than 5 percent of the stock outstanding at any time, and not more than $500 in par value, shall be held by or for one person, firm, or corporation." (S. L. 1919, ch. 147, § 6; C. O. S. 1921, § 5642.)

The Supreme Court of the United States, in the Frost case, drew a distinction between stock and nonstock cooperative associations. The court said that a cooperative cotton-ginning company, organized with capital stock under this statute and whose membership was not restricted to cotton growers, was a profit organization doing business with the general public for the purpose of making money. Since it must, therefore, be treated the same as any other stock corporation, the Court held that the equal-protection clause of the Federal Constitution was violated by the exemption of such a cooperative from the requirement that those engaged in the cotton-ginning business must make a showing of public convenience and necessity in order to obtain a license to do business. The Court said that the exemption might have been upheld if the association had been organized without capital stock, under the 1917 farm cooperative act, as such associations are conducted primarily for the mutual help and benefit of their members, and there is little difference between members and nonmembers as the association may, as a condition of doing business for a nonmember, impose upon him a liability equal to that of a member for debts of the association. (Note, however, the dissenting opinion of Justice Brandeis, in which Justices Holmes and Stone concurred. They believed there was no essential difference between the two types of cooperatives. Both types could restrict membership, and thus exclude capitalist control. Both required capital with which to conduct their business, and merely differed in the manner in which such capital was obtained. Both distributed earnings, and merely differed in the manner of distribution, the one through dividends on stock and patronage dividends, the other through interest on loans and refunds of fees, dues and assessments. Finally, both could allow business to be done for nonmembers, and though a cooperative under the nonstock act was permitted, it was not required, to impose a member's liability upon nonmember patrons, for corporate obligations.) (Frost v. Corporation Commission, 278 U. S. 515, 49 Sup. Ct. 235 (1929).)

For a case in which a Federal court held unconstitutional a statute which exempted from public utility regulation and from the requirement of a license, a cotton gin which ginned cotton only for the stockholders of the corporation operating the gin, see Chikasha Cotton Oil Co. v. Cotton County Gin Co., 40 F. (2d) 846 (C. C. A. 10th, 1930). The court said the statute did not require the formation of a cooperative company, that the corporation involved in the case did not embody any real cooperative features, that it was operating for profit, and that, therefore, a company not ginning for its stockholders only was denied the equal protection of the laws.

*This latter provision does not apply to an association incorporated by only 10 persons, or in a case where equal division of capital stock would leave each stockholder with more than 5 percent of stock or more than $500 in par value of stock. See section 5637 of Comp. Okl. St. (Op. Atty. Gen., Dec. 19, 1923; Okla. Annot. Stat. 1934 Supp., p. 525.)

§ 9900. Voting rights.-Each shareholder or subscriber shall be entitled to one vote, and no more, irrespective of the number of shares owned, at any meeting of the stockholders. Voting by proxies or absentee voting may be permitted and regulated by the bylaws. In the absence of such provisions in the bylaws, no voting by proxies or absentees shall be allowed. (S. L. 1919, ch. 147, § 7; C. O. S. 1921, § 5643.)

§ 9901. Liability of subscribers and shareholders. All subscribers or shareholders shall be severally and individually liable to the creditors of the corporation, to the amount of the unpaid capital stock subscribed for, or held by them, respectively and to no other or further amount. (S. L. 1919, ch. 147, § 8; C. O. S. 1921, § 5644; S. L. 1923, ch. 167, § 2.)

§ 9902. Directors; selection and powers.-The stock, property and affairs of such corporation shall be managed by the board of directors,

which shall consist of five members, all of whom must be stockholders, and who shall be elected at the annual meeting of the stockholders. At the first meeting of the stockholders, there shall be elected five directors, one of whom shall serve 1 year, two of whom shall serve 2 years, and the remaining two of whom shall serve 3 years. As the term of office of each of these directors expires a successor shall be elected, who shall serve for 3 years, unless sooner removed, or until his successor is elected and qualified.

Notice of the time and place of holding such election shall be published not less than 2 weeks, previous thereto in the newspaper printed nearest to the place, where the principal office or place of business of the corporation is located. A quorum shall consist of at least one-third in number of all the stockholders or subscribers for stock who are entitled to vote. (S. L. 1919, ch. 147, § 9; C. O. S. 1921, § 5645; S. L. 1923, ch. 167, § 3.)

§ 9903. Removal of director; vacancies. Any director or officer of such corporation may be removed by a majority vote of the stockholders at any regular or special stockholders' meeting lawfully called, and the vacancy may be filled at such meeting or by the remaining directors at any regular or special meeting thereafter. (S. L. 1919, ch. 147, § 10; C. O. S. 1921, § 5646.)

§ 9904. Liability of directors.-If the indebtedness of such corporation shall at any time exceed the amount of its subscribed capital stock and surplus the directors assenting thereto shall be personally and individually liable for such excess to the creditors. Except any indebtedness_created in favor of the State warehouse revolving fund. (S. L. 1919, ch. 147, § 11; C. O. S. 1921, § 5647; S. L. 1923, ch. 167, § 4.)

1

An act appropriating $1,250,000 to be placed in a state warehouse revolving fund, for the purpose of investment in bonds of warehouses owned by farm cooperatives and to be supervised by the State, has been held to violate the State constitutional provision that public funds must be expended only for a public purpose. The fact that such warehouses constitute a "business affected with a public interest" makes no difference. Although it is true that "the establishment and operation of the system of warehouses might ulti mately result in a benefit to the entire farming class of the State, and by reason of the encouragement given to this industry, might result in a general benefit to the entire public", yet the direct object of this appropriation is for the "assistance of the group of individuals who shall own, operate, and control the warehouses." (Vette v. Childers, 102 Okla. 140, 228 Pac. 147 (1924), three judges dissenting.)

§ 9905. Dividends and profits; reserve fund.-The directors, subject to revision by the stockholders, at any general or special meeting lawfully called, shall apportion the net earnings and profits thereof from time to time at least once in each year in the following manner:

(1) Not less than 10 percent thereof accruing since the last apportionment shall be set aside in a surplus or reserve fund until such fund shall equal at least 50 percent of the paid-up capital stock.

(2) Dividends at a rate not to exceed 8 percent per annum, may, in the discretion of the directors, be declared upon the paid-up capital stock. Five percent may be set aside for educational purposes. (3) The remainder of such net earnings and profits shall be apportioned and paid to its members ratably upon the amounts of the products sold to the corporation by its members, and the amounts of the purchases of members from the corporation: Provided, That

if the bylaws of the corporation shall so provide the directors may apportion such earnings and profits in part to nonmembers 2 upon the amounts of their purchases and sales from or to the corporation.3 (S. L. 1919, ch. 147, § 12; C. O. S. 1921, § 5648.)

1 Where the bylaws of a cooperative-ginning company provided that dividends be paid in the manner prescribed by this section, and the directors voted to carry out the stockholders' resolution instructing them to set aside 10 percent of the earnings for a reserve fund and apportion the remainder as patronage dividends, no dividends on stock having been declared, the court held this was a proper distribution, in view of the provision in subsection 2 that dividends on stock are merely discretionary. This provision is not altered by the presence of the word "remainder" in subsection 3 dealing with patronage dividends. (Doss v. Farmers' Union Coop. Gin Co., 173 Okla. 70, 46 P. (2nd) 950 (1935).)

2 See the Frost case in the annotation to section 9899.

A difference in the judicial attitude towards cooperatives dealing only with members and those dealing also with nonmembers is illustrated by a case where a livestock cooperative was organized under a farm cooperative statute authorizing it to buy and sell products only of its members, but there was no proof that its transactions actually were limited to members. This situation in the view of the District Court (which was reversed on appeal) prevented the Secretary of Agriculture, acting under the Packers and Stockyards Act, from enjoining a concerted boycott of the cooperative by dealers. The dealers justified their boycott on the grounds that the cooperative was acting beyond its powers by dealing with nonmembers. However, two concurring opinions in the three-judge court observed that if the cooperative were organized under the general cooperative statute permitting dealing with nonmembers, the boycott would not be permitted. In reversing the decision and holding that the boycott could be enjoined, the United States Supreme Court felt that despite the Government's faulty proof as to the actual nature of the cooperative's transactions "It would be absurd to suppose that a cooperative society organized for the special purpose of aiding its members should confine its business to the illegal sale of the products of nonmembers." The cooperative "was a competitor of the appellees and the suggestion that it was acting ultra vires sounds like an afterthought and cannot be supposed to have been the motive for the [boycott]. It is said that motive does not matter, but motive may be very material when it is sought to justify what until justified is a wrong. But whatever the motive, nothing is shown or suggested by the evidence to justify the general boycott that the Secretary's order forbade." (United States v. American Livestock Commission Co., 279 U. S. 435, 49 Sup. Ct. 425 (1929), reversing 28 F. (2nd) 63 (D. Ct. W. D. Okla., 1928).)

'It was assumed without discussion in Guthrie Cotton Oil Co. v. Farmers' Custom Gin, 156 Okla. 16, 9 P. (2d) 32 (1932), that a farm cooperative could validly be "created under the general corporation statutes [and have] incorporated in its charter and bylaws almost the identical statutory provisions required in the Cooperative Act." The provisions in the articles and bylaws for distribution of earnings into a reserve fund, fixed dividend on stock, patronage dividends both to stockholders and in the directors' discretion to nonstockholders, were described as "reasonable, not arbitrary and unjust."

* * *

In a case where there was no such discrimination in the conditions for issuance of license as was involved in the Frost case (see annotation to section 9893), the United States Supreme Court held that an ordinary corporate cottonginning business could not enjoin the issuance of a license to a cooperative ginning organization by contending that the cooperative's statutory method of distributing earnings would give it unfair advantage not open to the plaintiff corporation, and hence would violate the equal-protection clause of the Federal Constitution. Both of these types of cotton-ginning organizations were subject, as public utilities, to rate regulation by the corporation commission and the plaintiff showed no provision of any commission regulation or any State law which would prevent it from distributing its earnings in the same manner as the cooperative cotton-ginning company. (Corp. Commission v. Lowe, 281 U. S. 431, 50 Sup. Ct. 397 (1930).)

§ 9906. Illegal dividends; liability of directors. If the directors of such corporation shall declare and pay any dividend or apportion

ment of earnings, or profits to members or nonmembers when the corporation is insolvent or when it would be rendered insolvent by such payment, such directors shall be jointly and severally liable for all debts of the corporation then existing and for all such debts as shall be thereafter incurred while they shall respectively continue in office. Any director may relieve himself from such liability at any time before the time fixed for the payment of such dividend or apportionment by filing a certificate in writing of his objection with the secretary of the corporation, and with the county clerk of the county in which the principal office is located. (S. L. 1919, ch. 147, § 13; C. O. S. 1921, § 5649.)

§ 9907. Financial statements.-At the time of each dividend or apportionment of profits and at least once in every year, the directors shall cause to be prepared a statement showing the financial condition of the corporation at the end of the period to which such dividend or apportionment relates, in such form as shall fully exhibit the assets and liabilities of the corporation: its earnings and profits, purchases and sales, expenses and outlays, for the period covered by such dividend or apportionment, in such manner that a good understanding of the condition of the company, may be obtained from such statement, and shall cause such statement to be kept on file with the secretary where the same may be examined by any member of the corporation at all reasonable times. (S. L. 1919, ch. 147, § 14; C. O. S. 1921, § 5650.)

§ 9908. Use of word "Cooperative."-No person, firm or association, nor any corporation other than such as shall be organized under this act, shall make use of the word "cooperative", in the name under which its or their business is carried on. Whoever shall violate the provisions of this act shall be punishable by fine of not exceeding $100 for each offense. The violation of this section may furthermore be enjoined at the suit of any citizen of the State. (S. L. 1919, ch. 147, § 15; C. O. S. 1921, § 5651.)

§ 9909. Forfeiture of charter.-Any corporation organized under this act, which fails to comply with all the provisions of this act, shall thereby forfeit its charter, and the secretary of state is hereby authorized and directed to recall the charter of any such corporation. (S. L. 1919, ch. 147, § 16; C. O. S. 1921, § 5652.)

OREGON

Code 1930, Vol. II, as amended by Laws 1931, ch. 91, and Laws 1933, ch. 4, § 38

1

§ 25-801. Minimum number of organizers; definition of terms; not for profit; general provisions; purposes.-Any number of persons, not less than five, may associate themselves as a cooperative association, society, company, or exchange for the transaction of any lawful business on the cooperative plan. For the purpose of this act the words "association", "company", ("exchange",) "society" or "union" shall be construed to mean the same. As used in this act the term “agricultural products" shall include horticultural, viticultural, forestry, nut, dairy, livestock, poultry, bee, and any farm products and the byproducts derived from them; the term "member" shall include actual members of associations without capital stock and holders of common stock in associations organized with capital stock; the term "association" means any corporation organized under this act; and the term "person" shall include individuals, firms, partnerships, corporations, and associations. Associations organized hereunder shall be deemed "nonprofit", inasmuch as they are not organized to make profit for themselves, as such, or for their members as such, but only for their producers. Membership in any association organized under this act shall be conditioned upon compliance with the rules, regulations, and purposes of the association, and the signature of a person to the articles of association, the bylaws, the membership agreement, or a member's marketing contract with the association shall be construed to mean that such person has accepted said rules, regulations, and purposes and has become a member of the association. Associations may be organized under this act either with or without capital stock. An association organized under this act may adopt the term "cooperative" as part of its business name or title as given in its articles of association; and in its own name it shall have the right to adopt and use a corporate seal, to sue and be sued and, subject to the provisions of this act, to exercise all the business rights and privileges conferred (on corporations) under the corporation law of the State of Oregon. It is the public policy of the State of Oregon to encourage the production of agricultural products and to stabilize marketing conditions through the elimination of speculation and to bring about a lower cost of living through the establishment of more efficient systems of distribution. To this end it is and shall be lawful for persons who have associated themselves under this act to unite or consolidate any or all of their business activities by means of contracts or agreements between the members and their associations or through the provisions of their articles of association or bylaws. Such contracts may require members to transact the business embracing all or any specified part of their products or specified commodities exclusively with or through the association, upon such terms as may be agreed upon in the contract, including the passing of title from the member to the associa