Company X is a corporation which provides trucking, cargo, freight and logistic services for the delivery of dry goods to and from any point of Massachusetts. It specializes in contract carrier services and storage of food products. It is incorporated under Massachusetts’s laws and its principal office is located in Springfield, Ma. It has 30 branches around the state.
The family owned business started in since 1971with only 6 trucks and expanded after ten (10) years as X. Inc. as it reinvested its resources and upgraded its equipment. Now, the company holds 80 trucks most of it owned and some units through independent contractors in order to provide the leading trucking services in the state. Its numerous branches are equipped with functional warehouses that can accommodate numerous freights and a cold storage for perishable goods.
Facts of the Case:
Company X entered into a contract with a certain Mr. Y for the delivery of 20 tons of cranberry juice from Plymouth, MA to its destination in Lawrence, MA. Mr. A, the manager of X inc. branch in Plymouth is a close friend and old college buddy of Mr. Y. Because Mr. A needed to deliver the said product within 24 hours to Lawrence, he asked Mr. Y to entertain his request and promised to give him part of the profit that he will get if it can be delivered on the agreed time.
Mr. Y agreed to help Mr. A and find a truck that can accommodate his request since it is not within their business practice to accept deliveries in such short notice. He contacted Mr. B a local driver who owns his own truck and does business with Company X. Mr. B accepted a job not knowing that the same was a personal agreement between Mr. Y and A. He undertook the obligation of delivering the said goods, he picked up the goods at Mr. A’s warehouse located in Plymouth and begun to travel at 8:00 pm, Tuesday. On his way in the interstate highway at about 3:30 a.m. one of his tires suddenly burst, losing his control on the wheel. The truck went out of control and hit a little barn in where a man Mr. C was sleeping. Mr. C immediately died because of the crash and the said goods where damaged as it was thrown of the truck.
Mr. C’s heirs is now suing Company X as employer of Mr. B for the death of Mr. C. Mr. Y on the other hand filed a complaint against Company X for the loss of the goods. Mr. B the truck driver was prosecuted for manslaughter for the negligent operation of his vehicle.
Company X denies the claim stating that Mr. A, its manager acted without authority and the said contract in not properly recorded in their business dealings as systematically required in every contract in order to provide proper insurance to the transportation of goods, in addition to that they claim that Mr. B is an independent contractor.
Mr. A on the other hand denies liability and blames Mr. Y for the untimely delivery requested from him. He also refuses that the book of accounts of the Plymouth branch be inspected and enforcing his right against self-incrimination.
Mr. B on the other hand files a claim against Company X through its manager Mr. A, denying that he is an independent contractor since he has been dealing with the said company for continuous deliveries since 2005. He claims that regardless being the owner of his own truck, the company requires his services most of his career and even receives certain benefits from the said company. He also claims that his deliveries are limited by the instructions given by his immediate supervisor who is the company’s employee and reports from time to time to him.
Main Issue: Who is liable for the death of Mr. C and the loss of goods of Mr. Y?
As for the torts and criminal liability, the driver Mr. B is liable and Company X as employer also has vicarious liability. As for the goods the company is not liable and Mr. y entered the contract at his own risk.
Sub-issues:
1. Is the corporation properly formed in order to give it juridical capacity or personality to sue and be sued?
Yes. The corporation can sue and defend themselves in transactions entered upon by their officers and is entitled to due process in the protection of their property.
2. What is the capacity of an officer in entering into a contract for the corporation?
An officer may act as an agent of the company and enter into contracts with third persons provided that they act within their given authority.
3. Is there an employer- employee relationship between Mr. B and Company X?
Yes. The description of Mr. B as an independent contractor is misplaced and is not just limited just because he owns his own truck. Other factors must first be considered in order to determine if he is either an independent contractor or a regular employee.
4. What is the liability of the corporation as to:
the damage of goods?
The corporation is not liable for the damage of goods as Mr. Y entered the contract in bad faith with knowledge that the same was not a valid contract of the company.
Torts and criminal negligence of its agent?
The corporation is liable as the employees principal for having vicarious liability for the acts of its employees within the course of their employment.
IV. Ruling/Discussion
1. A corporation although a mere creature of the law has some rights and privileges as enjoyed by natural persons as provided by law (Miller and Jentz 553). A corporation is considered as a juridical entity, possessing certain rights and privileges as provided in the Bill of Rights. Some of these include the right to sue and be sued and to have access in courts in order to enforce these rights. This includes the right to defend themselves to unscrupulous claims made by third parties against their company in order to protect their interest. In this case Company X has the right to deny liability and to claim its defense of the ultra vires act of its officer or employees. Mr. Y acted outside the scope of his authority when he entered into a contract for secret profit. He is liable in violation of his duty as an officer and will be held accountable for the profits which would have been for the corporation. In this case the money that he received from Mr. A should have been the profit of the company. And the fact that this profit came from acts not within his authority does not change his liability against the corporation and the persons asking for claims (19 Am. Jur. 2d 688-689).
Corporations are also entitled to due process in protection of their right to life, liberty and property as provided in the Constitution. Therefore, this includes their right to unreasonable searches and seizures, though corporations are mere creature of the state they are still entitled to due process and the taking of any of their properties with compensation is protected by the 14th Amendment (Hade vs. Henkel 1906). However although Company X is entitled to due process, it posses a separate personality from its agents especially for ultra vires acts and its agents are not protected against self-incrimination as provided in the case of Braswell vs. U.S. (1988) in connection to business records which may incriminate them. The business records of the Plymouth branch may be inspected in order to provide a better detail of the transaction made by Mr. A. As found in the records there was no undertaking entered by company X and the said contract was entered by Mr. A himself. There is neither negligence on the part of the company for not discovering the “secret contract”, and it must be added that Mr. Y was also aware of the business dealing and even offered to Mr. A a secret profit.
2. Agency relationship is either expressed or implied (Miller and Jentz 453). It is expressed when the relationship of principal and agent is placed upon a written agreement and implied if its done for “what is reasonably necessary to carry out express authority and accomplish the objective of the agency”(454). See, in business it is normal that a corporation acts with numerous agents to keep its business. Its directors, officers and employees are considered its agents provided that they act within the scope of their authority.
In this case Mr. B entered into an oral contract with Mr. A. Mr. A is a manager of one of the branches of Corporation X. He is considered to act with apparent authority in his business dealings. Included in his job is the checking of the inventories in their warehouse and supervising the deliveries made by each truck. He also has the duty to hire truck drivers and make sure that they are fit for their jobs. Though it is of normal business practice that Mr. A asks for a signing of a contract of agreement between the company and the clients in order to put the agreement in record and have the necessary insurance included in assuming the risk in case of loss, he failed to do the same in order to have his own business dealing. Mr. Y on the other hand cannot also claim that Mr. A is acting within his apparent authority and have the company liable. As provided in the facts, it was him who came to Mr. Y and requested for the delivery of his goods in a very short notice. He should be aware that in normal business practice having the goods delivered within 24 hours and without proper scheduling is unaccepted in his line of industry. He therefore cannot ask for claims of damages against the company because it is an assumption of risk in his part therefore he is in bad faith to enter in such scrupulous agreement and even bribing Mr. A with a secret profit.
3. Mr. B is said to be an independent contractor of Company X, as provided in their business profile, they engage the services of independent contractors in order to serve the volume of their clients better. But the question lies whether or not even if considered by the company as an independent contactor technically, is Mr. B indeed an independent contractor or considered an employee?
The relationship between employer and employee is that of agency. Miller and Jentz defines agency as provided in the Restatement (Second) of Agency as the “fiduciary relations which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to control and consent by the other so to act” (474). We can see in this definition that in order to have a proper agency relationship, what is important is the “fiduciary relationship” or what is defined to be the trust and confidence that a principal gives to its agent (474). Another element is the acting within the authority given by the principal as manifested by his consent.
Another theory provided in Section 2 of Restatement (Second) of Agency is an independent contractor which is defined as “a person who contracts with another to do something for him but who is not controlled by the other”. The distinction is very important, as certain rules on liability do not apply when the person hired is an independent contractor. There are numerous tests in order to determine employee-employer relationship but the same revolves around control. For example one of the tests includes the independence of the employee in doing his duties, 1.) if he works with continuous guidance or supervision then he will be considered as an employee 2) is the tools of trade used by the worker provided by the company or not?; 3.) the length of time and continuity of the job; 4.) the “method of payment” either by time period or by completion of the job, and lastly 5.)the degree of skill required, the less the skill required the more he would be considered as an employee (Miller and Gentz 447). If proven that there is no employee-employer relationship, the acts of the worker as an independent contractor and his negligent acts are within the liability of the independent contractor rather than employer corporation.
In this case Mr. B has been working for Company X since 2005. He owns his own truck but receives certain benefits from the company such as meal allowance, bonuses and reimbursements for expenses made in his deliveries. The gasoline expenses and continuous tire supply is also given to him as part of employment package. Though Mr. B owns his own truck and personally maintains his vehicle, he does this inside Company X’s compound and warehouse located in Plymouth, MA. He receives his salary every two weeks for the completed rounds he undertakes for such period and the company even provide liability insurance for the delivery of goods contracted by him. It is known that certain businesses improperly classify their employees in order to avoid payment of certain taxes and benefits provided by Labor laws. It is very clear that though Mr. B is considered by the company as an independent contractor, he is of all its essence an employee of the company. He operates his own truck but performs his duties under the control of the company, he reports to his immediate supervisor from time to time for the status of the goods to be delivered. Though he may not take the company’s business 100% of the time, it is provided in the business records that he has sufficiently served the company for at least 250 days a year. He is considered as an employee.
4 a. A corporation is liable for torts committed by its agents Miller and Gentz 553). The employer-employee or principal-agent relationship should be first determined before the corporation can be liable. As previously discussed, the officer must be a proper agent acting within the authority given to him by the corporation. In this case the question lies on whether or not Mr. A is considered an agent, though generally he is considered as one, when he entered into a secret contract he entered into it with his own risk. Therefore the liability of corporation X is limited only to acts made by its agents within its authority. The loss of goods of Mr. Y is not their liability, he himself was the one who offered the secret profit and is in bad faith himself. He cannot therefore claim damages for the loss and must assume the risk. He had knowledge that said agreement was only made between him and Mr. A, he is estopped in claiming damages against the company
4 b. On the other hand as for the liability of the corporation against the heirs of Mr. C the case is different.
A corporation is liable for the torts committed by its agents within the course and scope of their employment (Miller and Jentz 553). It is based on the doctrine of respondeat superior, in which the corporation as principal are liable for the negligent acts of its agent while in the performance of their course of employment. Therefore all acts made within the authority given by the corporation is under the corporations liability (454).
When Mr. B undertook the obligation to deliver the goods as requested by Mr. A, he acted with the belief that Mr. A was acting with apparent authority. Miller and Gentz defines apparent authority as when the principal makes a third party believe either through words or act that the agents has authority (454). In this case through out the years of Mr. B’s business dealings with Company X, Mr. A has always been the person to whom he reports to for any pending deliveries. It is also through Mr. A that he gets his salaries and all the necessary dealings required for his job. It is this reliance and belief of Mr. B that the job that was given to him was a proper contract within the metes and bounds of Mr. A as manager. In this case Company X is estopped in denying that its agent Mr. A acted outside of his authority, though reality is that he did act beyond his scope of powers as he entered into a secret dealing, such act was not known by Mr. B and therefore Company X is still liable for acts done within the required duties of Mr. B. As discussed in the case of Commonwealth v. Angelo Todesca Corp (2006), the Supreme Court “rejected the argument that corporations can be liable criminally for conduct of employees only if such conduct ‘was performed, authorized, ratified, adopted or tolerated by’ corporate officials or managers.” As also previously discussed the vicarious liability of the company for torts and crimes committed by its agents in the course of their employment is a product of the doctrine of respondeat superior which is found in Agency law (Lister v Romford Ice & Cold Storage Co. Ltd. (1957)).
In this case both Mr. B and Company X can be held criminally liable for vehicular homicide. Mr. B is liable because the proximate cause of the death of Mr. C is due to his driving and the defective tires. On the other hand Company X is also liable for providing the said tires. As discussed by Miller and Gentz on the summary case of Commonwealth v. Angelo Todesca Corp. (2006), there are three elements that are required to prove a corporation guilty of a criminal offense: “1. An individual commits a criminal offense; 2. At the time of commission, the individual is engaged in corporate business; and 3. The corporation vested the individual with the authority to engage in corporate business” (524). What Company X argues is that “a corporation could not be guilty of vehicular homicide because it cannot operate a vehicle (524). But as discussed in the case of Commonwealth the Legislative intent in including corporations within the definition of “person” regarding criminal liability proves that they are not excepted.
In this case Company X is criminally liable for vehicular homicide and is fined while Mr. B is convicted for the same.
Anlysis
In vehicular homicide cases although the person behind the wheel can be considered criminally liable for his negligent acts, the corporation is also known to have vicarious liability in the same for having his employee commit such negligent acts and for not acting with due diligence as required by law for supervising its employee. The tires were provided by the company itself, though it is up to its employees to keep the sufficient standard required in its trade, the same is also required that the company make sure that their employees has exercised proper diligence in the performance of their required duties. The company is reliable both for torts and is criminally liable for the negligent acts of its employees based on the doctrine of respondeat superior. But it must also be remembered in the case that the manager Mr. A entered into a contract with apparent authority from the company. In this case the company did not have any knowledge of the secret business dealing, but the heirs of Mr. C could only sue Mr. B the driver and company X. In this case a third party complaint may be filed against Mr. A as manager who entered in such unauthorized dealing. But this does not remove the corporations liability for having ostensible authority to third persons who were in good faith and did not have knowledge of the same. In such a case some jurisdictions tend to either limit their decision by having the company’s vicarious liability against the defendant and settle for reimbursement from its officer Mr. A or hold both Mr. A and Company X liable as joint tortfeasors.
