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required to keep on hand the specific products delivered by the member, but only an equivalent quantity of products o flike grade.72

Some associations use marketing contracts which give their members various options with respect to the pooling and selling of their commodities.72 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 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.73

Excess Advances or Payments

Cooperative associations 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." 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.74

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," and this right

12 Alabama Farm Bureau Cotton Association v. Dale, 223 Ala. 164, 134 So. 646. 73 Winans v. Brue (Kennewick Richland Marketing Union), 140 Wash. 56, 248 P. 62.

75

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.

is possessed also by cooperative associations that function along the same general lines. In the case of cooperative associations that use the purchase-and-sale or the agency type of contract, the obligation of the association is 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.76

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.

77

The contracts of a cooperative association should be so worded as to show clearly the exact method of disbursement. In a Wisconsin case " 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. The holding in the Wisconsin case appears to be opposite to that in a New Jersey case 78 where it was contended that the association did business on a cash basis.

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."

Arkansas Cotton Growers' Co-op. Ass'n v. Brown, 179 Ark. 338, 16 S. W. 2d 177; California Raisin Growers' Ass'n v. Abbott, 160 Cal. 601, 117 P. 767; Sugar Loaf Orange Growers' Ass'n v. Skewes, 47 Cal. App. 470, 190 P., 1076; California Bean Growers' Ass'n v. Williams, 82 Cal. App. 434, 255 P. 751; Lake Charles Rice Milling Co. v. Pacific Rice Growers Ass'n, 295 F. 246. See also Farmers' Union Co-op. Shipping Ass'n 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.

"Neith Co-operative 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.

78 Lewis v. Monmouth County Farmers' Co-operative Association, 105 N. J. Eq. 257, 147 A. 550.

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

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 so involving an unincorporated association, the members were held liable for overadvances made to them.

80

It has been held that where an association operated on a cash basis if "the members had been overpaid for their products they became indebted to the association for the amount of the losses suffered by the association because of such overpayment, unless the loss was due to some negligence, fault, or misconduct of the association itself in the marketing of these products." 81

Where an association borrowed money on cottonseed and made advances to its members, the court said: "If the seed is not sold, certainly the association could recover the excess advances to any one member." 83

If an association made excess advances to its members with borrowed money and the advances proved to be excessive, resulting in the insolvency of the association, unless the excess advances were recovered from the members, the creditors of the association, if it failed or refused to take action to recover the excess advances, could have the association placed in the hands of a receiver. The receiver could then recover the excess advances from the members, because such excess advances are assets of the association or obligations due it.

80

81

Tomlin v. Petty, 244 Ky. 542, 51 S. W. 2d 663.

Lewis v. Monmouth County Farmers' Co-operative Association, 105 N. J. Eq. 257, 147 A. 550.

83

Texas Certified Cottonseed Breeders' Ass'n v. Aldridge, 122 Tex. 464, 61 S. W. 2d 79, 84, reversing (Tex. Civ. App.), 59 S. W. 2d 320.

Where a mortgagee of rice, with knowledge of the marketing contract entered into by his mortgagor with a cooperative association, availed himself of the services of the cooperative association, the trustee in bankruptcy of the association was entitled to recover overadvances made to the mortgagee.s

84

In a New York case 85 a cooperative association 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 86 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. 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.87

Overadvances have caused the failure of some cooperative 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 dividends. However, the safest course for an association to follow is to avoid making overadvances.

84 Baird v. Gleason (C. C. A. 8th) 53 F. 2d 785.

35 Mandell v. Cole, 244 N. Y. 221, 155 N. E. 106. See also Barnett Brothers v. Lynn, 118 Wash. 308, 203 P. 387; Sullivan v. American Fruit Growers, Inc., 45 Idaho 153, 260 P. 1029.

86

Mandell v. Moses, 209 App. Div. 531, 205 N. Y. S. 254, affirmed in 239 N. Y. 555, 147 N. E. 192.

87 McDonald v. Gravenstein Tpple Growers Co-op. Ass'n, 42 Cal. App. 2d 329, 108 P. 2d 936.

Effect of Breach of Contract

What is the real character of the form of cooperative-marketing contract commonly entered into by cooperative associations with their members? Do such contracts constitute contracts between and among the members as well as with 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 cooperative associations as legal entities, but as contracts between and among the various members.88 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 co-operative 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."

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

88

McCauley v. Arkansas Rice Growers Co-op. Ass'n 171 Ark. 1155, 287 S. W. 419; Staple Cotton Co-op. Ass'n v. Borodofsky, 143 Miss. 558, 108 So. 802; Haarparinne v. Butter Hill Fruit Growers' Ass'n 122 Me. 138, 119 A. 116; Manchester Dairy System, Inc. v. Hayward, 82 N. H. 193, 132 A. 12; Rifle Potato Growers' Co-op. Ass'n v. Smith, 78 Colo. 171, 240 P. 937; California Canning Peach Growers v. Downey, 76 Cal. App. 1, 243 P. 679; Anaheim Citrus Fruit Ass'n v. Yeoman, 51 Cal. App. 759, 197 P. 959; Kansas Wheat Growers' Ass'n v. Schulte, 113 Kan. 672, 216 P. 311.

89

California Canning Peach Growers v. Downey, 76 Cal. App. 1, 243 P. 679, 684.

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