author: THE COURT.

text:
    [Sac. No. 5102.
    In Bank.
    April 22, 1938.]
    CALIFORNIA CANNING PEACH GROWERS (a Nonprofit Cooperative Association), Appellant, v. W. P. HARKEY et al., Respondents.

      Agnew & Boekel, Carroll Single and J. Francis Good for Appellant.
    Richard W. Young, Floyd B. Cerini and F. X. Kerner, as Amici Curiae, on Behalf of Appellant.

      Seth Millington and Jerome D. Peters for Respondents.
   THE COURT.

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 The Harter Packing Company was originally made a defendant, but upon paying certain sums into court, by consent of all concerned, was dismissed from the action.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.

General Facts.

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 by-laws were more explicit. They prohibited any dealings with non-members and likewise prohibited any classification of the membership. Among other things, they provided that the association was organized for the purpose of mutual help, for the purpose of serving its members only; that any person, firm or corporation engaged in the production of canning peaches or owning or leasing lands on which canning peaches are grown, may be admitted to the association and shall have voting power and property rights therein on the same basis as all other members; that all of the members agree to abide by all of the rules of the association with reference to the production, handling and marketing of their product as provided in the by-laws or as may hereafter be determined either by 'amendment of the by-laws or by resolution of the board of directors; that all members will sign standard marketing agreements from time to time; the present standard marketing agreement is attached and made a part hereof, and all other standard marketing agreements will be similar thereto in all substantial points; that all members shall be bound by all of the terms of any such agreements; that the voting power of the members of the association shall be equal; that the property rights and interests of the members in the property of the association shall be equal; that all new members shall be admitted on the same basis as all other members; that each member must agree to market the canning peaches grown or owned by him in accordance with the provisions of the standard marketing agreement.

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 not to exceed 5% of the gross sales. Prom this 5%, organization and other general Association expenses, shall he deducted, and with the balance a commercial reserve shall be created.” This 5 per cent withholding fund was not intended to be used to defray the ordinary expenses of the association. The ordinary expenses were paid from a handling charge of $1.50 per ton allowed to the association by the commercial canners to whom the association sold its fruit. In other words, after the market price to be paid by the canners to the association had been fixed, the association would receive from the canners an additional $1.50 per ton as a handling charge. The 5 per cent fund was intended as a reserve, and to take care of any losses of the association. This reserve in the last few years was entirely used to defray losses incurred in the canning activities of the association. It was intended that this 5 per cent should be withheld from the growers for three years (later extended to five) and then paid to the growers if any portion remained after deducting losses. To illustrate: If the market price for peaches was fixed at $30 per ton, the association would actually receive $31.50 per ton from the canners. The $1.50 per ton carrying charge was applied to the operating costs of the association. The grower, in such a year, would receive but $28.50 per ton— $30 less 5 per cent. This 5 per cent, it was intended should be kept as a reserve, and paid to the grower at the end of a definite period if any portion remained after deducting losses.

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.

Some reference should also be made to the statutory law governing such associations. By the provisions of section 653sb of the Civil Code as added in 1921 and as in effect when the appellant was incorporated, the association was expressly prohibited from dealing with non-members in products similar to products handled for its members. In 1923 this section was amended to provide that any cooperative association formed under title XXI may “use or employ any of its facilities for any purpose, provided the proceeds arising from such use and employment shall go to reduce the cost of operation for its members; and provided, further, that products of non-members, similar to the products handled • for its members, shall not be dealt in to an amount greater in value than such as are handled by it for members”. In 1931 title XXI was repealed and all such cooperatives by the provisions of section 653vv of the Civil Code were placed under title XXIII, that section providing that all previously incorporated cooperatives “shall be deemed organized and existing under and by virtue of the terms of this act and all of the provisions of the terms of this act, and any of the restrictions and benefits thereof shall apply in all of their terms to such corporation”. One of the sections in title XXIII of the Civil Code thus made applicable to this appellant was section 653ff which, as amended in 1927, in enumerating the powers of such associations, in subsection “i” conferred upon the association exactly the same powers that had been conferred upon it in 1923 by the amendment to section 653sb supra. In 1933 the legislature adopted the Agricultural Code, and in section 1194 reenacted the exact provisions of section 653ff subsection “i” of the Civil Code above referred to.

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 would not interest renter growers. The evidence in the present cases demonstrates that many tenants growing peaches on lands rented from others refused to join the association. Most of these tenants rented only from year to year, were always in need of cash, and most of them were required to pay their rentals at the close of the peach season. They had no interest in a long time policy beneficial to the peach industry as a whole. They were unwilling to enter the association under a contract whereby 5 per cent of the gross purchase price was to be withheld from them for a period of from three to five years, particularly when they could sell directly to commercial canners for cash at the same or better price. The fact that a large number of renters of peach orchards refused to enter the association had several bad effects on the association’s affairs. Obviously, the efficacy of the cooperative plan partially depends on the quantity of the crop the cooperative controls. With a large independent block of peaches owned by renters hanging over the market the bargaining power of the' association with the commercial canners was materially reduced. If this independent block could be reduced and added to the association’s peaches, the association would be in a better bargaining position and would secure a better price for all of its fruit, including the fruit of its regular members. The evidence shows that the canners were well aware of the advantages to them of the existence of this independent block of fruit. They used this block of renters’ fruit as a club over the head of the association to drive the market price down. They frequently offered various valuable inducements to renters, such as free box rent and roadside delivery to keep this fruit out of the association. Many owners of peach orchards refused to become members, fearing their inability to rent their orchards if the orchard was signed up with the association. The association, particularly in 1923, was seriously handicapped because of its inability to control the renters ’ peaches. Under such circumstances the board of directors of the association met in regular session on January 15, 1924, to discuss the problem. After full discussion, the board, all members being present, unanimously passed a resolution “that the management be authorized to accept marketing agreements from any and all renter members on the basis that any such renter members will be paid in full for the peaches delivered as soon as the harvesting season is over, and that the only charge to be made to such renter members for the handling of their crop would be the annual dues of 25c per ton”. The authenticity of this resolution is challenged in several of the cases, the association claiming the minutes for the date in question were forged. The overwhelming weight of the evidence supports the findings that such resolution was in fact passed.

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.

Another fact should be here mentioned. The evidence introduced in these eases demonstrates that the fruit the association purchased under contracts entered into pursuant .to the renter resolution was fruit that the association could not and would not have received under a regular member’s contract. None of the respondents would have sold the fruit involved in these cases to the association under a regular member’s contract.

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 of directors. As a result of that election a majority of the old board was displaced, and a new board elected. This resulted in the resignation or release of some of the former employees and agents of the association, including Poggetto and Schmitt, both of whom resigned. The new board determined to repudiate the actions of its managing agents under the 1924 resolution, although the record does not disclose that the new board ever formally repudiated or rescinded the resolution. In fact, in California Canning Peach Growers v. Poggetto and Williams, S. F. 15906, post, p. 233 [78 Pac. (2d) 1161], the record discloses that the new board by resolution expressly authorized payment to many renters for their 1934 crop on a renter member basis thus ratifying renter member deals with these members. At any rate, after the new board was elected, the association demanded from some of its renter members that they refund the alleged overpayments paid to them under the 1924 resolution, and demanded that thereafter the so-called renter members deliver their peaches to the association under regular member contracts. The refusal of the renter members to comply with these demands has resulted in the four actions here involved, and in others pending in other courts.

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 been solicited by the field agents of the association, and after such agent had fully disclosed to such prospect the terms of the 1924 resolution, and the terms under which the association proposed to buy the renter’s fruit, most of such prospects, and all of the respondents here involved, then took the matter up directly with Poggetto or Schmitt, or both. These managing agents would then again explain to the prospect the terms of the 1924 resolution and the terms under which the association proposed to purchase the renter’s fruit. It is admitted by the association, there being no evidence to the contrary, that Poggetto or Schmitt, and the field agents, unequivocally and positively offered to buy the respondents’ fruit for market price less 25c per ton payable at the close of the season. It also appears without conflict that each of the respondents refused to deal with the association on the regular member basis. After the two contracting parties had arrived at an oral agreement in accordance with the terms of the 1924 resolution, Poggetto or Schmitt or both would present to the renter member a regular member contract for signature. (This procedure was not followed in the Harkey ease as will hereafter appear in the discussion of the facts of that case. ) The managing agents then represented to the renter that the regular member contract was the only form of contract available; that it should be executed; that at the time of execution or thereafter the association would place the words “renter member ’ ’ or some equivalent on the cover of the contract; that the renter member would be entered in the books of the association as a renter member; that by placing these words on the cover of the contract and by the entry in the books, that contract would then come under the terms of the 1924 resolution ; that thereafter the association would pay the renter member in accordance with the 1924 resolution and in accordance with the agreement of the parties. Upon these representations the renter would execute the contract. The association contends that contracts so entered into were regular member contracts; that the agreement as to payment of market price less 25c per ton was purely oral and was contrary to the written contract; that to show the existence of such oral contract violates the parol evidence rule.

It should be mentioned that there is no dispute but that at the time of contracting both parties intended, in good faith, to enter into a contract in accordance with the 1924 resolution, and both parties intended, in good faith, that the contract that was executed should have that legal effect. There is also no dispute but that each of the respondents knew that the contract they executed contained a clause providing for the withholding of 5 per cent of the purchase price of the peaches, and contained other provisions inconsistent with the 1924 resolution. We are thus presented with the unusual situation where the two contracting parties to each of the contracts here involved both agree as to their intent, both admit all of the negotiations without conflict, both knew what they intended, and both lived up to their mutual understanding for many years. Now one of the contracting parties seeks to repudiate that agreement, not as to the future alone but as to past transactions most of which have been fully executed, on the grounds heretofore stated.

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 evideuce shows that in 1933 and 1934, and for some time prior thereto, the son was a tenant of the father, operating the father’s peach orchard under an oral lease calling for a percentage of the proceeds as rental. The son had no authority to dispose of the peaches of this ranch without his father’s consent. In February, 1933, one of the field agents of the association again approached the younger Harkey, to solicit his membership in the association. Harkey evidenced a willingness to become a regular member as to the 5 acres owned by him, and explained his relationship to his father as to the 55 acres owned by the father. The possibility of the father’s 55 acres coming into the association under the renter member resolution, inasmuch as those acres were rented by the younger Harkey, was discussed between the field representatives and Harkey. Thereafter young Harkey discussed the matter with assistant secretary Schmitt. Schmitt explained the terms of the 1924 resolution. After some discussion he suggested that the son should come into the association as a regular member as to his 35 acres only 5 acres of which were devoted to the growing of peaches, and that as to the 55 acres owned by the father and rented by the son, the association would buy that fruit on a year to year oral contract on the basis set forth in the 1924 resolution. The son agreed to both propositions. The father later ratified his son’s acts. Thereafter the son signed a regular contract, which, in the body of the contract, described the 35 acres owned by the son, and which in no way referred to the 55 acres owned by the father. Thereafter Schmitt, or some other association agent, or the field agent, caused to be placed on the cover of the contract under the printed heading contained thereon, “Memo, of Acreage”, a description not only of the 5 acres owned by the son but also of the 55 acres owned by the father. The son testified that this was not in the contract when he signed it. The testimony of the agents of the appellant is that this was done for reference purposes only so as to disclose to the office staff that the association was to receive peaches from the son from 60 acres—5 acres under the written contract, and 55 acres under the oral contract.

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 pertaining to his 5 acres, and the father and son receiving market price less 25c per ton as called for in the oral agreement pertaining to the 55 acres. There is some dispute concerning this in the record, because of the confusing method of bookkeeping employed by the association, but the trial court so found and the weight of the evidence supports this finding.

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 is a sufficient answer to this contention to point out that this is not an action against former officials of the company for malfeasance in office, but an action against third parties for breach of contract, and to recover alleged overpayments. A reading of the transcript discloses that contained therein is no semblance of a showing of any conspiracy between Poggetto and Schmitt and the Harkeys to defraud the association. The evidence overwhelmingly demonstrates that these two officials in this transaction at all times acted in good faith. They were attempting to live up to the contracts entered into with the Harkeys by them as the managing agents of the association. Their entire course of action was directed towards this end.

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 chailenges many of the findings as being unsupported. No useful purpose would be served in further discussion of these factual contentions. The facts heretofore recited in this opinion are in accordance with the findings, and all such facts are amply supported by the record.

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 son’s contract which erroneously referred to W. S. Harkey’s 55 acres. In stating that his son had no authority to sign up his 55 acres under a regular member’s contract, he was simply stating the fact. Under such circumstances, as far as the present point is concerned, we are presented with a simple proposition—a written regular member contract to buy and sell 5 acres of peaches, and a second separate and distinct oral contract to buy and sell 55 acres of peaches on a year to year basis. There is, of course, no violation of the parol evidence rule in showing the existence and terms of an oral contract by parol.

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 Growers’ Assn. v. Rowan, 125 Kan. 710 [266 Pac. 101], so strongly relied on by appellant. In that ease a farmer signed a regular member contract and then refused to deliver his wheat in accordance with the terms of that contract. When sued for breach of contract he defended on the ground that the contract had been secured through the fraudulent representations of the association’s agent. The fraudulent representation relied upon was made orally by a field agent of the association and was to the effect that if Rowan would sign a membership contract the association was empowered to and would lend him money to pay his debts at 6 per cent interest. In holding that Rowan was not legally justified in relying on this representation, the court pointed out that the lending of money would violate not only the by-laws of the company, but also its charter, and likewise would be in direct violation of certain statutes of the state. The court held that Rowan was not justified in relying on the representations of the field agent and stated (p. 103) : “Before he had a right to rely on the representations, he must have had a legally adequate reason to believe that the agent was authorized to make them.” The situation there involved is radically different from that presented in the instant ease. Here the articles of incorporation did not prohibit the line of activity outlined in the resolution. The statute under which the association had been incorporated was expressly amended to permit such activities. We are not here dealing with assumption of authority by a mere field agent, but with a formal resolution of the board of directors, authorizing its managing agents to enter into such contracts. The managing agents of the association, clothed with broad powers, represented to respondents that they had the authority in question. It is true, as urged by appellant, that W. P. Harkey in becoming a regular member, became chargeable with knowledge of the provisions of the by-laws, but he certainly cannot be charged with greater knowledge than that possessed by the board of directors and the managing agents of the association, and they certainly believed and represented that they had the power in question.

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 applicable to ultra vires contracts of corporations generally does not apply to cooperatives. Section 1219 of the Agricultural Code (based on old Civil Code section 653xx) provides that “The general corporation laws of this State and all powers and rights thereunder, shall apply to the associations organized hereunder, except where such provisions are in conflict with or inconsistent with the express provisions of this chapter. ’ ’ No such conflicting or inconsistent provision in reference to the problem here under discussion has been referred to bv appellant.

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 here) has received the benefits of the transaction. (Main v. Casserly, 67 Cal. 127 [7 Pac. 426]; Kennedy v. California Sav. Bank, 101 Cal. 495 [35 Pac. 1039, 40 Am. Rep. 69]; Rabbitt v. Union Indemnity Co., 140 Cal. App. 575 [35 Pac. (2d) 1066].) Under such circumstances the doctrine of ultra vires can only be raised by the state. (Chambers v. Security etc. Bank, 51 Cal. App. 212 [196 Pac. 488]; Bay City etc. Assn. v. Broad, 136 Cal. 525 [69 Pac. 225]; McKee v. Title Ins. etc. Co., 159 Cal. 206 [113 Pac. 140].)

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 state, to enjoin the doing or continuation of unauthorized business by the corporation and/or its officers in cases where third parties have not acquired rights thereby, or to dissolve the corporation, or in any action by the corporation or by the shareholders suing in a representative suit, against the officers or directors of the corporation for violation of their authority.

“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.


source: Caselaw Access Project

license: Public Domain

text:
    [S. F. No. 15839.
    In Bank.
    April 22, 1938.]
    R. M. STAFFORD et al., Respondents, v. CALIFORNIA CANNING PEACH GROWERS (a Nonprofit Cooperative Association), Appellant.

      Agnew & Boekel, Carroll Single and Stanley J. Cook for Appellant.
    Richard W. Young, Floyd B. Cerini and F. X. Kerner, as Amici Curiae, on Behalf of Appellant.
    Seth Millington and Jerome D. Peters for Respondents.
   THE COURT.

The two respondents R. M. and H. L. Stafford are sons of T. H. Stafford. ° During the times here-involved the father owned a ranch in Sutter County, about 100 acres of which were devoted to the growing of canning peaches. In 1932 and prior thereto, this ranch was operated by the father and these two sons under an oral agreement to split the profits and losses. Under this agreement the ultimate control of all questions of policy involving the ranch, rested in the father, who was approaching 80 years of age. In 1932 the father became a regular member of appellant association and entered into the usual member’s marketing agreement. During the seasons 1932, 1933 and 1934 the peaches grown on the 100 acres were delivered to the association and paid for by it on the basis provided in this agreement, that is, the pooled price less 5 per cent and expenses. In 1933 one of the sons—R. M. Stafford—was elected a director of the appellant, although he was not a member of the association. The question of his qualifications as a director was discussed at various meetings of the board, but no formal action was taken in reference thereto. He participated in the deliberations of the board from December of 1933 to June of 1935.

The Staffords did not have sufficient capital to finance the ranch operations from year to year. Until the close of the peach season of 1934, and for many years prior thereto, the father had been financing operations by means of year to year loans advanced by a credit association in Marysville. There was also a deed of trust on the property. Late in the year 1934 the manager of the credit association informed the father that his association would not finance the 1935 operations as it had in the past; that because of the father’s advanced age, the possibility of his death, and the difficulty of dealing with estates, the existing method of financing was not satisfactory to the credit association; that some other and different arrangement must be made in 1935.

R. M. and H. L. Stafford, and three other children of T. H. Stafford, consulted together and with their father, and with the then attorney for appellant association, as to the proper solution of their problem. It was finally agreed between the children and their father that a family corporation should be organized, and that this corporation should buy the orchard from the father. As part of this agreement it was decided that after such sale to the corporation it would be in the best interests of the corporation to withdraw from appellant association. The marketing agreement then in effect between the father and appellant expressly provided that upon a bona fide sale of the grower’s orchard the agreement could be cancelled. The trial court found, and the finding is not challenged, that this proposed sale to the proposed corporation was bona fide.

Thereafter, but before the new corporation was organized, R. M. Stafford informed the general manager of appellant —A. D. Poggetto—of the proposed new arrangement, and of the fact that the corporation, when it became the owner of the ranch, intended to exercise its privilege of cancelling the marketing agreement, and that for the season of 1935 and thereafter the corporation would not sell its fruit to appellant. The appellant association desired, if possible, to retain the large tonnage produced on the Stafford ranch. After some discussion Poggetto, in an effort to retain this fruit for the association, suggested that, instead of forming a new corporation, the two sons, R. M. and H. L. Stafford, should lease the orchard from their father; that if they did so they would then be “renters”, and as such eligible for admission to the association as “renter members” as defined in the 1924 resolution; that under this arrangement the association would buy the fruit for market price less 25c per ton; that if this were done the existing contract with the father would be cancelled. This plan appealed to the Staffords. The two sons thereafter secured from their father a hona fide written lease for the years 1935 and 1936, and the association thereupon cancelled the existing marketing agreement with the father. Before entering into a new marketing agreement the Staffords inquired as to the procedure necessary to be followed to become renter members. They were informed by Poggetto and the assistant secretary Schmitt that the practice followed by the association was to have the renter member sign a regular members contract (which was the only form available); that the association would then enter the member on its books as a renter member; that this would bring the member under the terms of the resolution of January 15, 1924, and make him a renter member. On these representations the Staffords and the association executed the new marketing agreement in February, 1935. The trial court found, and the finding is unchallenged, that these" “statements made to plaintiffs by said officers were believed by said officers to be true and were made for the purpose of having plaintiffs believe same, and to induce plaintiffs to execute said agreement, and the same and each of the same were believed by plaintiffs, and if it were not for such statements and representations, plaintiffs and each of them would not have executed said marketing agreement”; that both of the parties intended that by the signing of the marketing agreement the plaintiffs should become renter members and be paid for their fruit in accordance with the 1924 resolution; that when the agreement was executed the plaintiffs knew that in the past the association had entered into similar contracts with other renters and that the procedure followed in executing the contracts in the other cases was the same procedure followed by them; and that in the past the association had paid these other renter members in accordance with the intent and understanding of the parties.

In June of 1935, as already set forth in the Harkey case, (California C. P. Growers v. Harkey, ante, p. 188 [78 Pac. (2d) 1137]), decided this day, the association elected a new board of directors. In August of 1935 the Staffords, in company with their attorney visited the new management to ascertain their rights under their contract. The association, while not denying that a renter member contract had in fact been entered into with the Staffords, stated that it would not recognize any such renter member contracts entered into by it through its old management unless ordered to do so by a court; that the Staffords could either deliver their fruit and be paid on an owner member basis and sue the association for the difference, or refuse to deliver at all; but, if they failed to deliver, the association would sue for breach of contract and ask for 50 per cent of the market value of the crop as liquidated damages as provided in the marketing agreement.

The plaintiffs elected to and did deliver their 1935 crop to the association. They were paid only the amount per ton paid to owner members. They thereupon brought this action to reform the contract so as to have it declare the true intent of the parties, and to recover the balance due them under the contract as so reformed. The association by answer challenged plaintiffs’ right to reformation, and likewise pleaded-that if the contract were not reformed, the written contract between the parties was a regular members contract, and under the parol evidence rule, proof of any oral modifications should not be permitted. The association likewise pleaded that renter member contracts are ultra vires and not binding on the association. The association also sought declaratory relief as to the 1936 season. This last issue was removed from consideration by a stipulation of the parties that the Staffords would deliver their 1936 fruit to the association, and would be paid as owner or renter members depending upon the final outcome of this case.

The trial court found in favor of plaintiffs on all material issues. It ordered that the contract of February 20, 1935, should be reformed so as to call for payments as provided in the 1924 resolution, and entered its judgment accordingly. It is conceded by appellant that if the Staffords are legally entitled to be paid on a renter member basis for 1935 the amount of the judgment as fixed by the trial court is correct.

The first and main point urged by appellant is that no proper case for reformation has been presented by respondents, and that they should have been held to the terms of their written contract. It is appellant’s contention that there was neither fraud, nor a mistake of law or of fact sufficient to warrant reformation. In this connection appellant seeks to bring this case within the well-settled rule that where parties reduce their agreement to writing, understand all of its terms, and are fully cognizant of its legal effect, reformation will not be granted to accord with a contemporaneous oral agreement not intended to be embodied in the written agreement and contrary thereto. (Coneland Water Co. v. Nickalls, 75 Cal. App. 212 [242 Pac. 518]; National Bank v. Exchange Nat. Bank, 186 Cal. 172 [199 Pac. 1]; Horton v. Winbigler, 175 Cal. 149 [165 Pac. 423].) That rule is not properly applicable to the facts here presented. The respondents executed the standard marketing agreement upon the representation of the executive officers of appellant that the execution of that agreement, plus the oral understanding of the parties, plus the entry on the books of respondents’ names as renter members, plus the resolution of 1924, would have the legal effect of making respondents renter members within the meaning of that resolution, and entitled to payment as therein provided. The parties at the time they executed the contract may have made a mistake of law as to the legal effect of the transaction, but there is no dispute but that at that time both intended and honestly believed that the legal effect of the transaction was to entitle respondents to market price less 25c per ton for their peaches as provided in the 1924 resolution. At the moment of execution and for some time thereafter, if either of the contracting parties had been asked as to their intention and legal relationship they would have agreed that this was their intention. The contracting parties intended that the resolution of 1924 should be and believed it was a part of their contract, and intended and believed that it should control the provisions as to amount and method of payment contained in the standard marketing agreement. There is no doubt that the mistake was a mutual one. The factual situation thus presented falls directly within the language and intent of the statutes providing for reformation, and within the cases interpreting those sections.

Section 3399 of the Civil Code provides that “When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised, on the application of the party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.” Section 3401 of the Civil Code provides that: “In revising a written instrument, the court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be.” The principles announced in these statutes have long been the law of California without special reference to the code sections. In Murray v. Dake, 46 Cal. 644, a landlord signed a lease with his tenants which he knew expressly referred to the leased premises as “all” of a designated building. At the time the lease was executed the landlord refused to sign without a reservation to himself of a second floor which he contemplated adding to the building during the period of the lease. The tenants orally stated that that was their understanding of the lease, and that they agreed the lease should not cover the second story when it was built. The landlord added the additional floor and moved in, whereupon the tenants brought this action for ejectment. The landlord asked that the lease be reformed so as to express the true intent of the parties. In holding that these facts presented a proper case for reformation the court first pointed out that the evidence showed (as it does in the instant case, the trial court so finding) that had it not been for the assurances of the tenants as to their intent, the landlord would not have signed the lease, and then stated:

“It was not, however, a case of mistake as to the contents of the lease, for the defendant knew at the time what he was signing, though he may not have known the legal effect of the words used. Nor does it appear that either of the lessees had at that time any fraudulent intention to use the lease for any purpose other than what was named and agreed to”—that intent, the court pointed out, was formed later. The court continued as follows: “This presents the question whether a court of equity will interfere to prevent the fraudulent use of a paper for a purpose not contemplated at the time it was made, but where there was no mistake or fraud in its execution. There is some conflict in the authorities upon the question, but we think the better opinion is that relief will be granted. ’ ’ After a review of some of the cases, the court concluded that “To permit the plaintiff here to avail himself of this lease, in violation of his express agreement, to recover the property in controversy, would be to uphold and sanction fraud and bad faith.”

It is true that there are cases from other states refusing reformation under such circumstances, but we think the rule of the Murray case is a proper and salutary one, and should be followed. It has frequently been approved. See particularly Fidelity & Cas. Co. v. Fresno Flume etc. Co., 161 Cal. 466 [119 Pac. 646, 37 L. R. A. (N. S.) 322]; Holmes v. Anderson, 90 Cal. App. 276 [265 Pac. 1010],

The instant case presents a stronger factual situation for the application of the above rule than did the Murray case. Here both parties, it is true, knew that they were signing a contract calling for a pooled price less 5 per cent and expenses, but both honestly believed and intended that the legal effect of that instrument, when considered in view of the agreement to list respondents on the books as renter members, and in view of the resolution of 1924, was to provide for market price less 25e per ton. Both parties knew that many such contracts had been entered into by the association, and that the association always had considered that the provisions of the 1924 resolution were part of the contract, and controlled the subject of payment. This clearly constitutes a mistake of law within the meaning of section 3399 of the Civil Code, as such mistake of law is defined in section 1578 (1) of that code.

Moreover, even if the case was not one involving a mistake of law, it presents a situation where to deny reformation would be to sanction a fraud. It is true the court below made no express finding of fraud, but it did find the facts from which such fraud may be inferred. It found that the association took it upon itself to represent to respondents the legal effect and consequences of their acts. It purported to interpret the contract. This information, although given in good faith, was false. To now condone the use of the contract for purposes other than those represented would be to sanction a constructive fraud. In our opinion the trial court properly reformed the contract.

The appellant next urges that the contract as reformed is ultra vires and void. The trial court found it was not ultra vires, but also found if it were ultra vires appellant is estopped to deny its validity. As already held in the Harkey case, supra, the by-laws of the association did not authorize and in fact prohibited the type of transaction here under discussion. But as also pointed out in that case, the resolution of 1924 authorizing such transactions did not violate the articles or any principle of public policy—in fact it was in exact accord with the legislative policy of the state. As to the year 1935, which is the only year involved on this appeal, the association is not seeking to be released from an executory contract claimed to be ultra vires, but has insisted that respondents deliver their fruit upon threat of an action for breach of contract and of a 50 per cent liquidated damage claim. The association does not seek rescission with its consequent restoration of material benefits received by it. It is seeking to enforce the terms of the standard marketing agreement, a contract—in view of the reformation—that we must hold was never executed by the parties. What was said in the Harkey case on this phase of the controversy is equally applicable here. On the grounds therein stated it is held that appellant’s contention now under discussion lacks merit.

The other points urged by appellant are without merit. For the foregoing reasons the judgment appealed from is affirmed.

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

Rehearing denied.


text:
    [Sac. No. 5179.
    In Bank.
    April 22, 1938.]
    CALIFORNIA CANNING PEACH GROWERS (a Nonprofit Cooperative Association), Appellant, v. E. R. WILLIAMS et al., Respondents.

      Agnew & Boekel, Carroll Single and Stanley J. Cook for Appellant.
    Richard W. Young, Floyd B. Cerini and F. X. Kerner, as Amici Curiae, on Behalf of Appellant.
    Hadsell, Sweet, Ingalls & Lamb, Vernon F. Gant and Brown & Rosson for Respondents.
   THE COURT.

This action was commenced by the association against E. R. and Frances 0. Williams, husband and wife, on two common counts, the first alleging that between designated dates the plaintiff at the special instance and request of defendants furnished, paid, and laid out to and for the use and benefit of the defendants a designated sum of money which defendants agreed to repay with interest; and the second alleging the same indebtedness due from the defendants to plaintiff on an open and current book account. Defendants answered denying the allegations of the complaint, and defendant E. R. Williams likewise filed a counterclaim and cross-complaint. The issues raised by this last named pleading are not involved on this appeal.

On the trial it developed that the action was in fact one by the association to recover back from defendants certain alleged overpayments made to Mr. Williams for his peaches grown in 1934 on the Merci ranch in Stanislaus County. It is important to note that the present action involves only the Merci ranch, and only the season 1934, for the reason that there is another action here pending in which the Williams are defendants, together with A. D. Poggetto, and in which not only the Merci ranch for 1934 but also several other ranches and other seasons are involved. (California Canning Peach Growers v. Poggetto and Williams, S. F. 15906, post, p. 233 [78 Pac. (2d) 1161].)

At the trial it developed that the association had purchased the Williams ’ fruit for 1934 from the Merci ranch and had paid for it on a renter member basis—market price less 25c per ton. The theory of appellant association is that the only contract Williams had with the association for that year was a regular marketing agreement calling for the pooled price less 5 per cent and expenses and that he was overpaid the amount that it seeks to recover in this action. The arithmetic of the controversy is not in dispute. It was stipulated that, if defendant E. R Williams was entitled to be paid as a renter member, he had been overpaid the sum of $461.28, but if he should have been paid as were owner members he had been overpaid in the sum of $2,716.27. The sum of $461.28 was for fertilizer purchased by Williams from the association which the association failed to deduct from his 1934 payments, and which Williams admits he owes. The trial court determined that no cause of action at all had been proved against Mrs. Williams, and that as to Mr. Williams he was legally entitled to payment as a renter member. Accordingly, judgment was entered in Mrs. Williams’ favor, and against Mr. Williams in the sum of $461.28, together with interest and costs. Prom this judgment the association prosecutes this appeal.

The basic facts are not substantially in dispute. Williams was one of the organizers of the appellant association. He was a director from 1922 to 1935, and for several years was vice-president. Prom 1922 to 1928 he owned several peach orchards. These he signed up with the association under regular marketing agreements and was paid accordingly. In 1928 he lost, through foreclosure, all of his owned orchards. In 1929 and thereafter he leased from their owners various peach orchards. These he signed up with the association under what he believed were renter member contracts as defined by the January 15, 1924, resolution. As to all these leased orchards he was paid market price less 25c per ton for his peaches.

In 1933 he leased the Merci orchard from its then owner. On May 17, 1933, he entered into a written contract with the association in reference to this orchard, and was paid for that season under this contract market price less 25c per ton. In 1934 Williams again leased the Merci orchard from its new owner, the Federal Land Bank in Berkeley, whereupon the association and Williams agreed to renew the contract of 1933.

The contract that is here involved was the printed form of the regular marketing agreement, and expressly provided that the price to be paid for the peaches was the pooled price less 5 per cent and expenses. The contract was executed on behalf of the association by F. B. Schmitt, assistant secretary, and one of the managing agents of appellant. Schmitt, as a witness on behalf of appellant, testified that at the time the contract was signed he wrote on the cover of the contract near the bottom the words “Renter Member” and the word “None”. This last word was written over the words “Membership Fee, $5.00, Organization -, Total-” printed on the cover of the contract. Schmitt also testified that before the contract was signed Williams had come to him and stated that he had rented or could rent the Merci orchard ; that he would sign this ranch with the association only on condition he would do so as a renter member; that the contract was thereafter executed on the definite understanding that Williams was signing a renter member contract entitling him to payment in accordance with the 1924 resolution; that the words “renter member” appearing on the cover of the contract were intended by him to mean that Williams was in fact a renter member and that the resolution of 1924 was to control the amount of payment. Williams corroborated Schmitt as to the circumstances surrounding the execution of the contract, and as to the intent of the parties. The evidence is uncontradicted that the association through Schmitt, and Williams on his own behalf, believed and intended that the legal effect of the transaction was to make Williams a renter member entitled to market price less 25c per ton for his fruit, and that when the words “renter member” were placed in the contract by the contracting parties, to them, those words had that meaning. The evidence also shows that when the contract was filed with the association, it was given a distinctive number—7001. Schmitt testified that regular member contracts were numbered under 4000; that the larger numbers were reserved for renter members ; that the number 7001 on the Merci contract would immediately indicate to the employees of the appellant that Williams was entitled under that contract to be paid market price less 25c per ton. It also appears that when contract 7001 was filed by appellant the words “Renter Member” were typed on the cover near the top immediately under Williams’ name so that it could easily be identified as a renter member contract in the vertical files of appellant. Also the records of appellant indicate that after Williams’ name appearing therein there was written the words “renter member”. This was done, according to Schmitt, to indicate to the employees of appellant that the basis of payment under this contract was market price less 25c per ton.

The evidence also shows that Schmitt on behalf of the association entered into many similar renter member deals with other renters; that the uniform custom and practice of the association was to have such renters sign the regular marketing agreement with the words “renter member” written thereon; that it was explained to such renters that this was the procedure necessary to be followed in order to make them renter members entitled to receive market price less 25c per ton for their fruit as provided in the 1924 resolution; that such renters would not have signed up as regular members ; that from 1924 until the new board of directors was elected in 1935 the association so interpreted its obligations under such contracts and paid such renters market price' less 25c per ton for their fruit.

As already indicated, Williams was paid in 1933 in accordance with the understanding of the parties. In 1934 he was paid on the same basis, but was overpaid $461.28, the association failing to deduct the selling price of some fertilizer purchased by him. When he received his 1934 payments he believed, of course, that, as in the year 1933 (and other years), he was being paid in accordance with the agreement of the parties, market price less 25c per ton. He also testified, and his testimony is not contradicted, that other than the checks themselves, many of which at his order were delivered directly to the landlord and other persons, he had never received any statement of account from the association. He testified that he had confidence in the association’s officers and employees and left the matter of bookkeeping and payment to them.

It is obvious that the trial court’s decision is in exact accord with the mutual understanding, intent and agreement of the parties. Appellant, while necessarily admitting that fact, contends that such mutual understanding, intent and agreement cannot be given effect for the reason that the written contract provides for the pooled price less 5 per cent and expenses, and contends that the agreement to pay market price less 25c per ton rests solely in parol, and that to show its existence violates the parol evidence rule. We are of the opinion that the showing of the agreement to pay market price less 25c per ton did not violate the parol evidence rule, for several reasons. In the first place it is our opinion that the written agreement, properly interpreted, provided for such payment. Before directly discussing this conclusion reference should be made to certain pertinent code sections.

Section 1856 of the Code of Civil Procedure provides that “When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be between the parties and their representatives, or successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases:

“1. Where a mistake or imperfection of the writing is put in issue by the pleadings;
“2. Where the validity of the agreement is the fact in dispute. But this section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in section eighteen hundred and sixty, or to explain an extrinsic ambiguity, or to establish illegality or fraud ...”

Section 1860 of the Code of Civil Procedure, referred to in section 1856, provides that “For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it, may also be shown, so that the judge be placed in the position of those whose language he is to interpret”. See, also, section 1647 of the Civil Code.

Section 1861 of the Code of Civil Procedure provides that “The terms of a writing are presumed to have been used in their primary and general acceptation, but evidence is nevertheless admissible that they have a local, technical or otherwise peculiar signification, and were so used and understood in the particular instance, in which case the agreement must be construed accordingly. ’ ’ See, also, sections 1644 and 1645 of the Civil Code.

Section 1859 of the Code of Civil Procedure and section 1636 of the Civil Code require the court in interpreting a contract to enforce the intent of the parties, if possible.

Section 1625 of the Civil Code provides that “The execution of a contract in writing whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.” Section 1640 of the same code provides that “When, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded.”

Other sections could be referred to embodying the same or similar principles. Under these sections, in the absence of fraud, mistake or accident, the clear and unambiguous words of a written contract cannot be varied by oral testimony—ordinarily parol limitations on the operation of the contract cannot be shown. But it is equally well settled that where ambiguity exists, or. where the provisions of a contract are conflicting, oral testimony is admissible to explain such ambiguity or conflict.

Without now considering whether there was a mutual mistake of law as to the legal effect of the instrument sufficient to permit the introduction of oral evidence (a point discussed, at some length in the Stafford case, Stafford v. California C. P. Growers, ante, p. 212 [78 Pac. (2d) 1150] decided this day, in a different connection) in the present case the parties placed on the cover of their written contract with intent that they should be a part of such contract the words “Renter Member”. It has long been the rule in California that the parties to a written contract may show by parol that terms appearing therein after the signature, or on other places on the document where they ordinarily would not be part of the contract, were in fact intended by them to be part of the contract. (Verzan v. McGregor, 23 Cal. 339; Berry v. Kowalsky, 95 Cal. 134 [30 Pac. 202, 29 Am. St. Rep. 101]; Spotton v. Dyer, 42 Cal. App. 585 [184 Pac. 23]; Shelley v. Hart, 112 Cal. App. 231 [297 Pac. 82]; Storm & Butts v. Lipscomb, 117 Cal. App. 6 [3 Pac. (2d) 567].) Both of the parties who signed the contract testified that it was their intent that the terms “renter member” should be a part of the contract. It is not open to question, under the above cases, that this was properly shown by parol.

Once this hurdle has been overcome it is equally clear that the phrase “renter member” may be explained by oral testimony. Obviously such a phrase creates an ambiguity. The phrase indicates that it was placed on the contract to distinguish this type of contract from other contracts dealing with other types of members. If so, why was it done and what was intended? Both of the parties who signed the contract testified that the phrase had a special, technical, definite and peculiar meaning to them—that it meant that the new member was to become a renter member as defined in the resolution of 1924; that the provisions of that resolution were intended to be part of the contract and to override the provisions in the contract as to the manner of payment. Such a situation is expressly covered by statute. (Sec. 1861 of the Code of Civ. Proc., supra; also, secs. 1644 and 1645 of the Civ. Code. See, also, Shean v. Weeks, 176 Cal. 592 [169 Pac. 231]; Gianelli v. Globe Grain & Milling Co., 48 Cal. App. 103 [191 Pac. 720].)

Not only did the parties testify that the phrase had this technical meaning to them, but, in view of the ambiguity thus created, it is also of considerable evidentiary importance that between 1929 and 1934 the two parties had entered into identical contracts and had construed them as here contended for by respondents. The very contract here involved had been so construed by both parties for the year 1933. It also appears that this construction was placed on many other contracts of other renters by appellant during the period 1924 to 1935, and that this was known by Williams. Previous and contemporaneous transactions may be considered to ascertain the sense in which the parties to a writing used particular words. (Cabrera v. Thannhauser & Co., 183 Cal. 604 [192 Pac. 45].) The rule of practical construction is too well settled to require further comment.

There is another and complete answer to appellant’s contention. If we assume that the contract to pay market price less 25c was entirely oral, and that the written contract provided for the pooled price less 5 per cent and expenses, nevertheless appellant is not now in a position to recover payments made under the oral contract. Section 1698 of the Civil Code permits the parties to a written contract to modify the same by an executed parol agreement. That section provides: “A contract in writing may be altered by a contract in writing, or by an executed oral agreement and not otherwise.” The evidence in the instant case demonstrates that respondent has fully performed the terms of the oral contract for the year 1934. It also appears by stipulation that not only has the association fully performed by paying to respondent the full amount due him under the alleged oral contract, but has in fact overpaid him. The money that was paid to respondent by the association was paid with the intention of performing the agreement to pay respondent market price less 25e per ton. The fact that on the books of the company the payments made to respondent and other renters in excess of those paid owner members were labeled “advances” is immaterial. Respondent had nothing to do with the keeping of .the books nor did he know how they were kept. The uncontradicted evidence shows that this practice was followed in the case of every renter member, had been followed for many years, and was employed merely as a bookkeeping convenience. Appellant urges that the general account between the parties was still open. That may be true as to the general account, but the Merci ranch deal for 1934 was a separate and distinct transaction covered by a separate contract, and as already indicated has been fully executed. Under such circumstances even if the agreement to pay the market price less 25c per ton were entirely oral, having been fully executed, it would constitute' a modification of the written agreement.

Appellant next urges that the resolution of 1924 was ultra vires and illegal. This contention has been fully considered in the Harkey (California C. P. Growers v. Harkey, ante, p. 188 [78 Pac. (2d) 1137]) and Stafford cases decided this day. What was there said need not be repeated in this opinion. For the reasons set forth in those opinions it is concluded that even though the contract was ultra vires the by-laws the appellant is bound thereby. It should be particularly noted that the contract here involved has been fully executed, and as to such contracts the doctrine of ultra vires is not available.

There is another factor in reference to the doctrine of ultra vires that should be referred to. We have already held, in discussing the parol evidence rule, that the only contract signed and agreed to by the parties was a contract to buy and sell the Merei orchard fruit for market price less 25c per ton. If that contract could be voided by the association because it was ultra vires, even then the association could recover nothing in this action. The position of appellant has two aspects—first, it seeks to avoid the actual contract of the parties, and second, it seeks to substitute for it an owner contract—a contract never agreed to. In other words, the association is seeking not only to destroy a contract the parties did make and did perform, but also to substitute in its place a contract the parties did not make and did not perform. If the contract the parties did make were destroyed, the courts have no power to make a new contract for them. If the only contract between them were destroyed, then it would appear that the association would be liable on a quantum meruit—that is market price—an amount in excess of that which it has paid respondent.

Appellant next urges that Williams was a director of appellant and a former vice-president, and that as to him a different rule should apply than would be applied to third parties dealing with the corporation. There is no evidence that Williams in reference to the transaction here involved in any way took advantage of his position of trust and confidence. The Merei ranch deal for 1934 was not an unusual one. It was a normal, ordinary business contract offered to all renters indiscriminately. The fact that he had been an owner member or director or officer does not affect the Merei ranch deal for 1934. Appellant concedes that a regular member or director or officer who had signed up one or more orchards with the association was under no legal or moral obligation to place other orchards owned or rented by him in the association. Bach orchard is covered by a separate contract. As concerns Williams’ freedom of choice in reference to the Merei orchard it could make no difference whether he was a director, vice-president or owner member of the association. He was as free as any other grower or renter to bargain with the association in reference to that orchard. There is no evidence that in so doing he abused his confidential position. He entered into the same deal on exactly the same terms that were offered to renters generally, and that deal was not clandestine nor secret but was authorized by a formal resolution of the board of directors.

The appellant urges that the trial court committed reversible error in failing to find on certain issues. It is first contended that there is no finding on the application of the parol evidence rule. The trial court did find that the resolution of 1924 was passed by the directors and that pursuant thereto appellant and Williams entered into a “written contract” to buy and sell the Merci orchard fruit for 1934. That is a proper finding of the ultimate fact, and is in accord with the interpretation of the contract found in this opinion. It is next contended that the trial court failed to make an express finding as to the validity of the 1924 resolution—that the findings do not disclose whether the trial court found it valid or invalid, and if invalid upon what ground such invalidity does not affect the contract. It is true that the findings do not disclose the theory of the trial court in reference to the resolution. The findings, however, are in exact accord with the issues framed by the pleadings. Every ultimate fact was covered by findings. That is all that is required. Moreover, under the circumstances here involved where the facts are not substantially in dispute, if findings were required on these issues it would avail the appellant nothing in view of the power conferred on this court by section 956a of the Code of Civil Procedure.

The appellant next complains that the trial court committed reversible error in refusing to admit into evidence the depositions of defendants alleged to have been taken under section 2021 of the Code of Civil Procedure. Both defendants were present in court at the time of the trial. Both were called as witnesses by plaintiff under section 2055 of the Code of Civil Procedure and fully examined. In addition Mr. Williams was called as a witness by defendant and cross-examined by plaintiff. No attempt was made by plaintiff to use the depositions during such examinations for impeachment purposes. Assuming that the depositions offered were taken under section 2021 of the Code of Civil Procedure, and assuming without deciding that under the rule enunciated in Hurtel v. Albert Cohn, Inc., 5 Cal. (2d) 145 [52 Pac. (2d) 922], such depositions should have been admitted in evidence, the error is not a reversible one. We have read the proffered depositions and find nothing contained therein that would cause us to change our views as to the legal effect of the transaction here involved. Under Article VI, section 4% of the Constitution the error, if any, does not require a reversal.

As in the Harkey and Stafford cases some point is here made by appellant that the renter member deals were kept secret, and from that fact appellant seeks to indulge in unfavorable inferences. The point has been fully discussed in the prior cases. As in those cases, the evidence in the present case (even if the point were important) is against appellant’s contention.

The other points urged by appellant are without merit.

The judgment appealed from is affirmed.

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

Rehearing denied.