statutory provision would not be given effect. And when an association incorporated under a Missouri statute provided that the liability of each member was limited to the amount due him by the association under its marketing contract, the fact that the association operated on an agency basis did not prevent the proceeds received from the sale of the products of members from being liable for its debts, to the extent that amounts were due the members from the association.60 The fact that some of the members of this association had paid the association for the crates in connection with which the indebtedness arose did not prevent the proceeds received from the sale of their products from being liable for the indebtedness. Ordinarily when goods are received on consignment the title to them is in the consignor and not in the consignee.61 Under these circumstances the consignee actually has a right to sell the goods and to give a valid title thereto and the consignee is under obligation to account to the consignor. Of course, all such sales should be made in good faith and with a view to furthering the interest of the consignor.

In a case in which a cooperative handled fertilizer on a consignment basis, the consignor of the fertilizer was held entitled to sue a director for the purchase price of fertilizer when he attempted to offset a debt which the association owed him against a debt which he owed the association for fertilizer.62

Although a corporation may have branch offices and various departments, it should be kept in mind at all times at least insofar as third persons are concerned, that all the assets of the corporation are available for the satisfaction of all of the debts of the corporation. In a Minnesota case, 63 it was said:

We think it needs no argument to demonstrate that a corporation cannot divide itself into several parts so that each segment will constitute a separate entity when dealing with the public. Possibly such an arrangement would be permissible where only the rights of consenting stockholders were involved. Again, it should be kept in mind that a member or stockholder is a member or stockholder of the corporation and not of a particular store, branch, or department.

60

Bank of Aurora v. Aurora Co-operative Fruit Growing & Marketing Associa tion. (Mo. App.), 91 S. W. 2d 177.

61

640.

55 C. J. 585; State Tax Commission of Arizona v. Martin Ariz. 113 P. 2d

62 Darling & Company v. Petri, 138 Kan. 666, 27 P. 2d 255.

63

Lebens, as Receiver of the Le Sueur County Cooperative Company v. Nelson, 148 Minn. 240, 181 N. W. 350, 352.

Nonprofit Associations

MANY of the cooperative marketing acts contain a provision reading substantially as follows:

Associations organized hereunder shall be deemed "nonprofit," inasmuch as they are not organized to make profit for themselves, as such, or for their members, as such, but only for their members as producers.4

The foregoing statement probably would not in and of itself cause an association to be classified as a nonprofit association.65 On the other hand, if an association is formed and operated as a nonprofit association the statutory declaration should confirm its character.

66

In a Missouri case 6 a cooperative association brought a suit to recover the balance alleged to be due for a carload of oranges. The defendant contended that the association was not entitled to maintain the suit because it was a foreign corporation which had no license to do business in Missouri. Under the Missouri statute, however, only corporations organized for pecuniary gain were required to obtain licenses to do business in the State. The court, after pointing out that the association was incorporated as a nonprofit cooperative corporation under the laws of California, referred to the statutory provision quoted above and held that the association was not "a corporation for pecuniary profit" within the meaning of the statute relative to foreign corporations.

In a West Virginia case 67 the court construed a statutory provision similar in effect to the one quoted above and said:

On the record before us it would seem that the plaintiff's prima facie status of being a non-profit association is probably overcome by the facts, in this, that through the processing of dairy products and the marketing of commodities produced therefrom, the association operates primarily for the purpose of deriving for its members a greater return than they could obtain from the raw products.

No basis is perceived for the view that an association ceases to be a nonprofit association because it obtains greater returns for its members than they could obtain from their raw products. Insofar as it has any bearing on the matter, benefits received by the members of a

65

Acts of Kentucky 1922, ch. 1, sec. 2, see p. 375 of Appendix.

Reis, Alvin C., COOPERATIVE LEGISLATION. In American Cooperation, 1925, v. 1, pp. 325, 328, Washington, D. C.

08 Mutual Orange Distributors v. Black, 221 Mo. App. 493, 287 S.W. 846. See also Georgia Milk Producers Confederation v. City of Atlanta, 185 Ga. 192, 194 S.E. 181.

67 Sanitary Milk & Ice Cream Co. v. Hickman, 119 W. Va. 351, 193 S. E. 553, 555. See also Storen v. Jasper County Farm Bureau Co-operative Ass'n, 103 Ind. App. 77, 2 N.E. 2d 432.

cooperative in the form of increased returns on their products are evidence of its nonprofit character. The principal objective of a cooperative association is to increase returns to its members. Obviously, it is the members who profit from such increased returns and not the association. The situation insofar as an association formed and operating on an ideal basis is concerned is analogous to one in which an individual might act on a cost basis as the agent for farmers in disposing of their products. The agent would be acting on a nonprofit basis and higher returns which he might be able to obtain for the farmers would not operate to change his status. Such an association is not in any commercial sense making a profit on the products received from its members. Fundamentally, the obligation of the association is to return everything received for the products delivered by its members, less operating costs and expenses, and other authorized deductions for which, in many instances, the members receive credits. In other words, the making of profits, as that term is ordinarily employed, is entirely foreign to the character of a true cooperative association. The fact that an association must have money to operate does not affect its nonprofit character.69

In a

California case 70 it was said:

The plaintiff's existence as a nonprofit association does not in any wise militate against its right to claim the damages recovered. As a corporation considered singly, it designed to make no profit; the advantages, pecuniary and otherwise, resultant upon its operations, descended immediately to the cooperating stockholders. As an agency for the purpose of distributing this benefit in such manner, the corporation existed as such, and by its corporate name it was entitled to prosecute this action. As to whether it might, upon collecting the money, sequester it in a fund not contemplated by the terms of its articles, and so consummate an act ultra vires, is of no concern here.

Much confusion appears to have arisen with regard to the term "nonprofit." " Obviously, as indicated in the foregoing quotation and as aptly pointed out both by text writers 72 and by the

68Yakima Fruit Growers' Ass'n v. Henneford, 182 Wash. 437, 47 P. 2d 831, 100 A. L. R. 435.

69

Ex parte Baldwin County Producers' Corporation, 203 Ala. 345, 83 So. 69. See also Tobacco Growers' Co-operative Association v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231 ; Kansas Wheat Growers' Association v. Schulte, 113 Kan. 672, 216 P. 311.

70 Anaheim Citrus Fruit Ass'n v. Yeoman, 51 Cal. App. 759, 197 P. 959, 961. 71 Hanna, John, THE LAW OF COOPERATIVE MARKETING ASSOCIATIONS. 509 pp. New York, 1931. See p. 50. See also: Cerini, Floyd B. UTAH PIONEERS IN ADOPTING THE UNIFORM COOPERATIVE ASSOCIATION STATUTE. Cooperative Journal 41-49. 1938.

72 Evans, Frank, and Stokdyk, E. A. THE LAW OF AGRICULTURAL CO-OPERATIVE MARKETING. 648 pp. Rochester, N. Y. 1937. See p. 303.

73

courts, cooperatives are business organizations and are intended to increase the returns to farmer members for their products. Their nonprofit character would appear to lie solely in the fact that the cooperative is not entitled to retain its "profits" but is required to distribute them to its members and patrons on a patronage basis. It has been said that:

Obviously, the co-operative marketing association is organized for profit in the sense of financial benefit to its members. The element of departure from ordinary corporate economic practice is found in the fact that the financial gain is enjoyed by the members in proportion to the production, by each, of the products handled, rather than in proportion to the capital otherwise contributed by each to the conduct of the business'; but this difference of economic principle governing the distribution of wealth cannot alter the fact that the sole incentive to membership in such an association is the financial benefit to be derived therefrom in the marketing of the farm products which the member is producing. There is nothing broadly eleemosynary in co-operative associations. They simply represent a banding together of producers for their common good, and the motive of each is pecuniary gain."

A person engaged in a normal commercial merchandising business buys goods from sellers and then resells them at higher prices but he is under no obligation to account to the seller for the profits made on such transactions; in other words, a person engaged in such a merchandising business is operating for profit. This is in sharp contrast with the situation of a true marketing cooperative which is required to account to its members for the full net amount it receives for commodities delivered by them. Likewise, a purchasing association is required to account to its members for the amounts they pay for goods supplied by the association.

The nonprofit character of cooperative associations is also recognized in the many cases in which cooperative associations are permitted to recover from members and others overadvances that have been made on commodities.75

Savings effected by a cooperative, even though they "belong" to members and not to the association itself, are subject to the claims of the creditors of the association,76 and the mere fact that a coopera

73

Schuster v. Ohio Farmers' Co-operative Milk Association, 61 F. 2d 337. For discussion of this case and the contrasting case of In re Wisconsin Co-operative Milk Pool, 119 F. 2d 999, reversing 35 F. Supp. 787.

74 Schuster v. Ohio Farmers' Co-operative Milk Association, 61 F. 2d 337, 338. See also In re Wisconsin Co-operative Milk Pool, 119 F. 2d 999, reversing 35 F. Supp. 787.

75 Baird v. Gleason, 53 F. 2d 785. See also p. 145.

78 Associated Fruit Company v. Idaho-Oregon Fruit Growers' Ass'n, 44 Idaho 200, 256 P. 99.

tive association is a nonprofit organization is not sufficient to exempt it, under certain statutes, from license taxes."

The term "nonprofit" is also applicable to associations organized under statutes which do not contain a provision like the one under discussion if, in fact, they are operating on such a basis.78

Equality of Treatment

BROADLY speaking, all members of a cooperative association who

are similarly situated should receive similar treatment. There may be differentials based on time, distance, grade and quality of products and other factors; but, at least in the absence of definite provisions to the contrary, where the conditions are identical the treatment. should be identical. In a case involving a mutual insurance company it was said: 79

*

* * we think it must be conceded that in a mutual company, where the members are not divided into classes except as to age, the company would have no authority, for the same premium, to issue policies promising special benefits to different members of the same class.

Although in an agricultural marketing or purchasing association the foregoing statement would not appear to be strictly applicable, it is indicative of a principle which should be kept in mind.

In California, on account of a statute which was construed to permit the unequal treatment of members, a marketing contract which favored a particular type of member was upheld; 80 but the Court pointed out that before the amendment of the statute "it was believed that such associations should deal only with the products of its members, and that all members should be treated equally." Sometimes an association will provide in its marketing contract that if in the future it offers a different form of marketing contract to other producers it will give those producers who signed the original marketing contract an opportunity to sign the new form.

77 Appeal of Beaver County Co-op. Ass'n 118 Pa. Super. 305, 180 A. 98. See also Maryland & Virginia Milk Producers' Ass'n v. District of Columbia, 119 F. 2d 787. Uniform Printing and Supply Company v. Commissioner of Internal Revenue, 88 F.2d 75.

78

79 Durland v. Elkhorn Life & Accident Insurance Company, 112 Neb. 105, 198 N. W. 564, 566.

80

California Canning Peach Growers v. Harkey, 11 Cal. 2d 188, 78 P. 2d 1137. See also California Canning Peach Growers v. Williams, 11 Cal. 2d 221, 78 P. 2d 1154, 11 Cal. 2d 233, 78 P. 2d 1161; Stafford v. California Canning Peach Growers, 11 Cal. 2d 212, 78 P. 2d 1150.