                             No. 12125
        IN THE SUPREME COURT OF THE STATE OF MONTANA
                                1972


FRED SCHMIDT, et al.,
                        Plaintiffs and Respondents,
      -vs-                                   $




DAVID NORTON et al, ,
                        Defendants and Appellants.


Appeal from: District Court of the Eighteenth Judicial District,
             Honorable James C Freebourn, Judge presiding.
                              .
Counsel of Record:
      For Appellants :
             Morrow, Nash and Sedivy, Bozeman, Montana,
             Donald A Nash argued, and Edmund P Sedivy argued,
                     .                          .
              Bozeman, Montana.
      For Respondents:
             Bolinger and Wellcome, Bozeman, Montana.
             G Page Wellcome argued, Bozeman, Montana.
              .



                                       Submitted: April 18, 1972
                                         Decided:   mF   6 1992
Filed : JW 6 1972
Mr. Justice Frank I. Haswell delivered the Opinion of the Court.

     This appeal arises out of an action for a mandatory injunc-
tion and damages against the directors of a grazing association
in denying a membership application therein to the prospective
purchaser of plaintiff's membership.    The case was tried without
a jury before the district court of the eighteenth judicial
district which entered findings of fact, conclusions of law, and
judgment granting plaintiff a mandatory injunction and requiring
the directors to approve the membership application, finding
damages in favor of plaintiff in the sum of $2,925, and offsetting
such damages against a like amount owed by plaintiff to the associa-
tion for assessments.    Defendant directors appeal from the final
judgment.
     Plaintiff is Fred C. Schmidt who became a member of the
Brackett Creek Grazing Association in 1967, following his pur-
chase of a ranch and membership in the association.   In 1970,
plaintiff sought to sell his association membership to A. D.
OIHalloran, but the Board of Directors of the association refused
approval of OIHalloran's membership application which gave rise
to the instant suit, all of which is more fully set forth here-
inafter.    Defendants are the five directors of the Brackett Creek
Grazing Association.
     Brackett Creek Grazing Association (hereinafter referred to
as the Association) is a Montana corporation, incorporated on
August 17, 1964, for the purpose of obtaining a federal govern-
ment loan, pursuant to the terms and provisions of the Farmers
Home Administration Act of 1961, to enable it to buy a ranch for
summer grazing for Association members.   The five defendant
directors were all original incorporators.   The original thirteen
incorporators felt a larger unit was needed to make it economically
feasible to continue farming..Sometime in the latter part of 1963,
they went to the Farmers Home Administration (hereinafter referred
to as FHA) supervisor in Bozeman for the purpose of attending
numerous meetings and conferences on setting up the corporation.
The personnel of the FHA assisted in forming the corporation and
offered form copies of Articles of Incorporation and Bylaws.
The forms used were standard FHA forms.
     On December 10, 1964, the Association purchased a ranch
consisting of approximately 11,000 deeded acres and certain leases
from Robert T. Ward and Suzanne Ward for the sum of $450,000,
At this time, the FHA approved a loan of $450,000 for the purchase
of the ranch, and $23,000 for its development.    Subsequently,
the Association executed a mortgage to the United States of
America, acting through the administrator of the FHA, as security
for the repayment of the loan, and as additional security executed
an assignment of certain grazing rights.
     In administrating these lands, the Board of Directors of
the Association at its annual meeting in April of each year would
determine the carrying capacity of the land for the coming grazing
year, and would then determine the number of animal units alloted
to each member for grazing.    Under the Association bylaws, the
Board of Directors has the power and duty to levy assessments
against the members for paying the Association's obligations.
     Plaintiff became a member of the Association in 1967, by
virtue of his purchase of a ranch and the accompanying Association
membership from Mr. Goffney.   At approximately the same time,
plaintiff Fred C. Schmidt submitted an application for membership,
t % c read:
 #ih
     11
      Having land and livestock commensurate with Brackett
     Creek Grazing Association, I am applying for member-
     ship in the Association.
     11
      I agree to abide by the By-Laws and any other regula-
     tions adopted by the membership. "
     Plaintiff was then issued a membership certificate upon
which was typed:
     "Membership in this Association shall be trans-
     ferable and subject to mortgage or pledge only
     upon the approval of the Board of Directors,"
     Plaintiff Schmidt acknowledged that he had received a
copy of the bylaws.
     During the spring of 1970, plaintiff placed his membership
up for sale, He went to a real estate agent and within a short
period of time entered into a ' k y and sell agreement with A. D.
OfHalloran fixing a $5,500 purchase price on the Association
membership with $1,000 paid to the agent as earnest money by
of hall or an, The buy and sell agreement provided that if the
application by OfHalloran for membership was not approved by
the Board of Directors of the Association, then the $1,000 would
be returned forthwith to O fHalloran.
     Plaintiff obtained application forms from the Association
and gave them to OIHalloran to fill out.    The completed forms
were submitted to defendant Norton, the president of the Associa-
tion, Of~alloranfs
                 application was considered by the Board of
Directors on April 10, 1970, and upon review of the application
the directors decided to take thirty days to investigate the
application.    The financial statement, a part of the application,
had not been signed by OfHalloran, nor had he used all the forms
provided him.
     On May 9, 1970, the Board again considered O'Halloranfs
application.    At that time, the Board had received information
that OIHalloran was renting out some of his land, The minutes
of the May 9, 1970 meeting reflected a determination by the Board
of Directors that OfHalloran was not a family farm operator,
as defined in Article 111, Section 7, Subparagraph A ( 3 ) , of
the Association's bylaws, which reads:
     "A, ELIGIBILITY FOR MEMBERSHIP. Eligibility
     for membership shall be based on the following
     requirements:
       " ( 3 ) Be operators of family size farms, with
       rights as to length of tenure and proximity of
       location to the grazing controlled by the Associa-
       tion, sufficient in the judgment of the Board of
       Directors, to enable the applicant to make full
       beneficial use of the grazing and services fur-
       nished by the Association. A family size farm
       shall be construed to mean a farm operated by
       one family which provides the entire management
       and more than fifty percent of the labor for such
       operation. I I
The same requirement is also found in Article V, Section 3
of the Association's Articles of Incorporation,
       On June 15, 1970, a second application was submitted by

O1~alloran,
          which stated OfHalloran was leasing 1,600 acres
of his total 2,650 acre ranch to a Mr. Logan on a percentage
lease.    This second application differed from OIHalloran's
first application as to certain financial figures, The Board
met to consider this application on July 6, 1970, and thereupon
requested O'Halloran to resubmit the application fully filled
out.
       On July 10, 1970, the Board reviewed 0'~alloran's third
application, which again set forth the fact that more than one-
half of his ranch land was leased out.    The Board then denied
OfHalloran's application for membership on the basis that he
                                   he
was not eligible for membership asldid not qualify as a family
farmer. The ~oard's reasoning was that since Of~alloran
                                                      was
leasing out more than one-half of his land, he was therefore
not providing the entire management and more than fifty percent
of the labor for his ranch.   The Board advised 0'~alloranof its
decision by letter dated July 14, 1970.
       Later in July      plaintiff filed the instant suit in
four separate counts.   In the first count plaintiff sought a
mandatory injunction against the five named director defendants
alleging that their denial of OIHalloran's application for mem-
bership in the Association was arbitrary and unreasonable.
The second count alleged that the Bylaws and Articles of Incor-
poration were void, invalid, and unenforceable as an unlawful
restraint of trade.   The third court claimed damages in the
amount of $4,000, based upon the alleged unreasonable and
arbitrary refusal to accept al all or an's membership application,
whereby plaintiff was allegedly deprived of the use of his grazing
prkvileges in the Association.    In the fourth count plaintiff
sought damages of $5,500, as an alternative to a mandatory in-
junction.
     It should be mentioned here that the second count, alleging
the Association's Articles of Incorporation and Bylaws to be void,
was apparently abandoned at trial and not considered by the
district court in its decision, and is not raised as an issue
in this appeal.
     ~efendant~'
               answer contained a general denial of the substance
of plaintiff's allegations, coupled with admissions of the basic
facts concerning the events that transpired in connection with
 al all or an's membership application.
     The principal position of plaintiff at the trial, as well
as upon appeal, was that the Board of Directors of the Associa-
tion arbitrarfly and without just cause refused to approve the
transfer of plaintiff's Association membership to O1~alloran,
thereby entitling plaintiff to the relief sought.
     On the other hand, the thrust of defendants' principal con-
tention at the trial, as well as upon appeal, was that OfHalloran
was not qualified for membership in the Association because he
did not operate a family size farm as defined by the Association
bylaws, and   accordingly the directors' denial of his membership
application was not arbitrary but for just cause, thereby pre-
cluding plaintiff's claims for relief.
     Following trial, the district court entered findings of
fact, conclusions of law, and judgment for plaintiff.   The gist
of the findihgs was that    allora or an had satisfied membership
requirements of the Association and the action of the Board
of Directors in denying his membership application was arbitrary.
The conclusions of law offset the 1970 grazing assessments owed
by plaintiff to the Association against an equal amount of
damages awarded plaintiff.    Judgment was entered granting a
permanent mandatory injunction requiring the directors to
approve OfHalloran's membership application and awarding costs
to plaintiff.   Defendants appeal from the final judgment
following the district court's denial of defendantsf exceptions
to the findings and conclusions and motion to amend same.
     Defendants assign four issues for review upon appeal, which
can be summarized in this manner:
     1.   Sufficiency of the evidence to support the district
court's findings that   al all or an satisfied the membership re;
quirements of the Association and that the Board of Directors
arbitrarily denied his membership application.
     2.   Is plaintiff entitled to a mandatory injunction?
     3.   Is plaintiff entitled to a damage award?
     4 Are the 1970 assessments owed by plaintiff to the
      .
Association germane to this action?
     The first issue for review poses the principal and con-
trolling issue on appeal:    Did   al all or an meet the membership
qualifications of the Association? If he did, he is entitled to
membership and the directors' denial of his membership applica-
tion was arbitrary entitling plaintiff to relief.      Conversely,
if 0'~allorandid not meet the membership qualifications, he
is not entitled to Association membership in any event, irrespec-
tive of the directors' action on his membership application.
     Plaintiff contends the district court's finding that
OrHalloran satisfied all the requirements for membership in the
Association set forth in its bylaws is supported by the evidence,
and that defendants' contention to the contrary is based entirely
on the fact that allora or an was temporarily leasing out 1,660
acres of his 2,650 acre ranch.   Plaintiff claims this does not
disqualify OfHalloran as the operator of a "family size farm"
under the bylaw definition thereof:   "a farm operated by one
family which provides the entire management and more than fifty
percent of the labor for such operation."   Plaintiff further
contends that in any event, at the time of trial of all or an had
cancelled the lease except for the harvesting of growing crops.
     The pertinent findings of fact made by the district court
on this question are contained in findings of fact XI and XII,
which we quote verbatim:
     "XI, That Mr. A.D. OfHalloran operates a farm
     and ranch in Park County, Montana, which is in
     closer proximity to the lands owned by the Brackett
     Creek Grazing Association than any lands owned by
     the majority of the other members of the Brackett
     Creek Grazing Association and in closer proximity
     than the lands owned by all of the Directors of the
     Brackett Creek Grazing Association; that Mr. A.D.
     O'Halloran is a citizen of the United States; that
     he possesses the legal capacity to incur the obliga-
     tions of the membership in the Brackett Creek Grazing
     Association; that he operates a farm with his family
     and he and his famil provide the entire management
                           g
     for the farm a n d m c operation and provide more
     than fifty per cent (50%) of the labor for such
     operation, the only outside labor being sporadic
     help during only a limited time during the year;
     that the applications for membership which Mr. Of~alloran
     filed, and which were checked by the Board of Directors
     with his bank in Livingston, Montana, indicate that he
     has on his own, and by secured credit, ample resources
     to obtain membership and cattle for the grazeland owned
     by the Brackett Creek Grazing Association; that Mr. A.
     D. O'Halloran possesses character, industry and agri-
     cultural ability.
     "XII. That Mr. A. D. OfHalloran satisfies a11 of the
     requirements for membership in the Brackett Creek
     Grazing Association set forth in the Bylaws of such
     Association and he is the operator of a family size
     farm; that the actions of the defendants in rejecting
     the application of Mr. A. D. Of~alloran for membership
     in the Brackett Creek Grazing Association were arbitrary
     and the prolonged consideration of the various applica-
     tions for membership caused the plaintiff damages by
     his inability to sell his membership for use by the
     purchaser during the 1970 grazing season or to obtain
     cattle himself to put upon the lands of the Brackett
     Creek Grazing Association. I I
     The membership qualifications of the Association are set
forth in its Articles of Incorporation and Bylaws.     The pertinent
provisions are:
     "ARTICLEV      [ARTICLES OF INCORPOMTION]


     "Section 3. Membership in this Association shall be
     limited to operators of family-size farms, with rights
     as to length of tenure and proximity of location to
     the grazing controlled by the Association, sufficient
     in the judgment of the Board of Directors, to enable
     such operators to make full beneficial use of the
     grazing and services furnished by the Association. A
     family-size farm shall be construed to mean a farm operated
     by one family which provides the entire management and more
     than fifty percent of the labor for such operation. I t
     "Article 111---Members [BY-LAWS]


      ti^^ 7.     Jc Jx ik


        "A. ELIGIBILITY FOR MEMBERSHIP    9; 9;

        " ( 3 ) Be operators of family size farms, with rights
     as to length of tenure and proximity of location to the
     grazing controlled by the Association, sufficient in the
     judgment of the Board of Directors, to enable the appli-
     cant to make full beneficial use of the grazing and
     services furnished by the Association. A family size
     farm shall be construed to mean a farm operated by one
     family which provides the entire management and more
     than fifty percent of the labor for such operation."
     The evidence clearly shows OfHalloran did not provide
more than fifty percent of the labor for the whole operation of
the farm, nor did he provide the entire management of the farm.
O'Halloranls second and third application forms,
Exhibits 4 and 6, state that O'Halloran was farming 990 acres and
leasing 1,660 acres.     OIHalloran represented in these applica-
tions that he had a written lease with T. E. Logan for 1,660
acres, in which O'Halloran would receive one-half of the hay,
one-third of the grain, and forty percent of the calf crop.
However, the record shows OrHalloran did not provide more than
fifty percent of the labor for the whole operation of the farm,
nor did he provide the entire management.     The requirements of
providing the entire management and more than fifty percent of
the labor are clearly and unequivocally spelled out in the
Articles of Incorporation and Bylaws of the Association.
     Plaintiff's position is that the Articles of Incorporation
and Bylaws of the Association should be interpreted to allow
an operator to lease out as much of his land as he wishes, retain
a portion of land for his own use, and still qualify as an operator
of a family size farm within the purview of the Articles of
Incorporation and Bylaws on the basis that he provides the labor
and entire management of the land which he does not lease out.
This construction would render the language and purposes of the
Articles of Incorporation and Bylaws meaningless      .   The "entire
management" and "more than fifty percent of the labor" provisions
must have been adopted for the purpose of affording some specific
limitation to eligibility of membership in the Association.
     It seems both logical and consistent for a rancher's or
farmer's operations to include not only the land he owns and
leases from others, but also that part of his ranch or farm
                        II
leased to others on a        crop-share" basis, wherein the agricul-
tural products derived from the leased land constitute part of
his total operation.    If this Court were to interpret the
eligibility requirements as allowing a party to lease out more
than fifty percent of his land, and then claim he managed one
hundred percent of what was left, thus becoming eligible for
the FHA loan program, such circumvention would subvert the very
purposes of the FHA loan program; namely, to assist small farmers
in need of expanding their operations.       It is important to note
that the FHA loan program requires the eligibility requirements
as set forth in the Brackett Creek Grazing Association's Articles
of Incorporation and Bylaws.
     We further find no merit in plaintiff's corollary argument
that at the time of trial OrHalloran testified he had recently
cancelled his lease with Logan, The district judge quite properly
excluded this testimony for the obvious reason that it had
nothing to do with O'Halloran's membership application or with
the action of the directors thereon.
     In reviewing equity type cases on appeal, this Court
recently summarized its rules in Baker National Bank v. Lestar,
153 Mont. 45, 54, 453 P.2d 774:
     "At the outset, we observe that the function of
     the Supreme Court upon appeal in a case of an
     equitable nature is to 'review all questions of
     fact arising upon the evidence presented in the
     record' and determine the same as well as ques-
     tions of law'. Section 93-216, R.C.M. 1947.
     Although this Court is bound to review the evi-
     dence as well as the law, the review is limited
     to determining whether there is substantial evi-
     dence to support the trial court's findings of
     fact and whether such findings are sufficient to
     support the conclusions of law based thereon.
     Keller v. Martin, 153 Mont. 9, 452 P.2d 422;
     Bender v. Bender, 144 Mont. 470, 397 P.2d 957."
     Here, the district court's ultimate findings of fact that
0'~alloranis the operator of a family size farm and accordingly
satisfies all the requirements for membership in the Association
is not supported by the evidence simply because the district
court misconstrued the meaning of the membership qualifications
contained in the Articles of Incorporation and Bylaws.
     One further matter merits comment.      It is at least suggested
in the brief and oral argument of plaintiff that the real reason
the directors denied ~ ' ~ ~ l l o r a n ' s
                                        membership application had
nothing to do with his qualifications, but was motivated by
financial considerations, Plaintiff points out testimony that
at one time during the process of filing applications on behalf
of OfHalloran,plaintiff offered to sell his membership to the
Association for $4,200, rather than to 0'~alloranfor $5,500, but
the directors insisted that plaintiff would have to pay his 1970
assessment which, according to plaintiff, would enable the Asso-
ciation to acquire his membership for $3,300 to $3,400 less than
its market value.   Plaintiff also points out the prolonged con-
sideration by the directors of the    as all or an membership applica-
    tions which placed plaintiff in a diificult position to protect
    himself.
         In our view these considerations are not germane to the
    con~rollingissue in this case. Where, as here, 0'~alloran did
    not meet the membership requirements of the Association, no act
    o r the directors could change the facts nor render him eligible
    Eor membership. Accordingly, the directors' denial of O'Halloran's
    membership application, for whatever reason, was not the con-
    trolling cause of plaintiff's claims.   The ineligibility of
    O'Halloran was,
         Concluding as we have that O'Halloran did not meet the
    qualifications for membership in the Association, and further
    finding that all of plaintiff's claims for relief in the instant
    case are predicated upon O'Halloran's eligibility for member-
    ship, it is unnecessary to consider the remaining issues for
    review, as plaintiff cannot prevail in any event.
         The judgment of the district court is reversed and the
    case dismissed.



                                        Associate Justice




/      dssociate ~uskices
Mr. Justice Wesley Castles dissenting:
       I dissent.      The district court, in my view, correctly
assessed the testimony.           The trial judge had the advantage of
seeing and hearing the witnesses.              A case should not be reversed
where there is substantial evidence to support the findings.
Larson v, Burnett,              Mont   .      , 492   P.2d 921, 29 St.Rep.
22.
      Here, after many evasive answers, the Board members
finally admitted that the only reason for turning down 0'~alloran's
application was that he leased part of his land on a crop-share
basis.     O'Halloran testified that farming is the sole source of
his livelihood for him and his family, that he is a family
farmer.     A lease should be treated no differently than any other
investment.      O'Halloran is clearly an individual operator.
      At one point during the process of filing applications
on behalf of O'Halloran, plaintiff offered to sell his share
of stock to the Association for $4,200.                This was done on May
19, 1970, at the beginning of the grazing season.
      The directors determined that they would purchase plaintiff's
stock but Schmidt would have to pay the yearly assessment thereby
netting plaintiff $1,100 to $1,200 on the sale when he had a
valid offer of $5,500 with earnest money put down.                    In this
manner the Association would absorb the share for $3,300 to
$3,400 less than the market value.              The district court having
heard and observed the witnesses properly held that in this
and their other determinations the d i r e c t o r s a c t ~ d a r b i t r a r i l yand
there was no reason under the Association's bylaws to disqualify
D'Halloran from membership since he met all of the requisite
qualifications for membership.
      I would affirm the judgment.
