tion of an association for mutual help, without capital stock, not conducted for profit, and restricted to the business of its own members, except that it may act as agent to sell farm products and buy farm supplies for a nonmember, but as a condition may impose upon him a liability, not exceeding that of a member, for the contracts, debts and engagements of the association, such services to be performed at the actual cost thereof including a pro rata part of the overhead expenses. (Comp. Stats. 1921, sec. 5608.) Under this exception, the difference between a nonmember and a member is not of such significance or the authority conferred of such scope as to have any material effect upon the general purposes or character of the corporation as a mutual association. As applied to corporations organized under the 1917 act, we have no reason to doubt that the classification created by the proviso might properly be upheld. (American Sugar Refining Co. v. Louisiana, 179 U. S. 89, 21 S. Ct. 43, 45 L. Ed. 102; Warehouse Co. v. Tobacco Growers, 276 U. S. 71, 48 S. Ct. 291, 72 L. Ed. 473.) A corporation organized under the act of 1919, however, has capital stock, which, up to a certain amount, may be subscribed for by any person, firm, or corporation; is allowed to do business for others; to make profits and declare dividends, not exceeding 8 percent per annum; and to apportion the remainder of its earnings among its members ratably upon the amount of products sold by them to the corporation. Such a corporation is in no sense a mutual association. Like its individual competitor, it does business with the general public for the sole purpose of making money. Its members need not even be cotton growers. They may be all or any of them-bankers or merchants or capitalists having no interest in the business differing in any respect from that of the members of an ordinary corporation. The differences relied upon to justify the classification are, for that purpose, without substance. The provision for paying a portion of the profits to members or, if so determined, to nonmembers, based upon the amounts of their sales to or purchases from the corporation, is a device which, without special statutory authority, may be and often is resorted to by ordinary corporations for the purpose of securing business. As a basis for the classification attempted, it lacks both relevancy and substance.

The Supreme Court held the exception in the Oklahoma statute in question unconstitutional on the ground that the method of doing business, which the cooperative gin in question was authorized to follow by the statute under which it was organized, was so similar to that which was followed by commercial gins that there was no sound difference between the two. The court said: "Like its individual competitor, it does business with the general public for the sole purpose of making money." It is submitted that this language reveals the real reason why the court held the exception to the Oklahoma statute unconstitutional. The court distinctly pointed out that cooperative corporations formed under the 1917 act, under which members and nonmembers must be treated alike, and which function on a nonprofit basis, were so different from commercial concerns as to entitle them to a distinct classification; and if the so-called cooperative corporation involved had been formed under the 1917 act, the court indicates it would have held the exception to the Oklahoma statute constitutional.

Obviously, there is a broad distinction between the cooperative type of business and the commercial type of business.

This case should not be regarded as bringing into question any of the cooperative statutes. It involved a licensing act which authorized a commission to deny a license to any applicant therefor other than a cooperative; and the court was of the opinion that the manner of operation of the particular "cooperative" gin in question was not sufficiently different from that of a private gin to justify the granting of a license to the "cooperative" gin without a showing of public necessity therefor. The cooperative statutes, generally speaking, do not prevent private parties from going into business.

In another case 15 in which a statute of Oklahoma relieved the owner of a cotton gin of the necessity of obtaining a license therefor, if it was to gin cotton only for stockholders of any corporation which might or might not operate on a cooperative basis, it was held that the statute unlawfully discriminated against the operator of a cotton gin who was compelled to obtain a license.

In fields other than agriculture there are many interesting examples of classification. For instance, a statute of Minnesota that fixed the closing hours for barber shops was upheld although the closing hours for other establishments were not fixed.16 A statute of Mississippi which forbade corporations from operating both cottonseed-oil mills and cotton gins, but which permitted the operation of either by any corporation, was held constitutional." A statute of Kansas which distinguished between farmers' mutual insurance companies and those operated on a commercial basis was also upheld.18

The right of employees to form labor unions to bargain collectively and to follow up their demands by orderly strikes is established.19

15 Chickasha Cotton Oil Company v. Cotton County Gin Company, 40 F. 2d 846. Petit v. Minnesota, 177 U. S. 164, 20 S. Ct. 666, 44 L. Ed. 716.

16

17 Crescent Cotton Oil Co. v. State of Mississippi, 257 U. S. 129, 42 S. Ct. 42, 66 L. Ed. 166.

18 German Alliance Insurance Co. v. Lewis, Superintendent of Insurance of the State of Kansas, 233 U. S. 389, 34 S. Ct. 612, 58 L. Ed. 1011; but see Hartford Steamboiler Inspection & Furnace Company v. Harrison, 301 U. S. 459, 57 S. Ct. 838, 81 L. Ed. 1223.

19 Coronado Coal Co. v. United Mine Workers, 268 U. S. 295, 45 S. Ct. 551, 69 L. Ed. 963; American Steel Foundries v. Tri-City Central Trades Council, 257 U. S. 184, 209, 42 S. Ct. 72, 66 L. Ed. 189; Traux v. Corrigan, 257 U. S. 312, 357, 42 S. Ct. 124, 66 L. Ed. 254; United States v. Hutcheson, 312 U. S. 219, 61 S. Ct. 463, 85 L. Ed 788.

IT

Promissory Notes

T is a practice more or less followed by cooperative associations to receive the notes of their members for specified amounts for the purpose of using them as collateral for loans that may be necessary in the conduct of the association's business and for other purposes. The exact nature of such notes depends upon the terms and conditions under which they are given and upon the law of the particular State.20 For instance, where a resolution was adopted at the annual meeting of the stockholders of a cooperative association providing that “a $350 note be signed by each individual stockholder guaranteeing * * *" it

* * *

the board of directors against any loss that might occur was held that inasmuch as each stockholder had not given a $350 note, those stockholders who had signed such notes were not liable thereon. "To make the notes obligatory on those who did sign, all should have signed." 21 In another case in which the facts were somewhat similar, a stockholder signed his note for $350 and failed to show that other stockholders had not executed such notes, so he was held liable when sued thereon.22

The bylaws of an association usually set forth the agreement between the association and the members relative to the notes, and this agreement would probably in all cases determine the character of the notes with reference to the association and a member, and whether the association could successfully sue a member on such a note. This would not necessarily be true, however, as will be shown later, in the case of a third person who had received the note of a member from the association.

If the notes executed by the members of an association and delivered to it are accommodation notes-that is, notes executed without consideration and for the purpose of enabling the association to borrow money or obtain credit thereon-then it is settled that the association could not successfully sue a member on such a note. The maker of an accommodation note is known as the accommodation maker. He receives nothing for executing the note and signs it to enable the one in whose favor it is drawn to obtain money or credit from some third

20 Farmers' Equity Co-op. Ass'n v. Tice, 122 Kan. 127, 251 P. 421; Farmers' Cooperative Union of Lyons v. Reynolds, 127 Kan. 16, 272 P. 108; Elmore v. Maryland & Virginia Milk Producers' Ass'n, Inc., 145 Va. 42, 132 S. E. 521, 134 S. E. 472. 21 Farmers' Co-op. Union v. Alderman, 126 Kan. 299, 267 P. 1110.

22

Farmers' Co-operative Union of Lyons v. Reynolds, 127 Kan. 16, 272 P. 108. See also Farmers' Equity Co-operative Association v. Tice, 122 Kan. 127, 251 P. 421; Makeever v. Barker, 85 Ind. App. 418, 154 N. E. 692; Clark v. Pargeter, 142 Kan. 781, 52 P. 2d 617.

party. The fact that a note or other negotiable instrument, no matter what its character, was executed without consideration can always be shown as between the original parties. It furnishes the maker with a complete defense as against the original payee.

If a negotiable note, whether accommodation or otherwise, has been sold, delivered, or transferred before it is due to a third person, in good faith and without notice and for a valuable consideration, the note is enforceable by such third person against the maker without reference to intervening equities. This rule is well established.23

However, if an accommodation note is delivered after it is due, although transferred in good faith to a third person and for a valuable consideration, the courts are divided as to whether the maker of the note may plead intervening equities as a defense against the holder.

The general rule, without special regard to accommodation notes, is that one who takes a note or other negotiable instrument after it is due takes it subject to all the equities or defenses that existed between the original parties.24 For instance, if a note is given without consideration, this could be shown by the maker when sued by one who took the note after it was due.25

In the eyes of the law, the fact that the note was not paid when it became due is notice to the party who takes it from the former holder that there is some defect in the paper. However, with respect to accommodation paper, in view of the fact that it is always given without consideration, the courts in a majority of the States have refused to allow the maker to plead a want of consideration, although the note was taken after it was due.26 But in some jurisdictions the maker of an accommodation note may successfully plead a want of consideration even as against one who received it in good faith and for a valuable consideration from the original payee.27

If a note is payable on demand, the general rule as to ordinary negotiable commercial paper is that one who takes it an unreasonable time after its execution takes it subject to all defenses that existed between the original parties.28 If the maker would not have a defense to a suit on the note if brought by the original payee, he would not have a defense to a suit instituted by one who took the note from the original payee either before or after maturity. With respect to accommodation paper payable on demand, in those jurisdictions where a want

23

National Bank of Commerce v. Sancho Packing Co., 186 F. 257.

"Otis Elevator Co. v. Ford, 27 Del. 286, 88 A. 465.

25 Hill v. Shields, 81 N. C. 250, 31 Am. Rep. 499.

26 Naef v. Potter, 226 Ill. 628, 80 N. E. 1084, 11 L. R. A. (N. S.) 1034.

Chester v. Dorr, 41 N. Y. 279; Peale v. Addicks, 174 Pa. 543, 549, 34 A. 201. 28 Otis Elevator Co. v. Ford, 27 Del. 286, 88 A. 465.

of consideration may be shown by the maker as against one who took such paper after it was due, the maker may successfully plead this defense against one who took the demand accommodation note an unreasonable time after its execution. In a North Dakota case 29 it was said: "It is well established that a note payable on demand is due within a reasonable time after its date, and there are practically no authorities which hold that such a reasonable time can be extended beyond a year."

In a doubtful case it would be a question for the jury to determine whether a note had been sold or delivered as collateral for a loan an unreasonable length of time after its execution. In those States in which the defense of a want of consideration cannot be successfully made by the maker of accommodation paper as against one who took it after it was due, it follows that he could not make it against one who took a demand accommodation note an unreasonable time after its execution.

A note executed by a member of a cooperative association and delivered to it, and on which the association could not successfully sue the member, and on which money had not been borrowed or credit obtained, is not a part of the assets of the association. If the association fails or goes into the hands of a receiver, the receiver could not enforce such a note against the member, for he stands in no better position than did the association.30 On the other hand, if the note is one on which the association could successfully sue, it follows that it is part of the assets of the association, and a receiver would be able to maintain a suit thereon.31

In a Michigan case the receiver for a cooperative association brought suit on demand notes which were given by 34 members of the association and which were in possession of the association at the time the receiver took charge of its affairs. The notes were given for the purpose of being used as collateral security, and they so specified. Inasmuch as they had not been used for this purpose, the court held that the members were not liable on the notes and that they in no way constituted assets of the association.32

If an association borrowed money on its note, giving as collateral security demand notes signed by members of the association, the person

20 McAdam v. Grand Forks Mercantile Co., 24 N. D. 645, 140 N. W. 725, 47 L. R. A. (N. S.) 246, 251.

30 Rankin v. City National Bank, 208 U. S. 541, 28 S. Ct. 346, 52 L. Ed. 610; Skud v. Tillinghast, 195 F. 1; In re Tasker's Estate, 182 Pa. 122, 37 A. 924.

31 Clark v. Layman, 144 Kan. 711, 62 P. 2d 897.

82

Runciman v. Brown, 223 Mich. 298, 193 N. W. 880. See also Taylor v. Rugenstein, 245 Mich. 152, 222 N. W. 107; Gobles Cooperative Association v. Albright, 248 Mich. 68, 226 N. W. 876.