the "special character" of a cooperative corporation in reaching this conclusion, 267 Termination of Membership In a cooperative formed with capital stock, a person continues to be a member until a valid transfer, redemption, or forfeiture of his stock is effected. He cannot resign.268 Fundamentally, and this is the rule in the absence of stipulations to the contrary, on the transfer of the stock of an association held by an individual, the purchaser stands in the place of the former owner as to rights and liabilities, and the former owner has no further interest in the association and is free from any further liability on account of the stock. 269 Of course, a member of an association may not defeat his marketing contract with the cooperative by a transfer of his stock in the corporation. In a nonstock cooperative a person continues to be a member until he resigns or is expelled, or until his membership is otherwise terminated in accordance with law. When associations require the payment of annual dues, the failure to pay such dues within the time prescribed does not terminate a membership in the absence of a bylaw or stipulation to that effect. If the dues are not paid, a suit may be successfully maintained for their recovery. 270 Expiration of a stockholder's marketing contract does not of itself mean the forfeiture of his stock or termination of his membership. Many of the cooperative statutes specifically authorize the associations formed under them to adopt bylaws with respect to redemption or forfeiture of stock and termination of membership. Generally, such bylaws require positive and affirmative action, usually by the board of directors, before membership in a nonstock cooperative is terminated and before stock may be forfeited or a stockholder compelled to transfer his stock. The power to expel members is fundamentally in the membership. Unless the members have, by an appropriate 267 Northridge Co-op Section No. 1 v. 32nd Ave. Const. Corp., 136 N.Y.S. 2d 737 (1955). 268 Picalora v. Gulf Cooperative Co., 68 Misc. Rep. 331, 123 N.Y.S. 980 (1910). 269 Whitney v. Butler, 118 U.S. 655 (1886). 270 LaSalle County Farm Bureau v. Thompson, 245 Ill. App. 413 (1927); Boston Club v. Potter, 212 Mass. 23, 98 N.E. 614, Ann. Cas. 1913 C 397 (1912). bylaw, placed this power in the board of directors, the board would not have authority to expel a member.271 Prescribed procedures for expulsion of members, or for termination of membership, should be carefully followed. 272 In a Minnesota case in which the statute specifically authorized the adoption of bylaws with respect to expulsion and also authorized the delegation of such power by the members to the board of directors, it was held that, inasmuch as the bylaws that had been adopted in regard to expulsion did not specify who was to exercise the authority, the board of directors was not authorized to do so.273 Unless prohibited by statute, a nonstock association is free at the time a person is admitted to membership to prescribe the conditions under which his membership shall terminate. 274 And a stock organization may specify the conditions under which a member agrees to transfer his stock either to the association or to a person designated by it.275 Assuming that they do not conflict with the law, stipulations of this character may be made, as a general rule, although there is no specific statutory authority for them. When an association refused to receive onions from a member because it was unable to obtain a price for them that would pay marketing costs, and the association also refused to allow the member to sell his onions to others, it was held that while the association may have been justified in breaching its contract, it was 271 State ex rel. Boldt v. St. Cloud Milk Producers' Association, 200 Minn. 1, 273 N.W. 603 (1937). 272 People ex rel. Milsom v. East Buffalo Live Stock Association, 88 App. Div. 619, 84 N.Y.S. 795 (1903), affirmed in 179 N. Y. 598, 72 N.E. 1148 (1904). See footnote 195 in this section. 273 State ex rel. Boldt v. St. Cloud Milk Producers' Association, 200 Minn. 1, 273 N. W. 603 (1937). Van Daele, et al. v. Vinci et al., 51 III. 2d 389, 282 N. E. 2d 728 (1972), certiorari denied, Certified Grocers of Ill. v. Sparkle Food Center, 409 U.S. 1007 (1972), holds that expelled members of a grocery cooperative were denied due process because of lack of impartiality of the cooperative's board and the expulsion from membership was invalid even though the board followed the procedure prescribed by the bylaws for a disciplinary hearing. See also text and cases cited at footnote 195, "Stock and Nonstock Associations," supra. 274 Stevenson v. Holstein-Friesian Association of America, 30 F. 2d 625 (2d Cir. 1929); George v. Holstein-Friesian Association of America, 238 N.Y. 513, 144 N.E. 776 (1924). 275 Farmers Union Co-op Gin Co. v. Taylor, 197 Okla. 495, 172 P. 2d 775 (1946). not within its rights in refusing to allow the member to sell his onions to others. The court allowed the member to withdraw from the cooperative and to recover his membership fee of $300.276 A cooperative, which fundamentally and radically amends its articles of incorporation without the consent of a stockholder, may be liable to the stockholder, as a result of such action, for the value of his membership stock in the cooperative. 277 As a general rule, the termination of a marketing contract or ceasing to do business with an association does not terminate a membership in a nonstock association278 or cause a stockholder in a stock association to cease to be a stockholder. At the time an association is formed, a nonstock association should consider provisions with reference to the termination of membership and an association formed with capital stock should include suitable provisions so that all voting stock may be kept in the hands of active patrons. Consideration should also be given to the inclusion of provisions with respect to suspending the voting power of members or stockholders in the event they become inactive. Under the cooperative statutes, associations usually have great latitude with respect to these matters. Certificates of membership in nonstock associations are not transferable at common law but may be made so by statute, bylaw, or contract. In associations formed with capital stock, it is generally desirable that the provisions restricting the transfer of stock or giving the association authority to purchase it under certain conditions should be set forth on the certificates of stock. Such provisions are, as a rule, authorized by the cooperative statutes and, even independent of such statutes, are usually valid. 279 276 Guglielmelli v. Walla Walla Gardeners' Association, 157 Wash. 109, 288 P. 251, 77 A.L.R. 385 (1930). See also Kansas Wheat Growers' Association v. Toothaker, 128 Kan. 469, 278 P. 716 (1929). 277 Midland Cooperative Wholesale v. Range Cooperative Oil Association, 200 Minn. 538, 274 N.W. 624, 111 A.L.R. 1521 (1937). See Weise v. Land O'Lakes Creameries, Inc., 191 N. W. 2d 619 (lowa 1971), where the court found that the acquisition of the assets of a turkey producers' association by another cooperative was not a merger but a sale and dissolution entitling dissatisfied members of the turkey association who voted against the acquisition to payment of their revolving fund credits on dissolution of their association. 278 Burley Tobacco Growers' Co-op Association v. Tipton, 227 Ky. 297, 11 S. W. 2d 119 (1928). But see Hiroski Kaneko v. Jones, 235 P. 2d 768 (Ore. 1951). 279 Carpenter v. Dummit, 221 Ky. 67, 297 S.W. 695 (1927). Interest in Association As cooperatives acquire property, inquiry is frequently made concerning the financial or property interests members have in their associations. In considering this matter, certain fundamental propositions should be kept in mind. Neither a stockholder of a stock cooperative nor a member of a nonstock cooperative has title to any part of its assets. 280 Again, a member or stockholder of a cooperative may be a creditor of the cooperative. If he is a creditor it is not because he is a member or stockholder, but because the cooperative, independent of that fact, owes him money. Indebtedness of this nature may exist because the cooperative, in a contract or in its bylaws, has agreed to make certain payments to the member. Purchaseand-sale marketing contracts and certificates of indebtedness illustrate this debtor-creditor relationship. Aside from the claims a member may have against an association as creditor, what financial interest does he have in his association? This question usually does not arise unless a producer ceases to be a member or stockholder. 281 Prior to dissolution, a member or stockholder of an association at common law has no interest that he can compel the association to recognize. Money paid by members of an association as membership fees, or for the purchase of stock, does not represent debt owed by the association to the members. By the same token, neither do amounts deducted by an association pursuant to authority to do so from the returns received from the sale of products of members for capital purposes, represent debts to members unless the association had previously agreed to return or pay back the amounts involved at some specified time. At common law, the resignation or expulsion of a member from a nonstock association does not entitle him to receive anything from the association. In other words, in nonstock 280 Rhode Island Hospital Trust Co. v. Doughton, 270 U.S. 69, 43 A.L.R. 1374 (1926). 281 See Lambert v. Fisherman's Dock Cooperative, Inc., 115 N.J. Super. 424, 280 A. 2d 193 (1971), modified and remanded, 61 N.J. 596, 297 A. 2d 566 (1972); Evanenko v. Farmers Union Elevator, 191 N. W. 2d 258 (N. Dak. 1971); Claassen v. Farmers Grain Cooperative, 208 Kan. 129, 490 P. 2d 376 (1971). Compare Weise v. Land O' Lakes Creameries, Inc., 191 N.W. 2d 619 (Iowa 1971); Clarke County Cooperative v. Read, 243 Miss. 879, 139 So. 2d 639 (1962). associations, one who ceases to be a member for any cause, in the absence of express provisions to the contrary, loses his interest in the corporation and in turn is free from any further liability. A former member of a fishermen's cooperative in New Jersey sought to recover patronage refunds in cash and the "fair book value" of his shares in the cooperative. 282 The patronage refund claim was allowed in part283 and the court, agreeing that the former member had a vested right to the "fair book value" of his shares at the time his membership was terminated, concluded that this value did not mean "present market value." The bylaws had been amended to provide that upon termination of membership, a stockholder was to receive the price paid for his stock, rather than "fair book value" as had been provided for previously. The former member contended that he was entitled to book value and that the bylaw amendment breached his contract and interfered with his vested rights. The trial court agreed with the former member that the bylaw amendment was invalid as violating a contract, infringing upon a vested right, and exceeding such authority as was bestowed upon the majority by its reserved power to amend bylaws. The Appellate Division disagreed (280 A. 2d 193 (1971)), holding that the power reserved to the majority to amend bylaws was ample to support the questioned amendment and therefore the amendment was binding on the former member upon its adoption. On this point, the Supreme Court of the State agreed with the trial judge. It said: It is the law generally that a reserved right to amend the 282 Lambert v. Fishermen's Dock Cooperative, Inc., 61 N.J. 596, 297 A. 2d 566 (1972). 283 Cf. Evanenko v. Farmers Union Elevator, 191 N.W. 2d 258 (N. Dak. 1971), holding that death of patron did not automatically cause the patron's interest in the cooperative to vest and the cooperative was not, as a matter of law, compelled to pay patronage refunds or the patron's interest in the cooperative to his estate; Claassen v. Farmers Grain Cooperative, 208 Kan. 129, 490 P. 2d 376 (1971). See also Clarke County Cooperative v. Read, 243 Miss. 879, 139 So. 2d 639 (1962). |