Clarke County Co-op., (AAL) v. Read

• Decision Date: 02 April 1962
• Docket Number: No. 42270,42270
• Citation: 139 So.2d 639,243 Miss. 879
• Parties: CLARKE COUNTY COOPERATIVE, (AAL) v. W. H. READ.
• Court: Mississippi Supreme Court

Page 639

139 So.2d 639

243 Miss. 879

CLARKE COUNTY COOPERATIVE, (AAL) v. W. H. READ.

No. 42270.

Supreme Court of Mississippi.

April 2, 1962.

Billy E. Harris, A. J. Reese, Quitman, for appellant.

McFarland & McFarland, Bay Springs, for appellee.

McELROY, Justice.

This is an appeal from the Circuit Court of the First Judicial District of Jasper County, Mississippi. The action is on a promissory note given by the appellee, W. H. Read, to the appellant, Clarke County Cooperative (AAL). The Clarke County Cooperative, a domestic corporation organized and existing under the laws of the State of Mississippi, was incorporated under the Mississippi Agricultural Association Law (AAL) with its office and principal place of business in the City of Quitman, Mississippi. The Cooperative was engaged in the business of selling feed, fertilizer, seed, farm supplies and general merchandise.

W. H. Read bought farm supply items and signed a note on October 7, 1959, to cover an indebtedness of $4,281.35. The note was to mature in six months, April 7, 1960, and was to bear six per cent interest from October 7 and a reasonable attorney's fee. The appellee defaulted and although repeated demands were made upon him, he paid no part of the note. Suit was filed December 10, 1960.

Appellee filed his answer which admitted the validity of the promissory note but denied that he was indebted to the appellant in the sum of $4,281.35. He admitted that he owed the sum of $1,114.08. A set-off was filed with his answer stating that the Clarke County Cooperative owed him 'equities' for the years 1953-1958.

In the set-off, Read alleged there was a mutual indebtedness between the appellant and the appellee and that the Cooperative was indebted to him in the following amounts: Equities owing to Read by the Cooperative were $1,803.96. He alleged that in 1959 a rebate on poultry merchandise purchased was $526.18, plus interest. From May through October 1959, he lost 455 hens at $2 each for a total of $910. The total amount of the indebtedness to him from the Cooperative was $3,240.14. The total amount owed to appellant by appellee was $1,114.08. Read swore to this set-off.

The appellant's answer to the set-off stated that 'the said plaintiff is controlled and governed by laws of the Clarke County Cooperative'. A sworn certified copy of the by-laws was attached as Exhibit A to the answer. There was shown, by virtue of Article 8 of said by-laws, a certified copy of the appellee's record of equities as recorded in the patron's record of equity book which was attached as Exhibit B to the answer. It denied owing the defendant-appellee anything.

It is well settled that equity credits allocated to a patron on the books of a cooperative do not reflect an indebtedness which is presently due and payable by the cooperative to such patron. Such equity credits represent patronage dividends which the board of directors of a cooperative, acting under statutory authority so to do, has elected to allocate to its patrons, not in cash or other medium of payment which would immediately take such funds out of the working capital of the cooperative, but in such manner as to provide or retain capital for the cooperative and at the same time reflect the ownership interest of the patron in such retained capital. The interest will be paid to the patron at some unspecified later date to be determined by the board of directors of the cooperative. The word 'capital' is intended to denote that capital which is of a nature comparable to the earned surplus of a conventional business corporation. The patron has no right to off-set such equity credits, not being an indebtedness which is presently due and payable, against an indebtedness which is presently due and payable by him to the cooperative.

Kershaw v. Merchants Bank of New York, (1843) 7 How. 386, 393, said: 'It is held to be a general rule that a plea of set-off should disclose such a state of facts as would entitle the party pleading it to sustain his action if he were plaintiff.'

In Griffith's Mississippi Chancery Practice, Sec. 521, p. 583 (2d Ed. 1950), it was said: 'The transactions must have been of such a nature that at the date of institution of the suit the defendant on his part could have instituted a good separate suit against the complainant for the item constituting the set-off.'

See also Canal-Commercial Trust & Savings Bank v. Brewer, 143 Miss. 146, 108 So. 424, 47 A.L.R. 45; General Motors Acceptance Corp. v. Trull, 166 Miss. 490, 148 So. 390 and 80 C.J.S. Set-Off and Counterclaim Sec. 25, p. 34.

The appellant is a cooperative organized and existing under the Agricultural Association Law of the State of Mississippi, Miss.Code 1942, Rec., Secs. 4475-4493. Section 4482 provides that the affairs of such a cooperative shall be managed and controlled by its board of directors. Section 4486 provides that such organizations are authorized and empowered to acquire and own properties, plants, and other facilities which may be necessary or useful in aiding the cooperative to serve its members. Section 4487 provides a means for such a cooperative to obtain the necessary funds or capital to pay the expense of its operation and to acquire those facilities which are necessary or useful to the cooperative in rendering service to its members. That section provides as follows: 'Such incorporated association may make charges to its members and deductions from the proceeds of their products for services rendered to them for the purpose of paying the expenses of operation and the maintenance and development of such association, and for the creation and maintenance of reserves for the purpose of paying expenses, retiring obligations, acquiring, maintaining and operating property necessary or useful in carrying out the purposes of this act and for caring for contingencies, and such reserves may be used or distributed as may be deemed proper by the board of directors under the by-laws; and such corporation may make patronage dividends or distributions to its members and may do any and all things not unlawful in carrying out the purposes of this act, and shall have and enjoy all the rights, privileges and immunities of other corporations not inconsistent with this act.'

The by-laws provide: '(2) Such dividends shall be paid either in cash or by credits allocated to the patrons in the Record of Patrons' Equities, or partly in accordance with each of said methods. 'Sec. 9. From time to time as cash may be on hand and available, not needed as an operating fund or for other necessary purposes of the association, the board of directors shall provide for a distribution to be made to the patrons for the purpose of retiring and paying equity credits as shown in the Record of Patrons' Equities. When such payment in cash is made, the oldest equity credits shall be first paid and retired.

"In any year in which the association may sustain a deficit from its operations, the directors shall have the right to apportion such loss against the accumulated patrons' equities in an equitable manner; and any such application shall ratably reduce the face value of such equity credits, in the redemption thereof."

In Sovereign Camp Woodmen of the World v. Woodruff, 80 Miss. 546, 32 So. 4, this Court said: 'The constitution and laws of a benefit society are binding upon it and upon all its members, and may be considered as written into contracts between it and its members * * *.'

Again in Maas v. Sisters of Mercy of Vicksburg, 135 Miss. 505, 99 So. 468, this Court said: 'Clearly the constitution, by-laws, and usages of the Sisters of Mercy constitute, so far as they deal with their civil rights, a binding contract between them * * *.'

To the same effect are Newman v. Supreme Lodge Knights of Pythias, 110 Miss. 371, 70 So. 241, L.R.A.1916C, 1051; Supreme Lodge Knights of Pythias v. Stein, 75 Miss. 107, 21 So. 559; Sovereign Camp, Woodmen of the World v. Miller, 125 Miss. 502, 87 So. 892 and Butler v. Eminent Household of Columbian Woodmen, 116 Miss. 85, 76 So. 830. Compare 18 C.J.S. Corporations Sec. 181 at 591 and Fletcher, Cyclopedia Corporations, Permanent Edition, Vol. 8, Sec. 4198 at 753.

Dealing specifically with the binding effect of the by-laws of an agricultural cooperative upon the members of the cooperative is the case of Arkansas Cotton Growers Co-op Assn. v. Brown, 168 Ark. 504, 270 S.W. 946, 950, where the court said: 'In fact, it is settled law that the by-laws of a corporation evidence the contract between it and its members or stockholders and govern the transaction...