Holmstead v. Abbott G. M. Diesel, Inc.

• Decision Date: 25 January 1972
• Docket Number: No. 12257,12257
• Citation: 27 Utah 2d 109,493 P.2d 625
• Parties: d 109 Hal E. HOLMSTEAD, Plaintiff and Respondent, v. ABBOTT G. M. DIESEL, INC., Defendant and Appellant.
• Court: Utah Supreme Court

Page 625

493 P.2d 625

27 Utah 2d 109

Hal E. HOLMSTEAD, Plaintiff and Respondent, v. ABBOTT G. M. DIESEL, INC., Defendant and Appellant.

No. 12257.

Supreme Court of Utah.

Jan. 25, 1972.

Worsley, Snow & Christensen, Reed L. Martineau, Salt Lake City, for defendant and appellant.

Howard & Lewis, Jackson Howard, Provo, for plaintiff and respondent.

CALLISTER, Chief Justice:

Plaintiff initiated this action against corporate defendant alleging that its employee, while operating his motor vehicle within the scope of his employment, negligently collided with plaintiff's vehicle, causing plaintiff injuries and property loss. Plaintiff did not join the employee, Gideon Allen, in this action, since they were in the process of negotiating a settlement. Allen was represented by his insurance carrier, Allstate Insurance, which procured from plaintiff a covenant not to sue for a consideration of $10,000, the maximum coverage under Allen's policy. Defendant moved for summary judgment on the ground that plaintiff's covenant not to sue the agent, Allen, operated as a matter of law to release the master or principal from liability.

Prior to the hearing of this motion, plaintiff filed an action against Allen and his insurance carrier seeking reformation of the covenant not to sue. Specifically, he alleged that Allstate, acting on behalf of its insured, Allen, agreed with plaintiff's counsel that plaintiff would specifically reserve his rights to proceed in his action against Abbott G. M. Diesel, Inc., and that through mutual mistake this reservation was omitted from the document executed by plaintiff. Allstate and Allen permitted a default to be taken against them in this action; however, counsel for plaintiff testified and presented documentary evidence indicating that Allstate and plaintiff's counsel had agreed the plaintiff would reserve his rights against the corporate employer.

The trial court granted the decree of reformation; the entire record of this related action is included in the instant case. Thereafter, defendant's motion for summary judgment was heard and denied; and this court granted defendant's petition for an intermediate appeal.

The relevant provisions of the Covenant Not to Sue were as follows:

In consideration of the sum of $10,000.00, . . . I do hereby covenant and agree never to make any demand or claim, or commence or cause or permit to be prosecuted any action at law or in equity, or any proceeding of any description, against Gideon Allen because of personal injury, . . . or loss of any kind that I have sustained or may hereafter sustain in consequence of an accident that occurred on or about the 6th day of December, 1968, at or near Lehi, Utah.

I understand . . . that the payment above recited is made to terminate further controversy respecting all claims for damages that I have heretofore asserted or that I or my personal representatives might hereafter assert against Gideon Allen because of said accident.

I hereby reserve all of my rights against Abbott G. M. Diesel, Inc., including my right to pursue the lawsuit which was filed . . . on the 17th day of April, 1969 . . .. ¹

Under plaintiff's analysis of this case, which we reject, the master and servant or principal and agent are joint tort-feasors and a covenant not to sue one joint tortfeasor does not amount to a release; and, therefore, such an agreement does not discharge the other joint tort-feasor. A corollary to this rule is that there is no right of contribution between joint tort-feasors, and a covenant not to sue or a release with a reservation of rights made with one joint tort-feasor relieves him of liability not only directly to the injured party but also there is no legal basis whereby he may be held liable indirectly through contribution to his fellow joint tort-feasors. In other words, under plaintiff's theory of this case, the covenant not to sue relieved Gideon Allen of all liability, both directly and indirectly, since the corporate defendant as a joint tort-feasor would have no right to seek contribution from Allen.

One the other hand, defendant contends that a covenant not to sue in favor of an agent or servant operates as a release of a master or principal whose liability, if any, is wholly derivative.

A master's liability for the acts of his servant is under the doctrine of respondeat superior. ² Under the doctrine of respondeat superior, the liability of the master to a third person for injuries inflicted by a servant in the course of his employmend and within the scope of his authority is derivative and secondary, while that of the servant is primary, and absent any delict of the master other than through the servant, the exoneration of the servant removes the foundation upon which to impute negligence to the master. While the master may be jointly sued with the servant for a tort of the latter, committed within the scope of his authority or employment, they are not joint tort-feasors in the sense that they are equal wrongdoers without right of contribution, for the master may recover from the servant the amount of loss caused to him by the tort, including any sum he has been required to pay a third person on account of it; such payments made by the master, in the absence of fault on his part, are not made by him as a wrongdoer, but by reason of his obligation to answer for the act of the servant. On the other hand, the liability of the servant arises wholly because of his personal act in doing the wrong; it does not arise out of the relation of master and servant but exists upon the common law obligation that every person must so act or use that which he controls as not to injure another. If the master is required to respond to a third person in damages by reason of his liability under the doctrine of respondeat superior, he will be subrogated and may recover over from his servant and may recovery over from his servant who is primarily liable. ³

. . . Duties, obligations, and liabilities may be of different order or degree. One may be a primary one, and another a secondary one. One may arise only in the event of a failure of the other. Both may exist concurrently as to a third party, but as between those liable or under duty, the one often grows out of the failure of the other. . . . Subrogation is said to be a creation of equity for the purpose of effecting an adjustment between parties so as to secure ultimately the payment or discharge of a debt by a person who in good conscience ought to pay for it. ⁴

In the instant action, if the corporate defendant he compelled to respond in damages to plaintiff, it would be subrogated to plaintiff's claim and could recover thereunder from its servant, Gideon Allen. However, the covenant not to sue specified that plaintiff understood that the agreement was to terminate further controversy respecting all claims for damages which plaintiff has asserted or that he or his personal representatives might thereafter assert against Gideon Allen. Plaintiff has relinquished his claim against the servant and thus impaired defendant's right of subrogation.

It is true that plaintiff and the servant cannot destroy defendant's right of indemnity without its consent and therefore defendant is still entitled to indemnity. ⁵ However, as the court observed in Simpson v. Townsley ⁶ the covenant not to sue would be wholly abortive of its intended object and purpose if it went no further than to protect the employee against a direct action by the injured party but afforded no protection against an action over by his employer. If the covenant be so narrowly construed, the payment made as consideration would constitute no more than a credit on the amount which the injured person might ultimately recover under a judgment, and the employee would remain liable for the remainder. The court determined that the covenant not to sue was intended to protect the employee against liability, direct or indirect, for damages resulting to the injured party from the accident. The court concluded that the covenant not to sue constituted a complete exoneration of the employee and removed and foundation upon which to impute negligence to the employer.

Since plaintiff has not claimed, in the instant action, that the covenant not to sue was to protect Gideon Allen solely against direct liability to plaintiff, ⁷ and the specific language of the agreement militates against such narrow interpretation, we are compelled to conclude that there were no rights against defendant to be reserved. Defendant's liability was merely derivative and secondary; the exoneration of servant, Allen, prevented the imputing of his negligence to defendant.

This cause is remanded to the trial court with an order to grant defendant's motion for summary judgment. No costs are awarded.

HENRIOD and CROCKETT, JJ., concur.

ELLETT, Justice (Dissenting):

I am unable to agree with the holding of the main opinion. While it is true that the agent and the principal are not joint tortfeasors, yet they are jointly liable, the agent because of his wrongful conduct and the principal because of a rule of law (respondeat superior).

There is a split in the authorities as to whether a release of or a covenant not to sue one primarily liable will also release another who is jointly liable for the same tort. The annotation in 20 A.L.R.2d at page 1044 lists Georgia, North Carolina, and Ohio as holding that the release of the agent will also release the principal. The annotation lists California, Illinois, Kentucky, and...