Beet Growers Ass'n v. Monroe

THE plaintiff is a grower of sugar beets upon his own lands in Logan county. The defendant is a corporation organized under our Co-operative Marketing Act (S. L. 1923, p. 420), of which incorporated association the plaintiff is a member. This statute, among other things, provides that eleven or more persons, a majority of whom are residents of Colorado, may from a non-profit cooperative association, with or without capital stock, to engage in the marketing or selling of the agricultural products of its members. The defendant association was organized without capital stock and the plaintiff was thereafter admitted as a member in accordance with the statute and the rules and regulations of its board of directors. After the expiration of the term of its first board, named in the certificate of incorporation, directors are to be elected by its members. Such an association has the power to engage in any activity in connection with, and incidental to, the marketing of agricultural products. The affairs of the association are managed by this board, which has power to make appropriate by-laws. The by-laws of this association provide for a recovery as liquidated damages of a definite sum to be paid by a member upon the breach by him of any provision of the by-laws or marketing contract regarding the sale or delivery or withholding of products, and such provision for liquidated damages shall be enforceable as such and is not to be regarded as a penalty. Section 29 of the statute declares that associations organized thereunder shall not be deemed in restraint of trade or a monopoly, or an attempt arbitrarily to fix prices, nor shall authorized marketing contracts between the association and its members be considered illegal as such or as in restraint of trade. These provisions of the statute are involved in this case.

The working plan adopted by the sugar company purchaser, the defendant association, and its members may thus be stated: Defendant association enters into a separate agreement with each of its members by which he constitutes it his sole agent for the purpose of marketing and contracting for sale all sugar beets to be grown by him or for him within the state during each year, and from year to year thereafter, subject to the right of either party to the contract, at the end of any year by written notice delivered to the other party on or before November 1 of each year, to terminate the same. In legal effect it is a one-year contract at the option of either party. The association agrees to endeavor to market for the grower the beets which he produces whenever and wherever a market may be found which, in its judgment, shall justify such marketing, with a view to obtain for the grower a fair and profitable price for his beets with the express aim of obtaining not less than a fifty-fifty contract; and that the association shall not be liable for any damages that the grower may sustain, provided no sale of beets is made, if in the judgment of the association the price offered is not satisfactory. The contract further provides that the same shall not be held to deprive the grower of full control over his acreage and production, but that all sugar beets which he shall harvest in whatever amount shall be subject to the contract. One of the promises of the grower is that he will not "sell or grow or contract to grow" any sugar beets, except under the terms of the contract, and at a price approved by the association. There is another provision in which the grower is required to declare his intention to grow a given number of acres during each season, provided a marketing contract shall have been procured by the association prior to planting time. When such a contract is entered into between the defendant association and a grower he is then permitted, and not before, to enter into a contract with the Great Western Sugar Company, which is the only purchaser of sugar beets in northern Colorado, and the only buyer to whom sales can be made. Attached to the form of the contract between the grower, and the Great Western Sugar Company which the company has adopted and uses, is a rider which provides that the contract in question is subject to the rights of any co-operative marketing association, of which the grower is a member, to contract for the grower for the sale of beets and, if the grower is thus qualified, i. e., by virtue of his contract with the association, to enter into a marketing contract with the sugar company, the contract is binding upon both parties; but if a grower is not thus qualified to execute the contract with the sugar company, the latter, on or before the time of the harvesting of the beet crop, has the power to purchase or contract to purchase the beets from or through those legally qualified to market or contract for the sale thereof — that is with the association. It seems to be conceded here, that under this plan, recognized by the three parties concerned, the sugar company will not purchase or contract to purchase of a grower until a contract of purchase for the given year has first been secured or offered that is acceptable to and approved by the association.

During the current year of 1928 the association and the sugar company have not been able to agree upon the terms of a contract for marketing of the 1928 crop to be produced by the members of the association. The plaintiff in this action, Monroe, a member of the association, when planting time arrived, which is about April 10, having ascertained that no such contract had been made or secured, or would be tendered, asked to be released by the association for the year 1928 from the obligations of the association contract resting upon him, so that he might be free to enter into a contract himself with the purchaser for the sale of his beets; but the association refused to release him. Thereupon he brought this action, which, in form, is in the nature of a suit in equity to enjoin the defendant association from enforcing against him the terms and provisions of their contract, and to compel the defendant to refrain from all attempts to enforce against him the penalties therein provided, and to release him from its obligations for this year. Defendant's answer alleges that for months previous to the beginning of the month of April, 1928, it had been negotiating with the sugar company in attempts to secure a fair and satisfactory price for beets to be grown during the year 1928 on the plaintiff's lands, and the lands of its other members; that the sugar company, during the negotiations, has only submitted to it one form of contract; that this form was not at a fair and profitable price satisfactory in its judgment, and its refusal to accept such contract was duly approved by a majority of its members; that, although such negotiations with the sugar company for a contract have continued for months, up to the time of filing of the answer they have not resulted in providing any market for beets to be grown in 1928 by the plaintiff, which would, in its judgment, justify marketing of them. In a replication plaintiff denied affirmative matters of the answer.

Upon issues thus joined there was a trial to the court without a jury. An application for a preliminary injunction was made and most of the evidence that is embodied in the transcript here was taken on that application. The court, at the close of the hearing upon this application, granted the temporary writ, whereupon, by agreement of the parties, the evidence taken upon the preliminary hearing was to be considered by the court upon the final hearing and at the final hearing additional testimony was taken. The court made findings of fact and entered a decree in favor of the plaintiff, which, in substance, released and discharged him from his obligations under the 1928 contract relating to the growing or marketing of the sugar beet crop during that year, and enjoined the threatened acts of the defendant to restrain and prevent plaintiff from planting, growing or harvesting or selling, or contracting to that end, a crop of sugar beets in 1928, and restrained the association from imposing any of the penalties prescribed by the contract. The court specifically found, among other things, that the defendant association is unable to perform the terms of its contract with the plaintiff and that its refusal, either to market plaintiff's crop or to release him from the contract and permit him on his own behalf to market his crop, is arbitrary, unreasonable, wilful and without just grounds or excuse, is not the exercise of any discretion vested in the defendant, but constitutes a breach of its contract with, and a wrongful oppression of, the plaintiff. The court further found that the particular contract between the plaintiff and the association, which is one of a series of many contracts with its members, must be construed together and in connection with all other contracts of other growers in the same field or district, and also with the contract which the growers make with the sugar company. The court also found that the contract was in restraint of trade and, as construed by the defendant, would operate to restrict or decrease production in order to enhance price, and that plaintiff was also released from the contract for a failure and refusal by the association to obtain for the growers a marketing contract by planting time.

For our own convenience we state the respective contentions of the parties in the order they were advanced at the trial below, and as repeated here: (1) Plaintiff says the contract between these parties, as do many similar contracts with other members, provides for, and was intended to accomplish, a positive, not a mere incidental, restriction upon production of sugar beets. (2) The association through such restriction is attempting to fix and control the price of an agricultural product. (3) With the arrival of planting time each season, which is from the 10th to 15th of April, the duty of the defendant is either to find a market, or, if unable to do so, to release its members to enable them individually to contract for themselves. (4) Defendant's refusal, in the circumstances that existed, to accept the marketing contract tendered by the sugar company is illegal, arbitrary and unlawful, and likewise released the plaintiff from his obligations under his contract with the defendant.

The defendant's contentions are that though the plaintiff thus sub-divides his points, the real and only question, except the alleged breach of its contract with the grower, is whether the marketing contract involved is authorized by the Co-operative Marketing Act, and that its disposition disposes of the entire controversy in its favor.

Both parties, however, desire an expression of opinion by us on each and all of these propositions, and upon all the findings of fact and of law of the trial court. Interesting and important as these questions are to the parties and helpful as our answers might be to them, we think we should not comply with the request in its entirety, even though the district court in its rulings on evidence and in its findings and decree expresses its opinion on all of them. A determination of the first three of plaintiff's propositions would require us to investigate and pass upon grave and far-reaching questions of constitutional law, both federal and state, and as to those arising under the federal Constitution our decision would not be final, but subject to review by the ultimate authority. It is the general rule and practice both in the federal and state courts not to pass upon constitutional questions unless it is essential to the disposition of the pending cause. Decision of neither of these three propositions is necessary at this time because an affirmance of the decree may well be made on the fourth ground, which disposes of the entire case.

There is another and persuasive reason why we should thus restrict our decision. During the oral arguments before us we were informed by counsel that after the findings of fact by the district court were announced, and its decree thereon entered, contracts for the present crop were made between the sugar company and the growers which contain a provision that they shall only be binding if this judgment is affirmed. Hence its affirmance upon any ground not only disposes of this case, but settles the immediate controversy in the great industry; and, since these contracts are terminable any year, may, for aught we know, finally dispose of it. After the writ of error was issued for a review of this decree it was advanced upon our hearing docket out of the usual order. An abstract of the record was dispensed with, and when the briefs of the respective parties were filed, we again advanced it out of its usual order for oral argument. The parties are pressing for a hearing before final adjournment, which will be taken on the day of announcement of our decision. Considering the vast interests involved and the importance of the decision to those engaged in a great industry, that they may have our views before the season of harvesting beets in the autumn begins, we are complying with their request. Within the limited time at our disposal, we think we should not depart from the established practice of reviewing courts, in passing upon important constitutional questions, even though the parties desire it, if the decision of the controversy can be based, as it may be here, upon other and substantial grounds.

We come now to a consideration of the fourth proposition upon which the district court probably chiefly relied in making its findings and decree. In resting our affirmance thereon — the arbitrary and unlawful act of the defendant association in failing or refusing to make a marketing contract, and coupling with its offer to make one for 1928 that was acceptable to it, the condition hereinafter referred to — we are assuming with the defendant, as we may, and as already decided by us in other cases, that our Co-operative Marketing Act of 1923, in its main features, is a proper exercise of legislative power, and, without so deciding, that this co-operative marketing contract is authorized thereunder. Before the enactment of this statute, such contracts as we are now considering would be against public policy. Burns v. Wray Company,65 Colo. 425, 176 P. 487. In Rifle Potato GrowersAssociation v. Smith, 78 Colo. 171, 240 P. 937; MonteVista Potato Growers Association v. Bond, 80 Colo. 516,252 P. 813, and Wilson v. M. V. P. G. Association,82 Colo. 428, 260 P. 1080, we held that public policy of a state is what its legislature declares it to be, and such contracts as are within the scope of the 1923 act are not void as against public policy.

The specific questions now before us were not passed upon in either of the three cases mentioned. The contract of sale tendered by the sugar company to the defendant association, when first presented, was rejected by the defendant as not satisfactory. This rejection was within the scope of defendant's discretionary power, and if such power was not arbitrarily exercised, it might reject the contract notwithstanding the plaintiff and other growers may have approved of it. The trial court specifically so found. The contract between these parties provides that in case of such rejection the association, as selling agent of the grower, shall not be subjected to damages for such failure. The contract, however, is entirely silent as to what the rights of the grower are with respect to a sale by himself. In this case, notwithstanding the fact that the association made several subsequent efforts to secure a marketing contract that it deemed satisfactory, it was unable to do so and notified the plaintiff of its failure. Thereafter the defendant made a counter proposal to the sugar company in which it stated that the tendered contract previously disapproved by it was now acceptable in all its terms, and that it would accept and approve the same, if the sugar company would, at the same time, enter into another marketing contract with it for the purchase of beets of its growers for the three subsequent years of 1929, 1930, and 1931, on terms proposed, or to be proposed, by it. The sugar company refused to enter into a contract for the purchase of beets beyond the current year, upon the ground, among others, as we understand, that the price of sugar manufactured from the beets depends in a measure upon the world market for sugar. The plaintiff then brought this action to obtain his release from his obligations under the contract with the association, and the district court granted relief, as stated. The trial court rightly ruled that these several contracts should be construed together. So doing we find that by the contract between the plaintiff grower and the association, either party thereto may on or after the year 1924, terminate the same at the end of any year by giving written notice to the other on or before November 1st. The plaintiff (and for aught we know all other growers) might desire before November 1, 1928, thus to terminate his contract with the association and if so would have no interest whatever in any marketing contract beyond the time of his withdrawal. His contract rights may not be made to depend upon, or be affected by, a proposed contract which the association wished to make for three years after the grower had terminated it. The finding of the trial court that, in the light of the surrounding facts, such conduct and behavior on the part of the defendant was arbitrary and wilful, without just ground or excuse, and not the exercise of any discretion vested in the defendant, and constitute a breach of its contract with the plaintiff and the wrongful oppression of him, is abundantly sustained by the evidence which we have recounted. It is too plain for further discussion. So far as concerns their respective duties, the relation of this co-operative marketing association to its members is not materially different from that which exists between the directors of a corporation, organized for profit under our general corporation statute, and its stockholders. This relation is that of a trustee to his beneficiary, or as here, between a principal and his agent. Equity exacts of a trustee, or one acting in that capacity, the utmost good faith to those whom he represents, and by whom he is selected as trustee to protect and advance their interests. When the defendant association declared its approval of the tendered marketing contract as to all of its terms, and offered to sanction the same if the sugar company would make another contract with it for three additional years on the defendant's own terms, and the sugar company refused to do so, and the association still refused to release the plaintiff from his obligations under the contract, or permit him to market his own crops, this was a manifest abuse of the legal discretion which it had, and plaintiff was released from his obligations for the year 1928. The findings and decree of the trial court were unquestionably right and the decree is accordingly affirmed.

MR. JUSTICE BURKE and MR. JUSTICE WHITFORD concur. MR. JUSTICE ADAMS concurs specially. MR. CHIEF JUSTICE DENISON, MR. JUSTICE BUTLER and MR. JUSTICE WALKER dissent.