Olson v. Biola Cooperative Raisin Growers Assn.

CARTER, J.

I dissent. I disagree with the position taken by the majority in this case. That position is not only not in accord with the various statutory provisions involved, but in effect holds that this court will not enforce the terms of a contract, which is not illegal or in contravention of public policy, and which was made by parties capable of contracting.

It seems quite apparent to me that the result reached in the majority opinion is achieved by ignoring the facts involved and concentrating on the unexpressed thought that to do otherwise would be to come to a harsh result. It also seems quite apparent to me that if I contract to buy a horse with four sound legs and I am sold one with only three legs I should be able to enforce my contract. However, I may be assuming too much—as the three-legged horse might be able to walk, and the majority of this court would therefore hold that I got all that I bargained for.

Biola Cooperative Raisin Growers Association was organized as a nonprofit cooperative marketing association under the laws of the State of California. Plaintiffs, four members of the Association, brought this action, a representative suit, against the association and the other 16 members thereof, including the five directors, to recover liquidated damages alleged to be due by virtue of the delivery of raisins of substandard quality under the provisions of the marketing agreement between the Association and its various members. Eight of the individually named defendants were found to be so liable in conformity with the theory of plaintiffs’ complaint, and judgment was accordingly entered against them in varying amounts computed on the basis of their tonnage delivery of raisins of defective quality. The total sum amounted to $19,856.79 plus interest and costs. These defendants have appealed, contending that liquidated damages were not properly assessed against them for several reasons hereinafter stated.

On October 20, 1944, plaintiff Chris H. Scheidt, a grower member of the association, entered into an agreement with the association whereby he undertook to process and pack the raisin crop of the association for the year 1944 for a specified sum per ton. He rented the association’s packing house for the season, and the association’s members agreed, in writing, to deliver their raisins there “properly cured and in good condition.” The contract provided further that he would “perform said packing operations according to the instructions of the Association and the specifications provided by the government in packing same.” The pertinent provisions of the marketing agreement entered into by all grower members in 1941 with the association are as follows :

1 ‘ Section 1: The Association buys and the Grower sells to the Association annually from the date of the signing of the By-Laws of the Association and this agreement all of the raisins owned and grown by the Grower, and agrees to deliver the same and all thereof properly cured and in good condition to the plant of the Association. ...”

‘ Section 5: The Association reserves the power to set standards of maturity, quality, sugar, and moisture content, which must be met by all raisins delivered by the Grower. . . .

‘ ‘ Section 7: In the event that Grower should fail to deliver raisins hereby sold in accordance with the terms of this agreement and these By-Laws, such act will injure the Association to an amount that is, and will be impracticable and extremely difficult to determine and fix, and that is, therefore, fixed at the amount of Twenty-Five (25%) percent of the average current seasonal price for each and every ton of raisins that the Grower fails to deliver in accordance with the terms hereof and these By-Laws, and which amount the Grower agrees to pay, and shall pay, to the Association upon demand, . . .

‘ ‘ Section 13: It is expressly understood and agreed that Grower has by this agreement agreed to and will deliver the raisins herein contracted to be delivered to the Association, or in lieu thereof to pay liquidated damages therefor as by this agreement provided for his failure so to do, . . .

“Section 14: It is further understood and agreed that should any controversy arise between the Association and the Grower pertaining to the quality or quantity of any raisins delivered, or to be delivered hereunder, and an agreement cannot be reached between the parties, that the same shall he referred to a board of arbitration consisting of three parties, one designated by the Board of Directors of the Association, one by the Grower, and one by the two so designated, and their decision in regard thereto shall be final and binding upon both parties hereto.” (Emphasis added.)

Shortly after the packing agreement with Chris H. Scheidt had been entered into, the growers began delivery to him under the terms of their agreements with the association. The deliveries were concluded early in 1945. Although the association had reserved the power to set standards of maturity, quality, sugar, and moisture content it had not done so. However, it appears that 55 per cent of the raisin crop in question was under contract for sale to the United States government, and the federal regulations, introduced in evidence, permitted a moisture content of “not more than 18 per cent.”

In accordance with the marketing agreement, and upon the basis of the standard set by the government, arbitration proceedings were had on November 26, 1945, between the members of the association, with the exception of defendant J. H. Scheidt. The court ordered J. H. Scheidt to appoint an arbitrator within 30 days so that the arbitration with respect to the quality of his raisins could he disposed of, but Scheidt declined to do so, and consented to the court passing upon and determining the quality of raisins delivered by him to the association, and at the trial introduced evidence upon that issue. The court confirmed the report of the arbitrators and found that, in accordance therewith, certain of the individual defendants, including J. H. Scheldt, had delivered raisins with excessive moisture content and the amount thereof.

There is substantial evidence, as will be shown in some detail later in this opinion, that some portions of the raisins delivered by the eight grower members of the association against whom judgment was rendered were so high in moisture content that they could not be run through the stemmer and processed without further drying. Finding that such raisins “were not properly dried and cured but were too wet and contained too much moisture and were too heavy for processing and marketing” the trial court determined the exact weight of the defective delivery made by each of the defaulting growers and accordingly proportioned against them plaintiffs’ recovery of liquidated damages.

Defendants contend that plaintiffs could not recover liquidated damages without alleging and proving that actual damages would be “impracticable or extremely difficult to fix ...” in accordance with the provisions of section 1670 of the Civil Code. That this is the general rule in this state where there is a contract which undertakes to fix the amount of damages in anticipation of an obligation has been so held in the following cases: Rice v. Schmid, 18 Cal.2d 382, 385 [115 P.2d 498, 138 A.L.R. 589]; Robert Marsh & Co., Inc. v. Tremper, 210 Cal. 572, 576 [292 P. 950]; Dyer Bros Etc. I. Wks. v. Central Iron Wks, 182 Cal. 588 [189 P. 445]; Kekich v. Blum, 43 Cal.App.2d 525 [111 P.2d 411]. But the Legislature has provided for an exception to this rule with respect to liquidated damages where a nonprofit cooperative marketing association is concerned. This exception, which is a grant of power to such cooperatives, is set forth in section 1209 of the Agricultural Code: ‘ ‘ The by-laws or the marketing contract may fix, as liquidáted damages, specific sums to be paid by the member or stockholder to the association upon the breach by him of any provision of the marketing contract regarding the sale or delivery or withholding of products; . . . and any such provisions shall be valid and enforceable in the courts of this State; and such clauses providing for liquidated damages shall be enforceable as such and shall not be regarded as penalties.”

The majority say that the alleged breach by defendants does not fall within the above section of the Agricultural Code in that the intention of the Legislature was to provide for deliveries deficient in quantity, rather than deliveries of produce of defective quality.

In order to conclude that this contention has merit it is necessary to ignore certain terms of the marketing agreement entered into by each defendant with the association. It was there agreed that each grower should sell “all of the raisins owned and grown” by him, and that the grower “agrees to deliver the same and all thereof properly cured and in good condition.” [Emphasis added.]

Section 1208 of the Agricultural Code provides in part that “If they contract a sale to the association, it shall be conclusively held that title to the products passes absolutely and unreservedly, except for recorded liens, to the association upon delivery; or at any other specified time if expressly and definitely agreed in the said contract.” (Emphasis added.)

Section 1725(3) of the Civil Code provides that: “Where the parties purport to effect a present sale of future goods, the agreement operates as a contract to sell the goods and as soon as the seller acquires the goods the property therein shall pass to the buyer without further act if the parties so intend unless the agreement otherwise provides.”

Section 1213 of the Agricultural Code provides that: “Any provisions of law which are in conflict with this chapter shall not be construed as applying to the associations herein provided for.”

Construing these statutory provisions together with the marketing agreement, which made no provision for the time title was to pass, it would appear that the sale of the raisins was to take place upon delivery of the raisins to the Association in accordance with the terms of the contract, thus bringing the present case within the provisions of section 1209 of the Agricultural Code. That section provides that liquidated damages may be provided for upon the breach by a member “of any provision of the marketing contract regarding the sale ... of products. ...”

Why the majority feel it necessary to discuss the practice of delivery of produce by the grower to a cooperative association as agent for the sale of that produce is not clear. That practice is not involved here. It is also not clear just why the facts of this case do not bring it within the provisions of the Agricultural Code (§1209). The parties contracted for the sale of fruit in a certain condition. Further, all applicable laws in existence at the time the contract is made become a part thereof as fully as if incorporated by reference. (Civ. Code, § 1656; 6 Cal.Jur. 311, § 186; Calpetro P. Syndicate v. C. M. Woods Co., 206 Cal. 246 [274 P. 65]). The parties then intended, because it is so provided in the Agricultural Code, that title should pass when the fruit was delivered. This is the time the sale took place, not when the contract to sell was entered into. The contract was breached with respect to the quality of the fruit which was to be delivered. As I have previously pointed out, the Legislature has specifically provided that the parties may contract for liquidated damages to be paid to the association upon any breach by a member regarding the sale of products. The parties did so contract and the breach occurred, but the majority of this court refuse to allow that contract to be enforced. I cannot agree with a result which ignores not only the intent of the parties as expressed in their contract, but which also ignores the clear provisions of the Agricultural Code.

In the absence of statute in this state, it was well established that a nonprofit cooperative marketing association might contract for the payment by a member of liquidated damages for the violation of his agreement to deliver his product to the association for processing and marketing. (California etc. Ass’n. v. Rindge L. & N. Co., 199 Cal. 168 [248 P. 658, 47 A.L.R. 904]; Poultry Producers of So. Cal. v. Barlow, 189 Cal. 278 [208 P. 93]; Anaheim, C. F. Ass’n. v. Yeoman, 51 Cal.App. 759 [197 P. 959].) The validity of liquidated damage provisions in situations involving cooperatives was established because of the need on the part of these associations to control the quantity of the particular commodity involved. As was said in the Anaheim case, decided before the enactment of the present code sections: “The existence and life of the association itself depended upon its being furnished fruit to dispose of in the public market. A reduction in the amount of fruit so handled would not only tend to increase the overhead cost to the nontransgressing members, but, we may assume, to some extent affect the prestige and standing of the association as a marketing concern. ’ ’ (51 Cal.App. 759, 763.) These words are equally applicable to a situation such as the one here under consideration. The quality of the produce to be marketed may be of vital importance to the prestige of the association, and one does not need a vivid imagination to anticipate such situations. In the present ease, the association and its members had agreed between themselves that fruit of a certain quality should be delivered. The association had contracted with the government of the United States that fruit of a certain moisture content should be packed and delivered. As a result of the derelictions of certain members, the association was unable to meet its government contracts and the raisins in question were sold, unprocessed, to others. That the association and the members considered the quality of the raisins important is evident from the terms of the marketing agreement. It is equally evident that the prestige and standing of a marketing association may suffer as well from not being able to meet its contracts because of the poor quality of the produce as from a deficiency in quantity. It is to be noted here that the poor quality of the raisins prevented them from being packed and thus the result was precisely the same as if the defaulting growers had not delivered all the raisins produced by them. That the unprocessed raisins were subsequently sold to others is immaterial with respect to the standing and prestige of the association. The fact remains that it, admittedly, could not meet its contracts with the government for processed raisins. It is thus apparent that the association was injured by the breach of the marketing contract.

The defendants next contend that the words “properly cured and in good condition” were ambiguous; and that although the raisins in question were delivered during the latter months of the year 1944, the chemical tests, showing the excessive water content of the raisins, were not made until January, 1945. Oral evidence is admissible to show the meaning of a term in a particular trade or business in order to enable the court to interpret the writing. This oral evidence is not received to vary or contradict the writing but to explain it. (Ermolieff v. R. K. O. Radio Pictures, 19 Cal.2d 543 [122 P.2d 3]; California C. P. Growers v. Williams, 11 Cal.2d 221 [78 P.2d 1154]; Body-Steffner Co. v. Flotill Products, 63 Cal.App.2d 555 [147 P.2d 84].) In the Ermolieff case this court said (p. 550) : “The basis of this rule is that to accomplish a purpose of paramount importance in interpretation of documents, namely, to ascertain the true intent of the parties, it may well be said that the usage evidence does not alter the contract of the parties, but on the contrary gives the effect to the words there used as intended by the parties. The usage becomes a part of the contract in aid of its correct interpretation.” It is apparent from the record that all the growers had been in the business for many years, and were well aware of the fact that raisins .properly cured and in good condition were raisins that would go through the “stemmer,” a machine used preparatory to packing the fruit. That these raisins would not go through the “stemmer” and were necessarily stacked inside and out of the packing house is, in itself, evidence that the raisins were not der livered in accordance with the agreement. With respect to the raisins delivered by defendant J. H. Seheidt, there was testimony to the effect that he had admitted that his raisins were too “wet” and that he had got “more [money] than was coming to me” for them. Section 1870(2) of the Code of Civil Procedure provides that: “The act, declaration,- or omission of a party” is evidence against such party. “The rule is settled beyond all controversy that the admissions or declarations of a party to a suit are admissible as evidence against the party making them. When given in evidence, they tend, as does other competent evidence, to prove the fact in issue to which they relate.” (Hall v. Bark “Emily Banning,” 33 Cal. 522, 524.) (Gates v. Pendleton, 71 Cal.App. 752 [236 P. 365]; Langensand v. Obert, 129 Cal.App. 214 [18 P.2d 725].)

The contention is made that the trial court restricted the defendants’ right of cross-examination of one of plaintiffs’ witnesses, and refused the admission of other evidence. The evidence sought to be introduced in the cross-examination was with respect to the custom of packing houses, other than the one here under consideration, of stacking the boxes of raisins until they were sufficiently dried out to run through' the “stemmer.” The objection was made and sustained that this custom was immaterial to the issue involved—whether these particular raisins were delivered in conformity with the provisions of the marketing agreement. The excluded evidence consisted of a reiteration of testimony given before the arbitrators as to the condition of the raisins of one of the other growers. The trial court ruled that this had been concluded by the report of the arbitrators. But conceding, without deciding that this was not a proper ground for such ruling, it seems clear that the custom of other packing houses could not have been material to the present case since the issue at hand was whether or not the defendants had breached their agreement with the association. While facts concerning conditions at places other than those concerned in the case on trial may be admissible in evidence as bearing upon thé issues of a case, in order to render such evidence admissible it must be shown that such conditions are substantially the same as that concerned in the instant case. There was no showing here nor offer to show that the other packing houses were similar with respect to lack of drying facilities, or that the marketing agreements were the same.

The defendants maintain that even if the raisins were not delivered in conformity with the contract they were accepted by the association, and that as a result the provision with respect to the quality of the raisins was waived. The record shows that as the defective raisins were brought in by the growers, Chris H. Scheidt complained that they were too wet to pack, and reported their condition to the secretary-manager, and the president of the association who, in turn, reported to the board of directors. Chris H. Scheidt had no authority to do more than report the derelictions to the directors. He was under no obligation to reject the raisins delivered by the members. Under his contract with the association he was bound only to pack the raisins as they were delivered to him by the growers. His acceptance of the defective raisins could not have bound the association, and cannot be considered a waiver on its part to the terms of the marketing agreement.

Three of the five directors of the association were among those members who delivered the defective raisins to the association. When notice was given of the defective quality of ■the raisins and of the resultant breach of the marketing agreement, it became their duty to enforce the terms of the contract. By not doing so, they obtained an advantage for themselves and the other defaulting members of the association. Directors of a cooperative hold the property and property rights of the members thereof as trustees. (Bogardus v. Santa Ana W. G. Ass’n., 41 Cal.App.2d 939 [108 P.2d 52]; San Joaquin V. P. Producers’ Ass’n. v. Commissioner of Int. Rev., 136 F.2d 382, 385; Texas Certified Cottonseed Breeders’ Ass'n v. Aldridge, 122 Tex. 464 [61 S.W.2d 79]; Bowles v. Inland Empire Dairy Ass’n., 53 F.Supp. 210, 214, 215.) The directors, knowing of their own defective deliveries, and the deliveries of the other defaulting members were bound to compel compliance with the marketing agreements and to pay damages themselves and to enforce the 'liquidated damage provisions of the agreement. Further, by the terms of the by-laws they were required to withhold payments'to any member indebted to the association, so' that the lien of the association on monies due it by a member would be safeguarded. In not so doing, they" were guilty of a breach of trust with respect to the association and the other members. As such trustees, they were bound to act with the utmost good faith. (Churchill v. Peters, 57 Cal.App. 2d 521 [134 P.2d 841]; Estate of Brown, 22 Cal.App.2d 480 [71 P.2d 345]; Overell v. Overell, 78 Cal.App. 251 [248 P. 310].)

The trial court correctly found that it was not necessary ■that plaintiffs make a demand on the directors that the terms of the marketing agreement be enforced because such demand would have been futile as three of the five directors were among the defaulting members. The law does not require the doing of a futile act. (Smith v. Dorn, 96 Cal. 73 [30 P. 1024]; Koshaba v. Koshaba, 56 Cal.App.2d 302 [132 P.2d 854]; 6A Cal.Jur. 810-812, and cases there cited.) In Smith v. Dorn, supra, page 79, the court said: “Besides, the answer of the corporation shows that any demand upon it or upon its controlling directors for the remedy sought by this action, or any remedy for the wrongs alleged, would have been useless. Therefore, no such demand was necessary. ’ ’ (Ashton v. Dash-away Association, 84 Cal. 61 [22 P. 660, 23 P. 1091, 7 L.R.A. 809]; Moyle v. Lander’s Adm’rs., 83 Cal. 579 [23 P. 798]; Parrott v. Byers, 40 Cal. 614.)

The point is made by the defendants that one of the plaintiffs, Chris H. Scheldt, does not come into equity with “clean hands” in that he refused to let the defaulting growers retake their raisins for further drying, and that it was his duty to do so in order to mitigate damages. An examination of the record shows that the evidence was conflicting as to whether the growers tried to retake the raisins for further drying, and with respect to whether they intended to return them to Chris H. Scheldt for packing thereafter. It was the province of the trial court to resolve this conflict, and it is to be presumed that the trial judge reconciled and accounted for, to his own satisfaction, any and all inconsistencies which might be made to appear in the testimony.

There is no merit in defendants’ contention that the judgment for attorneys’ fees and the appointment of a receiver was erroneous. “It is a well-established doctrine of equity jurisprudence that where a common fund exists to which a number of persons are entitled and in their interest successful litigation is maintained for its preservation and protection, an allowance of counsel fees may properly be made from such fund. By this means all of the beneficiaries of the fund pay their share of the expense necessary to make it available to them.” (Emphasis added.) (Winslow v. Harold G. Ferguson Corp., 25 Cal.2d 274, 277 [153 P.2d 714].) And a court of equity has inherent power to appoint a receiver at the request of stockholders on grounds of fraud or mismanagement. (Koshaba v. Koshaba, supra.)

For the foregoing reasons, I would affirm the judgment.