PROBLEMS OF COOPERATIVE MARKETING ASSOCIATIONS 27 



Attempts to make all members equally liable for expenditures 

 for fixed investments by using the accommodation notes of the mem- 

 bers as collateral for loans of this character have been unsatisfac- 

 tory for several reasons. The first relates to the character of accom- 

 modation notes, into which class fall notes of this kind given by 

 members to their association. An accommodation note is generally 

 held to be unenforceable by the payee against the maker thereof, and 

 if accepted after maturity can not be enforced by a third party who 

 purchases it, or holds it as collateral. Most accommodation notes 

 are payable on demand, in which case uncertainty exists as to the 

 time the obligation is due. Some courts have held, however, that 

 the due date of a demand note reasonably may be considered one 

 year from the time it is drawn. In a few instances, even shorter 

 periods have been specified. 



Nonstock associations have a more acute problem in financing 

 fixed investments than stock organizations. In fact, the difficulties 

 have led a number of organizations to incorporate with capital stock 

 rather than on the nonstock plan. 



Two general methods have been adopted by nonstock organiza- 

 tions to finance investments in fixed assets. These are (1) to organ- 

 ize a subsidiary capital stock corporation, or (2) to procure the 

 initial capital from membership fees, or loans from members, evi- 

 denced by " certificates of indebtedness." The collateral-note plan, 

 already described, may be used also. 



The organization of subsidiary warehousing or packing corpora- 

 tions has been confined, in the fruit and vegetable field, to a few 

 large organizations. The common stock of a subsidiary corporation 

 is generally a small issue, owned entirely by the parent cooperative 

 association. The subsidiary, as a rule, puts on the market an issue 

 of preferred stock from the sale of which it procures the funds 

 necessary to finance, or partially to finance, the construction or pur- 

 chase of buildings and equipment. Additional funds may be pro- 

 cured through mortgage loans. 



A nonstock association attempting to finance independently the 

 construction or purchase of warehouses and other property has a 

 more difficult task than an association organized with capital stock. 

 Membership fees in such an organization are usually small, inade- 

 quate for even the initial investment in fixed assets. Additional 

 funds must be procured from the members, or the organization must 

 proceed largely on the credit of its directors, or public-spirited 

 citizens. 



A local nonstock association frequently borrows money from all 

 its members for this purpose, giving them in return " certificates of 

 indebtedness," evidencing the interest of each member in the assets 

 of the association. In other Cases, the bankers and business men of 

 the town take an active interest in the association, and the organiza- 

 tion receives loans on unusually favorable terms. Provision for the 

 retirement of loans of this kind is usually made by fixed deduc- 

 tions from the gross receipts for the sale of products, which are car- 

 ried in a " building and maintenance " or " indebtedness retirement " 

 fund. 



