There shall be no lien in favor of such corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any by-law, of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate."

Even though a bylaw restricting the right to transfer stock is unauthorized by the statute under which the corporation is formed, such bylaws have been enforced in some States as contracts between the corporation and its members.69 In other States, however, a contrary conclusion has been reached.70

Closely akin to the question whether a cooperative association may restrict the transfer of its stock is the right of such an association to purchase its stock from its members. Many of the statutes providing for the formation of cooperative associations contain provisions authorizing the associations to purchase or redeem their stock. If such provisions appear in the statute under which an association is formed, it is clear that it has the right to do so, assuming that the constitution of the State does not contain a provision to the contrary.

Even though no statutory authority for the purchase or redemption of stock is contained in the statute under which the association is formed, generally speaking it would have the right to do either because at common law a corporation, by the weight of authority, may purchase its own stock if solvent and if no injury to creditors results.71

It is illegal in some States for corporations to buy their own stock.72

Who May Become Members

May a cooperative association select its members and thus determine for whom it will market products or furnish supplies? Judging by the decisions of the courts with respect to other organizations the answer is "Yes." In the absence of a statute prescribing rules relative to the admission of members or stockholders, an association at com

68 See United States Gypsum Company v. Houston, 239 Mich. 249, 214 N. W. 197, 198.

New England Trust Co. v. Abbott, Ex'r, 162 Mass. 148, 38 N. E. 432, 27 L. R. A. 271; Model Clothing House v. Dickinson, 146 Minn. 367, 178 N. W. 957.

70 Steele v. Farmers' & Merchants' Mutual Tel. Ass'n, 95 Kan. 580, 148 P. 661; Brinkerhoff-Farris Trust & Savings Co. v. Home Lumber Co., 118 Mo. 447, 24 S. W. 129.

Whitney v. Farmers' Co-op. Grain Co., 110 Neb. 157, 193 N. W. 103; Cole v. Cole Realty Co., 169 Mich. 347, 135 N. W. 329.

12 Poultry Producers of Southern California, Inc. v. Barlow, 189 Cal. 278, 208 P. 93; Poultry Producers of Central California, Inc. v. Murphy, 64 Cal. App. 450, 221 P. 962.

mon law is free to accept some and reject others. With respect to nonstock associations, numerous court decisions support this view.73 The Supreme Court of Minnesota has held that the right to membership in a corporation might by a provision in its articles of incorporation, be restricted to persons of a certain nationality where the provision was not inconsistent with any statute.74

The courts have universally declared that stock corporations have the right to determine to whom they will sell their stock.75 The right of associations to restrict the transfer of their stock is discussed in the section on Restrictions as to Transfer of Stock, page 61.

Membership in a nonstock association or a certificate of membership evidencing the same is not transferable 76 in the absence of a statutory, charter, or bylaw provision making it transferable.

A rural cooperative electric association declined to admit certain farmers as members and it was apparently accepted that the association was acting within its legal rights." In another case involving a similar cooperative association the court held that membership "was not a matter of right." 78

An applicant for membership is not entitled to the rights of membership until he has fulfilled all the prerequisites therefor. Thus, in a case in which applicants were required to make payment in full for stock at the beginning of the season, the association had a right to deny patronage dividends to those who had failed to do so.79

When a marketing agreement was signed by two parties "as joint tenants" it was held that they were members of the association and that the contract was enforceable against them.80

73 McKane v. Adams as President of the Democratic General Committee of Kings Co., 123 N. Y. 609, 25 N. E. 1057; Connelly v. Masonic Mutual Benefit Ass'n, 58 Conn. 552, 20 A. 671, 9 L. R. A. 428; State v. Sibley, 25 Minn. 387; LaSalle County Farm Bureau v. Thompson, 245 Ill. App. 413; W. G. Press & Co. v. Fahy, 313 Ill. 262, 145 N. E. 103; 6 R. C. L., par. 371; 25 R. C. L. 54.

* Blein v. Rand, 77 Minn. 119, 79 N. W. 606. See also Mills, D. N. Labor Law right of union to deny membership to applicant. 40 Michigan Law Review 2–310, 1941.

75 14 C. J. 838.

76

American Live-Stock Commission Co. v. Chicago Live-Stock Exchange, 143 Ill. 210, 32 N. E. 274, 18 L. R. A. 190, 36 Am. St. Rep. 385.

77

Bailey v. Carolina Power & Light Company, 212 N. C. 768, 195 S. E. 64.

18 Ford v. Peninsula Light Company, 164 Wash. 599, 4 P. 2d 504; but see Alabama Power Co. v. Cullman County Electric Membership Corporation, 234 Ala. 396, 174 So. 866.

79 Farmers Truck Association v. Strawberry & Vegetable Auction, Inc., (La. App.) 163 So. 181.

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

With respect to the general subject under discussion, it should be remembered that those engaged in a private business at common law may arbitrarily refuse to sell to or buy from others.81 Banks, according to common law, may arbitrarily select their depositors; 82 and even a doctor, although the only one available, in the absence of a statute requiring him to serve all who come, has the right to determine arbitrarily with whom he will have dealings.83

And a cooperative association can adopt rules or bylaws to be followed in determining whether a person is eligible to be admitted to membership. For instance, an association can adopt a bylaw to the effect that only producers who are members of some other organization may buy stock or be admitted to membership.84

Membership-How Acquired

There is nothing mysterious about becoming a member of a cooperative association. The basic principles are similar to those applicable to becoming a member of any other corporation. Generally speaking, an association may choose whom it will admit to membership.85 That is, an association, whether formed with or without stock, is free to determine the qualifications one must possess to be eligible for membership. Cooperative statutes usually specifically authorize the adoption of bylaws covering these matters.86 Bylaws of associations frequently provide that, before applications for membership or subscriptions for stock may be accepted, the applicants or subscribers must first be approved by the board of directors or must meet conditions prescribed by the board. Fundamentally, no person may be-. come a member of an association formed with capital stock without acquiring at least one share thereof.87 Many of the cooperative acts prescribe that the holders of common stock shall be members of associations. At common law, however, a stockholder is regarded as a member regardless of the character of the stock held by him.

81 Federal Trade Commission v. Raymond Brothers-Clark Co., 263 U. S. 565, 44 S. Ct. 162, 68 L. Ed. 448, 30 A. L. R. 1114.

82

Elliott v. Capital City State Bank, 128 Iowa 275, 103 N. W. 777, 111 Am. St. Rep. 198, 1 L. R. A. (N. S.) 1130.

83 Hurley v. Eddingfield, 156 Ind. 416, 59 N. E. 1058, 83 Am. St. Rep. 198.

84 Connelly v. Masonic Mutual Benefit Association, 58 Conn. 552, 20 A. 671, 9

L. R. A. 428; Carpenter v. Dummit [Burley Tobacco Growers' Cooperative Ass'n], 221 Ky. 67, 297 S. W. 695.

S5 See Who May Become Members, p. 65.

86

See sec. 7 of Bingham Cooperative Marketing Act of Kentucky, p. 376 of Appendix.

87 13 Am. Jur., p. 455, sec. 398; see Subscriber, Stock, Capital Stock, p. 54.

In a nonstock association there must be an application for membership and an acceptance thereof, or an offer of membership and an acceptance of such an offer.88

In a California case 89 it was said that-

A careful search of the record fails to disclose any proof that the plaintiff ever accepted the defendant as a member

It should be clear that membership is the result of a contractual undertaking. A contract requires a meeting of minds and affirmative action by each of the parties thereto. Sometimes associations have attempted to make persons members by including in their bylaws provisions that those who consign to or otherwise transact business with them thereby become members. Inasmuch as nonmembers of an association who patronize it are ordinarily unaware of such provisions in the bylaws, these provisions do not automatically operate to make nonmember patrons members. Such provisions in bylaws may be construed as offers of membership, but there must be informed action on the part of patrons before membership, as a matter of law, results.

In some instances associations have placed upon the form of check or draft given to patrons on account of commodities purchased of them statements to the effect that endorsement constitutes an application for membership in the association.

In at least two States, Arkansas 90 and South Carolina 1 penal statutes have been enacted to the effect that the endorsement by a person of a "draft or check containing conditions which purport to make a person a member of a cotton cooperative association as a prerequisite to obtaining money on any draft or check given to him for any cotton which he has sold or pledged to any cotton cooperative association shall not be construed as making such person a member of the association." Such statutes further provide that membership may be obtained only by the execution of a membership contract in duplicate.

It has been held that the purchasers of debentures of an association did not by reason of that fact alone become stockholders thereof.92 If marketing agreements are to be assigned by one association to another, provision for doing so should be made in the marketing

88 Johanson v. Riverside County Select Groves, Inc., 4 Cal. App. 2d 114, 40 P. 2d 530.

89 Sun-Maid Raisin Growers of California v. K. Arakelian, Inc., 90 Cal. App. 10, 265 P. 832. See also Ellis v. Journeyman Barbers' International Union of America, 191 Iowa 1179, 191 N. W. 111, 32 A. L. R. 756.

92

Pettingill v. State Marketing Association, 199 Wis. 200, 225 N. W. 834.

agreement and procedure should be prescribed under which producers whose marketing agreements are assigned may be made members of the second association.98

94

Rights of Members

96

In a practical and nonlegal sense the members are the association. Members have the right (1) to choose and to remove the directors of an association; 4 (2) to adopt or change its bylaws; 95 (3) to require the officers and directors (agents) to keep within the limits of law, the association's charter, its bylaws, and its marketing contracts; (4) to hold the officers and directors who fail to do so accountable for any losses suffered by members by reason of any departure; 97 (5) to bring a suit to protect the interests of an association when the directors, or a majority of them, are parties to the wrongdoing; 98 (6) to require associations of which they are members to account to them correctly and in adequate detail,99 and to deal with them without discrimination;1 (7) to challenge the right of directors or officers to act as such; and (8) to examine the books and property of the association. The last right is subject to such restrictions as may have been agreed to and is subject to the further restriction that the request to examine the books and property of the association is made. in good faith and with a view to its exercise at a proper time.

93

2

3

4

Sun-Maid Raisin Growers of California v. Paul A. Mosesian & Son, Inc., 90 Cal. App. 1, 265 P. 828; Sun-Maid Raisin Growers of California v. K. Arakelian, Inc., 90 Cal. App. 10, 265 P. 832.

94

See secs. 12 and 15 of the Bingham Co-operative Marketing Act of Kentucky, pp. 378 and 380 of Appendix.

95 See sec. 10 of the Bingham Cooperative Marketing Act of Kentucky, p. 377 of Appendix.

96 McCauley v. Arkansas Rice Growers' Co-op. Ass'n, 171 Ark. 1155, 287 S. W. 419; Galloway v. Mitchell County Electric Membership Corporation, 190 Ga. 428, 9 S. E. 2d 903.

97

98

Fergus Falls Woolen Mills Company v. Boyum, 136 Minn. 411, 162 N. W. 516. Loftus v. Farmers' Shipping Association, 8 S. D. 201, 65 N. W. 1076; Browne v. Hammett, 133 S. C. 446, 131 S. E. 612; Morton v. Morton Realty Co., 41 Idaho 729, 241 P. 1014.

99

Brown v. Georgia Cotton Growers' Co-operative Association, 164 Ga. 712, 139 S. E. 417; Johnson v. Staple Cotton Co-operative Association, 142 Miss. 312, 107 So. 2; Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190; Rhodes v. Little Falls Dairy Company, Inc., 230 App. Div. 571, 245 N. Y. S. 432, affirmed in 256 N. Y. 559, 177 N. E. 140.

1 Wheelwright v. Pure Milk Association, 208 Wis. 40, 240 N. W. 769, 242 N. W. 486. 2 In re O'Shea, 269 N. Y. S. 840, 241 App. Div. 699; Fritz v. Superior Court, 18 Cal. App. 2d 232, 63 P. 2d 872.

3 In re Steinway, 159 N. Y. 250, 53 N. E. 1103, 45 L. R. A. 461.

'Hobbs v. Tom Reed Gold Min. Co., 164 Cal. 497, 129 P. 781, 43 L. R. A. (N. S.) 1112.