FRUITGROWERS' ASSOCIATION

Nelson Evening Mail, Volume XLVIII, Issue XLVIII, 21 May 1914, Page 2

FRUITGROWERS' ASSOCIATION

COURT PROCEEDINGS IX MOTUEKA. j Following is the full text of the re- j served judgment delivered by JMr J. S. Evans, S.M., at Motueka, in the case Remnant v. Jaques, a summary proceeding; by way of complaint to determine certain questions arising out of the liquidation of the Motueka Fruitgrowers' Association,J Limited. in the course of his judgment the Magistrate said:— The facts are that the Motueka Fru it - sjnjvvt'i's' Association, Limited, is a socio! *• formed under the provisions of the Industrial and Provident Societies Act, 1877, for the purpose of ; arrying on the business of fruit preserving and canning. The society was formed on co-operativo lines, and the suppliers of fruit, including the -complainant, are shareholders in the society, and to;dt part in its management. In the month of July. 1912, the society entered into negotiations with Thompson and Hill, of Auckland, in regard to the supply of rasp'oi rries for the season 1912-13. At that time the society to the knowledge of the shareholders (including the complainant) was in financial difficulties. In October, 1912, the society notified Thompson and Hill that they could not carry out their arrangement unless setae financial assistance was forthcoming, and invited them to send down someone to discuss the position. Mr Thompson came to Afotueka, and met the. managers of the society, and it was agreed -between Mr Thompson and the society that Thompson and Hill would advance £250 against the .purchase of raspberries, and that they would pay promptly, or, if necessary, in adj vance for fruit supplied in order that [ the society could carry on for that season, the society agreeing with ThompI sou and Hill to pay the. suppliers out iof the moneys received from them. A 'subsidiary arrangement was entered into with the manager of the society, Mr Fry, with the consent of the society, under which Mr Fry could (purchase fruit on behalf of Thompson and Hill, and pay for it out of a separate account in the name of Thompson and Hill, upon which Mr Fry could operate. The raspberries purchased from the society by Thompson and Hill were to be sulphurised. On the 12th November. 1912,' the society, pursuant- to this arrangement, entered into a contract in writing to supply Thorrpsoh and Hill with 60 tons t'f sulphurised raspberries at £34 14s 4d per ton. The society was to pay the suppliers 3d per lb for the raspberries. This worked out at £23 per ton. The society therefore was to receive £6 14s 4<i for sulphuring. This was estimated to produce £250 profit for the season c\v: and above working expenses. Tlh> raspberries bought by Mr Fry under the secondary arrangement were also to be sulphurised at the rate of £6 14s 4d pei ton.

For all practical purposes, so far a? j profits wore concerned, the society was in the same position in regard to the raspberries bought by the society itseli and the raspberries bought by Mr Fry a' agent for Thompson and Hill, the'-only i difference bein.;r that the suppliers to-the society sold to the society, and the otheitto Thompson and Hill direct. : After this arrangement was made Mi : Fry went round to the growers to obtain supplies for the season. The offer made to the growers by Mr Fry was that ; the society would give 3d per lb, and i pay either cash on delivery or at snd , times as the suppliers wished. It wa ' represented to the suppliers that Tliomp ! son aiid Hill would pay promptly, or ii i advance if necessary, so that the sup • pliers could bo paid a.i- above arranged. j Some-of the suppliers, including the com- - plainant, were satisfied with this promise , and agreed to sell to the society. Others 1 who were not so satisfied, took the alterj native arrangement, and sold to'Thomp ' son and Hill direct. , j The'.'relation ' thus - created between ; Thompson and Hill and"'the .society \vnthat of vendor and purchaser, and the ' same relation existed between those sup j pliers who elected to supply the society • Tlie complainant .elected- not to take hi- 1 j n:oney cash on delivery, but took pay ! ments from time to time on account. H< supplied raspberries to the value of £52 and received in progress payments tin. sum of £35, leaving a balance of £l7 for the season. On the 15th February, 1913. the society found that-it could notearry on. and ceased purchasing raspberries. All purchases 'after that date were made bv Mr Fry on account of/Thompson" and Hill, and "ho carried on the sulpliurinp and supplied the pulp to Thompson and Hill. If was known to' the-shareholder? that the society was practically insolvent, and the arrangement for their season was mainly with the view of rila-king the" £250 profit, contemplated for theVoeneji of its creditors

1 A special meeting of ..the society, wav j called for the 4th of .March for the pur- | pose of passing a special resolution to jgo into liquidation. This meeting was ; adjourned to ..the sth, and on that date 'it was resolved to go into voluntary i liquidation, and the notice was duly ; «u/,etted on the 20th of .March, The defendant was appointed liquidator. On the sth of March the society had in hand £7BO, £550 of which had been paid by Thompson and Hill on tlie 4th. At that date Thompson and Hill still owed ihe ' society a 'balance oT £216. The sum of ' £7BO was transferred to the liquidator.

! who afterwards received the sum of £216 : from Thompson and Hill. The total ;' moneys , now in the hands of tho 'liquidator from all sources is £996. Out j of this sum £766 can be .traced as money - i received from Thom.pson and Hill. In ■ ; April, 1913, the complainant proved foi his total claims against the society.. ; amounting to £22, which included, -th?: '£l7 for the balance.owing for raspberries, : supplied during the 1912-13 season. Thi ; proof was accepted by the liquidator I ! Most of the other suppliers of the 1912-.

13 seasons also proved, and the .proof

were accepted, either as- made or after ] adjustment with the liquidator. ! The complainant has brought the pre-. , sent proceedings practically on behalf, of ! himself and the other suppliers of 1912- ! 13, whose total claims amount to £477 i lis sd. to determine whether he and thev

are entitled to be paid in 'full out of th-c i moneys i-eceive-d ' from Thompson and j Kill in the hands of the liquidator. , He I asks first that hs be-declared -a preferenj tial creditor in respect of the sum oi' | £l7. or in the alternative that th. ! liquidator be declared a trustee in re- ; spect of the moneys received from ! Thompson and Hill to the extent of the | claims of the suppliers, on the grounds ; yet out above. Ths liquidator is willing, j and always has been willing to acknuwI the claim of the complainant and the. others or ordinary creditors, j The position briefly is, that an industrial society is wound up under the pro visions of the Companies Act, 1908, with : the exception that the Court is the ! Magistrate's Court, section 15 (a) Industrial and Provident Societies Act, , 19C8. Under the Companies At, 1908, ' section 246, where a company in liquidation is insolvent the rules of bankruptcy in regard to dabts provable apply. There arc three kinds of 'creditors under the Bankruptcy Act —(1) Secured creditors; preferential creditors;. (3) ■ ordinary creditors. Seeilred creditors arc- those

who hold realisable securities and may realise on their securities. It is, in my opinion, quite clear that the complainant is not a secured creditor within the meaning of the Act. Preferential creditors are those mentioned in section 120. It is equally clear that the complainant does not come within this section. Nor is he a .preferential creditor under section 249 of.the Companies Act, 1908. He must, therefore, be an ordinary creditor, if a creditor at all. Pie has .proved, 'as an ordinary .creditor, and his proof has been accepted, and no steps have been taken to set the proof-aside.-It appears to me that the complainant is bound by his proof, and the matter is concluded by section 101 of the Bankruptcy Act, 1908. The < complainant, however, by an amended statement asks, in the alternative that the defendant he declared a trustee in respect of the moneys received from Thompson and Hill to the extent of the moneys owing to the raspberry suppliers, in order to make the defendant n trustee there must have been a trust or something in the nature of a trust in favour of the. -raspberry suppliers declared by the society. There is no -evidence of any writing or resolution of the society creating any such trust. Ln view of the fact that it was known to the shareholders at the time that the society had practically suspended operations, and was insolvent, any transactionentered into by the shareholders to benefit themselves as against other creditors would have to be strictly and carefully scrutinised. The arrangement between the society and Thompson and Hill in my opinion created nothing more than the relationship of vendor and purchaser. The promise to pay the suppliers cash was only a term of the contract to secure as far as possible the supply of raspberries contracted to be delivered. It created no trust. It was not a promise to the suppliers, but to Thompson and Hill, and resulted in no trust in favour of the suppliers. Coming, then, to 'the arrangement be-

ween Mr Fry. on behalf of the society, villi the complainant and other suppliers. This purported to be a promise by the cciety to pay the suppliers 3d per lb for .heir raspberries, and to pay cash on deivery, or at such time as they choose to tsk for their money. I find that the society is a co-operative society, and rules were made on the 19th June, 1906. Pule 2 sets out the objects, and clause (c) provides: "To receive from every member of the society all fruit (of the kinds which the so'ciety shall for the time 'being be dealing with' grown by him for sale, and either to sel such fruit in its raw state, or to convert it into pulp or jam, or otherwise preserve it and to sell it." Rule 26 provides: "Every member o the society -who shall be resident withii and a fruit-grower within one of tin school districts of Motueka; Riwaka Sandy Bay, Pangatotara, Pokororo Xgatimoti, Woodstock, Dovedale, Hose dale. Upper Moutere, or Lower Moutere all in the provincial district of Nelson shall deliver to the committee of man agement at the works of the society, ii the borough of Motueka, all fruit (of th< description the committee of managemen .hall bo for the time being accepting grown by such member within the above mentioned school districts during thi next 10 years after the date of the re' gistration of these rules for sale as an< when such fruit shall be in a fit stat. to deliver as marketable fruit." Rule 33 provides : "After deducting al expenses of treating the fruit and sellim the same; and of conducting and man •ming the business o.f the society till tin 31st of August in each year,, paying in icrest on capital, interest on loans, an-c .ill other" outgoings the net proceeds ol :.ich kind of fruit delivered to and ac opted by the committee of management and sold and paid for up to' that date shall be divided immediately after everj annual meeting. The division of sucl oroceeds shall be.made-in respect of eacl: kind of fruit; separately, each ■memibei taking his proportion of the net proceeds of each kind. v of-fruit sold up to thai date; according, to the quantity of each :i:id delivered, by him and accepted l.v the committee of management. The division of such proceeds shall be made •without reference to the facts that more •if the fruit (of the kind in respect oi ■a-Inch such division shall be made] of on-g member may be sold at the date of such division than that of another, or that the fruit (of the kind in respect o'f which such division shall be made) of one tnc-.n-ber, may, have sold at higher prices than that of another. This rule shall appiy especially to small fruits, such as raspberries, gooseberries, and currants." Section 10 (2) of the Industrial and Provident Societies Act, 1877, provides : "The. rules of the society shall bind the society and all members thereof,, and all perso'ns claiming through' them respectively, to the same extent as if each member had subscribed his name and set his seal thereto, and there were con-

gained in such covenant on the part of himself, his heirs, executors, an'd administrators to conform thereto, subject to tlie provisions of this Act : Provided that a society registered at the 'time when this Act conies into operation, or the members thereof, may respectively exercise any power given by this Act, and not made to depend on the provisions of its rules, notwithstanding any provision contained in any rule thereof certified before this Act was passed." It appears to me, therefore, from the foregoing provisions that the-members of the society were bound <by the rules of., ;he society to supply their fruit (par-, rjcularly raspberries) for" a- period of 10 i Tears from- the 19th of June, 1906, on .no-operative principles to the same extent as if they had bound themselves by deed under seal. The rules of the society may be altered in the prescribed manner, but until they are so altered they bind: the members. After careful consideration of the ob- ( jeets of the societ-v.and the rules generally, I can find nothing that authorises the society to enter into a contract with its members to pay them a fixed price for fVir.ii- vn«nViPvriflß • contrary to the * ules

of the society. The alleged , contract •ma-do by Mr Fry on -behalf of the souiotv with tho complainant and other members of the society was directly contrary to the rules of the society, and was therefore, in my opinion,- ultra vires (sec WavWton v. Huddersfield .Industrial Society, 1892, 1, Q. 8., 817). Such, a contract could not. in my opinion create anv trust in favour of the members ot the company in respect of moneys received by the "society from- Thompson nd Hill The sale to Thompson and Hill was within tho powers of the society, and resulted only in. a relation of vendoi and purchaser. The contract with the members was ultra vires. It any con tractual relation existed between the fo cietv and its members' it -was _ that o vendor and purchaser, resulting m a. wither relationship of debtor and creditor The complainant had. the option-of ie wiving cash on delivery, but he elected

not to take it, and the liquidator and; insolvency of the society has overtaken him. The complainant is in no sense a . secured creditor, neither is he a pre ferential creditor, and . nothing in the, transactioai raises any trust in his favo"- • in respect of the moneys paid by Thompson and Hill or otherwise. I express no j opinion as to the right of the complain- ; aiifc to claim as an ordinary creditor. ! ..The complaint will he dismissed, the, complainant to pav the liquidator's cotts to the extent of £lO Is, the (balance as , between solicitors and client to be paid j -out of the funds subject to taxation by ' the Court if necessary. The costs of notifying the other creditors to be paid , out of the funds, £3 3s each being al-

lowed. Mr Maginnitv appeared for complainant. .Mr Harlev'for defendant, and .Messrs Hayes, hell, and Nicholson for certain creditors.