Carolina Milk Producers Ass'n Co-Op. v. Melville Dairy

Annotate this Case

120 S.E.2d 548 (1961)

255 N.C. 1


No. 603.

Supreme Court of North Carolina.

June 16, 1961.

*558 Robert F. Moseley, and Jordan, Wright, Henson & Nichols, Greensboro, for plaintiff, appellee.

McLendon, Brim, Holderness & Brooks, for defendant, appellant; by: Hubert Humphrey, Jr., Greensboro.

HIGGINS, Justice.

The evidence in this case is voluminous. The record and briefs comprise more than 700 pages. Actually, however, there is little material conflict in the testimony. The disagreement arises over (1) the permissible deductions and inferences which may be drawn from the evidence, and (2) the rights of the respective parties under the marketing contract and the law applicable thereto.

The plaintiff is a co-operative association made up of milk producers in Piedmont and Southeastern North Carolina. It was organized in 1953 with its principal office in the city of Greensboro. At the times here involved its membership was approximately 1,000. A number of distributors or processing plants operate in the territory. Prior to the organization, many of the milk producers had been selling to these processing plants. Membership in the Association was established by contract described in the factual statement as A. The members appointed the Association their agent for the purpose of marketing milk and they agreed to deliver milk to the Association or its nominee. The Association agreed to account to the member (after deductions) for all milk which it sells for the members and retain such costs as are considered a fair part of the Association's operating expenses. No provision is made for other membership dues. *559 The directors fixed 6¢ per hundred pounds of raw milk as a membership fee. Subsequently a revised contract designated as B was executed. By B the member authorized the Association to sell milk in its own name and deal with it as its own; to authorize the purchaser to pay in whole or in part to the producer; or to collect in its own name for all or any part of the purchase price for all milk owned or controlled by the member. In accounting to the member, contract B provides for a deduction of 6¢ per 100 pounds as Association dues, and with certain other small incidentals, the Association was required to account to the member for the remainder. While a valid distinction may be drawn as to the Association's rights under each contract, however it is not necessary for us to distinguish these rights, hence we construe the two contracts together, giving the Association its rights under both.

Both contracts determined rights and liabilities of the member and the Association. Neither Melville, the processor here involved, nor any other dairy was a party to the contract. The right of the Association, in this case, to recover against Melville arises, if at all, by operation of law and not upon the membership contract. The plaintiff seeks to invoke the penal provision of G.S. § 54-157 which provides:

"Any person or persons, or any corporation whose officers or employees knowingly induces or attempts to induce any member or stockholder of an association organized hereunder to breach his marketing contract with the association, or who maliciously and knowingly spreads false reports about the finances or management thereof shall be guilty of a misdemeanor and subject to a fine of not less than one hundred dollars ($100), and not more than one thousand dollars ($1,000), for such offense and shall be liable to the association aggrieved in a civil suit in the penal sum of five hundred dollars ($500) for each such offense:"

The statute makes it a criminal offense if a processor induces or attempts to induce a member of the Association to breach his contract of membership. It also provides a penalty of $500 payable to the Association for inducing or attempting to induce a breach. In view of our decision, it is unnecessary to decide whether the statute contemplates a separate penalty as to each member, or whether it is proper to charge only one penalty for the offense.

The Melville Dairy began operation as a milk processing plant in 1927, first as a proprietorship owned by Ralph Scott, converted in 1934 into a partnership, and incorporated in 1953. Ralph H. Scott has been in charge from the beginning. He is now President and General Manager. Many of the members of the Association have been his customers over the years. In the early days raw milk was carried in cans by independent truck operators from the producer's home to the processing plant. However, in order to establish closer contact with the producer and thereby assure a steady supply, Scott "bought up the truck routes and the trucking equipment and thereafter operated the trucks from the producer's home to the plant." As a part of the operation, Scott, and later the corporation, sold to producers certain supplies and equipment useful in carrying on their dairy operations.

The evidence disclosed that the relationship between the producer and Melville Dairy continued along the same lines and did not materially change because of producer membership in the Association, except in one particular. After the Association certified the membership contract to Melville, Scott checked with the members and upon their approval deducted the monthly dues fixed by the Association and transmitted them to the Association. After the request for the deduction by the Association and before compliance, Melville obtained the approval of each producer. The plaintiff contended and the court found that Melville thus recognized *560 the validity of the membership contract. However, there is a fundamental distinction between recognizing the contract as valid between the Association and the producer, and consenting to be a party to and bound by it. The record is bare of evidence that Melville acted other than as a courtesy both to the Association and to its members. The Association manager, Mr. Lytle, evidently held this view and by letter expressly thanked Melville for deducting and transmitting duesat the same time stating that other processors had refused to do so. The letter indicates Mr. Lytle was not asserting any claim of right to have the dues deducted. From the evidence presented, it appears that Melville deducted and transmitted dues in the main as a favor to and for the convenience of its customers, each of whom was thus spared the necessity of sending a separate check each month. The evidence discloses that Melville did not rely on the contract but obtained the personal approval of each producer before it actually began the deduction of dues. The collection in so far as the Association was concerned was a task Melville voluntarily assumed, and which it had a right voluntarily to abandon. Ordinarily, a courtesy, even if continued, does not ripen into a legal right. "The law declares that `everyone has a right to select and determine with whom he will contract, and can not have another person thrust upon him without his consent.'" Iselin & Co. v. Saunders, 231 N.C. 642, 58 S.E.2d 614, 616.

In September, 1957, the North Carolina Milk Commission ordered an increase of 30¢ per 100 pounds in the price of Grade One Milk. For some reason undisclosed the Association opposed the increase. Melville at the time decided to put into effect a 10¢ per 100 pounds increase in its hauling charge. A committee of producers headed by Mr. Hargrove, plaintiff's director for District No. 2, called on and conferred with Mr. Scott with reference to the proposed increase. Mr. Scott, for the defendant, said that he would recheck the transportation costs and would confer further with the committee. In the meantime, without notifying Melville, the Association filed a protest to the increase with the North Carolina Milk Commission. The differences with respect to the proposed increase were adjusted by an agreement that the producers would improve the side roads and entrances to their milk houses and Melville would cancel its proposed increase. In the meantime, the Milk Commission held a hearing but made no disposition of the protest. The Commission never exercised the authority to order a processor to deduct membership dues as authorized by G.S. § 106-266.12. State ex rel. North Carolina Milk Commission v. Galloway, 249 N.C. 658, 107 S.E.2d 631; Milk Control in the United States, 38 N.C.L.R. 420.

As an outgrowth of Melville's proposed increase in the hauling charge, officers of the Association initiated a drive to have its members switch from cans to refrigeration tanks. The Association discussed plans to purchase tank trucks and take over the hauling. When it became known to the members that the switch would require each producer to make an additional investment of $1,800 to $2,500, dissatisfaction developed.

From the evidence of the members who testified at the hearing, the proposed switch to refrigeration and the cost thereof precipitated the trouble between the Association and its members. Melville's producers began notifying Scott to cease deducting Association dues. Scott, for Melville, sought the advice of the Milk Commission. He was told that similar requests were being made by other producers. The secretary gave this advice: "Have something in writing." Thereafter Melville sent out this memo and ballot: "We have had numerous requests to discontinue taking out dues for the North Carolina Milk Producers Association. If you want this done sign below and either drop it in the mail or give it to your hauler to give to us." Enclosed with the memo was the following: "To Melville *561 Dairies, Inc.: Please discontinue deducting 6¢ per 100 pounds from my check for the North Carolina Milk Producers Association as of December 1, 1957." At the time, the deductions were being made. A change required an affirmative vote. `Such seems to be in accordance with the proper statement of an issue. After the returns were in Melville ceased to make the deductions and paid in full to the producers.

Thereafter the Association's attorney made demand upon Melville either to deduct and transmit the dues or, as an alternative, to send to the Association the check for all milk sold by all members of the Association. The letter cited the memo and ballot as a threat or an attempt to have the member breach his contract with the Association "for which the court will furnish adequate civil relief." As a result of this demand, Melville called a meeting of its producers (to coincide with another producer meeting) to be held at the Courthouse in Graham on April 14. After the All-Jersey program was concluded, Mr. Scott stated to the members, "someone is likely to get sued. I am in the middle and I don't want my customers suing me." Slips or ballots were furnished and the members were invited to sign and make their wishes known. The memorandum provided: "This is to authorize Melville Dairy, Inc., to send my check (less my N. C. Milk Commission dues) to the Carolina Milk Producers Association." This ballot also required an affirmative answer to signify a change. Only three members authorized the sending of their milk checks to the Association. One later withdrew his authorization. The requests of the two were followed.

The evidence indicates a studied effort on the part of the Association's manager, Mr. Lytle, to collect dues from Melville Dairy rather than from the members themselves. He stated the Association would not sue the members. When Grady Perry terminated his contract in the manner provided, he offered to pay his back dues. Lytle said, "No, he would get it out of Ralph Scott." When Ralph Woody terminated his contract he told Lytle he wasn't going to pay any more dues. "He (Lytle) said it didn't make a damn to him. * * * `I am going to collect them out of Ralph Scott.'"

A fair analysis of the evidence fails to show wherein Scott or Melville exceeded the bounds of business propriety and legitimate self-interest either in its dealings with the committee with respect to the increase in the hauling, or its request for written instructions, or its refusal to send each producer's milk check to the Association against the will and direction of the producer who sold the milk.

Great emphasis is placed on the time in which Melville sought to increase its hauling charge. Fairly appraised it would seem that if the facts justified an increase, the appropriate time to make it would be coincident with the advance in the price to the producer. At any rate the controversy over the proposed increase was amicably settled and adjusted by the cancellation of the increase by Melville and the improvement of the roads and driveways by the producers. Melville had purchased the routes and equipment from the former truckers in order to have direct contact with its customers. If the Association took over the transportation this contract would be lost. Melville, therefore, had an interest in continuing to haul raw milk. The plan of the Association to install refrigeration triggered the opposition of the members to tanks because of the initial cost. Members of the Association began notifying Melville to cease withholding Association dues. The evidence does not show a single instance where any producer actually violated the contract. The evidence shows that cancellation was in accordance with the provisions of the contract.

Both the Association and the trial judge realized the failure of the evidence to show a breach, but sought to hold Melville upon the ground that Scott, as President and Manager, knowingly attempted to induce members of the Association to breach their *562 marketing agreements. In this connection it is worthy of note that not one member of the Association testified or suggested that Scott or any other person representing Melville attempted to induce him to breach his contract. Every member, or former member, who testified on the subject stated that he made up his own mind. The plaintiff's entire claim is based (1) on the memo and ballot sent to the producers in December, 1957, (2) the ballot offered at the April 14, 1958, meeting, and (3) the timing of Melville's proposed increase in its hauling charge to coincide with the 30¢ per hundred pounds increase in the price of Grade One Milk.

It must be remembered that during the entire controversy the Association did not sell or offer to sell, a single pound of milk. Not once did the Association confer with Melville with reference to any sale, or proposed sale. The producer in each instance made the sale of his own product in the customary manner. When Melville bought under these circumstances it is certainly understandable why it refused to pay the Association the full purchase price without specific authority from the producer. Melville's milk supply depended upon its amicable relationship with its producers. Neither common sense nor law required it to violate the producer's specific instructions respecting payment for their own products purchased in the usual course of business. In this respect the defendant sought the advice of the Milk Commission and followed that advice. By so doing its motives, without proof, cannot be presumed to be evil. A man who contemplates wrongdoing does not consult the police.

The plaintiff cites Pure Milk Association v. Kraft Foods Co., 8 Ill.App.2d 102, 130 N.E.2d 765, 767, as authority for contending the letters and ballots to the producers constituted an attempt to induce a breach of the membership contract. The letter in the Kraft case, after reciting demand of the Association and Kraft's refusal, contained this statement: "For over forty years we at Stockton have valued the privilege of serving and working directly with our patrons, and we sincerely regret that this relationship must be changed in any respect." No such statement was ever made by Melville. The Kraft case was an equity proceeding to restrain the breach of contract. The decision, although by an intermediate appellate court, was against holding the processor for collecting dues. In Rinnander v. Denver Milk Producers, 1946, 114 Colo. 506, 166 P.2d 984, the defendant offered a member 2¢ per pound more for his milk, thereby attempting to induce a breach.

Here we have a request by Melville for written instructions from its customers on a matter in which the private oral instructions conflicted with the claims advanced by the Association. The defendant made no attempt to influence the free expression of views. The request was merely an attempt to comply with Mr. Whitaker's advice that, in the dispute which was widespread between members and the Association, the processor should have directions in writing. After all, Melville had an arrangement to do the hauling before the Association was organized. Was it wrongful for it to insist on buying the milk and picking it up at the home of the producer?

When the evidence is analyzed, can it be said that there is anything of substance indicating an attempt to induce a breach of the membership contract? The statute involved is highly penal. The attempt to induce a breach is a criminal offense. The penalty provided is in the nature of additional punishment. "That penal statutes must be construed strictly is a fundamental rule. The forbidden act must come clearly within the prohibition of the statute, for the scope of a penal statute will not ordinarily be enlarged by construction to take in offenses not clearly described; and any doubt on this point will be resolved in favor of the defendant." State v. Mitchell, 217 N.C. 244, 7 S.E.2d 567, 571; Childress v. Abeles, 240 N.C. 667, 84 S.E.2d 176. "One who seeks to recover a penalty imposed by statute must bring his case clearly *563 within the terms of the statute." 70 C.J.S., Penalties, Construction of Statutes § 1, p. 390. In the view we take of this case it is not necessary for us to determine whether a separate penalty may be assessed for each member or whether one penalty only may be assessed for the offense.

In the closing pages of its brief, the plaintiff makes this concession: "We have made no contention that the plaintiff had the legal right under the membership contract to require the defendant to make the 6¢ per cwt. deductions and to remit them to the plaintiff." This concession admits as unjustified the Association attorney's first demand in the letter of December 30, 1957, that the defendant deduct and transmit dues. The plaintiff, does, however, contend that the demand for the full payment of all milk was proper and required Melville to make payments to the Association regardless of the producer's wishes. The marketing contract authorizes the Association to collect from Melville for all milk sold by all producers. It permitted the Association to deduct membership dues and obligated it to pay the remainder to the respective producers. By this method of accounting the Association received membership dues and the producers received pay for his milk and credit for his dues.

The plaintiff realizes the producer is not entitled to be paid twice for his milk; and Melville should not be required to pay twice for it. However, the plaintiff contends that Melville should be required to honor the assignment in the contract and should pay in full to the Association; that the Association retain membership dues and account to the producer for the remaining amount due. Melville then has the legal right to call on the producer to return the price paid in the first instance for the milk for the reason that his keeping it would amount to unjust enrichment.

In the main the court seems to have adopted the plaintiff's theory of the case. The court found the plaintiff is entitled to recover $74,553.73. Whereupon the plaintiff becomes liable to pay the producer the amount collected for his milk, less his membership dues. "But the defendant having paid that amount to the producers, as a matter of equity, the defendant should not be compelled to pay the same twice * * * The monetary recovery to be had by the plaintiff against the defendant should be only the amount of said dues."

The evidence is undisputed that Melville paid the producer in full for all milk delivered. The producer has received the money out of which he is obligated to pay dues to the Association. That duty arose under his contract, for which he is primarily liable. He may or may not have paid the dues. On that question the finding is silent. A third party cannot be held for a payment without a finding that the party primarily liable has failed to meet the obligation. The court did find that Melville had not paid the dues but there is no finding the producer did not pay them. The court's judgment requires Melville to pay the dues after having paid in full for the milk. The judgment permits the producer to escape payment, or, if he has paid, then it permits the Association to collect twice: once from the member and once from Melville. The plaintiff insists the judgment for the dues should stand. To use a slang expression, this Court does not buy the argument.

The court sat as judge and jury. The findings of fact are conclusive on appeal if supported by any substantial evidence. However, the court's conclusions from the facts found involve legal questions which are subject to review on appeal. Actually, in this case many of the stated findings are inferences and conclusions from facts which are not in serious dispute. The rule in such cases is, "Every inference must stand upon some clear and direct evidence, and not upon some other inference." Lane v. Bryan, 246 N.C. 108, 97 S.E.2d 411, 413. However, when the actual evidence is carefully analyzed, when it is both weighed and measured, it is insufficient to support a finding *564 the defendant attempted to induce any member of the Association to breach his marketing contract. "When the proved or admitted facts are consistent with any reasonable theory of good faith and honest intent, they should be so construed." 37 C.J.S. Fraud § 115, p. 438. The plaintiff has failed to show by facts, and the legitimate inferences from them, that on either of the alleged causes of action it is entitled to recover.

The judgment is