Lewis v. Benedict Coal Corporation United Mine Workers of America 28 v. Benedict Coal Corporation, s. 18 and 19

• Decision Date: 23 February 1960
• Docket Number: Nos. 18 and 19,s. 18 and 19
• Citation: 4 L.Ed.2d 442,361 U.S. 459,80 S.Ct. 489
• Parties: John L. LEWIS, Henry G. Schmidt and Josephine Roche, as Trustees of the United Mine Workers of America Welfare and Retirement Fund, Petitioners, v. BENEDICT COAL CORPORATION. UNITED MINE WORKERS OF AMERICA and United Mine Workers of America, District 28, Petitioner, v. BENEDICT COAL CORPORATION
• Court: U.S. Supreme Court

361 U.S. 459

80 S.Ct. 489

4 L.Ed.2d 442

John L. LEWIS, Henry G. Schmidt and Josephine Roche, as Trustees of the United Mine Workers of America Welfare and Retirement Fund, Petitioners,

v BENEDICT COAL CORPORATION.

UNITED MINE WORKERS OF AMERICA and United Mine Workers

of America, District 28, Petitioner,

v. BENEDICT COAL CORPORATION.

Nos. 18 and 19.

Argued Oct. 21, 1959.

Decided Feb. 23, 1960.

Mr. Russell R. Kramer, Knoxville, Tenn., for petitioners Lewis and others.

Mr. M. E. Boiarsky, Charleston, W. Va., for petitioners United Mine Workers.

Mr. Robert T. Winston, Jr., Norton, Va., for respondent.

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 § 302(c)(5) of the Taft-Hartley Act.¹ The fund is the 'United Mine Workers of America Welfare and Retirement Fund of 1950.' Each signatory coal operator agreed to pay into the fund a royalty of 30¢, later increased to 40¢, for each ton of coal produced for use or for sale.

Benedict Coal Corporation, the respondent in both No. 18 and No. 19, is a signatory coal operator. From March 5, 1950, through July 1953, Benedict produced coal upon which the amount of royalty was calculated to be $177,762.92. Benedict paid $101,258.68 of this amount but withheld $76,504.24. The petitioners in No, 18, who are the trustees of the fund, brought this action to recover that balance in the District Court for the eastern District of Tennessee.² Benedict's main defense was that the performance of the duty to pay royalty to the trustees, regarding them as third-party beneficiaries of the collective bargaining agreement, was excused when the promisee contracting party, the union and its District 28—who are the petitioners in No. 19 and who will be referred to as the union violated the agreement by strikes and stoppages of work. Benedict also cross-claimed against the union for damages sustained from the strikes and stoppages. By its answer to the cross-claim, the union denied that its conduct violated the agreement.

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 satisfied only out of the proceeds collected by Benedict on its judgment and paid into the registry of the court.³

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 on its cross-claim, which the court adjudged was excessive. The court held that, under the evidence, Benedict's damages would not equal the amount of the trustees' judgment of $76,504.26. The case was remanded for a redetermination of Benedict's damages, with instructions that '(t)he judgment in favor of the Trustees will then be amended by the district court to allow execution and interest on that part of the said judgment which is in excess of the set-off in favor of Benedict as so redetermined.' 6 Cir., 259 F.2d 346, 355. This left unaffected so much of the District Court's order as predicated the trustees' recovery, to the extent of the amount of Benedict's judgment as finally determined, upon Benedict's recovery of that judgment. The trustees and the union filed separate petitions for certiorari. We granted the trustee's petition, No. 18, and also the union's petition, No. 19, except that we limited the latter grant to the question whether the strikes and stoppages complained of by Benedict violated the collective bargaining agreement. 359 U.S. 905, 79 S.Ct. 580, 581, 3 L.Ed.2d 570.

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 Fund is an irrevocable trust created pursuant to Section 302(c) of the 'Labor-Management Relations Act, 1947." Another provision specifies that the purposes of the fund shall be all purposes 'provided for or permitted in Section 302(c).'⁴ In this way the agreement plainly declares what the statute requires, namely, that the fund shall be used 'for the sole and exclusive benefit' of the employees, their families and dependents. Thus, the fund is in no way an asset or property of the union.

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 hereto, which is several and not joint, to so pay such sums shall be a direct and continuing obligation of said Operator during the life of this Agreement * * *.' (4) 'Title to all the moneys paid into and or due and owing said Fund shall be vested in and remain exclusively in the Trustees of the Fund * * *.'⁵ (Emphasis added.) These provisions, rather than the stipulations of general application, are controlling. Their clear import is that the parties meant that the duty to pay royalty should arise on the production of coal independent of the union's performance. Indeed, Benedict's conduct was not consistent with the interpretation which it is now urging. Benedict continued despite the breaches to perform all of its several promises under the contract, including the promise to pay royalty, paying over $100,000 on coal produced during the period in dispute and withholding only the portion in suit.

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 his duties created by the very same contract on which the beneficiary sues.'⁷ Using terms like 'counterclaim' or 'setoff' in a third-party beneficiary context may be confusing. In a two-party contract situation, when a promisor's duty to perform is absolute, the promisee's breaches will not excuse performance of that duty; the promisor has an independent claim against the promisee in damages. Formerly the promisor was required to bring a separate action to recover his damages. Under modern practice, when the promises are to pay money, or are reducible to a money amount, the promisor, when sued by the promisee, offsets the damages which he has sustained against the amount he owes,...