DAIRY FACTORIES AND MILK SUPPLIERS.

Taranaki Daily News, 19 May 1917, Page 7

DAIRY FACTORIES AND MILK SUPPLIERS.

DISTRIBUTION OF PROFITS, FREE v. ELTHAM DAIRY FACTORY COMPANY. The hearing of the case J. H, F. Free v. Eltham Dairy Factory Company, partly heard on the previofls day, was resumed before His Honor 3Vfr, Justice Hosking yesterday' morning. Mr. A. H. Johnstone, with him Mr. J. Morrison, appeared for the plaintiff, and Mr. C, B. Collins, with him Mr. J. Weir, for the defendant.

Mr. Johnstone asked leave, with the consent of the other side, to amend his statement of claim by the insertion of an alternative that the relationship between the plaintiff and the defendant company had been that of principal and agent.

His Honor made the amendment accordingly, remarking that so far it appeared to him that through the company having deducted money- from the payments to the plaintiff to go towards the payment for his shares tha plaintiff had become a shareholder.

Henry James Barnard, secretary of the defendant company, was the first witness. He stated that the company started to receive milk from Free on August, 1914, and continued to receive it till November, 30, 1914. The usual monthly statements were sent out to him. In th# case of suppliers coming in for the first time they were put on the same footing as shareholders. The company expected all suppliers to apply for shares and they generally did. After they had supplied for a month or two a blank form of application for shares was sent to any such supplier, a deduction having been. made in the meantime toward payment of the shares. The deduction was at the rate of Is per every 60 gallons of milk. If the supplier did not become a shareholder the company kept the Is, and charged him nothing else, but he did not participate in any further payments or bonuses. In the case of Free the blank form of application for shares had not been sent him until after he had ceased supplying. From time to time witness reviewed the quantities of milk* supplied to Bee if the shares were in proportion to the milk supplied. If it was found that a supplier had not his proper quota the company started charging him Is per 60 gallons of milk towards payment for the additional shares required to make up the quota. The busy season was from October to March. Only a small quantity of milk, merely nominal, came in in June. On February 20, 1916, the directors of the company declared a bonus of 2d, and shortly afterwards plaintiff called and asked for a cheque. Witness told him he was not a shareholder, that he required, 92 shares, and made out a form of application for that number, stating that if plaintiff would sign it lie would put it before the directors. The share register "of the company was closed on June 30, and upon it was based the bonus or further payment due to shareholders. The company kept a milk register, a monthly payment book and a share register. Deductions made from non-shareholders were carried to a special account headed "Non Shareholders," in the share register, and tlie total amount thus shown was carried to the company's reserve account.

To Mr. Johnstone: During the 1914-15 season the output of cheese was all consigned; none of it was sold to the Government. It was an open consignment without guarantee. They got advances on it and all .payments to suppliers were governed by the amount of the advance received. Had the plaintiff purchased the shares held by Mr. Petersen at the time he took over the iatter's farm he would have been paid the full amount received by shareholders. If a supplier failed to become a shareholder he would be charged the full proportion of working expenses, which was deducted before the amount payable was fixed. It was frequently well on in July before all the returns caino in. If Mr. Tree had continued to supply milk up to February, 15, he would have not received the extra '2d for his August milk, because he was not a shareholder, not having applied for shares. He had deducted the Is per AO gallons of milk, because it was the custom of the company. If Free had been overpaid for his August milk, the surplus would have

been subsequently deducted. In several cases this had been done), but not of recent years. Witness did not know if another company had paid Is while his company 'were paying lOd; they might 'have had better advances. William Swale, manager of the Hunter Road 'branch cheese factory, said that before Free ceased supplying 'iVitness lie had a conversation with him about the quality of his milk. It had a high flavor, which witness detected by smell, The cheese made from it would also have been high flavored. 'He spoke to Free I about it, who replied that witness knew nothing about the matter, to which witness retorted that he did as 'he had had ten years' experience. Free afterwards ceased supplying. Witness visited Free's farm and found the dairy and utensils spotlessly clean. He attributed the flavor to the pasture. The effect of the high flavor, as witness told Free, was to reduce the cheese from first to second grade. To. Mr. Johnstone: Some of tho cheese produced by the factory had been graded second after Free had ceased to be a supplier. - | IH. 'D. Forsyth, chairman of directors of the Eltham Dairy Company, said that in common with other factories, they re-1 ccived milk on monthly payments, the amount of sncli payments being fixed by the directors the following month, and these payments were the final payments in the event of the suppliers not becoming shareholders. The directors fixed the price each month according to the market rate,, cost of shipping, and other financial exigencies. The company's experience was that consignees were prepared to advance pretty nearly the market rate, of which the directors were advised by cable from time to time. By this means the directors, previous to this year,, had been able to ariive at so near the market price that the final payment at the end of the financial year hail not been more than from three farthings to a penny. It might, therefore, happen that the last monthly payment would be the final payment for the year, If it was found that suppliers had been overpaid the company would expect a refund. This custom was well-known throughout Taranaki, and that it had been the custom of his company for over twenty years had been proved in a previous court case. Non shareholders were not allowed, under the articles of association, to participate in any final payments or bonuses. To allow them [to participate in the bonuses would be i unfair to tk»l*k«l4pm who had

borno the burden of the whole 'liability. The company paid no interest, and therefore, their £1 paid-up shares were only worth about 10s. Each supplior, in order to become a shareholder, liud to take up a £1 share for every Bfllbs of butter fat. Witness detailed the method adopted in allocating t'lie nmtAer of shares required to be taken up by the suppliers. The low price of 9d had been fixed when the war broke out sifter a conference with the heads of banks in Wellington, 'when the representatives of factories were advised to fix the price! at a low rate, and at a conference of the factories it was agreed to do so. The output during the months Free lmd supplied would not have realised more than lS'/id at the very moat. 'From that the deduction in an up-to-date dual factory should, in his opinion!, be not less than 2(1 per lb of butter fat. Tbe directors gave the suppliers of the August-Novem-ber output the benefit of the high prices which had been obtained later.

To Mr. Johnstone: The company had no quarrel with Mr. Free because of his leaving them. No bonus had been paid on the shares held by Mr. Petersen. Had Mr. Free been registered on June 30, as the holder of 92 shares he would have been paid the bonus. The bonus for the August milk allocated in tbe following February was 2d and another Id had 'been allocated later, making 3d in all, although the value for that month was as he had said only 13$ d: It was probably that their advice was to pay considerably more than 0d or lOd for the August, September, October and November milk, but that was the price agreed upon at a conference of dairy factory representatives. He could not say if his company was the only one thai stuck to the agreement. He thought it would lie a good arrangement to let all suppliers know exactly the ifcerms upon which tliiey worked, but in the present c4se the plaintiff had been well informed that ho must be a shareholder 'before June 30.

To. Mr. Weir: The advances made by consignees assisted 111 financing but had no effect on the ordinary payments. John B. Murdoch deposed that he was chairman of directors of the T. L. Joll Dairy Factory and'had had sixteen years' experience of dairy factories. The general practice was that suppliers should become shareholders. It was uncommon to have non-shareholders as suppliers, and in the companies he knew nonshareholders were treated differently to shareholders; the final payments or bonuses were not paid to non-sharehold-ers. The rule that every supplier should become a shareholder was well known throughout the district. W. D. Powdrell, chairman of directors of the Kapokonui Dairy Company, said 'he had been connected with the dairy factory business for about fifteen years. Tlie practice of his company 'with regard to a new man was first to ascertain how many cows he was likely to milk and then to deduct an amount for shares proportionate to the butter fat he was likely to supply. Every man in the dairying business in Taranaki knew that he must take shares if he 'became a supplier. The company did not go out of their way to show men bow to dodge taking shares; they endeavored, on the contrary, to make them do so. His company took milk from non-shareholders in cases of emergency, when they made a deduction on the price paid. It was really not a deduction but a small and reasonable charge for working up his milk. Witness put in the High Commissioner's reports for the period during which Free was a supplier, showing a fair price to 'have paid out for those months would have been Is l%d.

To Mr. Johnstone: The price paid by witness' company for the whole of that season was .Is 6 7-Sd, but his company was in a position to pay more than others because they had additional sources of revenue.

This completed tho evidence for the defendant.

Mr. Collins, addressing the court, submitted that Mt. Free had been bound by the terms of his monthly statements, and to regard himself as a potential and not an actual shareholder, and in support of his contention quoted various authorities. The court would have to der cide the exact status of the plaintiff in the matter, namely whether he was a shareholder, a vendor, or a principal for whom the defendant company was agent. The case for the defendants was that the supply of milk to the company had 'been in the nature of a sale, a sale by a person who had t'ho power and right to become a shareholder by complying with conditions of whidh he was fully informed. The plaintiff had not complied with those conditions until aftei the close of the financial year,, and in this case time was an essential feature of t'ho contract.

Mr. Johnstone said that if the plaintiff was not ft shareholder, if his supply of milk had simply been a sale as submitted for the defendant, then ho was entitled to a fait price and reasonable price for the commodity he supplied. His honor: We have had two witr.oases who appeared to ki.ow what th w wero talking about, and their evidence seemed to fix 13% d ns a reasonable price and from that I would deduct I<l, net 2d for working expenses.

Mr. Johnstone submitted that a reasonable price would be the price actually paid by the Eltham Dairy Factory Com-

pany to their shareholders during the months the plaintiff had been a supplior. He admitted that the plaintiff had not become a shareholder on Juno 30 because his name had not been placed on the share list, but submittc/i that he had become a shareholder before the distribution was made in July, having hecome .possessed of 9i share 9 from Petersen. Then again, counsel contended, it 'had been the intention of the company to make Free a shareholder by deducting money for payment of the shares, and as the plaintiff did not object but acquiesced in the deductions a contract had been established between them. He submitted that plaintiff was entitled to rank as a shareholder, and if not was entitled to recover either as a principal for whom the defendant company had acted as agents, or as a vendor, and that in either case the reasonable price to which he was entitled was the same. His 'Honor reserved judgment, saying he would take time to consider the case along with the others of a somewhat similar nature which had also been heard during the present sessions.