involved had been formed under the 1917 act, the court indicates it would have held the exception to the Oklahoma statute constitutional. Obviously, there is a broad distinction between the cooperative type of business and the commercial type of business.90 This case should not be regarded as bringing into question any of the cooperative statutes. It involved a licensing act which authorized a commission to deny a license to any applicant therefor other than a cooperative; and the court was of the opinion that the manner of operation of the particular "cooperative" gin in question was not sufficiently different from that of a private gin to justify the granting of a license to the "cooperative” gin without a showing of public necessity therefor. The cooperative statutes usually do not prevent private parties from going into business. In another case 91 in which a statute of Oklahoma relieved the owner of a cotton gin of the necessity of obtaining a license therefor, if it was to gin cotton only for stockholders of any corporation which might or might not operate on a cooperative basis, it was held that the statute unlawfully discriminated against the operator of a cotton gin who was compelled to obtain a license. In fields other than agriculture there are many interesting examples of classification. For instance, a statute of Minnesota that fixed the closing hours for barber shops was upheld although the closing hours for other establishments were not fixed.92 A statute of Mississippi which forbade corporations from operating both cottonseed-oil mills and cotton gins, but which permitted the operation of either by any corporation, was held constitutional.93 A statute of Kansas which distinguished between farmers' mutual insurance companies and those operated on a commercial basis was also upheld.94 The right of employees to form labor unions to bargain collectively and to follow up their demands by orderly strikes is established.95 IT Promissory Notes T IS a practice more or less followed by cooperatives to receive the notes of their members for specified amounts for the purpose of using them as collateral for loans that may be necessary in the conduct of the association's business and for other purposes. The exact nature of such notes depends upon the terms and conditions under which they are given and upon the law of the particular State.96 For instance, where a resolu 90 For a case illustrating this point see Clinton Coop. Farmers El. Association v. Farmers Union Grain Terminal Association, 223 Minn. 253, 26 N. W. 2d 117. 91 Chickasha Cotton Oil Co. v. Cotton County Gin Co., 40 F. 2d 846, 74 A. L. R. 1070. 92 Petit v. Minnesota, 177 U. S. 164, 20 S. Ct. 666, 44 L. Ed. 716. 93 Crescent Cotton Oil Co. v. State of Mississippi, 257 U. S. 129, 42 S. Ct. 42, 66 L. Ed. 166. 94 German Alliance Insurance Co. v. Lewis, Superintendent of Insurance of the State of Kansas, 233 U. S. 389, 34 S. Ct. 612, 58 L. Ed. 1011, L. R. A. 1915C 1189. But see Hartford Steamboiler Inspection & Insurance Co. v. Harrison, 301 U. S. 459, 57 S. Ct. 838, 81 L. Ed. 1223. 95 Coronado Coal Co. v. United Mine Workers of America, 268 U. S. 295, 45 S. Ct. 551, 69 L. Ed. 963; American Steel Foundaries v. Tri-City Central Trades Council, 257 U. S. 184, 209, 42 S. Ct. 72, 66 L. Ed. 189, 27 A. L. R. 360; Truax v. Corrigan, 257 U. S. 312, 357, 42 S. Ct. 124, 66 L. Ed. 254, 27 A. L. R. 375; United States v. Hutcheson, 312 U. S. 219, 61 S. Ct. 463, 85 L. Ed. 788. 96 Farmers' Equity Coop. Association v. Tice, 122 Kan. 127, 251 P. 421; Farmers' Coop. Union of Lyons v. Reynolds, 127 Kan. 16, 272 P. 108; Elmore v. Maryland & Virginia Milk Producers' Association, Inc., 145 Va. 42, 132 S. E. 521, 134 S. E. 472. tion was adopted at the annual meeting of the stockholders of a cooperative providing that “a $350 note be signed by each individual stockholder * * * guaranteeing the board of directors against any loss that might Occur * * *" it was held that inasmuch as each stockholder had not given a $350 note, those stockholders who had signed such notes were not liable thereon. "To make the notes obligatory on those who did sign, all should have signed." 99 97 In another case in which the facts were somewhat similar, a stockholder signed his note for $350 and failed to show that other stockholders had not executed such notes, so he was held liable when sued thereon.98 The bylaws of an association usually set forth the agreement between the association and the members relative to the notes, and this agreement would probably in all cases determine the character of the notes with reference to the association and a member, and whether the association could successfully sue a member on such a note. This would not necessarily be true, however, as will be shown later, in the case of a third person who had received the note of a member from the association. If the notes executed by the members of an association and delivered to it are accommodation notes—that is, notes executed without consideration and for the purpose of enabling the association to borrow money or obtain credit thereon-then it is settled that the association could not successfully sue a member on such a note. The maker of an accommodation note is known as the accommodation maker. He receives nothing for executing the note and signs it to enable the one in whose favor it is drawn to obtain money or credit from some third party. The fact that a note or other negotiable instrument, no matter what its character, was executed without consideration can always be shown as between the original parties. It furnishes the maker with a complete defense as against the original payee. If a negotiable note, whether accommodation or otherwise, has been sold, delivered, or transferred before it is due to a third person, in good faith and without notice and for a valuable consideration, the note is enforceable by such third person against the maker without reference to intervening equities. This rule is well established.99 However, if an accommodation note is delivered after it is due, although transferred in good faith to a third person and for a valuable consideration, the courts are divided as to whether the maker of the note may plead intervening equities as a defense against the holder. The general rule, without special regard to accommodation notes, is that one who takes a note or other negotiable instrument after it is due takes it subject to all the equities or defenses that existed between the original parties.1 For instance, if a note is given without consideration, this could be shown by the maker when sued by one who took the note after it was due.2 In the eyes of the law, the fact that the note was not paid when it became due is notice to the party who takes it from the former holder that there is some defect in the paper. However, with respect to accom 98 Farmers' Coop. Union v. Alderman, 126 Kan. 299, 267 P. 1110. Farmers' Coop. Union of Lyons v. Reynolds, 127 Kan. 16, 272 P. 108. See also Farmers' Equity Coop. Association v. Tice, 122 Kan. 127, 251 P. 421; Makeever v. Barker, 85 Ind. App. 418, 154 N. E. 692; Clark v. Pargeter, 142 Kan. 781, 52 P. 2d 617. "National Bank of Commerce v. Sancho Packing Co., 186 F. 257. 1 Otis Elevator Co. v. Ford, 27 Del. 286, 88 A. 465. 3 modation paper, in view of the fact that it is always given without consideration, the courts in a majority of the States have refused to allow the maker to plead a want of consideration, although the note was taken after it was due. But in some jurisdictions the maker of an accommodation note may successfully plead a want of consideration even as against one who received it in good faith and for a valuable consideration from the original payee.* 5 In a case involving an installment note given by a producer to a cooperative, and assigned by the cooperative as security for a loan after the first installment was overdue, the Supreme Court of California said: *** the rule is that a transferee of an installment note is a holder in due course as to the installments to mature in the future when the transfer is made after one or more but not all of the installments are due on its face unless the past due installments have not in fact been paid and he has notice of that fact. On the facts involved, the court held that the first installment had not been paid and remanded the case for retrial on the issue of notice. In another case the court, without passing on the question of the negotiability of the note, held that a transferee of a note given by a producer to his cooperative was not a holder in due course. The court pointed out that the transferee, a bank, had knowledge of the association's operations and was aware of a receipt contemporaneously issued for the note. This receipt made it clear that the note was not an unconditional promise to pay but was to be paid by retains from amounts due the maker from the proceeds of his marketed produce. If a note is payable on demand, the general rule as to ordinary negotiable commercial paper is that one who takes it an unreasonable time after its execution takes it subject to all defenses that existed between the original parties. If the maker would not have a defense to a suit on the note if brought by the original payee, he would not have a defense to a suit instituted by one who took the note from the original payee either before or after maturity. With respect to accommodation paper payable on demand, in those jurisdictions where a want of consideration may be shown by the maker as against one who took such paper after it was due, the maker may successfully plead this defense against one who took the demand accommodation note an unreasonable time after its execution. In a North Dakota case it was said: "It is well established that a note payable on demand is due within a reasonable time after its date, and there are practically no authorities which hold that such a reasonable time can be extended beyond a year." 8 In a doubtful case it would be a question for the jury to determine whether a note had been sold or delivered as collateral for a loan an unreasonable length of time after its execution. In those States in which the defense of a want of consideration cannot be successfully made by the maker of accommodation paper as against one who took it after it was due, it follows that he could not make it against one who took a demand accommodation note an unreasonable time after its execution. A note executed by a member of a cooperative and delivered to it, and on which the association could not successfully sue the member, and on 3 Naef v. Potter, 226 Ill. 628, 80 N. E. 1084, 11 L. R. A. (N. S.) 1034. 5 Bliss v. California Coop. Producers, 30 Cal. 2d 240, 181 P. 2d 369. 6 Omaha Bank for Cooperatives v. Novotny, 236 Iowa 54, 17 N. W. 2d 836. "Otis Elevator Co. v. Ford, 27 Del. 286, 88 A. 465. McAdam v. Grand Forks Mercantile Co., 24 N. D. 645, 140 N. W. 725, 47 L. R. A. (N. S.) 246, 251. which money had not been borrowed or credit obtained, is not a part of the assets of the association. If the association fails or goes into the hands of a receiver, the receiver could not enforce such a note against the member, for he stands in no better position than did the association. On the other hand, if the note is one on which the association could successfully sue, it follows that it is part of the assets of the association, and a receiver would be able to maintain a suit thereon.1o In a Michigan case the receiver for a cooperative brought suit on demand notes which were given by 34 members of the association and which were in possession of the association at the time the receiver took charge of its affairs. The notes were given for the purpose of being used as collateral security, and they so specified. Inasmuch as they had not been used for this purpose, the court held that the members were not liable on the notes and that they in no way constituted assets of the association.11 If an association borrowed money on its note, giving as collateral security demand notes signed by members of the association, the person who loaned the money, in the event the note evidencing the same was not paid at maturity, would have the right to bring suit on a sufficient number of the demand notes to pay his claim, without his bringing suit against the association on its note.1 12 Many of the cooperative statutes authorize the taking of notes in payment for stock in associations formed under them.13 Between the original parties to a negotiable note some defenses to a suit on the note may be made that are not available if a suit is brought on the note by a holder in due course. But even between the original parties, a signer of a note is restricted in the defenses which he may successfully make. When an association was induced to execute a note by promises, which the payee of the note did not fulfill and which were made with no intention of fulfilling them, this was a defense to a suit on the note; 14 but "Mere promises, predictions, or opinions as to future transactions or events do not warrant relief as for deceit, where they are not performed or do not come true” and such statements were held not to constitute a defense to a note.1 15 When dividends on stock for which the purchaser gave his note were insufficient to pay the note over a period of years, although the rights of creditors were not involved, on the liquidation of the company the purchaser was held liable for the unpaid balance on the note, notwithstanding that it was originally understood the note would be paid out of dividends.16 A person gave an unconditional promissory note for stock in a cooperative. It was held the fact that it was represented to him at the time of the signing of the note that it would be paid by applying 8 percent of the amount of purchases made by him from the association on the note was immaterial and did not operate to relieve him from liability on the note.17 'Rankin v. City National Bank, 208 U. S. 541, 28 S. Ct. 346, 52 L. Ed. 610; Skud v. Tillinghast, 195 F. 1; In re Tasker's Estate, 182 Pa. 122, 37 A. 924. 10 Clark v. Layman, 144 Kan. 711, 62 P. 2d 897. 11 Runciman v. Brown, 223 Mich. 298, 193 N. W. 880. See also Taylor v. Rugenstein, 245 Mich. 152, 222 N. W. 107; Gobles Cooperative Association v. Albright, 248 Mich. 68, 226 N. W. 876. 12 Packard v. Abell, 113 N. Y. S. 1005. 13 See sec. 14 of Bingham Cooperative Marketing Act of Kentucky, p. 304 of Appendix. 14 Lockney Farmers' Cooperative Society v. Egan, 275 S. W. 732, 284 S. W. 937 (Tex. Civ. App.). 15 Industrial Cooperative Union v. Lewis, 174 Wis. 466, 182 N .W. 861. 16 Dealers' Finance Company v. Woodard, 151 So. 145, reversing 147 So. 556. 17 Bushnell v. Elkins, 34 Wyo. 495, 245 P. 304, 51 A. L. R. 13. Normally, if an association borrowed money on its own note, which was signed on its behalf by its proper officers, the officers would not be personally liable for the amount involved. However, in a Louisiana case a cooperative executed a note and each of its directors placed his name upon the back of the note. They contended that they had thus signed only for the purpose of showing that the president and secretary of the association were authorized to issue the note, but this was disputed and they were held to be individually liable as endorsers.18 An officer, in signing an association note, should make it entirely plain upon the face thereof that he is signing in his official and not in his personal capacity. The normal way is for the name of the association to be affixed to the note by a proper officer, with a statement thereunder that it was affixed thereto "by" him, followed by his title.19 Although members of an association are not liable for its debts under the statute under which an association is formed, this does not prevent members from giving or endorsing notes to or for the association on which they may be held liable. Likewise, it does not prevent members of an association from agreeing among themselves to furnish money to enable the association to pay its debts. 20 AS Agency Cooperatives as Agents S A GENERAL rule, whatever an individual may do in person he may do through an agent. And the doctrine is well established that one who acts through an agent acts himself. An agent derives all his authority from his principal-the one for whom he is acting. Cooperatives frequently act as agents for members in the sale of produce or the purchase of supplies, and it is therefore important to consider the rights and liabilities of such associations and of their members under these circumstances. A cooperative that is acting as an agent may sue in its own name on account of a breach of a contract entered into by it with a third person.2 Likewise where an association was the sole agent of growers for the handling and marketing of their tobacco, it was held the association could have maintained a suit in its own name for the recovery of damages for the negligent destruction of tobacco without joining any of the growers. 22 21 A case 23 decided in 1922, by the Supreme Court of Washington, illustrates one of the important problems that may arise. A peach fruit growers' association entered into a contract in its name covering the sale and delivery of fruit of its members. Certain of the members of the fruit growers' association delivered a part of their fruit to the plaintiff, but sold and disposed of a quantity thereof to another dealer. Plaintiff brought suit against the members in question to recover an amount equal to the profits which it claimed it would have made if the 18 19 Herring v. Farmers' Cooperative Association, 148 La. 557, 87 So. 271. Agricultural Bond & Credit Corporation v. Courtenay Farmers' Cooperative Association, 64 N. D. 253, 251 N. W. 881. 20 Farmers' Coop. Union of Lyons v. Reynolds, 127 Kan. 16, 272 P. 108; Thomas County Cooperative Business Association of Colby v. Pearson, 124 Kan. 430, 260 P. 623. 21 Tustin Fruit Association v. Earl Fruit Company, 6 Cal. Unrep. 37, 53 P. 693. 22 Louisville & Nashville Railroad Company v. Burley Tobacco Society, 147 Ky. 22, 143 S. W. 1040. See also Dairymen's League Coop. Association, Inc. v. Hartford Accident and Indemnity Company, 300 N. Y. S. 431, 252 App. Div. 527. 23 Barnett Bros. v. Lynn, 118 Wash. 315, 203 P. 389, 390. See also Phez Co. v. Salem Fruit Union, 103 Ore., 514, 201 P. 222, 205 P. 970, 25 A. L. R. 1090. |