REINERT v. CALIFORNIA ALMOND GROWERS EXCHANGE (1936)

The Associated Almond Growers of Paso Robles, a corporation, assigned to Jane V. Reinert, plaintiff and appellant herein, all its claims and rights against the defendant California Almond Growers Exchange and defendant Paso Robles Almond Growers Association. As such assignee, plaintiff brought this action for an accounting. The Associated Almond Growers of Paso Robles, plaintiff's assignor, is a large grower of almonds on ranches situate near Paso Robles, and until its withdrawal on April 1, 1932, was a member of defendant California Almond Growers Exchange. Said Exchange is a nonprofit co-operative marketing corporation, having a state-wide membership of almond growers. Until 1922, the membership of the Exchange was composed of local associations, and the individual growers were members of the local associations. After 1922 the warehouses of the local associations continued to be used as receiving depots for nuts. The defendant Paso Robles Almond Growers Association is the local association at Paso Robles. The rights of plaintiff as against said local association have been adjudicated in a separate action, wherein a consent judgment was entered prior to judgment in the instant action. Hence no questions with relation to said association are presented on this appeal.

The defendant California Almond Growers Exchange filed a statement of account with its answer. After taking extensive testimony the trial court adopted said statement attached to the answer as its statement of account resulting from the accounting taken by the court.

The defendant Exchange was organized in 1910 as a nonprofit, nonstock corporation. The plaintiff's assignor, the Associated Almond Growers of Paso Robles, became a member for a four-year period in 1924, and upon the expiration of its original term joined for another four-year period. In accordance with provisions of the by-laws of the Exchange, it terminated its membership at the end of the second four-year term of membership on April 1, 1932. About that time a large number of other growers also withdrew. Grower members agreed to deliver their entire crop to the Exchange for marketing. The Exchange deducted the expenses incident to marketing and to maintenance of its plant, and remitted the net proceeds to the grower members after making certain further deductions for reserves, which will be more fully discussed hereafter.

The first contention of plaintiff is that the Exchange has never rendered to growers a complete accounting. The trial court sustained the contention of the Exchange that the statement of account filed by it with the answer was a complete account. Nuts delivered by growers are placed in pools according to variety, the nuts of each grower being mingled with nuts of other growers of the same variety. Before withdrawal of plaintiff's assignor the Exchange had inaugurated a system of further subdividing the pools by grading of varieties. The sales prices received by the Exchange from purchasers of nuts of the same variety and grade will vary, depending not only on market fluctuations, but on factors such as whether the nuts are sold shelled or unshelled, on the type of container in which they are sold, and on the freight paid where the Exchange rather than the customer pays the costs of transportation.

Direct pool expenses incurred on behalf of nuts in a particular pool, such as freight and bags, boxes and other containers, are charged to that pool, with the result that each grower who has nuts in said pool bears such charges in proportion to the tonnage contributed by him to the pool. General expenses incident to maintenance of the Exchange plant, and the conduct of its operations on behalf of growers, are charged to the entire crop, each ton of nuts delivered bearing the same charge as every other ton, without regard to the particular pool in which the nuts may be.

Annual pool closing statements are rendered to growers. Said statements indicate as to each pool a net price per pound to be paid by the Exchange to the grower for all nuts in the pool. The price which each grower will receive, as indicated on his pool closing statement, is computed by multiplying the number of pounds contributed by him to the pool by the net price per pound. This figure represents the net proceeds to the grower after his nuts have been charged their proportion of expenses. From this figure certain further deductions are made, a part of which is credited the reserve for fixed assets and reserve for working capital, which will be discussed hereafter. The balance represents the amount actually paid to the grower by the Exchange.

Plaintiff's objection to these pool closing statements is that they do not indicate the average gross proceeds per pound for nuts in each pool received by the Exchange, or the gross proceeds of all the nuts in any particular pool. They indicate the sum per pound of nuts in each pool which the Exchange will return to the grower as net proceeds, and the total amount which the Exchange will remit to the grower for his poundage in any pool. But a grower cannot ascertain the gross proceeds received by the Exchange for nuts in any pool, nor what proportion or amount of the total gross proceeds received by the Exchange for nuts in a pool is deducted for expenses. He knows the price per pound which the Exchange pays him, but he does not know the average price per pound which the Exchange receives. It informs him of the net price per pound paid him, but does not either inform him of the average gross proceeds per pound, or give him a statement of the gross proceeds of the pool, accompanied by the total pool tonnage, from which he could, by deducting the net proceeds from the gross proceeds, ascertain the expenses incurred in marketing the respective pools in which he has nuts, and the proportion of such expenses borne by the tonnage contributed by him to the pool.

In addition to the pool closing statements, the Exchange delivered annual audit reports to all members until 1930, and furnished a copy of subsequent audits to growers on request. Said audit reports and also the statement of account attached to the answer indicated the gross proceeds received for all nuts of all varieties sold by the Exchange, the total of expenses to be charged to the growers on all nuts, and the total net proceeds to be paid growers by the Exchange. But said statement do not show the total tonnage of each pool, nor the gross proceeds and expenses by pools.

We are of the view that the growers were entitled to this information. The Exchange is a nonprofit corporation marketing the products of grower members by a pool system. An agent to whom goods are consigned for sale under an agreement that the proceeds after deduction of expenses incident to the sale are to be paid the principal, should inform his principal of the price received for the goods and of the amount of such expenses, as well as of the amount available for payment to the principal. Where the goods consigned for sale are fungible, as in the case herein, the gross proceeds on account of any grower's nuts are such proportion of the total gross proceeds of the pool as the nuts contributed by such grower bear to the total tonnage of the pool, and expenses are similarly estimated.

Section 6 of article 4 of the by-laws provides that it shall be the duty of the directors to render to each member as soon as practicable after the close of the season, a statement or statements of the almonds received, of the pools established, of all sums received from the sale or disposition of the almonds and of the amounts available for distribution to members. Under this by-law, reasonably interpreted, we are of the view that it was the duty of the Exchange either to inform each grower annually of the amount of his proportion of the gross proceeds of pools to which he had contributed nuts, as well as of the amount available for distribution to such grower, or to give him a statement of the total tonnage and of the gross proceeds of each of such pools, from which information he could ascertain for himself his proportion of such proceeds. Neither the statements rendered to plaintiff's assignor during its membership in the Exchange, nor the statement of account attached to the answer meets this requirement. The lower portion of table 1 attached to the answer and entitled ‘Gross Share of A. A. G. P. R. [Associated Almond Growers of Paso Robles] of Distribution to Members,’ admittedly shows, just as did the pool closing statements, only the amount of net proceeds distributable to members after deduction of expenses, the amount of which is not shown. It gives ‘gross' figures only in the sense that it shows the amount distributable to plaintiff's assignor before the making of further deductions on account of the reserve accounts and certain other items, which deductions were in addition to those made in arriving at the figure described in the pool closing statements as ‘net proceeds' and in table 1 as ‘gross share.’

Plaintiff's assignor had requested this information of the Exchange at least as early as 1927, and there was evidence that some of the members who withdrew in 1932 had expressed dissatisfaction with the Exchange accounting to members. Not having received the information annually, withdrawing members became entitled to it under section 6 of article 12 which provides that the association shall render to a withdrawing member ‘a complete account of the almonds received by the association for account of said member and of the curing, pooling and marketing thereof.’ In arriving at a figure for net proceeds to the grower per pound of almonds in the several pools, the Exchange auditors must necessarily have computed the gross pool proceeds and pool expenses.

It is not required that the Exchange should give each grower itemized list of pool expenditures, showing each single payment on account of expenses. A statement in the form of table 2 attached to the answer and showing by pools the information given by said table for the entire crop will be a sufficient statement of expenses.

Plaintiff further contends that judgment should have been entered for payment to her as assignee of the Associated Almond Growers of Paso Robles of the interest of her assignor in the reserves of the Exchange. The history of the reserves may be briefly outlined: In view of the fact that the Exchange was a nonprofit, nonstock corporation it did not have funds available from the sale of capital stock to be used for working capital and to acquire a plant in which to conduct its operations. To provide working capital with which to make advances to growers before sale of their nuts and for supplies, the reserve for working capital, also known as the suspense account, was established some time prior to 1919. From the amount described as net proceeds to the grower on the annual pool closing statements a further deduction was made, representing a stated percentage of the grower's net proceeds, usually 5 per cent., and held out by the Exchange, and credited to its reserve for working capital. This reserve was placed on a revolving fund basis, the amounts held out in future years being used in part to repay to growers the contributions of prior years to the account. The annual balance sheets of the corporation list the reserve for working capital on the liability side, the amount indicated as the reserve for working capital being the balance of the growers' contributions which had not been repaid to them as of the date of the balance sheet. Interest is paid growers on the unpaid balance of their contributions. A balance of $42,125.75 remained unpaid to plaintiff's assignor as of the date of the answer, comprising deductions for 1927, 1930, and 1931. The deductions for all other years had been repaid.

The reserve for fixed assets, formerly known as the surplus reserve account, similarly is on a revolving fund basis. It was originally built up from excesses of pool charges over actual expenditures, the charges to the pools being based in part on estimates. Such surpluses were credited to this reserve account and the funds thus available used in building the Exchange's plant at Sacramento, with facilities for warehousing, bleaching, shelling, curing, and shipping nuts. From the 1926 crop a deduction representing a percentage of the net proceeds was made from all growers, as in the case of the reserve for working capital, and the reserve for fixed assets was subsequently put on a revolving fund basis. As of the date of the answer herein, of total contributions to this reserve of $53,875.04 made by plaintiff's assignor, $21,210.01 had been returned, leaving a balance of $31,665.03 unpaid. This amount represents deductions for 1926, 1927, 1930, and 1931. Before trial one-half of the 1926 contribution was repaid.

Section 6 of article 12 of the by-laws provides that funds withheld in the suspense account or revolving funds shall be paid to withdrawing members coincident with like payments to nonwithdrawing members. The defendant Exchange recognizes its obligation under this by-law to pay plaintiff's assignor and other withdrawing members at the same time it shall repay nonwithdrawing members. The lower court sustained the contention of the Exchange that it was not at the time of trial in a position to make repayment of these contributions. We are of the view that its conclusion in this regard must be sustained.

In April, 1932, when plaintiff's assignor and a large number of other growers withdrew from the Exchange, this county was in the midst of the recent economic depression. The 1930 and 1931 crops of almonds had been unusually large and of poorer quality than usual. When plaintiff withdrew in 1932 a substantial part of these crops was still on hand. In the early months of 1933 the pools of 1930, 1931, and 1932 were tentatively closed while nuts of these years remained unsold, in order to make payments to growers for their nuts in advance of the sale of the nuts. The total proceeds to be derived from the sale of the nuts and the total expenses were estimated to compute the amount to be paid growers. It was possible to make this estimated full payment in advance of sale only because of the Exchange's working capital derived from contributions by growers in previous years. The amount of the reserve for working capital and fixed assets, carried on the liability side of the ledger, as noted above, represent the balance not repaid of contributions made by growers to the reserves. The figures are not an amount on hand in cash. The funds realized through the deduction have been invested in the plant and used in making advances to growers in excess of sales proceeds.

The Exchange at the time of plaintiff's withdrawal in 1932 and at the time of trial could not have attempted to repay to growers the balance of their contributions without liquidation of the Exchange. The by-law quoted above was framed with the purpose of affording adequate protection to withdrawing members and at the same time preventing withdrawals of members from imperiling the existence of the Exchange for the benefit of remaining members. As to the reserve for working capital, only the contributions of 1927, 1930, and 1931 remain unpaid. Even in normal times contributions are not repaid for several years. As to the reserve for fixed assets, contributions for 1926, 1927, 1930 and 1931 were unpaid when the answer was filed. Subsequently one-half of the 1926 contributions was repaid. Plaintiff's right under the by-laws is to receive the amounts unpaid coincident with like payments to nonwithdrawing members.

Plaintiff also objects the interest is not paid by the Exchange to growers on the balance of unpaid contributions to the reserve for fixed assets, as it is paid on contributions to working capital. The board of directors, under authorization from the members, fixed the character of the fund as a noninterest bearing reserve.

Plaintiff's contention that the trial court should have entered judgment that the Exchange immediately repay to plaintiff the amounts of her assignor's contributions to these two reserves is based in part on the premise that the deductions for these reserves were not authorized to be made under the by-laws of the corporation. Section 6 of article 3 and sections 2 and 3 of article 13 authorized deductions to be made from sales proceeds, but each of said sections provides for deductions to be on a per pound basis, each pound of nuts in the entire crop bearing a uniform charge. Deductions for the growers' contributions to the reserves for working capital and fixed assets have been a percentage of the net proceeds. Since the net proceeds per pound of nuts in one pool differ from the net proceeds of other pools, a deduction based on net proceeds will not be the same for each pound of nuts of the entire crop, but will vary from pool to pool. The practice of making these deductions depend on net proceeds seems fair and reasonable. It is the practice which has been followed by the Exchange over a long period of years, and members were fully informed thereof by the pool closing statements, the annual audit reports and the publication of the Exchange known as the Minute Book. The contention now advanced that the unpaid contributions must be immediately repaid because unauthorized would require a liquidation of the affairs of the Exchange, if upheld.

Section 6 of article 3 and sections 2 and 3 of article 13 do not in terms refer to revolving funds returnable to growers. The only reference to said funds is contained in sections 6 and 10 of article 12, as amended April 13, 1928 providing for payment of sums withheld for these funds to withdrawing members coincident with payment to nonwithdrawing members, and for payment to each of the then members of his share upon dissolution of the Exchange.

Prior to 1928 the by-laws contained no reference to the revolving funds. In fact both the articles of incorporation of the Exchange and its by-laws were incomplete and ambiguous in setting forth the interest of members of the Exchange in property of the Exchange which had come into existence through deductions from the proceeds of members' nuts. Notwithstanding the state of the articles and by-laws, the Exchange over a period of years had developed an equitable working system through the creation of the two revolving funds. The reference to said funds in the amendments to article 12 of the by-laws enacted in 1928 must be deemed a recognition and ratification of the two revolving funds with the incidents and characteristics which said funds had acquired in actual operations of the Exchange over a period of years. One of the incidents was that the growers' contributions to said funds might be made on the basis of a percentage of net proceeds to the growers.

Plaintiff contends that amendments of a by-law cannot be applied retroactively to destroy existing property or contract rights of members, and that plaintiff's assignor had a right prior to 1928 to object to deductions made otherwise than on a straight tonnage basis which could not be defeated by the amendments of the by-laws in 1928. It is unnecessary here to decide what would be the rights of plaintiff or her assignor if said assignor had not assented to the by-law amendments of 1928, for we are of the view that it must be held that said assignor assented to said amendments as a ratification of said funds as they had theretofore existed in the operations of the Exchange and as a declaration of the practice to be followed in future dealings of the Exchange with its members. It was not shown that plaintiff's assignor actually participated in a vote to change the by-laws. But subsequent to 1928, as well as prior thereto, plaintiff's assignor raised no objection to the deduction plainly made on the basis of a percentage of the net proceeds, rather than on a tonnage basis, but acquiesced in the practice of the Exchange in this regard. It is true that at the time the reserve for fixed assets was placed on a revolving fund basis, plaintiff's assignor did object that interest was not to be paid on growers' contributions to this fund. But it did not continue to maintain this objection.

The right of a withdrawing member of the Exchange under the by-laws is to receive the balance of the proceeds of his nuts less expenses when such proceeds are available, and to be repaid the sums withheld from him for the reserve for working capital and fixed assets when like payments are made to nonwithdrawing members. The judgment herein recognizes this obligation of the Exchange to plaintiff as assignee of a withdrawing member. By virtue of the tentative pool closing of the pools of 1930 and 1931, plaintiff or her assignor has received the estimated total proceeds of all nuts delivered. Admittedly the figures given in the account filed with the answer are tentative for the years 1930–31, and subject to adjustment as the actual proceeds and expenses may vary from the estimates. The form of the judgment will not preclude such adjustment.

As a withdrawing member, plaintiff's assignor had no interest in property of the Exchange except as above outlined. The reserves for depreciation and for obsolescence of fixed assets and for obsolescence of materials and supplies, appearing on the liability side of the balance sheet, represent allowance for depreciations and obsolescence of the Sacramento plant and other equipment and supplies of the Exchange, and not assets in which a withdrawing member participates. The reserve for tariff revision, representing the unexpended balance of contributions made by members to establish a fund to secure favorable tariff legislation, was created as a nonrefundable reserve, divisible only in the event of dissolution of the Exchange.

Plaintiff further contends that the annual charge for depreciation levied against the 1930 and 1931 crops has been improperly computed. In 1932 the board of directors passed a resolution changing the method of estimating the amount to be charged against each ton or pound of nuts for depreciation of the plant and equipment of the Exchange, it being the belief of the board that the new method was more equitable than the former system of computation. The pools of 1930 and 1931 were not tentatively closed until 1933, and at that time the new method of charging depreciation was followed as to the 1930 and 1931 crops, as well as to the 1932 crop, with the result that each pound of nuts of the 1930 and 1931 crops was charged a larger amount for depreciation, as computed by the Exchange auditors, than would have been charged under the old method. We are of the view that the resolution did not authorize the application of the new system to the crops of 1930 and 1931. Said resolution, passed on November 28, 1932, contained the following direction: ‘Now therefore be it resolved, That assessment against the 1932 crop for depreciation be on this basis [an annual rate per pound, or per ton, established on the basis of a five-year average] of computation for the tonnage so handled of the 1932 crop.’ (Italics supplied.) Plaintiff is entitled to a readjustment as to this matter.

We have examined plaintiff's contentions that expenses which should have been charged against the 1932 crop have been improperly charged to the crops of 1930 and 1931, and that it was the duty of the Exchange to recompute the amount due plaintiff on its nut meats in the 1926 pool and to recompute the amount due the various growers on account of an unexpected surplus which arose in 1925 after the closing of the pools for that year. In the circumstances shown we are of the view that the trial court properly rejected plaintiff's contentions as to these matters as well as to certain other claims advanced in attack upon the account as rendered.

In view of the fact that the account as rendered fails to give certain information which in the foregoing part of this opinion we have held plaintiff is entitled to receive, and the further fact that plaintiff is entitled to a readjustment on account of the depreciation charged against the 1930 and 1931 crops, the judgment must be reversed. The judgment is reversed to permit the settlement of these two matters. Upon their determination the lower court is directed to enter judgment in accord with its previous judgment except in so far as the determination of the above two matters may change said judgment. Furthermore, the court may retain jurisdiction of this action until such time as plaintiff's interest in the two revolving funds, that is, the reserve for fixed assets and the reserve for working capital, has been fully repaid, and until final closing of the 1930–31 pools, in order to settle any further questions which may arise in connection with said reserve funds or the pools of 1930 and 1931.

It is so ordered.

PER CURIAM.