LEGAL PHASES OF COOPERATIVE ASSOCIATIONS 105 
will enable it to meet all of its obligations, including current and 
prospective expenses incident to maintaining and operating the com- 
pany. At the end of a year or other period it is the practice for 
mutual insurance companies to ascertain the amount of the items 
referred to (due consideration being given to the risks and hazards 
involved) and then to return to the patrons or policyholders sums 
of money called dividends which are based upon the amounts which 
the policyholders have paid and which were found to be unnecessary 
for the purposes specified. An insurance company can not deter- 
mine in advance the precise amount which should be charged for 
insurance to cover the items in question, nor can a cooperative asso- 
ciation determine in advance the precise amount necessary to meet 
its expenses and any other recessary charges. In the case of the 
insurance companies, they charge enough for the insurance to cover 
all possible contingencies, with the idea of returning any surplus to 
policyholders at the end of a given period. Cooperative associations 
follow a like practice.- 
There is no magic or mystery about patronage dividends or re- 
funds; they simply represent a practical means of achieving a given 
result, namely, the return to the members of an association of savings 
effected thereby. 
CERTIFICATES OF INDEBTEDNESS 
Since many cooperative associations issue certificates of indebted- 
ness, an inquiry into the character of such certificates and their status 
is of interest. A certificate of indebtedness, as the term suggests, 
is a written acknowledgment by the issuing association that it is 
indebted for the amount stated, to the person named therein. The 
paper certifies to this fact. It is written evidence that the lawful 
holder of the certificate has a claim against the association issuing 
the certificate in accordance with its terms. 
Certificates of indebtedness are generally used as a link in the 
revolving-fund plan of financing an association. The plan is one 
under which the capital needed by an association is equalized and, 
to a degree at least, is shifted from year to year so that all mem- 
bers who utilize the association help to furnish its capital in propor- 
tion to the use they make of the association. The plan contemplates 
the redemption of some certificates from time to time and the issu- 
ance of other certificates to the same or to different members. The 
certificates are written evidence of loans which the members of an 
association have made thereto. 
Generally, if not always, the certificates are issued because of 
deductions made by the association from the proceeds derived from 
the sale of the products of members. These deductions are authorized 
by the marketing contract, or by the by-laws of the association, or 
by both. The method by which the association acquires the money 
does not change the essential character of the transaction, which is 
simply that of a loan. 
The terms of repayment of certificates vary with different associa- 
tions. Some associations attach coupons with different maturity dates 
to their certificates, and by this method the payment of the certifi- 
cates is distributed over a term of years. Usually, the certificates 
bear interest. 
