Untitled Texas Attorney General Opinion ( 1939 )

OFFICE OF THE ATTORNEY GENERAL OF -I’EXAS
AUSTfN
Eon. Z.R. YoDoEala, Ooud.seloner
Departmeat d Agrioultora
Austin, Texrl
Wo are la T40c)lpt
quotes*
our opinion npoa thr
t&ore 18 a* oaniliet b3tweea
6959, a8 anondod, Vernon*
R4vie44 air11 statut4e, 1
wiry ir Based i8
Vi1 Statute8
peruon ml-
teal pro&ate
50 of the etatutee
4 8toekholder oi a
11 OWAAOZW than
0otltl44 to DaOf4than onr wt4
* 4lst L4girlatur4 m4ndsd and
ala 6739 a8 follo~rt rive 01
i&4 p er 8olanag a g
ill
dtb
i op r o duo otio
r Q
uultwal produotr or or 111or4 associat
thr44 Y' on8
oay for18 a non-ProSit 00094rati*r assool&tlon
or wittou -oapltal dook, under tha pro-
%!toa
dohAptsr*.
244
Hon. J.S. XdoDo::ald,
p-e 2
eBy the original enaotment, and by the sub-
sequent amndmnt and re-enactzmt of Artiale
5739, the Leglslaturo obriouoly lntezded that,
any firs ~ersonr engaged in the production d
agrlaoltural products oould organizr a oorfir-
atlon under the provlslons of Chapter 8. Pur-
thermore, on two different oooasloua, thd Leg-
i8laturr oxtpreeaed it8 intention to permit tC4
arsation of suah oorporatlonby fit4 perooos
or nom who &all be engaged in the jwoduotlon
of agrlouituralproduota, with os?lt
But then, under the provIa= of Ar
quoted above, it la lm;Mssiblo to organixa an
aseooletlonwith oapftal rtook ooatemplatedby
Article 5739 unisss twenty perao~a or rare be-
ooxe ltoakholdera of the assoo1ation.e
Torae Jurlrpnkdenas,Volume 28, page 667, has the
foLlo*ing general observationsto snake ooaoemfng the bo-
oprrativoKrketi AssoolatlonAot of 1921, a8 emendedin
1930 and 1934 (Art Y oiea 5937 through 3964, Vsrnon*e Anno-
tated Civil Statutea):
The Aot of 1921 1s thr *standard Aot' whloh
haa not only been adopted in smlar fonu by
the Legislatures of nearly all of ths statea,
but has aiso been reoognizsd by Congress. The
dealared policy of the Act ia:
"'To promote, foster and enoourego the ln-
telllgent and order-iymarketing 0r agrlocl-
tural produets through oo-operationand to
lliminato rpeoulatlon and wallto; and to
sake the distribution of agrtoultural prod-
aot4 as dlreot aa casl be effioientiy done
between produaer and ool;sumer~ and to ata;-~
blllza tbo markstlry problesm,o? agrloui-
tural probuotfb * (Artiole 5937, su3l-a)
Vho statute la ooraprehenslve.It deo1*res
that the term *a@loultural ;)roducta'lnoluder
hortloultural.,rltloultural,forestry, dairy,
~f``~t"~k(*Pt"lSl~$,b~a,``P."~t'~f``dt``E-
ing in advunaa OS iiwldstad dtmager for breaoh
of a marketing mntraot, and eonteinr no re-
atrlotiona as to the looality of tLo oparations
Eon. 5.3. UcDorald, page S
of essooletlons under it.* (Perenthatloelin-
se=tlone oure).
l(b) The term *manbar* shell lnoludo dotual
mmbara of assooletlonswithout oapitel stook
ena holders of oo&aon stock In lsso o ia tlo nr
organized with oepltel r to o k ; l a'* l
In tha aa98 ertlole a 'persona 1s defined aa:
*(a) The term *pernon* shell inolodo lndiria-
uel, firms, pertnerrhlps,oorporeb?ona and asso-
oiatlons. * I * "
Article 5139, rupra, reed@ as followrr
Vlre or zore persons engaged in the produo-
tlon OS agricultural products or three or zmra
e3aoci6tlo3amey form a non-profit oo-operative
association with or without oepltel stook, under
the provisions of this ohaptsr.W
ArtSole 5715, supra, prorides:
*(a) Under the term8 end ooaditlom preqorib-
sd in its by-laws, en aascotation am7 admit a0
resaberta, or issue oomon stook, only to persons
ewaged in the ?roduotlon of the egrioultural
produats to be handled by cr through the a~co-
ciation. lno:udlng tbe lessees end tenants of
land used for the production of such produotr
end any lessors end landlords who raoelva a8
rect pert of the orop raised on tha leased pre-
mises. (b) If a mmber of e non-stook assooia-
tion be other then a natural perron, such aember
ney be presented by any lndirldunl, asoooiatb
offioer or reaber thereof, duly authorized in
writ . (0) Any e5sooletlonas detineb in *rt.
5738"'d( ) may beams a sember or rtoek.holdor oi
any other assocletion or ls6ooiationr~Orge~is6d
hereunder.m
krtiale 5744, rupro, read8 as follows~
"Kaoh Assooietlon formed under thi8 AoS mast
Hon. ST.& XoDoneld, page 4
prepare and fllo Artlolea of Incorjuxetion,
setting forth: (a) The note of the easooletlon.
(b) The >cryoses for whloh it is torined.(a)
The p1c.e:~where its rrinolpal buslnesa will be
transected. (d) The tern for wtioh it is to
atook, uhsther the Crop6rts right8 and interest
of aeah menber shall be equal or unequal; acd
if anequal; the Artioloa ahall ret forth the
goneral rule or ruler applicable to all Ioesbera
by whlah the property right.8 and lntereata,
reapeotlrely,or eaoh nember ray and ahall be
datermined and fired; end the asaoolatloa aball
have the power to admit nev aefaberawho shall
be entltled to ahere in the property of the
assoeletlon with the old nembera, in aooordanea
with auah general rule or rulea. Thia provlaloa
of the lrtiolea of Inoor~orationshall not be
altered, emendad or repealed exaept by the nlt-
ten oonaeat or the Ybts of three-fourthsof the
the Aklolea of Inoorporetlonmust oontain a
statesent of the number oi stares o? stook
stook to
to
whloh pr8rer8oOSiis granted and the number of
sharer ot stook to wLloh no prefsrenoa is granted
and the nature and extent of the prsferenoea end
prltllegea granted to eeoh. z ArtioSea must
. .
247
Bon. J.S. ;.eDor.ald,
pqe 3
or Inoor?orstlooskall also be riled with the
Comdssioncr of idarket.8 ‘and Xarehousea; provld-
ed, however, co part of such sagital atook ahall
be reculred to be bubsorlbed and/or paid in aa
a prerequlrlta to tha filing or mob Xrt1al.d
Artlola 5746, supra, deals with •By-Lau~*. Ve
shall not quota the mrtlola in full, but, inter alia, it
stlpulotd that the by-larr may provide for the rollowing
retterz
'(1) 2%. number and qu@ifiaatlan of aerobere
or stookholderaof the aasoafatlon and the oon-
ditiona precedent to Itember of cwnershlp o?
oosmon stoakl tho method, tLmo and manner of
pemlttlng embers torrlthdrar or the holdera
of common atook to transfer tl;elrstosk; the
imnnar 0r asilgnment and tranorsr 0r the inter-
est w ittf3mb~r8,and 0r the ebares or o-on
stook; t&s oondltlona uson whlah, and time when
;lenberstipat any zienb8r&all cease s * z *
Artlole 5750, supra, a key stetuto in rerpoot to
tbir opinion, readr as followar
WWm a memberof an aaaooiatlon eatabllahed
without oapltal stook, haa paid hia aamberohlp
r04 in idi, tm shall rsaeire a 40rtirittat0 of
meinberahip.Ho assoolatloo shall issue sfook
to a nambar until it hes been fully pald ror.
The proialasorynotea or tha mu$bers nay be aa-
ospted by the assoolatlon a8 fWIl or partial
peyment The assoolatfon ohall hold the atoek
l
as security tar thr payment of the note, but
auoh retention aa rstaurltyshall not aftoot the
meabara' right to tots. Zxoept ior debta lar-
248
Hon. J.iE.MoDo.-.al&,
paga 6
rullr oontraoted betman hi.8and the aeeooiatlon,
no nember ahall bu liable ior the dsbtn of the
aaooolstion to an amount exossdiq the eua m- .
mining unpaid on hi8 aumberehlp f&e OT hi8 61&b-
moriptlon to the oepltal rtoak, inoluding aa7
unpaid balanoe on any prorilWOI+y not48 giw in
paymmt theroo?. ho ilrtbrk-holdor or a 004pam-
tivs as6o0latlon aIiZlI``Ou?l
80r4 thr’ii Cm*-truntl4th
sSKiiZT”b,Stm more than one rot.. 4
assoolatioa orgmlsod with atoak, uadu thi6 law
may lseuo prrrerred etaak, with or without the
rigat to vote. Such etouk 6my be redemble or
r4tlr4ble by the assoai6tlonon euoh tenw and
aondltion4 a6 6ia.y be protided for by the Artlelr8
of'Iaoorporationaad printed on the tam OS the
asrtirieat4. The by-law6 shall prohibit tbo
transfer or the oormnonstouk of thr arsooiatlon
to psrronr not engags in the produatloa or the
agrlou2tuzal produote handled by the as2304iatlon,
and suah rsrtrietlonrmwt be printed upos era17
autirioata or stool rubjert ttsrato. 'Ph4a6eo-
elation mar at any tla4 aro4pt when the debt4
0t th4 865Ouiatlon exceed rirty per 4ent or the
asnbt.8 thereof, b in or purahaer it8 aowmt
atook at book TalQ 3 thereof n8 aonolu4iv4l~dstbr-
&eb by tte board cri direotore an& pa for it
in oeah within oue year thereaft6r.* TUndersaor-
in(r ours).
Utbr oarerul ooseldoratioaor the above quoted pro-
risloc~ of the CooporativsHarketiry AOt Of loal, as amnd-
04, YO fall to peroelru any lrreoonoilableoonfllot betaesn
Arti 5939 and 5750, eupre.
u aseoolatlon 16 forned Udsr the CooperativeSiu-
keting Aot by *five or more parson6 ongaged in the pmdua-
tion ot agrloulturalproduotr or three or vmmv asaoolatlone*
in acoardanoewith thr prori6lon6 0r xrtio1. SPZIO.
Those are the lnoorporotorr who rubrorlbe to the
ArtloI.48of Inoorporation and filr then au provided in Ar-
t101* 21744,eupm. Th4 artiole8, if the assoalatlon 16
Eon. J-2. YcDoxdd, page 7
organlzod rith capital stook, ret., forth t&toaaouat of
euab aapital rtook and the nlrslberuf starvs into rhiaftit
is divided an4 t& par value tfiersof.
A Wa b e P o f a nlsaooletlon o r & mlte;b
r ith a sp -
itil rtook 18 l holdar ai ooaam stook in that oqacAs4tlon.
Artte1. 5736B,rupra.
brtlal* 5950, lupr4, plmlnly povidrr that:
*Ho r to a k -h o lder52 l o~opwatl+e amooS.ation
shall own sore ttui one-tvostioth or tha imao
oomcm atook or the asaooiatloa~ ld M 4889414-
tlaa in itr by-lam, My lbit tho mount of
OO;S~DOR
stook uhloh one asnber ay owa to my
azmrit 1.~8 thn one-taentleth of th4 Is4u4d
ooaam sto6k.”
80 do not 8ae rhy the ~inoorporator8a under A&f-
clr 5039, sqwa, abald be aonfurd rith th4 me&b4mhip of
the eksaaiation or stookb3ldsrs I? It ir an 8asoolation
with oapftal stool.
The qt~:aorjmatar*Rrep.-*sent the pmsmotlr* maa-
berm of tha asswlatfon beire ohattered.
aGanrrdl~ the organisrtlon la orfeet by
l ‘group of pereoRYor or&ariratlQn 4omltt44,
who mtq make @inor ohslyer lr the organio Iea-
o f the h a o r p o r a tlown,
ta r es tm lutno r lztiby
the otganisation ~remaent, md 8 ;luJorltt of
*hoa mm7detormino the proprbty oi Mixpletlnq
the orqanlratlon, at least whom then la no
dlsaent or objrotlon on tha part of 4b44kto44.*
Hon. J.X. XaDonald, page 8
The Qoeparative Marketins Act mdoabtsdly OOB-
tan:latea a aesberahip for a oooperstire marketfng asao-
olatloa aatabliahadwith oommon atook large enough to'
aaaimllata the Issued atoak tn amousta oi ona-twent Mb
or lam. In other vorda than waa oontm2latad qa’er4 tba
pr0t18i0~ 0r Arti0h 59. ~., lupra, abate quoted, A.8rg~
eno u gnumb
h o i lto ek2 hding memberato met the requlre-
er
mat that *no stoakholdsr ot a oo-oprrutire ass’oalatian
ah411 own more than on*fwontioth of the laausd oa~soa
ltoek of th4 aaaoeiatbm) rnd nn aaao4iation, in it8 by-
lawa, may llmlt tho 4monElt o? aomoa atoak whloh ona mnrb4r
uy ONP to asy mount lars than onetventleth of tha iasud
00sno R sto o k . l
.In fo na lng l ur k etb l8804iatioa,
a 6 it a p-
pears that agreeaentm, rinllar in terms, are
olreqlstedbr the prarotara and slgn4d by the
lndiridual growora who am to beaozo aember&
Thaaa agroeaantr e lppllaa-
not only la b r a oea
ticm ror meaber8hfp and tha proposed larksting
agreement, but 81~0 spe4fiy the 64~4 and ooa-
dltiona andor whloh the laooaiatlwamay be
organirad . Taken together they oonstitute a
8isgh OoI¶tYaOt between the mIkber8 & the
proapeotlwe rsaoolatlon and an organio oontraot
betwesn thou and the aaaooiatlon,rhea it la
0rgaalzeQ. 5oubtlaaa3t i8,iaproper to prooee(i
rlth tha inoorporatloao;C-?masaooiation wham
the repulaito number ei ai;gnatorea bar8 not been
obtained, or if other ooaditioaa authorizing
the oozmlttao to aot lmre not ooourrmd * * * l
TZXAS t.GN BURMJ COTTOBASS’E. v. LKSOI (Mr.
APP* 257 3.N. 995, aubsequant appeals (Mr.
1 283 S.W. 619 896 3.1. 328 1.48.V. (Xd)
%' 31 9.H. (2d) bl, (COWSi. A&, 5s S.W. (x4)
543:
An assooiation organized andor the Gooperative Xar-
ketlng AOt i8 a lagaliad qYia\ilttUti OoOpOr~t~To, OOa8iSt-
fJl6 at growers of 4grioultural produet..
19 AMZitICMiBAR &33OCInTIO2 JOU.iNAL21S)1
TZXM F.GIpI
BUZUU COlTOK k38'Y. t. XXLIS,(51~. &ipp.)
281 S.U. 629 (Cotton Qrowora).
Hon. z.3. MaDonald, page 0
da auah, tha Laglalatura no doubt considerad lt
aounffpub110 polloy that no ln4lrl4uel atookholderof auoh
an laaoolatlonwith dock should own ino,". thaa one-
trentieth of the issue4 oomon stotlk,and Caa ao proyS4ad
in Art101e SYSO, aupta.
Yarketing acts ace giren a liberal oonetryljtlonla
order to aoooapllah the purposes for v&Lab they ware an-
acted.
Li!XNOX'1.T‘CEASCOTTON C3OP3.~TIV1p
WJCXX.iTIO;I,
(00aO. App.) 55 9-W. (24) 543, r#l~erSing 39 8.W.
2d 931, former appeals (CIT. Ap x .) 16 S.V.
I 24 I US, 296 8.1. 328, 263 S.-i?. 619, 289 3.V.
935.
It la our oplnloa, aad yea ara so edYlaa4 that
them la no oonfllat between the protlalon of Artlo l5939,
Vornon*a Annotated Civil Statutes, that flra or pioroper-
sona engaged in the jmduotion ot agrloultunl ~roduata
6ay ion q non-profit a~oporatlra la8oalatlon with oapltal
atook end the repulreaant of drtfale 5950, B.C.&, 19ZS,
that -
'150atoakholder of e cooperatlro assoolation
shall own more than one-teentiath of the iaau-
ad aozvooadock of tba a8aoalatlon,m
vhan the aasoalation la aatablfahed with sapltal stook.
It la our further opinion that the requirement OS
Artlola 5950, B.C.S., 1925, that no &b&holder of a
oooperatireassooiation shall 0~x1plore then one-tweutisth
St&i
of the issued ocaiaiori of the aaaoclction ie mandato-
ry and that lrreopeatlve of tha nuaber of lnaorgoratora
under Artiole 5959, Vernon*8 Anzotatad Civil Statutes, and
the number of aambers ss defined in Artiolea 3938 an6 5745,
Yernon*a Annoteted Cltll Statutes, no individual atook-
holders may own a greater ,psraeotagr ai tke total issued
lomma atcck than one-twantlsth.