Lewis v. Benedict Coal Corporation/Dissent Frankfurter

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 of the operators bound by the agreement, to pay the Fund a fixed amount per ton of coal that it produced during the period in controversy. The narrow question before the Court is whether the respondent operator may withhold from the amount it is obligated, as a matter of arithmetic, to pay into the Fund, the amount of assessable damage owing it from the union in discharge of the union's liability for violation of its obligation under the agreement.

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, §§ 301(b) and 302(c)(5), and partly by its assumptions about the community of interest between the employer and the trust fund in the assertedly special context of labor relations.

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 § 301(b) of the Taft-Hartly Act provides that 'Any money judgment against a labor organization * *  * shall be enforceable only against the organization as an entity and against its assets, and shall not be enforceable against any individual member or his assets.' The text deals expressly only with the enforcement of a money judgment rendered against a labor organization. No such judgment is involved in this case. The undoubted concern of Congress behind this provision was to avoid the liability of union members solely by virtue of their union membership, a liability notoriously imposed by the laws of several of the States in 1947 and vividly remembered by labor unions by reason of the Danbury Hatters' case in federal courts. See Loewe v. Lawlor, 1908, 208 U.S. 274, 28 S.Ct. 301, 52 L.Ed. 488; Lawlor v. Loewe, 1915, 235 U.S. 522, 35 S.Ct. 170, 59 L.Ed. 341; Loewe v. Savings Bank of Danbury, 2 Cir., 1916, 236 F. 444, L.R.A. 1917B, 938. The intent and scope of § 301(b) were accurately described in the Senate Report on what became the Taft-Hartley Act as affording members of a union 'all the advantages of limited liability without incorporation of the union.' S.Rep.No.105, 80th Cong., 1st Sess., at 16.

Nor does any emanation from § 302(c)(5) of the Taft-Hartley Act negate what would otherwise dictate the right of setoff setoff, be it remembered, not a condition on Benedict's duty to pay into the Fund-of what is owing to Benedict for breach of the contract by the union under the same contract by which Benedict promised the union to pay into the Fund for its mined coal. The function of § 302(c)(5) is to define the conditions set by Congress for permitted industrial welfare funds. It was not an implied qualification of just principles relevant to the enforcement of contracts generally. Only the other day the Court stated the purpose of the Congress in enacting § 302(c)(5):

'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, 79 S.Ct. 864, 868, 3     L.Ed.2d 915.

Congress was concerned with abuses by union officers, e.g., United States v. Ryan, 350 U.S. 299, 76 S.Ct. 400, 100 L.Ed. 335. 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 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 his duties created by the very same contract on which the beneficiary sues.' 4 Corbin, Contracts, § 819. As I understand it, apart from the effects attributed to §§ 301(b) and 302(c)(5), the Court rejects this 'just' view as simply not applicable to this kind of a collective bargaining agreement. But the rule stated by Professor Corbin is not a technical rule narrowly limited to particular kinds of contracts. It reflects the broader generalization that under a civilized system of law all just presuppositions of an agreement are to be deemed part of it, and that courts, whose duty it is to determine the legal consequences of agreements, should attribute to an agreement such just presuppositions.

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 enforcement of collective bargaining agreements as they are to contracts dealing with other affairs, even giving due regard to the circumstances of industrial life and to the libretto that this furnishes in construing collective bargaining agreements.

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.