Dark Tobacco Growers' Co-op. Ass'n v. Mason

• Decision Date: 07 June 1924
• Citation: 263 S.W. 60,150 Tenn. 228
• Parties: DARK TOBACCO GROWERS' CO-OP. ASS'N v. MASON.
• Court: Tennessee Supreme Court

263 S.W. 60

150 Tenn. 228

DARK TOBACCO GROWERS' CO-OP. ASS'N v. MASON.

Supreme Court of Tennessee.

June 7, 1924

Appeal from Chancery Court, Robertson County; J. W. Stout Chancellor.

Suit by the Dark Tobacco Growers' Co-operative Association against R. H. Mason. Decree for complainant, and defendant appeals. Affirmed and remanded.

HALL J.

The bill in this cause was filed in the chancery court of Robertson county by the Dark Tobacco Growers' Co-operative Association to recover of the defendant, R. H Mason, the sum of $1,050, as liquidated damages, and the further sum of $525, expenses and attorney's fees, for breach of contract.

Complainant is a co-operative association for the handling, marketing and selling of tobacco, incorporated and organized under the Bingham Co-operative Marketing Act of Kentucky (chapter 1, Ky. Acts 1922).

The bill alleges that defendant became a member of said association and contracted to sell to it all tobacco grown by him for a period of five years, beginning with the year 1922 and extending through the year 1926.

Complainant's right to recover of defendant is predicated upon a certain contract signed by defendant and filed as Exhibit A to the original bill.

Defendant admitted the signing of the contract, but denied liability to complainant for any amount, and set up the following defenses:

(1) That complainant was a foreign corporation, and at the time of the execution of the contract, for the alleged breach of which this suit was brought, was doing business in the state of Tennessee without having complied with the law, which requires a copy of its charter to be filed in the office of the secretary of state, and could not, therefore, enforce the contract in the courts of Tennessee.

(2) That complainant was a trust, created and acting in violation of the anti-trust laws of the United States, to wit, the Sherman Act, and in violation of the anti-trust law of Tennessee, and for that reason the contract sued on could not be enforced.

(3) That the contract was violative of the statute of frauds of both Kentucky and Tennessee.

(4) That the contract was unilateral, wanting in mutuality, indefinite and uncertain, harsh, oppressive, unfair, and inequitable, and, therefore, should not be enforced.

(5) That complainant had entered into certain other collateral and independent agreements and contracts with defendant, which had been breached by it, and, therefore, complainant could not enforce the contract sued on against defendant.

Defendant having asked for a jury in his answer to the bill, the cause was tried before the chancellor and a jury; each side submitting issues. A number of these issues were answered by the chancellor with the consent of counsel. The remaining issues were submitted to the jury and answered by the jury. These issues, in so far as they are material, will be adverted to later on in this opinion.

After the jury had returned its verdict upon the issues submitted to it, defendant moved the chancellor to dismiss complainant's bill for the reason that the jury had found, as a fact, that there was a collateral agreement made between him and the association, at the time defendant signed the contract sued on, that it would advance him 60 per cent. of the value of his tobacco, and it appearing from the proof that complainant had breached its agreement in this regard defendant was not bound to perform the contract, which motion the chancellor overruled.

Defendant further moved the chancellor to dismiss complainant's bill for the reason that the jury had found, as a fact, that complainant was not ready, willing and able to perform the terms of the contract, which motion the chancellor overruled.

Thereupon defendant moved for a new trial, which motion the chancellor overruled, and rendered and entered a decree that the contract sued on was valid and binding on defendant, and that complainant was entitled to recover of defendant five cents per pound, as provided in said contract, as liquidated damages for all tobacco produced by or for defendant during the year 1922, which he failed and refused to deliver to complainant, and to recover of defendant reasonable attorney's fees, and referred the cause to the master to ascertain and report the number of pounds of tobacco which defendant failed to deliver, and what would be reasonable attorney's fees for the institution and prosecution of the suit.

From this decree defendant appealed to this court and has assigned errors.

By his first assignment of error defendant insists that the chancellor erred in not dismissing complainant's bill for the reason that the proof shows that complainant is a trust and an illegal association or combination, incorporated, organized, and acting in restraint of trade, and in violation of the anti-trust Laws of the United States, especially the Sherman Act (U. S. Comp. St. § 8820 et seq.), and in violation of the antitrust law of Tennessee (Shannon's Code§§ 3185-3191).

The Bingham Co-operative Marketing Act, under which complainant was incorporated and organized, is an enabling act whereby a particular kind of corporation may be formed. Persons who are able and willing to bring themselves within the terms of the act may organize a co-operative association. Section 1 of the act makes the following declaration of policy, and sets out the purposes of the act as follows:

"In order 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 between producer and consumer as direct as can be efficiently done; and to stabilize the marketing of agricultural products, this act is passed."

It is then provided that 20 or more persons engaged in the production of agricultural products may form a nonprofit co-operative association to engage in any activity in connection with the marketing and selling of the produce of the members of the association, together with related activities. An association organized under the act can handle only the products of its members, and only producers are eligible to membership.

Articles of incorporation must be adopted containing the provisions required in articles of incorporation of business corporations. In addition, there must be a statement showing whether the association is organized with or without capital stock; whether the property rights of the members shall be equal or unequal; if unequal, general rules must be made applicable to all members whereby property rights will be determined and fixed. These rules must apply to new members as well as old, and cannot be changed except by the consent of three-fourths of the members. If the association is to be organized with capital stock, all details concerning the amount of stock and its character must be set forth. The articles of incorporation must be filed in the same manner as those of a general business corporation.

Provision is made for the adoption of a code of by-laws containing a number of requirements protecting the rights of members, and the status of the association as a nonprofit corporation for co-operative marketing of its members' produce. After the usual stipulations for the time, place, and manner of calling and conducting meetings, the number of members constituting a quorum, the right to vote by proxy, and the powers and duties of officers and directors, there follow a number of by-laws which differ from those of an ordinary corporation.

The marketing contract between the association and its members may be embodied in the by-laws. The by-laws may likewise determine the method of permitting the withdrawal of members or transfer of stock, the conditions upon which members shall cease, and the automatic suspension of a member's right when he ceases to be a grower. Upon death, withdrawal, or expulsion of a member, his interest in the association must be appraised, and the value of that interest must be paid to his heirs, or to himself, as the case may be.

Directors may be elected by districts, so as to give the membership proportional and equitable representation.

Complainant association has two directors representing the public group, one from each of the states of Kentucky and Tennessee. These directors sit with the board in all of its deliberations with full voting power, and are charged with the protection of the interest of the general public.

The association is authorized to make contracts with its members requiring them to sell, for a limited period of time, all or part of their agricultural products. Since the association is not permitted to handle the products of nonmembers, it was necessary to make special provision for the enforcement of these contracts. The act, therefore, permits the making of contracts providing for the payment of liquidated damages in case of breach, and for reasonable attorney's fees and expenses of suit, in case suit is brought against the member for such breach.

Under the act the association must make annual reports giving a complete statement of its business during the past year, its total expenses, its indebtedness, etc.

Section 28 of the act reads as follows:

"Any association organized hereunder shall be deemed not to be a conspiracy nor a combination in restraint of trade nor an illegal monopoly; nor an attempt to lessen competition or to fix prices arbitrarily or to create a combination or pool in violation of any law of this state; and the marketing contracts and agreements between the association and its members and any agreements authorized in this act shall be considered not to be illegal nor in restraint of trade nor contrary to the provisions of any statute enacted against

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