Hood River Orchard Co. v. Stone

191 P. 662, 97 Or. 158, 1920 Ore. LEXIS 224

• Court: Oregon Supreme Court
• Decided: July 20, 1920
• Status: Published

Opinion

JOHNS, J.

In its inception, the defendant association was organized to acquire and conduct the business of the Davidson Fruit Company and the growers’, union. In effect it was a consolidation of the interests of those two corporations. In consideration thereof, the association issued 3,500 shares of its capital stock to the Davidson Fruit Company and 6,500 shares to the growers’ union, the amount of which was the total stock authorized by its articles of incorporation. In addition thereto, and as a part thereof, the association entered into written leases of the real property of those corporations for a period of ten years at a stipulated annual rental. No other consideration was paid for the capital stock. This was about May 1, 1913.

The association conducted the consolidated business along the usual and customary lines, under its then existing stockholders’ by-laws, until it adopted what is known as the standard, or growers’, contract. This was for the purpose of increasing the volume of its business, to combine all of the fruit-growers into one organization, so far as -possible, and to place their fruit in a pool for marketing purposes, with a view of obtaining for the growers the best market price and maintaining the highest grade of fruit. After the contract was prepared, a meeting of all of tlie growers was called, at which it was submitted and fully explained, and it was approved and accepted by about 75 per cent of the growers. Concurrent therewith, and as a part thereof, the growers then adopted the “members’ by-laws,” and thereafter delivered their fruit to the association under such contract and by-laws.

To satisfy the growers and protect their interests, and to insure the payment of the stipulated annual rentals to the Davidson Fruit Company and the growers’ union, these corporations, on April 27, 1914, assigned to the association their respective registered brands and trademarks, and to the Butler Banking Company, as trustee, they assigned the 10,000 shares of capital stock which they, then held. Ai'ticle IY of the members ’ by-laws provides:

“Section 1. All of the stock of the association shall be held by the Butler Banking Company, of Hood River, Oregon, as trustee, for the benefit of the members of this association as created herein, except that enough shall be assigned to individual members to qualify such members to act as directors and for no other purpose.

“Section 2. It shall be the duty of the trustee to vote the capital stock of this association at all times as he is directed by a vote of the members taken in conformity with these by-laws.”

Thereafter, in accord with their by-laws, the members of the association nominated the directors and certified that fact to the Butler Banking Company, trustee, which voted the 10,000 shares of stock it held, for the directors selected by the growers. These directors then met and elected the officers of the corporation. In this manner the business affairs of the association were conducted, after the members’ bylaws were adopted; and the growers entered! into tbeir respective contracts and delivered their fruit to the association.

It appears from the record that in 1913 the association handled 661,740 packages of fruit; in 1914,' 651,842; in 1915, 494,834; and in 1916, 1,112,660 packages. Of this amount the plaintiff furnished, in 1913, 14,259 boxes of apples and 81 boxes of pears; in 1914, 10,630 boxes of apples and 80 boxes of pears; in 1915, 4,285 boxes of apples and 178 boxes of pears; and in 1916, 9,341 boxes of apples and 294 boxes of pears. It is also shown that in the year 1913 the association accumulated over and above all of its operating charges and expenses, $924.94; in 1914, $10,267.27; that in 1915 it suffered a loss of $2,307.46; and that in 1916 it cleared $68,562.13. The plaintiff claims that under its contract it is entitled to an accounting for and that it should have and receive its pro rata share of the income of the association for each of those years. It insists that a large amount of such accumulations was the result of excess charges to the growers, which should he returned, and for which the defendant should account under its respective contracts. This involves the construction of the contract and the liabilities of the association, under the members’ by-laws, to an individual or corporation that has ceased to he a member. The contract provides that the association shall “pay the grower such advances from time to time as sales warrant and shall pay the balance of the net proceeds obtained by it, for the fruit, within thirty days after the receipt of the money for each pool of fruit.” Provision is also made that the association shall be entitled to a charge for any fruit that it packs, in such amount as it shall from year to year determine; that it may retain a charge for storage, and a further sum for advertising, distributing, and marketing, as it shall determine; and that it shall retain a handling charge, in different amounts named. Although the purposes for which such charges may he made are specified, the amount thereof is not certain or definite. As to the advertising and packing charges, the amount is left largely to the discretion of the association.

Under the terms and conditions of the contract, standing alone and complete within itself, the grower is entitled to receive each year the balance of any net proceeds from an annual pool, within thirty days after the receipt of the money by the association, and it is the duty of the association to render an annual statement of the receipts and disbursements of each pool. The record is conclusive that such statement was never made and such accounting was never rendered to the plaintiff; that after paying the expenses of the association named in the contract, there is a surplus estimated to be about $80,000. The defendants insist that the plaintiff is not entitled to any portion of it, and rely in particular upon Section 2 of Article I of the members’ by-laws above quoted. It is conceded that the plaintiff canceled its membership voluntarily, and it is not now a member of the association. Under that section of the by-laws the cancellation ends ‘ ‘ the membership of such grower, together with all benefits accruing thereunder and all voting power, right, and interest of every kind and nature shall immediately cease and terminate.”

1. The question arises: What are the “benefits” which are terminated and surrendered? The plaintiff .claims that its rights and liabilities are defined the terms of the contract, which specifies the charges to be deducted from the selling price of its fruit, and that under the contract it is entitled to its pro rata share of any amount which may remain after the annual pool is closed. The defendants contend that by reason of surrendering and canceling its membership the plaintiff has waived and lost its right to any share it may once have had in such proceeds. As we construe the record, the rights of the plaintiff for the sale of its fruit are specified and defined by the contract, by the terms of which the association is to pay and the plaintiff is to receive the amount for which its fruit was sold in the pool, less such fixed charges as might be ascertained and determined under the contract itself, and that when it surrendered its membership it djd not lose its right to a fro rata share of any annual surplus of the association derived from its own growers’ contracts. The words “benefits accruing thereunder,” as defined in Section 2 of Article I of the members’ by-laws, do not apply to a surplus accruing from the sale and purchase of fruit and charges therefor, under an express contract, but are confined and limited to the right, title, and' interest which a corporation or individual may have in and to the net assets of the association by reason of membership therein subject to the payment of all its debts and liabilities. They do not give to the association the right to keep the money which it promised and agreed to pay another under its express contract. This construction is sustained by Article X of the members’ by-laws, providing for the annual budget to be submitted to the members of the association during July of each year, which authorizes the association to retain from the proceeds accruing from all business a sufficient amount to cover all of the operating expenses and its payments, which shall be based upon a handling charge. Section 4 of that article provides that when the annual pools are closed “any amount over and above the actual amount necessary, properly, and economically to conduct the business and affairs of the association” shall be returned to the members in the form of a dividend. Article XI specifies that in the event of the dissolution of the association, or sale of its property, a distribution of the proceeds shall be made among such as shall be members at the time, and who hold an unexpired growers’ contract.

Defendants cite and strongly rely on Weber Implement & A. Co. v. St. Louis A. M. & D. Assn., 181 S. W. 1025 (Mo. App. unreported). That case states good law, but there is a vital distinction as to the facts between it and the instant case. There, as here, the plaintiff became a member of the defendant in 1909, and tendered its resignation in December, 1910, which was duly accepted on March 21, 1911. On its application the plaintiff was reinstated on June 2, 1911. There, the defendant’s by-laws provided:

“No member shall be entitled to the return of any money advanced by him for the holding or promotion of the annual show, or for space at said show, unless he shall have been a member of this association at or prior to the last annual meeting preceding said show. ”

As the result of the automobile show the defendant association had left about 80 per cent of the total amount paid to it by members for floor space and refused to pay the plaintiff its share upon the ground that it was not a member “at or prior to the last annual meeting preceding said show,” and plaintiff there instituted the action to recover 75 per cent of the moneys which it had paid to the defendant. The court held that it “was not entitled to its share of the association’s refund to members, since, whether it was a new member or a reinstated member, it was not a member at or prior to the annual meeting in April, 1911.”

It will also be noted that, while not a member, plaintiff claimed that it was entitled to a pro rata share of the assets of the corporation. Plaintiff here is seeking to recover from the defendant npon its growers’ contract for the money which it alleged is due and owing under the terms of that contract. In other words, it is seeking to recover the balance of the selling price of fruit which it delivered to the association under an express contract, and which was handled and sold by the association under the contract. Its claim is not based upon a dividend or an order of distribution of the assets of the defendant corporation. It is founded upon an express contract. For such reason defendants’ authorities on that question are not in point.

2. The defendants contend that the association has annually rendered final statements to the plaintiff, which have been accepted and approved, and that the plaintiff has acquiesced in the business methods followed by the association. Such statements, however, contain nothing more than the amount of sales of plaintiff’s fruit, together with the sum which it has been paid. They do not include or in any manner refer to or specify the charges made, for handling, storing, advertising, or packing. There is nothing in them from which the plaintiff could determine the amount of such charges or of the surplus arising therefrom.

Much stress is laid by defendants upon the fact that H. F. Davidson was an officer and director of the defendant during a large period of the transactions; that at the same time he was a principal stockholder of the plaintiff, and that he knew or should have known of the business methods of the defendants. It is sufficient to say that Mr. Davidson is not a party. to tliis suit, and that the plaintiff is a corporation, with its rights defined by the terms of its contract.

It appears from the record that, in addition to the packing, handling, storing, and advertising of fruit belonging to members, the association has been engaged in other and different branches of business, in particular the advance of money and sale of merchandise to the growers, and that a portion of its accumulated profits are the result of its enlarged and combined business. It is probable that the litigants and expert accountants can determine from the large volume of its transactions the net amount of surplus which the association has realized from its contracts with the growers, and the amount of plaintiff’s pro rata share. The record shows that the volume of business of the association during the years 1914, 1915, and 1916, when Mr. Stone was its manager, amounted to $3,075,693.59. There is no dispute as to the volume of business during each year, the amount of the annual profits, or the amount of fruit which the plaintiff delivered to the defendants under its growers’ contracts. Upon these questions the testimony is clear, but it is not definite and certain as to how much of that surplus accrued from the growers’ contract, or the amount of plaintiff’s share, or as to how much profit the defendant made from all other branches of its business. The plaintiff has submitted figures which it claims should be the basis upon which the accounting should be made, and they may be right; but from the whole mass of figures before us we are not clear as to the amount of surplus which has accrued under or as the result of the growers’ contracts; and we hold that the plaintiff, from the sales of its fruit under its contracts with the association, is entitled to its pro rata share of any surplus which may remain after payment of the just and reasonable charges specified and defined in the standard contract.

The decree is reversed, and the cause remanded to the Circuit Court, with, directions to ascertain and determine the amount of any surplus arising from or growing out of plaintiff’s contracts in the pools of each year, and then to render in its favor a decree for such amount, together with costs and disbursements.

Reversed AND Remanded.

Benson, Bean and Bennett, JJ., concur.