LEWIS ET AL., TRUSTEES, v. BENEDICT COAL CORP.
No. 18
Supreme Court of the United States
February 23, 1960
361 U.S. 459
*Together with No. 19, United Mine Workers of America et al. v. Benedict Coal Corp., also on certiorari to the same Court.
M. E. Boiarsky argued the cause for petitioners in No. 19. With him on the brief were Welly K. Hopkins, Harrison Combs and Willard P. Owens.
Robert T. Winston, Jr. argued the causes for respondent. With him on the briefs was Fred B. Greear.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The National Bituminous Coal Wage Agreement of 1950, a collective bargaining agreement between coal operators and the United Mine Workers of America, provides for a union welfare fund meeting the requirements of
Benedict Coal Corporation, the respondent in both No. 18 and No. 19, is a signatory coal operator. From
The jury, using a verdict form provided by the trial judge, found that the trustees were entitled to recover the full amount of the unpaid royalty but that Benedict was entitled to a setoff of $81,017.68; the jury also gave a verdict to Benedict for that sum on its cross-claim against the union. In a single entry, two judgments were entered on this verdict. One was a judgment in favor of Benedict on its cross-claim on which immediate execution was ordered, but with direction that the sum collected from the union be paid into the registry of the court. The other was a judgment in favor of the trustees for the unpaid balance of the royalty. However, effect was given to Benedict‘s defense in the trustees’ suit by refusing immediate execution, and interest, on the trustees’ judgment and ordering instead that that judgment be
The union and the trustees prosecuted separate appeals to the Court of Appeals for the Sixth Circuit. The union alleged that the District Court erred in holding that the strikes and stoppages violated the collective bargaining agreement, contending that, properly construed, the agreement did not forbid the strikes and stoppages; in the alternative, the union urged that the damages awarded were excessive. The trustees alleged as error, primarily, the refusal of the trial court to allow them immediate and unconditional execution, and interest, on their judgment against Benedict.
The Court of Appeals affirmed the District Court except as to the amount of damages awarded to Benedict
In No. 19, the Court is equally divided. The judgment of the Court of Appeals, so far as it sustains the holding of the District Court that the union violated the collective bargaining agreement, is therefore affirmed.
We turn to the question presented in No. 18, whether the lower courts were correct in holding in effect that Benedict might assert the union‘s breaches as a defense to the trustees’ suit, for to the extent Benedict (the promisor) does not collect from the union (the promisee) the union‘s liability is set off against Benedict‘s liability to the third-party beneficiary. The answer to that question requires, we think, our consideration of the nature of the interests of the union, the company, and the trustees in the fund under the collective bargaining agreement.
The provisions of the collective bargaining agreement creating the fund include the express provision that “this
Benedict does not, however, base its claim of setoff on any contention that the royalty was owing to the union and might because of this be applied to the payment of its damages. Benedict‘s position is that in an amount equal to the amount of the damages sustained from the union‘s breaches, no fund property came into existence under the terms of the collective bargaining agreement. This depends upon whether the agreement is to be construed as making performance by the union of its promises a condition precedent to Benedict‘s promise to pay royalty to the trustees. Benedict argues that the contracting parties expressed this meaning in an article at the close of the agreement—“This Agreement is an integrated instrument and its respective provisions are interdependent“—and in the provision in another article that the no-strike clauses are “part of the consideration of this contract.” However, the specific provisions of the article creating the fund provide: (1) “During the life of this [collective bargaining] Agreement, there shall be paid into such Fund by each operator signatory . . . [a royalty] on each ton of coal produced for use or for sale.” (2) The operator is required to make payment “on the 10th day of each . . . calendar month covering the production of all coal for use or sale during the preceding month.” (3) “This obligation of each Operator signatory
But our conclusion that the union‘s performance of its promises is not a condition precedent to Benedict‘s duty to pay royalty does not fully answer the question we are to decide. For it may reasonably be argued that the damages sustained by Benedict may nevertheless affect the amount of the trustees’ recovery. Professor Corbin, while acknowledging that “No case of the sort has been discovered,”6 states: “It may perhaps, be regarded as just to make the right of the beneficiary not only subject to the conditions precedent but also subject (as in the case of an assignee) to counter-claims against the promisee—at least if they arise out of a breach by the promisee of
However, a third-party beneficiary has made no promises and therefore has breached no duty to the promisor. Accordingly, to hold, as the lower courts in this case did, that a promisor may “set off” the damages caused by the promisee‘s breach is actually to read the contract, which is the measure of the third party‘s rights, as so providing. In other words, although the promisor‘s duty to perform has become fixed by the occurrence of applicable conditions precedent, the parties may be taken to have agreed that the extent of the promisor‘s duty to the third party will be affected by the promisee‘s breach of contract. When it is said that “it may be just” to make the third party subject to the counterclaim, what must be meant is that a court should infer an intention of the promisor and promisee that the third party‘s rights be so limited.
This may be a desirable rule of construction to apply to a third-party beneficiary contract where the promisor‘s interest in or connection with the third party, in
This collective bargaining agreement, however, is not a typical third-party beneficiary contract. The promisor‘s interest in the third party here goes far beyond the mere performance of its promise to that third party, i. e., beyond the payment of royalty. It is a commonplace of modern industrial relations for employers to provide security for employees and their families to enable them to meet problems arising from unemployment, illness, old age or death. While employers in many other industries assume this burden directly, this welfare fund was jointly created by the coal industry and the union for that purpose. Not only has Benedict entered into a long-term relationship with the union in this regard, but in compliance with
Moreover, unlike the usual third-party beneficiary contract, this is an industry-wide agreement involving many promisors. If Benedict and other coal operators having damage claims against the union for its breaches may curtail royalty payments, the burden will fall in the first instance upon the employees and their families across the country. Ultimately this might result in pressures upon the other coal operators to increase their royalty payments to maintain the planned schedule of benefits. The application of the suggested rule of construction to this contract would require us to assume that the other coal operators who are parties to the agreement were willing to risk the threat of diminution of the fund in order to protect those of their number who might have become involved in local labor difficulties.
Furthermore, Benedict promised in the collective bargaining agreement to pay a specified scale of wages to the employees. It would not be contended that Benedict might recoup its damages by decreasing these wages. This could be rationalized by saying that the covenant to pay wages is included in separate contracts of hire entered into with each employee. The royalty payments are really another form of compensation to the employees,10 and as such the obligation to pay royalty might be thought to be incorporated into the individual employment contracts. This is not to say that the same treatment should necessarily be accorded to royalty payments as is accorded to wages, but the similarity militates against the inference
Finally a consideration which is not present in the case of other third-party beneficiary contracts is the impact of the national labor policy.
It is so ordered.
MR. JUSTICE STEWART took no part in the consideration or decision of this case.
MR. JUSTICE FRANKFURTER, dissenting.
This litigation arose out of an agreement entered into on March 5, 1950, between coal operators, including respondent, and United Mine Workers. It was the outcome of collective bargaining between the parties to fix the terms of industrial relations, wages and other conditions of employment, between the coal operators and their employees as represented by the union. It is an elaborate document of twenty pages, formulating the rights and obligations of the union on the one side and the rights and obligations of the operators on the other. Part of the agreement called for the establishment of a welfare and retirement fund for the benefit of employees and their families. This obligated the respondent, as one
The suit was by the Trustees of the Fund, who claimed the payment in full of the scheduled amounts to be paid into the Fund. This liability is conceded, subject however to deduction for the amount owing from the union to Benedict on the basis of judicially determined liability. The Court of Appeals sustained the right of respondent to set off against its obligation to pay the defined amount into the Fund the amount arising out of liability by the union for breach of the union‘s obligation under the same agreement.
A considered reading of the Court‘s opinion compels the conclusion that if the agreement, which it is the Court‘s duty to construe, were “a typical third-party beneficiary contract” the respondent would not have to pay over the full amount payable to the Fund but could withhold the amount which is owing it for breach of the union‘s undertaking. The Court holds that this is not such a contract, although the agreement was not merely a single document with obviously interrelated sections, but specifically provided, “This agreement is an integrated instrument and its respective provisions are interdependent and shall be effective from and after March 5, 1950.” The Court justifies rejecting what is assumed to be applicable to “a typical third-party beneficiary contract,” partly by devising a policy distilled from two provisions of the Taft-Hartley Act,
I have no doubt that legislation may be a source for reasoning in court-made law. But when legislation is thus drawn upon there should be a close relation between the terms of an enactment and what the courts deduce therefrom as a direction for adjudication. I find none such here. The two provisions drawn upon do not afford the radiations attributed to them. The relevant language of
*The result of this litigation was a judgment for $250,000 against the goods and estate of over 150 named defendants and attachment was issued against them.
“Congress believed that if welfare funds were established which did not define with specificity the benefits payable thereunder, a substantial danger existed that such funds might be employed to perpetuate control of union officers, for political purposes, or even for personal gain. See 92 Cong. Rec. 4892-4894, 4899, 5181, 5345-5346; S. Rep. No. 105, 80th Cong., 1st Sess., at 52; 93 Cong. Rec. 4678, 4746-4747. To remove these dangers, specific standards were established to assure that welfare funds would be established only for purposes which Congress considered proper and expended only for the purposes for which they were established.” Arroyo v. United States, 359 U. S. 419, 426.
Congress was concerned with abuses by union officers, e. g., United States v. Ryan, 350 U. S. 299. It gave not a thought to withdrawing the enforcement of an agreement such as the one before us from rules relevant to the fair administration of justice.
The Court quotes one of the twin leading authorities on the law of contracts: “It may perhaps, be regarded as
Underlying the Court‘s view is the assumption that the law of contracts is a rigorously closed system applicable to a limited class of arrangements between parties acting at arm‘s length, and that collective bargaining agreements are a very special class of voluntary agreements to which the general law pertaining to the construction and enforcement of contracts is not relevant. As a matter of fact, the governing rules pertaining to contracts recognize the diversity of situations in relation to which contracts are made and duly allow for these variant factors in construing and enforcing contracts. And so, of course, in construing agreements for the reciprocal rights and obligations of employers and employees, account must be taken of the many implications relevant to construing a document that governs industrial relations. There is no reason for jettisoning principles of fairness and justice that are as relevant to the law‘s attitude in the enforce-
One of the most experienced students of labor law has warned against the dangers of such an approach:
“The ease with which one can show that collective bargaining agreements have characteristics which preclude the application of some of the familiar principles of contracts and agency creates the danger that those who are knowledgeable about collective bargaining will demand that we discard all the precepts of contract law and create a new law of collective bargaining agreements. I have already expressed the view that the courts would ignore the plea but surely it is unwise even if they would sustain it. Many legal rules have hardened into conceptual doctrines which lawyers invoke with little thought for the underlying reasons, but the doctrines themselves represent an accumulation of tested wisdom, they are bottomed upon notions of fairness and sound public policy, and it would be a foolish waste to climb the ladder all over again just because the suggested principles were developed in other contexts and some of them are demonstrably inapposite. . . .” Cox, The Legal Nature of Collective Bargaining Agreements, in Collective Bargaining and the Law (Univ. of Mich. Law School), pp. 121-122.
Judges will do well to heed this admonition. Their experience makes them much more sure-footed in applying principles pertinent to the enforcement of contracts than they are likely to be in discerning the needs of wise industrial relations.
I would affirm the judgment.