Opinion ID: 1297478
Heading Depth: 1
Heading Rank: 2

Heading: Decision on Appeal

Text: It is important to note that there was no provision in First District's articles or bylaws forbidding members from entering into contracts with the NFO of the type here involved until December 8, 1965. [1] There is nothing in our statutes or in the articles and bylaws of First District imposing an obligation on it to accept the skim milk tendered by its member patrons. No express agreement on this subject was made. However, we believe the evidence considered as a whole implies that in the absence of express agreement First District was under a continuing duty to accept the skim milk tendered by Benson so long as Benson continued to be a member in good standing of the processing cooperative and that the failure of First District to fulfill this obligation without reasonable cause constituted breach of implied contract between First District and Benson for which such general damages, if any, as are provable can be recovered. The reasons in combination which we feel compel this conclusion are these: (a) The essence of membership in First District from the standpoint of Benson was the right to have its perishable product marketed through the facilities afforded by the Litchfield cooperative. To be sure, membership in First District gave Benson a right to vote at its annual meetings, an opportunity not afforded to patrons of First District who had not achieved membership status. But it is clear to us that Benson's reason for being a member of First District arose out of its need for an outlet for its skim milk rather than because of any desire to influence First District policies by casting a single vote at annual membership meetings. (b) While First District had the right to refuse to accept a member's milk if it had reasonable cause for doing so, an uncontested finding of the trial court establishes the absence of such cause in this case. (c) The fact that on occasion some members of the cooperative delivered skim milk to producers other than First District does not negative the existence of First District's implied duty. It is a unique feature of membership in associations that the right of a member to withdraw at any time does not of itself give to the association a comparable right to terminate the membership agreement. It must first be demonstrated that the member has violated a rule or policy of the association adopted by its members and that the rule or policy is not in violation of the law or so unfair as to be contrary to public policy. [2] (d) While the opinion of an officer of First District as to the legal implications of membership in the association cannot be considered binding, the following testimony by Clifford Dahlman, chairman of the board of directors of defendant, is at least indicative that our interpretation of the implied obligation of First District is in accord with his understanding: Q. In other words a person has to be delivering milk in order to be a member? A. Yes. Q. And you won't give somebody a share of stock unless he is delivering products? A. That's right, not if he wasn't. Q. And when he would stop delivering a product, then you would cancel his share? A. Not necessarily immediately but in the future we would. Q. Because it is the delivering of a product which is essential to membership? A. That's right. (e) As of the time that First District refused to accept Benson's skim milk, Benson had approximately $90,000 in equity credits (certificates of interest) in the processing cooperative. Equity credits are in effect the capital of the cooperative. 18 Am.Jur.2d Cooperative Associations, § 15, and cases cited in note 2. Since Benson has in effect contributed to the capital fund which made it possible for First District to carry on its business operations, it seems unreasonable that Benson should be deprived of an outlet for its product without reasonable cause or justification. (f) A cooperative association is not entitled to discriminate unreasonably between members in good standing. [3] At the time here involved, Benson was a member in good standing of the cooperative, it having been determined that its expulsion for refusal to rescind its marketing arrangement with the NFO prior to the amendment of the bylaws authorizing expulsion on this ground was unjustified. To permit the cooperative to refuse to accept the skim milk of one member while accepting it from others without justifiable reason or good cause, in the absence of advance understanding between the parties, would be to countenance a form of discrimination which we believe to be inconsistent with the relationship between a cooperative association and its membership. In arriving at our decision and in setting out the reasons for it, we are conscious of the fact that nonmember patrons also accumulated equity credits in First District and that it can be said of such nonmember patrons that they, too, contributed to the capital structure of the cooperative. We recognize also that patrons of a cooperative such as First District who are not members could also come to depend on First District as an outlet for their skim milk. These facts are less significant than they would otherwise be because the treatment accorded patrons as distinguished from members was the result of First District's desire to comply with advantageous income tax provisions. Benson's right to the services of the association, on the other hand, rests principally on the facts that it was a member in good standing and the essence of its membership was the right to market its skim milk through the association; the refusal of the cooperative to accord Benson this right in the absence of governing statute, pertinent cooperative article or bylaw, or express understanding would be, in our judgment, inconsistent with the nature of the arrangement. The judgment appealed from is reversed and the case is remanded to the district court for further proceedings consistent with this opinion.