Associated Hat Manufacturers v. Baird-Unteidt Co.

91 A. 373, 88 Conn. 332, 1914 Conn. LEXIS 51

• Court: Supreme Court of Connecticut
• Decided: July 13, 1914
• Status: Published

Opinion

Wheeler, J.

The defendant claims this action must fail, since the plaintiff association is, because of its organization and its by-laws, illegal, and therefore its resolution, whose violation is the basis of the action, was invalid. The foundation of this claim is threefold, because (1) the real purpose and object of the Association was to permit it to order a suspension of work by its members; (2) to make agreements relative to the use of the union label; and (3), because the members of the plaintiff were engaged in inter-state commerce, the Association was a violation of the Sherman Act, as its purposes were in restraint of trade.

Employers as well as employees may form associations for mutual protection and benefit. Each member of such an association submits his freedom to contract, to a greater or less extent, to the will of the association. The consideration of submission is the benefit presumed to flow from the action of members bound together for common ends. Unity of action of the members gives strength to the association, without which it cannot serve its purposes or accomplish its ends. By-laws and regulations are a part of the machinery by which the association operates. Members must therefore submit, while membership continues, to all lawful by-laws and regulations enacted by the association for its government.

The objects of the plaintiff association, as stated in its articles of association and by-laws, are most worthy. Neither they nor the finding show that the purpose of the Association was to permit it to order a suspension of work, and to agree in reference to the use of the union label. It is too late to question the right of a labor union to make by-laws providing for strikes, and to issue its order for a strike in an effort to secure lawful objects by lawful means. Reynolds v. Davis, 198 Mass. 294, 84 N. E. 457. And it may prosecute the strike by any means neither illegal nor in violation of the equal or superior rights of others. So, too, the association of employers may enact a by-law giving it the right to order a shut-down of the factories of its members, provided the objects sought be within its lawful purposes and the means used be lawful. And the employer has the right freely to hire his labor in the market without denial or unfair restriction of this right. The order of the association to stop work may curtail this right, but it is not, for this reason, illegal.

A by-law providing for a fine upon the members of either an employers’ or a laborers’ association, for disobedience of its lawful orders, is not unlawful. Each may involve coercion of its members: it may temporarily take away the livelihood of the employee; and it may injure, and if continued ruin, the business of the employer. Each member has agreed to this species of coercion in the belief that the common interest of all will best be served by the united action of many. Obedience to the lawful orders of the association is the condition of membership voluntarily encountered by previous assent to the by-laws. If the defendant intended to claim that this part of the by-laws was illegal, we have already answered that a by-law of this character was not illegal.

The argument of the defendant rests upon the premise that this resolution, “that each member offer situations to operatives as individuals,” amounted to an order for a cessation of work. If the employees accepted employment as individuals, it is said they would forfeit their membership in the union; if they maintained their membership, the employers could not run their factories. As the Hatters’ union dominated this industry in the Danbury district, enforcement of the vote would mean, it is said, a lockout and suspension of work. Therefore, it is argued, the vote was equivalent, to a lockout.

The argument assumes these consequences. The facts of record show that consequences of this character were not intended. The vote is not to be read in the light of possible consequences. Its meaning is undoubted. A vote that each member offer situations to operatives as individuals is a declaration for the open shop. Its purpose was to preserve to employers the right to contract for their labor regardless of its membership in the union. The right to so contract is one of the inalienable rights of every employer of labor. Every employer and employee has under the law such freedom of contract. The law will not take it from him, much less declare illegal his effort to establish his right to it.

We see nothing in the record upon which to found the argument that the use of the union label was the object of the plaintiff. j3o far as appears the label had nothing whatever to do with the resolution in question.

We do not think it necessary to discuss the proposition that a vote by employers to conduct their factories as open shops, and to exercise their right to hire then-labor as individuals and not as members of a labor union, is a restraint of trade within the Sherman Act.

Nor do we think the proposition tenable, that the object of the Association was the making of the arbitra tion agreement which the plaintiff had with the United Hatters, and that it was void because it involved the exclusive employment by the members of the plaintiff of union labor. The arbitration agreement does not bear this construction, and its making was a mere incident of the business of the plaintiff. Moreover, it did not relate to or enter into the vote for the open shop.

The recovery is sought for the violation of a resolution of the plaintiff, under § 2 of Article VIII of the bylaws, that “all members agree to pay to the Association the sum of Five Thousand Dollars ($5,000), as liquidated damages, for the violation of or failure to comply with any of the decisions, orders, prohibitions and regulations passed or made by the Association, in accordance with these by-laws.”

The defendant urges that the action is instituted for the enforcement of a penalty.

The Association intended—if the language used means what it says—this sum to be regarded as liquidated damages upon a breach. Its intention, so definitely expressed, should be given due weight, but it is not controlling, for the law regards the substance of things rather than their form. It will ‘ ‘ look at the entire agreement, its scope, purpose, and subject-matter, and may consider the result of a breach thereof, and the reasonableness of the sum agreed to be paid therefor, under all the circumstances of the case.” New Britain v. New Britain Tel. Co., 74 Conn. 326, 332, 50 Atl. 881, 1015. So viewing this by-law in its proper setting,—of the facts surrounding its making and its breach,—we see that there is no standard furnished for ascertaining the damages for the breach of a resolution of the plaintiff. We see, too, that the damages from a breach must be uncertain and incapable of exact estimate in advance of breach, and, after breach, are neither readily susceptible of proof nor of precise appraisal. It is obvious the breach of the resolution might result in the breaking up of the Association, or in projecting it in a long and expensive fight with the United Hatters, a most powerful organization of union labor. The strength of the Association lay in the maintenance of a united membership; weakness, perhaps disintegration, might follow the secession of the members in the Danbury district. We cannot say, and we know of no one who could have said, exactly what loss the defendant’s breach might or will entail. The record does not show that the amount specified as liquidated damages is greatly disproportionate to the presumable loss. The members of this Association knew their own situation and objects, and were in a far better position to appreciate and make provision for the breach of their own resolution under this by-law than a court can possibly be. Under these circumstances, the rule of law is that the expressed intention of the parties will be carried out and the damages regarded as the parties regarded them, as liquidated. New Britain v. New Britain Tel. Co., 74 Conn. 326, 333, 50 Atl. 881, 1015; Chase v. Allen, 79 Mass. (13 Gray) 42; Bilz v. Powell, 50 Colo. 482, 117 Pac. 344; note to 38 L. R. A. (N. S.) 847.

The by-laws of the plaintiff required each member to comply in good faith with its decisions. Unless the defendant, while a member, failed to observe one or more of its decisions, it is not liable in this action. The defendant, on and after September 20th, ran its factory as a union shop, contrary to the terms of the resolution of January 28th, that the factories of the members should be run as open shops, and if at this time it was a member of plaintiff, all agree it thereby, violated this resolution. The defendant claims it had resigned its membership on September 8th; the plaintiff claims the attempt to resign was nugatory. The defendant' had at this time complied with ¿11 by-laws and regulations, unless it had before this time violated the January 28th resolution. Acceptance of the resignation was not had nor was it necessary. A member of a non-stock corporation is in the same position as the member of an association, whose resignation becomes effective upon presentation and compliance with the rules of the association, unless acceptance is made a prerequisite to resignation by the rules or laws of the association, or the law of the land. A similar rule obtains in the case of the resignation of an officer of a corporation. 1 Bacon on Benefit Societies (3d Ed.) § 111; 4 Cyc. 302; 7 Thompson, Commentaries on Corporations, § 8729; Will of McNaughton, 138 Wis. 179, 208, 118 N. W. 997, 120 id. 288; 1 Morawetz on Private Corporations (2d Ed.) § 563. The by-laws (Article VII, § 1) provide that a resignation shall not be accepted during a suspension of work ordered by the Association. These resolutions mean that the members of the plaintiff should thereafter hire their employees as individuals in an open shop. They did not mean that the plaintiff had ordered a general shut down of the factories of its members. The finding shows this. All of its members outside the Danbury district were successful in operating their factories as open shops. The resolution of January 28th became effective on February 9th, in order to give the members time to prepare for a change and their former employees the opportunity to consider the advisability of returning to work as individuals. The defendant, with other Danbury members, advertised for employees as individuals, and on February 9th opened their factories for the purpose of receiving applications for employment as individuals. All this indicates that they were hopeful of resuming, not intent upon discontinuing, work. The resolutions as phrased do not mean a compulsory lockout; as read in the light of what preceded and followed their making, it is clear that the members did not understand that their action would bring about a lockout, even in the Danbury district. The resignation of the defendant became effective upon its receipt by the plaintiff on September 9th.

The only other violation of which the plaintiff complains is the entering into the so-called Father Kennedy agreement, and the opening of the defendant’s factory in pursuance thereof.

The open shop resolution of January 28th, if enforced, would deprive the United Hatters of the jurisdiction and control of all employees of the members, and would prohibit the employment of exclusively union labor. That it would precipitate a contest with a powerful labor organization was self-evident. United co-operation by each member in carrying out their attempt to secure to all the freedom to make their own contracts of hiring was an indispensable condition of success. The defection or disloyalty of the few would bring complete or partial disaster to the plan of the many. The utmost good faith in carrying out the plan was the duty of each member. The first resolution, that of January 14th, voting to discontinue the use of the union label, was voted for by the defendant. The finding does not show whether the resolution of January 28th was in fact voted for by the defendant or not. It matters not; it was duly adopted, and bound all members, the non-acquiescent as well as the acquiescent.

All of the factories of the Danbury district, except the two open shop factories, remained closed after the United Hatters withdrew their men on the day following the January 28th resolution. Many efforts were made to settle the strike. Finally two of the clergy, acting as self-appointed mediators, brought about an agreement, signed by all the members of the plaintiff in the Danbury district and by the officers of the United Hatters. This was an agreement in which each of the contracting parties agreed, in consideration of the promises of the other, to do certain things. It was an evident attempt to devise a plan under which work could be resumed pending the ninety days’ notice of intent to resign of the members of the plaintiff, and, upon the resignations becoming effective, securing the return of these members to the closed shop, and to the complete resumption of the jurisdiction of the United Hatters over the employees of each member.

The plan was designed to avoid the liability which this action seeks to enforce. The very fact that these members entered into an agreement with the United Hatters concerning the opening of their shops and the conditions under which the members of the Hatters’ association should resume work, was a breach by these members of the open shop resolution.

An analysis of the agreement deepens our conviction. The defendant and other members of the plaintiff, in consideration of the agreements of the United Hatters, and with the understanding that the agreement included a settlement of all present difficulties with the United Hatters and that future controversies should be settled by arbitration, the method of which should be determined as soon as they should sever the relations with the plaintiff, agreed to file the ninety days’ notice of their intention to resign from the plaintiff, as required by the by-laws of the plaintiff, and to file with one of the mediators their resignations, to be delivered to plaintiff upon the expiration of the ninety-day period. And in consideration of these promises and of the agreement, the United Hatters agreed to declare the strike off as to these members of plaintiff and to permit their own members to return to work as individuals until these members of the plaintiff were relieved, by resignation or release, of their obligation to the plaintiff. .The parties mutually agreed that the prices for labor should remain as they had been until after the resignation and a new agreement had been made through arbitration; that new machines should have a fair trial at a named price to operators thereof, and that the union label should not be the subject of the future arbitration. Upon execution of the agreement the strike was declared off; the members of the union returned to work as individuals, but retained their membership in the union and paid to it the regular union dues, based upon the wages earned; and the union disciplined some of its members for the nonpayment of these dues.

Upon its face the agreement was an attempt to evade the liability which all the parties to it believed might arise in case these members violated the resolution of January 28th. The agreement was a cover, so manifest that it needs no argument to demonstrate it, for the purpose of having the factories of the members ostensibly run as open shops, but in reality run as closed shops under the jurisdiction of the United Hatters. When these members opened their factories to union labor exclusively, they were not complying in good faith with their obligation to open their shops to employees, nonunion as well as union employees. By this agreement the United Hatters dictated the scale of prices to be paid its members, who were outwardly hired as individuals by these employers. They limited the period when they were to work as individuals; they assumed control over their members who returned to work, by providing for an arbitration of all differences between the employers and their employees; they provided for an arbitration to determine the conditions of employment subsequent to the resignations and they expressly prohibited from such arbitration the subject of the union label. Had the intent been that their members should return to work as individuals, holding the same relation to their employers as ordinarily exists between employer and employee, these conditions would not have been a part of the agreement. The purpose of the agreement was to make the shops as effectively union shops as they became after the resignations. The membership cards were taken up, and, after the resignations, returned, although at no time had these employees ceased to be members of the United Hatters.

The open shop resolution meant that the employers should be free to hire where they pleased and at such wage as the market for labor fixed, and that the employee should be free to choose his employer and to make his own conditions of employment. The agreement took from each the right to freedom of contract. These employers knew what they were engaged upon, for, simultaneously with this agreement, they agreed with each other to indemnify against any liability which might arise to the plaintiff. Had they, in good faith, intended to run an open shop, would they have felt it essential to make provision for the contingency of their agreement being held to be a violation of their obligation to the plaintiff? In fact, the agreement was to hire exclusively union labor. The contracting employers included all the manufacturers, with two exceptions, in the chief industry of the Danbury district. Wo held, in Connors v. Connolly, 86 Conn. 641, 86 Atl. 600, such an agreement against public policy and void.

Meritorious as the effort of these mediators to settle a strike of fatal consequence to large communities was, we cannot let our sympathy for the peacemakers cause us to forget that the security of society depends in great measure upon the preservation, inviolable, of the obligations of men. We think this agreement a plain violation of the resolution of January 28th.

Finally, the defendant claims the plaintiff had no authority to institute this action, since it was not authorized by a three-fourths vote of all the members of the plaintiff, as is required by Article IX, § 1, of the by-laws, in proceedings relative to any fine or assessment.

We have expressed the opinion that the recovery of the $5,000 under § 2 of Article VIII, is not an action brought to recover a fine or assessment but a sum determined as liquidated damages for a breach of any of the lawful decisions, orders, prohibitions and regulations of the plaintiff, and hence § 1 of Article IX has no relation to an action to prosecute the collection of this sum. Such an action is an incident of the business of the plaintiff, and committed, as are the ordinary business affairs of every corporation, to its directors, whose authority is complete except as curtailed by charter, by-laws, or the law. In this case, there was no such curtailment. The plaintiff ratified the action of the directors, but we think this did not add to the powers already vested in them by virtue of their office.

The Superior Court is advised to render its judgment in favor of the plaintiff for $5,000, with interest from June 14th, 1909.

Costs in this court will be taxed in favor of the plaintiff.

In this opinion the other judges concurred.