and this common law, as well as the rules prescribed by statutes of frauds, is generally not applicable to growing crops.

Again at common law and under statutes, as a general rule, if a third person subsequent to the sale of goods (the possession of which is retained by the seller) has notice of the fact that the goods have previously been sold, his rights are junior to the rights of the person who purchased the goods in the first instance. Under these circumstances, the fact that there has been no actual delivery of the goods is immaterial; 120 for the general rule is that "A purchaser with notice of a prior contract to sell or to lease takes subject to such contract, and is bound in the same manner as his vendor to carry it into execution; ***”121

In view of the state of the law as indicated previously, persons who buy farm products from producers who have entered into marketing contracts with their associations to sell such products to the association, run a great risk in doing so, even though they may be unaware of the marketing contract of the association. This is so because, if title to the products covered by a marketing contract has passed to the association, an association may be able to recover damages or the products from any person acquiring the same from a producer without its consent.

The foregoing discussion is entirely independent of the statutes that have been passed in some States providing for the filing or recording of marketing contracts of cooperatives, for the purpose of giving notice to the world of the rights of an association under them. If such a statute has been passed in a State, third persons are undoubtedly bound who attempt to purchase or acquire liens on the products of members after the filing or recording of the marketing contracts.

In Arizona, 122 New Mexico,123 South Carolina,124 and

120 Watertown Milk Producers' Coop. Association v. Van Camp Packing Co., 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A.L.R. 391 (1929); Hatch v. Oil Co., 100 U.S. 124 (1879); Clark v. Shannon & Mott Co., 117 lowa 645, 91 N. W. 923 (1902); Bridgham v. Hinds, 120 Me. 444, 115 A. 197, 21 A.L.R. 1024 (1921); Dieckman v. Young, 87 Mo. App. 530 (1901); 35 Cyc. 304, 345.

121 Pomeroy's Equity Jurisprudence, 3d ed., sec. 688, p. 1385; Union Pacific Railway Co. v. McAlpine, 129 U.S. 305 (1889); Gore v. Condon, 82 Md. 649, 33 A. 261 (1895). See also California Grape Control Board, Ltd. v. Boothe Fruit Company, 220 Cal. 279, 29 P. 2d 857 (1934); Pacific Wool Growers v. Draper & Co., 158 Ore. 1, 73 P. 2d 1391 (1937).

122 Ariz. Rev. Stat. Ann. § 10-717.

123 New Mexico Statutes Ann. 1953, §61-5-5n.

124 Code of Laws of South Carolina 1962, § 60-352.

Wisconsin, 125 for example, provision has been made for the filing or recording of marketing contracts for the purpose of giving notice to all concerned of the rights of the association with respect to the crops covered by marketing contracts.

Restrictions on Association's Right to Sell

If an association receives commodities to sell subject to restrictions such as that all sales are to be approved by the member, or that no sales will be made before a certain date, these restrictions should be observed if the association is to avoid risk of liability. The question arises whether an association may ever sell goods in its possession, if to do so would be contrary to an agreement which the association has made.

In a Texas case, 126 a cooperative had entered into a written contract with a member, under which the association had the authority to sell the cotton delivered pursuant to the contract. Later the association entered into an oral understanding with the member that it would not "sell the 1,095 bales of cotton without first consulting" the member "as to the price to be paid therefor." The association sold the cotton without first consulting the member and the member recovered a judgment against the association because of its failure to abide by its oral agreement.

If a factor receives a consignment of goods to be sold subject to restrictions as to price or terms of sale and he makes advances on the goods or incurs expenses with respect to them, it is generally held that he may proceed to sell the goods if the consignor, after reasonable notice, fails to reimburse the factor for the advances or the expenses incurred. 127

125 Wisconsin Statutes 1953, sec. 185.08, replaced by sec. 185.42 after June 30, 1956, Wis. Laws 1955, c. 368, p. 435 et seq., construed in Watertown Milk Producers' Coop. Association v. Van Camp Packing Co., 199 Wis. 379, 225 N.W. 209, 226 N. W. 378, 77 A.L.R. 391 (1929). See also Spencer Cooperative Live Stock Shipping Association v. Schultz, 209 Wis. 344, 245 N.W. 99 (1932); Wisconsin Cooperative Milk Pool v. Saylesville Cheese Manufacturing Company, 219 Wis. 350, 263 N. W. 197 (1935); Neillsville Shipping Association v. Lastofka, 225 Wis. 350, 274 N. W. 280 (1937).

126 Texas Cotton Cooperative Association v. Lennox, 55 S.W. 2d 543 (Tex. Com. App. 1932), reversing 37 S. W. 2d 331 (1931). See also Imperial Valley Long Staple Cotton Growers' Association v. Davidson, 58 Cal. App. 551, 209 P. 58 (1922); Sullivan v. American Fruit Growers, Inc., 45 Idaho 153, 260 P. 1029 (1927).

127 Brown v. Southern Grocery Company, 168 Ark. 547, 271 S.W. 342, 40 A.L.R. 383 (1925). See note in 40 A.L.R. 387.

No reason is apparent why under comparable circumstances an association could not sell commodities which it had received from its members for sale, if the members after reasonable notice, failed to reimburse the association. It may be that in a particular case the terms of a marketing contract might alter the situation. Generally, however, it would seem that an association is entitled to sell commodities for the purpose of reimbursing itself under conditions where a factor might do likewise.

In the interest of operating efficiency an association should have broad powers of sale; and, in general, restrictions on its authority to make sales should be avoided. Some associations which operate on a pool basis include provisions in their marketing contracts which specifically authorize them to set a value on the residue of commodities which are on hand at the close of a marketing period and to account to their members accordingly. Thus, an association is enabled to make a final settlement for a crop although a portion may not have been sold. Such an authority should be carefully and conservatively exercised.

Pooling

Pooling is widely practiced by cooperatives. Pooling should be thought of as an averaging process-an averaging with respect to products, prices, expenses, or returns. In the case of products, this involves a grading of the products received from each member and a separation of such products according to grade for sale purposes. If the pool is a seasonal one, when all the products received from the members for a given crop year have been sold, the quantity that each member has had in each grade is multiplied by the average price per unit received for all the products in the grade, and thus the total amount that each member is entitled to receive after the deduction of marketing expenses and any other authorized deductions is determined.

Daily, weekly, monthly, or seasonal pools, if authorized, could be established, or the pool might consist of a single shipment, say of livestock. But the principles underlying all such pools are the same. Generally, in long-time pools, one or more advances may be made to members after the receipt of the products and then final settlement is made after the sale of all the products in the pool and after it is known what the total expenses of the association for the year will be.

Marketing expenses are pooled either on the basis of units of product or on the basis of value. Marketing expenses, even when

products are pooled for periods of less than 1 year, are often on a yearly basis. This is fair, as expenses continue throughout the year and the association must be maintained. Broadly speaking, any pooling method for any of these things is valid provided the members have consented to the method either in the bylaws or in the contract. 128

The right of an association to determine conclusively the grade of products received from its members, if authorized to do so by its bylaws or marketing contract, is established.129

The question of whether pooling or grading is properly done appears to be open only in case of fraud or such gross mistake as to imply bad faith. 130

Unless an association is authorized to pool products or expenses or gains or losses, it may not do so. A cooperative attempted to apportion losses arising from the fact that certain milk dealers had rejected milk. A member, whose milk had been accepted and paid for by the dealer at the full sale price, objected

128 Gardner, Matching Cooperative Principles with Today's Operating Practices, American Cooperation-1971, 160; Markeson, Pooling and Other Grower Payment Methods as Used by Local Fruit, Vegetable, and Tree Nut Cooperatives, FCS General Report 67, Farmer Cooperative Service, U.S. Dept. Agr. (1959); Gardner, Operation-at-Cost Principle, American Cooperation-1951, 79 & 81; Christensen, Pooling as Practiced by Cooperative Marketing Associations, U.S. Dept. Agr. Misc. Pub. 14 (1929); Bakken and Schaars, Economics of Cooperative Marketing, McGraw-Hill Book Co., Inc. (1937), pp. 431-472. See also Elliott v. Adeckes, 240 Minn. 113, 59 N. W. 2d 894 (1953); Reinert v. California Almond Growers Exchance, 9 Cal. 2d 181, 63 P. 2d 1114 (1936), 70 P. 2d 190 (1937); Washington Co-op Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806 (1922); McCauley v. Arkansas Rice Growers' Co-op Association, 171 Ark. 1155, 287 S.W. 419 (1926); Tobacco Growers' Co-op Association v. Jones, 185 N.C. 265, 117S.E. 174, 33 A.L.R. 231 (1923); Martinsburg & Potomac Railroad Co. v. March, 114 U.S. 549 (1885); Kelsey v. Early Grain & Elevator Company, 206 S.W. 849 (Tex. Civ. App. 1918).

129 Washington Co-op Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806 (1922); McCauley v. Arkansas Rice Growers' Co-op Association, 171 Ark. 1155, 287 S. W. 419 (1926); Martinsburg & Potomac Railroad Co. v. March, 114 U.S. 549 (1885).

130 Martinsburg & Potomac Railroad Co. v. March, 114 U.S. 549 (1885); New England Trust Co. v. Abbott, Ex'r, 162 Mass. 148, 38 N. E. 432, 27 L.R.A. 271 (1894); Berger Mfg. Co. v. Huggins, 242 F. 853 (8th Cir. 1917); Citizens' Independent Mill & Elevator Co. v. Perkins, 52 Okla. 242, 152 P. 443 (1915); Hayes Grain & Commission Co. v. Federal Grain Co., 169 Ark. 1072, 277 S.W. 521 (1925); Arkansas Cotton Growers' Coop. Association v. Brown, 179 Ark. 338, 16 S. W. 2d 177 (1929).

to bearing any part of the loss on account of the rejected milk. He successfully sued the association and recovered the amount of the loss which the association sought to have him bear. 131

Of course, if the bylaws or marketing contract of an association provide for a certain method of pooling, this method and no other should be followed. 132 An association's bylaws and marketing contract provided for daily pools, and this barred the association from distributing the proceeds of sales to members in any other way, regardless of the fact that the officers of the association apparently were of the opinion that "inequitable" results were thus attained. 133 On the other hand, if an association is not authorized to pool commodities which it is handling, it may be liable if it mixes the commodities received from one member with those received from others.134

Under the usual form of pooling contract, if products are burned, the insurance proceeds take the place of the products in the pool. The fact that the identity of the products burned is known is immaterial and does not give the producer of them any rights to the insurance proceeds independent of his rights of participating in the returns of the pool.135

Generally, it appears that a member of an association pooling and marketing agricultural commodities is entitled to receive an itemized statement, by pools, showing gross prices received for such products and how the net amount to be paid him by the association was determined." 136

Milk associations frequently employ equalization pools into which distributors of milk make payments based upon the specific uses made of the milk delivered by the members of an associa

131 Steelman v. Oregon Dairymen's League, Inc. 97 Ore. 535, 192 P. 790 (1920). See also Cole v. Southern Michigan Fruit Association, 260 Mich. 617, 245 N. W. 534 (1932).

132 McCauley v. Arkansas Rice Growers Co-op Association, 171 Ark. 1155, 287 S. W. 419 (1926).

133 Cole v. Southern Michigan Fruit Association, 260 Mich. 617, 245 N. W. 534 (1932). See also Steelman v. Oregon Dairymen's League, Inc., 97 Ore. 535, 192 P. 790 (1920).

134 Imperial Valley Long Staple Cotton Growers' Association v. Davidson, 58 Cal. App. 551, 209 P. 58 (1922).

135 Texas Certified Cottonseed Breeders' Association v. Aldridge, 122 Tex. 464, 61 S.W. 2d 79 (1933), reversing 59 S. W. 2d 320 (Tex. Civ. App. 1933); Johnson v. Staple Cotton Co-op Association, 142 Miss. 312, 107 So. 2 (1926). 136 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114 (1936), 70 P. 2d 190 (1937).

193