Any natural person, except a wage earner or farmer, *** 2 Does this language include a cooperative? In answering the question in the affirmative, the Circuit Court of Appeals for the Sixth Circuit said in part: It is to be noted that the Bankruptcy Act refers not to Elmsford Country Club, 50 F. 2d 238 (S.D. N. Y. 1931), and In re Michigan Sanitorium and Benevolent Ass'n, 20 F. Supp. 979 (E.D. Mich. 1937), appeal dismissed, 96 F. 2d 1019 (6th Cir. 1938), it was held that, although the organizations could not be proceeded against in involuntary bankruptcy actions, they could use the voluntary provisions of the act. Further, the Chandler Act, 11 U.S.C. 501-676, especially in view of its remedial purpose, would entitle a cooperative to file its voluntary petition for reorganization. See Berueffy, The Reorganization of a Cooperative Under the Chandler Act, 1952 Wis. L. Rev. 480. 211 U.S.C. 22(b). 3Schuster v. Ohio Farmers' Cooperative Milk Association, 61 F. 2d 337 (6th Cir. 1932). Followed in In re South Shore Cooperative Association, 4 F. Supp. 772 (W.D.N.Y. 1933). See also In re Wisconsin Cooperative Milk Pool, On the other hand, a contrary view has been taken in several district court cases. Thus, in a case involving the Wisconsin Cooperative Milk Pool, the district court refused to follow the rule of the Schuster case, just quoted, and held that a cooperative was not amenable to involuntary bankruptcy proceedings.4 However, as the footnote indicates, the circuit court of appeals subsequently reversed this decision. The subject in question has occasioned considerable discussion." Where members of a cooperative, on its being placed in bankruptcy, paid money to the trustee on account of a liability imposed upon them by the bylaws, it was held that the members were not entitled to recover such money because the liability under the bylaws was only to the creditors, since the trustee would distribute the funds among the creditors. It was further held that as the statute of limitations was simply a defense, the fact that some of the members could have pleaded the statute if sued on such claims was immaterial.7 119 F. 2d 999 (7th Cir. 1941), reversing 35 F. Supp. 787 (E.D. Wis. 1940); and In re Wyoming Valley Coop. Association, 198 F. 436 (M.D. Pa. 1912); In re Sedalia Farmers' Cooperative Packing and Produce Company, 268 F. 898 (W.D. Mo. 1919). Hanna, The Law of Cooperative Marketing Associations, Ronald Press, New York (1931) p. 336. In re Wisconsin Cooperative Milk Pool, 119 F. 2d 999 (7th Cir. 1941), reversing 35 F. Supp. 787, 789 (E.D. Wis. 1940). For similar holdings see In re Dairy Marketing Association of Ft. Wayne, Inc., 8 F. 2d 626 (D.C. Ind. 1925); In re Weeks Poultry Community, Inc., 51 F. 2d 122 (S.D. Calif. 1931). "It is interesting that the issue of amenability to involuntary proceeding was not even contested in In re F. L. F. Farmers Cooperative Ass'n, Inc., 170 F. Supp 497 (D.C.N.J. 1958). For the impact of bankruptcy in the farm credit system, see Columbia Bank for Cooperatives v. Lee, 368 F. 2d 934 (4th Cir. 1966), certiorari denied, 386 U.S. 992 (1967). "Bankruptcy-Amenability of Farmers' Marketing Cooperatives to Involuntary Proceedings, 39 Mich. L. Rev. 1011 (1941); Bankruptcy-Who May Become Bankrupt-Corporations: Cooperative Marketing Association, 46 Harv L. Rev. 326-327 (1932); Kalman, Cooperative Marketing Associations, Amenability to Involuntary Bankruptcy, Power to Change Contractual Relationships by Altering Bylaws, 10 Wis. L. Rev. 516-520 (1935); Berueffy, The Reorganization of a Cooperative Under the Chandler Act, 1952 Wis. L. Rev. 480. See Note, Involuntary Bankruptcy-Cooperative Marketing Associations, 19 Hastings L.J. 362 (1968). 'In re South Shore Cooperative Association, 103 F. 2d 336 (2d Cir. 1939), affirming 23 F. Supp. 743 (W.D.N.Y. 1938). See also Huntington v. Waldorff, 257 App. Div. 1025, 13 N. Y. S. 2d 783 (1939), affirmed, 281 N. Y. 746, 23 N. E. 2d 554 (1939). In a case involving a cooperative of grocery dealers, an involuntary petition in bankruptcy was successfully filed after a State equity receiver had been appointed. The members of the cooperative were held to have a provable claim for their share of a reserve to meet bad debts-the reserve having been created by an extra l-percent charge on all statements sent to members. In contrast, In re F. L. F. Farmers Cooperative Association, Inc., held that a patronage refund certificate payable at the discretion of the directors is not a creditor's claim provable in bankruptcy. If cause exists, a receiver may be appointed for a cooperative. Insolvency-the inability to meet the demands of creditors-is one of the most common causes for the appointment of a receiver, 10 The courts, as a general rule, proceed with great caution in the appointment of receivers. It has been pointed out that "The power of appointment is a delicate one, and to be exercised with great circumspection."12 For example, in the McCauley case,13 the court refused to appoint a receiver because of breaches of the marketing contract by the officers of the association, and refused to release the members involved from their contracts on account of such breaches. The court said that "the rule is not to appoint a receiver when the specified acts complained of may be remedied by injunction or are capable of redress by other available means." Where the directors of a cooperative were unfaithful to their trust and were guilty of fraudulent practices, the appointment of a receiver was justified to preserve its property. 14 Warner v. Schoner, 90 F. 2d 579 (9th Cir. 1937). 9170 F. Supp. 497 (D. N. J. 1958). In the Matter of Great Plains Royalty Corporation, et al., 471 F. 2d 1261 (8th Cir. 1973), holds a bankrupt corporation "de facto dead" under a cooperative's bylaws authorizing settlement of decedents' estates. See footnote 260, "Electric and Telephone Cooperatives," p. 460. 10 Emmett State Bank v. Emmett Farmers' Union Co-op Elevator & Mercantile Co., 116 Kan. 550, 227 P. 257 (1924); In re Community Cooperative Industries, Inc., 279 Mich. 610, 273 N.W. 287 (1937); In re Farmers Cooperative Co., 200 lowa 1160, 206 N. W. 251 (1925); O'Brien Mercantile Company v. Bay Lake Fruit Growers' Association, 173 Minn. 493, 217 N. W. 940 (1928). 11 McCauley v. Arkansas Rice Growers' Co-op Association, 171 Ark. 1155, 287 S. W. 419, 426 (1926). 12 Indianapolis Dairymen's Cooperative, Inc. v. Bottema, 226 Ind. 237, 79 N.E. 2d 399, 226 Ind. 260, 79 N. E. 2d 409 (1948). Cf. Range v. Tennessee Burley Tobacco Growers Association, 41 Tenn. App. 667, 298 S. W. 2d 545 (1955). 13171 Ark. 1155, 287 S. W. 419 (1926). 14 California Fruit Growers' Association v. Superior Court, 8 Cal. App. 711, Various facts and circumstances may operate to prevent the appointment of a receiver. Action for the appointment of a receiver of a cooperative loan association failed where the plaintiff owned only four shares of the stock of a par value of $40, and the Federal intermediate credit bank, the only creditor, seemed to be satisfied with the way the business of the association was being conducted. Moreover, there was nothing to show that the plaintiff had sought, through the officers or stockholders, a limitation of its affairs or change in its personnel. 15 None of the following circumstances was held sufficient to warrant appointment of a receiver: failure of the officers to convince the Office of Price Administration that the association was entitled to higher prices; failure to permit stockholders to examine the cooperative's books; operation of a breeding farm; procedure of the association in paying withdrawing members for their part of the reserve fund; the existence of dissension among members; mismanagement and misconduct which was not so "gross or fraudulent as to affect the substantial rights of stockholders or creditors;" and breach of the marketing contract by deducting 6 cents, instead of 5 cents, per hundred pounds of milk. 16 Even though deductions made by an association were unauthorized, this did not entitle certain members of an association to have a receiver appointed for the association and an accounting where these members did not object to the deductions at the time they were made. 17 Where the stockholders of an association acquiesced in the apparently unauthorized investment of a part of its capital, the court refused to appoint a receiver. 18 An assignment for the benefit of creditors did not prevent the appointment of a receiver for an insolvent cooperative. 19 97 P. 769 (1908). See also Lee v. Farmers Co-op Association of Mountain View, 189 Okla. 55, 113 P. 2d 391 (1941). 15 Peeples v. South Carolina Agricultural Loan Association, Inc., 156 S.C. 429, 153 S.E. 283 (1930). 16 Indianapolis Dairymen's Cooperative, Inc. v. Bottema, 226 Ind. 237, 79 N.E. 2d 399, 226 Ind. 260, 79 N.E. 2d 409 (1948). 17 Boyle v. Pasco Growers' Association, Inc., 170 Wash. 516, 17 P. 2d 6 (1932). 18 Brookshire v. Farmers' Alliance Exchange of South Carolina, Limited, 73 S.C. 131, 52 S.E. 867 (1905). 19 Milam County Co-operative Cotton and Mercantile Alliance v. TennentStribling Shoe Company, 40 S. W. 331 (Tex. Civ. App. 1897). The function of a receiver is to collect the assets and apply them on the debts of the concern involved. For instance, if an association had overpaid a member and a receiver was appointed for the association, the receiver could sue the member and collect the amount of the excess payment.20 Where a cooperative loaned money to a receiver to preserve property in his possession, it was entitled to payment before a person who had a mortgage on the property.21 In a receivership proceeding, the assets of a cooperative may be marshaled.22 A receivership does not terminate or dissolve an association. It simply substitutes, for the life of the receivership, the management of the receiver for the management of the officers and directors of the association. 23 Where a tobacco association entered into contracts with third persons to redry its tobacco and later the association was placed in the hands of a receiver, it was held that the redriers were not entitled to claim a lien on tobacco in their possession on account of money due for tobacco which had previously been redried and delivered, because the contracts under which the redrying of the tobacco had been done provided for an extension of credit which was inconsistent with the claim of a lien on the tobacco.24 Marketing Contracts A contract has been defined as an agreement between competent parties, upon sufficient consideration, to do or not to do a particular lawful thing.' To be binding and enforceable, a contract must possess mutuality; that is, both parties must be 20 Cunningham v. Long (Maine Potato Growers' Exchange), 125 Me. 494, 135 A. 198 (1926). 21 Colorado Wool Marketing Association v. Monaghan, 66 F. 2d 313 (10th Cir. 1933). 22 Leyden v. Calhoun Cooperative Creamery Company, 223 Ala. 289, 135 So. 317 (1931). See also Columbia Bank for Cooperatives v. Lee, 368 F. 2d 934 (4th Cir. 1966), certiorari denied, 386 U.S. 992 (1967). 23 Gaboury v. Central Vermont Ry. Co., 250 N. Y. 233, 165 N.E. 275 (1929). 24 Clark Brothers & Company v. Pou, 20 F. 2d 74 (4th Cir. 1927). 'Blackstone's Commentaries, Book II, p. 442. |