being only presumptive evidence of fraud as to third persons, has been adopted in many of the States.48

The common-law rule, in some States, made the retention of the possession of goods sold void as to third persons. The rule, apparently, at common law had no application to growing crops and this common law, as well as the rules prescribed by statutes of frauds, is generally speaking, not applicable to growing crops.

Again at common law and under statutes, generally speaking, if a third person subsequent to the sale of goods (the possession of which is retained by the seller) has notice of the fact that the goods have previously been sold, his rights are junior to the rights of the person who purchased the goods in the first instance, and under these circumstances the fact that there has been no actual delivery of the goods is immaterial; 49 for the general rule is that "A purchaser with notice of a prior contract to sell or to lease takes subject to such contract, and is bound in the same manner as his vendor to carry it into execution;

*

* *99 50

In view of the state of the law as indicated above, persons who buy farm products from producers who have entered into marketing contracts with their associations to sell such products to the association, run a great risk in doing so, even though they may be unaware of the marketing contract of the association; because it will be remembered that, if title to the products covered by a marketing contract has passed to the association, an association may be able to recover damages or the products from any person acquiring the same from a producer without its consent.

48

Shaul v. Harrington, 54 Ark. 305, 15 S. W. 835; Holliday v. McKinne, 22 Fla. 153; Osborn v. Ratliff, 53 Iowa 748, 5 N. W. 746; Gardiner Bank v. Hodgdon, 14 Me. 453; Brooks v. Powers, 15 Mass. 244, 8 Am. Dec. 99; Johnston v. Dick, Hill & McLean, 27 Miss. 277; Rea v. Alexander, 27 N. C. 644; Hombeck v. Vanmetre, 9 Ohio 153; Benjamin v. Madden, 94 Va. 66, 26 S. E. 392; Poling v. Flanagan, 41 W. Va. 191, 23 S. E. 685; Fitzgerald v. Meyer, 25 Neb. 77, 41 N. W. 123; Williams v. Brown, 137 Mich. 569, 100 N. W. 786; Prentiss Tool & Supply Co. v. Schirmer, 136 N. Y. 305, 32 Am. St. Rep. 737, 32 N. E. 849; W. A. Patterson Co. v. People's Loan and Savings Co., 158 Ga. 503, 123 S. E. 704.

49

"Watertown Milk Producers' Co-operative Association v. Van Camp Packing Company, 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A. L. R. 391; Hatch v. Oil Co., 100 U. S. 124, 25 L. Ed. 554; Clark v. Shannon & Mott Co., 117 Iowa 645, 91 N. W. 923; Bridgham v. Hinds, 120 Me. 444, 115 A. 197; Dieckman v. Young, 87 Mo. App. 530; 35 Cyc. 304, 345.

50

'Pomeroy's EQUITY JURISPRUDENCE, 3d ed., sec. 688, p. 1385; Union Pacific Railway Co. v. McAlpine, 129 U. S. 305, 9 S. Ct. 286, 32 L. Ed. 673; Gore v. Condon, 82 Md. 649, 33 A. 261. See also California Grape Control Board, Ltd. v. Boothe Fruit Company, 220 Cal. 279, 29 P. 2d 857; Pacific Wool Growers v. Draper & Co., 158 Ore. 1, 73 P. 2d 1391.

The foregoing discussion is entirely independent of the statutes that have been passed in some States providing for the filing or recording of marketing contracts of cooperative associations, for the purpose of giving notice to the world of the rights of an association under them. If such a statute has been passed in a State, third persons are undoubtedly bound who attempt to purchase or acquire liens on the products of members after the filing or recording of the marketing contracts.

5€

51

52

57

58

In Arizona, Maine, New Mexico, Oregon,54 South Carolina,55 Virginia, and 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 58 provides that—

Growers of agricultural products who have signed any such marketing agreements 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 59 a cooperative association had entered into a written contract with a member, under which the association had the

31 Arizona Code Ann. 1939, sec. 49-714.

52 Revised Statutes of Maine 1930, ch. 59, secs. 30-31.

53 'New Mexico Statutes Ann. 1929, sec. 31–203.

54 Oregon Compiled Laws Ann., sec. 77-503.

56

57

Code of Laws of South Carolina 1932, sec. 8890.

Virginia Code of 1936 Ann., sec. 1265 (33).

Wisconsin Statutes 1939, 185.08 (5); construed in Watertown Milk Producers' Co-op. Ass'n v. Van Camp Packing Co., 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A. L. R. 391. See also Spencer Co-operative Live Stock Shipping Association v. Schultz, 209 Wis. 344, 245 N. W. 99; Wisconsin Co-operative Milk Pool v. Saylesville Cheese Manufacturing Company, 219 Wis. 350, 263 N. W. 197. Acts of 1925, p. 53.

58

Texas Cotton Co-operative Association v. Lennox, (Tex. Com. App.), 55 S. W. 2d 543, 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.

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 for $32,623.20 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

60

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 speaking, 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, generally speaking, 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 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

eo

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.

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 61 either in the bylaws or in the contract.

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."

62

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.63

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 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

61 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190; Washington Co-op. Egg & Poultry Ass'n v. Taylor, 122 Wash. 466, 210 P. 806; McCauley v. Arkansas Rice Growers Co-op. Ass'n, 171 Ark. 1155, 287 S. W. 419; Tobacco Growers' Co-op. Ass'n 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, (Tex. Civ. App.) 206 S. W. 849.

62

Washington Co-op. Egg & Poultry Ass'n v. Taylor, 122 Wash. 466, 210 P. 806; McCauley v. Arkansas Rice Growers Co-op. Ass'n, 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.

63 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 & Com mission Co. v. Federal Grain Co., 169 Ark. 1072, 277 S. W. 521; Arkansas Cotton Growers' Co-op. Ass'n v. Brown, 179 Ark. 338, 16 S. W. 2d 177.

rejected milk. He successfully sued the association and recovered the amount of the loss which the association sought to have him bear.**

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.65 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.66 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.67

Under the usual form of pooling contract, if products are burned the insurance proceeds take the place of the products, insofar as the pooling of returns is concerned, and the fact that the identity of the products burned is known is immaterial and gives the producer of them no rights to the insurance proceeds.68

Generally speaking, 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.69

Cooperative 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.70

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

64

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

419.

McCauley v. Arkansas Rice Growers Co-op. Ass'n, 171 Ark. 1155, 287 S. W.

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

67

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

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

70 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 Co-operative, Inc., 307 U. S. 533, 59 S. Ct. 993, 83 L. Ed. 1446.