Schrader, George D.

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University of Kentucky

Kentucky Law JournalVolume 43 | Issue 4 Article 81955Agency--Liability of National Oil Companies forTorts of Service Station OperatorsGeorge D. SchraderUniversity of KentuckyFollow this and additional works at: https://uknowledge.uky.edu/kljPart of the Agency Commons, and the Torts CommonsRight click to open a feedback form in a new tab to let us know how this document benefitsyou.This Note is brought to you for free and open access by the Law Journals at UKnowledge. It has been accepted for inclusion in Kentucky Law Journal byan authorized editor of UKnowledge. For more information, please contact UKnowledge@lsv.uky.edu.Recommended CitationSchrader, George D. (1955) "Agency--Liability of National Oil Companies for Torts of Service Station Operators," Kentucky LawJournal: Vol. 43 : Iss. 4 , Article 8.Available at: https://uknowledge.uky.edu/klj/vol43/iss4/8Noms AND CommNT'rsAGENCY-LIABILITY OF NATIONAL OIL COMPANIES FORTORTS OF SERVICE STATION OPERATORSThe National Oil Companies have experimented with variousmethods of retailing during the past half century. Under one suchmethod the company owns the station and directly employs at-tendants to operate it. A second method is an arrangement wherebythe company owns the station or leases it and in turn leases or sub-leases it to an independent operator. A third method is one by whichthe owner of the station contracts with the company to market thelatter's products. All three of these situations, regardless of any dif-ference in the legal or contractual relation between the companiesand the dealers or operators, present a picture of uniformity to theaverage motorist. When he purchases his gasoline at various fillingstations he is usually unaware that a variety of contractual relation-ships exist between the several dealers with whom he does businessand the national oil companies whose products he actually uses,because modem methods of uniform retailing and advertising havedestroyed the individualistic character of the present day gasolinefilling station. The institution of national credit card systems, nationaladvertising, uniform station designing, construction and exterior deco-ration, plus the fact that many service station attendants wear uni-forms representing the national oil companies have caused the motor-ist of today to feel that he is purchasing products directly from thenational company which he patronizes. No longer does the averagemotorist, when traveling along the highway, feel that he is doingbusiness with Tom Jones as an independent filling station operatorbut with the X Oil Company whose stations he finds throughout histravels, whose maps he uses and through whose national credit cardsystem he charges his purchases.The courts have been forced to go behind the uniform marketingsystems of national oil companies in order to find the true relationshipbetween them and the dealers who operate the comer filling stations.This discussion is not concerned with the company owned andoperated station, but rather with those stations which are operatedby lessees or independent parties who are not directly employed bythe national oil companies.' It will be helpful to examine first therelation between the station operator and the national oil company.2'For a discussion of this and related topics see: Mechem, OuTLnE OF To ELAW OF AGENCY sec. 440-45 (4th ed. 1952); 38 MIcH. L. REv. 1068 (1940); 1OKLA. L. REv. 277 (1948); 20 TEx. L. REv. 385 (1941); 3 VAND. L. REV. 597(1950).- See 3 VAND. L. REv. 597 (1950).KENTucKY LAW JounNALThe contracts or leases which are used by the national oil com-panies vary from company to company, but as a general rule theyinclude clauses concerning the following elements: (1) delivery ofthe products; (2) prices; (3) discounts; (4) taxes; and (5) regula-tions as to who may sign agreements in the future.3 The contractualrelationship is very important as it is the court's interpretation of thecontract which determines whether the national oil company is liablefor the torts of the service station operator.4 The liability of thenational oil companies depends primarily on whether or not the courtcan construe the contract to establish a master-servant or principal-agent relationship,5 and this interpretation depends on the elementof control which is involved. If the court fails to find a sufficient ele-ment of control involved in the contract the operator is considered tobe an independent contractor, thus relieving the national oil companyof liability.The cases and their interpretations of the contracts indicate a splitof authority. One line of decisions holds that if the contract in ques-tion, read in light of the conduct of the parties, grants to the nationaloil company the general power or right to exercise control over itsfilling station operators, the relationship of master-servant exists,6while another line of decisions comes to the conclusion that thenational oil company must have the right or actually exercise theright of control over the specific detail of the business in issue inorder to be held liable.7Green v. Spinnings is a typical case in accord with the first line ofdecisions. An injured third party was granted an injunction againstthe operator of the station and his co-defendant, the Mid-ContinentPetroleum Corporation, on the ground that the filling station near hishome was a nuisance. The court talked in great detail about thecontract between the defendants and the elements contained therein,stating:'Joiner v. Sinclair Refining Co., 48 Ga. App. 365, 172 S.E. 754 (1934); ShellPetroleum Corp. v. Linham, 163 So. 2d 839 (Miss. 1948); Texas Co. v. Wheat,140 Tex. 468, 168 S.W. 2d 632 (1943); Texas Co. v. Mills, 177 Miss. 231, 156 So.866 (1934); Greene v. Spinning, 48 S.W. 2d 51 (Mo. 1931).'For a collection of cases on this general topic, see 116 A.L.R. 449, at 470.' RESTATEmNT, AGENCY sec. 220 (1933), sets out various elements to be con-sidered when determining whether one acting for another is a servant or an inde-pendent contractor.'Joiner v. Sinclair Refining Co., 48 Ga. App. 365, 172 S.E. 754 (1934);Green v. Spinning, supra note 3.' Cities Service Oil Co. v. Kindt, 190 P. 2d 1007 (Okla. 1948); Texas Co. v.Wheat, supra note 8.148 S.W. 2d 51 (Mo. 1931).NoTEs AN CoziNrsOne of the main criterions, if not the chief one, as to whether therelationship of respondeat superior exists, is the right to control, andit is not a question as to whether that control is actually assumed butwhether it exists. 9The court, in concluding their discussion of the contract between theoperator "Spinning" and the Mid-Continent Petroleum Corporation,further stated:In our opinion these writings attempt to obligate Spinning 'in themost binding way possible' in every important respect in relation tothe operation of the filling station. These writings have too manyprovisions, conferring on the.... Company rights that only a principalordinarily enjoys, strongly indicative as to what legal effect thesewritings should have when the rights of third persons are involved;that the relationship of principal and agent is present in this case, wehave no doubt.'0Thus there is imbedded in this problem a theory that the respondeatsuperior relationship exists when the right to control is an element ofthe contract regardless of whether or not it is exercised.The other view is expressed in the case of Texas Co. v. Wheat,"which involved a suit against the Texas Company for damages forpersonal injuries sustained by the plaintiff as a result of a fall in frontof a service station which the defendant had leased to one Gossen.It was found that some oil had been negligently washed across thesidewalk in front of the service station, and the plaintiff, who waswalking by, slipped on the oil and fell. The plaintiff contended thatthe relation of master-servant existed between Gossen and the TexasCompany, thus making the latter liable for the injuries resulting fromthe negligent act. The court discussed at great length the relationthat existed between Gossen and the Texas Company, pointing outvarious extra services, such as training schools on better ways to runthe service station business, which were afforded the filling stationoperator although not appearing in the written contract. However,the court found the Texas Company not liable, stating:Whether or not the relation of master and servant existed betweenthe Texas Company and Gossen so as to make the doctrine ofrespondeat superior applicable, depends on whether the Texas Com-pany had the right to control Cossen in the details of the work to beperformed in the operation of the service station.' 2Thus the Texas court has set up a narrow rule when it says thedoctrine of respondeat superior applies only when the company has9 Supra note 8, at 57. ' oSupra note 8, at 58.1140 Tex. 468, 168 S.W. 2d 632 (1943).Id. 168 S.W. 2d 632, at 635.KENTucKY LAw JouRNAithe right to control "... in the details of the work to be performed inthe operation of the service station." The court further stated withregard to the fact that the injury occurred as a result of cleaning theservice station:We think it clear from the evidence that the company did not havethe right nor did it undertake to exercise the right to control Gossenand his employees in the details to be followed by them in keepingthe service station clean. They were free to perform such work as theysaw fit. They were therefore not acting as the employees of the com-pany in cleaning the service station-the act out of which this injurygrew-and consequently the company is not liable for the negligenceof such employees.' 3This last phase leaves a doubt in one's mind as to whether or notthe Texas Company would have been liable if an injury had occurredbecause of Gossen's failure to keep the rest room within the minimumstandards of cleanliness set up by the company. This thought is raisedbecause Gossen displayed a sign advertising a "Texaco RegisteredRest Room" which the company provided only where the station'srest rooms were kept up to certain standards. The company also hadtheir own personnel check such "Registered Rest Rooms," and ifthey were not maintained in the proper manner the sign was removed.Thus, does the fact that in order to keep this sign the dealer wasrequired to meet certain standards set up by the company constitutethe company's exercising control over the details of a certain phaseof the operation of the station? If it does, then the Texas Companymay have been liable if the injury occurred in the rest room becauseof Gossen's failure to comply with the company standards. Under theview taken in this case it would seem that the Texas court dividedthe operation of a filling station into various segments, and if theaccident had occurred in the rest room because of failure to meetcompany regulations, the company might be held liable. However,as the accident resulted from the cleaning of the station, an operationover which the court said the company had no control, they were notheld liable.Thus it would seem that under the first line of decisions discussed,the courts look at the contractual relationship in its entirety, while inthe second line of decisions they limit themselves to looking at eachclause individually in order to fix liability. There is also a third theorywhich should be mentioned. Mechem, in his Outlines of the Law ofAgency states the theory as follows:13 Ibid.NomEs AND Colvnvmnrs.. . where the injury arises from negligence in the sale of the com-pany's products, it is surprising that the element of estoppel is notmore relied on. One who has the family kerosene can filled from abig truck labeled 'Gulf and receives a receipt bearing the same name,might not unnaturally suppose that she was dealing with the GulfCompany and she could rely on them in case the transaction mis-carried. As pointed out above liability has been imposed on such abasis in the case of an apparent ownership of stores, beauty parlorsand the like. There seems to be no evidence, however, that this theoryof liability has yet been applied to tank or service stations. 14It is rather amazing to learn that in 1952, when the above quotationfirst appeared, there was as yet not a single case adopting the theoryof estoppel with regard to this problem. One would think that, withthe uniform retailing and advertising carried on by national oil com-panies, plus the fact that service stations have lost their individualisticcharacter in the eye of the average motorist, the courts when facedwith this problem would adopt the theory of estoppel rather thanbecome entangled in an interpretation of the various contracts andleases which are involved.Thus it would seem that this phase of the law has been resolvedinto two lines of decisions based on the interpretation of the contractsinvolved. One line holds that in determining if the respondeat superiorrelationship exists the general right of control is the governing prin-ciple and whether or not control is exercised is immaterial, while theother advances the theory that the national oil company is not liablefor the torts of the station operators unless they have the right to con-trol or actually do exercise control over the details of the operationwhich are in issue.GEoRGE D. ScBRDERm,Sec. 442. See also Secs. 440-45 (4th Ed. 1952).

Agency--Liability of National Oil Companies for Torts of Service Station Operators

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Agency--Liability of National Oil Companies for Torts of Service Station Operators

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