Arkansas Cotton Growers' Co-Op. Ass'n v. Brown

• Decision Date: 13 April 1925
• Docket Number: (No. 294.)
• Citation: 270 S.W. 946
• Parties: ARKANSAS COTTON GROWERS' CO-OP. ASS'N v. BROWN.
• Court: Arkansas Supreme Court

270 S.W. 946

ARKANSAS COTTON GROWERS' CO-OP. ASS'N v. BROWN.

(No. 294.)

Supreme Court of Arkansas.

April 13, 1925.

Appeal from Pulaski Chancery Court; Jno. E. Martineau, Chancellor.

Suit by R. E. Brown against the Arkansas Cotton Growers' Co-operative Association, which interposed a cross-complaint. From an adverse decree, defendant appeals. Reversed and remanded, with directions.

For supplemental opinion, see 270 S. W. 1119.

Sapiro, Levy & Hayes, of San Francisco, Cal., and Moore, Smith, Moore & Trieber and Cohn, Clayton & Cohn, all of Little Rock, for appellant.

T. M. Mehaffy and J. W. House, Jr., both of Little Rock, for appellee.

McCULLOCH, C. J.

The General Assembly of 1921 enacted a statute authorizing the organization of associations as bodies corporate to promote and regulate co-operative marketing of farm products. Acts 1921, p. 153. The design of the statute is fully stated in the caption, which reads as follows:

"An act to promote, foster, and encourage the intelligent and orderly marketing of agricultural products through co-operation and to eliminate speculation and waste; and to make the distribution of agricultural products as direct as can be efficiently done between producer and consumer; and to stabilize the marketing problems of agricultural products."

The statute seems to be in a form which has become standard and has been enacted in many of the states, the enactment of such legislation being manifestly prompted by the universal urge to promote prosperity in agricultural pursuits. There has been much discussion of the plan in the decisions of the courts of the various states where it has been adopted, and the general view expressed is that the statute should be liberally construed in order to carry out the design in its broadest scope.

The statute authorizes the organization of corporations to carry on the business of marketing the farm products of their members, and declares that associations thus formed "shall be deemed nonprofit, inasmuch as they are not organized to make profits for themselves, as such, or for their members, as such, but only for their members as producers." Such an association is prohibited from handling the agricultural products of any nonmember. The pertinent clauses of the section (section 6), defining the powers of an association, are as follows:

"(a) To engage in any activity in connection with the marketing, selling, harvesting, preserving, drying, processing, canning, packing ginning, compressing, storing, handling or utilization of any agricultural products produced or delivered to it by its members; or the manufacturing or marketing of the by-products thereof; or in connection with the purchase, hiring, or use by its members of supplies, machinery, or equipment; or in the financing of any such activities; or in any one or more of the activities specified in this section. No association, however, shall handle the agricultural products of any nonmember.

"(b) To borrow money and to make advances to members.

"(c) To act as the agent or representative of any member or members in any of the above-mentioned activities. * * *

"(g) To do each and everything necessary, suitable or proper for the accomplishment of any one of the purposes or the attainment of any one or more of the objects herein enumerated; or conducive to or expedient for the interest or benefit of the association; and to contract accordingly; and in addition to exercise and possess all powers, rights and privileges necessary or incidental to the purposes for which the association is organized or to the activities in which it is engaged; and in addition, any other rights, powers and privileges granted by the laws of this state to ordinary corporations, except such as are inconsistent with the express provisions of this act; and to do any such thing anywhere."

Appellant is an association organized pursuant to the terms of the statute referred to, and articles of incorporation were adopted as prescribed by the statute. One of the provisions of the articles of incorporation reads as follows:

"To do each and everything necessary, suitable or proper in the judgment of the directors of the association, anywhere throughout the world, for the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or which shall at any time appear conducive to or expedient for the interests or benefits of the association and the members thereof, and to contract accordingly."

By-laws were adopted which contain the following pertinent provisions:

"Section 4. To make and enter into agreements with spinners, buyers or others for the sale, marketing or consignment of the cotton grown by members of the association or the products therefrom.

"Section 5. To carry out the marketing contracts of the association and growers in every way advantageous to the association representing the growers collectively."

Contracts were entered into between appellant association and its members, beginning with the year 1922 and continuing from year to year as new members could be secured. The contract with all the members was of the same form and provided that the association should buy, and the member, who was designated as the grower, should sell and deliver to the association all of the cotton "produced or acquired by or for him in Arkansas" during the period of five years. The first series of contracts, and the one under which the association dealt with appellee, specified the years 1922, 1923, 1924, 1925, and 1926. The first section of the contract reads as follows:

"Arkansas Cotton Growers' Co-operative Association Marketing Agreement.

"The Arkansas Cotton Growers' Co-operative Association, a nonprofit association, with its principal office at Little Rock, hereinafter called the association, first party, and the undersigned grower, second party, agree:

"1. The grower is a member of the association and is helping to carry out the express aims of the association for co-operative marketing, for minimizing speculation and waste, and for stabilizing cotton markets in the interest of the grower and the public, through this and similar organizations undertaken by other growers."

The contract provided that the contracting member, or grower, should not sell cotton to any one except the association and that all cotton should be delivered, immediately after picking and ginning, to a public warehouse for the order of the association, and that the warehouse receipts should be delivered to the association, as well as the bills of lading when shipped. Other provisions of the contract read as follows:

"5. The association shall pool or mingle the cotton of the grower with cotton of a like variety, grade and staple delivered by other growers. The association shall classify the cotton, and its classification shall be conclusive. Each pool shall be for a full season.

"6. The association agrees to resell such cotton, together with cotton of like variety, grade and staple, delivered by other growers under similar contracts, at the best prices obtainable by it under market conditions; and to pay over the net amount received therefrom (less freight, insurance and interest), as payment in full to the grower and growers named in contracts similar hereto, according to the cotton delivered by each of them, after deducting therefrom, within the discretion of the association, the costs of maintaining the association, and costs of handling, grading and marketing such cotton; and of reserves for credits and other general purposes (said reserves not to exceed two per cent. of the gross resale price). The annual surplus from such deductions must be prorated among the growers delivering cotton in that year on the basis of deliveries.

"7. The grower agrees that the association may handle, in its discretion, some of the cotton in one way and some in another; but the net proceeds of all cotton of like quality, grade and staple, less charge, costs and advances, shall be divided ratably among the growers in proportion to their deliveries to each pool, payments to be made from time to time until all accounts of each pool are settled.

"8. The association may sell the said cotton, within or without this state, directly to spinners or exporters, or otherwise, at such times and upon such conditions and terms as it may deem profitable, fair and advantageous to the growers; and it may sell all or any part of the cotton to or through any agency, now established or to be hereafter established, for the co-operative marketing of the cotton of growers in other states throughout the United States, under such conditions as will serve the joint interest of the growers and the public; and any proportionate expenses connected therewith shall be deemed marketing costs under paragraph 6."

The domicile and place of business of appellant association is at Little Rock, where its operations have been carried on. The association secured a large number of members, who contracted to deliver cotton, and has been functioning in accordance with the statute and the terms of its by-laws since the time of its organization.

Appellee is a farmer in Pulaski county and became a member of the association in the year 1922 and entered into the form of contract above referred to. He had on hand a considerable quantity of cotton of the crop of 1921, and this was delivered to the association for sale.

Appellee instituted this action against appellant in the chancery court of Pulaski county, alleging that appellant had wrongfully and negligently and without his approval sold 64 bales of his cotton at less than the market price, causing injury to him in the sum of $4,949, and he prayed for a recovery of that sum as damages. He further alleged that appellant association had wrongfully and without legal or contractual authority adopted the plan of selling cotton for future delivery and was persisting in said plan in violation of its...