L. HAND, Circuit Judge.
The defendant appeals from a judgment awarding damages to the plaintiff — a waiter upon one of its dining cars — for injuries suffered while in its service on February 16, 1943. The action was brought under the Federal Employers' Liability Act, §§ 51-60, Title 45 U.S.C.A.; but the only question raised upon this appeal concerns the validity of two releases, dated August 23, 1943, by which the plaintiff released all claims against the defendant upon the payment of $600. The plaintiff had already executed a release for $150 in the same words on March 19, 1943, and one of the two releases of August 23, recited a payment of $750, the sum of the two payments; but, as that release plays no part in the result we shall ignore it and speak as though only the second release had been given in August. The plaintiff testified that he executed the first release after a talk with one, Brown, the defendant's claim agent, who told him that the payment of $150 was only for the tips and wages which he had lost; and that, relying upon this representation, he did not read the release, but signed it as Brown told him to do. Between that time and July he made some efforts to work but still felt incapacitated; and towards the end of that month, or early in August, he went again to Brown asking for more money. They could not agree, and he left, saying to Brown: "Well, I will have to get somebody to get all my tips and everything, my salary, because that is what I am getting." He then went to an attorney named Reich, who, after talking to Brown on the telephone, later brought to the plaintiff the release drawn on the defendant's form and told him: "I was just to sign a receipt for the amount of money that I got for the time I was off, my tips also included, to go back to work and they won't have anything against you * * * he had the word from the Pennsylvania that I will be taken care of." On his redirect he somewhat amplified this. Reich had told him: "the $600 is just for my earnings and my tips, because that would be better such and such. He
This version of the transaction the defendant denied. It called Reich, who said that Brown, when Reich consulted him, agreed to pay $600 for a complete release; and that all this Reich explained to the plaintiff when the release was executed. The judge charged the jury that, if the plaintiff executed the release "without fraud or misrepresentation, and understanding what he was doing," it bound him, but that if he "signed these papers as receipts for wages, if it was as his understanding that that was all he was signing, that he did not sign any general release, then, of course you take up the question of damages." Again: "Was it represented to the plaintiff by his lawyer that the papers he signed on August 23, 1943, were releases of all claims or only for lost wages?" The defendant made several requests to charge, but in none of them did it suggest that the jury should find whether the plaintiff retained Reich to settle all claims he had against the railroad, or whether — as the plaintiff testified — Reich's retainer was limited to collecting wages and tips.
The right of action here in suit was created by act of Congress, and it is abundantly settled that its interpretation is a matter of federal law and not governed by state decisions, even when it speaks in the words of the common-law. Chesapeake & Ohio R. Co. v. Kuhn, 284 U.S. 44, 52 S.Ct. 45, 76 L.Ed. 157. It would not inevitably follow that, after such a right had come into existence, the legal effect upon it of a transaction within a state — as here, of a release — was also to be treated as matter of federal law; conceivably, its fate might be left to the law of the state. However, as we read Garrett v. Moore-McCormack Co., 317 U.S. 239, 63 S.Ct. 246, 87 L.Ed. 239, this is not so. The right of action was there under the Jones Act, but the action had been brought in a state court, which had held that the burden of proof of establishing a release was governed by the law of Pennsylvania. This the Supreme Court denied, holding that the admiralty rule controlled; and it would seem to follow that the validity of the release at bar is to be decided by the common-law, to be gathered from the same sources which, before Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, we used to employ in cases depending on diversity of citizenship.
Although the law was at one time otherwise, at least in this country (Friedlander v. Texas & Pacific R. Co., 130 U.S. 416, 9 S.Ct. 570, 32 L.Ed. 991), it is now settled both in the federal system (Gleason v. Seaboard Airline R. Co., 278 U.S. 349, 49 S.Ct. 161, 73 L.Ed. 415), and in England (Lloyd v. Grace, Smith & Co.,  A.C. 716), that an agent does not cease to be acting within the scope of his authority when he is engaged in a fraud upon a third person. That has probably always been the more generally accepted doctrine. Fifth Avenue Bank v. Forty-Second Street & G. St. Ferry R. Co., 137 N.Y. 231, 33 N. E. 378, 19 L.R.A. 331, 33 Am.St.Rep. 712; Ripon Knitting Works v. Railway Express Agency, 207 Wis. 452, 240 N.W. 840; Tollett v. Montgomery Real Estate & Insurance Co., 238 Ala. 617, 622, 193 So. 127; Restatement of Agency, § 262. We can see no distinction in principle between that situation and one in which the agent deceives, not the third person, but his principal. The reason in each case for holding the principal is that the third person has no means of knowing that the agent is acting beyond his authority, and it is a matter of entire indifference whether the agent adds deception of his principal to deception of the third person; for it is obviously true that for the agent consciously to exceed his powers is to deceive the third person. Hence we may assume in the case at bar that, if the plaintiff had retained Reich to settle any claim he might have against the defendant, the plaintiff would have been bound, if Reich had procured the execution of the release by deceiving him as to its contents.
On the other hand, if the plaintiff retained Reich merely to collect his wages and tips, as to which he had failed to come to a satisfactory agreement with Brown in July or early August, the release was invalid; for, whatever may be the law in England, it is well settled in this
FRANK, Circuit Judge (concurring).
1. Plaintiff, as a result of a railroad accident which occurred while he was working as an employee of the Pennsylvania Railroad Company, suffered personal injuries which turned out to be so serious that the jury returned a verdict in his favor for $7,500, which the Railroad Company does not contest — except on one ground, i. e., that his claim was barred by a release he gave the company on payment to him of one-tenth that sum, or $750. That smaller sum represents merely the approximate amount of his lost earnings up to the date of the release. When he signed the release, he could not read it because of the effects of the accident, and without negligence on his part — since he relied on his own lawyer who mis-informed him — he understood that it purported to be only a receipt for payment of those lost earnings.
Judge HAND says (and I entirely agree) that the evidence sufficiently shows that the lawyer acted beyond his authority. Accordingly, it is as if a non-lawyer, carefully selected by plaintiff, had erroneously interpreted the release to him. The case thus comes within the category, described by Williston,
But I am not content to rest the decision on that analysis, because I think that that analysis leads to needless complexities which will confront us in future cases. The Supreme Court recently, in a case (cited by Judge HAND) relating to a release by a seaman, Garrett v. Moore-McCormack Co., 317 U.S. 239, at page 248, 63 S.Ct. 246, 87 L.Ed. 239, note 17, has broadly hinted that the courts should treat non-maritime employees, with respect to releases of personal injury claims, just as they treat seamen. I think we should take that hint, and, in doing so, should reject many of the finespun distinctions made by Williston and expressed in the Restatement of Contracts. Since I believe that not only is an important social policy involved but also that a good opportunity offers itself to uncomplicate an excessively complicated set of legal rules, I shall state, in some detail, my reasons for this conclusion.
2. In the early days of this century a struggle went on between the respective proponents of two theories of contracts, (a) the "actual intent" theory — or "meeting of the minds" or "will" theory — and
But the objectivists also went too far. They tried (1) to treat virtually all the varieties of contractual arrangements in the same way, and (2), as to all contracts in all their phases, to exclude, as legally irrelevant, consideration of the actual intention of the parties or either of them, as distinguished from the outward manifestation of that intention. The objectivists transferred from the field of torts that stubborn anti-subjectivist, the "reasonable man";
Influenced by their passion for excessive simplicity and uniformity, many objectivists have failed to give adequate special consideration to releases of claims for personal injuries, and especially to such releases by employees to their employers. Williston, the leader of the objectivists, insists that, as to all contracts, without differentiation, the objective theory is essential because "founded upon the fundamental principle of the security of business transactions".
He goes to great lengths to maintain this theory, using a variety of rather desperate verbal distinctions to that end. Thus he distinguishes between (1) a unilateral non-negligent mistake in executing an instrument (i. e., a mistake of that character in signing an instrument of one kind believing it to be of another kind) and (2) a similar sort of mistake as to the meaning of a contract which one intended to make.
It is little wonder that a considerable number of competent legal scholars have criticized the extent to which the objective theory, under Williston's influence, was carried in the Restatement of Contracts.
In other realms of thought, attempted over-simplification has yielded complexities in practice.
Fortunately, most judges are too common-sensible to allow, for long, a passion for aesthetic elegance, or for the appearance of an abstract consistency, to bring about obviously unjust results.
Some courts, however, escape marring the verbal symmetry of the objective theory, while actually abandoning it, thus: They say that a mistake by one party about a striking fact (sometimes called "palpable")
Williston, realizing the desire of the courts to escape the objective theory in such cases, describes them as follows: "Thus, where a release is given by one injured in an accident and more serious injuries develop than were supposed to exist at the time of settlement, it is a question of fact whether the parties assumed as a basis of the release the known injuries, or whether the intent was to make a compromise for whatever injuries from the accident might exist whether known or not. On a fair interpretation not only of the language of the instrument, but of the intention of the parties, the latter position is more likely, but presumably out of tenderness for injured plaintiffs some courts have gone very far in accordance with the former possibility."
Two approaches have been suggested which diverge from that of Williston and the Restatement but which perhaps come closer to the realities of business experience. (1) The first utilizes the concept of an "assumption of risk": The parties to a contract, it is said, are presumed to undertake the risk that the facts upon the basis of which they entered into the contract might, within a certain margin, prove to be non-existent; accordingly, one who is mistaken about any such fact should not, absent a deliberate assumption by him of that risk, be held for more than the actual expenses caused by his conduct. Otherwise,
In short, the "security of business transactions" does not require a uniform answer to the question when and to what extent the non-negligent use of words should give rise to rights in one who has reasonably relied on them. That the answer should be favorable to the relier when the words are used in certain kinds of contracts, does not mean that it should also be when they are used in a release of a claim for personal injury; and there may be still further reasons for an unfavorable answer when the claim is by an employee against his employer.
In all likelihood, it is because the courts have sensed the differentiated character of releases of personal injury claims that the "modern trend," as Wigmore describes it, "is to * * * develop a special doctrine * * * for that class of cases, liberally relieving the party who signed the release."
In the admiralty cases, such relief has long been accorded seamen; the courts, calling them "wards of admiralty," have regarded them, in many of their dealings with their employers, as necessitous persons, under strong economic pressures, who, because of their helplessness, are to be protected from hard bargains,
It is not surprising, then, that many courts — although without such direct expressions as those which adorn the seaman cases — have in fact in the release cases manifested, although obliquely, a not dissimilar guardianship of employees of large corporations. As already noted, the Supreme Court recently gave a broad hint that the admiralty doctrine is not as exceptional as is sometimes supposed; see Garrett v. Moore-McCormack Co., 317 U.S. 239, 248, 63 S.Ct. 246, 87 L.Ed. 239; note 17.
Such a ruling will not produce legal uncertainty but will promote certainty — as anyone can see who reads the large number of cases in this field, with their numerous intricate methods of getting around the objective theory.
3. The Pennsylvania Railroad Company warns us that, if a release given by an employee, advised by his own lawyer, is disregarded in a case like this, in the absence of fraud on the part of the employer, then employers will never hereafter settle with their employees who, to their grave disadvantage, will always in the future be forced to sue even for minor personal injury claims. That is a glib prediction based upon no evidence and intended to frighten the court. Sometimes judges have been persuaded by such prophecies which later events have shown to have been unfounded. So Choate, in Pollock v. Farmers' Loan & Trust Co., 1895, 157 U.S. 429, 532, 15 S.Ct. 673, 39 L.Ed. 759, seemingly alarmed the majority of the Court by his forecast that a federal income tax would usher in a communist regime in this country. And it is well to recall Lord Abinger's dire prediction when in 1837 he enunciated the fellow-servant rule which the Employers Liability Act has wiped out: "If the master be liable to the servant in this action, the principle of liability will be found to carry us to an alarming extent * * * The inconvenience, not to say the absurdity of these consequences, afford a sufficient
In New York, the rule as to releases is precisely that to which the Pennsylvania Railroad here objects; yet I venture to guess that thousands of settlements yearly are made in New York by employers who take the risk that, on a proper showing, the releases will be judicially disregarded.
One need not be highly imaginative or unduly cynical
SWAN, Circuit Judge (dissenting).
As I understand Judge HAND'S opinion he differentiates between the case where a lawyer is engaged by an injured plaintiff to settle any and all claims arising out of the accident and the case where the lawyer is engaged to settle only a claim for loss of wages due to the accident; in the former case a release signed by the plaintiff will bind him even though the lawyer represented to him that it was only a receipt for wages, in the latter it will not. So far I agree with my brother. But I cannot agree to affirmance of the judgment on the ground that the jury found that the plaintiff engaged Mr. Reich under a limited retainer. I think that affirmance on this ground rests upon an issue not argued by the parties, not submitted to the jury and not supported by the evidence. It appears from the plaintiff's own testimony, as well as from Mr. Reich's, that after the latter was retained he caused the plaintiff to be examined by a doctor to ascertain the extent of his injuries. This seems wholly inconsistent with the present theory that Mr. Reich was to present to the defendant only a claim for wages and tips. When an injured employee engages his own attorney, and the latter has a doctor investigate the extent of the injuries, and then makes a complete settlement and gets his client to sign a release in full, that ought to end the matter, unless the employer practiced fraud on the attorney. In my opinion the judgment should be reversed and the cause remanded for a new trial in which the issue of what claims the attorney was authorized to settle shall be clearly submitted to the jury.
The "actual intent" theory, said the objectivists, being "subjective" and putting too much stress on unique individual motivations, would destroy that legal certainty and stability which a modern commercial society demands. They depicted the "objective" standard as a necessary adjunct of a "free enterprise" economic system. In passing, it should be noted that they arrived at a sort of paradox. For a "free enterprise" system is, theoretically, founded on "individualism"; but, in the name of economic individualism, the objectivists refused to consider those reactions of actual specific individuals which sponsors of the "meeting-of-the-minds" test purported to cherish. "Economic individualism" thus shows up as hostile to real individualism. This is nothing new: The "economic man" is of course an abstraction, a "fiction." See Doehler Metal Furniture Co. v. United States, 2 Cir., 149 F.2d 130, 132; cf. Standard Brands v. Smidler, 2 Cir., 151 F.2d 34, 38, notes 6 and 7.
Patterson (loc. cit. 878 note) says that the "direct ancestry of [the objective] theory goes back to Paley, * * * a theological utilitarian, a contemporary of Adam Smith."
Perhaps the most fatuous of all notions solemnly voiced by learned men who ought to know better is that when legal rules are "clear and complete" litigation is unlikely to occur. See, e. g., Kantorowicz, Some Rationalism about Realism, 43 Yale L.J. (1934) 1240, 1241; Dickinson, Legal Rules, 79 Un. of Pa. L.Rev. (1931) 833, 846, 847.
Such writers surely cannot be unaware that thousands of decisions yearly turn on disputes concerning the facts, i.e., as to whether clear-cut legal rules were in fact violated. It is the uncertainty about the "facts" that creates most of the unpredictability of decisions. See Frank, If Men Were Angels (1942) Chaps. VI and VII and Appendices II and V. Cf. Maine, Early History of Institutions (1875) 48-50; Maine, Village Communities (4th ed. 1881) 311-312, 318; Zell v. American Seating Co., 138 F.2d at pages 647, 648; cf. In re J. P. Linahan, 138 F.2d at pages 652-654.
He cites § 21, with approval, Holland's Jurisprudence; Holland (13th ed.) 262, says that "when the law enforces a contract, it does so to prevent disappointment of well-founded expectations, which, though they usually arise from expressions truly representing intention, yet may occasionally arise otherwise." (Emphasis added.)
Williston refused to concede that the mutual-mistake doctrine does not jibe with the "objective" theory. He perhaps had in mind this comment of Wigmore's on the reformation of a contract for such a mistake: "The theory of reformation is to make the instrument state, objectively and in appearance to others, what it did subjectively state to the parties themselves * * *" Wigmore, Evidence, § 2418; cf. § 2417. Williston, to whom all subjectivity was anathema, insisted that "the external expression" of the parties' "will," no matter how mistaken, results in a contract which "equity" recognizes as a contract but which, when the mistake is mutual, it sets aside because "it is just to do so." See Williston, The Formation of Contracts, 14 Ill.L.Rev. (1919) 85, 92, 94. However (in part because of the formal "merger" of "law" and "equity" but even in jurisdictions where no such merger has occurred) the "law" courts have often refused to enforce such contracts.
Williston, undoubtedly a master, takes a position here which seems highly casuistical: Since "equity" — whether administered in a separate court or in a court of "law" — departs from the objective appearance, the objective theory, for all practical purposes, cannot be said to be consistently applied in our legal system. It is far more helpful to acknowledge frankly that there exist important exceptions to that theory. Cf. Patterson, The Restatement of The Law of Contracts, 33 Col.L. Rev. (1933) 397, 407-408; Robinson, Law — An Unscientific Science, 44 Yale L.J. 235, 259-261.
There is a danger, that through the merger of "law" and "equity," the latter may lose its desirable elasticity. See Emmerglick, A Century of The New Equity, 23 Tex.L.R. (1945) 244. That danger may be augmented if, via the Restatement, the "objective" theory of contracts is not recognized as subject to exceptions.
Cf. Fuller and Perdue, The Reliance Interest in Contract Damages, 47 Yale L.J. (1936) 52.
The desperate efforts of Williston & Co. verbally to reconcile the decisions so as to avoid the appearance of exceptions recall Francis Bacon's remarks: "The human understanding, from its peculiar nature, easily supposes a greater degree of order and equality than it really finds * * * The human understanding, when any proposition has been once laid down (either from general admission or from the pleasure it affords), forces everything else to add fresh support and confirmation; and although most cogent and abundant instances exist to the contrary, yet either does not observe or despises them, or gets rid of and rejects them by some distinction, with violent and injurious prejudice, rather than sacrifice the authority of its first conclusions * * * The human understanding is most excited by that which strikes and enters the mind at once and suddenly, and by which the imagination is immediately filled and inflated. It then begins almost imperceptibly to conceive and suppose that everything is similar to the few objects which have taken possession of the mind, while it is very slow and unfit for the transition to the remote and heterogenous instances by which axioms are tried as by fire * * *" Bacon, Novum Organum (1620) Bk. I, §§ 45-47. It should not be forgotten that Bacon was well acquainted with legal thinking. Indeed, it has been suggested that Bacon, in furthering the logic of discovery or invention in the natural sciences was extending the logic used in the courts; see McKeon, Democracy, Scientific Method, and Action, 55 Ethics (1945) 235.
For a modern restatement of similar views, see Bridgman, The Intelligent Individual and Society (1938) 7, 8, 18-20, 22, 40-43, 54, 82-85, 96, 97, 108, 109, 190.
Bridgman says (54): "In general, the complete meaning of any concept is determined by the complex of its behavior when subjected to every possible operation. The complete meaning is of hopeless complexity, so that we are compelled to simplify and to approximate it * * * But in practice this reduction to a few simple key operations is usually carried too far. We have over-simplified our conceptual situations, and a necessary task before we can hope for adequate understanding is to recover some of the primitive complexity." Whitehead suggests as a working rule, "Seek simplicity and distrust it." Cf. Tocqueville. Democracy in America (Bradley ed. 1945) II, First Bk., Chaps. 3 and 4, especially p. 17 as to the tendency to arrange "hastily * * * under one formula."
"That principle, theory or `law' is dignified as scientific which best promotes the actual attainment or control of concrete transformations. To this end the experimenter will use Euclidean or non-Euclidean geometries, geometries of four dimensions and of six, ordinary algebra and systems in which ab does not equal ba; he will employ a quantum theory where it promises results along with an undulatory theory where it is productive." Fries, Liberty and Science, 3 Pub. Adm.Rev. (1943) No. 3.
However, Restatement of Restitution § 10(a) refers to the person's knowledge of facts or that "he suspected their existence"; and comment d says that "suspicion imports an advertence to the facts" and therefore an element of "bad faith" as distinguished from "reason to know"; the comment adds, "Suspicion cannot profitably be defined in more precise terms."
Compare Williams, Language and The Law, 61 L.Q.Rev. (1945), 179, 191, 192: "The upshot is that the words we use, though they have a central core of meaning that is relatively fixed, are of doubtful application to a considerable number of marginal cases. In general, we try in our language to sharpen our distinctions beyond what is warranted by the facts of the case. It is a necessary feature of language that we should have to make this effort, and thus it is inevitable that our linguistic distinctions should constantly break down * * * A wag once inquired whether the difference between a difference of kind and a difference of degree is itself a difference of kind or a difference of degree. The answer * * * is that it is a difference of degree. A difference of kind is merely a violent difference of degree."
For federal cases, see, e.g., Robert Hind, Ltd., v. Sylva, 9 Cir., 75 F.2d 74, 77; Great Northern R. Co. v. Fowler, 9 Cir., 136 F. 118; Montgomery Ward & Co. v. Callahan, 10 Cir., 127 F.2d 32, 35; Southwest, etc., Co. v. Jones, 8 Cir., 87 F.2d 879, 881, 882; Atlantic Greyhound Lines v. Metz, 4 Cir., 70 F.2d 166, 168; Chicago, M., St. P. & P. R. Co. v. Busby, 9 Cir., 41 F.2d 617, 619; Shook v. Illinois Cent. R. Co., 5 Cir., 115 F. 57.
For cases in divers state courts, see 59 A.L.R. 809; Rosenblum v. Manufacturers Trust Co., 270 N.Y. 79, 200 N.E. 587, 105 A.L.R. 950; Serr v. Biwabik Concrete Aggregate Co., 202 Minn. 165, 278 N.W. 355, 117 A.L.R. 1022; L.R.A. 1916B, 785.
See, as to release cases of divers kinds in New York, Dominicis v. United States Casualty Co., 132 App.Div. 553, 116 N.Y.S. 975; Harvey v. Georgia, 148 Misc. 633, 266 N.Y.S. 168, 170; Seidman v. New York Life Ins. Co., 162 Misc. 560, 296 N.Y.S. 55, 56; Landau v. Hertz, etc., Co., 237 App.Div. 141, 260 N.Y.S. 561; Le Francois v. Hobart College, Sup., 31 N.Y.S.2d 200, 202; Barry v. Lewis, 259 App.Div. 496, 20 N.Y.S.2d 88, 91. In Backhous v. Wagner, 234 N.Y. 429, 138 N.E. 82, there was no showing that the releasor turned out to be more seriously injured than he had supposed when he gave the release. In McNamara v. Eastman Kodak Co., 232 N.Y. 18, 133 N.E. 113, plaintiff had sworn to a petition to the surrogate which stated the nature of her claim and asked approval of the settlement, which the surrogate had given.
And they have been quick, too, to seize on words in the releases in order to construe them most narrowly; Texas & P. R. Co. v. Dashiell, 198 U.S. 521, 527, 25 S.Ct. 737, 49 L.Ed. 1150; 48 A.L. R. at pages 1524, 1525; 117 A.L.R. at pages 1043-1045; L.R.A.1916B at pages 780, 781.
Patterson (loc.cit. 877) refers to the judicial use of "unconscionable" as an "emotive epithet."
See also Pound, Interpretations of Legal History (1923) 60ff; Cohen, loc. cit., at 834.
Adoption judicially of such a doctrine is a bold step which I would hesitate to recommend that this court should take, although it does seem to be the unexpressed rationale of many decisions. See, e.g., Union Pac. R. Co. v. Harris, 158 U.S. 326, 15 S.Ct. 843, 39 L.Ed. 1003, and the comment thereon in Texas & P. R. Co. v. Dashiell, 198 U.S. 521, 529, 25 S.Ct. 737, 49 L.Ed. 1150, and in Garrett v. Moore-McCormack Co., 317 U.S. 239, 248, 63 S.Ct. 246, 87 L.Ed. 239, note 17.
I am not unmindful that there is this seeming inconsistency in my position: I said above that legal rules, no matter how valuable the policy they embody, are often at the mercy of the fact-determinations in particular cases, and that those fact-determinations often involve ineradicable subjective factors; see In re J. P. Linahan, Inc., 2 Cir., 138 F.2d 650, 652, 653. The remedy for that defect lies, I think, in improved methods of fact finding; cf. United States v. Forness, 2 Cir., 125 F.2d 928, 942, 943. As improvement in fact-finding is slow in developing and, at best, cannot be a complete remedy, it might be argued that it is silly to bother about the legal rules. The answer, briefly, is that one should not be thoroughly defeatist as to the efficacy of legal rules. They frequently do play an important role, even if often not the controlling role, in litigation. Wherefore, the courts should strive to bring those rules (within the limits allowed by proper respect for stare decisis) into line with intelligent social policy.