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District Court of Appeal, Third District, California.


Civ. 5741.

Decided: June 21, 1937

Carroll Single, Stanley Cook, and Agnew & Boeke, all of San Francisco, for appellant. Hadsell, Sweet, Ingalls & Lamb, of San Francisco, and Vernon F. Gant, of Modesto for respondents.

The plaintiff began this action to recover of and from the defendants the sum of $2,911.81, for and on account of overpayments and moneys advanced to the defendant E. r. Williams, on account of a certain growers' agreement or contract covering peaches agreed to be delivered by the defendant E. R. Williams to the plaintiff during the season of 1934. The plaintiff had judgment for the sum of only $461.28, and from this judgment the plaintiff appeals.

The plaintiff was organized as a nonprofit 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.

While the briefs of the respective parties in this cause have taken a wide range, only a few fundamental principles are involved which we think decisive of this cause.

The articles of incorporation and the by–laws show that the principle of equality is the governing principle to be followed in determining 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 a co–operative agreement must have his rights determined and his responsibilities fixed. A reference to the articles of incorporation and the by–laws clearly enforce what we have just stated.

Paragraph 6 of the articles of incorporation reads: “That the voting power and the property rights and interests of each member shall be equal. The Association shall have power to admit new members who shall be entitled to vote and to share in the property of the Association with the old members, in accordance with the rules stated in this paragraph.”

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 of 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 hereto 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 all 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 prorate 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 reference being to the contract provided for in the by–laws).

Section 18 of the marketing agreement provides a method of withdrawing from the association. No such question is involved in this action.

On the 17th day of May, 1933, the defendant E. R. Williams signed a marketing agreement such as we have partially outlined, and as provided in the by–laws, covering 60 acres of land on which canning peaches were being produced. This agreement purported to cover the years from 1922 to 1936, the tract of land being known as the Merci ranch in Stanislaus county. The articles of incorporation, the by–laws of the association and, as well, the marketing agreement, were all signed by E. R. Williams, and of the provisions of which it must be held that he had full and complete knowledge, not simply of the purposes of the organization, but of its powers, and of the fact that every member of the organization was placed upon an absolute equality.

While the briefs in this case have mentioned the defendant as a “renter–member,” the by–laws of the association provide for persons becoming members of the organization who are leasing lands on which canning peaches are grown, as well as persons owning land on which canning peaches are grown, and, as we have shown, the persons leasing such lands are placed on the same footing as persons owning lands on which such peaches are grown. There is no difference in legal signification between the words “a lessee of land” and a “renter of land.”

Notwithstanding the provisions of the articles of incorporation, the by–laws, and the marketing agreement to which we have referred, the board of directors of the association, in 1922, adopted a resolution purporting to authorize the admittance as “renter–members” of peach growers who leased or rented orchards instead of owning them. By the terms of that resolution these “renter–members” were not simply to share in distribution to whatever net profits the association might realize, less cost, and less 5 per cent. charge, but were to receive from the association the current market price, less only 25 cents per ton, as annual dues. These “renter–members” were not required to pay their proportionate share of the expenses of the corporation, nor does it appear that the intent was to pool their peaches as provided in the by–laws of the association. Thus, in the year 1934, “renter–members” (so–called) received $29.75 per ton, while so–called “regular members” received $22.50 per ton, thus giving a substantial preference in price to the so–called “renter–members” over the price received by the so–called “regular members.” In passing this resolution the board of directors entirely over–looked the fact that the by–laws had provided for members of the association who were leasing orchards. It requires no argument to demonstrate that a change of phraseology from “leasing–members” to “renter–members” has no legal force or effect, and such members having been provided for in the by–laws, the mere passing of a resolution using a different name or a different term to designate such members could not change their relationship to the organization to work a preference in their favor or relieve them from any liabilities.

The respondents' defense in this action is based upon an oral promise given to the defendant E. R. Williams, at the time of, or prior to the signing by him of the marketing agreement, that his peaches would be sold in the market independently, not pooled with other peaches, and that he would be given the market price, less 25 cents per ton, as a “renter–member.” This oral promise appears to have been upheld, notwithstanding section 1625 of the Civil Code, which reads: “The execution of a contract in writing, whether the law requires it to be written or not, supersedes the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”

Paragraph 3 of the findings of the trial court reads: “That on the 5th day of January, 1924, the Board of Directors of plaintiff, by unanimous action, adopted a resolution as follows: ‘That the management be authorized to accept marketing agreements from any and all renter–members on the basis that such renter–members will be paid in full for the peaches delivered, as soon as the harvesting season is over, and that the only charge to be made to such renter–members for the handling of their crop would be the annual dues of 25¢ per ton; that said resolution is still in effect.”’ This finding, which in part is simply a conclusion of law, is directly contrary to the powers vested in the board of directors of the association, and no such change could be made in the by–laws of the association, save and except by a vote of the members thereof. A reference to the articles of incorporation, the by–laws, and the marketing agreement demonstrates that the holding of the trial court should have been that said resolution was void ab initio and never possessed any binding force or effect.

Paragraph 4 of the findings is to the effect that E. R. Williams and the plaintiff, pursuant to said resolution of the board of directors of the plaintiff, entered into a contract in writing, under and by which said defendant E. R. Williams agreed to deliver to the plaintiff, and plaintiff agreed to receive from the defendant the canning cling peaches grown by the defendant on said Merci ranch, upon the terms and conditions set forth in said resolution. This finding, of course, has no evidence in the record to sustain it. No such agreement in writing was ever signed by the defendant E. R. Williams. The record shows that he signed a marketing agreement in the standard form provided for in the by–laws covering peaches grown on lands either leased or owned. The agreement which the defendant signed contains nothing whatever indicating a preferential status to be given him over and above what we have called “regular members.” On the back of the agreement appears the term “renter–member” only. It is argued by the respondents that there should be read into the contract the oral promise made to him by some officer of the association. Cases are cited where writing on an instrument appears below the signature; that if the words so appearing are germane to the agreement, in certain instances such words should be read as a part thereof. Substitute the words “renter–member” for “lessee,” or a member who is leasing an orchard, and the legal effect remains exactly the same.

Appellant points out that the words “renter–member” were written on the back of the contract by some clerk or secretary of the organization. In either view the words “renter–member” on the back of the contract cannot change in any respect the obligations assumed by E. R. Williams when he signed the contract containing explicit language governing the rights and liabilities of one who was leasing an orchard producing canning peaches.

In the case of California Canning Peach Growers v. Downey, 76 Cal.App. 1, 243 P. 679, 684, after setting forth the terms and conditions of the marketing agreement there involved, which is identical save as to dates and lands involved with the one here presented for consideration, this court said: “This pecuniary interest the officers of the assocation 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.”

The same principle is upheld in the case of California Canning Peach Growers v. Harris, 91 Cal.App. 654, 267 P. 572. The principles enunciated in these cases are decisive of the rights and liabilities of all parties joining the cooperative organization, plaintiff in this action.

In the Downey Case, supra, this court also quoted with approval from 21 C.J. p. 1126, on the question of estoppel, showing clearly, without quoting the section, that there can be no estoppel when the parties have full knowledge of all the facts and circumstances and the authority being exercised by the parties with whom one is dealing. In this case, as we have shown, E. R. Williams signing the articles of incorporation, the by–laws, as well as the marketing agreement, must be charged with knowledge of all that they contained; he knew that at the time the alleged promises were being made to him that he had no right either to be promised or to receive a preferential status over and above what we have called “regular members” of the association. Any such preference is both a moral and a legal infringement upon the rights of every other member of the association (not to use stronger language).

The respondents further argue that the question of lack of authority on the part of the board of directors of the association cannot be raised, and cite a number of cases having to do with ultra vires acts of commercial corporations, overlooking the fact that such cases have no controlling influence here. In commercial corporations the board of directors act as the managing agent of their own properties, and when a contract is entered into beyond the powers of the board of directors of such a corporation, and receives the benefit of such contract or dealing, the burdens thereof cannot be escaped. That is not the case with the plaintiff in this action. The board of directors are not dealing with their own property. They are simply trustees for the management of the crops grown by every member of the association, whether that crop be grown upon lands owned by a member, or upon lands leased by a member, and the fundamental rule governing not simply the trustees so acting, but every member of the association, is that equality shall prevail and no legal injustice shall be worked upon any member of the association by giving some members thereof a preferential standing or a preferential price. That such a proceeding is both a moral and a legal wrong requires no argument, and no person can be heard to plead or to rely upon such a promise, which he knows to be beyond the powers and authority of the person extending the promise, and which he also knows to be an injustice to every other member of the association. In other words, no one can be allowed to take advantage of his own wrong.

As stated in the Downey Case, supra, the agreement signed by the defendant E. R. Williams was not merely an agreement with the secretary of the association or other officer who approved the same, but was a covenant running to and with every other member of the association, and every attempted oral variation therefrom would constitute a breach of the trust which every member of the organization must rely upon and is entitled to have fully complied with, to the end and purpose that every member of the association must stand upon an absolute equality. Any other holding would be subversive to the fundamental principles upon which such associations must rest. If unwarranted parol promises which a member of the organization charged with knowledge of the articles of incorporation, the by–laws and the signed agreements knows to be unwarranted, are allowed full force and effect, then the basis of the co–operative associations may thereby be undermined, and the purposes for which such associations are formed entirely destroyed.

In the recent case of Kansas Wheat Growers' Association v. Rowan, 125 Kan. 710, 266 P. 101, the Supreme Court of Kansas, in dealing with unauthorized promises, follows the rule which we are upholding in this case, and refused to allow marketing agreements to be changed thereby, and held that the members of the association were charged with knowledge of the powers of agents or officers of the association.

While we have considered the argument advanced by the respondents in the cases cited in the elaborate brief submitted in support of the judgment of the trial court, we do not deem it necessary to take up the several points or the different cases and review them seriatim. A consideration of the cases cited shows that none of them, other than those which support what we have said, fail to draw the distinction between ordinary commercial corporations and co–operative associations. The salient points of the articles of incorporaton, by–laws, and marketing agreements which we have set forth herein, and what this court has said in the cases of Downey and Harris, supra, are determinative of the issues involved in this action, and obviate a further extension of this opinion.

The respondents raised the point of an executed oral contract. The record shows that the transaction is not yet completed, and the question presented is simply the proportionate share of the burdens of the association that should be borne by the defendant E. R. Williams.

While we have used the term “respondents,” the record shows that judgment ran only against the defendant E. R. Williams, and in favor of Frances O. Williams. As the articles of incorporation, the by–laws, and the marketing agreement, all of which were signed by the defendant E. R. Williams, cannot be changed by a new trial, and as it was stipulated in the court below that if the trial court should hold the law to be as we have herein stated, judgment should be entered in favor of the plaintiff against the defendant E. R. Williams in the sum of $2,716, it is hereby ordered that the judgment of the trial court be, and the same is hereby reversed, and the cause remanded to the trial court, with directions to remodel its findings and conclusions of law to correspond with this opinion, and then enter judgment in favor of the plaintiff for the stipulated sum.

Mr. Justice PLUMMER delivered the opinion of the court.

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

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