contract may be of the purchase-and-sale type or of the agency type if the statute under which the association is formed authorizes either or both types. If the statute is silent as to the type of contract that may be adopted, then it would appear that an association may adopt either type.

In the preparation of contracts it should be kept in mind that the right to contract is a fundamental and comprehensive one and that unless prohibited by law or public policy, persons may contract as they desire.11 Marketing contracts should be clear and unambiguous and consistent with the statute under which the association is incorporated, its articles of incorporation and bylaws.12

Many of the cooperative statutes expressly authorize purchase-and-sale as well as agency contracts. Under either type of contract, the obligation of the cooperative, generally speaking, is the same, namely, to return the sale price of the producers' products on the basis prescribed in the contract, less authorized deductions. In purchase-and-sale contracts, the purchase price can be the resale price, less authorized deductions. The fact that a specific purchase price is not named in the contract is immaterial because that is definite which can be made definite."

In commercial contracts title passes although the amount to be paid for the goods in question may depend on the resale price received for them.14 "Under ordinary conditions, a valid agreement can be made for purchase and sale without the fixing of a specific price." 15 Moreover, if a statute authorizes a purchase-and-sale contract, this resolves all doubt as to the passing of title as it is certainly competent for the legislature to prescribe the conditions which shall be sufficient to pass title to products.

In a certain case 16 it was said:

We are dealing here with a special form of statutory contract, whose nature and legal effect are defined and determined by the act under which the contract has been made between the parties. It is clear, therefore, that such agreement need not conform to the essentials of an ordinary contract of sale as to the certainty of the price.

Just as a State may prescribe what shall constitute a deed which shall be sufficient to pass title to land, it has the power to declare what shall be sufficient to pass title to farm products. At common law independent of statute, if a cooperative employs a purchase-and-sale contract it should be held to pass title to the products to the association. In such contracts the parties agree and declare that the association buys and that the member sells. In the forms of such contracts generally employed there are no provisions inconsistent with the passing of title. Therefore the clear declaration of the parties with respect thereto should be given effect.17

11 Morlock v. Mt. Forest Fur Farms of America, 269 Mich. 549, 257 N. W. 880. 12 Silveira v. Associated Milk Producers, 63 Cal. App. 572, 219 P. 461; Buford v. Florin Fruit Growers' Association, 210 Cal. 84, 291 P. 170.

13

'South Carolina Cotton Growers' Coop. Association v. Weil, 220 Ala. 568, 126 So. 637; Texas Farm Bureau Cotton Association v. Stovall, 113 Tex. 273, 253 S. W. 1101, reversing 248 S. W. 1109 (Tex. Civ. App.); Brown v. Georgia Cotton Growers' Coop. Association, 164 Ga. 712, 139 S. E. 417.

"Balch v. Ashton & Co., 54 Iowa 123, 6 N. W. 146.

15 United States v. Swift & Co., and Swift & Co. v. United States, 270 U. S. 124, 141, 46 S. Ct. 308, 70 L. Ed. 497.

16 Louisiana Farm Bureau Cotton Growers' Coop. Association v. Clark, 160 La. 294, 107 So. 115, 118; Texas Farm Bureau Cotton Association v. Stovall, 113 Tex. 273, 253 S. W. 1101, reversing 248 S. W. 1109 (Tex. Civ. App.); Brown v. Georgia Cotton Growers' Coop. Association, 164 Ga. 712, 139 S. E. 417: 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 Olson v. Biola Coop. Raisin Growers Association, 184 P. 2d 742; affirmed, 193 P. 2d 929; 33 Cal. 2d 664, 204 P. 2d 10.

It is universally held that the intention of the parties is the dominant consideration in determining if title passes under a given instrument.18 No better evidence of the intention of the parties could be had than their clear statement that the one sells and the other buys the products involved. The courts in numerous cases in which the contracts involved contained statements consistent with both sale and agency have held that title to the goods in question passes.19

In the purchase-and-sale contracts there may be certain practical advantages in that it should be easier ordinarily to negotiate a loan on products to which the borrower has title, as the right to borrow money would be apparent; but if an agency contract authorizes an association to borrow money on products received under it, the right of an association to do so is clear. As is well known, the stocks and bonds purchased by brokers for their customers that are carried on margin constitute a substantial part of their business. These brokers do not take title to the stocks; title to them is in the purchasers.20 Brokers daily borrow immense sums of money from banks on stocks and bonds thus held by them. The authority of the broker to borrow money on such stocks comes from the fact that the customer has authorized him to do so.

In buying from a cooperative, there will probably be those who prefer to buy from one that has title rather than from one that acts as agent. In one case the cautious buyer would seek to learn if the association had "good title" to the products it was offering for sale, and in the other case, the cautious buyer would seek to learn if the association was authorized to sell the products.

So far as enforcement is concerned, the cooperative acts 21 generally authorize associations formed under them, whether employing an agency or a purchase-and-sale contract, to provide for liquidated damages and they are also given the remedies of injunction and specific performance to compel members to deliver their products to an association. The courts enforce agency 22 and purchase-and-sale 23 contracts without discrimination. When an association is authorized to borrow money on products received from members, persons taking a lien on products after their delivery to an association as security for a loan made to it are as safe under an agency as under a purchase-and-sale contract, because superior liens in either case acquired prior to delivery of the products would take precedence over those subsequently acquired; and any action affecting the products taken after the delivery of the products and after the granting of liens by the associa

24

10 Ferry & Co. v. Hall, 188 Ala. 178, 66 So. 104, L. R. A. 1917B 620; Mishawaka Woolen Mfg. Co. v. Westveer, 191 F. 465.

20 Richardson, Trustee in Bankruptcy v. Shaw, 209 U. S. 365, 28 S. Ct. 512, 52 L. Ed. 835, 14 Ann. Cas. 981; Duel v. Hollins, and Wiener, Levy & Co. v. Hollins, 241 U. S. 523, 36 S. Ct. 615, 60 L. Ed. 1143.

21 See sec. 17 of Bingham Cooperative Marketing Act of Kentucky, p. 305 of Appendix.

125 Elephant Butte Alfalfa Association v. Rouault, 33 N. M. 136, 262 P. 185; Oregon Growers' Coop. Association v. Lentz, 107 Ore. 561, 212 P. 811; Elmore v. Maryland & Virginia Milk Producers' Association, Inc., 145 Va. 42, 132 S. E. 521, 134 S. E. 472. 23 Kansas Wheat Growers' Association v. Schulte, 113 Kan. 672, 216 P. 311; Tobacco Growers' Coop. Association v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231; Texas Farm Bureau Cotton Association v. Stovall, 113 Tex. 273, 253 S. W. 1101, reversing 248 S. W. 1109 (Tex. Civ. App.).

24 Phez Co. v. Salem Fruit Union, 103 Ore. 514, 201 P. 222, 205 P. 970, 25 A. L. R. 1090.

tion would have to respect the liens given by the association and conform to them.

In the event an association using a purchase-and-sale contract were to fail, having on hand products or the money derived from the sale of them, a question would arise whether the members under such contracts were merely common creditors along with other unsecured creditors or whether they were preferred creditors. Apparently they would be common creditors, as this is the general rule in analogous situations in which title to goods that have not been paid for has passed.25 Again, when title to the products passes to an association, as is the case under the purchase-and-sale form, a creditor of the association after obtaining a judgment could seize a sufficient quantity of the products to satisfy his judgment.26

It has been said that even under a purchase-and-sale contract an association is essentially operating on an agency basis.27 There would appear to be more basis for this view in regard to the fiduciary duties of an association to its members than in any other respect.

28

If an association operates with an agency marketing contract, members would not be common creditors in the event of failure of the association.29 On the contrary, they would be entitled to receive full returns in accordance with their contracts or the return of their products, although to do so might leave creditors of the association unpaid. Any other rule would mean that the property to which the members had title could be taken to satisfy debts of the association, and it should be remembered that an association is an entity separate and apart from its members. Again the fundamental rule is that property in the hands of an agent for the purpose of sale may not be seized by creditors of the agent to satisfy claims they have against him.

During World War II, this issue was involved in cases brought by the Office of Price Administration in which it was alleged that cooperative dairies were paying to patrons amounts in excess of sums which could be paid to producers of milk under the price regulations. The cooperatives argued that they were merely agents of their members in selling their milk and, therefore, the regulations were not violated so long as the farmers did not receive more than they would be entitled to receive had they sold their milk directly to consumers. In one case,30 the court concluded that even though the association was using a purchase-and-sale type of contract, it was simply acting as agent for its patrons in the sale of their milk. unreported case in Pennsylvania the opposite conclusion was reached.31

In an

McKenzie v. Roper Wholesale Grocery Co., 9 Ga. App. 185, 70 S. E. 981; Heryford v. Davis, 102 U. S. 235, 26 L. Ed. 160, 2 Ky. Law Rep. 95.

26

McKenzie v. Roper Wholesale Grocery Co., 9 Ga. App. 185, 70 S. E. 981. Rhodes v. Little Falls Dairy Company, Inc., 230 App. Div. 571, 245 N. Y. S. 432, affirmed in 256 N. Y. 559, 177 N. E. 140; Mountain States Beet Growers' Marketing Association v. Monroe, 84 Colo. 300, 269 P. 886. See also ColoradoNew Mexico Wool Marketing Association v. Manning, 96 Colo. 186, 40 P. 2d 972. Hanna, John. THE LAW OF COOPERATIVE MARKETING ASSOCIATIONS. New York. 1931. See p. 211; Evans, Frank and Stokdyk, E. A. THE LAW OF Rochester, N. Y.

AGRICULTURAL COOPERATIVE MARKETING.

648 pp.

1937.

509 pp.

See p.

145; Bogardus v. Santa Ana Walnut Growers' Association, 41 Cal. App. 2d 939, 108 P. 2d 52, and cases cited therein.

29

First National Bank of Elgin v. Kilbourne, 127 Ill. 573, 20 N. E. 681, 11 Am. St. Rep. 174; Lambert v. Military Ridge Cheese Company, 179 Wis. 359, 191 N. W. 555; National Bank v. Ins. Co., 104 U. S. 54, 26 L. Ed. 693; Union Stock Yards National Bank v. Gillespie, 137 U. S. 411, 11 S. Ct. 118, 34 L. Ed. 724; 23 C. J. 352. Bowles v. Inland Empire Dairy Association, 53 F. Supp. 210.

31 Bowles v. Lehigh Valley Cooperative Farmers, Fed. Dis't Ct., E. D. Penn., File No. 3484, decided November 8, 1944.

The issue was finally obviated by a change in the O. P. A. regulations which recognized that patronage refunds of a bona fide cooperative did not violate the price regulations.

Sometimes the rights of associations insofar as third persons are concerned are affected by whether a contract is an agency or a purchase-and-sale contract. A New York statute required buyers of milk and cream from producers to give bonds to insure payment therefor. It was held in a case in which a cooperative took title to the milk and cream which it received from its members that it was not entitled to the protection of the bond given by a buyer to whom it sold milk and cream because the association was not regarded as a producer. 32

34

In a subsequent case involving a cooperative that operated on an agency basis a like conclusion was reached,33 but later it was held 3+ that a cooperative operating on an agency basis was entitled to the protection of the bond. In this case the court, in referring to the fact that the cooperative mingled the milk of different producers, said—

Irrespective of this mingling, the contract was one of agency and not of purchaseand-sale.

It has been held that in computing its liability for a State franchise tax based upon the amount of business done by a corporation "within this State," a farming corporation could exclude transactions involving the sale in other States of agricultural commodities through brokers and, also, through agricultural cooperatives functioning on an agency basis.35

Under the Agricultural Adjustment Act of 1937 the word “purchased” was construed as meaning “acquired for marketing" and thus it was found applicable to cooperatives that operated on an agency basis, as well as to those functioning on a purchase-and-sale basis.36

In a Minnesota case 37 recovery of excess payments for products was denied the trustee in bankruptcy for a cooperative creamery on the grounds that the contractual relationship between the creamery and its patrons was one of purchaser and seller; not that of principal and agent.

If the papers defining the relationship between an association and its members do not state the capacity in which the association receives and markets their products but simply provide for the marketing of their products by the association, the relationship is one of agency, and title to the products does not pass to the association.

In a Maine case 38 in which the marketing contract did not specify whether it was a purchase-and-sale or an agency contract. a member's fruit froze after gathering but before delivery to the association. The court held that the contract was an agency contract and that the loss fell entirely on the grower.

In a purchase-and-sale contract a provision may be included placing the risk incident to the deterioration and loss of the crop on the member even after title to it has passed to the association.

32

Wilson v. Israel, 227 N. Y. 423, 125 N. E. 819.

People v. Shoemaker, 239 N. Y. S. 71, 228 App. Div. 314, affirmed in 254 N. Y. 567, 173 N. E. 869.

Pyrke v. Brudno, 243 App. Div. 493, 278 N. Y. S. 353, affirmed in 269 N. Y. 652, 200 N. E. 42.

Irvine Co. v. McColgan, 26 Cal. 2d 160, 157 P. 2d 847.

30 United States v. Rock Royal Cooperative, Inc., 307 U. S. 533, 59 S. Ct. 993, 83 L. Ed. 1446. But see State v. Dairy Distributors, 217 Wis. 167, 258 N. W. 386. Elliott v. Adeckes, 240 Minn. 113, 59 N. W. 2d 894. See also the discussion under "Excess Advances or Payments" on p. 113.

Haarparinne v. Butter Hill Fruit Growers' Association, 122 Me. 138, 119 A. 116. Cf. Fjeldahl v. Homer Coop. Association, 11 Alaska Repts. 112.

A Wisconsin statute, under which buyers of products from a member of a cooperative were bound by a member's assignment of funds to the association provided specified formalities concerning filing of the assignment and notice to buyer were complied with, was held applicable only where there is a sale of such products. The farmer-members of the cooperative had entered into contracts with a processor, under which they agreed to plant seed peas furnished without charge by the canning company, and harvest and deliver the crop to the company for a specified compensation based on the quantity delivered. On these facts, the court held that the reservation by the company of title to the seed and the crop to be grown therefrom was valid, and the delivery of the peas under the contract was not a "sale" (1) within a contract by which the farmer had assigned to the cooperative a percentage of the receipts from the sale of the products, or (2) within the State statute under which the buyer of such products from a member of a cooperative is bound to recognize the member's assignment of funds to the association.39

When Marketing Contracts Become Effective

Marketing contracts frequently contain a provision that they will not become effective until contracts covering a specified acreage or portion of the products in question have been obtained. The power of deciding when the specified conditions exist is usually left with the board of directors or a special committee appointed for the purpose. Such a provision is valid, and the decision made wth respect to it is binding unless fraud or bad faith is established by the persons challenging the correctness of the decision. If the data submitted to the board of directors or the executive committee that was vested with authority to make the decision in question are false, and known to be false by those submitting them, then the decision based thereon may be upset even though the board or committee acted in good faith.11

40

In a Michigan case, a marketing agreement under which a grower had delivered his potato crop to the association for two seasons was held ineffective because the association had employed an improper method of ascertaining that sufficient acreage had been placed under contract to make the marketing agreements operative. The court was of the opinion that since the grower had no knowledge of the method used in computing the acreage under contract, he was not estopped from questioning the validity of the contract by performance under it.+2

Cash Crops Coop. v. Green Giant Co., 263 Wis. 353, 57 N. W. 2d 376. Rowland v. Burley Tobacco Growers' Coop. Association, 208 Ky. 300, 270 S. W. 784; Washington Wheat Growers' Association v. Leifer, 132 Wash. 602, 232 P. 339: Pittman v. Tobacco Growers' Coop. Association, 187 N. C. 340, 121 S. E. 634: Poultry Producers of Central California v. Nilsson, 197 Cal. 245, 239 P. 1086; 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; Bower-Venus Grain Co. v. Norman Milling & Grain Co., 86 Okla. 152, 207 P. 297; Gratiot St. Warehouse Co. v. Wilkinson, 94 Mo. App. 528, 68 S. W. 581; Hayes Grain & Commission Co. v. Federal Grain Co., 169 Ark. 1072, 277 S. W. 521. The principle involved is applicable to any matter or thing.

Northwest Hay Association v. Chase, 136 Wash. 160, 239 P. 1; Wenatchee Dist. Coop. Association v. Mohler, 135 Wash. 169, 237 P. 300.

(For

42 Edmore Marketing Association v. Skinner, 248 Mich. 695, 227 N. W. 681. discussion of this case, see Hanna, John. THE LAW OF COOPERATIVE MARKETING ASSOCIATIONS, 509 pp. New York. 1931. See p. 191.) Growers' Association v. Bridges, 133 Kan. 397, 1 P. 2d 265.

See also Kansas Wheat