the cooperative rest upon the board as a group, but the office of director carries with it the possibility of large personal liability both at common law and under statutes.

In the discussion which follows, the rules and principles stated are the common law rules, unless otherwise indicated. These rules are as applicable to directors of cooperative corporations as to directors of corporations of any other type.

First, all the corporate powers of a cooperative, other than those specifically conferred on the members, are in its directors. Thus, the directors of a cooperative collectively and primarily possess all the powers that the cooperative has under the law. Although these powers are executed by the officers, agents, and employees of the cooperative, the authority for their acts is found in the board of directors. The board determines either expressly or by implication, directly or indirectly, the acts to be performed and the plans and methods to be followed by the officers, agents, and employees of the cooperative.

It is the function and duty of the board of directors to direct and supervise the activities of the cooperative. The members or stockholders, through appropriate bylaws, undoubtedly could prescribe rules which the directors should observe in the conduct of the business of the cooperative, since a director is an agent and the general rules of agency apply to him in his relation to the corporation.3

The first directors of a cooperative are usually named in the articles of incorporation. In most instances they are also the incorporators. These directors, who are sometimes referred to as the incorporating directors, are generally authorized to serve until their successors are elected and qualified. The members or stockholders elect the successors to these directors at the first annual meeting of the cooperative or at a special meeting.

Cooperative statutes, unlike other corporation laws, usually require that directors be elected by and from the members. They

2 Elggren v. Woolley, 64 Utah 183, 228 P. 906 (1924); Federal Land Bank of St. Louis v. Bross, 122 S.W. 2d 35 (Mo. 1938).

3 Fleischer v. Pelton Steel Company, 183 Wis. 151, 198 N.W. 444 (1924); Nicholson v. Kingery, 37 Wyo. 299, 261 P. 122 (1927); Holcomb v. Forsyth, 216 Ala. 486, 113 So. 516 (1927); Johnson v. York Coal & Coke Company, 182 Ky. 303, 206 S.W. 611 (1918); Keenan v. Zemaitis, 4 F. 2d 572 (D. Mass. 1925). But see Security Savings & Trust Company v. Coos Bay Lumber & Coal Company, 219 Wis. 647, 263 N.W. 187 (1935).

also specifically authorize associations incorporated under them to adopt bylaws prescribing general qualifications that must be possessed by persons to be eligible to be directors. These qualifications may relate to membership, residence, and similar matters. Such bylaws, if reasonable, are valid.

Directors are elected for specified periods of service, sometimes prescribed in the law of the State. Upon expiration of the term for which elected, a director usually does not thereby cease to be a director. He continues as such, barring resignation or expulsion, with all the rights and responsibilities incident to the office of director until the election and qualification of his successor.5

A bylaw has been upheld providing that, if a person ceases to have the qualifications required for a director, the office of director thereby becomes vacant." Persons who become ineligible to be directors have been held to be de facto directors. When a corporation in pursuance of action taken by a de facto board of directors entered into a contract with a person who was acting in good faith, the contract was binding on the corporation.8

Ordinarily, it may be better practice and procedure for the bylaws of a cooperative to provide that a person ceases to be a

4A bylaw requirement of "residence in the area served" was not satisfied by the existence of only a legal domicile in the State. Middle Tennessee Electric Membership Corporation v. State ex rel. Adams, 193 Tenn. 513, 246 S. W. 2d 958 (1952). But cf. State v. Betts, 201 S. W. 2d 590 (Ark. 1947). Unless required by statute, charter, or bylaws, directors need not be members. Wright v. Floyd, 43 Ind. App. 546, 86 N.E. 971 (1909); Wight v. Springfield & New London Railroad Co., 117 Mass. 226, 19 Am. Rep. 412 (1875); Parsons v. Rinard Grain Co., 186 lowa 1017, 173 N.W. 276 (1919). Cooperatives, however, find a requirement that directors be members valuable since the interest of directors as owners helps ensure good management.

"Lucky Queen Min. Co. v. Abraham, 26 Ore. 282, 38 P. 65 (1894); Grant v. Elder, 64 Colo. 104, 170 P. 198 (1917); Weil v. Defenbach, 36 Idaho 37, 208 P. 1025 (1922).

'Johnson v. York Coal & Coke Company, 182 Ky. 303, 206 S.W. 611 (1918); Chemical National Bank of New York v. Colwell, 132 N. Y. 250, 30 N.E. 644 (1892).

"In re Ringler & Company, 204 N.Y. 30, 97 N.E. 593, Ann. Cas. 1913 C 1036 (1912); Richards v. Farmers' & Mechanics' Institute of Northampton County, 154 Pa. 449, 26 A. 210, 35 Am. St. Rep. 848 (1893).

Richards v. Farmers' & Mechanics' Institute of Northampton County, 154 Pa. 449, 26 A. 210, 35 Am. St. Rep. 848 (1893).

director upon action taken either by the board of directors or by the membership.

A director or officer of an association at common law may resign at will, and a statute providing that directors shall hold office for 1 year and until their successors have been elected and qualified does not prevent resignation during the year. 10

The bylaws customarily provide that vacancies on the board may be filled temporarily by action of the remaining board members until the next meeting of the members or stockholders. Such a procedure is usually also authorized by the State corporation law. This provision, however, does not confer authority on the board of directors to fill newly created directorships."

A director of a cooperative, like the director of any other corporation, is not by reason of this fact an agent of the cooperative, insofar as transactions with third persons are concerned. Thus, where the maker of a note held by an association paid one of its directors, this did not constitute payment to the association. 12

A contract entered into by a corporation under which its management and control was turned over to another and the power of its board of directors in effect suspended, was ruled invalid as against public policy. 13

A cooperative was authorized by its charter to buy and sell grain. This was done on a board of trade operating under the Federal Grain Futures Act 14 and the fact that losses resulted from such transactions did not render the directors personally liable.15

'Ewald v. Medical Society, 70 Misc. 615, 130 N.Y.S. 1024 (1911), reversed on other grounds, 144 App. Div. 82, 128 N.Y.S. 886 (1911).

10 Briggs v. Spaulding, 141 U.S. 132 (1891).

Il Automatic Steel Products, Inc. v. Johnston, 31 Del. Ch. 469, 64 A. 2d 416 (1949).

12 Hudson Co-operative Loan Association v. Horowytz, 116 N.J. Law 605, 186 A. 437 (1936).

13 Sherman & Ellis v. Indiana Mutual Casualty Company, 41 F. 2d 588 (7th Cir. 1930). See also Continental Oil Company v. Jones, 26 F. Supp. 694 (W.D. Okla. 1939).

147 U.S.C. 1. The title of the Act has been changed to "Commodity Exchange Act."

15 Clark v. Murphy, 142 Kan. 426, 49 P. 2d 973 (1935). See also South Carolina Cotton Growers' Co-op Association v. Weil, 220 Ala. 568, 126 So. 637 (1929); Burch v. South Carolina Cotton Growers' Co-op Association, 181 S.C. 295, 187 S.E. 422 (1936).

Compensation of Directors

The directors of an association have no inherent power to fix their own compensation as directors or, if they are officers, their salaries or other compensation as officers. In other words, unless the statute, the articles of incorporation, or bylaws permit directors to fix their own compensation, they do not have such authority. The members of an association have this authority and they may, through appropriate bylaws or otherwise, either fix the compensation, if any, of directors or authorize the fixing of such by the board of directors. 16 In some instances, authority to determine the salaries of officers is placed by statute in the board of directors.

Both the directors and the officers of a corporation are presumed to act without compensation in performing the duties of their offices unless provision for compensating them has been made. If, on the other hand, any of them are working regularly for the corporation with respect to matters not involving their duties as directors or officers, it will be assumed that reasonable compensation will be made by the corporation for such services. 18

Many of the cooperative statutes state that "an association may provide a fair renumeration for the time actually spent by its officers and directors in its service." In this language, or in similar language, the word "association" means members; 19 and under such language the directors or officers are not authorized to fix their own salaries or compensation. The bylaws should contain suitable provisions on this subject.

16 Bennett v. Klipto Loose Leaf Co., 201 Iowa 236, 207 N. W. 228 (1926); Holcomb v. Forsyth, 216 Ala. 486, 113 So. 516 (1927); Security Savings & Trust Company v. Coos Bay Lumber & Coal Company, 219 Wis. 647, 263 N. W. 187 (1935). In Triplett v. Grundy Electric Cooperative, 389 S. W. 2d 401 (Mo. 1965), the court held that a provision that "Without approval of the members, directors shall not receive any salaries...." when given the liberal construction required by the Act under which the cooperative was incorporated, reasonably meant that "with approval of the members the directors may receive salaries...." See also Schoening v. Schwenk, 112 lowa 733, 84 N. W. 916 (1901), where directors were held not to be officers within the meaning of bylaws that authorized directors to fix salaries of officers and employees.

17 First National Bank of Allen v. Daugherty, 122 Okla. 47, 250 P. 796 (1926).

18 Navco Hardwood Co. v. Bass, 214 Ala. 553, 108 So. 452 (1925).

19 Railway Company v. Allerton, 85 U.S. 233 (1873).

Meetings of the Board

For the directors who compose the board to act to bind the association, the board "must act, and act as a board either in a regular session or in a special session called for the purpose.' other words, the rule is established that in matters affecting the policy, property, or the exercise of discretion, the directors can bind the association only when acting as a board in a properly convened meeting.

A director merely by virtue of his office has no authority to act for or bind an association except in meetings of the board of directors. For instance, if a director by virtue of his office should attempt to release a member from his contract, the act would be void. 21

Even the majority of the board acting as individual directors or in a "board meeting," illegal for any reason, cannot bind the association.22 In one case, a cooperative executed a general assignment.23 But it was "authorized" at an illegal meeting of its directors and the assignment was held to be void as against an attacking creditor. This was in accordance with the general rule under which a stockholder, director, officer, the corporation itself, or a creditor may question the validity of transactions based on action taken at a meeting of a board of directors which was illegal for any reason.

It is highly important, therefore, for the officers of cooperatives to be authorized by their boards of directors at legal meetings to transact the business in which they engage. Likewise, associations in dealing with other corporations should satisfy themselves that the officers of such corporations are legally authorized to act.24

20 Jackson v. Bonneville Irr. Dist., 66 Utah 404, 243 P. 107, II (1925); Honaker v. New River, H. & W. R. Co., 116 Va. 662, 82 S.E. 727 (1914); Nicholson v. Kingery, 37 Wyo. 299, 261 P. 122 (1927); Raish v. Orchard Canal Co., 67 Mont. 140, 218 P. 655 (1923).

21 California Canning Peach Growers v. Harris, 91 Cal. App. 654, 267 P. 572 (1928); see Annotation “Informality of meeting of directors as affecting action taken thereat," 64 A.L.R. 712.

22 United States v. Interstate R. Co., 14 F. 2d 328 (W.D. Va. 1926).

23 Simon v. Sevier County Cooperative Association, 54 Ark. 58, 14 S. W. 1101 (1890).

24See also Red Bud Realty Company v. South, 96 Ark. 281, 131 S. W. 340 (1910); Annotation "Informality of meeting of directors as affecting action taken thereat," 64 A.L.R. 712, 716.