SANCHEZ v. GRAIN GROWERS ASSOCIATION OF CALIFORNIA (1981)

OPINION ON REHEARING

In announcing its decision, upholding defendant-agricultural association's bylaws, this court 123 Cal.App.3d 444, 176 Cal.Rptr. 655, considered its prior decision in Driscoll v. East-West Dairymen's Assn. (1942) 52 Cal.App.2d 468, 126 P.2d 467, and found it adverse to plaintiff's position.

The issue presented in Driscoll was the propriety of an agricultural association's bylaw providing that the property rights and interests of members were payable upon liquidation of the cooperative association. This bylaw was adopted pursuant to former Food and Agricultural Code section 1200, subdivision (j), now section 54122. Section 54122 provides, “The bylaws may prescribe the manner of determining the value of a member's interest and provision for its purchase by the association upon the death or withdrawal of a member or upon the expulsion of a member or forfeiture of his membership, or at the option of the association, the purchase at a price fixed by conclusive appraisal by the board of directors; and the conditions and terms for the repurchase by the association from its stockholders of their stock upon their disqualification as stockholders. In the case of the expulsion of a member, and where the bylaws do not provide any procedure or penalty, the board of directors shall equitably and conclusively appraise his property interest in the association and shall fix the amount of his property interest in money, which shall be paid to him within one year after such expulsion.” (Emphasis added.)

The court, in Driscoll, held that, in the case of a member voluntarily withdrawing from an association, section 1200, subdivision (j) ( s 54122), did not require the bylaws to provide for a manner of immediate purchase and payment of the member's interest. Thus, a provision postponing payment until the liquidation of the association was satisfactory, despite its indefiniteness. The paramount concern is the continuation of the cooperative, not the advancement of an individual's interest. Arbitrary withdrawal of that interest is not permitted. (Driscoll, supra, 52 Cal.App.2d at pp. 472-474, 126 P.2d 467.) In the case of an expelled member, however, the Legislature provided greater financial protection. An association is authorized to provide a manner of repayment in the bylaws, but, if the bylaws are silent, or are so indefinite as to be the equivalent of silent (as with the “payment upon liquidation” provision above), then section 54122 provides an alternate method of payment, ensuring an expelled member “fair compensation.” (See id., at p. 473, 126 P.2d 467.)

In the present case, the bylaws were not silent. They provided that expelled members receive payment at the same time, and in the same manner, as continuing members. (Art. III, s 1(d).) The amount that members were to receive was calculated by the board of directors at the end of the crop year, and was based on the amount of money deemed to be in excess of the financial needs of the cooperative. (Art. VIII, s 5.) This determination was subject to tests of good faith and reasonable business judgment. (Food & Agr. Code, s 54040; Corp.Code, ss 309, 7231; Placerville Fruit Growers' Assn. v. Irving (1955) 135 Cal.App.2d 731, 735, 287 P.2d 793.) The fact that plaintiffs did not receive money upon expulsion is merely a result of the cooperative's financial condition; the bylaws themselves were proper.

The petition for rehearing is denied.

BY THE COURT:

EVANS, Acting P. J.

CARR, J.

PHILLIPS, J.^*

FOOTNOTES

FOOTNOTE.  Assigned by the Chief Justice.

FOR THE COURT: