Knutson v. Morton Foods, Inc. , 603 S.W.2d 805 ( 1980 )

POPE, Justice.

Wilma Knutson and her husband, Lonnie, sued Jack Chastain and his wife, Dorothy, for damages arising out of an automobile collision between vehicles driven by Mrs. Knutson and Mrs. Chastain. The Knutsons also sued Morton Foods, Inc., relying on the theory of respondeat superior. The Knut-sons settled with the Chastains for the sum of $10,000 but expressly reserved their cause of action against Morton Foods. The trial court then granted Morton Foods’ motion for summary judgment that the Knut-sons take nothing. The judgment was granted for two reasons: (1) the release of the Chastains operated to release Morton Foods, and (2) the undisputed evidence established that the Chastains were independent contractors. The court of civil appeals affirmed the judgment, addressing only the question concerning the effect of the Knut-sons’ release of the Chastains. 580 S.W.2d 876. We disagree with the holding of the court of civil appeals in this regard and hold that the unity of release rule does not apply to a settlement by an employee or agent to release his principal. We affirm the judgments of the lower courts, however, on the grounds that the undisputed evidence is that the Chastains were independent contractors.

In April, 1974, Dorothy Chastain and Wilma Knutson were in an automobile accident. At the time of the accident, Mrs. Chastain was allegedly delivering snack items for Morton Foods. The Knutsons sued the Chastains and Morton Foods, seeking recovery from Morton Foods under the theory of respondeat superior. The Knut-sons alleged that Dorothy Chastain was acting on behalf of her husband, who was an employee of Morton Foods. The Knutsons then entered into a covenant not to sue with the Chastains upon their paying the Knutsons ten thousand dollars. The agreement specifically reserved the Knutsons’ cause of action against Morton Foods, provided that the sum paid was in complete satisfaction of claims against the Chastains, and stated that the Knutsons agreed to indemnify the Chastains to the extent of $10,000 in the event Morton Foods obtained indemnity against the Chastains.¹

The court of civil appeals, however, refused to enforce this agreement according to its terms. The court held that the Knut-sons’ release of the Chastains operated to release the alleged employer, Morton Foods, from any liability under respondeat superi- or. We hold that the unity of release rule does not apply to a case of vicarious liability under the doctrine of respondeat superior. This is so whether the settlement is achieved by a covenant not to sue or a release. In McMillen v. Klingensmith, 467 S.W.2d 193 (Tex.1971), this court held that the release of a party named or specifically identified released that party but no others. 467 S.W.2d at 196 [Emphasis added]. The second paragraph of the Knutsons’ release expressly reserved their cause of action against Morton Foods; the third paragraph expressly stated that the release did not extend to the action against Morton Foods. The release, therefore, factually satisfies the rule of Klingensmith. Our question is whether the unity of release should survive in this instance, that is, whether a settlement with and release of an employee operates to release the principal under the doctrine of respondeat superior.

Morton Foods advances several reasons that the release of the Chastains was a release of Morton Foods. The reasoning is that it was Chastain and not the employer who was the active tortfeasor; the action Morton Foods is derivative and not primary. This argument has its roots in an attack upon the whole respondeat superior doctrine. Neither this nor any other jurisdiction seems inclined to abandon the centuries-old doctrine. Bruckner v. Fromont, 101 Eng.Rep. 758 (1796); Hern v. Nichols, 91 Eng.Rep. 256 (1708); Liability to Third Persons, 4 VAND.L.REV. 260 (1951); PROS-SER, LAW OF TORTS § 46 (4th ed. 1978); Wigmore, Responsibility For Tortious Acts: Its History, 7 HARV.L.REV. 315, 383, 441 (1894). The doctrine, from its inception, was based upon public policy. It is the enterprising superior who puts his employees upon the road. Newspaper, Inc. v. Love, 380 S.W.2d 582, 588-89 (Tex.1964). The employer who reaps the benefits of the employee’s activities on the road should share the losses caused by those acts. The doctrine is a deliberate allocation of losses that are sure to occur in the conduct of the enterprise. The employer is also in a better position to distribute the costs. PROSSER, supra, sec. 46.

Morton Foods also says that the release of an employee should release the employer because the payment of $10,000 by the Chastains was satisfaction of the whole claim for damages. In other words, the Knutsons have already been paid. We disagree. This argument confuses a release with the theory of satisfaction. A satisfaction must be full and complete recompense in order to bar further action. Nothing in this record indicates that the money paid by the Chastains was such a full satisfaction. Bradshaw v. Baylor University, 126 Tex. 99, 84 S.W.2d 703 (1935).

Even during the ascendancy of the “unity of release” rule, a plaintiff could separately sue an employee and his employer and recover from both of them, so long as he did not recover more than one satisfaction. Hunt v. Zeigler, 271 S.W. 936, 938 (Tex.Civ.App.-San Antonio 1925), affirmed, 280 S.W. 546 (Tex.Com.App.-1926, jdgmt. adopted). The fact that an employee has been released in a settlement has no bearing on the continued liability of the employer unless the settlement is in full satisfaction of the plaintiff’s claims against both the employee and the employer.²

Morton Foods also argues that the release of the Chastains by the Knutsons will be undermined unless it operates to release the employer. Enforcement of the release, as written, will encourage a circuity of action. Morton Foods concludes that the only way to avoid a circuitous course of action is to prevent the trial of this case on its merits.

The Chastains may, as argued, be subjected to an indemnity suit by Morton Foods. It is true that the Chastains are not completely protected from all liability arising out of the accident. Moreover the Knut-sons, under their agreement to indemnify the Chastains up to $10,000, may have to return that sum to the Chastains. Morton Foods says, therefore, that this suit by the Knutsons, a subsequent claim for indemnity by Morton Foods against Chastain, and the Chastains’ claim for indemnity up to $10,-000 against the Knutsons, presents an undesirable circuity of action and undermines the original settlement if Knutson has to give back the $10,000.

There are reasons, however, which favor a recognition of partial settlements and the application of Klingensmith to this case and situation.- We have long recognized that encouraging settlement and compromise is in the public interest. Gilliam v. Alford, 69 Tex. 267, 6 S.W. 757 (1887); Fidelity-Southern Fire Ins. Co. v. Whitman, 422 S.W.2d 552 (Tex.Civ.App.-Houston [14th Dist.] 1967, writ ref’d n. r. e.). The instant decision will aid in the achievement of that goal. A plaintiff will be able to settle with a tortfeasor who acts for another without being fearful of losing his cause of action against the party who may be liable under respondeat superior. At the same time, the party who is liable under respondeat superi- or will retain complete access to the courts for a full adjudication of his liabilities and his rights to indemnification.

The Knutsons and Chastains knew about these possibilities, and they were exposed to these obligations to indemnify when they executed the release. They contracted with those possibilities in mind. Paragraph IV of the release, quoted above, fully states the rights of the parties. Only the Knutsons and the Chastains will be affected by the fact that this agreement may fail to protect the Chastains from all future liability, or may subject the Knutsons to a circuitous course of litigation resulting in the return of the $10,000 to the Chastains. Ironically, the only party that is troubled by the incompleteness, or wisdom, of this release is Morton Foods. Morton Foods, however, neither participated in the negotiation of this instrument, nor paid any consideration for its release from liability.

Morton Foods, who was not a party to the settlement agreement, is the only one who does not want to give it the force expressed in the document, but it is no more prejudiced by the settlement than if none had been made. Morton Foods has actually been benefitted since the partial settlement made by the Chastains to the plaintiffs reduces Morton Foods’ liability. We see no reason why we should be more concerned with the potential problems that the Knut-sons and Chastains may encounter as a result of this settlement than they were at the time they executed the release. Accordingly, we conclude that the policies expressed in Klingensmith outweigh the perceived dangers in permitting parties to enter into an incomplete release, or one that may lead to a circuity of action, when the parties themselves are not disturbed by those possibilities.

In Klingensmith we adopted, with slight modifications, the rule that was proposed by the Alaska Supreme Court in Young v. State, 455 P.2d 889 (Alaska 1969). In Alaska Airlines, Inc. v. Sweat, 568 P.2d 916 (Alaska 1977), the Alaska Supreme Court addressed the exact question that is posed in this case; whether the rule established in Young and Klingensmith, requiring the identification of a party in a release before his liability would be extinguished, should be extended to include cases in which the non-released defendant was liable solely under the theory of respondeat superior. In answering the question affirmatively, as we do, that court declared:

[Bjased on our reasoning in Young, we would reach the same result at common law by giving effect to the obvious intent of the parties to the covenant. The policy favoring termination of litigation and encouraging settlement agreements should here prevail.

568 P.2d at 930.

We also find support for these conclusions in Hovatter v. Shell Oil Co., 111 Ariz. 325, 529 P.2d 224 (1974); Finney v. Farmers Ins. Co., 92 Wash.2d 748, 600 P.2d 1272 (1979). Also in accord with these views are Frantom v. Neal, 426 S.W.2d 268 (Tex.Civ.App.-Fort Worth 1968, writ ref’d n. r. e.); Gomez v. City Transportation Co. of Dallas, 262 S.W.2d 417 (Tex.Civ.App.-Dallas 1953, writ ref’d n. r. e.), and Blackwell v. Ship Channel Development Co., 264 S.W. 223 (Tex.Civ.App.-Beaumont 1924, writ dism’d).

We disapprove the holding in Spradley v. McCrackin, 505 S.W.2d 955 (Tex.Civ.App.-Tyler 1974, writ ref’d n. r. e.).

The trial court sustained the motion for summary judgment upon separate and independent grounds, which Morton Foods urged to the court of civil appeals as a basis for the affirmance of the judgment. This court is under the duty to look to the briefs in the court of civil appeals to determine if there is an independent basis upon which the judgment of that court should be affirmed. City of Hutchins v. Prasifka, 450 S.W.2d 829 (Tex.1970). In our opinion there is.

All of the evidence presented at the summary judgment hearing shows that Jack Chastain was an independent contractor. Attached to the motion for summary judgment is a copy of the distributor agreement between Morton Foods and Jack Chastain.³ The agreement says that Chas-tain “shall operate as an independent contractor, responsible for his own employees, if any, and shall not be authorized to commit or bind Morton Foods to any contract or debt.”

Both Jack and Dorothy Chastain testified by deposition. He said that he worked on a salary until he moved to Snyder in 1962. Since that time he has been an independent distributor. He sets his own daily routes to serve three counties, hires and fires his own employees, sets the employees’ wages and hours, and pays them. He said that Morton Foods has no right to fire his employees or set their hours. He pays their social security taxes and the sales tax. It had been two years since anybody from Morton Foods had been to Snyder to inspect the work, and he described his relationship as that of an independent distributor.

Since beginning at Snyder, he has bought three trucks through the company, but he paid for them and carried the insurance on them. He pays for the gasoline and repairs. The accident in this suit did not involve a truck; it involved a Chevrolet van, which he bought for personal use. He said the van was in his name “with my liability.” He bought the van because he has three children in the Girl Scouts and Boy Scouts and for use on family trips. His wife used it each Thursday to deliver snacks to the local schools. She had been making deliveries on the day of the accident and was returning to her home at the time of the collision. Mrs. Chastain’s pay was not a fixed salary but, as he said, it was what she took out of his billfold when she needed money. The company has decals that it expects to be displayed on the trucks, but there was no decal on the van.

Jack Chastain handled billings and collections for about sixty percent of the accounts, and the large accounts were billed out of the home office and credited to Chas-tain’s account. He paid his account with Morton Foods every ten days.

The most that can be drawn from this record concerning the right of control, either by contract or by long-standing practice, is that Morton Foods did not have the right to control and did not control the details of Jack Chastain’s work. Newspapers, Inc. v. Love, 380 S.W.2d 582, 591 (Tex.1964).

We hold that the summary judgment was correctly granted because Jack Chastain was an independent contractor as a matter of law. The judgments of the courts below are affirmed.

DENTON, J., writes concurring opinion in which STEAKLEY and BARROW, JJ., join.

1 . The relevant provisions of the covenant are:

II.

Plaintiffs expressly reserve their cause of action against Morton Foods, Inc., arising out of the incident described in plaintiffs’ pleadings.

III.

This covenant does not release and is not intended to release plaintiffs’ cause of action, or any part thereof, against Morton Foods, Inc., arising out of the incident described in plaintiffs’ pleadings.

IV.

It is further understood and agreed that in the event judgment should be rendered in any suit arising out of the occurrence made the basis of this suit in favor of plaintiffs and against Morton Foods, Inc., and Morton Foods, Inc. subsequently seeks to obtain indemnity and contribution against the Chas-tains by way of suit against the Chastains, the plaintiffs will hold harmless and indemnify defendants Chastain and their insurer for any such judgment to the extent of the payment herein recited.

V.

It is specifically agreed that the sum paid to plaintiffs and their attorney is in complete and final satisfaction of any and all claims for damages, of whatsoever kind and character, which plaintiffs, or anyone claiming through them or on their behalf, may have against defendants Chastain or their insurer.

2 . This opinion should not be interpreted as permitting a plaintiff two opportunities to prove that an employee’s negligence caused him injury. It is well established that where the employer’s liability rests solely on respondeat superior, an adjudication acquitting the employee of negligence will stand as a bar to a subsequent suit against the employer. Hammonds v. Holmes, 559 S.W.2d 345 (Tex.1977).

3 . The terms of the short agreement are:

1. Distributor shall be responsible for developing and expanding the sale of Morton Foods products in the territory assigned as his area of primary marketing responsibility.

2. Distributor shall operate as an independent contractor, responsible for his own employees, if any, and shall not be authorized to commit or bind Morton Foods to any contract or debt.

3. This agreement shall continue in force and effect until terminated by either party, with or without cause, upon the giving of seven (7) days’ notice of intent to terminate. Upon termination, distributor shall not have any rights to assigned territory or to the distribution of Morton Foods’ products or to the trademarks or tradenames of Morton Foods, notwithstanding this right of termination, distributor has the right to sell the assets of his business at any time, provided that no rights to distribute the products of Morton Foods, or to the use of the trademarks or tradenames of Morton Foods may be sold to the purchaser of distributor’s business.

4. This agreement cancels and replaces any prior distributorship agreement that may exist between the two of us.