Line R.R. Co., 639 F.2d 1235, 1239 (5th Cir.1981). Finding no such ambiguity in the contract between Federal Compress and Planters Gin, the issues presented to this Court are suitable for determination by summary judgment.

IV. Analysis

The central tenet of contract construction is that the intent of the contracting parties at the time of executing the agreement should govern. Empress Health & Beauty Spa, Inc. v. Turner, 503 S.W.2d 188, 190 (Tenn.1973). The intent of the parties is presumed to be that specifically expressed in the body of the contract. "In other words, the object to be attained in construing a contract is to ascertain the meaning and intent of the parties as expressed in the language used and to give effect to such intent if it does not conflict with any rule of law, good morals, or public policy." 17 Am.Jur.2d, Contracts, § 245, quoted in Turner, 503 S.W.2d at 190. If clear and unambiguous, the literal meaning of the language controls the outcome of contract disputes.

Nonetheless, a contractual provision may be susceptible to more than one reasonable interpretation, which renders the terms of the contract ambiguous. Memphis Housing Auth. v. Thompson, 38 S.W.3d 504, 512 (Tenn.2001), cert. denied, ___ U.S. ___, 122 S.Ct. 59, 151 L.Ed.2d 27 (2001). "A contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one." Turner, 503 S.W.2d at 190-91. Where the terms of the contract are...

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