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basis, either as among its members alone, or as between

its members and nonmembers.7

A mutual insurance company decided to dissolve and to distribute the money it had on hand. A question arose as to who was entitled to share in the distribution. In holding that all policyholders who had contributed to the amount then on hand were entitled to share in the distribution, the court said:

* Clearly, if the court allows the present policyholders to take all the surplus, it will be permitting the contributions of many to benefit the few. What was the contract? It was a mutual obligation to share losses by fire; and, to make the contract as absolutely certain as possible, the amount supposed to be necessary for that purpose was required to be paid in advance. But a mutual obligation to share losses was not all. This mutuality extended to an equal distribution of any surplus. The cash paid or advanced was not paid to protect some future policy-holder against loss, or to enable him to draw out of the treasury more than all his premiums, but simply to insure the existing policyholders against loss. That is the venture; that is the contract. The members for the time being bind themselves each to the other only; not to any third persons; not to those who may become members afterwards, and when their policy shall have expired. The money paid by the members for the time being is a trust fund, held for themselves only, and to divert it to the profit of others is a plain breach of trust.8

Nonmember Business

While the various Federal statutes applicable to agricultural cooperatives evince a uniform public policy with respect to the subject of nonmember business, State cooperative acts do not. Some of these acts are silent with respect to nonmember business

'Farmers Union Cooperative Oil Company, 38 B.T.A. 64 (1938). See also Etter Grain Company v. United States, 462 F. 2d 259 (5th Cir. 1972), affirming 331 F. Supp. 283 (N. D. Tex. 1971): Iberia Sugar Cooperative, Inc. v. United States. 480 F. 2d 548 (5th Cir. 1973).

8 Smith v. Hunterdon County Mutual Fire Insurance Company, 41 N.J. Eq. 473, 4 A. 652, 653 (1886). Cf. Driscoll v. Washington County Fire Insurance Co., 110 F. 2d 485 (3d Cir. 1940), certiorari denied, 311 U.S. 658 (1940).

and if an association is incorporated under such a statute, it wouki appear that it may freely transact business with members and nonmembers without restrictions, insofar as State law is concerned.

Generally, however, State statutes either prohibit an association from doing business with nonmembers, or permit associations organized under them to transact business with nonmembers but provide that the business done with nonmembers shall not exceed in value the amount of business transacted for members. This kind of limitation on nonmember business appears in the CapperVolstead Act,2 the Agricultural Marketing Agreement Act, as amended, and also section 521 of the Internal Revenue Code of 1954.4

Likewise,

associations
associations

that do more business with nonmembers than with members are not regarded as producer cooperatives under marketing agreements entered into under the Agricultural Marketing Agreement Act, since the Department of Agriculture gives consideration to the conditions of the CapperVolstead Act in determining whether an organization is an association of producers.

Serious consequences may result if an association violates a restriction on the amount of business it may do for nonmembers."

If the value of the business transacted by an association with nonmembers exceeds that transacted with members, it is not eligible for loans from a bank for cooperatives, nor could it qualify for the restricted exemption provided for in the Motor Carrier Act. 8

In certain types of cooperatives, the necessity for limiting the advantages afforded by the association strictly to its own members is apparent. This point is illustrated by community groups. Similarly, mutual insurance companies and irrigation companies

'In re Farmers' Dairy Company's Receivership, 177 Minn. 211, 225 N.W. 22 (1929).

27 U.S.C. 291-292.

3See "Federal Statutes Mentioning Cooperatives," infra, p. 541. 4See "Federal. Income Taxes," infra, p. 410.

"See "Federal Statutes Mentioning Cooperatives," infra, p. 533.

"United States v. American Livestock Commission Co., 279 U.S. 435, (1929). See also Board of Trade of City of Chicago v. Wallace, 67 F. 2d 402 (7th Cir. 1933).

7See "Statutes Providing Credit Facilities," infra, p. 523.

See "Statutes Affecting Cooperatives.” infra, p. 510.

'Burt v. Oneida Community, Ltd., 137 N. Y. 346, 33 N. E. 307, 19 L.R.A. 297;

138 N. Y. 649, 34 N.E. 288 (1893).

usually limit their business to their members. In addition, in the case of mutual water companies, membership in the association and the right to a supply of water are frequently appurtenant to the land. 10 However, this is not always the case.11

An association which is to act as a public warehouseman must ordinarily offer storage facilities to the public generally and may not limit its service to its own membership. 12 It has also been held that a mutual telephone company has a duty to serve the public at large. 13

Generally, a utility cooperative must serve all applicants meeting its requirements for service. 14 While in Maine and New Mexico's electric cooperatives under complete public service commission jurisdiction cannot require membership as a condition of furnishing service, most State commissions have followed the rule that public utility responsibility is not inconsistent with a membership requirement, provided membership is open to all on a nondiscriminatory basis.16

10 Comstock v. Olney Springs Drainage District, 97 Colo. 416, 50 P. 2d 531 (1935); Woodstone Marble & Tile Co. v. Dunsmore Canyon Water Co., 47 Cal. App. 72, 190 P. 213 (1920).

Palo Verde Land & Water Company v. Edwards, 82 Cal. 52, 254 P. 922 (1927). But see People ex rel. Knowlton v. Orange County Farmers' and Merchants' Association 56 Cal. App. 205, 204 P. 873 (1922).

12 Nash v. Page & Co., 80 Ky. 539, 4 Ky. Law Rep. 477, 44 Am. Rep. 490 (1882).

13 Celina & Mercer County Telephone Company v. Union-Center Mutual Telephone Association, 102 Ohio St. 487, 133 N.E. 540, 21 A.L.R. 1145 (1921). But see State v. Southern Elkhorn Telephone Co., 106 Neb. 342, 183 N. W. 562 (1921); State ex rel. Lohman & Farmers' Mut. Telephone Co. v. Brown, 323 Mo. 818, 19 S.W. 2d 1048 (1929); Inland Empire Rural Electrification, Inc. v. Department of Public Service of Washington, 199 Wash. 527, 92 P. 2d 258 (1939); Garkane Power Co., Inc. v. Public Service Commission, 98 Utah 466, 100 P. 2d 571 (1940); San Miguel Power Association v. Public Service Commission, 292 P. 2d 511 (Utah 1956); and discussion under "Statutes Affecting Cooperatives," infra, p. 512.

14 Capital Electric Power Ass'n v. McGuffee, 83 So. 2d 837, 56 A.L.R. 2d 402 (Miss. 1955). See also McCrady v. Western Farmers Electric Cooperative, 323 P. 2d 356 (Okla. 1958); Dairyland Power Cooperative v. Brennan, 82 N. W. 2d 56 (Minn. 1957); King v. Farmers Electric Cooperative, Inc., 56 N. Mex. 552, 246 P. 2d 1041 (1952); Bookhart v. Central Electric Power Cooperative, 65 S. E. 2d 781 (S. Car. 1951).

15See Dickinson v. Maine Public Service Co., 223 A. 2d 435 (Maine 1966); Community Public Service Co. v. N. M. P. S. C. and Otero County Electric Cooperative, 76 N. Mex. 314, 414 P. 2d 675 (1966).

16See Mississippi Power Company v. East Mississippi Electric Power

If a farmer cooperative is to qualify under section 521 of the Internal Revenue Code, it must treat member and nonmember patrons alike and may not, for instance, limit patronage refunds to members.17 However, some State statutes provide that, although associations may do nonmember business, patronage refunds may be paid only to members or that patronage refunds to nonmembers must be computed at a lower rate than such refunds paid to members.

It would seem on principle that, from a cooperative standpoint an association should accord the same treatment to all patrons regardless of whether they are members. Some associations find, however, that if nonmember patrons receive the same treatment as member patrons there is less incentive for a nonmember to become a member. To counteract this situation, the bylaws of many associations provide that patronage allocations or refunds accruing to an eligible nonmember patron shall be applied first toward the purchase of a membership or a share of stock.

In farmer cooperatives limiting their membership to producers, it may happen that some business may be transacted for persons who are ineligible for membership. This is particularly true in associations performing farm business services. As brought out in the discussion of Federal income taxes, if an association is to qualify under section 521 of the Internal Revenue Code of 1954, it may not do more than 15 percent of its farm supply business with patrons who are neither members nor producers.

Control of Crops By Landlord

The statutes of a number of States contain a provision reading as follows:

In any action upon such marketing agreement, it
shall be conclusively presumed that a landowner or
landlord or lessor is able to control the delivery of prod-
ucts produced on his land by tenants or others, whose
tenancy or possession or work on such land or the terms
of whose tenancy or possession or labor thereon were
created or changed after execution by the landowner or
landlord or lessor, of such a marketing agreement; and

Association, 140 So. 2d 286 (Miss. 1962); Trico Electric Cooperative, Inc. v. Arizona Corporation Commission, 92 Ariz. 373, 377 P. 2d 309 (1962). 17See "Federal Income Taxes," infra, p. 415.

in such actions, the foregoing remedies for non-delivery
or breach shall lie and be enforceable against such land-
owner, landlord or lessor.!

Entirely independent of this conclusive-presumption provision, may an association require that crops grown under the share-lease plan be marketed through it? An association could include a provision in its marketing contract requiring a member, if he leased his farm or any part of it after signing the marketing contract, to include a provision in the lease stipulating that all crops grown on the farm should be marketed through the association. In addition, a provision could be included requiring the landlord to pay liquidated damages for his failure to have the share of the crops belonging to his tenant marketed through the association.2

If a lease provides for a share tenancy, then, regardless of the time that it is entered into, the association clearly would be entitled to receive at least the landlord's share of the crop for marketing, because he has legal control over that portion of the crop.3 The tenant had the right to sell the landlord's part of the cotton crop, but it was held that this fact was immaterial, since the lease provided that the landlord receive a part of the crop as his rent.

A landlord was not held liable for damages to an association because of the failure of his tenant to market his share of the crop through the association.4 The North Carolina cooperative statute involved did not contain the conclusive-presumption provision.

In the absence of a provision in the marketing contract requiring a landlord to have the share of the crops belonging to his tenants marketed through an association, and in the absence of a conclusive-presumption provision in the cooperative act of the State, it would appear that there is no basis for holding a landlord liable because his tenants' share of the crops is not marketed through the association, nor would there be a basis for holding the tenants liable unless they are parties to the contract.

'See Minn. Stats. Ann. § 308.69

2 Dark Tobacco Growers' Co-op Association v. Daniels, 215 Ky. 67, 284 S. W. 399 (1926). See "Liquidated Damages," infra, p. 239.

'Long v. Texas Farm Bureau Cotton Association, 270 S.W. 561 (Tex. Civ. App. 1925); Main v. Texas Farm Bureau Cotton Association, 271 S. W. 178 (Tex. Civ. App. 1925).

4Tobacco Growers' Co-op Association v. Bissett, 187 N.C. 180, 121 S.E. 446

(1924).

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