Staple Cotton Co-Op. Ass'n v. Borodofsky

McGtowen, J., delivered the opinion of the court. The Staple Cotton Co-operative Association, appellant, filed a bill in. the chancery court of Bolivar county against the defendant, J. S!. Borodofsky, in which the cotton association charged that the defendant in 1921 had entered into a co-operative agreement with the other members of the association by which the said Borodofsky agreed to deliver all the cotton raised on his place by him, for him, or in which he had an interest, setting out the various sections of the co7operative agreement which will be further adverted to in this opinion. The bill further alleged that Borodofsky had breached his marketing agreement by the selling of approximately one hundred bales of cotton, and by failing and refusing to deliver that amount of cotton to the association under the agreement. The bill prayed for a decree of specific performance, that the defendant be required to deliver the cotton to the association under the marketing agreement, and1 for an injunction to enforce the contract and to prevent a breach thereof further; for a discovery as to what amount of cotton had been grown, produced, and acquired *573 by or for him in the year 1924; what cotton he had On hand, what cotton he had sold; and that a commissioner be appointed to make and state an account showing the indebtedness of the defendant to the association at the rate of ten cents per pound for all cotton produced, controlled, or in any way owned by the appellee, Borodofsky, and not delivered to the association; for costs and attorneys’ fees; and that the defendant be enjoined from breaching in any manner the said contract. To this bill the defendant filed his answer denying liability under the marketing agreement, denying that he had any cotton subject to the agreement, and setting up that he rented land for a cash consideration and had only a landlord’s lien on cotton produced by his renters which was discharged by the payment of the rent; that he farms part of his land by what is known as share tenants, some of whom pay one-fourth of the cotton produced, others pay one-half, and that the balance of the cotton, so raised belongs to the tenants; and that he had delivered the cotton which he had received in kind as rent for his premises under his contract with his tenants. The proof showed that Borodofsky took trust deeds on his tenants’ lands for their “furnish,” meaning the supplies used by the tenant in producing the crop, food for himself, and for his stock. It was the contention of the appellant, the association, that these trust deeds from these tenants in most cases covered the entire value of all the crop of the tenant, and that by this trust deed Borodofsky acquired an interest in and to the cotton raised, and that Borodofsky’s contract with his tenant that he might sell his own cotton and pay the money on his supply account to Borodofsky, and the association in effect contends that this was a subterfuge; that Borodofsky was really entitled to the cotton and that he owned one hundred per cent of it; that he had both a trust deed and a landlord’s lien for the supplies furnished. *574 Borodofsky further contended, and the chancellor found, that in all cases where rent was payable in kind or in cotton, Borodofsky had complied with his marketing agreement, and the chancellor was perhaps warranted in ■ so finding. Borodofsky further showed by his proof that in preceding years he had handled by purchase at the market value, or above, the cotton of his. tenants, and had turned the- same over to the association, but that by this proceeding he found he had lost about thirty dollars a bale, and so at. the beginning of the year 1924 he • specially contracted with each of his tenants that the tenants might sell their part of the cotton, receive checks therefor, and bring the checks to Borodofsky and get credit therefor on their accounts. In other words, prior to 1924, Borodofsky had delivered all the cotton grown on his place to the association, and for the year 1924, when this controversy arose, he changed his contract with his tenants without notifying his tenants of the fant that he belonged to the association or had made the marketing agreement which is the basis of this controversy. The chancellor found for the defendant, Borodofsky, dismissing complainant’s bill, holding that Borodofsky had delivered all of the cotton which he was obligated to deliver under his marketing agreement, and that he was not under legal duty to deliver the -cotton of his tenant other'than his share received in kind where, cotton rent was to be paid. It will be seen that this involves a construction of the contract and the right of the tenant and the right of the landlord, and whether or not by the marketing* agreement Borodofsky had agreed that he would deliver his tenants’ cotton to the association. The chancellor held in the negative. But in view of the fact that we have reached a conclusion upon the cross-bill filed by Borodofsky against the association seeking a cancellation of the entire contract which settles this litigation, we pretermit a discussion of the very interesting question presented *575 by the bill, answer, and proof in this case, for if the chancellor was correct in canceling the entire contract upon the facts alleged in the cross-bill, then of course no right could be predicated thereon such as is set up. in the original bill. In the cross-bill Borodofsky charged that the cotton association had in the year 1924, at planting time or before, materially breached its contract, in that many thousand bales of cotton had been released from the operation of the marketing agreement by the directors of the association, which association was incorporated under 'the laws of the state of Tennessee and authorized to do business in Mississippi; that the said release of members, by the release of their1 cotton, from the operation of the terms of their contracts, to cotton brokers- and banks to be sold on the outside, was antagonistic to the true intent and spirit of the co-operative corporation, and not only was it a breach of the contract, but that such breach operated to defeat the purpose of the organization; that the damages could not be ascertained, and that he was without adequate remedy other than by a cancellation of the contract; and he prayed for a cancellation of the marketing agreement, and the court below canceled the contract. We set out the following sections of the marketing agreement which may be involved and may shed light upon the questions to be decided in this.case. “Section 2. The association agrees to buy and the gyower agrees to sell and deliver to the association all of the cotton produced or acquired by or for him during the years 1920', 1921, 1922, 1923, and 1924. “Section 3. The grower expressly warrants that he has not heretofore contracted to sell, market or deliver any of his said cotton to any person, firm or corporation, except as noted at the end of this agreement. Any cotton covered by such existing contracts or crop mortgage shall be excluded from the terms hereof for the period and to the extent noted. ’ ’ *576 “Section 11. The grower shall have the right to stop growing cotton and to grow anything else at any time at his free discretion; hut if he produces, or acquires or owns any interest in any cotton, during the term hereof, it shall be included under the terms of this agreement and must be sold only to the association.” “Section 13. This agreement shall be binding upon the grower as long as he produces cotton directly or indirectly, or has the legal right to exercise control of any commercial cotton or any interest therein during the term of this contract.” Briefly stated, the proof showed, issue being joined thereon by the association, that the association had executed releases to its members of this cotton covered by the mutual marketing agreement; the release being to prospective creditors of the member, copy of one of which is here set forth in extenso: “Agreement. “Whereas, —■-, a member of the Staple Cotton Cooperative Association is desirous of obtaining advances and loans of money from the — -bank of-■ — , during the year 1922, to be secured by a recorded trust deed on growing; crops or cotton in bales produced by said member during the said year. “Now then in consideration of the making of said loans and advances by the said bank, and in order to induce the said bank to make the same, it is hereby covenated and agreed with the said bank that nothing in the marketing agreement of this association with said member shall be construed to preclude said member from giving such trust deed on his growing crop or cotton in bales so as to'secure the payment of any loan or advance hereafter made by said bank during said year, and said marketing agreement shall in no way affect any such trust deed in favor of said bank. “This agreement shall not be construed to release the member from his said marketing agreement, if the, *577 said bank shall not furnish money to the said member during said year and shall fail to take and record its deed on the growing crop or cotton in bales, of said member in such year or if such member shall at any time during such year pay off and discharge the indebtedness secured by such trust deed to the said bank, then this agreement shall automatically cease and be of no effect. “Witness the signature of the Staple Cotton Co-operative Association by its president, this the —- day of-, 1922. “Staple Cotton Co-operative Association, “Per---, President. “Attest: —■— -.” The association thereby '^relpased /the ¡cotton to be raised by members of its directorate and other members of the association to the extent of about fourteen thousand bales of cotton raised by them. At least three directors were released by an instrument similar to the one set out above and many of its prominent members. The officers stated that not all of its cotton that was released was lost to the association, but that some came back to the association but not under the terms of the agreement. The amount of the cotton thus coming back to it is not shown in this record. The release was signed by the president on the authority of the board of directors and was for the purpose, as stated by Mr. Bledsoe, of permitting the grower members of the association to produce cotton because the banks and brokers would not furnish supplies necessary to make the crops without this or a similar release; that these members could not raise a crop at all if they could not have money to purchase supplies with which to feed the teams and tenants and to procure the necessities for making.the crop of cotton. The court below canceled the contract in this state of the case, and we have reached the conclusion, after a very careful study of this record, that we must reluctantly assent to the correctness of the chancellor’s finding. *578 Counsel for appellant insist that the form of release was not of the member, but of the cotton. We may assent to that proposition, but the very warp and woof of the instruction is cotton — staple cotton — and a release of some because of their necessities in order that they might raise cotton, which cotton would not go into the pool of the association but which would necessarily be handled by the brokers and purchasers in the open market to the detriment of the very purpose of the association to sell cotton at advantageous prices unaffected by the brokers and intermediate dealers. So that when it is conceded that the cotton was released, necessarily there was a breach of. a serious nature of the contract which materially affected Borodofsky, because the courts have uniformly held that where these associations are formed for the purpose of marketing the product, these mutual agreements were of material benefit to the association and to each member thereof, and that the penalty prescribed would be enforced. This view is sustained in part by section 17 as follows: “All parties'agreeing that this contract is one of a series dependent upon its true value for the adherence of each and all of the growers to each and all of the said contracts. ’ ’ This contract was upheld as not violating the Constitution in Brown v. Staple Cotton Co-operative Association, 132 Miss. 859, 96 So. 849, wherein this court held that this association created a sales agency for the mutual benefit of its members. So that any way that this contract is viewed its main object and purpose was to handle as a sales agency in pools the product of cotton of its members as set forth in the contract, and unquestionably there was a breach of the contract in thus releasing about fourteen thousand bales of cotton from its operation to be handled by those who were presumably antagonistic to the spirit and purpose of this organization, all of which occurred before Borodofsky is alleged to have breached his contract. *579 To' sustain our position that this is the dominant feature of this contract we quote as follows: In Kansas Wheat Growers’ Ass’n v. Schulte, 113 Kan. 672, 684, 216 P. 311, at page 317, the court said: “This association was organized for the sole purpose of marketing the wheat raised by its members, and performing such functions as are incidental thereto. Prom the very nature of things it must have the wheat or it cannot exist.' It has no power to buy wheat; hence it cannot go into the open market and purchase wheat to fill its contracts of sale, if the members fail to deliver, and thus sustain its existence or recoup its loss. Even the payment of damag'es of twenty-five cents per bushel stipulated to be paid by a member for each bushel he produces and sells elsewhere would not sustain the association and enable it to do the business- for which it is incorporated. Hence, as a practical matter, it is of little consequence that the member is solvent and able to respond in damages. If the association received damages from all, or a substantial portion, of its members-, it would cease as a going concern, or be so seriously handicapped as to destroy its usefulness. Wheat is- the only commodity the association can use as a going concern. All it can do with money is to pay its expenses and disburse the balance among its members-. It necessarily follows that there is no adequate remedy at law. The only adequate remedy is injunction, preventing the member from selling to others, and thus'forcing the delivery of the wheat to the association. Washington Cranberry Growers’ Ass’n v. Moore, 117 Wash. 430, 201 P. 773, 204 P. 811 [25 A. L. R. 1077]; Phez Co. v. Salem Fruit Union, 103 Or. 514, 201 P. 222, 205 P. 970 [25 A. L. R. 1090] ; Owen County Burley Tobacco Society v. Brumback, 128 Ky. 137, 107 S. W. 710.” In the case of Haarparinne v. Butter Hill Fruit Growers’ Ass’n, 122 Me. 138, 141, 119 A. 116, at page 117, near the bottom of the-first column, the court said: *580 “It is clearly apparent, however, that if the plaintiff could sell to ‘outside parties’ every member could do the same, and that would mean the end of the association as an effective agency. Hence the whole scheme of the corporation depends upon not a legal but an honorable observance of that item. We are unable to discern any interpretation of section 9 that points to the association as a purchaser, or a member thereof as a vendor thereto. ’ ’ In the case of Minnesota Wheat Growers’ Co-operative Marketing Association v. Huggins, 162 Minn. 471, 485, 208 N. W. 420, at page 426, the court said: “The parties have thus provided for liquidated damages, but does that damage give the plaintiff a full, complete, and adequate remedy? It does not. Plaintiff is entitled to equitable redress. It is, as stated, a co-operative marketing association, conducted without profit, limited exclusively to its members. Each member has similar contract relations with it. Each depends upon the other. Its success depends entirely upon the performance by the members. It must, to carry out its purposes, make contracts for the disposal of the products acquired by the membership contracts. In making such contracts of disposal, as well as contracts for necessary instrumentalities needed in conducting its- business, it must know that it will get the products contracted for. Prom the very nature of the association it must have the wheat, or it cannot exist. Wheat is the only commodity it can use as a going concern. It does not have power to go into the market and buy it. It must, have this information in advance and prepare for the future. It must arrange for help, capital, and perhaps storage. If one or more members may disregard their contracts' with impunity and a loss occurs, there is no way to meet such loss, and if it may be said to be a loss that must be met by the members who remain, then it is obvious that few persons- would join or remain members. The consequence would be so serious to plaintiff that the remedy at law is wholly inadequate, nor can it be said that the *581 legal remedy is either full or complete. The only adequate remedy is an injunction preventing* the members from breaching their contracts, and thus forcing the delivery of the wheat to the association. The members’ breach of such a contract is so fraught with consequences to both the association and the individual members thereof that equity cheerfully puts out its restraining hand, with the admonition that the member under such circumstances must not violate the covenants he has voluntarily assumed. He is not compelled to grow wheat, but as long as he produces within the period of the contract he must not sell to anyone but plaintiff, and he is thus indirectly or negatively required to perform the obligation of his contract.” In the case of Potter v. Dark Tobacco Growers’ Cooperative Ass’n, 201 Ky. 411, 148, 257 S. W. 33, at page 36, the court said: “Appellee has no capital stock, is not operated for profit, and is not permitted to buy, handle, or sell tobacco except for its members, but is dependent for its existence and an opportunity to, serve its members upon their observance of their contracts. It would be utterly impossible to ascertain the damage that would result to the co-operative effort from a breach of their like contracts by one or more members, and it was both wise and provident, if not essential for attainment of their purposes, that they agree on a basis for estimating same, and the legislature, in recognition of that fact, expressly authorized them so to do, although that right clearly existed without such express authority. Nor do we regard, and certainly we cannot say, in the absence of proof, that five cents a pound is unjust or oppressive, or out of all proportion to the damages which would result from such a breach. Hence the sum so fixed must be construed as liquidated damages, rather than a penalty, and is collectible. Walton, etc., v. McKitrick, 141 Ky. 415, 132 S. W. 1046; Fiscal Court of Franklin County v. Public Service Co., 181 Ky. 215, 201 S. W. 77.” *582 And in the case of Dark Tobacco Growers’ Co-operative Ass’n v. Dunn, 150 Tenn. 614, 630, 266 S. W. 308, at page 312, the court said: ‘ ‘ The basis of the decisions is obvious. The complainant could not do business without tobacco. When it contracts to sell, it must fill its contracts with tobacco delivered by its members. It cannot replace defendant’s tobacco by purchasing upon the open market. Its charter prohibits it from so doing. Fbr each pound of tobacco which is not delivered to the association by a member, there is a pro rata increase in the operating costs of the association; and that increase cannot be estimated in terms of money with definite exactness. For every defection of one member, there is a certain amount of dissatisfaction engendered among other members; indeed, other members are encouraged not to deliver their tobacco, and the normal increase of the association’s members is prevented. All these things result in damage, but the amount of damage cannot possibly be computed.” In the case of Tobacco Growers’ Co-operative Ass’n v. Jones, 185 N. C. 265, 277, 117 S. E. 174, at page 180 (33 A. L. R. 231) the court said: “They [the producers] are forcing no one to join, and they are exacting' no inordinate prices for their product. They are associating themselves as authorized by the statute, like other persons, and they have signed mutual and fair agreements among themselves, which will be futile unless those who have signed such agreements can be held to abide by the terms of their contracts.” Counsel for appellant insist that, as this is a mutual contract between all of the members therof, before the contract can be canceled all necessary parties must be in court. In other words, he insists that the hundreds, of members of this duly chartered corporation must be made parties. *583 It will be borne in mind that each grower who signed the contract became entitled to be a stockholder in the corporation and entitled to one vote therein, and vested the power usually incident to the directors of other corporations in their directors, which seems to answer the question raised by counsel that having sought the jurisdiction of equity to enforce its contract, equity retains its jurisdiction to administer full relief to the parties, and we think this objection is without merit. As we do not consider that there is any merit in the contention that because Borodofsky had delivered all of the cotton raised on his place by himself and by his tenants in the preceding years, he was thereby estopped to assert a right to cancel his contract. This is answered by the fact that, according' to the record and proof, Borodofsky did not know of the release of the fourteen thousand bales of cotton until after this litigation was well under way, and until after at least two branches of it had been appealed to the supreme court, when he learned, it is said, for the first time, of these releases and filed his cross-bill immediately upon learning of the breach. So that there could be no estoppel so far as this record discloses. In the case of New Jersey Poultry Producers’ Ass’n v. Tradelius, 96 N. J. 683, 126 A. 538, where an association similar to this for the marketing of eggs which contemplated that the eggs were to be sold by the association through consumers, and the association saw fit to 'disregard this provision and to sell to or through brokers and retain more than two cents per dozen eggs for operating the association, also failed to candle the eggs, the court released or discharged the complainant from the obligation of his contract. This record shows that three per cent is retained, by the corporation on the cotton sales for payment of expenses, and the profit over is to be paid to each of the members of the association, and the proof shows that about one and one-half per cent, is necessary for operat *584 ing expenses, so that there is direct damage shown in the depletion of this fund created for the benefit of the stockholders. But because of this release ten cents a pound was not collected on fourteen thousand bales of cotton, which would amount to about fifty dollars per bale penalty, or one hundred thousand dollars, which would have gone to the benefit of the stockholders of the association if the law had been enforced upon these favored released cotton growers in the same manner as sought to be enforced upon Borodofsky. There are instances where these releases were made in favor of cotton brokers, and all releases were to the end that more cotton might be produced, which would be handled in a manner antagonistic to the spirit of this marketing contract, and if it be said that these directors were animated by a spirit of humanitarianism, this spirit could not be exercised to the detriment of all of the other cotton growers, members of the association, who were forced to abide by the contract. It was not to the interest of the members of this association under its express purpose as outlined in its entire agreement, as construed by practically all the courts of this country, to have outsiders raise cotton, or to have cotton raised which was not controlled by and under the direction of the directors of this Staple Cotton Co-operative Association, and every bale of cotton raised and sold by these members, by virtue of these releases, or similar ones, was antagonistic to the spirit of the business in which this association was engaged, and tended to thwart the purpose of the association to have all the cotton grown sold through this one agency, and tended to have placed in the hands of the brokers and outside dealers about fourteen thousand bales of cotton out of a possible one hundred'twenty-five thousand bales of cotton controlled by this association. The value of this contract to each of the members thereof depended upon the other members adhering to it, and we must say that this release by the directorate of other *585 directors, giving to them the right to sell their cotton on the outside in so far as they could incumber it to the people to whom it was released, was such a breach of the contract as released Borodofsky from adhering to it. Any other view would be unreasonable, there being-no compensation or benefit to the association. To say that Borodofsky, whom the record shows had mortgaged his cotton without the consent of the directors of the association, should pay to the association fifty dollars a bale for one hundred bales of cotton, and that Scott, a director, and Perry, a director, and the others, could mortgage their cotton to Crittenden & Co., cotton brokers, and be released from the penalty, would be unfair, however pure the motive animating the directors. We think Borodofsky was released. Affirmed.