106 BULLETIN 1106, U. S. DEPARTMENT OF AGRICULTURE 
The terms and conditions of certificates vary. Some certificates 
specifically state that they are secondary to all other debts of the 
association and that, in case of liquidation of the association, debts 
other than those evidenced by certificates of indebtedness shall be 
preferred and prior claims. In the case of other associations, and 
probably in the case of the great majority, the certificates of indebt- 
edness contain no provisions that make them junior to other debts 
of the association. 
No instance has been noted in which an attempt has been made 
to make the holders of certificates of indebtedness preferred creditors 
of the association, and it is believed that this could not be accom- 
plished by the insertion of a provision to this effect in the certificates 
of indebtedness without conforming to the lien laws of the State. 
At least, this would seem to be fundamentally true with respect to 
other creditors who extended credit to the association without notice 
that the holders of its certificates of indebtedness were preferred 
creditors. 
If, as is usually the case, the certificates of indebtedness of an 
association contain no provision with respect to priority of payment, 
then in the event of liquidation of the association, the holders of the 
certificates would share on a pro rata basis with other unsecured 
creditors. And in all cases, all creditors (including certificate 
holders), in the event of liquidation, would be entitled to payment, 
before the members or stockholders of the association, as such, could 
share in its assets. 
Money may be borrowed by an association from a third person, 
and may be secured by property purchased with funds for which 
certificates of indebtedness were issued. Some associations using 
certificates of indebtedness offer to redeem them prior to the date on 
which they are due, as funds are collected for their payment. If 
authorized by the marketing contract, larger deductions may be 
made by an association from returns from the sale of products during 
some periods than are made at other times. 
Certificates of indebtedness are usually used as a part of a financ- 
ing plan which involves a borrowing and repaying process. That 
is to say, certificates of indebtedness are paid through borrowing for 
this purpose, usually by the deduction plan, from the members. 
May the money which an association deducts or borrows for the 
purpose of paying certificates of indebtedness on their maturity be 
seized by other creditors of the association to pay their claims? 
Or, in the event of a failure, would money raised by an association 
for paying certificates of indebtedness be available for distribution 
among the various creditors of the association? A case decided in 
the Federal courts holds, in principle, that money deducted for the 
purpose of paying certificates of indebtedness may be seized by other 
creditors, and that, in the event of a failure, it would be available 
for distribution among the general creditors. 39 In the event of a 
failure, the holders of certificates of indebtedness should share on a 
parity with other unsecured creditors unless the certificates expressly 
state that they are junior to other claims against the association. 
89 United States & Mexican Oil Co. v. Keystone Auto Gas & Oil Service Co., 19 F. (2d) 
624. 
