Again, the adoption of a bylaw restricting membership to producers who patronize the association would operate to prevent the admission to membership of persons not possessing the requisite qualifications. In addition, it should help in preventing the transfer to ineligible persons of voting stock by members who voted in favor of the adoption of the bylaw. Thus, under such a bylaw, an association over a period of time should be able materially to increase the percentage of its voting stock held by producers. Moreover, no reason is apparent why such a bylaw, in the case of a stock association, should not require the stock certificates issued subsequent to its adoption to carry on their face the restrictions on the right to own and transfer shares of stock evidenced by the certificates.

If an association is financially able to do so and the rights of creditors will not be adversely affected, it may be possible to purchase the stock of nonproducer members at prices which are mutually agreed upon. If stock may not be so acquired, consideration might be given to forming a new association, the voting membership of which is restricted to producers. The new association might then acquire the assets of the old one.

There are statutes in most States dealing specifically with the sale of all the assets of a going corporation and these should be strictly followed. A rule which, with some variations, exists in many States is one to the effect that a corporation may not dispose of all its assets, unless it is in a failing condition, without the consent of a specified percentage of its stockholders. It has been said that

At common law neither the directors of a corporation
nor a majority of its stockholders had the right, power,
or authority to sell and convey all the property of a
going and prosperous corporation capable of achieving
the objects of its creation as against the objections of a
single stockholder, 317

Durfee, 118 Mo. 431, 24 S. W. 133, 40 Am. St. Rep. 396 (1893); Kent v. Quicksilver Mining Co., 78 N.Y. 159, 12 Hun. 53 (1879); Bessette v. St. Albans Cooperative Creamery, 107 Vt. 103, 176 A. 307 (1935); Searles v. Bar Harbor Banking & Trust Company, 128 Me. 34, 145 A. 391, 65 A.L.R. 1154 (1929).

317 Voigt v. Remick, 260 Mich. 198, 244 N. W. 446, 449 (1932), certiorari denied, 289 U.S. 756 (1933); Michigan Wolverine Student Cooperative, Inc. v. Wm. Goodyear & Co., 314 Mich. 590, 22 N. W. 2d 884 (1946). A sale of all of a cooperative's assets by unanimous consent of the members is, of course,

In many instances, however, it will be possible to form a new cooperative and effect a sale to it of all the assets of the old organization. This must be done on a basis which is fair and just. Ordinarily, in such a situation members of the old organization who want to become members of the new one take stock certificates, or certificates of some other character, equal in amount to their interest in the old organization.

Only producers who are to patronize the new association are given certificates carrying voting rights; the certificates given to others would not carry a vote. This would mean, in the last analyis, that the only persons who would receive cash for their interest in the old organization would be persons unwilling to accept some form of certificate or obligation of the new organization.

If the incorporation papers of a corporation that is being reorganized provide for the distribution of earnings on a stock basis, it may not be possible to provide for the distribution of all "net earnings" on a patronage basis without the consent of all stockholders. In a Nebraska case318 in which this was attempted the court said:

The original articles and the laws then in force made
dividends on stock the means of distributing profits.
On this basis plaintiffs bought stock and invested
money. They thus entered into a contract of which the
original articles of incorporation and the laws
applicable thereto were by construction material parts.

* In this way plaintiffs acquired the contractual
right to share the net profits in the form of dividends on
stock. * * * In 1916 there was an attempt to amend the
articles of incorporation by changing the Farmers'
Elevator Co. to a cooperative association within the
meaning of the statute cited. Later defendants planned
to distribute profits under the amendment. Such a
course, if pursued, would deprive plaintiffs of dividends
to which they were entitled under their contracts as
original stockholders and would destroy their
contractual rights. This neither the legislature nor the
defendants can lawfully do.

permissible. Autauga Cooperative Leasing Association v. Ward, 250 Ala. 229, 33 So. 2d 904 (1948).

318 Allen v. White, 103 Neb. 256, 171 N. W. 52 (1919); Hueftle v. Farmers Elevator, 145 Neb. 424, 16 N.W. 2d 855 (1944).

On principle it would seem that the holding in this case would apply to an attempt to restrict the amount that might be paid as dividends on stock unless all stockholders give their consent or acquiesce in the change.

Almost all recent cooperative statutes authorize a procedure whereby existing corporations may adopt and become subject to a cooperative statute. Many of these statutes are patterned after a provision in the old Bingham Cooperative Marketing Act of Kentucky319 which reads as follows:

Associations heretofore organized may adopt the
provisions of this Act.-Any corporation or associa-
tion, organized under previously existing statutes, may,
by a majority vote of its stockholders or members, be
brought under the provisions of this act by limiting its
membership and adopting the other restrictions as
provided herein. It shall make out in duplicate a state-
ment signed and sworn to by its directors to the effect
that the corporation or association has, by a majority
vote of the stockholders or members, decided to accept
the benefits and be bound by the provisions of this act
and has authorized all changes accordingly. Articles of
incorporation shall be filed as required in K.S. section
883f-8, except that they shall be signed by the members
of the then board of directors. The filing fee shall be the
same as for filing an amendment to articles of
incorporation.

The Supreme Court of Minnesota expressed doubt as to the constitutionality of a similar statutory provision. 320

In a North Dakota case in which the secretary of state refused to accept an amendment to articles of incorporation prepared in pursuance of a statutory provision similar to that quoted above, the court held "that the secretary of state cannot be heard to assert

319 Kentucky Acts 1922, ch. 1, sec. 25. The Bingham Act was repealed in 1966 when Kentucky adopted a new Cooperative Associations Act, KRS 272.101 et seq. (Ky. Acts 1966 ch. 208).

320 Maclaren, as Receiver of Goodhue County Cooperative Company v. Wold, 168 Minn. 234, 210 N. W. 29, 55 A.L.R. 321 (1926), 172 Minn. 334, 215 N.W. 428 (1927).

in this proceeding that the rights of nonconsenting stockholders have been or may be violated" 321 and ruled that the amendment should be filed by him.

In a Kansas case, 322 a private stock corporation was allowed to bring itself uder the provisions of the Cooperative Marketing Act of Kansas, which contained a provision similar to that quoted above, but "that cannot be construed as a grant of power to the majority to do as they pleased with the property and property rights of the minority." The effect of the court's decision was to require the issuance to minority stockholders of securities at least equal to the book value of the stock which they held in the old corporation. The reorganization plan sought to compel the minority stockholders to take certificates of indebtedness worth less than half the book value of the stock in the old corporation.

Until an association elects to come under the provisions of a particular cooperative act, it continues to operate and to be subject to the statute under which it was organized. 323

In a Florida case in which the successor to a cooperative took over all its assets, the new association was bound to carry out the terms and conditions of a retain certificate when its holder refused to accept an interest in the new organization in substitution for an interest in the old one. 324

A creamery association, after the repeal of the statute under which it had originally incorporated, reorganized and became a nonprofit marketing association under a new statute. Members, who only had the right under the bylaws of the former association to receive back their membership fee upon withdrawing, were given the option of withdrawing or of continuing as members of the new association, if qualified, with their proportionate interest apportioned to them on the association's books. If they withdrew as members, they were paid the member

321 Mohall Farmers' Elevator Company v. Hall, 44 N.D. 430, 176 N. W. 131 (1920). See also Equity Cooperative Packing Company v. Hall, 42 N.D. 523, 173 N.W. 796 (1919).

322 Hill v. Partridge Cooperative Equity Exchange, 168 Kan. 506, 214 P. 2d 316 (1950).

323 State ex rel. Koski v. Kylmanen, 178 Minn. 164, 226 N.W. 401 (1929); 14a C.J. 74.

324 Merker v. Lake Region Packing Association, 126 Fla. 589, 172 So. 702 (1937). See also Weise v. Land O'Lakes Creameries, Inc., 191 N. W. 2d 619 (lowa 1971).

ship fee in cash and were credited on the books of the association with an additional amount equal to their share of the net worth, less such fee. Under this plan, dissenting members were not deprived of vested rights or any property without just compensation. 325

Sometimes some of the members of an unincorporated association, without the consent of all members, incorporate an association with the intention that it will supersede the old association. If all the members of the unincorporated association, or the number required by its organization papers, have not agreed that a corporation may be formed to take the place of the unincorporated one, serious legal difficulties may result. Under such circumstances, officers of such a corporation act at their peril in using funds funds derived from the unincorporated association, 326

The question is sometimes asked whether a cooperative which has been operating with a number of local units may reorganize by turning over to the members in each locality the assets it had previously employed there, each local unit to function thereafter as an individual association. Although in some instances a plan of this kind may be worked out, it may not be done if creditors of the original association would be prejudiced by the reorganization, 327

Board of Directors

Membership on the board of directors of a cooperative is a post of honor. But the board member familiar with the statutes and court decisions on the subject will also recognize the office as a post of great legal responsibility. Not only does the welfare of

325 De Mello v. Dairyman's Cooperative Creamery, 73 Cal. App. 2d 746, 167 P. 2d 226 (1946).

326 See Strong v. Los Nietos & Ranchito Walnut Growers' Association, 137 Cal. 607, 70 P. 734 (1902); Hamaty v. St. George Ladies Society, 280 Mass. 58, 181 N.E. 775 (1932); Bentley v. Hurley, 222 Mo. App. 51, 299 S. W. 604 (1927). 327 Lebens, as Receiver of Le Sueur County Cooperative Creamery v. Nelson, 148 Minn. 240, 181 N. W. 350 (1921).

'Knepper, Liability of Corporate Officers and Directors, 2d ed., The Allen Smith Co., Indianapolis, Ind. (1972); Packel, The Organization and Operation of Cooperatives, 4th ed., American Law Institute (1970) p.200.