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Wisconsin, provision has been made for the filing or recording of marketing contracts for the purpose of giving notice to all concerned of the rights of the association with respect to the crops covered by marketing contracts. The cooperative marketing act of Indiana 5 provides that—

Growers of agricultural products who have signed any such marketing agreement with cooperative marketing associations organized hereunder shall be permitted to place crop mortgages upon their crops; but said crop mortgages and any other liens shall be subordinate to the right of such association to take delivery of any such crops covered by the marketing agreement.

Restrictions on Association's Right To Sell

If an association receives commodities to sell subject to certain restrictions such as that all sales are to be approved by the member, or that no sales will be made before a certain date, these restrictions should be observed if the association is to avoid risk of liability. The question arises whether an association may ever sell goods in its possession, if to do so would be contrary to an agreement which the association has made.

In a Texas case a cooperative had entered into a written contract with a member, under which the association had the authority to sell the cotton delivered pursuant thereto, but later the association entered into an oral understanding with the member that it would not "sell the 1,095 bales of cotton without first consulting" the member "as to the price to be paid therefor." The association sold the cotton without first consulting the member and the member recovered a judgment against the association because of its failure to abide by its oral agreement.

If a factor receives a consignment of goods to be sold subject to restrictions as to price or terms of sale and he makes advances on the goods or incurs expenses with respect thereto, it is generally held that he may proceed to sell the goods if the consignor, after reasonable notice, fails to reimburse the factor for the advances or the expenses incurred. No reason is apparent why under comparable circumstances an association could not sell commodities which it had received from its members for sale, if the members after reasonable notice, failed to reimburse the association. It may be that in a particular case the terms of the marketing contract of an association might alter the situation; but, generally, it is believed that an association is entitled to sell commodities for the purpose of reimbursing itself under conditions where a factor might do likewise.

In the interest of operating efficiency an association should have broad powers of sale; and, in general, restrictions on its authority to make sales should be avoided. Some associations which operate on a pool basis include provisions in their marketing contracts which specifically authorize them to set a value on the residue of commodities which are on hand at the

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Wisconsin Statutes 1953, sec. 185.08, replaced by sec. 185.52 after June 30, 1956, Wis. Laws 1955, c. 368, p. 435 et seq; construed in Watertown Milk Producers' Coop. Association v. Van Camp Packing Co., 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A. L. R. 391. See also Spencer Cooperative Live Stock Shipping Association v. Schultz, 209 Wis. 344, 245 N. W. 99: Wisconsin Cooperative Milk Pool v. Saylesville Cheese Manufacturing Company, 219 Wis. 350, 263 N. W. 197; Neillsville Shipping Association v. Lastofka, 225 Wis. 350, 274 N. W. 280.

5 Burns Indiana Statutes Ann., sec. 15-1615 (d).

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Texas Cotton Cooperative Association v. Lennox, 55 S. W. 2d 543 (Tex. Com. App.), reversing 37 S. W. 2d 331. See also Imperial Valley Long Staple Cotton Growers' Association v. Davidson, 58 Cal. App. 551, 209 P. 58: Sullivan v. American Fruit Growers, Inc.. 45 Idaho 153, 260 P. 1029.

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Brown v. Southern Grocery Company, 168 Ark. 547, 271 S. W. 342, 40 A. L. R. 383. See note in 40 A. L. R. 387.

close of a marketing period and to account to their members accordingly. Thus an association is enabled to make a final settlement for a crop although a portion may not have been sold. Such an authority should be carefully and conservatively exercised.

Pooling

Pooling is widely practiced by cooperatives. Pooling should be thought of as an averaging process, an averaging with respect to products, prices, expenses, or returns. In the case of products, this involves a grading of the products received from each member and a separation of such products according to grade for sale purposes. If the pool is a seasonal one, when all the products received from the members for a given crop year have been sold, the quantity that each member has had in each grade is multiplied by the average price per unit received for all the products in that grade, and thus the total amount that each member is entitled to receive after the deduction of marketing expenses and any other authorized deductions is determined.

Daily, weekly, monthly, or seasonal pools, if authorized, could be established; or the pool might consist of a single shipment, say of livestock; but the principles underlying all such pools are the same. Generally, in long-time pools, one or more advances may be made to members after the receipt of the products, and then final settlement is made after the sale of all the products in the pool and after it is known what the total expenses of the association for the year will be.

Marketing expenses are pooled either on the basis of units of product or on the basis of value. Marketing expenses, even when products are pooled for periods of less than 1 year, are often on a yearly basis. This is fair, as expenses continue throughout the year and the association must be maintained. Broadly speaking, any pooling method for any of these things is valid provided the members have consented thereto either in the bylaws or in the contract.

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The right of an association to determine conclusively the grade of products received from its members, if authorized to do so by its bylaws or marketing contract, is established."

The question whether pooling or grading is properly done appears to be open only in case of fraud or such gross mistake as to imply bad faith.10 Unless an association is authorized to pool products or expenses or gains or losses, it may not do so. In an Oregon case involving a milk association, the cooperative attempted to apportion losses arising from the fact that

Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190: Washington Coop. Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806; McCauley v. Arkansas Rice Growers Coop. Association, 171 Ark. 1155, 287 S. W. 419; Tobacco Growers' Coop. Association v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231: Martinsburg & Potomac Railroad Co. v. March, 114 U. S. 549, 5 S. Ct. 1035, 29 L. Ed. 255; Kelsey v. Early Grain & Elevator Company, 206 S. W. 849 (Tex. Civ. App.).

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Washington Coop. Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806; McCauley v. Arkansas Rice Growers' Coop. Association, 171 Ark. 1155, 287 S. W. 419; Martinsburg & Potomac Railroad Co. v. March, 114 U. S. 549, 5 S. Ct. 1035, 29 L. Ed. 255.

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Martinsburg & Potomac Railroad Co. v. March, 114 U. S. 549, 5 S. Ct. 1035, 29 L. Ed. 255; New England Trust Co. v. Abbott, Ex'r, 162 Mass. 148, 38 N. E. 432, 27 L. R. A. 271; Berger Mfg. Co. v. Huggins, 242 F. 853: Citizens' Independent Mill & Elevator Co. v. Perkins, 52 Okla. 242. 152 P. 443: Hayes Grain & Commission Co. v. Federal Grain Co., 169 Ark. 1072, 277 S. W. 521; Arkansas Cotton Growers' Coop. Association v. Brown, 179 Ark. 338, 16 S. W. 2d 177.

certain milk dealers had rejected milk. A member, whose milk had been accepted and paid for by the dealer at the full sale price, objected to bearing any part of the loss on account of the rejected milk. He successfully sued the association and recovered the amount of the loss which the association sought to have him bear.11

Of course, if the bylaws or marketing contract of an association provides for a certain method of pooling, this method and no other should be followed. 12 An association's bylaws and marketing agreement provided for daily pools, and it was held that this barred the association from distributing the proceeds of sales to members in any other way, regardless of the fact that the officers of the association apparently were of the opinion that "inequitable" results were thus attained.13 On the other hand, if an association is not authorized to pool commodities which it is handling, it may be liable if it mixes the commodities received from one member with those received from others.14

Under the usual form of pooling contract, if products are burned the insurance proceeds take the place of the products in the pool, and the fact that the identity of the products burned is known is immaterial and does not give the producer of them any rights to the insurance proceeds independent of his rights of participating in the returns of the pool.15

Generally, it appears that a member of an association pooling and marketing agricultural commodities is entitled to receive an itemized statement, by pools, showing gross prices received for such products and how the net amount to be paid him by the association was determined.1

Milk associations frequently employ equalization pools into which distributors of milk make payments based upon the specific uses made of the milk delivered by the members of an association, for the purpose of equalizing the returns to members.1

A marketing contract may be so drawn that, even if the grower is given the option of determining when "his products" shall be sold or the "price fixed" with reference thereto, the association is not required to keep on hand the specific products delivered by the member, but only an equivalent quantity of products of like grade. 18

Some associations use marketing contracts which give their members various options with respect to the pooling and selling of their commodities.19 Sometimes a member may be given the option to have his commodities sold separately.

When an association was authorized to pool products and proceeds arising from their sale, the relation existing between the association and

"Steelman v. Oregon Dairymen's League, Inc., 97 Ore. 535, 192 P. 790. See also Cole v. Southern Michigan Fruit Association, 260 Mich. 617, 245 N. W. 534.

12 McCauley v. Arkansas Rice Growers' Coop. Association, 171 Ark. 1155, 287 S. W. 419.

13 Cole v. Southern Michigan Fruit Association, 260 Mich. 617, 245 N. W. 534. See also Steelman v. Oregon Dairymen's League, Inc., 97 Ore. 535, 192 P. 790.

14 Imperial Valley Long Staple Cotton Growers' Association v. Davidson, 58 Cal. App. 551, 209 P. 58.

Texas Certified Cottonseed Breeders' Association v. Aldridge, 122 Tex. 464, 61 S. W. 2d 79, reversing 59 S. W. 2d 320 (Tex. Civ. App.); Johnson v. Staple Cotton Coop. Association, 142 Miss. 312, 107 So. 2.

10 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114. 70 P. 2d 190.

Stark County Milk Producers' Association v. Tabeling, 129 Ohio St. 159, 194 N. E. 16, 98 A. L. R. 1393; United States v. Rock Royal Cooperative, Inc., 307 U. S. 533, 59 S. Ct. 993, 83 L. Ed. 1446.

1 Alabama Farm Bureau Cotton Association v. Dale, 223 Ala. 164, 134 So. 646. Ibid., n. 18.

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a member following the sale of the products was that of debtor and creditor and the officers were not liable for conversion, although a receiver was appointed for the association before settlement was made.20

Excess Advances or Payments

Cooperatives frequently make advances or partial “payments" to their members on receipt of their products. The question arises, in the event the advances or payments made exceed the amount to which the member is entitled, after deducting marketing expenses and all other authorized deductions from the sales returns, may the association recover the amount of such excess advances or payments from the member? The answer is "Yes," in most instances. The basis for the recovery is the doctrine that no man shall be allowed to enrich himself unjustly at the expense of another or shall be allowed to retain money that in "equity and good conscience" belongs to another.21

The simplest case in which this question could arise would probably be that of an association that functioned on a commission or brokerage basis; for example, a cooperative livestock-selling agency. If a shipper to such an agency should draw a draft against it in connection with a shipment of livestock made thereto, and the proceeds from the sale of the livestock, after marketing expense had been deducted, should be less than the amount of the draft, the cooperative agency could then successfully sue the shipper for the difference between the amount of the draft and the net proceeds received for the livestock.

The right of commission merchants and factors to recover the amount of excess advances made by them is settled,22 and this right is possessed also by cooperatives that function along the same general lines. Whether the cooperative uses the purchase-and-sale or the agency type of contract, the obligation of the association should be to pay the member the amount received for his products on a pool basis or otherwise, less authorized deductions. If a member, regardless of the type of contract involved, receives more than this amount, he has received something to which he is not entitled, and hence the association may recover it. A number of cooperative associations have done so.23

In the case just cited involving the California Raisin Growers' Association, the cooperative, which functioned on an agency basis, successfully brought suit against some 600 growers on account of excess advances made to them, for the purpose of having the money distributed among members of the association who had been underpaid and among certain creditors of the association who were also parties to the suit.

The contracts of a cooperative should be so worded as to show clearly the

"Winans v. Brue (Kennewick Richland Marketing Union), 140 Wash. 56, 248 P. 62.

21

Jackson v. Creek, 47 Ind. App. 541, 94 N. E. 416.

"Re Estate of Joseph P. Murphy Co., 214 Pa. 258, 63 A. 745, 5 L. R. A. (N. S.) 1147; Newburger-Morris Co. v. Talcott, 219 N. Y. 505, 114 N. E. 846, 3 A. L. R. 287. 23 Arkansas Cotton Growers' Coop. Association v. Brown, 179 Ark. 338, 16 S. W. 2d 177; California Raisin Growers' Association v. Abbott, 160 Cal. 601, 117 P. 767; Sugar Loaf Orange Growers' Association v. Skewes, 47 Cal. App. 470, 190 P. 1076; California Bean Growers' Association v. Williams, 82 Cal. App. 434, 255 P. 751; Lake Charles Rice Milling Co. v. Pacific Rice Growers Association, 295 F. 246. See also Farmers' Union Coop. Shipping Association of Natoma v. Schultze, 112 Kan. 675, 212 P. 670; Davidson v. Apple Growers' Association, 159 Ore. 473, 79 P. 2d 991; People v. Mills, 41 Cal. App. 2d 260, 106 P. 2d 216, 628.

exact method of disbursement. In a Wisconsin case 24 in which the marketing contract provided for advances but also stipulated "that payment shall be made on the 20th day of each month for cheese shipped by the local during the month before the month which precedes the date of payment," the court held that the disbursements which were made to the local association were made as payments and not as advances and, therefore, that the association was not entitled to recover excess advances.

A Minnesota case,25 although it does not cite the Wisconsin case, is essentially consistent with it in theory. That case held that a trustee in bankruptcy for a cooperative creamery could not recover from members and patrons any part of the price paid for products, even though such price may have exceeded the difference between the association's gross receipts from the marketing of such products and its operating expenses during the respective years by periods, because the contractual relationship between the creamery and its patrons was one of purchaser and seller; not that of principal and agent.

The decision in a New Jersey case 26 that an association doing business on "a cash basis" may recover overpayments for products unless the association's losses were occasioned by some negligence, fault, or misconduct of the association itself in marketing the products is also not considered inconsistent in view of the court's statement that by the terms of its charter and bylaws, * the association, in marketing the produce of the farmer members, was acting as agent of the members, and substantially as a clearinghouse, * * *”

If an association has in fact agreed to pay a minimum price to its members, it has been held that no recovery may be had if the commodities fail to bring the minimum price.27

When excess advances or payments are made by an association that functions on a pool basis, there is always the strong possibility that some members have received less than they were entitled to; whereas other members have received more than the amount to which they were entitled. This situation would provide an additional reason for allowing an association to recover excess advances. The principles under discussion are applicable, even in cases in which an association in its contract agrees to make an advance of a specified amount to growers, which amount proves to be excessive, because both parties assume that the products will bring a net amount larger than the advance. If this assumption proves to be incorrect, the necessary adjustments are in order. The association contracts to pay to its members only the net amount received by it for their products, minus authorized deductions. If more is paid, a member has received something to which he has no claim. No reason is apparent why these principles would not be as applicable to an unincorporated as to an incorporated association; and, in a Kentucky case involving an unincorporated association, the members were held liable for overadvances made to them.

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Where an association borrowed money on cottonseed and made advances

24 Neith Cooperative Dairy Products Association v. National Cheese Producers' Federation, 217 Wis. 202, 257 N. W. 624, 98 A. L. R. 1403. See also Yakima Fruit

Growers' Association v. Hall, 180 Wash. 365, 40 P. 2d 123.

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Lewis v. Monmouth County Farmers' Cooperative Association, 105 N. J. Eq.

257, 147 A. 550.

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Yakima Fruit Growers' Association v. Hall, 180 Wash. 365, 40 P. 2d 123.
Tomlin v. Petty, 244 Ky. 542, 51 S. W. 2d 663.

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