Matanuska Valley Farmers Coop. Ass'n v. Monaghan, 12544.

• Decision Date: 11 June 1951
• Docket Number: No. 12544.,12544.
• Citation: 188 F.2d 906
• Parties: MATANUSKA VALLEY FARMERS COOPERATING ASS'N v. MONAGHAN.
• Court: U.S. Court of Appeals — Ninth Circuit

188 F.2d 906 (1951)

MATANUSKA VALLEY FARMERS COOPERATING ASS'N v. MONAGHAN.

No. 12544.

United States Court of Appeals Ninth Circuit.

April 26, 1951.

Rehearing Denied June 11, 1951.

Davis & Renfrew, Anchorage, Alaska, Houghton, Cluck, Coughlin & Henry, Seattle, Wash., for appellant.

George B. Grigsby, Anchorage, Alaska, for appellee.

Before HEALY and ORR, Circuit Judges, and LEMMON, District Judge.

ORR, Circuit Judge.

Appellant (hereinafter referred to as the Cooperative) appeals from a judgment enforcing the terms of a written contract, the provisions of which, the Cooperative contends, do not govern the relations of the parties.

The Cooperative is a corporation organized under the laws of Alaska for the purpose of buying, selling, handling and processing agricultural products on a cooperative basis for the benefit of its shareholder-members. The members agreed to sell to the Cooperative, and the Cooperative agreed to purchase, all the produce of the members. Such materials as were needed in the handling and processing of the produce which were not supplied by the members were purchased by the Cooperative from other persons. In addition, the Cooperative maintained consumer departments, selling to the members goods purchased from the members or from others. For purposes of administration, the various aspects of the business were broken down into "departments", namely, the Dairy Creamery Department, the Produce Department, the retail store, etc.

The producing departments purchased the produce of the members, processed it if necessary, and resold it. Ordinarily, the produce of any individual member would be mingled with like produce of other members, so that it was impossible to allocate to the produce of any individual member the proceeds from the resale of his produce. For example, potatoes would be mingled with potatoes, and milk with milk. On the other hand, the produce of an individual member would not be mingled with unlike produce. Hence, a determination could be made as to the proceeds from the resale of the produce allocable to each type of produce subject to expenses incurred in handling and processing. The operation of the consumer departments was in all relevant respects analogous to that of the producing departments.

Appellee is a dairyman, or milk-producer, and the assignee of others similarly situated. These dairymen sold milk during the fiscal year 1945 to the Dairy Creamery Department and were paid twice a month on the basis of the amount of milk thus produced. They instituted this action to recover additional payments allegedly due for such milk. The trial court decided the case on what it deemed to be the requirements of the written contract. We think that contract was, subsequent to its execution, modified by the acts of the parties and by mutual consent.

The written contract between the members and the Cooperative provided that producers were to be paid in either of two ways:

(1) Under Paragraph (8),¹ if the produce was to be processed into a new product, the Cooperative might at its discretion pay a flat delivery price to the producer in full payment; or (2) Under Paragraph (7),² the Cooperative agreed to pay the producer his share of the amount received on resale of the pooled products, after making deductions to cover the following items:

(a) repayment of "advances" (and interest thereon), if any, made to the producer during the year to enable him to meet his current expenses;

(b) "reasonable charges" for handling and selling the produce;

(c) "operating and maintenance expenses";

(d) other deductions which have no bearing on the present controversy.

As one of its contentions the Cooperative argues that the transactions of the parties were governed by Section 8 of the contract. The District Court held this section inapplicable in determining the payment to which the dairymen were entitled for milk sold to the Cooperative in 1945. We agree. The evidence is clear that neither the dairymen nor the officers of the Cooperative at any time elected to proceed in accordance with Paragraph 8. The procedure adopted by the parties, as hereinafter outlined, was quite different from that prescribed in Section 8 because the payments received by the dairymen twice a month were not the "final" payments contemplated therein. On the contrary, they were partial payments to be supplemented at the end of the fiscal year by further payments, if (a) the Cooperative made a profit for the year, and (b) the accounting system in use and later in this opinion described, allocated to a given department a book profit for the year. These supplemental payments, when made, were payments for produce delivered to the Cooperative, and not dividends. In distributing its annual profits the Cooperative made no effort to comply with the Alaska laws governing payment of dividends.

The District Court concluded that Paragraph 7 was applicable and relied on the testimony of certain of the dairymen that they understood they were to be paid in accordance with Paragraph 7; also, the testimony of at least one of the former officers of the Cooperative that the Cooperative had endeavored to follow Paragraph 7 as closely as possible. The District Court adopted the accounts of the Cooperative (prepared for the purpose of allocating the net profit of the Cooperative, as hereinafter shown) to reflect the income and deductions attributable to the Dairy-Creamery Department under Paragraph 7. Thus, the dairymen were considered entitled to the entire book profit credited to the Dairy-Creamery Department ($53,793.83) for 1945, although the net profits of the Cooperative were $2,889.27.

We need not decide whether this accounting system satisfies the provisions of Paragraph 7 because the parties chose to abandon the contract as written and act under a modification thereof. It is not disputed that the Cooperative has at no time paid the dairymen in accordance with the provisions of Paragraph 7. It has made no effort to return to the dairymen, in accordance with that paragraph, the proceeds fairly attributable to the milk sold by them to the Cooperative, less appropriately attributable deductions.

On the contrary, the Cooperative has, without exception, made flat payments to the dairymen periodically, without regard to the proceeds which would in fact be realized. Twice a month each dairyman was paid an amount computed by multiplying the amount of produce delivered to the Cooperative by a "price" fixed by the officers of the Cooperative. This price was changed from time to time, as conditions varied. Similar periodic payments were made to other producers during the year. In addition, the net profits of the Cooperative at the end of each fiscal year were distributed annually. From the gross income of the entire Cooperative were subtracted all expenses of the entire Cooperative, including the amounts paid during the year to the producers for produce purchased by the Cooperative. The Cooperative never, in any year, distributed more than its net profits so computed.

In distributing these...