104 BULLETIN 110 6, U. S. DEPARTMENT OF AGRICULTURE 
lawfully formed and conducted cooperative association of producers having 
adequate financial responsibility which is engaged in cash grain business, if 
such association has complied, and agrees to comply, with such terms and con- 
ditions as are or may be imposed lawfully on other members of such board : 
Provided, That no rule of a contract market shall forbid or be construed to 
forbid the return on a patronage basis by such cooperative association to its 
bona fide members of moneys collected in excess of* the expense of conducting 
the business of such association. 
The Supreme Court of the United States in passing upon the con- 
stitutionality of The Grain Futures Act 34 referred particularly to the 
paragraph of the statute in part quoted above and upheld the same, 
and in doing so said : 
Nor do we see why the requirement that the relation between them and 
this representative, looking to economy of participation on their part by a 
return of patronage dividends, should not be permissible because facilitating 
closer participation by the great body of producers in transactions of the 
board which are of vital importance to them. It would seem to make for 
more careful supervision of those transactions in the national public interest 
in the free flow of interstate commerce. 
The State of Kansas passed a statute 35 requiring boards of trade 
in that State which were not operating under the Federal grain 
futures act to admit cooperatives. This act specifies that the mak- 
ing of refunds by a cooperative shall not be a cause for exclusion. 
This statute was passed upon and upheld by the Supreme Court of 
Kansas, 36 and in the opinion the court said : 
The sole objection is that plaintiff sees fit to distribute its profits in a 
manner objectionable to defendant. One is tempted to inquire : What concern 
is it of defendant what plaintiff does with its profits, whether it retains them 
for additional working capital, or disburses them to its stockolders? And if 
it does disburse them to its stockholders, why should defendant be concerned 
with the basis of such disbursement, so long as it is satisfactory to plaintiff 
and its stockholders, and in conformity with the statute under which it was 
created? It may be doubted whether plaintiff's method of disbursing profits is 
correctly construed as a violation of defendant's by-laws against rebating or 
refunding commissions. 
The Packers and Stockyards Act, 1921, 3T recognizes the right of 
cooperative livestock market agencies to pay patronage dividends to 
their producer members. This statute was upheld by the Supreme 
Court of the United States. 38 
In some respects the practice of paying patronage dividends is 
analogous to that followed by many commission men and brokers 
who, upon receipt of products consigned to them and before their 
sale, make advances to their shippers and then, on the sale of the 
products, deduct their charges and the amount of the advances, and 
return any balance to the shippers. 
It is a fact frequently overlooked that virtually all persons who 
carry life insurance in a mutual company receive what amounts to 
patronage dividends. It is true that these dividends are not referred 
to as patronage dividends, but in essence they are practically the 
same thing. The undertaking of a mutual insurance company may 
be said to contemplate the furnishing of insurance on a basis that 
34 Board of Trade of the City of Chicago v. Olsen, U. S. Attorney, 262 TJ. S. 1, 41, 43 
S. Ct. 470. 
35 Laws of Kansas, 1925, ch. 6. 
38 Farmers' Co-op. Commission Co. v. Wichita Board of Trade, Kan. — , 246 P. 
511. 513. 
^42 Stat. 159. 
88 Stafford v. Wallace, 258 U. S. 495, 42 S. Ct. 397. 
