COOPEKATIVE ORGANIZATION BY-LAWS. 21 
Sec. 2. In case there are local dealers handling the supplies desired, they shall be 
given an opportunity to bid on the order before it is placed with an outside agency. 
Note.— In the cooperative plan of buying farm supplies, the local dealer should be considered. The 
merchant who in the past has extended credit and rendered other valuable services should be favored 
when there is cash to be expended. The cooperative committee should go to such local firms and 
explain that their members are in condition to perform certain services which formerly were rendered 
by the dealers, and, in view of their less exacting requirements, they expect to save to themselves the 
price formerly charged for that work. 
Article XVIII. — Savings and Damages. 
Section 1. After the season's expenses are paid and a proper sum set aside to cover 
the depreciation of the Association's property and after provision is made for a contin- 
gent fund to be fixed by the Board of Directors, the balance of the season's savings 
on products sold shall be divided among members and nonmember patrons, if any, in 
proportion to the amount, [or value] of their products sold, and the balance of the 
season's savings on supplies purchased shall be divided in like manner. In case of a 
nonmember patron, any part of such sums of money owing him as such, may be applied 
to the payment of membership fees and dues for him, and. if so applied, when such 
fees and dues are fully paid a membership certificate shall be issued to him. When 
any nonmember offers his product and the Association accepts it for sale, such offer 
and acceptance shall be deemed an application for membership. 
Sec 2. Any member who fails to live up to his agreement, or fails or refuses to 
deliver to the Association for sale the pledged products, shall pay to the Association, 
as liquidated damages, the sum of [25 cents] for each [barrel of apples] not delivered 
by him; said sum may be deducted from any money in the possession of the Associa- 
tion due the member. Any such claim shall be a lien upon the member's loan note. 
Note. — Some State courts have held that a stipulation for liquidated damage was void in the contract 
between the member and the Association, because it appeared that it was employed as a mere device to 
enforce a contract which was made in restraint of trade. These decisions were rendered prior to the 
passage of the Clayton amendment to the United States antitrust laws. It is now thought that State 
legislatures may authorize cooperative agricultural associations, which conform to the requirements of 
section 6 of the Clayton amendment, to embody in their contracts with their members a stipulation for 
liquidated damages, which will not offend the antitrust laws of the State or of the United States. 
Many organizations have failed because members were bound only by a verbal agreement, which is 
totally inadequate for a stable and enduring organization. The laws of the State should be studied to 
ascertain whether this clause in the by-laws for holding the members may be legally included. 
Article XIX. — Accounts and Auditing. 
Section 1. This Association shall install a standard system of accounts, and pro- 
vide other accounting appurtenances that may be necessary to conduct the business 
in a safe and orderly manner. 
Note.— The Bureau of Markets has devised systems of accounts for several lines of cooperative busi- 
ness, such as grain elevators, fruit organizations, creameries, live stock shipping associations, and stores. 
Information in regard to systems of accounts may be obtained by writing to the Bureau of Markets, 
United States Department of Agriculture. 
Sec. 2. The books and the business of the Association shall be audited [quarterly] 
by the auditors selected from the membership. A complete annual audit shall be 
made by a competent accountant previous to the date of each annual meeting, at 
which meeting his report shall be presented in full. Special audits shall be made 
upon order of the Board of Directors or upon a majority vote of the members at any 
regular or called meeting. 
Sec. 3. The Association shall endeavor to cooperate with other farmers' cooperative 
associations in this locality in securing the services of a competent accountant for its 
annual audit. 
Note.— While small associations may not feel the need of such a strict system of investigating their 
accounts, it will pay to have this work done often and most thoroughly. If the Association business is 
being conducted carelessly, frequent audits will make it known and better methods may be adopted 
before any great loss occurs. The cost of employing an expert accountant is more than balanced by the 
confidence which it gives the members and the effectual way in which it stops the criticism of fault 
finders. 
