California Canning Peach Growers v. Harkey

This action was commenced by plaintiff, California Canning Peach Growers, a non-profit cooperative association, against defendants for the purpose of having its rights declared under a written agreement alleged to have been entered into between the association and defendants. Defendants Harkey answered setting up their interpretation of the transaction, and cross-complained for certain sums alleged to be due from the association to them. The Harter Packing Company was originally made a defendant, but upon paying certain sums into court, by consent of all concerned, was dismissed from the action. During the course of the trial the parties stipulated as to the exact sums that would be due one to the other depending upon which interpretation of the contract was accepted by the trial court. The trial court decided in favor of the Iiarkeys, and judgment was entered in their favor in the amount stipulated to by the parties. From that judgment plaintiff appeals.

This appeal is but one of four appeals now under submission in this court dealing with the rights of the association against various peach growers with whom it contracted. The other three causes are Stafford v. California Canning Peach Growers, S. F. 15839, post, p. 212 [ 78 Pac. (2d) 1150 ], California Canning Peach Growers v. E. R. and F. O. Williams, Sac. 5179, post, p. 221 [ 78 Pac. (2d) 1154 ], and California Canning Peach Growers v. Poggetto and Williams, S. F. 15906, post, p. 233 [ 78 Pac. (2d) 1161 ]. The general facts out of which these four controversies have arisen are the same for all of the cases. These general facts will be set forth in full in this opinion and will not be repeated, except where necessary, in the other three opinions, but should be considered as applicable to those appeals. The facts peculiar to each ease and the law applicable to those facts will be set forth separately in each opinion.

It should be mentioned that in all four cases, the trial courts (all four cases were tried before different trial judges) rendered judgment against the association. The evidence on some of the points was conflicting. In accordance with the usual rule on appeal the evidence hereafter stated is that most favorable to the respondents.

The association was organized as a non-profit cooperative marketing association in the year 1921 under the then existing provisions of title XXI of the Civil Code. At that time articles of incorporation and by-laws were adopted providing for the manner of conducting the business of the association. In the by-laws there was set forth in haec verba a form of marketing agreement which each member was to sign. The general legal effect of the by-laws and the marketing agreement has been considered by the appellate courts in California Canning Peach Growers v. Downey, 76 Cal. App. 1 [ 243 Pac. 679 ], California Canning Peach Growers v. Harris, 91 Cal. App. 654 [ 267 Pac. 572 ], and California Canning Peach Growers v. Bardell & Oregoni, 132 Cal. App. 153 [ 22 Pac. (2d) 764 ].

The articles of incorporation are quite general in their provisions. Among other things it is therein provided that the purposes of the association are to promote, foster and encourage the producing, preparing for market and marketing of canning peaches; to engage in the production, preparing for market and marketing of such peaches; to furnish facilities through which canning peaches shall be prepared for market and marketed upon a uniform plan; to encourage its members in the production of better qualities of canning peaches; to find the readiest and most available markets for its members, and to purchase and sell the canning peaches produced by its members; to enter into contracts with its members for the purchase by it of the canning peaches produced or to be produced by its members; to enter into contracts with the members for the handling and marketing of peaches by the association as their agent; “to do each and everything necessary, suitable or proper for the accomplishment of any of the purposes herein enumerated or which shall at any time appear conducive to or expedient for the benefit of this association or its members”. It is obvious from these provisions, and from a fair reading of the articles as a whole, that the main purpose of the association was to handle the peaches of its members on a cooperative basis, but it is to be noted that there is nothing contained in the articles that would prohibit the association from classifying its membership, or in fact from dealing with non-members, if so to do were in the best interests of its members.

The standard marketing agreement incorporated in the bylaws requires the owner or grower of peaches from the date of execution to 1936 to sell to the association all the canning peaches grown on the lands described in the agreement. It is conceded by all concerned that a grower owning more than one orchard could sign up with the association as to any or all of his orchards, but that the mere fact that he had signed up as to one orchard did not require him to market the peaches from his other orchards through the association. The marketing agreement provides for the pooling of all peaches of like grade and kind, the price to be paid to the grower to be the average or pooled price; that after deducting the expenses, the association will pay the growers the proceeds of all of the sales made by it less an “Association charge

The marketing agreement expressly provides that the association “will not buy or deal in any peaches except under contracts similar to this contract”. It also provides, as do the by-laws, for liquidated damages of 50 per cent of the market price of the grower’s crop in the event of breach by the grower. The agreement purports to cover the period from the date of execution to 1936, but provides that the grower and his lands shall be released from the contract in the event of a bona fide sale of the lands subject to the contract, and likewise permits the grower to withdraw from the association in any even numbered year by serving upon the association a written notice of withdrawal as provided in the contract.

The above summary of the by-laws clearly indicates that they prohibited the association from classifying its membership, or from dealing in the peaches of non-members.

This statutory history reflects a change in legislative policy towards the powers of such cooperatives of considerable importance on these appeals. Until 1923 it was believed that such associations should deal only with the products of its members, and that all members should be treated equally. In 1923 and thereafter this policy was changed to authorize unequal treatment and to permit dealings with non-members. This change in legislative policy towards the powers of such cooperatives was based on the fact that experience had demonstrated that the two main classes of growers —owners and renters—had fundamentally different problems to face, and that a policy favorable to owner growers

By this resolution the board of directors authorized the management to deal with renters on a basis materially different from that provided for in the marketing agreement applicable to regular members. Under this resolution the management was authorized to buy renters ’ fruit at market price less 25c per ton, and to pay for the same at the close of the harvesting season. Under the by-laws and the marketing agreement regular members received payment later, and received market price less expenses and less 5 per cent of the market price withheld as above set forth. Moreover, renters were not to share in any losses or profits of the association as were regular members.

Although, in one sense, this resolution authorized the management to confer a benefit on renters not accorded regular members, there were various material benefits that accrued to the association and its regular members from such an arrangement. In the first place, to the extent that renters signed up, it cut down the independent block of fruit and increased the association’s bargaining position. The evidence shows that this enabled the association to secure a better price for all of its fruit. This, of course, benefited all regular members. In the second place, the association made a profit of $1.75 on every ton of renters’ fruit sold to the canners— the 25e per ton carrying charge, and the $1.50 per ton handling charge allowed by the canners to the association for all fruit bought from the association. This income was used to partially defray the association’s general expenses, thus benefiting all regular members. In the third place, the evidence shows that the association, in addition to selling peaches to the commercial canners, canned a proportion of its fruit. The renters’ fruit permitted the association to enlarge its canning operations, to reduce its per case_ overhead and canning cost. This benefited all regular members.

There can be no doubt that the resolution of January 15, 1924, violated the by-laws of the association, but we are of the opinion that such resolution did not violate the general provisions of the articles of incorporation above referred to. Although there is no direct evidence on the point, it is a reasonable inference that the board in passing the resolution believed that the statutory changes occurring in 1923 authorized the board, without amendment of the by-laws, to enter into the type of contracts authorized by the resolution.

It was the passage of this resolution, and the actions of the association under it, that furnishes the background for these four actions. The evidence discloses that from 1924 to 1935 A. D. Poggetto was general manager, and Frank B. Schmitt was assistant secretary, in fact executive secretary, of the association, and that these two officers were the authorized managing agents of the association. It appears without conflict that, after the resolution was passed, these two managing officers authorized and instructed the field agents of the association to solicit renters of peach orchards, and to sign them up if possible in accordance with the terms of that resolution; that from 1924 to June of 1935 many such renters were signed up; that during those years (with the exception of 1935) the association, for the most part, lived up to its side of the bargain and paid the renter members thus contracted with on the basis set forth in the 1924 resolution. The evidence also discloses that early in 1935 some of the regular members became dissatisfied with the activities of the then existing board of directors. Whether this dissatisfaction was based on the activities of the management in authorizing renter member contracts, or was largely based on the fact that large losses had been incurred in the canning activities of the association, does not clearly appear. An investigation was made and litigation started. This resulted, in June of 1935, in the calling of a special election to elect a new board

The association takes the position that even if the association did enter into renter member contracts with respondents under the resolution of January 15, 1924, that resolution was ultra vires and illegal, and all renter members, and particularly respondents, were fully aware of this fact at the time they contracted with the association. In the second place, the association contends that the actual contracts signed by respondents were regular member contracts, that the renter member “preference” was based solely on oral contracts entered into between the association and respondents, and that the parol evidence rule prohibits the introduction of any evidence of this oral contract. This last contention is made possible because of the procedure followed by the management in signing up so-called renter members. As already pointed out, the by-laws contain a form of marketing agreement—a form adopted in 1921 and obviously applicable only to regular members. That form expressly provides for the withholding of 5 per cent of the market price, and contains various provisions that could not reasonably apply to renter members. After a prospective renter member had

It should be mentioned that there is no dispute but that at the time of contracting both parties intended, in good faith,

Another general contention of appellant association should be here referred to. Throughout its briefs appellant contends that the existence of such renter member contracts was kept secret from the general membership, and seeks by inference to imply that there was some sort of a conspiracy on the part of its-officers to grant preferences to a favored few. The trial courts found on ample and sufficient evidence, and on what we consider the weight of the evidence, that no such secrecy was maintained. The evidence shows that the renter member situation was frequently the subject of discussion by the members of the board of directors and that the fact that the association was willing to enter into such contracts was widely known among renters of peach orchards throughout the state.

Facts and Law Applicable to Harkey Case, Sac. 5102.

Defendant W. S. Harkey is the father of defendant W. P. Harkey. The son owned a 35-acre ranch of which but 5 acres were planted to canning peaches. The father owned a ranch of which 55 acres were planted to canning peaches. Both of the Harkeys were influential members of the community in which they lived, and the association was particularly anxious to sign them up as members because of the influence it would have on other growers in the community. Until 1933 both had refused to join the association as regular members. The elder Harkey at that time was quite an old man and no longer directly operated his orchard. The evi

In the year 1933 the Harkeys delivered all of their peaches to the association, and they were paid in exact accordance with their agreements—that is, the son receiving market price less 5 per cent as called for in the written agreement per

In 1934, the arrangement for 1933 having been carried out by all the parties to the satisfaction of all, the Harkeys again delivered all of their fruit to the association under their agreements. The association, however, was unable to pay for such peaches at the close of the season, for the reason that it had canned a substantial portion of its fruit and could not pay its creditors until this canned fruit was sold. Ultimately the full amount for the son’s 5 acres on a regular member basis was paid, but the full amount of the money due for the 55 acres of fruit under the oral contract was never paid. The balance due, computed on the renter member basis in accordance with the oral contract, is the basis of part of the cross-complaint of the Harkeys, and is likewise the basis for part of the judgment rendered in their favor.

Early in 1935, as already pointed out, litigation was commenced by some dissatisfied members of the association which was ultimately settled in June of 1935 by the election of a new board of directors. While this litigation was pending and before the election had been held, on June 5, 1935, W. S. Harkey wrote a letter to the association, which letter reads in part as follows:

“My son, W. P. Harkey signed an application for membership in the California Canning Peach Growers and apparently there has been included in it approximately sixty (60) acres that belong to me and in which he has no interest, he being only the owner of approximately five (5) acres of peaches

“The peaches belonging to me do not belong in the association and I am writing this letter that I am not a member, did not authorize any peaches being included and if you anticipate handling my peaches this year, to correct you.”

Under date of June 14, 1935, Manager Poggetto replied to this letter in part as follows:

“We have been aware of the facts as explained in your letter concerning your peach acreage. The association has no claim on any peaches produced on acreage belonging to you

and so far as the association is concerned you are free to dispose of the peaches in any manner you see fit.

“We have a contract covering the acreage of your son, Mr. W. P. Harkey, and, of course, deliveries from that acreage must be made to the association in accordance with the terms and conditions of our Marketing Agreement. ’ ’

After receiving confirmation from Poggetto concerning the cancellation of the oral contract, W. P. Harkey, in company with his attorney who was also a renter member, visited the association’s offices in San Francisco. They conferred with the general manager and assistant secretary. During the discussion the Harkey contract was secured from the association’s files, and it was then discovered that although the body of the contract properly described the 35 acres owned by W. P. Harkey (only 5 of which were devoted to the growing of canning peaches) the memorandum of acreage on the cover of the contract contained a reference to the 55 acres owned by W. S. Harkey. Millington, the Harkeys ’ attorney, expressed the fear that, if a receiver were appointed for the association in the litigation then pending, some confusion might be created by that memorandum. Poggetto explained the circumstances under which that memorandum had been made, and the reasons for making it, but Millington and W. P. Harkey insisted that the cover of the contract be changed to accord with the body of the contract and with the true facts. After some discussion the officers of the association acceded to this request. They caused the original contract to be cancelled and destroyed, and a new written contract to be executed, which was dated the same date as the original contract. This new contract was an exact copy of the original, except that the memorandum on the cover was made to agree with the description of acreage contained in the body of the contract.

Appellant challenges the above statement of facts in reference to the execution of the second contract and the writing of the letter of June 14th, as being inconsistent with certain other evidence introduced by it. An examination of the record discloses that the facts as above stated are in accord with the weight of the evidence. Appellant also seeks to imply an evil motive on the part of Poggetto and Schmitt, its managing agents, in writing the letter of June 14th and in causing the written agreement to be re-executed and dated back. It

After notifying the association of the cancellation of the oral contract dealing with the 55 acres, the Harkeys sold the peaches grown on this acreage in 1935 to the Harter Packing Company. The son delivered the peaches grown on his 5 acres to the association under his written contract. It should be here mentioned that the son, as to his 5 acres, has at all times admitted that this acreage was covered by the written agreement, and that as to that acreage he is a regular member of the association. He has at all times performed all obligations imposed upon him by that agreement.

As already indicated this action was instituted by the association to secure a declaration of the rights of the association under the Harkey contract, it being its contention that the written contract covered the entire 60 acres under a regular member contract. The association seeks to recover back overpayments for the year 1933 as to the 55 acres, made on a renter member basis, a declaration that the Harkeys be paid as to this acreage for 1934 on a regular member basis, and damages of 50 per cent of the market price for failure to deliver in 1935. The Harkeys cross-complained for the balance due them for 1934 under the oral agreement on a renter member basis, and the son demanded the balance due him on his 1935 deliveries on a regular member basis. After a protracted trial the lower court entered judgment in accordance with the contentions of the Harkeys in the amount stipulated to by the parties. From this judgment the association has appealed.

The briefs of the parties cover a wide field and discuss many questions not properly here involved. Appellant chai

One of appellant’s main points on this appeal is that the original written contract as executed in 1933 covered the entire 60 acres of peach land owned by the Harkeys; that this written agreement was an ordinary marketing agreement making W. P. Harkey a regular member of the association; that the agreement to treat the 55 acres on a renter member basis was entirely oral, that to permit evidence of the alleged oral agreement violates the parol evidence rule. The point is without merit. The trial court, on sufficient evidence, found the existence of two separate and distinct contracts— a written contract as to the five acres, and an oral contract as to the 55 acres. This finding is supported not only by the testimony of respondents, but also by the testimony of the agents of appellant who negotiated the contracts. The method of bookkeeping employed by the association, from which appellant seeks to imply a contrary inference, cannot affect the rights of the Harkeys who had no knowledge thereof nor control of the books.

The contention that the letter of June 5, 1935, signed by W. S. Harkey, and above quoted, conceded that the original contract included his acreage, and that the only ground assigned therein for seeking cancellation was that W. P. Harkey had no authority to deal with this acreage, is incorrect. There is no room for the principle enunciated in Ohio & M. Railroad Co. v. McCarthy, 96 U. S. 258 , 267 [ 24 L. Ed. 693 ], and similar eases that “where a party gives a reason for his conduct and decision touching anything in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and different consideration”. The letter of June 5th did not concede that the 55 acres were covered by the written agreement. On this point the letter stated that “apparently there has been included in it (the son’s written contract) approximately sixty (60) acres that belong to me”, etc. The wording is ambiguous, and the parol evidence properly admissible to explain the ambiguity, demonstrates clearly the meaning of the phrase— he was referring to the memorandum on the cover of his

We are next presented with the legal question as to the legal effect of the oral contract in view of the fact that the by-laws of the corporation prohibited classification of the membership or dealings with non-members. As already pointed out, the articles of incorporation are general and broad enough in their language to authorize the directors in passing the resolution of January, 1924. On the other hand, as already pointed out, the by-laws as drafted in 1921 and the provisions of the marketing agreement incorporated therein, were based on the theory of equality of burdens and equality of profits. (Taresh v. California Canning Peach Growers, 3 Gal. (2d) 686 [ 45 Pac. (2d) 964 ]; California Canning Peach Growers v. Downey, 76 Cal. App. 1 [ 243 Pac. 679 ].) It is also true that the by-laws expressly provided for their amendment by majority vote of the members, and that such by-laws could not be properly amended by resolution of the board of directors. (Noble v. California P. & A. Growers Assn., 98 Cal. App. 230 [ 276 Pac. 636 ].) The resolution of January 15, 1924, therefore, when passed, was in excess of the powers of the board of directors. However, the policy embodied in that resolution did not violate the provisions of any statute nor were its provisions illegal as violative of public policy. It was simply ultra vires the by-laws. In fact, not only was the policy of the resolution not illegal or violative of any public policy, but its general policy was in accord with the legislative policy as indicated by the amendment to section 653sb of the Civil Code in 1923. That this continued to be the legislative policy is indicated by the amendment to section 653ff of the Civil Code in 1927, and section 1194 of the Agricultural Code adopted in 1933. These facts serve to distinguish this case from Kansas Wheat

Assuming that the oral contract was ultra vires the by-laws, the association can claim no greater rights by reason of that fact than any other corporation could claim under similar circumstances. The appellant claims that the law

It is quite clear that an ordinary commercial corporation could not secure the relief here asked by the appellant. The transactions here involved have been entirely executed, or at least fully performed by respondents. The association is not asking to be relieved of an executory contract claimed to be ultra vires. It is asking that as to the 55 acres the Harkeys be compelled to live up to and perform the obligations of a regular member contract—a contract, which as to that acreage, they admittedly never signed. Nor is the association seeking to rescind an ultra vires contract. It is asking that as to 1933 and 1934 the Harkeys be compelled to return moneys paid to them in exact accordance with the oral agreement of the parties, on the ground that they are bound by a regular member contract which admittedly they never signed or agreed to. The association has made no tender of a return of the material benefits it has received. As to the year 1935 it is seeking not only to enforce the provisions of a contract contrary to the one entered into, but is seeking to enforce that contract after its managing agents in writing had informed W. S. Harkey that he was released from all liability to deliver to the association, and that the association claimed no rights in his fruit. As early as the case of Miners’ Ditch Co. v. Zellerbach, 37 Cal. 543 [ 99 Am. Dec. 300 ], it was held that the doctrine of ultra vires, at least in eases where the transaction did not violate the statutory law or public policy, did not apply to fully executed transactions. This is in accord with the general law on the subject. (See 14A Cor. Jur., p. 319, sec. 2168 and cases therein cited.) It is also settled in this state that where the contract is not malum in se or malum prohibitum the party who has fully performed (respondents here) may recover on the alleged ultra vires contract provided the other party (appellant

On still another ground the doctrine of ultra vires in this and the other cases is not available to the association. Under the circumstances here existing the association is clearly estopped from so challenging the 1924 resolution. In principle, the problem presented is closely analogous to that under discussion in Buford v. Florin Fruit Growers’ Assn., 210 Cal. 84 [ 291 Pac. 170 ], In that case the cooperative association illegally amended its by-laws. Thereafter, on the representation of the executive officers of the association that the illegal amendment was in effect, a member changed his position to his injury. This court held that the principles of estoppel enunciated in section 1962 (3) of the Code of Civil Procedure were properly applicable. That section in enumerating the conclusive presumptions, in subsection (3) provides: ‘1 Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.” The fair, just and equitable principles therein enunciated are clearly applicable here. (See, also, Dool v. First Nat. Bank of Calexico, 209 Cal. 717 [ 290 Pac. 15 ]; Nicholson v. Randall Banking Co., 130 Cal. 533 [ 62 Pac. 930 ]; Creighton v. Gregory, 142 Cal. 34 [ 75 Pac. 569 ].)

It should also be pointed out that in 1931 the legislature added section 345 to the Civil Code, modifying the doctrine of ultra vires in this state. That section provides that the statement in the articles of the objects and powers of the corporation, shall, as between the corporation and its directors, officers or shareholders, have the effect of a limitation upon the actual authority of the representatives of the corporation and then provides, “Such limitations may be asserted in an action by a shareholder, or at the suit of the

“No limitation upon the business, purposes or powers of the corporation or upon the powers of the shareholders, officers or directors, or the manner of exercise of such powers, contained in or implied by the articles . . . shall be asserted as between the corporation or any shareholder and any third person.

“Any contract or conveyance made in the name of the corporation which is authorized or ratified by the directors . . . except as their authority is limited by law . . . shall bind the corporation, and the corporation shall acquire rights thereunder, whether the contract be executed or wholly or in part executory. ’ ’ Even if the contract here involved were ultra vires the articles, under this section as it now reads, the doctrine would not be available to appellant.

Appellant strenuously contends that to apply these just and equitable statutory principles to cooperatives will have disastrous effect on the affairs of such cooperatives; that the only basis upon which a cooperative can survive is equality of treatment of all of its members. The argument0 is without merit. The legislature has determined otherwise. Since 1923 the legislature, acting well within its proper sphere, has determined that it is in the public interest to permit such cooperatives to enter into .such contracts as are here under attack. That is a legislative policy, not a judicial one.

The other arguments urged by appellant are all without merit.

The judgment appealed from is affirmed.

Houser, J., and Langdon, J., deeming themselves disqualified, did not participate herein.

Rehearing denied.