tion with which to defend the suit. The lower court held that the member had the right to examine the books and papers secretly, but on appeal the supreme court of the State said:

The order, when granted, should be upon affidavit of the defendant or his attorney specifying the particular documents to be examined and a showing of relevancy and materiality. The order should fully protect the plaintiff in its rightful custody of its books and records, and in its right to supervise the examination, to the extent that no improper use shall be made of its records, and that none are misplaced, destroyed, or lost. It should further reasonably limit the time in which the exami

nation shall be made.

Under proper circumstances a shareholder in a cooperative can bring a derivative action to redress wrongs committed against the cooperative. In one such case, it was held that shareholders in a cooperative are not subject to the usual rule restricting actions by shareholders "in right of corporation." The court pointed to the "special character" of a cooperative corporation in reaching this conclusion.32

Termination of Membership

In a cooperative formed with capital stock a person continues to be a member until a valid transfer, redemption, or forfeiture of his stock is effected. He cannot resign.33 Fundamentally, and this is the rule in the absence of stipulations to the contrary, on the transfer of the stock of an association held by an individual the purchaser stands in the place of the former owner as to rights and liabilities, and the former owner has no further interest in the association and is free from any further liability on account of the stock.34 Of course, a member of an association may not defeat his marketing contract therewith by a transfer of his stock.

Fundamentally, in a nonstock cooperative a person continues to be a member until he resigns or is expelled, or until his membership is otherwise terminated in accordance with law.

When associations require the payment of annual dues, the failure to pay such dues within the time prescribed does not terminate a membership in the absence of a bylaw or stipulation to that effect; and if such dues are not paid, a suit may be successfully maintained for their recovery.3

Although the marketing contract of a stockholder or member has expired, his stock is not forfeited nor is his membership terminated by that fact alone. Many of the cooperative statutes specifically authorize the associations formed under them to adopt bylaws with respect to redemption or forfeiture of stock and termination of membership. Generally, such bylaws require positive and affirmative action, usually by the board of directors, before membership in a nonstock cooperative is terminated and before stock may be forfeited or a stockholder compelled to transfer his stock. The power to expel members is fundamentally in the membership and unless the members have by an appropriate bylaw placed this power in its board of directors, the board would not have authority to expel a member.36 Prescribed procedure for expulsion of members, or for termination of their memberships, should be carefully followed.37

32

Northridge Coop. Section No. 1 v. 32nd Ave. Const. Corp., 136 N. Y. S. 2d 737. 33 Picalora v. Gulf Cooperative Co., 123 N. Y. S. 980, 68 Misc. Rep. 331.

34

Whitney v. Butler, 118 U. S. 655, 7 S. Ct. 61, 30 L. Ed. 266.

35 LaSalle County Farm Bureau v. Thompson, 245 Ill. App. 413; Boston Club v. Potter, 212 Mass. 23, 98 N. E. 614, Ann. Cas. 1913 C 397.

36 State ex rel. Boldt v. St. Cloud Milk Producers' Association, 200 Minn. 1, 273 N. W. 603.

37

People ex rel. Milsom v. East Buffalo Live Stock Association, 88 App. Div. 619, 84 N. Y. S. 795, affirmed in 179 N. Y. 598, 72 N. E. 1148.

As a general rule, the power of expulsion is in the members as a body and not in the board of directors; and in a Minnesota case 38 in which the statute specifically authorized the adoption of bylaws with respect to expulsion and also authorized the delegation of such power by the members to the board of directors, it was held that, inasmuch as the bylaws that had been adopted in regard to expulsion did not specify who was to exercise the authority, the board of directors was not authorized to do so.

Unless prohibited by a statute, an association is free at the time a producer is admitted to membership to prescribe the conditions under which his membership shall terminate, in the case of a nonstock organization,39 or the conditions under which he agrees to transfer his stock either to the association or to a person designated by it.40 Stipulations of this character may be made, as a general rule, although there is no specific statutory authority for them, assuming that they do not conflict with the law.

When an association refused to receive onions from a member because it was unable to obtain a price therefor that would pay marketing costs and the association also refused to allow the member to sell his onions to others, it was held that while the association may have been justified in breaching its contract, it was not within its rights in refusing to allow the member to sell his onions to others and that this entitled him to recover his membership fee of $300.41

A cooperative, which fundamentally and radically amends its articles of incorporation without the consent of a stockholder, may be liable thereto, as a result of such action, for the value of his stock therein.42

Fundamentally, the termination of a marketing contract or ceasing to do business with an association does not terminate a membership in a nonstock association or cause a stockholder in a stock association to cease to be a stockholder.

43

At the time an association is formed, a nonstock association should consider provisions with reference to the termination of membership and an association formed with capital stock should include suitable provisions so that all voting stock may be kept in the hands of active patrons. Consideration should also be given to the inclusion of provisions with respect to suspending the voting power of members or stockholders in the event they become inactive. Under the cooperative statutes, associations usually have great latitude with respect to these matters.

In

Certificates of membership in nonstock associations are not transferable at common law but may be made so by statute, bylaw, or contract. associations formed with capital stock, it is generally desirable that the provisions restricting the transfer of stock or giving the association authority to purchase it under certain conditions should be set forth on the certificates of stock. Such provisions are, as a rule, authorized by the cooperative statutes and, even independent of such statutes, are usually held valid.**

38 State ex rel. Boldt v. St. Cloud Milk Producers' Association, 200 Minn. 1, 273 N. W. 603.

39 Stevenson v. Holstein-Friesian Association of America, 30 F. 2d 625; George v. Holstein-Friesian Association of America, 238 N. Y. 513, 144 N. E. 776.

40

41

Farmers Union Coop. Gin Co. v. Taylor, 197 Okla. 495, 172 P. 2d 775. Guglielmelli v. Walla Walla Gardners' Association, 157 Wash. 109, 288 P. 251, 77 A. L. R. 385. See also: Kansas Wheat Growers' Association v. Toothaker, 128 Kans. 469, 278 P. 716.

42 Midland Cooperative Wholesale v. Ranger Cooperative Oil Association, 200 Minn. 538, 274 N. W. 624, 111 A. L. R. 1521.

43

Burley Tobacco Growers' Coop. Association v. Tipton, 227 Ky. 297, 11 S. W. 2d 119. But see Hiroshi Kaneko v. Jones, 235 P. 2d 768 (Ore.).

44

Carpenter v. Dummit [Burley Tobacco Growers' Coop. Association], 221 Ky. 67, 297 S. W. 695.

Interest in Association

As cooperatives acquire property and establish reserves, inquiry is frequently made concerning the financial or property interests which members have in their associations. In considering this matter, certain fundamental propositions should be kept in mind. Neither a stockholder of a stock association nor a member of a nonstock association has title to any part of its assets.45 Again a member or stockholder of an association may be a creditor thereof. He is a creditor not because he is a member or stockholder, but because the association, independent of that fact, owes him money; such indebtedness may exist because the association, usually in a contract or in its bylaws, has agreed to make certain payments to him. Purchase and sale marketing contracts and certificates of indebtedness illustrate this debtor-creditor relationship.

Aside from the claims a member may have against an association as creditor, what financial interest does he have in his association? This question usually does not arise unless a producer ceases to be a member or stockholder. Prior to dissolution, a member or stockholder of an association at common law has no interest therein that he can compel the association to recognize. Money paid by members of an association as membership dues, or fees, or for the purchase of stock; or money deducted by an association in pursuance of authority to do so from the returns received from the sale of products of members, for the purpose of establishing reserves, or for the acquisition of buildings, do not constitute debts owed by the association to the members unless the association has previously agreed to return or pay back the amounts involved.

47

At common law, if a member resigns or is expelled from a nonstock association, he is entitled to receive nothing therefrom because of this fact. In other words, in nonstock associations one who ceases to be a member for any cause, in the absence of express provisions to the contrary, loses his interest in the corporation and in turn is free from any further liability. In a Florida case 46 certain members withdrew from a fruit-marketing association and then instituted a suit against it to obtain compensation for "their interest" in the association. Apparently there was no provision, either statutory or otherwise, with reference thereto. The court held that the members on withdrawing from the association lost all their rights therein, that all the assets of the association could be used for the benefit of the remaining members, and that nothing was due the members who had withdrawn. In a later Florida case 48 in which the charter of the association provided that "all rights and privileges in said association, belonging to said member" shall cease in the event a member retires therefrom, it appeared that it had been the policy of the association to distribute back to its members at the end of a season all retains not required for general pur

45 Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 46 S. Ct. 256, 70 L. Ed. 475, 43 A. L. R. 1374.

46

Clearwater Citrus Growers' Association v. Andrews, 81 Fla. 299, 87 So. 903. See also Union Benev. Soc. No. 8 v. Martin, 113 Ky. 25, 67 S. W. 38; Dade Coal Co. v. Penitentiary Co., 119 Ga. 824, 47 S. E. 338; Henry v. Cox, 25 Ohio App. 487, 159 N. E. 101; Missouri Bottlers' Association v. Fennerty, 81 Mo. App. 525; Texas Employers Insurance Association v. Humble Oil & Refining Co., 103 S. W. 2d 818; Massaro v. Tampa Better Milk Producers Coop., 146 Fla. 64, 200 So. 211; Liggett v. Koivunen, 227 Minn. 114, 34 N. W. 2d 345; 5 C. J. 1360, 19 R. C. L. 1267.

This was before the passage of the 1923 cooperative act of Florida, Laws of 1923, ch. 142.

48 Ozona Citrus Growers' Association v. McLean, 122 Fla. 188, 165 So. 625. See also Adams v. Sanford Growers' Credit Corporation, 135 Fla. 513, 186 So. 239.

412528°--58-——5

57

poses, when a sufficient amount of such retains had accumulated. It was held that the executor of a former member "had a right to recover his pro rata part of any surplus on hand arising from 'retains' for handling citrus fruits during his membership." With respect to this amount the member was apparently looked upon as a creditor. The conclusion of the court was presumably affected by the fact that the association was discontinuing operations.

In a California case,19 suit was brought by the assignee of certain members who withdrew from a dairymen's association to recover amounts which had been deducted by the association from the sums due each member for milk delivered. Such deductions were made for capital purposes pursuant to a bylaw which provided that the capital retained would be distributable only upon the liquidation of the association. The court held that the statute under which the association was incorporated did not require the association to adopt a bylaw providing the manner in which the value of members' interests would be ascertained and providing for their purchase in the event of withdrawal. Although the statute did not specifically authorize the adoption of a bylaw providing for the distribution of the assets of the association on liquidation, the court apparently considered valid the bylaw which had been adopted. It denied recovery to the assignee of the withdrawing members.

A clear distinction should be drawn between amounts claimed by a member under his contract with an association and amounts claimed by him by reason of his membership therein. In an Oregon case,5o an association that was engaged in growing apples was a member of a marketing association. The former association canceled its membership in the latter and later brought suit against this association on its contract. The court said that:

Under the terms and conditions of the contract, standing alone and complete within itself, the grower is entitled to receive each year the balance of any net proceeds from an annual pool, within 30 days after the receipt of the money by the association, and it is the duty of the association to render an annual statement of the receipts and disbursements of each pool. The record is conclusive that such statement was never made and such accounting was never rendered to the plaintiff; that, after paying the expenses of the association named in the contract, there is a surplus estimated to be about $80,000.

The marketing association claimed that, by reason of a bylaw which provided that the cancelation of the standard contract shall "cancel and terminate the membership of such grower, together with all benefits accruing thereunder, and all voting power, right, and interest of every kind and nature shall immediately cease and terminate," it was entitled to retain the money in question and that the plaintiff was entitled to no part thereof. The court, however, held that the bylaws did not "apply to a surplus accruing from the sale and purchase of fruit and charges therefor, under an express contract, but are confined and limited to the right, title, and interest which a corporation or individual may have in and to the net assets of the association by reason of membership therein subject to the payment of all of its debts and liabilities. They do not give to the association the right to keep the money which it promised and agreed to pay another under its express contract." In other words, the member was entitled to nothing by reason of his membership, but was entitled to payment in accordance with his marketing contract.

49 Driscoll v. East-West Dairymen's Association, 122 P. 2d 379, 126 P. 2d 467 (Cal.). 50 Hood River Orchard Co. v. Stone, 97 Ore. 158, 191 P. 662, 666. See also Bogardus v. Santa Ana Walnut Growers' Association, 41 Cal. App. 2d 939, 108 P. 2d 52. Cf. Hiroshi Kaneko v. Jones, 235 P. 2d 768 (Ore.).

If the contracts or bylaws of an association state, for instance, that unless a person is a member of the association at or prior to a specified time, he shall not be entitled to the return of any money advanced by him, then this language is conclusive and bars from any recovery a person who was not a member prior to the time fixed.51 A member may be estopped by reason of an account stated, or otherwise, from claiming that any part of reserves should be returned to him.52

In associations formed with capital stock, at common law, a person on the sale or transfer of his stock has no further interest in the association and no claims against it except such claims as are independent of stock ownership.53 This is the rule unless it has been changed by statute, by contract, or by a provision in the bylaws.

In contrast with the common law rule applicable to nonstock associations, many of the cooperative statutes providing for the formation of cooperatives require the incorporators of such nonstock associations to state in the articles of incorporation 54 "whether the property rights and interests of each member shall be equal or unequal; and if unequal, the general rule or rules applicable to all members by which the property rights and interests, respectively, of each member may and shall be determined and fixed; and provision for the admission of new members who shall be entitled to share in the property of the association with the old members, in accordance with such general rule or rules." Such statutes also authorize associations formed under them to adopt bylaws relative to the interests of members therein and further provide that "In case of the withdrawal or expulsion of a member, the board of directors shall equitably and conclusively appraise his property interests in the association and shall fix the amount thereof in money, which shall be paid to him within one year after such expulsion or withdrawal." 55 The statutory provisions referred to are applicable only to associations formed under statutes that contain them.

Some associations are authorized in their marketing contracts to make deductions for "creating funds for credits and other general commercial purposes (said funds not to exceed 1 percent of the gross resale price)." Such funds constitute a reserve that may be used for the purposes specified and a member may not successfully sue an association for their return.56 Such funds might be lost or dissipated in the conduct of the business of an association without liability therefor.

At common law, on the dissolution of a nonstock cooperative, only the persons who are then members are entitled to share in the distribution of the assets remaining after the payment of its debts.57 In an association formed

51 Weber Implement & Automobile Co. v. St. Louis Automobile Mfrs. & Dealers Association, 181 S. W. 1025 (Mo. App.).

52

Mountain View Walnut Growers Association v. California Walnut Growers Association, 19 Cal. App. 2d 227, 65 P. 2d 80; Winter Garden Citrus Growers' Association v. Willits, 113 Fla. 131, 151 So. 509. See also Rusconi v. California Fruit Exchange, 101 Cal. App. 750, 281 P. 84.

53

Whitney v. Butler, 118 U. S. 655, 7 S. Ct. 61, 30 L. Ed. 266.

54 See sec. 8 of Bingham Cooperative Marketing Act of Kentucky, p. 302 of Appendix.

55 See sec. 10 of Bingham Cooperative Marketing Act of Kentucky, p. 303 of Appendix.

56 McCauley v. Arkansas Rice Growers' Coop. Association, 171 Ark. 1155, 287 S. W. 419; Burley Tobacco Growers' Coop. Association v. Tipton, 227 Ky. 297, 11 S. W. 2d 119; Burley Tobacco Growers' Coop. Association v. Brown, 229 Ky. 696, 17 S. W. 2d 1002.

57

Hopkins v. Crossley, 138 Mich. 561, 101 N. W. 822; Clearwater Citrus Growers' Association v. Andrews, 81 Fla. 299, 87 So. 903. But cf. Attinson v. ConsumerFarmer Milk Cooperative, Inc., 94 N. Y. S. 2d 891, holding that since the purposes