CALIFORNIA CANNING PEACH GROWERS v. HARKEY

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District Court of Appeal, Third District, California.

CALIFORNIA CANNING PEACH GROWERS v. HARKEY et al.†

Civ. 5801.

Decided: June 25, 1937

Agnew & Boekel, and Carroll Single, all of San Francisco, and J. Francis Good, of Oroville, for appellant. Seth Millington, of Gridley, and Jerome D. Peters, of Chico, for respondents.

This action was begun by the plaintiff to recover, of and from the defendants, moneys alleged to have been advanced and paid by the plaintiff to the defendants as over–payments on account of certain canning peaches delivered by the defendants to the plaintiff during the years 1933 and 1934, and also for the recovery of a further sum as liquidated damages alleged to be due from the defendants to the plaintiff on account of failure to deliver a certain crop of peaches during the year 1935.

The defendants, by cross–complaint, ask judgment for the amount of money alleged to be due for and on account of peaches delivered by the defendants to the plaintiff during the years mentioned. The defendants had judgment on their cross–complaint, and also had judgment that the plaintiff take nothing by reason of its action. From the judgment of the trial court the plaintiff appeals.

W. P. Harkey is the son of W. S. Harkey, and during the years mentioned, had charge of the marketing of the crops of peaches grown upon 60 acres of land, 55 acres of which the record shows to belong to W. S. Harkey, and 5 acres at least belonging to the defendant W. P. Harkey.

On February 10, 1933, the plaintiff and the defendant W. P. Harkey entered into a standard printed form of marketing agreement. The full crop of peaches for the seasons of 1933 and 1934 were delivered to the association. The crops were handled through W. P. Harkey. W. P. Harkey is shown to have served as a member of the plaintiff's conference board.

The principal controversy presented by the record relates to the number of acres of canning peaches mentioned in the marketing agreement signed by W. P. Harkey. On the part of the defendants it is claimed that only 5 acres were mentioned in the marketing agreement, and that 55 acres were included in an oral contract, under which the defendants were given preferential treatment.

On the part of the appellant it is contended that the entire 60 acres were included within the marketing agreement, and that if not so included, all the peaches delivered during the years 1933 and 1934, by the defendants, were subject to the provisions of the articles of incorporation and by–laws of the association, and that any preferential treatment orally promised to be given was unauthorized and void, and that all peaches, whether delivered under the signed marketing agreement or oral preferential promise, should be handled subject to the articles of incorporation and by–laws of the association, and that the rights and liabilities of the parties, in respect to the peaches mentioned, should be determined according to the articles of incorporation and by–laws of the association.

The court found that only 5 acres were included within the written agreement, and that 55 acres of the peaches were included within the oral promise, and therefore, as to the 55 acres, the defendants were not liable to pay their proportionate share of the expenses of the association, as provided in the articles of incorporation and by–laws of the association applicable to what we will call “regular members.”

The trial court held that the oral promise was valid under and in accordance with a resolution passed by the board of directors of the association in the year 1924, purporting to authorize the admittance as “renter members” of peach growers, by the terms of which resolution such members were not simply to share in distribution of whatever net profits the association might realize, less cost and 5 per cent. charge, but were to receive from the association the current market price, less 25 cents per ton as annual dues; that the peaches delivered under such oral promise were not to be pooled, as it was provided should be done with peaches purchased from “regular members.” This resolution and the promises made under it, and the manner of handling the peaches so delivered, gave a substantial preference to the persons so delivering peaches over those who were delivering peaches according to the provisions of the standard marketing agreement. The trial court held the oral promises, and as well, the resolution of the board of directors, valid. The validity of the resolution adopted by the board of directors in 1924, and the oral promises made to the defendants, as well as whether the marketing agreement shall be held applicable to all peaches delivered by the defendants, are questions determinative of the issues actually involved in this cause.

While the appellant has challenged the finding of the court as to the number of acres of peaches included in the written agreement signed by the defendant W. P. Harkey, and also has argued that the court erred in excluding testimony proffered by the plaintiff, an examination of these objections leads to the conclusion that they do not set forth causes for reversal. It appears that the original marketing agreement signed by W. P. Harkey was taken up and destroyed during the year 1935, and another agreement dated as of the date of the agreement destroyed, substituted in place thereof. The contention of the appellant is that the 55 acres belonging to W. S. Harkey were included in such marketing agreement, and in the substituted agreement only 5 acres of the canning peaches belonging to the defendant W. P. Harkey were included.

The record shows that upon the back of the original agreement was a memorandum of 60 acres. The trial court evidently took the view that this indicated simply the number of acres of peaches the product of which was to be delivered to the association, even though the peaches grown on 55 acres were to be delivered under the oral promise. From the views hereinafter expressed, we think it really immaterial as to whether the whole 60 acres were included in the written agreement signed by W. P. Harkey, or whether only 5 acres were included and described in the marketing agreement, and 55 acres included in the oral preferential agreement. The only difference would be if the oral agreement be held void there is no basis for liquidated damages being allowed in this action, as the defendants would be at liberty any time to refuse to comply with the void oral agreement. The validity of the resolution upheld by the trial court must be determined by the articles of incorporation and by–laws of the association.

The plaintiff was organized as a non–profit co–operative marketing association in the year 1921. At that time articles of incorporation and by–laws were adopted providing for the manner of conducting the business of the association, and setting forth in the by–laws certain marketing agreements which each member was to sign, and which became binding upon the association and also upon each member thereof.

The articles of incorporation and the by–laws show that the principle of equality is the governing principle to be followed in the determination of the rights of the respective growers and the rights of all those delivering peaches to the association. To state the matter succinctly, equality is the fundamental principle upon which every member signing the co–operative agreement must have his rights determined and his responsibilities fixed. This we think applies also to everyone delivering peaches to the association, whether under a written agreement or in pursuance of promises which purport to give a preferential status.

In the instant case the record shows that W. P. Harkey, acting with the consent and knowledge of W. S. Harkey, arranged for the delivering of peaches to the association, and W. P. Harkey thus acting as the agent of W. S. Harkey, signed a marketing agreement, and thus must be held to have had a knowledge of all its contents which fixed his liabilities and also his rights, and definitely stated the manner in which peaches delivered to the association should be handled, and which definitely set forth the purposes of the association and the manner in which its articles of incorporation and by–laws authorized the association to receive peaches.

The purposes of the association for which it was organized are concisely stated and set forth in paragraphs D and H of the articles of incorporation of the association. In paragraph D the language used is as follows (omitting unnecessary language): “To properly care for the business of the Association in preparing for market, and marketing canning peaches purchased by it from its members, or delivered to it by its members to be so prepared for market, and marketing by it as their agent.” Paragraph H is as follows: “To purchase the canning peaches produced or to be produced by its members; to enter into contracts with its members for the purchase by it of the canning peaches produced or to be produced by them; to enter into contracts with said members for the handling and marketing of said peaches for the Association as their agent.” Paragraph 6 of the articles of incorporation provides: “That the voting power and the property rights and interest of each member shall be equal.” Thus, the articles of incorporation provide only for handling canning peaches grown by members of the association. The by–laws of the association likewise specifically set forth not only the purposes of the association, but also very particularly specify the manner in which all peaches delivered to the association shall be handled and the rights and liabilities of members of the association.

The by–laws also prohibit the association from purchasing peaches under contracts other than those similar to the contract set out in the by–laws. In support of what we have stated we quote from the by–laws as follows: “Paragraph 5 of Article IV of the By–Laws, relative to the power of directors, is in these words: ‘To carry out the crop or marketing contracts of the Association and growers, in every way advantageous to the Association representing the growers collectively.”’ Paragraph A of article XII of the by–laws states that the association is organized for the purpose of mutual help, for the purpose of serving its members only, and providing all its facilities to them upon uniform rules and regulations, etc. Paragraph B of the same article of the by–laws reads as follows: “Members––Who Eligible. Any person, firm or corporation, or a manager or officer of any corporation, or a member of any firm engaged in the production of canning peaches, or owning or leasing land on which canning peaches are grown, may be admitted to the Association, and shall have voting power and property rights therein on the same basis as all other members, in accordance with the general rules herein stated. All members agree to abide by all the rules, resolutions and By–Laws of the Association with reference to the production, handling and marketing of their products as provided in these By–Laws, or as may be hereafter determined either by amendment to these By–Laws or by resolution of the Board of Directors of the Association. All members will sign standard marketing agreements from time to time, covering the canning peaches produced by or for them, when and as such agreements are approved by the Board of Directors and presented to the members for signature and acceptance. The present marketing agreement is attached thereto and made a part hereof; and all other standard marketing agreements will be similar thereto in all substantial points. All members shall be bound by the terms of any such agreements.” Paragraph F of the same article of the by–laws provides that the property rights and interests of each member in the property of the association shall be equal. The marketing agreement provided for in the by–laws, and made a part thereof in section 5, specifies that all the canning peaches grown by the members shall be pooled, the peaches classified with respect to their various grades, and that the grower will be paid therefor on the average price of the peaches sold. Section 8 of the marketing agreement specifies that there shall be an association charge not exceeding 5 per cent, and that the grower shall receive his pro rata of the price received from growers named in similar contracts, after the costs of the association have been deducted. Section 11 of the marketing agreement is in these words: “Buyer will not buy or deal in any peaches except under contracts similar to this contract.”

The enlarged powers of the board of directors of the association, as contended for by the respondents, appear to be based upon a portion of article XII of the by–laws, which reads: “All members agree to abide by the rules, resolutions and By–Laws of the Association with reference to the production, handling and marketing of their products, as provided in these By–Laws, or as may be hereafter determined either by amendment to these By–Laws or by resolution of the Board of Directors of the Association.” The reference to the production, handling, and marketing of the products of the respective growers and the power of the board of directors in relation thereto does not purport to change in any manner the rights and liabilities of persons delivering peaches to the association, but does give to the board of directors the power of directing the time, place, manner, and condition of delivering the peaches, which specifically says “production, handling and marketing.” Such language does not authorize the association to go outside of the purposes of the incorporation, or authorize the association to convert itself into what we will call an ordinary commercial identity for the handling of peaches and giving preferential rights as the board of directors of the association might from time to time determine.

The board of directors of the association, in stepping outside of the purposes of the association, the authority given by the articles of incorporation and by–laws, by the use of the words “renter members,” attempted to supplement the by–laws, overlooking the fact that the by–laws provided for those who are leasing orchards as well as owners, and also overlooking the fact that the by–laws could not be changed nor amended by a simple resolution, but could only be changed or amended by a vote of the members.

As we have stated, W. P. Harkey in signing the marketing agreement provided for in the by–laws, whether that agreement contained 60 acres or only described 5 acres of canning peaches, became fully aware of all its provisions, and as a member of the association, in addition to those having knowledge of the marketing agreement, must be held to have had knowledge of the power and authority of the board of directors of the association and of the nature of the contracts into which they might enter, and also the power and authority of the board of directors of the association, and of limited conditions under which it could receive canning peaches. Having knowledge of all of such conditions, the peaches delivered by the defendants must be held to have been delivered in accordance with the terms, conditions, provisions, and limitations of the articles of incorporation, by–laws, and agreements under which, alone, peaches could be delivered, and therefore it cannot be pleaded that the peaches delivered by the defendants were not delivered in accordance with the conditions, provisions, and limitations referred to.

Similar questions have been before this court in the cases of California Canning Peach Growers v. Downey, 76 Cal.App. 1, 243 P. 679, 684; and California Canning Peach Growers v. Harris, 91 Cal.App. 654, 267 P. 572; and the recent case of California Canning Peach Growers Association v. Williams, 69 P.(2d) 893, decided by this court in an opinion filed June 21, 1937.

In the Downey Case, supra, this court used the following language, which we again reaffirm: “All the other members of the association have an interest in the proceeds received from the sale of the respondent's peaches; they are entitled to share therein and to have the prices for their own peaches enhanced to the extent of any sum which the respondent may have secured by reason of a sale made outside of the dealings of the association. This pecuniary interest the officers of the association cannot waive or release, as that is one of the fundamental rights belonging to every member of the association. Every member of the association must, of course, be held to have knowledge of all of these elements which enter into co–operative marketing agreements. They are not simply agreements entered into with an agent, although a few people may be selected to act in the capacity of officers to manage the business of the association. The agreements are essentially to and with all the other members of the co–operative association, and the interests of every member rest upon the same foundation, and no member can be advantaged to the detriment of any other member. Of all this each member must also be held to have full knowledge, as the contract sets forth all of these facts in equalizing burdens and advantages.” This holding was reaffirmed in the Harris Case, supra.

It follows from what we have stated that the resolution adopted by the board of directors of the association in 1924, authorizing a different manner of purchasing and handling peaches, other than as provided in the articles of incorporation and the by–laws of the association and giving a preferential treatment to persons delivering peaches under oral agreements, must be held absolutely void, and that persons delivering peaches under such void resolution and unauthorized promises cannot take advantage thereof to the detriment of regular members of the association. Such a proceeding is violative of the fundamental principles upon which co–operative associations are based. The very essence of co–operation is violated, and every person dealing with an association under such conditions is a participant in the wrong being thus inflicted upon regular members, and having full knowledge thereof, cannot be allowed to take advantage of other members of the association by any such procedure.

The defendant W. P. Harkey, acting for himself and as the agent of W. S. Harkey, having full knowledge of all the facts and circumstances and of the authority of the association, and of the persons acting therefor, cannot prevail by pleading estoppel. In support of this statement we need only refer to 21 C.J. p. 1126. Nor do the cases having to do with ordinary commercial corporations where, by contracts, unauthorized benefits have been gained holding that liabilities specified in such contracts cannot be avoided, apply to the case at bar. In commercial corporations the board of directors are dealing with property belonging to the association. In co–operative associations the board of directors of the association is dealing in a trust capacity, with property delivered to it to be handled on a basis which denies absolutely any preferential treatment. Any of the members dealing with the association in the delivery of peaches is in legal effect dealing with every member of the association. His covenant is with them, and not simply with some officer or agent of the association who may be making promises. No monetary rights of the members of the association can be waived or disregarded by any such unauthorized acts of the board of directors. Where one dealing with the association is given a preferential status and relieved from paying his proportion of the expenses, that burden is necessarily cast upon what we have called the “regular members,” and is a wrong committed against them which the courts should not allow to prevail. Such a proceeding is not only violative of the rights of other members of the association, but is contrary to public policy, in that it tends to the detriment of co–operative associations which present industrial conditions demand as necessary to insure fair treatment of producers not only of fruits, but of all agricultural products, equality of right and equality of burdens being essential to the maintenance of public faith and credit.

It appears from the record that the association may have received some profits in the handling of peaches under the oral promises to which we have referred, and that applying equitable principles, such sums should be allowed as a credit in favor of the defendants in ascertaining and fixing the amount which should be awarded in favor of the plaintiff as proportionate expenses of the association, ascertained in the same manner as the expenses of the association are ascertained and charged against regular members, and that judgment should be entered accordingly.

Whether the promises of preferential treatment were or were not made secretly and kept secret becomes wholly immaterial. Such questions only go to the guilty knowledge of the respective parties, and do not alter their legal responsibilities.

We do not find anything in the rejected testimony which would authorize a reversal or authorize the trial court to retry any question save and except to determine the proportion of the expenses of the association justly chargeable against the defendants.

The judgment is reversed, and the cause remanded to the trial court for trial upon the simple issue as to the amount of expenses of the association which should be charged to the defendants, in accordance with this opinion.

It further appearing that certain moneys have been impounded, judgment should be entered so as to allow the plaintiff recoupment of such expenses, and the remainder, if any, directed to be delivered to the defendants; or, if such sum impounded is not sufficient, that judgment be entered for the plaintiff for the impounded money, and such additional sum as may be necessary to cover such expenses.

Mr. Justice PLUMMER delivered the opinion of the court.

We concur: PULLEN, P. J.; THOMPSON, J

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