In a Texas case • and in a North Carolina case suits were brought by each association involved against members and dealers who were handling or offering to handle its products with knowledge of the fact that the products were covered by contracts with the association, and in each of these cases the members were enjoined from disposing of their products outside the association and the dealers were enjoined from interfering with the performance of the contracts. The cooperative cases cited above were all decided under the general principles of equity and independent of statutory provisions.

An association has the right in an appropriate case to enjoin interference with its contracts, or to recover damages from persons so interfering, in pursuance of equity or common-law principles. In addition, many of the statutes providing for the formation of cooperative associations make it a misdemeanor knowingly to induce the breach of a marketing contract and authorize associations to recover a penalty of $500 for each such offense. They authorize also the recovery of a similar penalty for knowingly spreading reports about the management or finances of an association.s

In a New York case an association failed to recover the statutory penalty because apparently the court was of the opinion that the reports that were alleged to be false were of a creditable nature, or were not false within the meaning of the statute."

Sections 26 and 27 of the Bingham Cooperative Marketing Act of Kentucky were upheld by the Supreme Court of the United States in a case arising in Kentucky,10 in which the Burley Tobacco Growers' Cooperative Association recovered a penalty of $500 from a warehouse company that sold tobacco that was covered by a marketing contract of the association. "Before the sale the association notified the warehouse company of Kielman's membership and of his marketing contract, requested it not to sell his tobacco, and called attention to the prescribed penalties." Similar provisions in the cooperative acts of Colorado 12 and Virginia 13 were upheld in those States.

6

* Hollingsworth v. Texas Hay Ass'n (Tex. Civ. App.), 246 S. W. 1068.

7 Tobacco Growers' Co-op. Ass'n v. Pollock, 187 N. C. 409, 121 S. E. 763.

8

See secs. 26 and 27 of the Bingham Cooperative Marketing Act of Kentucky, p. 383 of Appendix.

9

Dairymen's League Co-operative Association, Inc. v. Brockway Company, 18 N. Y. S. 2d 551, 173 Misc. 183.

10

Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op. Ass'n, 276 U. S. 71, 48 S. Ct. 291, 72 L. Ed. 473, affirming 208 Ky. 643, 271 S. W. 695.

12 Fort v. People ex rel. Co-op. Farmers' Exchange, 81 Colo. 420, 256 P. 325.

13 Tobacco Growers' Co-operative Ass'n v. Danville Warehouse Co., Inc., 144 Va. 456, 132 S. E. 482.

In an Arkansas case 14 it was held that before an association could recover the statutory penalty from a person who had purchased commodities from one of its members that were covered by its marketing contract, the association must show that the purchaser had actually induced the member to sell them.

The Supreme Court of Minnesota held that a similar penalty section in one of the cooperative statutes of that State was unconstitutional because it violated the freedom-of-contract provisions in the State and Federal Constitutions.15 In reaching this conclusion, the court said:

Of course, it is well settled that a malicious interference by one not a party to a contract to induce its breach is a tort for which redress may be had. * * * But section 27 does not stop with those who maliciously interfere with existing contracts between third parties. * * In other words, the section attempts

to prevent all dealings between members of a co-operative marketing association and outsiders in respect to products contracted for by the association, no matter how free from legal malice or devoid of inducements the conduct of the outsiders may have been, provided they knew that the product was under contract.

In a Colorado case 16 a competitor of a cooperative inserted advertisements in a local paper relative to the decline in the price of cabbage. As the statements in these advertisements apparently were considered to be simply an honest expression of opinion, it was held that they did not violate an injunction order which, among other things, forbade interference with "any of the business of the exchange." In other words, the court held that the injunction order quoted was too broad or that it should be confined to instances of illegal interference. In an Oregon case, in which the members of a cooperative association had disabled the association from fulfilling a contract which it had made with a buyer of loganberries by failing or refusing to deliver their loganberries to the association for marketing, the court held that the buyer had a cause of action against the association and against the members, because they had prevented the association from performing its contract.

14

17

Loewer v. Arkansas Rice Growers' Co-operative Association, 180 Ark. 484, 22 S. W. 2d 17.

15 Minnesota Wheat Growers' Co-op. Marketing Ass'n v. Radke, 163 Minn. 403, 204 N. W. 314, 315. See also Schwartz v. Rice County Co-operative Egg and Poultry Association, 163 Minn. 515, 204 N. W. 316.

18 Fort v. People ex rel. Co-op. Farmers' Exchange, 81 Colo. 420, 256 P. 325. See also Western Seed Co. v. Co-operative Farmers' Exchange, 81 Colo. 448, 256 P. 329.

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

Virginia 18 and Kentucky 19 have enacted statutes, sometimes referred to as "True Name Laws," that require warehousemen to keep records showing the true names of the owners of tobacco they have for sale, and permitting the inspection of such records. It was claimed by opponents of this legislation that the purpose of the statutes was to enable cooperative associations to ascertain if their members were disposing of tobacco to others. These statutes have been upheld.20

It should be kept in mind that a cooperative may not unlawfully interfere with the right of third persons to contract even though it is simply attempting to advance its interests.21 A legitimate end does not justify illegal means.

Transfers in Attempts To Avoid Contracts

TTEMPTS have been made by members of cooperative associations to "transfer" their farms and thus avoid their marketing contracts by conducting their farming operations in the names of their wives or other persons. The courts have repeatedly declared that marketing contracts may not be avoided in this way. The real test in cases of this character depends upon whether the transfer involved was one in fact, or one in form only.

In other words, was the transfer simply a colorable transaction or a transfer in good faith? If subsequent to the alleged transfer, the farming operations were conducted in substantially the same manner as they were before the transfer, then the courts hold the transfer ineffective,22 and the crops grown are subject to the marketing

20 Reaves Warehouse Corporation v. Commonwealth, 141 Va. 194, 126 S. E. 87; Motley v. Commonwealth, 141 Va. 194, 126 S. E. 87; Danville Warehouse Co., Inc., v. Tobacco Growers' Co-op. Ass'n, 143 Va. 741, 129 S. E. 739; Jewell Tobacco Warehouse Co. v. Kemper, 206 Ky. 667, 268 S. W. 324.

21 Hy-Grade Dairies v. Falls City Milk Producers' Association, 261 Ky. 25, 86 S. W. 2d 1046; Pure Milk Producers' Association of Greater Kansas City Territory v. Bridges, 146 Kan. 15, 68 P. 2d 658; Wesemann v. Watertown Milk Co-operative Association, 222 Wis. 475, 269 N. W. 246; State v. Standard Oil Company, 130 Tex. 313, 107 S. W. 2d 550.

22 Burley Tobacco Growers' Co-op. Ass'n v. Devine, 217 Ky. 320, 289 S. W. 253; Dark Tobacco Growers' Co-op. Ass'n v. Alexander, 208 Ky. 572, 271 S. W. 677; South Carolina Cotton Growers' Co-op Ass'n v. English, 135 S. C. 19, 133 S. E. 542; Oregon Growers' Co-op. Ass'n v. Lentz, 107 Ore. 561, 212 P. 811; Kansas Wheat Growers' Ass'n v. Lucas, 128 Kan. 350, 278 P. 6; Kansas Wheat Growers' Ass'n v Loehr, 125 Kan. 491, 264 P. 735.

contract. On the other hand, if the farming operations subsequent to the transfer are in fact conducted by the wife of a member, as was done in a Virginia case, in which the wife leased a farm from a third person and supervised its operations, then the crops grown are not subject to a marketing contract signed by the husband.23

Because it was found that a former member of an association had in good faith transferred cows to his son, a nonmember, the association was enjoined from interfering with the marketing of the milk produced by such cows.24

In Kentucky, a transfer of land by a member of an association to his wife and son, although made for a valuable consideration, was held void under a statute of that State declaring fraudulent all conveyances of real or personal property made to delay creditors and others, where the person to whom the transfer is made has notice of the fraudulent intent of the person making the transfer.25 In this case the association recovered liquidated damages of 5 cents per pound for all tobacco grown on the farm in question and disposed of outside the association.

MANY

Conclusive Presumption

ANY of the cooperative statutes contain a provision 26 stating that "it shall be conclusively presumed that a landowner or landlord or lessor is able to control the delivery of products produced on his land by tenants or others" whose tenancy is created after the execution of a marketing contract. This provision in the cooperative acts of Kentucky and Colorado has been upheld by the courts of those States. In the Kentucky cases cited the association recovered

27

23 Layne v. Tobacco Growers' Co-op. Ass'n, 147 Va. 878, 133 S. E. 358. See also Inland Empire Dairy Producers' Ass'n v. Melander, 134 Wash. 145, 235 P. 12; Inland Empire Dairy Producers' Ass'n v. Casberg, 134 Wash. 702, 235 P. 13; Burley Tobacco Growers' Co-op. Ass'n v. Jewell, 213 Ky. 272, 280 S. W. 1105; Kansas Wheat Growers' Ass'n v. Lucas, 128 Kan. 350, 278 P. 6; Kansas Wheat Growers' Ass'n v. Garnett, 128 Kan. 337, 278 P. 5.

24 Wesemann v. Watertown Milk Co-operative Association, 222 Wis. 475, 269 N. W. 246.

25

Coyle v. Dark Tobacco Growers' Co-op. Ass'n, 211 Ky. 162, 277 S. W. 318. 26 See sec. 18 of the Bingham Cooperative Marketing Act of Kentucky, p. 381 of Appendix.

27 Feagain v. Dark Tobacco Growers' Co-op. Ass'n, 202 Ky. 801, 261 S. W. 607; Dark Tobacco Growers' Co-op. Ass'n v. Daniels, 215 Ky. 67, 284 S. W. 399; Monte Vista Potato Growers' Co-op. Ass'n v. Bond, 80 Colo. 516, 252 P. 813; Wilson v. Monte Vista Potato Growers' Co-op. Ass'n, 82 Colo. 428, 260 P. 1080.

liquidated damages from the landlord on account of products grown on his land which were not marketed through the association.

In the two Colorado cases cited the court held that the association was entitled to enjoin the landlord and the tenant in each case, and to recover damages from each of them. In each of the Colorado cases, the tenant knew that the landlord was a member of the association, and the court held that he was charged with notice of the conclusive-presumption provision in the cooperative act of Colorado.

The conclusive-presumption provision in the cooperative act of Louisiana was held by the supreme court of that State to be in conflict with the fourteenth amendment to the Federal Constitution.28

In the case first cited in footnote 28, the association sought to compel the specific performance of a contract and to recover liquidated damages for cotton sold outside the association. The cotton had been grown on the share-lease plan and the tenants were not parties to the suit. From the record it did not appear that the "tenants had any knowledge of the marketing agreement of their landlord with said Association." The court declared that the legislature had "made an indirect but clear attempt to deprive tenants of their property in cotton raised under the share system of contract, without notice of such marketing contract, and without due process of law of any kind.” Although all persons are charged with knowledge of the law, persons are not charged with knowledge of the membership of cooperative associations or with knowledge of the persons that have entered into marketing contracts with an association.

In a Mississippi case,29 the court expressed doubt concerning the constitutionality of the conclusive-presumption provision and held that it had no application to a marketing contract entered into prior to the passage of the cooperative statute containing the provision.

'O

Monopoly and Restraint of Trade

To understand clearly the attitude of the courts toward early cooperative efforts, in this country, it is important to have in mind the legal background with respect to monopolies and restraint of trade. For centuries the common law looked askance at anything that appeared to restrain trade or to reduce competition. One could

28 Louisiana Farm Bureau Cotton Growers' Co-op. Ass'n v. Clark, 160 La. 294, 107 So. 115; Louisiana Farm Bureau Cotton Growers' Co-op. Ass'n v. Bannister, 161 La. 957, 109 So. 776; Louisiana Farm Bureau Cotton Growers' Co-op. Ass'n v. Bacon, 164 La. 126, 113 So. 790.

29 Staple Cotton Co-op. Ass'n v. Hemphill, 142 Miss. 298, 107 So. 24.