farm from a third person and supervised its operations, then the crops grown are not subject to a marketing contract signed by the husband.82

Because it was found that a former member of an association had in good faith transferred cows to his son, a nonmember, the association was enjoined from interfering with the marketing of the milk produced by such cows.83

In Kentucky, a transfer of land by a member of an association to his wife and son, although made for a valuable consideration, was held void under a statute of that State declaring fraudulent all conveyances of real or personal property made to delay creditors and others, where the person to whom the transfer is made has notice of the fraudulent intent of the person making the transfer.84 In this case the association recovered liquidated damages of 5 cents per pound for all tobacco grown on the farm in question and disposed of outside the association.

Conclusive Presumption

ANY of the cooperative statutes contain a provision

85

a or

stating that

lessor is able to control the delivery of products produced on his land by tenants or others" whose tenancy is created after the execution of a marketing contract. This provision in the cooperative acts of Kentucky and Colorado has been upheld by the courts of those States.86 In the Kentucky cases cited the association recovered liquidated damages from the landlord on account of products grown on his land which were not marketed through the association.

In the two Colorado cases cited the court held that the association was entitled to enjoin the landlord and the tenant in each case, and to recover damages from each of them. In each of the Colorado cases, the tenant knew that the landlord was a member of the association, and the court held that he was charged with notice of the conclusive-presumption provision in the cooperative act of Colorado.

The conclusive-presumption provision in the cooperative act of Louisiana was held by the supreme court of that State to be in conflict with the fourteenth amendment to the Federal Constitution.87 It has since been deleted from the code.

In the case first cited in footnote 87, the association sought to compel the specific performance of a contract and to recover liquidated damages

82

Layne v. Tobacco Growers' Coop. Association, 147 Va. 878, 133 S. E. 358. See also Inland Empire Dairy Producers' Association v. Melander, 134 Wash. 145, 235 P. 12; Inland Empire Dairy Producers' Association v. Casberg, 134 Wash. 702, 235 P. 13; Burley Tobacco Growers' Coop. Association v. Jewell, 213 Ky. 272, 280 S. W. 1105; Kansas Wheat Growers' Association v. Lucas, 128 Kan. 350, 278 P. 6; Kansas Wheat Growers' Association v. Garnett, 128 Kan. 337, 278 P. 5.

83 Wesemann v. Watertown Milk Coop. Association, 222 Wis. 475, 269 N. W. 246.

84

Coyle v. Dark Tobacco Growers' Coop. Association, 211 Ky. 162, 277 S. W. 318. 85 See sec. 18 of the Bingham Cooperative Marketing Act of Kentucky, p. 305 of Appendix.

86

Feagain v. Dark Tobacco Growers' Coop. Association, 202 Ky. 801, 261 S. W. 607; Dark Tobacco Growers' Coop. Association v. Daniels, 215 Ky. 67, 284 S. W. 399; Monte Vista Potato Growers' Coop. Assocation v. Bond, 80 Colo. 516, 252 P. 813; Wilson v. Monte Vista Potato Growers' Coop. Association, 82 Colo. 428, 260 P. 1080.

87 Louisiana Farm Bureau Cotton Growers' Coop. Association v. Clark, 160 La. 294, 107 So. 115; Louisiana Farm Bureau Cotton Growers' Coop. Association v. Bannister, 161 La. 957, 109 So. 776; Louisiana Farm Bureau Cotton Growers' Coop. Association v. Bacon, 164 La. 126, 113 So. 790.

for cotton sold outside the association. The cotton had been grown on the share-lease plan and the tenants were not parties to the suit. From the record it did not appear that the "tenants had any knowledge of the marketing agreement of their landlord with said association." The court declared that the legislature had "made an indirect but clear attempt to deprive tenants of their property in cotton raised under the share system of contract, without notice of such marketing contract, and without due process of law of any kind."

Although all persons are charged with knowledge of the law, persons are not charged with knowledge of the membership of cooperatives or with knowledge of the persons that have entered into marketing contracts with an association, in the absence of a statute providing for recordation of such contracts for the purpose of giving constructive notice.

In a Mississippi case, the court expressed doubt concerning the constitutionality of the conclusive-presumption provision and held that it had no application to a marketing contract entered into prior to the passage of the cooperative statute containing the provision.

To

Monopoly and Restraint of Trade

O UNDERSTAND clearly the attitude of the courts toward early cooperative efforts in this country, it is important to have in mind the legal background with respect to monopolies and restraint of trade. For centuries the common law looked askance at anything that appeared to restrain trade or to reduce competition. One could hardly overemphasize the attitude of the early English courts with respect to these matters. Bona fide partnerships were apparently always held to be lawful, although the formation of a partnership might mean a reduction of one or more in the number of traders or dealers.

The common law attitude toward restraint of trade is illustrated by a Washington case 89 involving an association of milk dealers of the city of Seattle, which fixed the price of milk and through which the dealers agreed not to sell to each other's customers. The milk dealers were prosecuted and found guilty of conspiracy under common law principles.

It was early held at common law that if a man sold his business and entered into an agreement with the purchaser that he would not engage in the same business either at that place or any other place, or within a given area for a given period of time, or at any time, the agreement was illegal on the theory that it reduced the seller's opportunities for making a living.90

Gradually the attitude of the courts toward contracts of this kind relaxed, and today they are upheld generally, if the restrictions on the right of the seller to engage in business are no greater than is reasonably necessary for the protection of the buyer.91

Further light is thrown on the state of the law toward acts deemed to be in restraint of trade by the statute passed by the English Parliament in the reign of Edward VI prohibiting forestalling, engrossing, and regrating.92

88

Staple Cotton Coop. Association v. Hemphill, 142 Miss. 298, 107 So. 24.

89 State v. Erickson, 54 Wash. 472, 103 P. 796. See also People v. Milk Exchange, 145 N. Y. 267, 45 Am. St. Rep. 609, 39 N. E. 1062, 27 L. R. A. 437, affirming 29 N. Y. S. 259, 77 Hun. 436.

90 Anson on CONTRACTS, Am. Ed., sec. 255.

91 Lumbermen's Trust Co. v. Title Ins. & Inv. Co. of Tacoma, 248 F. 212.

92 Statutes at Large, 7 Edw. VI vol. 5, ch. 14.

Forestalling consists of buying victuals on their way to market and before they reach it, with intent to sell again at a higher price."

93

Engrossing was the buying at any place of certain necessities of life from producers with a view to resale at a higher price. Regrating was the purchase of provisions at a fair or public market for the purpose of resale at a higher price in the same market or in any market within 4 miles thereof. This early English statute restricting trading in victuals and provisions evidences the intention that such products should pass from the original producer to the consumer. In other words, the object of the statute was undoubtedly to keep the bridge short between the producer and the consumer. This statute against forestalling, engrossing, and regrating, as well as the other principles with reference to restraint of trade referred to, all became a part of the common law of this country to a large degree, and this should be kept in mind when considering the attitude of American courts toward early cooperative efforts.

94

Perhaps because of a change in economic and social conditions and perhaps because of the demonstrated inefficiency of such a statute, part of it was repealed in 1772 and the entire act in 1844.9

95

It is interesting to note that the statute enacted in 1844 by the English Parliament, which included the repeal of the statute against forestalling, engrossing, and regrating, stated that it was being repealed because the prohibited acts had come to be considered as favorable to the development of trade and not as restraining trade.

From the foregoing it is clear that we inherited common law principles and traditions against restraint of trade.

Some of the cases involving cooperatives that were decided by State courts prior to the enactment of cooperative statutes in the States concerned will now be discussed.

An Iowa case, decided in 1913, involving a cooperative, was disposed of in accordance with what the court conceived to be the common law principles applicable. A bylaw of the association provided that any member of the association should forfeit 5 cents for every hundredweight of produce or livestock sold to any competitor of the association. A buyer of hogs, who operated in the territory in which the association functioned, brought an injunction suit to prevent the association from enforcing the bylaw. In holding against the association, the Supreme Court of Iowa held that the bylaw was in restraint of trade because the plaintiff was placed at a disadvantage and could not compete with the society in purchasing hogs from its members, and the members were not free to deal with plaintiff. If they dealt with him, he either forfeited his profits by reason of having to pay too much for his hogs, or they forfeited a part of the purchase price as a penalty for selling to him.96

In a Colorado case 97 a bylaw provided that stockholders might sell grain to competitors of the association in a particular town by paying 1 cent per bushel to the association for all grain so sold. A stockholder who had

93 Dutton v. Knoxville, 121 Tenn. 25, 113 S. W. 381, 383, 130 Am. St. Rep. 748, 16 Ann. Cas. 1028.

94

State v. Eastern Coal Co., 29 R. I. 254, 70 A. 1, 132 Am. St. Rep. 817, 17 Ann. Cas. 96.

95

Standard Oil Co. of New Jersey v. United States, 221 U. S. 1, 55, 31 S. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (Ñ. S.) 834, Ann. Cas. 1912 D 734.

96

Reeves v. Decorah Farmers' Coop. Soc., 160 Iowa 194, 140 N. W. 844, 44 L. R. A. (N. S.) 1104; followed in Ludowese v. Farmers' Mut. Coop. Co., 164 Iowa 197, 145 N. W. 475.

97

Burns v. Wray Farmers' Grain Co., 65 Colo. 425, 176 P. 487, 11 A. L. R. 1179; followed in Atkinson v. Colorado Wheat Growers' Association, 77 Colo. 559, 238 P. 1117.

agreed to the bylaw sold 3,500 bushels of grain to a competitor of the association and the cooperative brought suit against him to recover $35. The bylaw was held invalid on the ground that it was in restraint of competition and the association lost the suit.

98

It is interesting to note that the Colorado cases followed the Iowa cases. Other cases in which the courts held against the cooperatives involved, on the ground that they were operating in restraint of trade, are here given. In each of the States in which decisions were rendered that were adverse to cooperation, later cases have been decided favorable to cooperation. In Iowa 99 the supreme court of that State upheld the right of an association formed under the cooperative act passed in 1921, which provided that associations formed under it might provide for liquidated damages in their contracts, to recover liquidated damages. In upholding the liquidated damages clause in the contract of the association and the validity of the association in general, the court apparently was of the opinion that the association was legal at common law, but in response to the argument that the cooperative act under which the association was organized violated an earlier statute of the State prohibiting pools and trusts, in that it authorized associations to provide for liquidated damages, the court said that the cooperative act "is as much a declaration of public policy as the earlier statute referring to pools and trusts."

In Colorado the supreme court of that State in upholding cooperatives held that the public policy of the State had been expressly changed by the cooperative act enacted in 1923.1

Not all of the early cases involving cooperation were adverse to the associations concerned. In Illinois, New York, and Alabama 2 it was held, apparently in pursuance of common law principles, that the associations involved were not operating in restraint of trade even though their contracts, or bylaws, provided for liquidated damages. In Indiana 3 the supreme court of that State, applying common law principles, upheld the cooperative and held that it was not operating in restraint of trade.

3

Nearly all of the States, comparatively early in their history, included provisions in their constitutions or statutes prohibiting monopolies, trusts, and restraint of trade. Efforts were made to except associations of farmers from these prohibitions, either by including an exception in the statute or by a provision in the constitution. For instance, in 1893, the State of Illinois passed an antitrust act, which declared that "the provisions of this act shall not apply to agricultural products while in the hands of the producer or raiser." This provision was later made the basis for a decision by the Supreme Court of the United States in the famous Connolly case.1

Briefly, the facts in the case were these: Connolly was indebted to the Union Sewer Pipe Co. on two notes given on account of the purchase by

98 Georgia Fruit Exchange v. Turnipseed, 9 Ala. App. 123, 62 So. 542; Ford v. Chicago Milk Shippers' Association, 155 Ill. 166, 39 N. E. 651, 27 L. R. A. 298. 99 Clear Lake Coop. Live Stock Shippers' Association v. Weir, 200 Iowa 1293, 206 N. W. 297.

1

Rifle Potato Growers' Coop. Association v. Smith, 78 Colo. 171, 240 P. 937; Austin v. Colorado Dairymen's Coop. Association, 81 Colo. 546, 256 P. 640.

2 Milk Producers' Marketing Co. v. Bell, 234 Ill. App. 222; Bullville Milk Producers' Association v. Armstrong, 178 N. Y. S. 612; 108 Misc. Rep. 582; Castorland Milk & Cheese Co. v. Shantz, 179 N. Y. S. 131; Ex parte Baldwin County Producers' Corporation, 203 Ala. 345, 83 So. 69.

4

Burley Tobacco Society v. Gillaspy, 51 Ind. App. 583, 100 N. E. 89.

Connolly v. Union Sewer Pipe Co., 184 U. S. 540, 22 S. Ct. 431, 46 L. Ed. 679; a similar conclusion was reached in Georgia in a like case, Brown v. Jacobs' Pharmacy Co., 115 Ga. 429, 41 S. E. 553, 57 L. R. A. 547, 90 Am. St. Rep. 126.

him of some sewer pipe. When sued on the notes, Connolly claimed that the plaintiff was a trust, and as the antitrust act specifically stated that any purchaser of any article from any corporation operating as a trust was not liable for the purchase price, that he could not be held for the purchase price of the pipe. The Sewer Pipe Co. claimed that the Anti-Trust Act of Illinois was void because it exempted products in the hands of the producer, which exemption, it contended, violated the fourteenth amendment to the Constitution, to wit, the equal-protection clause. The Federal district court, in which it originated, held that this was true, and the Supreme Court of the United States affirmed the decision.

In 1889, Texas enacted an antitrust act which contained language exempting agriculture identical with that contained in the Illinois act. The legality of this provision in the Texas act was questioned in a Federal court, which held that it violated the equal-protection clause in the fourteenth amendment.5

A provision in the Colorado Anti-Trust Act excepting therefrom any combination or association "the object and business of which are to conduct its operations at a reasonable profit or to market at a reasonable profit those products which cannot otherwise be so marketed,” caused the United States Supreme Court to hold the statute invalid." The Court said: "Such an exception in the statute leaves the whole statute without a fixed standard of guilt in an adjudication affecting the liberty of the one accused." The Anti-Trust Act of California was amended so as to contain a similar exception and this statute was likewise held invalid."

Inasmuch as the Supreme Court of the United States found that the Court of Appeals of Kentucky had construed the constitution, the antitrust statute, and the statute of that State authorizing persons to pool crops of wheat, tobacco, and other farm products raised by them "for the purpose of obtaining a higher price than they could get by selling them separately," as meaning that "any combination for the purpose of controlling prices" was lawful "unless for the purpose or with the effect of fixing a price that was greater or less than the real value of the article," it held the antitrust statute unconstitutional as affording no standard of conduct that could be known in advance and complied with. On similar grounds, a statute of Kentucky was held unconstitutional in a case in which a farmer had entered into a pooling contract covering his tobacco and then had disposed of his tobacco contrary to such contract, thereby violating such statute.9

8

The effect of the decision by the Supreme Court of the United States in the Connolly case and of the lower Federal court in the Texas case was to invalidate the antitrust statutes of the States in question, assuming that the court decisions in question were given full force and effect. On reflection it will be appreciated that this conclusion is distinctly different from holding that farmers are barred from forming cooperatives. On the contrary, the effect of the decisions referred to, and of any other similar decisions that might be rendered, is merely to leave a State without any antitrust legislation. It is believed that the decision of the United States Supreme Court, rendered in 1928, in a case involving the Burley Tobacco Growers'

5 In re Grice, 79 F. 627, 169 U. S. 284, 18 S. Ct. 323, 42 L. Ed. 748. Cline v. Frink Dairy Company, 274 U. S. 445, 457, 47 S. Ct. 681, 71 L. Ed. 1146, modifying Beatrice Creamery Co. v. Cline, 9 F. 2d 176.

Blake v. Paramount Pictures, 22 F. Supp. 249.

8 International Harvester Company v. Kentucky, 234 U. S. 216, 220, 221, 34 S. Ct. 853, 58 L. Ed. 1284.

9

Collins v. Kentucky, 234 U. S. 634, 34 S. Ct. 924, 58 L. Ed. 1510.