Watertown Milk Producers Co-operative Ass'n v. Van Camp Packing Co. , 199 Wis. 379 ( 1929 )

The following opinion was filed April 30, 1929:

Owen, J.

The plaintiff is a co-operative corporation organized under ch. 18S, Stats. It brings this action to restrain the Van Camp Packing Company from unlawfully interfering with the contracts of its members in violation of the provisions of sec. 185.08, Stats. The material portions of the complaint will appear as we proceed. Sec. 185.08 is set out in the margin.¹ Certain members of the association, among them John P. Stark, were made parties defendant upon their own petitions, and the complaint was correspondingly-amended, but asked no relief as to such members. The defendants Van Camp Packing Company and John P. Stark filed answers to the amended complaint, to which answers plaintiff demurred, which demurrers were overruled. From the order overruling such demurrers plaintiff appeals. Under familiar principles, these demurrers reach back to- the complaint, and in this court respondents address their principal argument to the question of whether the complaint states a cause of action, and a considerable portion of this argument is addressed to the proposition that the law itself is invalid. This contention is based upon that feature of the law which permits the association to file in the office of the register of deeds a copy of its uniform contract with its members, together with a sworn list of the names of all makers of such contract residing in any such county, which filing shall constitute notice to any and all persons that an interest in the property so agreed to be sold by the maker of such contract during the term of such contract is vested in the said assocition, and that in case of . a purchase thereafter of any such property by any party other than the association from any party other than the association, no title of any kind or nature shall pass to such other purchaser, and making any ■person so dealing with a member liable for a return of the property to the association and subject to an injunction.

It is said that this provision of the law interferes with the right of the Van Camp Packing Company to contract and do business, in violation of its constitutional rights. Without question, the right of contract is a valuable right, but, like any other property right, it is subject to the police power of the state and may be regulated and restrained in the public interest. It is the manifest purpose of our legislature to promote the organization and success of co-operative marketing associations. This is in obedience to a widespread and rapidly growing public opinion that such associations afford an economic relief necessary to the welfare and perpetuation of the farming industry. That the necessities of that industry present a legitimate basis for classification in relieving such associations from the sweep of anti-trust laws was held by this court in Northern Wisconsin Co-op. Tobacco Pool v. Bekkedal, 182 Wis. 571, 197 N. W. 936, and such has been the rule of many courts elsewhere. See cases reviewed and tffed in Liberty Warehouse Co. v. Burley Tobacco Growers’ Co-op. Marketing Asso. 276 U. S. 71, 48 Sup. Ct. 291. In the latter case it is said: “It is stated without contradiction that co-operative marketing statutes substantially like the one under review have been enacted by forty-two states. Congress has recognized the utility of co-operative association among farmers in the Clayton Act (38 Stats. 731, 15 U.S.C.A. § 17), the Capper-Volstead Act (42 Stats. 388, 7 U.S.C.A. §§ 291, 292), and the Co-operative Marketing Act of 1926 (44 Stats. 802, 7 U.S.C.A. §§ 451-457).”

The successful establishment of these associations has been attended with many obstacles. Those with whom such associations come in competition have been resourceful and active. They have appealed to the guilelessness and cupidity of the members with a view of breeding dissatisfaction on their part with the association and inducing them to breach their contracts. A phase of this sort of campaign was dealt with in the Bekkedal Case, 182 Wis. 571, 197 N. W. 936, and it is believed that sec. 185.08 of the Statutes, which has been built up by successive legislatures, was enacted to meet situations which experience showed was threatening the success of such associations and to compel all outsiders to keep “hands off” in the relations existing between the associations and their members. The sum and substance of sec. 185.08 is to prevent any one from buying the products of a member of such an association during the time when he is under contractual obligation to deliver his product to the association. We might indulge in much discussion to show that such limitation upon the liberty of contract is justifiable in the promotion of the general welfare, but will content ourselves with resting upon the decision of the United States supreme court in the Liberty Warehouse Co. Case, 276 U. S. 71, 48 Sup. Ct. 291, where a similar provision of a Kentucky statute was upheld against an assault in all respects similar to that here made. We hold the provisions of sec. 185.08 a valid and constitutional enactment.

The attack upon the statute is followed by an attack upon the contract. It is first said that the uniform contract is void for want of mutuality. This is a proper contention to be made at least by John P. Stark, the defendant member of the association. By the contract the member “appoints the association his sales agent to sell all the milk or manufactured product thereof produced by him or on farms controlled by him, and to deliver said milk or the manufactured product thereof as the association may from time to time direct.” However, there is no provision in this contract by which the association agrees to do anything for the member. This gives rise to the lack of mutuality which it is contended renders the contract invalid under general and well understood principles of the common law. It might be difficult to sustain the validity of this contract if its validity depended upon those principles. But the legislature may change the principles of the common law, and in so far as these contracts are concerned it seems to have done so by the provisions of sec. 185.08 (2), which provides:

“Contracts between any association organized under sections 185.01 to 185.22, inclusive, and its members, whereby such members agree to sell all or a specified part of their products to or through, or to buy all or a specified part of goods from or through the association or any facilities created by the association, shall, if otherwise lawful, be valid.”

The legislative purpose here seems to be to make the agreement of the member of the association a binding and enforceable agreement irrespective of any agreement on the part of the association to the member. This provision of the statute withdraws from our consideration the question of whether this contract is void for lack of mutuality.

It is contended that the contract is void for uncertainty! This is based upon the stipulation for liquidated damages appearing in the contract in the following language:

“The producer covenants and agrees to and with the association that if he at any time refuses or neglects to deliver such milk or the manufactured product thereof produced or manufactured by him to the association, or, upon its order, at such time and place as the association may direct, then and in that event in every such case the producer neglecting or refusing so to do will pay to the association, for each refusal or default, a sum of money not exceeding one fifth of the value of the products which are the subject of the breach, none of which payments are to be construed to be a penalty or forfeiture, but as stipulated liquidated damages as prescribed by the statutes of Wisconsin, and it is hereby agreed that the association will suffer by reason of such refusal or default, and it is hereby understood .and agreed that this is a contract for the purchase and sale of personal property under special circumstances and that the association cannot go upon the open market and buy products to replace those which the' producer may fail to deliver or to sell the products which the producer may fail to accept.”

It will be observed that sec. 185.08 (3) provides that such contracts may determine a specific sum as liquidated damages for breach thereof, or in lieu of a specific sum such an “amount equal to a certain percentage, not exceeding thirty per cent., of the value of the products which are the subject of the breach.” The contention hefe is that the contract does not fix an amount equal to a certain percentage of the value of the products which are the. subject of the breach. The contract fixes a “sum of money not exceeding one fifth of the value of the products which are the subject of the breach.” It does not fix twenty per cent, of the value of the products as stipulated liquidated damages. It simply provides that it shall not be more than twenty per cent. It may be five, ten, or fifteen per cent. Manifestly this is not what the statute means. The statute means that the contract may fix any percentage which shall not be more than thirty per cent, of the value of the products subject to the breach. This percentage, whatever may be agreed upon, must be stipulated in the contract. If twenty-five per cent, is agreed upon, that must be stipulated. We consider this particular provision of the contract void, but that does not invalidate the entire, contract. It was no inducement to the agreement of the member. It was for the benefit of the association and in the nature of a penalty on the member in case he breached the contract. If the penalty cannot be enforced the member cannot invoke that circumstance to invalidate the entire contract.

It is next contended that par. (6) and (7) of sec. 185.08, Stats., should not be construed as applying to the contracts here under consideration, because to do so would make them retroactive and impair the obligations of contracts. So far as par. (6) is concerned, we are not concerned with it in this action. No cause of action is set forth under it in the complaint. That paragraph is plainly intended to reach those who attempt to bring about breaches of contracts between the association and its members, but who have not subjected themselves to the remedies prescribed by par. (5). It was intended to reach a class whom the prior provisions of the law did not reach. At any rate it is not subject to a retroactive construction. - It merely prohibits certain conduct after the passage of the law. After its passage one may not attempt to induce a breach of a contract between the association and its members without incurring the penalty therein prescribed, no matter whether the contract was in existence prior to the passage of the act or was culmináted thereafter. So far as the members of the association are concerned this paragraph affects them not at all. Prior provisions of the law effectually foreclosed them of the so-called right to breach their contract.

Par. (4) provides that “The association, in the event of a breach or threatened breach of any such contract by a member, shall be entitled to an injunction to prevent the breach or further breach thereof and to a decree for specific performance.” Whether the breach of .a contract be considered a right which the constitution protects or a wrong which the law seeks to redress, par. (4) effectually forecloses any such breach on the part of the members of co-operative associations. It is not perceived that par. (6) has any 'bearing upon the case. The same is true of par. (7). The effeqt of par. (7) is to charge the Van Camp Packing Company with notice that the contracts filed with the register of deeds constitute and remain valid contracts within the purview of that law until terminated in the manner provided and a certificate of that termination is filed with the register of deeds. Those who after the passage of this law deal with the members of the association upon the assumption that their contracts have been terminated do so at their peril. We think that the complaint states a good cause of action under sec. 185.08 (5).

Defenses are set up in both answers, however, which justified the overruling of the demurrers. It was held in the Bekkedal Case, 182 Wis. 571, 197 N. W. 936, that outsiders would be restrained from interfering or intermeddling with contracts existing between such associations and their members with a view of inducing breaches thereof. It was also held that where a member voluntarily breached his contract, any person was at liberty to purchase the product affected by such contract. Sec. 185.08 (5) has substantially modified the effect of such contracts as well as the rights of others to purchase the product affected by such contracts. The title to the product affected by the contract is vested in the association. Others purchasing the product, charged with constructive notice of the existence of the contract, acquire no title thereto. But the person so purchasing must be charged with constructive notice in order to be subject to the consequences denounced by par. (5). The idea of the law is that the filing with the register of deeds of a copy of the uniform contract, together with a sworn list of those who have entered into the contract, gives such constructive notice. However, in order for such filing to so operate, the provisions of the statute must be substantially complied with. The answer alleges that the copy of the so-called uniform contract filed with the register of deeds of Dodge and Jefferson counties was not the contract entered into by the great bulk of the members of this association. If this be true, it does not amount to a substantial compliance with the statute. It would amount to notice only with reference to those who had in fact signed the contract, copy of which was filed. If a proportion of the members signed some other contract, not filed, there would be no constructive notice as to them. This is a defense which may properly be made. The answer of Stark alleges a breach of the contract on the part of the cooperative association, which breach consisted of a demand on the part of the association or its representative that he install expensive appliances on his premises for the proper cooling of the milk, thereby supplanting his existing method, and imposing upon him an expense which made it • impossible for him to comply with the contract. If this be true, it may relieve Stark of the obligations of his contract on the ground that the act of the association prevented performance on his part. S Page, Contracts, § 2918. The further question arises whether this allegation in Stark’s answer can be made available as a defense to the action against the Van Camp Packing Company. It has been a little difficult to discover any reason for the presence of Stark in this action, or for an answer to the complaint on his part, as the plaintiff -seeks no relief against Stark. However, upon more mature consideration it appears that Stark has treated the contract as at an end through abandonment or breach thereof on the part of the association. If such be the case, he would seem to be entitled to market his product elsewhere. He is therefore interested in the question of whether the Van Camp Company is at liberty to purchase his product. Should the judgment in this case establish the termination of the contract, thereafter the Van Camp Company undoubtedly may purchase Stark’s products. Whether the Van Camp Company may plead such a termination, there is no question that it may be so pleaded by one of the parties to the contract. In view of the presence of these defenses, and perhaps some others, the demurrers were? properly overruled. However, much is set up in the answers that is clearly immaterial. For instance, the representations made, including reflections upon defendant’s business, in order to secure? the contracts, is not material. The Van Camp Packing Company cannot challenge the validity of these contracts. The law prevents it from purchasing this product if it be charged with constructive notice of the existence of such contracts, and since the enactment of ch. 167, Laws of 1927, that provision attaches until a notice of the termination of such a contract is filed with the register of deeds as provided in sec. 185.08 (7). Neither is the defense set up in the answer to the effect that plaintiff is in court with unclean hands of sufficient consequence to deny relief.

By the Court. — The order appealed from is affirmed.

On July 5, 1929, a motion for a rehearing was denied, and the following opinion was filed July 10, 1929:

1 185.08 (1) An association created under sections 185.01 to 185.22, inclusive, shall have all the powers of a corporation organized under section 180.02, subject to the provisions of section 185.20.

(2) Contracts between any association and its members, whereby such members agree to sell all or a specified part of their products to or through, or to buy all or a specified part of goods from or through the association or any facilities created by the association, shall, if otherwise lawful, be valid; provided that the term of such contracts does not exceed five years; provided, however, that this requirement shall not prevent such contracts from being made self-renewing for periods not exceeding five years each.

(3) A provision in any such contract determining a specific sum to be paid by the member as liquidated damages for breach of said contract shall be valid; provided, that the amount of said liquidated damages does not exceed thirty per cent, of the value of the products which are the subject of the breach. In lieu of a specific sum, such liquidated damages may be stated to be an amount equal to a certain percentage, not exceeding thirty per cent., of the value of the products which are .the subject of the breach. Where a specific sum is provided as liquidated damages, but the specific sum exceeds thirty per cent, of the value of the products which are the subject of the breach then the contract shall be construed as providing for an amount equal to said thirty per cent. The provisions of this subsection shall apply to all contracts authorized by subsection (2) of this section, whether heretofore or hereafter made.

(4) The association, in the event of a-breach or threatened breach of any such contract by a member, shall be entitled to an injunction to prevent the breach or further breach thereof and to a decree for specific performance. Pending the final determination of such an action and upon the filing of a verified complaint showing the breach or threatened breach, and upon the filing of a sufficient bond, the association shall be entitled to a temporary restraining order and preliminary injunction against the member.

(5) The association may cause to be filed in the office of the register of deeds of the county in which the member maker of such contract resides, a copy of any such contract to sell to the association. In case it has more than one contract in any one county, it may cause a copy of any uniform contract together with a sworn list of the names of all makers of such contracts residing in any such county to be so filed. Such sworn statement shall contain the further statement that the said uniform contract and such sworn statement are filed pursuant to the provisions of this section. The register of deeds shall file such contracts and shall make indorse-ments thereon and entries thereof in the same manner as is provided by section 241.10 of the statutes with reference to filing chattel mortgages, and shall be entitled to receive the same fees for filing as in the case of chattel mortgages. From and after the date of such filing the same shall constitute notice to any and all persons that an interest in the title to all property so agreed to be sold by the maker of such contract during the term of such contract is vested in the said association. In case of a purchase thereafter of any such property by any party other than the association from any party other than the association, no title of any kind or nature shall pass to such other purchaser, and the said association may recover the possession of such property from any and all such other parties or from any party in whose possession the same may be found, by replevin action, or may sue for an injunction. Any action under the provisions of this section shall be tried in the circuit court of either the county where the property which is the subject of such contract is located at the time of commencement of such action, or in the county where such association has its principal office, according to its articles of incorporation.

(6) Where any contract exists between an association and a member, any person who, with knowledge or notice of the existence of the contract, induces or attempts to induce or aids in the breach thereof by any means, shall be liable "to the aggrieved party for damages on account of such interference with said contract and shall also be subject to an injunction to prevent the interference or further interference therewith.

(7) Upon the filing of any such contract and the sworn statement containing the name of the maker or makers of such contract with the register of deeds, as provided by subsection (5) of this section, the same shall constitute notice that such contract, for the purposes of this section, is and remains a valid contract as to all persons, until its expiration according to its terms, or until canceled by mutual agreement in writing or by the final judgment of a court in an action to annul the same. Whenever such,a contract shall have terminated in any of the ways above mentioned, the association shall on demand give to the member a certificate to that effect, and the member shall within ten days thereafter cause the said certificate to be filed with the register of deeds in whose office the copy thereof was filed. The register of deeds shall be entitled to the same filing fees under this subsection as in the case of chattel mortgages under section 241.10.

(8) The legislature intends that subsection (5) of this section shall protect property interests of an association under those contracts to sell to the association which are specifically authorized by subsection (2) of this' section. The legislature intends that subsection (6) of this section shall prevent wrongful interference with any contract between an association and its member, no matter whether said contract is such a contract to sell to the association or is one of agency or otherwise, and regardless of whether said contract is specifically authorized by .subsection (2) of this section or not, and irrespective of- whether the interference is with the rights of the association or .of the member under said contract. .