WALTER FREAR, CATHY FREAR, AND BLAKE FREAR, by and through his natural parents, Walter and Cathy Frear V. P .T. A. INDUSTRIES, INC., d/b/a LOUISVILLE EXTERMINATING COMPANY AND NORTHWESTERN NATIONAL INSURANCE COMPANY
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WALTER FREAR, CATHY FREAR,
AND BLAKE FREAR, by and through his
natural parents, Walter and Cathy Frear
V
ON REVIEW FROM COURT OF APPEALS
1995-CA-1149-MR
FAYETTE CIRCUIT COURT NO. 92-CI-3856
P .T.A . INDUSTRIES, INC ., d/b/a
LOUISVILLE EXTERMINATING
COMPANY AND NORTHWESTERN
NATIONAL INSURANCE COMPANY
APPELANTS
OPINION OF THE COURT BY JUSTICE KELLER
REVERSING AND REMANDING
1. ISSUE
This Court granted discretionary review to address one issue . As part of the
parties' oral agreement to settle their pending lawsuit, Appellants agreed to release
Appellee P.T.A. Industries, Inc ., d/b/a Louisville Exterminating Company ("PTA") from
liability . When a "Release and Indemnity Agreement" was subsequently tendered for
Appellants' signature, however, Appellants refused to sign the document because, in
addition to releasing P.T.A. from liability, it required Appellants to indemnify P.T.A.
against any future claims by third parties. Did Appellants breach the settlement
agreement by refusing to sign the tendered release and indemnity agreement?
0=3
Because an agreement to release a party from liability does not include an agreement
to indemnify the released party unless the parties specifically agree to indemnification,
we hold that Appellants did not breach the settlement agreement by refusing to sign the
tendered document.
fl. FACTUAL BACKGROUND
In 1983, Appellants sued Appellee P.T.A. and Cre-O-Tox Chemical Company
("Cre-O-Tox") ' in the United States District Court for the Eastern District of Kentucky .
In their lawsuit, Appellants claimed injury from their exposure to chlordane, a chemical
contained in pesticide sprays distributed by Cre-O-Tox that P.T.A. had applied to
Appellants' home . Appellants' primary claim against P .T.A. and Cre-O-Tox (collectively,
"Defendants") concerned Cathy Frears's exposure to chlordane while she was pregnant
with Blake .
In August 1986, the parties orally agreed to a settlement of the lawsuit . A few
days later, the agreement was memorialized in a letter from Appellants' attorney to
Defendants' attorneys that provided in pertinent part:
This letter is to confirm our settlement of the above
captioned matter wherein P .T.A. Industries has agreed to
settle for $40,000 and Cre-O-Tox has agreed to settle for
$12,000 as regards the claims for Blake Frear. Because
Walter and Cathy Frear do not want to continue on their
behalf or Blake's behalf, their claims are being dismissed
without payment .
Please forward to this office, as soon as possible, releases
which you desire our clients to sign along with your
respective checks made payable to Blake Frear, by and
through his guardians Walter and Cathy Frear . . . .
Cre-O-Tox settled with Appellants after the Notice of Appeal was filed, and is
thus not a party to this appeal .
In October 1986, while Appellants Walter and Cathy Frear were in the process of
seeking both appointment of a guardian for Blake Frear and court approval of the
settlement agreement - i .e ., before any party had satisfied his or her obligations under
the settlement agreement - the federal court entered an agreed order dismissing the
lawsuit with prejudice . Later, in July 1987, after the appointment of Blake Frear's
guardians, Defendants3 presented the following document to Appellants for their
signatures :
RELEASE AND INDEMNITY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That we, Walter Frear, as Parent and Guardian ad litem4
for Blake Houston Frear and Cathy Frear, as Parent of Blake
Houston Frear, and Walter Frear and Cathy Frear in their
individual capacities, for the sole consideration of FortyThousand Dollars ($40,000 .00) to us in hand paid by P .T.A.
Industries, Inc ., d/b/a Louisville Exterminating Company, and
Twelve-Thousand Dollars ($12,000 .00) in hand paid by CreO-Tox Chemical Company, Jack Walton, individually, Bill
Walton, Individually, Jack Walton and Bill Walton, d/b/a CreO-Tox Chemical Company, (hereinafter referred to
collectively and individually as Payors), the receipt of which
is hereby acknowledged, have released and discharged said
Payors and all other persons, firms, and corporations, both
2 The Agreed Order of Dismissal was entered pursuant to an Agreed Motion to
Dismiss stating that "[t]he basis for this Motion is that the Defendants and plaintiff Blake
Frear have reached an agreed settlement of this case and Plaintiffs Walter Frear and
Cathy Frear desire to dismiss their cases without settlement but with prejudice and "all
parties desire that this case be dismissed with prejudice to all parties."
3 The release was enclosed in a letter to Appellant's attorney from Cre-O-Tox's
attorney, who had taken the lead in securing a release from Appellants . The letter,
however, was copied to P.T.A.'s lawyer .
4 Although the order appointing Walter Frear as Blake Frear's legal guardian
does not appear in the record, we observe that the "guardian ad litem" language
appears to be a misnomer because only a legal guardian, and not a guardian at litem,
could settle Blake Frear's claim . See Jones by and through Jones v. Cowan , Ky.App.,
729 S .W.2d 188,189 (1987).
known and unknown, of and from any all claims, demands,
damages, actions, causes of actions, or suits at law or in
equity of whatsoever kind or nature, for or because of any
matter of thing done, omitted or suffered to be done by
anyone prior to and including the date hereof on the account
of the injuries, disease, condition of said Walter Grear [sic],
Cathy Frear and Blake Frear, which occurred as a result of
pesticide treatment of the home owned and occuppied [sic]
by Walter Frear, Cathy Frear and Blake Frear, on or about
March 8, 1979, in Lexington, Fayette County, Kentucky.
Including but not limited to the intended "Release", are all
claims asserted by or on behalf of these parties and all
parties in the civil action no . 83-220 brought in the United
States District Court, Eastern District of Kentucky, at
Lexington, by Walter Frear, Cathy Frear and on behalf of
Blake Houston Frear.
We understand said Payors, by reason of their agreeing to
this compromise payment, neither admit nor deny liability of
any sort, and said Payors have made no agreement or
promise to do or omit to do any act or thing not herein set
forth and we further understand that this "Release" is made
as a compromise to avoid expense and to terminate all
controversy and/or claims for the injuries of Walter Frear,
Cathy Frear and Blake Frear, or any and all claims in any
way growing out of or connected with the aforesaid accident .
We admit that no representation of fact or opinion has
been made by the said Payors or anyone on their behalf to
induce this compromise and that said compromise was
made by us with the benefit and upon advice of counsel and
it [is] specifically agreed that this "Release" shall be a
complete bar to all claims or suits for injuries or damages of
whatsoever nature resulting or to result from said accident .
That Walter Frear and Cathy Frear do hereby agree, as a
part of the COMPROMISE SETTLEMENT, RELEASE AND
INDEMNITY AGREEMENT, do hereby agree to indemnify
said Payors listed above from any and all future claims
growing out of or related to the alleged incident of March 8,
1979 in Lexington, Fayette County, Kentucky, or the general
allegations as set forth and contained in said civil action no.
83-220 as set forth above. As part of this indemnity
agreement, Walter Frear and Cathy Frear do hereby agree
to indemnify said Payors for any judgments, any claims, any
expense, legal expense or cost otherwise incurred by said
Payors as a result of any a nd a ll futu re claims_ by or on
behalf of Walter Frear, Cathy Frear or Blake Houston Frear
against said Payors, their successors or representatives.5
Shortly thereafter, in a letter to Cre-O-Tox's attorney that was copied to P.T.A.'s
attorney, Appellants notified Defendants that they would not sign the tendered release
because of its indemnification provision :
I have talked to my client and we are not going to sign the
release and indemnity agreement you proposed . As far as
I'm concerned, that would make the Frears indemnify any
third party who might have been injured or be injured in the
future as a result of chlordane in that home and that is
something that they will not do.
I will advise them to sign a standard release, but I will not
advise them to sign one indemnifying you as I think that,
clearly, is not required by the settlement.
And, in subsequent communications between the parties and in pleadings filed in the
trial court, Appellants articulated additional objections to the release language indicated
above in italics. Specifically, Appellants objected that this language: (1) released not
only the named defendants, but also "all other persons, firms, and corporations, both
known and unknown"; and (2) not only prohibited future claims against the named
defendants, but also would "be a complete bar to all claims or suits for injuries or
damages of whatsoever nature resulting or to result from said accident ." In other words,
Appellants objected to what they characterized as the overbreadth of the release
language .
5 Italicized and underlined emphasis added . Several proposed documents were
circulated among the parties, and some confusion exists as to which release was
actually presented to Appellants . In particular, we observe that, in its opinion, the Court
of Appeals quoted from a different document. However, because the proposed
document quoted above is the only one of the proposed "releases" that contains both
the broad general release language (italicized) and the indemnity provision (underlined )
to which Appellants objected, we conclude that it was Appellants' failure to sign this
proposed "release" that lies at the heart of the breach of contract dispute .
As to the indemnity provision (underlined in the language quoted above),
Appellants' primary objection was that it purports to require them to indemnify
Defendants if, in a subsequent action, a third party's liability for an injury to Blake Frear
is assigned, in whole or in part, to one or both Defendants. Appellants posited that
Blake Frear may wish to pursue a product liability claim against the chlordane
manufacturer, and Appellants feared that the third-party indemnity provision may "have
the effect of cutting off those claims under Crime Fighters Patrol v. Hiles , Ky., 740
S .W .2d 936 (1987)."
Appellants substantially redrafted the tendered document and then signed and
submitted to Defendants a "Compromise Settlement, Release, and Indemnity
Agreement," which released only the Defendants and which indemnified Defendants
only "for any judgements [sic], any claims, any expense, legal expense or cost
otherwise incurred by said Payors as a result of any and all future claims by or on behalf
of Walter Frear, Cathy Frear or Blake Houston Frear . . . . .. Subsequent
correspondence and drafts circulated between the parties demonstrate that, although
Defendants were willing to modify the scope of the release language to accommodate
Appellants, Defendants continued to insist that, to perform their obligations under the
settlement agreement, Appellants must agree to indemnify Defendants against any third
party claims .
As a result of the impasse, Appellants filed a lawsuit in Fayette Circuit Court
alleging a variety of claims - ranging from an alleged bad faith breach of contract to an
alleged violation of the Unfair Claims Settlement Practices Act - and seeking
compensatory and punitive damages from Defendants and their insurers . Defendants
countered by claiming that Appellants could not obtain relief for any failure by
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Defendants to perform their obligations under the settlement agreement because
Appellants themselves had breached the settlement agreement by refusing to execute
the "Release and Indemnity Agreement" that Defendants originally tendered . The
parties filed cross-motions for summary judgment, and the trial court granted summary
judgment to Defendants after concluding that Appellants had breached the settlement
agreement :
The pre-dismissal correspondence between the parties
setting forth the terms of the agreement placed no limitations
on what type of release was to be tendered . Therefore, this
court finds that a valid oral contract between the parties
exists requiring the Plaintiffs to sign the release tendered by
the Defendants prior to dismissal and requiring the
Defendants to tender to the Plaintiffs $52,000 .00. The
signing of the releases and the payment of monies are
concurrent conditions. The Plaintiffs defaulted on the
contract when the Defendants made a conditional tender of
the monies to the Plaintiffs and the Plaintiffs failed to execute
the releases . Therefore the Plaintiffs are in breach of said
contract and are estopped from asserting a claim of nonperformance against the Defendants under the same
contract . Needless to say the Plaintiffs' claims of unfair
settlement practices are rendered moot by this ruling .
On Appellants' direct appeal, the Court of Appeals agreed with Appellants that
the terms of the settlement agreement "entitled [them] to a release that is limited to
[P .T .A.] and that expressly preserves their right to seek damages from any person or
entity responsible for Blake's injuries." However, the Court of Appeals found the terms
of the settlement agreement ambiguous as to the indemnity issue and held that P .T.A .
"reasonably believed, and was induced by the Frears' silence to believe, that it was
buying its peace in this matter and so is entitled to a release that includes an
indemnification provision .,,6 We granted Appellants' motion for discretionary review to
consider the issue of whether Appellants were required to execute an indemnity
agreement before they were entitled to receive the settlement proceeds.
III. ANALYSIS
As "[s]ettlement agreements are a type of contract and therefore are governed by
contract law, ,7 we begin with the observation that, under contract law, an oral contract is
ordinarily no less binding than one reduced to writing . $ And, although a question of fact
appropriate for jury resolution will exist when a genuine issue of material fact exists as
to whether the parties reached an oral agreement, 9 we have no such dispute here
6 Although we ultimately conclude that the Court of Appeals's analysis is flawed
for other reasons, we observe that - to the extent that its interpretation rests on its
conclusion that P.T.A. "was induced by the Frears' silence to believe" that their
settlement agreement included an agreement by the Frears to indemnify P.T .A . against
third-party claims - the Court of Appeals misinterpreted the extrinsic evidence that it
improperly considered . In fact, a few days before the parties reached the settlement
agreement at issue here, Appellants extended to P.T.A. alone a separate offer to settle,
and wrote: "We will agree to give you a full and unconditional indemnification against
any crossclaim Cre-O-Tox may have as a result of any verdict by my clients, the
plaintiffs, against Cre-O-Tox." (emphasis added). The Court of Appeals interpreted the
indemnification language in this settlement offer as evidence that "the Frears were
aware that indemnity was a benefit of the bargain upon which the defendants were very
likely to count ." In our view, however, when the pre-settlement correspondence, which
included indemnity language, is considered alongside the final settlement agreement,
which did not, the absence of any indemnification language in the final agreement
appears less like "silence" and more like a purposeful omission . And, in any event, we
observe that, in this settlement offer Appellants extended just days before the actual
settlement, they offered to indemnify P.T.A. only against the co-defendant's crossclaims - not the global indemnity against any and all claims, including claims by third
parties, that was included in the documents later tendered by Defendants .
15 AM . JUR .
2D, Compromise and Settlement §9 (2000) .
8 Motorists Mut. Ins . Co. v. Glass, Ky., 996 S.W.2d 437 (1997).
9 Id . ; Audiovox Corporation v. Moody , Ky.App ., 737 S.W.2d 468 (1987); Hickey v.
Glass, Ky., 285 Ky. 848 (CR 76.12(4)(g)), 149 S .W.2d 535 (1941).
8-
because both parties agree that: (1) they reached a valid, oral settlement agreement in
reliance upon which Appellants' federal lawsuit was dismissed with prejudice ; and (2)
the August 28, 1996 letter from Appellants' counsel confirming the oral settlement
accurately reflects the terms of their oral settlement agreement . Accordingly, because
"the construction and interpretation of a contract, including questions regarding
ambiguity, are questions of law to be decided by the court," 1° we review de novo the
lower courts' interpretations of the parties' oral settlement agreement."
As such, we first must determine whether the terms of the parties' settlement
agreement are ambiguous 12 because our resolution of the ambiguity question will
dictate how our interpretive analysis will proceed .
If an ambiguity exists, "the court will
gather, if possible, the intention of the parties from the contract as a whole, and in doing
so will consider the subject matter of the contract, the situation of the parties and the
conditions under which the contract was written,
by evaluating extrinsic evidence as
1°
First Commonwealth Bank of Prestonsburg v. West , Ky.App ., 55 S .W.3d 829,
835 (2000) . Accord Morganfield Nat. Bank v. Damien Elder & Sons, Ky., 836 S.W.2d
893 (1992) ; Hibbits v. Cumberland Valley Nat. Bank & Trust Co. , Ky.App., 977 S .W.2d
252 (1998) .
11 First Commonwealth Bank of Prestonsburg v. West, supra note 10 at 835-6
("As the trial court's decision . . . is a matter of law, our standard of review is de novo .") ;
A & A Mechanical, Inc . v. Thermal Equipment Sales, Inc. , Ky.App ., 998 S .W .2d 505,
509 (1999) ("The trial court's conclusions of law, however, including its interpretation of
the written contract, are subject to independent appellate determination.").
12
And, in so doing, we recognize that "[a]n ambiguous contract is one capable of
more than one different, reasonable interpretation ." Central Bank & Trust Co. v .
Kinkaid , Ky., 617 S.W .2d 32, 33 (1981) . See also Transport Ins. Co. v. Ford , Ky.App .,
886 S .W.2d 901, 905 (1994) ("To determine that an ambiguity exists, the court must first
determine that the contract provision is susceptible to inconsistent interpretations .").
13
Whitlow v. Whitlow , Ky., 267 S.W . 2d 739, 740 (1954) .
to the parties' intentions . 14 However, "[i]n the absence of ambiguity a written instrument
will be enforced strictly according to its terms,
,15
and a court will interpret the contract's
terms by assigning language its ordinary meaning and without resort to extrinsic
evidence . 16
We agree with the trial court's conclusion that the parties' settlement agreement
contained no ambiguity . In concluding that the parties' agreement was a valid contract,
the trial court recognized that the agreement's terms "are evidenced by the
correspondence between the parties, particularly the letter from Plaintiffs' counsel dated
14
Teague v. Reid , Ky., 340 S .W .2d 235 (1960); Hammon v. Kentucky Cent. Life
& Acc . Ins . Co. , Ky., 289 S.W .2d 726, 728 (1956) ("Hence, the case falls within the rule
that parol evidence may be introduced to ascertain the true meaning of ambiguous or
uncertain terms of a written contract .").
15 O'Bryan v. Massey-Ferguson, Inc. , Ky., 413 S .W .2d 891, 893 (1966). See also
Mounts v . Roberts , Ky., 388 S .W .2d 117, 119 (1965) ("in the absence of ambiguity a
written instrument will be strictly enforced according to its terms."); Codell Const. Co . v.
Commonwealth, Ky .App ., 566 S.W.2d 161, 164 (1977) ("The final contract that resulted
from the acceptance of the bid is not ambiguous, and is therefore not susceptible to any
reformation or other rewriting by this Court."); 17A AM. JUR . 2D, Contracts § 337 (1991):
As a general proposition, where the terms of a writing are
plain and unambiguous, there is no room for construction,
since the only purpose of judicial construction is to remove
doubt and uncertainty . . . . [I]t is only where the language of
a contract is ambiguous and uncertain that a court may,
under well-established rules of construction, interfere to
reach a proper construction and make certain that which in
itself is uncertain .
16 Hoheimer v. Hoheimer, Ky., 30 S.W.3d 176, 178 (2000) ("The trial judge was
clearly erroneous in admitting extrinsic evidence to vary the terms of a series of
unambiguous deeds of conveyance .").
- 1 0-
August 28, 1986 ."" Although the Court of Appeals subsequently found the terms of the
oral settlement agreement ambiguous and construed the agreement as entitling P .T.A .
"to a release that includes an indemnification provision," we find substantial evidence
supporting - and no evidence contradicting - the trial court's conclusion that the oral
settlement's terms are set forth in the letter that memorialized the agreement . As such,
the agreement, in no uncertain terms, requires Appellants to execute a release, not an
indemnification provision against third-party claims .
"Release" and "indemnity" are related, but, nevertheless distinct, legal concepts.
"A release is a private agreement amongst parties which gives up or abandons a claim
or right to the person against whom the claim exists or the right is to be enforced or
exercised . In other words, a release is a discharge of a claim or obligation and
surrender of a claimant's right to prosecute a cause of action . "' 8 Indemnity, on the other
hand, is "[a] duty to make good any loss, damage, or liability incurred by another ." 19
Thus, "[a] `release' and `indemnity' are distinguishable in that a `release' extinguishes a
claim or cause of action whereas an `indemnity' arises from a promise by the indemnitor
' 7 Notwithstanding the trial court's implicit factual findings, the resolution of the
case via summary judgment evidences a conclusion that the contract terms were
unambiguous . If the trial court had perceived an ambiguity, a material issue of fact
would have existed to preclude summary judgment. CR 56.03 ; Cook United, Inc. v.
Waits , Ky., 512 S .W.2d 493, 495 (1974) .
' 8 66 AM . JUR . 2D, Release § 1 (2001). See also BLACK'S LAW DICTIONARY 1292
ed . 1999) ("1 . Liberation from an obligation, duty, or demand ; the act of giving up a
right or claim to the person against whom it could have been enforced . . . . 2 . The
relinquishment or concession of a right, title, or claim.").
(7th
19
BLACK'S LAw DICTIONARY 772 (7th ed. 1999) . See also _id . at 773 ("Indemnity
clause . A contractual provision in which one party agrees to answer for any specified or
unspecified liability or harm that the other party might incur .").
to safeguard or hold harmless a party against an existing or future loss, liability, or
both. ,2° In recognition of the distinct legal concepts, we hold that an agreement to sign
"a release" contemplates only a release from liability and not indemnification from third
party claims .
Although Appellees' primary argument before the Court of Appeals and again in
this Court is that Appellants should have anticipated that Defendants wanted indemnity
against future claims because they were seeking to "buy their peace," the settlement
agreement itself, in clear, unambiguous language, required Appellants to sign a release ;
it did not require them to execute a release and an indemnification provision. And, an
otherwise unambiguous contract does not become ambiguous when a party asserts especially post hoc, and after detrimental reliance by another party - that the terms of
the agreement fail to state what it intended . Accordingly, under the terms of the
settlement agreement, Appellants were obligated to release Defendants from liability,
and therefore, Appellants did not breach their contractual obligation by refusing to sign
the non-conforming documents tendered by Defendants. To the contrary, Appellants
fully performed their obligation when, in October 1988, they executed the "Compromise
Settlement, Release, and Indemnity Agreement" that their attorney had drafted in
response to the documents originally tendered by Defendants. Appellants' counsel's
previous invitation for defense counsel to submit a release "which you desire our clients
to sign," permitted P.T.A. to draft a proposed release, but certainly did not reflect any
agreement that P.T.A. had carte blanche to include other terms, including indemnity
provisions, within its proposed "release ." When Appellants executed a release in
2°
66 Ann. JUR . 2D., Release § 1 (2001).
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accordance with the terms of the oral settlement agreement, P.T.A. was obligated to
give Appellants $40,000.00, and P.T.A. therefore breached the settlement agreement
when it failed to do so.
IV. CONCLUSION
For the above reasons, we reverse the decision of the Court of Appeals and
remand this matter to the trial court for it to : (1) vacate its earlier grant of summary
judgment for Appellees ; (2) enter a new summary judgment for Appellants on their
breach of contract claim ; and (3) allow Appellants' action to proceed in accordance with
this opinion.
All concur.
COUNSEL FOR APPELLANTS :
Robert E . Reeves
167 West Main Street
Suite 300
First National Building
Lexington, Kentucky 40507
COUNSEL FOR APPELLEES :
Garry R. Kaplan
250 West Main Street
Suite 1910
Lexington, Kentucky 40507
Patrick J . Murphy
Law Office of Garry R . Kaplan
250 West Main Street
Suite 1910
Lexington, Kentucky 40507
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