the cotton and paid for it "as the cotton was shipped to it upon the basis that it was all according to the classification set forth in the agreement." The association rejected a substantial number of bales of cotton and then filed a suit "to recover on an account stated and to recover for storage charges and insurance on rejected cotton."

Although there appears to have been a substantial dispute in the testimony, the trial court held that the cotton had been arbitrarily rejected and that, therefore, the association was not entitled to recover. This judgment was affirmed by the appellate court. On appeal, it was held that because of the finding that the cotton had been arbitrarily rejected for not being of proper grade, the relationship of debtor and creditor did not arise and hence the association could not maintain an action for an account stated, or for storage charges and insurance in connection with such cotton. 173

The unjustified refusal of an association to regrade a grower's tobacco was held to justify a grower's refusal to continue performance under his marketing contract. 174 Again, when a milk association required a member to install expensive equipment which it was apparently not authorized to require by the terms of the marketing contract, the court was of the opinion that this would constitute a defense to a suit against the producer on his contract. 175

In a California case a producer was permitted to show, when sued on a written contract, that an oral agreement had been substituted for the written contract. 176 But statements and actions by an association which are consistent with its marketing contract have no adverse effect on it. 177

When a member of an association does not object to a practice which the association is following, but apparently

173 California Cotton Co-op Association v. Byrne, 58 Cal. App. 2d 84, 136 P. 2d 359 (1943).

174 Myrold v. Northern Wisconsin Cooperative Tobacco Pool, 206 Wis. 244, 239 N. W. 422 (1931).

175 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).

176 Producers' Fruit Company of California v. Goddard, 75 Cal. App. 737, 243 P. 686 (1925). Cf Matanuska Valley Farmers Cooperative Association v. Monaghan, 188 F. 2d 906 (9th Cir. 1951).

177 Meyer v. California Prune & Apricot Growers' Association, 42 Cal. App. 2d 632, 109 P. 2d 726 (1941).

acquiesces in it, he may be éstopped from questioning the practice. 178

A member of a cooperative contended that the association had breached its contract with him, but inasmuch as the member continued to make deliveries of milk for a month thereafter, it was held that any alleged previous irregularities did not justify the member in refusing to deliver milk under his contract. 179 In an Oregon case, it was said

the rendition of statements each fiscal year to plaintiff
and "the purchasers" and plaintiff's failure to object to
or protest against such statements of account within a
reasonable time thereafter constitute an account stated
as to the transactions therein involved. 180

If a member of an association breaches his marketing contract during a given season, he cannot successfully defend a suit brought by the association on account of such breaches by showing that subsequently the association breached the contract.181 The assertion by a producer that he received less for his products through the association than he would have received by selling to others is no defense to a suit for breach of the contract. 182

Under the laws of many States corporations are required to file reports. It is sometimes provided by statute that failure to file a report on or before a given date makes invalid contracts entered into while the corporation is in default. 183

178 Reinert v.

California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114 (1936), 70 P. 2d 190 (1937).

179 Parker v. Dairymen's League Cooperative Association, Inc., 222 App. Div. 341, 226 N. Y.S. 226 (1927). See also Lennox v. Texas Farm Bureau Cotton Association, 16 S. W. 2d 413 (Tex. Civ. App. 1929); California Prune & Apricot Growers, Inc. v. Baker, 77 Cal. App. 393, 246 P. 1081 (1926); Beaulaurier v. Washington State Hop Producers, Inc., 8 Wash. 2d 79, 111 P. 2d 559 (1941).

180 Davidson v. Apple Growers' Association, 159 Ore. 473, 79 P. 2d 991, 998 (1938). See also Boyle v. Pasco Growers' Association, Inc., 170 Wash. 516, 17 P. 2d 6 (1932).

181 Nebraska Wheat Growers' Association v. Smith, 115 Neb. 177, 212 N. W. 39 (1927); California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658, 47 A.L.R. 904 (1926); California Prune & Apricot Growers, Inc. v. Baker, 77 Cal. App. 393, 246 P. 1081 (1926).

182 Nebraska Wheat Growers' Association v. Smith, 115 Neb. 177, 212 N.W. 39 (1927); Arkansas Cotton Growers' Coop. Association v. Brown, 179 Ark. 338, 16 S.W. 2d 177 (1929).

183

$3 Detroit United Fruit Auction Company v. Kroger Grocery & Baking Company, 227 Mich. 412, 198 N. W. 947 (1924).

Deductions

What deductions may an association make from the returns received for the products of its members? The answer is, only those deductions authorized under the contract or bylaws of the association. The fact that deductions, in addition to those specifically authorized, appear necessary or highly advisable does not justify making them.

In considering the matter of deductions, a sharp distinction should be drawn between amounts in the hands of an association arising from the sale of commodities delivered by its members and for which it may be said that the association is indebted to the members,2 and amounts which the association is authorized to retain out of such sale proceeds.

Money deducted from the returns from the sale of members' products may be used by the association only for the specific purposes for which deducted. In other words, if the marketing contract or a bylaw of an association specifies that deductions shall be made for certain purposes, the deductions made can lawfully be employed for no other purposes.3

Membership fees, dues, or money received from the sale of stock, or any other money provided for capital (unless received with the understanding that it is to be used for a specific object), may be used for any purpose or object covered by the charter of the association. Thus, if the charter is sufficiently broad, such money may be used (as was done in a California case,4 for instance) for advocating a higher tariff on the products handled by the association.

'Silveira v. Associated Milk Producers, 63 Cal. App. 572, 219 P. 461 (1923); Fietz v. Central Milk Producers Co-op Association, Inc., 32 N.Y.S. 2d 574 (1941). See also Davidson v. Apple Growers' Association, 159 Ore. 473, 79 P. 2d 991 (1938).

2Hood River Orchard Co. v. Stone, 97 Ore. 158, 191 P. 662 (1920); Ozona Citrus Growers' Association v. McLean, 122 Fla. 188, 165 So. 625 (1935); Bogardus v. Santa Ana Walnut Growers' Association, 41 Cal. App. 2d 939, 108 P. 2d 52 (1941); Buford v. Florin Fruit Growers' Association, 210 Cal. 84, 291 P. 170 (1930); Loomis Fruit Growers' Association v. California Fruit Exchange, 128 Cal. App. 265, 16 P. 2d 1040 (1932).

3 Waters v. National Farmers Organization, 328 F. Supp. 1229 (S.D. Ind. 1971), in holding that NFO conforms to all requirements of the Capper-Volstead Act, quotes this paragraph from the 1958 edition of FCS Bulletin 10, Legal Phases of Farmer Cooperatives.

4California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658, 47 A.L.R. 904 (1926).

Unless expressly authorized to do so, an association may not use money derived from the sale of the crop of one season, to which its growers are entitled, for financing the handling of the crop of a succeeding season. Under marketing contracts of the usual type, the courts regard each year as a unit, so that those who were members during a given year are entitled to the money arising from that year's operations after subtracting expenses and other authorized deductions. And this rule has been held to apply even though a part of the money received consisted of commissions paid by nonmembers of the association for selling their products the association not being authorized to handle nonmember business."

An association may, in good faith, when its contract provides for it, pay off a mortgage on a member's crop so as to permit the marketing of the crop through the association." If a loss arises. from paying off such a mortgage, it is chargeable against and should be borne by the member in question. The fact that an association suffers a loss by paying off a mortgage on a member's crop, if the payment was made in good faith, does not relieve other members from their contracts."

If a bylaw or marketing contract authorizes deductions for capital purposes, that is, for money that may be retained and used by the association in the year or years following that in which deducted, such a provision is valid. 10 An association should account to its members for deductions made for capital purposes (sometimes inappropriately called permanent reserves). If the deductions were made pursuant to provisions showing that the member was making a loan to the association to be paid on the dissolution of the association or on some future date or occasion,

"California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658, 47 A.L.R. 904 (1926).

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

'Cunningham v. Long (Maine Potato Growers' Exchange), 125 Me. 494, 135 A. 198 (1926).

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

"Cunningham v. Long (Maine Potato Growers' Exchange), 125 Me. 494, 135 A. 198 (1926).

10 McCauley v. Arkansas Rice Growers' Co-op Association, 171 Ark. 1155, 287 S. W. 419 (1926); Burley Tobacco Growers' Co-op Association v. Tipton, 227 Ky. 297, 11 S. W. 2d 119 (1928); Burley Tobacco Growers' Co-op Association v. Brown, 229 Ky. 696, 17 S. W. 2d 1002 (1929).

then obviously the member becomes a creditor of the association subject to the terms of the loan, and such is the case when certificates of indebtedness are employed.

If, on the other hand, there is nothing to show that the deductions for reserves or capital are loans, then the member has no legal claim against the association for money due and owing in the absence of a stipulation providing otherwise. Under such circumstances, neither a stockholder nor a member could successfully sue an association to recover the amount of deductions for reserves made from the proceeds received for his products."

In one case, 12 the question involved was whether a tobacco cooperative had the right to retain certain net margins realized from the sale of members' tobacco as revolving capital reserves. The tobacco in question had been pledged as security for price support loans, the association acting as agent for Commodity Credit Corporation to administer the program. The tobacco, having failed to bring the support price, was held by the association after payment to the grower of the support price. It was later sold by the association for more than the loans for which it was pledged, thus creating an equity for the growers. The association's agreement with Commodity Credit Corporation required these excess amounts to be "distributed" to the growers. The association's marketing contract provided for retaining reasonable reserves, so it contended that it had "distributed" the amounts when it allocated the "reserves" to the growers. The plaintiffs contended that the "distribution" had to be by payment in cash.

The lower court avoided a construction of the contracts involved and held, in effect, that the patrons should be given the option of having the net proceeds either paid to them in cash or invested in the capital of the association.

On appeal, the Court said that the right of the association to use equities as revolving capital "must be resolved in the light of the intent of the Congress in creating Commodity Credit Corporation and providing it with funds to support the price of

"Burley Tobacco Growers' Co-op Association v. Brown, 229 Ky. 696, 17 S.W. 2d 1002 (1929). 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): and discussion under “Interest in Association.” supra, at footnotes 281, 282, and 283.

12 Range v. Tennessee Burley Tobacco Growers Association, 41 Tenn. App. 667, 298 S. W. 2d 545 (1955).