to its members, the court said: "If the seed is not sold, certainly the association could recover the excess advances to any one member." 29 If an association makes advances to its members with borrowed money and the advances prove to be excessive, resulting in the insolvency of the association unless the excess advances are recovered from the members, the creditors of the association, if it fails or refuses to take action to recover the excess advances, can have the association placed in the hands of a receiver. The receiver can then recover the excess advances from the members, assuming the association could recover, because such excess advances are assets of the association or obligations due it. Where a mortgagee of rice, with knowledge of the marketing contract entered into by his mortgagor with a cooperative, availed himself of the services of the association, the trustee in bankruptcy of the association was entitled to recover overadvances made to the mortgagee. 30 In a New York case 31 a cooperative entered into a contract with a commercial firm for the sale by that firm on commission of all the wool which the members of the association consigned or delivered to the association for sale. In pursuance of this contract, the firm advanced money to the association which was advanced by the association on wool as it was received and graded. The wool sold for less than the advances thereon. In a suit to recover such overadvances, it was held that the four members of this incorporated association who had been served with process were not jointly or severally liable for all the overadvances. On the other hand, in a case involving an unincorporated association in which the facts were substantially the same it was held that the president and all its members were liable jointly for overadvances. 32 Where an association made overadvances to a tenant who with his landlord had signed a marketing agreement with the association, it was held that the landlord was liable for such overadvances as the court regarded the landlord, under the facts in question, as a guarantor.3 33 Overadvances have caused the failure of some associations. Even if an association has the legal right to recover overadvances, practical considerations frequently make it undesirable to do so. Lawsuits do not encourage patronage; on the contrary, they encourage withdrawals. In some instances, the indebtedness due an association by a member because of an overadvance is deducted from the proceeds received by the association from products delivered by him in subsequent years. Likewise, associations may offset overadvances against patronage refunds. However, the safest course for an association to follow is to avoid making overadvances. Effect of Breach of Contract What is the real character of the form of cooperative marketing contract commonly entered into by cooperatives with their members? Do such contracts constitute contracts between and among the members as well as with Texas Certified Cottonseed Breeders' Association v. Aldridge, 122 Tex. 464, 61 S. W. 2d 79, 84, reversing 59 S. W. 2d 320 (Tex. Civ. App.). Baird v. Gleason, 53 F. 2d 785. 1 Mandell v. Cole, 244 N. Y. 221, 155 N. E. 106. See also Barnett Bros. v. Lynn, 118 Wash. 308, 203 P. 387; Sullivan v. American Fruit Growers, Inc., 45 Idaho 153, 260 P. 1029. 32 Mandell v. Moses, 209 App. Div. 531, 205 N. Y. S. 254, affirmed in 239 N. Y. 555, 147 N. E. 192. 33 McDonald v. Gravenstein Apple Growers Coop. Association, 42 Cal. App. 2d 329, 108 P. 2d 936. the association? Is a member relieved from the obligation to deliver his products to the association for marketing because the association has committed a breach of the marketing contract or has failed to abide by its bylaws? The general rule is that "the party to a contract who commits the first breach is the wrongdoer and thereby absolves the other party from performance." But is this rule fully applicable to cooperative associations in differences with their members? Strong reasons exist for urging that the rule has less application to such contracts than to the ordinary business contract. Cooperative contracts are apparently universally regarded as not only contracts with cooperatives as legal entities, but as contracts between and among the various members.34 An advantage given one member is ordinarily at the expense of other members. The defection of a member may increase the share of the total expenses that each of the others is called upon to pay. The effectiveness and efficiency of an association depend to a high degree on the faithfulness with which each member works with all the other members. They [marketing contracts] are not simply agreements entered into with an agent, although a few people may be selected to act in the capacity of officers to manage the business of the association. The agreements are essentially to and with all the other members of the cooperative association, and the interests of every member rest upon the same foundation, and no member can be advantaged to the detriment of any other member. 35 To release a member from his contract or to permit him to defend a suit brought against him by the association by showing that directors or an officer, manager, or some other employee of the association has done something which should not have been done, or has failed to do something which should have been done, fails to take into consideration the obligation of the member in question to all the other members. Clearly, the contract among the members is not breached by the act of omission or commission, as the case may be, on the part of a delinquent officer or manager of the association. The proposition becomes more transparent if the same situation arises with respect to an unincorporated association in which various producers are banded together by a contract which specifies that a certain party, or parties, is to act as marketing agent, and which vests in this agent certain stated powers. If the agent is delinquent or fails to abide by the terms of the contract, this would not release a producer from the contract or enable him to excuse nonperformance of his obligations under the contract. It would be obvious that the remedy lay in discharging the agent or in taking other appropriate action within the association for correcting the situation. Does the fact that an association is incorporated change the essential character of the enterprise? The interdependent relation among the members is present in each case. The object sought to be accomplished is the same. The means employed are identical except for incorporation. At McCauley v. Arkansas Rice Growers' Coop. Association 171 Ark. 1155, 287 S. W. 419; Staple Cotton Coop. Association v. Borodofsky, 143 Miss. 558, 108 So. 802; Haarparinne v. Butter Hill Fruit Growers' Association, 122 Me. 138, 119 A. 116; Manchester Dairy System, Inc. v. Hayward, 82 N. H. 193, 132 A. 12; Rifle Potato Growers' Coop. Association v. Smith, 78 Colo. 171, 240 P. 937; California Canning Peach Growers v. Downey, 76 Cal. App. 1, 243 P. 679; Anaheim Citrus Fruit Association v. Yeoman, 51 Cal. App. 759, 197 P. 959; Kansas Wheat Growers' Association v. Schulte, 113 Kan. 672, 216 P. 311. 35 California Canning Peach Growers v. Downey, 76 Cal. App. 1, 243 P. 679, 684. least one appellate court has given partial if not complete application to the doctrine under discussion, and in this connection said: "Appellants signed the 'marketing contract' with the other members of the association. Hence, appellants' agreements were made in consideration of like agreements of the other members and for their mutual advantage. If appellants could be absolved from the performance of the contract because the officers of the association had committed breaches of the contract in certain respects, it is certain that the other members of the association would suffer by this course." 99 36 In this case the court held that 118 members of the association, who had joined in a suit for the purpose of having the association placed in the hands of a receiver, would be required to carry out their marketing contracts in the future, but also held that the association should be enjoined from seeking to collect liquidated damages from the members on account of their failure to abide by their contracts in the past. As to the future, the court held that the members must specifically perform their contracts. On the other hand, as will be shown in the following section, the failure of a cooperative to carry out the terms of its marketing contract with a member has frequently been held to constitute a defense to a suit brought by the association against the member on the contract. As a general rule, it is believed that when members of an association believe that the directors they have elected to manage the association, or its officers or other agents, are not complying with its charter, bylaws, or marketing contract, they should be required to seek relief within the association through the election of new directors and officers, or the enjoining of them, or through other corrective measures.37 To use a figure of speech, the members of a cooperative embark together for a common voyage and no member should be allowed to leave the ship except in accordance with specified conditions. Defenses to Contracts A member of a cooperative may not question the constitutionality of the statute under which the association is incorporated, or the terms of the contract entered into with the association.38 Likewise, members are generally held to be estopped from setting up the invalidity of certificates of stock.39 Although the charter of a corporation did not disclose that it was intended to function on a cooperative basis, a stockholder who became such with knowledge of the fact that the corporation was so functioning could not successfully complain of this fact. 40 Before an association was incorporated, a producer signed a contract. providing for the delivery of milk by him. It was found that the associa 38 McCauley v. Arkansas Rice Growers' Coop. Association, 171 Ark. 1155, 287 S. W. 419, 423. Cf. Indianapolis Dairymen's Cooperative, Inc. v. Bottema, 226 Ind. 237, 79 N. E. 2d 399; 226 Ind. 260, 79 N. E. 2d 409. 38 Johnson v. Georgia-Carolina Retail Milk Producers Association, 182 Ga. 695, 186 S. E. 824; Owen County Burley Tobacco Society v. Brumback, 128 Ky. 137, 149, 107 S. W. 710. See also Lennox v. Texas Cotton Coop. Association, 55 S. W. 2d 543 (Tex. Com. App.); Zander v. Schackel, 161 Minn. 116, 201 N. W. 308; Hancock v. Frederick Coop. Mercantile Co., 48 S. D. 1, 201 N. W. 714; Berry v. Maywood Mutual Water Company Number 1, 13 Cal. 2d 185, 88 P. 2d 705; Vermont Farm Machinery Co. v. DeSota Cooperative Creamery Co., 145 Iowa 491, 122 N. W. 930. Bliss v. California Coop. Producers, 23 Cal. App. 2d 245, 72 P. 2d 885. tion was authorized to do business with members only and as neither the producer nor the association had complied with the bylaw provisions for making the producer a member, the association could not enforce its contract with the producer.11 Mismanagement or unwise conduct of the affairs of an association is no defense to a suit for breach of a marketing contract.42 The courts analogize the marketing contracts of an association for the delivery of products to contracts of commercial corporations for the delivery of money thereto in payment for stock purchased, and the rule is that mismanagement of a commercial corporation is no defense to a suit for the recovery of the purchase price of stock.43 It has been held that the alleged failure of the association correctly to account operated to relieve a member from his obligations under the contract. Again it has been held that the release by the directors of certain members operated to release other members from performing their contracts.45 It has been intimated that the failure on the part of an association to enforce its marketing contract against certain members might operate to release others.46 In a Washington case " in which it was contended “that no member of the association could lawfully be released from his membership contract and obligations without the consent of all the members of plaintiff association" it was held that compromise agreements entered into by the officers of an association with members, which released the members from their obligations to deliver their commodities under the marketing contracts, were valid. It appeared that with respect to all but one of these members there was a question regarding the validity of the contracts; that all the members paid money to the association for the purpose of obtaining release from their marketing contracts; and that, after the compromise agreements were consummated, all the members of the association had knowledge thereof and made no objection thereto. Although an association may be justified in breaching its marketing contract by refusing to receive commodities, it has been held that the refusal of an association to allow the grower to sell such commodities to others permits the member to recover his membership fee. 48 "Tulsa Milk Producers' Cooperative Association v. Hart, 145 Okla. 263, 292 P. 558. 42 12 Nebraska Wheat Growers' Association v. Smith, 115 Neb. 177, 212 N. W. 39; Pittman v. Tobacco Growers' Coop. Association, 187 N. C. 340, 121 S. E. 634. See also California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658, 47 A. L. R. 904; Toy v. Lapeer Farmers Mutual Fire Insurance Association, 297 Mich. 174, 297 N. W. 232; California Bean Growers' Association v. Sanders, 86 Cal. App. 689, 261 P. 717. Mississippi, Ouachita & Red River R. R. Co. v. Cross, 20 Ark. 443; 7 R. C. L. sec. 235; 4 Fletcher CYCLOPEDIA CORPORATIONS, Perm. Ed., secs. 1777-1778; American Building & Loan Association v. Rainbolt, 48 Neb. 434, 67 N. W. 493. See also Brewer v. Boston Theater Co., 104 Mass. 378. 45 "Brown v. Georgia Cotton Growers' Coop. Association, 164 Ga. 712, 139 S. E. 417: New Jersey Poultry Producers' Association v. Tradelius, 96 N. J. Eq. 683, 126 A. 538. Staple Cotton Coop. Association v. Borodofsky, 143 Miss. 558, 108 So. 802. See also Beaulaurier v. Washington State Hop Producers, Inc., 8 Wash. 2d 79, 111 P. 2d 559. 40 California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658, 47 A. L. R. 904. "Washington State Hop Producers v. Eglin, 6 Wash. 2d 531, 108 P. 2d 329, 330. See also Beaulaurier v. Washington State Hop Producers, Inc., 8 Wash. 2d 79, 111 P. 2d 559. 48 Central Texas Dairymen's Association v. Jones, 67 S. W. 2d 896 (Tex. Civ. App.). See also Kansas Wheat Growers' Association v. Toothaker, 128 Kan. 469, 278 P. 716. In an Oregon case 49 in which the court found that, "The price did not depend on what any other grower was to get, and the release of another grower could not in any way increase or diminish his compensation," it was held that the release of a member from his contract did not release others. If an association by the terms of its marketing contract is required to receive the products covered thereby, refusal to accept such products terminates the marketing contract.50 A cotton cooperative entered into an agreement to purchase cotton of a given grade and staple and at certain prices. It received the cotton and paid therefor "as the cotton was shipped to it upon the basis that it was all according to the classification set forth in the agreement." The association rejected 1,596 bales of cotton and then filed a suit "to recover on an account stated and to recover for storage charges and insurance on rejected cotton." Although there appears to have been a substantial dispute in the testimony, the trial court held that the cotton had been arbitrarily rejected and that, therefore, the association was not entitled to recover. This judgment was affirmed by the appellate court. On appeal, it was held that because of the finding that the cotton had been arbitrarily rejected for not being of proper grade, the relationship of debtor and creditor did not arise and hence the association could not maintain an action for an account stated, or for storage charges and insurance in connection with such cotton.51 The unjustified refusal of an association to regrade a grower's tobacco was held to justify a grower's refusal to continue performance under his marketing agree.nent.52 Again, when a milk association required a member to install expensive equipment which it was apparently not authorized to require by the terms of the marketing contract, the court was of the opinion that this would constitute a defense to a suit against the producer on his contract.53 In a California case a producer was permitted to show, when sued on a written contract, that an oral agreement had been substituted therefor.54 But statements and actions by an association which are consistent with its marketing agreement have no adverse effect thereon.55 When a member of an association does not object to a practice which the association is following, but apparently acquiesces therein, he may be estopped from questioning the practice.56 In a New York case, a member of a cooperative contended that the asso 19 Phez Co. v. Salem Fruit Union, 103 Ore. 514, 201 P. 222, 232, 205 P. 970, 25 A. L. R. 1090. 50 Central Texas Dairymen's Association v. Jones, 67 S. W. 2d 896 (Tex. Civ. App.). See also Guglielmelli v. Walla Walla Gardners' Assocation, 157 Wash. 109, 288 P. 251, 77 A. L. R. 385; Mountain States Beet Growers' Marketing Association v. Monroe, 84 Colo. 300, 269 P. 886; Wisconsin Cooperative Milk Pool v. Saylesville Cheese Manufacturing Company, 219 Wis. 350, 263 N. W. 197. 51 359. 62 California Cotton Coop. Association v. Byrne, 58 Cal. App. 2d 84, 136 P. 2d Myrold v. Northern Wisconsin Cooperative Tobacco Pool, 206 Wis. 244, 239 N. W. 422. 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. Producers' Fruit Company of California v. Goddard, 75 Cal. App. 737, 243 P. 686. Cf. Matanuska Valley Farmers Cooperative Association v. Monaghan, 188 F.2d 906. Meyer v. California Prune & Apricot Growers' Association, 42 Cal. App. 2d 632, 109 P. 2d 726. Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190. |