Hoyt, Merrill C.

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Release - Construction and Operation - Covenant Not to Sue - Covenant Not to Sue Executed in Favor of Servant Extinguishes Master\u27s Liability When Basis for Liability of Master Is Doctrine of Respondeat Superior

Chicago-Kent College of Law

Chicago-Kent Law ReviewVolume 43 | Issue 2 Article 9October 1966Release - Construction and Operation - CovenantNot to Sue - Covenant Not to Sue Executed inFavor of Servant Extinguishes Master's LiabilityWhen Basis for Liability of Master Is Doctrine ofRespondeat SuperiorMerrill C. HoytFollow this and additional works at: https://scholarship.kentlaw.iit.edu/cklawreviewPart of the Law CommonsThis Notes is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusion inChicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, please contactdginsberg@kentlaw.iit.edu.Recommended CitationMerrill C. Hoyt, Release - Construction and Operation - Covenant Not to Sue - Covenant Not to Sue Executed in Favor of ServantExtinguishes Master's Liability When Basis for Liability of Master Is Doctrine of Respondeat Superior, 43 Chi.-Kent L. Rev. 201 (1966).Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol43/iss2/9DISCUSSION OF RECENT DECISIONSThe position taken by the Illinois Supreme Court that the wrongfuldeath action does not abate on the death of the sole next of kin would ap-pear to be in accord with the history and development of tort law. At earlycommon law, a tort action was regarded as punitive in character and retal-iatory in nature; no action would lie if the victim was dead, as there wouldno longer be anyone to punish the wrongdoer. However, with time, thepurpose of granting damages for tortious conduct became to compensatethe victim rather than to punish the wrongdoer, and the courts began tohold that the estate of an individual should not be depleted because of thewrong of another. The trend of allowing compensation for the victims oftortious conduct is reflected in the decision of the Illinois Supreme Courtin the instant case.There is one dissent in the McDaniel case. Justice Underwood dis-sented on the grounds of stare decisis. He agreed with the majority in prin-ciple but disagreed with the decision, feeling the Illinois law was settled byWilcox v. Bierd, and any change in the law should be left to the legislature.What is the impact of the McDaniel decision upon the law? First, itplaces Illinois in step With the majority of decisions of this type. Second, itclearly widens the construction given to the Survival Statute in Illinois andin doing so corrects a wrong. The estate which must bear expense for thesupport of the next of kin may now be reimbursed. Lastly, the McDanieldecision suggests that the Supreme Court will be willing to overstep thebounds of stare decisis21 when it believes a change in the law and commonjustice call for it.GERALD J. SMOLLERRELEASE--CONSTRUCTION AND OPERATION-COVENANT NOT TO SUE-COVENANT NOT TO SUE EXECUTED IN FAVOR OF SERVANT EXTINGUISHES MAS-TER'S LIABILITY WHEN BASIS FOR LIABILITY OF MASTER Is DOCTRINE OF RFS-PONDEAT SUPERIOR.-In the case of Holcomb v. Flavin, 34 Ill. 2d 558, 216N.E.2d 811 (1966), the Supreme Court of Illinois was asked to decidewhether the-execution of covenant not to sue the servant extinguished theliability of the master. The court held that when the basis of liability isgardt better states this proposition in his minority opinion in Danis v. New York Cent. Ry.,160 Ohio St. 474, 478, 117 N.E.2d 39, 41 (1954). He declared:[T]here is no more effective method for defeating justice than simply todelay it.Justice Cardozo, in Van Beeck v. Sabine Towing Co., 300 U.S. 342, 350, 57 Sup. Ct. 452,456 (1936), discussed the ills of abatement by stating:Death statutes have their roots in dissatisfaction with the archaisms of thelaw... . It would be a misfortune if a narrow or guilding process of construc-tion were to exemplify and perpetuate the very evils to be remedied.21 It appears that the only reason the court held against the plaintiff in Danis v.New York Cent. Ry., supra note 20, a case with a similar question to the McDanielcase, was on the grounds of stare decisis. The court stated that if the case had beenone of first impression, it would have held otherwise.CHICAGO-KENT LAW REVIEWpredicated upon the doctrine of respondeat superior, a covenant not to suethe servant serves to extinguish the claim against the master.The decision reached by the Supreme Court of Illinois was groundedin two legal concepts. The first concerns the master-servant relationship orthe law of agency. The second involves the distinction between the releaseand a covenant not to sue and the effect of that distinction on the master-servant relationship.The liability created when a servant injures a third party is a matterlong settled. Both the master and the servant are personally liable for tortscommitted by the servant while in the scope of his employment.' In addi-tion, the master has a right of indemnification from the servant in the eventthat a third party recovers a judgment from the master for a tort committedby his servant while in the scope of his employment.2The master's liability is based on his servant's tort. This type of liabil-ity is secondary or vicarious in nature and thus may be distinguished fromthe liability of the usual joint tort-feasor. The underlying question pre-sented to the court for decision was-what effect does the fact that the partysued is only vicariously liable have upon the law of releases and covenantsnot to sue?Under Illinois law, a release and a covenant not to sue may be dis-tinguished. A release is the giving up or abandoning of a claim, right, orcause of action by the person who holds it to the person against whom theclaim, right, or cause of action in enforceable. 3 A covenant not to sue is acovenant by which the covenantor agrees not to enforce the right of actionhe has against the covenantee. 4 This technical distinction gives rise to thedifference in the rights created by these two instruments.A release of one of two or more co-obligors or joint tort-feasors is aneffective release of all. However, a covenant not to sue is only a bar to anaction by the covenantor against the covenantee. The covenant bars the suitso as to prevent circuity of action; it does not extinguish the liability ofthe joint tort-feasor, co-obligor, or covenantee. In determining whether aninstrument is a covenant not to sue or a release, the court will look to thecircumstances of the case. The principal distinguishing factor is that acovenant not to sue contains a clear reservation of rights; a release containsno such reservation. 5In the instant case, the plaintiff suffered -injuries as a result of a col-lision between his automobile and one driven by Barnard, an employee of1 57 C.J.S. Master and Servant § 577 (1948).2 42 C.J.S. Indemnity § 21 (1944).8 31 I.L.P. Releases § 2 (1957).4 Ibid.5 31 L.P. Releases § 28 (1957).DISCUSSION OF RECENT DECISIONSthe defendant. Suit was filed in the circuit court naming Barnard as defendant. The plaintiff then executed a covenant not to sue the employee anddismissed the suit against Barnard. Shortly thereafter the plaintiff filed suitagainst Barnard's employer, predicating liability upon the doctrine of re-spondeat superior. The defendant, in its answer, pleaded the execution ofthe covenant not to sue the employee as a bar to the cause of action. Thedefendant, relying on his right of indemnification, also filed a third-partycomplaint against Barnard. Plaintiff and Barnard filed motions to dismissthe third-party complaint and the motions were allowed. The defendantappealed and the appellate court reversed the decision of the trial courtand remanded for trial.6 After a mistrial, the defendant filed a motion forsummary judgment.The trial court allowed the motion, stating that the covenant not tosue extinguished the cause of action against the servant Barnard and, nec-essarily, against his employer since its liability was ...... derivative or sec-ondary, resting solely on the doctrine of respondeat superior." 7 On appeal,the appellate court reversed the trial court and remanded for further pro-ceedings. In its decision the appellate court said that when the master's lia-bility is based upon his servant's tort, the master cannot be held liable ifthe servant is exonerated by a trial on the merits. The court concluded,however, that ". . .. there is no logical or legal basis for extending the ruleto situations where a servant terminates his liability by obtaining a covenantnot to sue." 8The defendants appealed to the Supreme Court of Illinois. The court,through Justice Solfisburg, quoted extensively from the appellate court'sdecision and noted that in its discussion the appellate court said,Barnard, at the time of paying the money in exchange for thecovenant not to sue is likewise presumed to know that if plaintiffrecovered from defendants, they in turn, would seek indemnityfrom him. If he sought to avert this possibility, he should have re-quired plaintiff to agree that he would not seek damages fromdefendants. As was stated above, the instrument is a covenant, nota release, and its legal effect is not to release either the defendantsor Barnard, but to bar legal action against the covenantee. City ofChicago v. Babcock, 143 11. 358, 32 N.E. 271.9With this view, the Supreme Court took issue. Although agreeing thata covenant not to sue differs from a release in its effect upon the liability ofjoint tort-feasors, the court chose to follow that line of decisions which heldthe distinction to be without force when liability is based upon the doctrineof respondeat superior.106 Holcomb v. Flavin, 37 Ill. App. 2d 359, 185 N.E.2d 716 (4th Dist. 1962).7 Holcomb v. Flavin, 34 111. 2d 558, 560, 216 N.E.2d 811, 812 (1966).8 Holcomb v. Flavin, 62 Ill. App. 2d 245, 249, 210 N.E.2d 565, 567 (4th Dist. 1962).9 Supra note 7. at 562, 216 N.E.2d at 815.10 For an extensive review of decisions on this point, see: 92 A.L.R.2d 552, et seq.(1962).CHICAGO-KENT LAW REVIEWThe court, being faced with a question of first impression, relied ex-tensively on decisions from other jurisdictions. Of these decisions, prin-cipally relied upon were Stewart v. Craig,"5 and Karcher v. Burbank.1 2Drawing from these sources the court put forth two reasons for revers-ing the appellate court. As was held in the Karcher case, the master is, ineffect, a surety for his employee and it is a principle of the law of suretyshipthat a covenant not to sue the party who is primarily liable results in a dis-charge of the surety. The Stewart case was of similar import and the Illinoiscourt agreed with its holding when it reasoned,.... If a judgment were obtained against the employer based uponthe employee's negligence, the employer would be entitled to suethe employee and obtain the same judgment against him. Since theplaintiff had given the employee a covenant not to sue, the em-ployee would be then entitled to judgment against the plaintiffas was originally obtained in the action against the employee, thuscompleting the circuit .... 18Justice Solfisburg based the decision of the court upon two main ideas.The first was grounded in pragmatic considerations. In short, a multiplicityof suits and circuitry of action would be avoided. The second basis for thedecision is more theoretical in nature. The court said that the liability ofthe master, based on respondeat superior, is derivative or secondary. Thus,the fact that the servant cannot be sued prevents the imputing of his negli-gence to the master under the doctrine of respondeat superior. 14 The courtsaid that .the effect of the covenant not to sue was to exonerate the cove-nantee.In reaching its decision in the Holcomb case, the court assumed that arecovery by the plaintiff against Barnard's employer would be a breach ofcovenant. Barnard would then have a cause of action grounded in breachof covenant against the plaintiff for the same amount that the plaintiff hadrecovered from Barnard's employer. The result would be to leave all of theparties in the position they were in before the plaintiff sued Barnard's em-ployer. This indeed would be circuitry of action. The appellate court, inreaching its contrary decision, assumed that a suit by the plaintiff againstBarnard's employer would not be a breach of covenant. 15The term "exoneration"' 6 used by the Supreme Court was not really ac-curate. The word exonerate implies that the servant was legally discharged orthat liability was extinguished. A covenant not to sue neither discharges norexonerates the covenantee. It merely acts as a bar to an action by the cove-11 208 Tenn. 212, 344 S.W.2d 761 (1961).12 303 Mass. 303, 21 N.E.2d 542 (1939).'3 Supra note 7. at 564, 216 N.E.2d at 814 (1966).14 Id. at 565, 216 N.E.2d at 815.'5 Holcomb v. Flavin, 34 111. 2d 558, 562, 216 N.E.2d 811, 813 (1966).16 Supra at note 14.DISCUSSION OF RECENT DECISIONSnantor and does not extinguish the liability of the covenantee. 17 This lia-bility could still be imputed to the master but for the circuitry of actionthat would develop.In reaching its conclusion, the court was no doubt influenced by thefact that a release does extinguish liability. 8 The operative difference be-tween a release and a covenant not to sue is that the latter contains a clearreservation of rights. 19 In the instant case, the instrument in question borethe label--covenant not to sue-but otherwise contained no specific reserva-tion of rights. 2 0 Thus, the instrument might have been construed as a re-lease which extinguished the liability of the servant, but the issue was neverraised.It is curious that in reaching this decision an Illinois case in point wasnot discussed. On facts quite similar to those in the instant case, the IllinoisCourt of Claims held that due to the master's right to recover from theservant, the suit could not be allowed for circuitry of action would resultand the very purpose of the covenant not to sue would be defeated. 21In the instant case, the covenant not to sue contained no specific res-ervation of rights against the principal or master beyond the statement thatit was to be construed as a covenant and not a release. 22 What the resultwould be in a case where a specific reservation of rights did appear in thecovenant is difficult to predict. Such a covenant would probably not releasethe master from liability in the absence of a further provision to save theservant harmless. The reason for this is twofold. Firstly, since the specificreservation would apprise the servant of a possible suit against and recoveryfrom the master, it is unlikely that such suit would be construed as a breachof covenant. The servant would then have no action for breach of covenantagainst the plaintiff and circuity of action would be avoided. Secondly, acovenant not to sue does not really extinguish liability. The covenantmerely acts as a bar to the action preventing possible circuity of action viaa suit for breach of covenant.23 This being so, the basis for liability has notreally been extinguished and liability may be imputed to the master underthe doctrine of respondeat superior even though the plaintiff is barred frombringing an action against the servant.MERRILL C. HoYr17 31 I.L.P. Releases § 28 (1957).18 Ibid.19 Ibid.20 34 Il. 2d at 561, 216 N.E.2d at 813.21 Winston v. Illinois, 21 111. Ct. Cl. 307 (1952).22 34 Ill. 2d at 561, 216 N.E.2d at 813.23 Vandalia Ry. v. Nordhaus, 161 111. App. 110 (4th Dist. 1911).

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Release - Construction and Operation - Covenant Not to Sue - Covenant Not to Sue Executed in Favor of Servant Extinguishes Master\u27s Liability When Basis for Liability of Master Is Doctrine of Respondeat Superior

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