dissenting.
I am unable to agree with the opinion of the majority.
• ,It should be noted that all references to ORS ch 583 pertain -to the Laws of 1963 prior to their amendment in 1967. It must also be noted that ORS ch 583 is divided into two categories, (1) that of marketing dairy products and (2) the marketing and distribution of Grade A milk for human consumption. It is this latter category that must be dealt with in the matter before us.
ORS 583.006 (3) provides “ ‘First handler’ means ■the handler who first receives Grade A Milk from a producer, irrespective of the ultimate destination of such milk.”
ORS 583.006 (5) provides: “Handler means any person, corporation, association, or cooperative organization engaged in the handling of milk as the operator of a milk plant or as sales agent for producers.” This section covers all milk products.
Under (5) (b) and (c) of ORS 583.405 (which *405covers control of the production and distribution of fluid milk) a handler “[m]eans any cooperative corporation or association serving in the capacity of a handler or as a marketing agent, * * (Emphasis mine.)
Under these sections of the Milk Marketing, Production and Distribution Act (hereinafter referred to as the Milk Marketing Act), it is clear that any' cooperative engaged in handling fluid milk that is sold or to be sold to a distributor is deemed a handler within the terms of the Act.
There can be little question but that defendant, if considered a handler under the terms of the Act, must be considered the “first handler.”
The facts disclose that the defendant received the milk from its member-producers. The producers’ milk was there pooled and assigned, not sold, by defendant to the Tillamook Cooperative Creamery Association (hereinafter referred to as the Creamery Association). The Creamery Association then sold the milk to various distributors—such as Carnation, Alpenrose, or Safeway. These distributors would then make payment to the Creamery Association, and the Creamery Association would remit to the defendant who would pay sums monthly to the producers.
The Creamery Association and the defendant became involved in controversy and the Creamery Association refused to remit the proceeds received by it from the sales of milk delivered during the month of August, 1963, the Creamery Association contending that the defendant was indebted to it and that the moneys it received from the sale of milk should be credited to the claimed indebtedness.
The Creamery Association then wrote each of the *406producers stating in part: “enclosed is an assignment form for your use in transferring your claim against Tillamook Cheese & Dairy Association for milk which you shipped to them in the first 26 days of August.” Enclosed with the letter was a form entitled “Assignment” which provided:
“For moneys advanced and for value received, the undersigned does hereby assign, set over and transfer unto Tillamook County Creamery Association, an Oregon Corporation, all sums due and to become due from Tillamook Cheese & Dairy Association, an Oregon Corporation, * * *. It is intended that this assignment shall also include, but is not limited to, the amount due for fluid milk delivered between August 1, 1963, through August 26, 1963 * * * and all other sums due or to become due to undersigned from Tillamook Cheese ■& Dairy Association * *
The purported assignment was executed by each of the member-producers of the defendant represented by. the plaintiff in this action and the Creamery Association remitted to each the amount of moneys due for the milk delivered by them to the defendant.
The trial court found that these assignments were for security purposes only and, therefore, did not constitute payment for the fluid milk.
■ ' The defendant contends these assignments were not for security purposes, but were absolute, unconditional assignments; that these assignments being unconditional constituted payment to the producers and, therefore, the trial court’s judgment, resting on the finding that those producers represented by the defendant had not been paid, was erroneous.
While the ultimate question to be decided is whether under the undisputed facts the producers have been *407paid, this question can only be resolved by determining the relationship of the defendant to its members and the relationship of the Creamery Association to the defendant and defendant’s members.
There can be no question but that one of the primary purposes of the Milk Marketing Act is to protect the milk producer as to price and payment for his product for the purpose of supplying adequate, wholesome milk to the people of the state under the terms of the Act.
The facts of this case disclose that, although defendant might be considered a handler, the Creamery Association was acting as a sales agent of fluid milk, and under the terms of ORS 583.405 (5) (b) must also be considered a handler.
Under ORS 583.106, which provides for enforcement of the provisions of the Milk Marketing Act, no distinction is draAvn as to the liability of handlers to the producer. Each handler in the line of transmission of the milk to a distributor is required to account for the proceeds from the sale.
It is well established that an agricultural cooperative is an organization of farmer-producers who own and control a business for their mutual benefit. The business is non-profit in that the profits, if any, after payment of expenses of operation, maintenance of necessary reserves, or other authorized deductions, belong to and are the property of the producers. These profits on the product marketed are allocated to the member-producers on a pro rata basis according to their participation in the pooled products. Evans and Stokdyk, The La\v of Co-operative Marketing, pages 88, 91 and 111.
Therefore, unless the interests of the State re*408quire, State ex rel v. Farmers Union Creamery, 160 Or 205, 84 P2d 471, the status of the parties in an arrangement for cooperative marketing “is not the simple relation of vendor and vendee.” Rhodes v. Little Falls Dairy Co., Inc., 230 NY App Div 571, 245 NYS 432, affirmed in 256 NY 559, 177 NE 140. The cooperative acts in a fiduciary capacity for the cooperative in dealing with the members’ property. Rhodes v. Little Falls Dairy Co., Inc., supra; Ark. Cotton Grs. Co-op. Assn. v. Brown, 168 Ark 504, 270 SW 946.
Evans and Stokdyk, supra, state at p. 31:
“The association is not, in the ordinary commercial sense, a buyer of its members’ products, although for technical reasons it takes title to the products to enable it to sell with good title, or to mortgage, pledge, or hypothecate for temporary financing. The association, ordinarily, acts essentially as an agent of its members in ascertaining or developing markets, and in the selling and distributing of the products. The marketing transaction is not complete until the proportion due each member from the proceeds of sales has been remitted. In the true sense, there is no ‘profit’ involved.” See also Hulbert, Legal Phases of Cooperative Associations, pages 4 and 5.
This court recognized these principles of cooperative marketing in Oregon Growers’ Etc. Assn. v. Lentz, 107 Or 561, 579-580, 212 P 811, when we stated:
“* ® * These contracts are all similar in terms and constitute the association as the agent of the members to dispose of and market their products for the mutual benefit of the members and without profit to the association.” See Linnton Plywood v. Tax Com., 241 Or 1, 4, 403 P2d 708.
*409It, therefore, follows that, since there is ordinarily no creditor-debtor relationship existing between a member-producer and his cooperative association, a member-producer is entitled to payment only as provided in by-laws in accord with OES 62.415. And this rule of law is applicable in this case unless a different rule is required by the Milk Marketing Act to protect the milk producer.
I, therefore, accept the premise that, if there is a conflict between the laws governing cooperatives and the Milk Marketing Act, the latter must prevail over the former.
The Milk Marketing Act, OES ch 583, recognizes both relationships—that of debtor and creditor and of principal and agent—as to handlers for producers. OES 583.405 (5) (a), (b) and (c). I have been unable to find anything anywhere in the Act that requires interpretation that the relationship of a member-producer to his cooperative requires changing the relationship from that of an agency to that of debtor and creditor. The only change made by the Act insofar as cooperatives are concerned is in the matter of the cooperative accounting to the member relative to allowable deductions.
All the parties agree that the Creamery Association acted as a sales agent for the defendant in the matter of the fluid milk and other milk products. Also the Creamery Association acted as bookkeeper for the defendant and paid the Avages of certain employees of the defendant, and it was to be reimbursed for these expenditures. Therefore, it seems clear to me that, if both defendant and the Creamery Association are to be considered separate entities apart from their members, each was acting in the capacity of agents for *410the producers, the Creamery Association acting as a subagent for the defendant.
Since the Milk Marketing Act recognizes that a handler may be an agent, and the facts disclose as to both the defendant and the Creamery Association an agency relationship to the producers, this action must be governed by the laws of principal and agent; i.e., this fact does not prevent the plaintiff from bringing an action against the defendant, but the rules of law governing the action are controlled by those governing principal and agent and not debtor and creditor.
It is a well-established principle of the law of agency that funds or property of a principal coming into the hands of an agent are held in trust by the agent for the principal. Tagg v. Bowman, 108 Pa 273; Bills v. Hyde, 49 SD 18, 205 NW 708 ; 3 Am Jur 2d 588, Agency § 211.
Therefore, if the plaintiff, who represents the complaining producers, is to prevail, it must be shown that the defendant as an agent has in its hands moneys rightfully belonging to the producers.
OES 583.106 provides for enforcement by the Department of Agriculture of the payment of the moneys due a producer and specifically places the duty upon the department to proceed against the person who has not made payment for the milk. The statute provides :
“(1) The department shall file an injunction action in the circuit court for the county in which the handler or person resides or has his principal business office, based upon the findings of the department against the handler or other person whose records have been audited, if:
“(a) The handler or such person has not made payment * * (Emphasis mine.)
*411OR.S 583.116 provides for a money judgment against “such handler or person until paid.” (Emphasis mine.)
This certainly means that the party to be sued is the party who sold the milk and failed to account therefor to the producer, whether the seller is a handler or not.
While the trial court made a finding of fact that the Creamery Association had paid the defendant, the facts in the case disclose that at the time this matter was being heard there was pending, and undecided, an accounting suit between the Creamery Association and this defendant. This fact was recognized by the trial court in its conclusion of law:
“Defendant’s duty to pay for the milk delivered is in no way dependent upon receipt of funds from the resale of milk, although a finding has been entered that TCCA [Creamery Association] in fact paid TCDA [defendant] for milk.”
This erroneous conclusion of law could only be arrived at upon the assumption that a creditor-debtor relationship existed between the defendant and its member-producers.
Also, the finding of fact—that the Creamery Association had paid the defendant—is unsupported by the evidence that it had credited defendant’s account.
This because, although the producers assigned their milk to a marketing agency and that agency assigned it to a subagent, the subagent may not divert the moneys received for the milk (which under the act belong to the producers who are the principals in the transaction) to the payment of debts of the other agent of the producers. For it is a well-established rule of the law of agency that where an agent has authority to employ a subagent to receive money for the principal and the principal is known to the subagent, then, if. *412the subagent has received the money, he is liable to the principal for the money so collected. He cannot protect himself by contending he applied the moneys to the general credit of the agent, even though the agent is his debtor. Wilson & Company v. Smith, 44 US 762 (3 Howard 763) 11 L ed 820; 1 Mechem on Agency, 2d ed, 967, Book IV, Ch II, § 1330.
It also appears to me that, since one of the principal purposes of the Milk Marketing Act is to see that the producer is paid for his milk, then those who handle the fluid milk as agents of producers are required under their trust to pay all sums, less lawful deductions, to the producers. To hold otherwise is to permit the diversion of those moneys to an adjustment of accounts between “handlers” without the written consent of the producers and the Department of Agriculture. To permit such adjustments of accounts, permits discounting not authorized by statute and withholds the proceeds due and needed by the producers while the parties adjust their differences.
Under the facts of this case, it was the Creamery Association that wrongfully withheld the trust moneys and applied them to the purported debt of the defendant. In my opinion, these moneys belonged to the producers and, therefore, the payments made to them by the Creamery Association were in payment of riioneys due them from the Creamery Association and therefore the purported assignments for security are null and void and of no effect.
For the above reasons I would reverse the judgment.