insurance companies, organized and operated by farmers, that have been in existence for more than 100 years. By 1970, approximately 1,350 farmer mutual fire insurance associations were scattered throughout the United States with more than $40 billion of insurance outstanding. This represented about half of all the fire insurance carried on farm property.45

There are, of course, other organizations of farmers that are engaged in neither marketing nor purchasing, but it is beyond the scope of this publication to discuss the specific legal problems incident to all of them. Among these associations are cooperative credit, irrigation, electric, telephone, and many other kinds of enterprises.46

History of Cooperatives

The origins of farm cooperatives may be traced to the earliest agricultural efforts of the country. Indeed, histories of the movement were already available in the 19th century.

For those who may be interested in the historical aspects of agricultural cooperation, a list of a few references on the subject has been prepared.47

122 Conn. 482, 191 A. 326 (1937); United States v. Maryland & Virginia Milk Producers' Association, Inc., 179 F. 2d 426 (D.C. Cir. 1949), 193 F. 2d 907 (D.C. Cir. 1951).

45 Valgren, Problems and Trends in Farmers' Mutual Fire Insurance, Farm Credit Admin. Bull. 23 (1938), p. 1; Hyre, Service Cooperatives, FCS Bull. No. 1, Reprint 9, Farmer Cooperative Service, U.S. Dept. Agr. (1965); Stanton, Farmer Cooperatives... Farm Business Tools, Agr. Inf. Bull. 275, Farmer Cooperative Service, U.S. Dept. Agr. (1970), p. 34.

46 See Farmer Cooperatives in the United States, FCS Bull. No. 1, Farmer Cooperative Service, U.S. Dept. Agr. (1965); and Packel, The Organization and Operation of Cooperatives, 4th ed., American Law Institute (1970), for general treatment of some of these other kinds of associations. See also two publications by the Rural Electrification Administration, U.S. Dept. Agr., Rural Lines ... 1970 and 20 Years of Progress in Rural Telephone Service (1969). For a collection of cases and statutory materials relating to service areas and disputes over consumers involving both electric and telephone cooperatives see Legal Aspects of Territorial Protection for REA-Financed Cooperatives, Office of the General Counsel, U.S. Dept. Agr. (Jan. 1970).

47 Bemis, History of Cooperation in the United States, Baltimore (1888). Buck, The Granger Movement. A Study of Agricultural Organization and Its Political, Economic and Social Manifestations, 1780-1880, Cambridge, Mass. (1913).

A discussion of all the cases involving cooperatives arising under Federal and State statutes would be extensive indeed. A number of these cases have involved the regulation and stabilization of the milk industry and State and Federal agricultural adjustment laws.48

The first Federal Agricultural Adjustment Act was in part held unconstitutional49 but, as subsequently amended and reenacted in 1938, it has been held constitutional.50

Nourse, Fifty Years of Farmers' Elevators in Iowa, lowa Agr. Expt. Sta. Bull. 211 (1923).

(1928).

Nourse, The Legal Status of Agricultural Co-Operation, Macmillan Co.

Gardner, Cooperation in Agriculture. A Selected and Annotated Bibliography With Special Reference to Marketing, Purchasing and Credit, Farm Credit Admin. Bull. 4 (1936).

Herrman and Gardner, Early Developments in Cooperative Cotton Marketing, Farm Credit Admin. Cir. C-101 (1936).

Elsworth, The Story of Farmers' Cooperatives, FCS Educ. Cir. 1, Farmer Cooperative Service, U.S. Dept. Agr. (1954).

(1957).

Abrahamsen and Scroggs, Agricultural Cooperation, Minnesota Press

Roy, Cooperatives: Today and Tomorrow, Interstate Printers & Publishers, Inc. (1964).

Farmer Cooperatives in the United States, FCS Bull. No. 1, Farmer Cooperative Service, U.S. Dept. Agr. (1965).

Knapp, The Rise of American Cooperative Enterprise: 1620-1920, Interstate Printers & Publishers, Inc., Danville, Ill. (1969).

48 Brannan v. Stark, 342 U.S. 451 (1952); Stark v. Wickard, 321 U.S. 288 (1944); Nebbia v. New York, 291 U.S. 502, 89 A.L.R. 1469 (1934); Highland Farms Dairy v. Agnew, 300 U.S. 608 (1937); United States v. Rock Royal Cooperative, Inc., 307 U.S. 533 (1939); Holcombe v. Georgia Milk Producers Confederation, 188 Ga. 358, 3 S.E. 2d 705 (1939); Jersey Maid Milk Products Company v. Brock, 13 Cal. 2d 620, 91 P. 2d 577 (1939); Van Winkle v. Fred Meyer, Inc., 151 Ore. 455, 49 P. 2d 1140 (1935); Maryland Cooperative Milk Producers v. Miller, 170 Md. 81, 182 A. 432 (1936); Ferretti v. Jackson, 88 N.H. 296, 188 A. 474 (1936); Griffiths v. Robinson, 181 Wash. 438, 43 P. 2d 977 (1935); 92 A.L.R. 1482, 98 A.L.R. 1145, 101 A.L.R. 64, 102 A.L.R. 937, 110 A.L.R. 644, 114 A.L.R. 136, 119 A.L.R. 243; Cadwallader, Government and Its Relationship to Price Standards in the Milk Industry, 22 Minn. L. Rev. 789 (1938). See also Brooks, Marketing of Farm Products Under Some of the Federal Regulatory Statutes, 6 S.C.L.Q. 247 (1954); Brooks, Federal Regulation of the Marketing of Farm Products. 30 Rocky Mt. L. Rev. 457 (1958); Griffin, Federal Marketing Regulations, California Farm & Ranch Law 213 (1967); Say and Fourt, State Marketing Regulations, California Farm & Ranch Law 243 (1967).

49 United States v. Butler, 297 U.S. 1, 102 A.L.R. 914 (1936). 50 Mulford v. Smith, 307 U.S. 38 (1939).

Finally, it should be mentioned that in addition to the statutory provisions directly applicable to and the court decisions involving the unique character of cooperatives, the general rules of business law are usually as applicable to cooperatives as to other business concerns.51

Organizing a Farmer Cooperative

It is beyond the scope of this publication to consider in detail all the factors involved in the formation of a cooperative; consequently, the discussion focuses on the essentials.'

51 Farmers' Coop. Packing Company of La Crosse v. Boyd, 175 Wis. 544, 185 N. W. 234 (1921) (alleged fraud in sale of packing plant); Manatee County Growers' Association v. Florida Power & Light Company, 113 Fla. 449, 152 So. 181 (1934) (assumption of contract by cooperatives); Higgins v. California Prune & Apricot Growers, 16 F. 2d 190 (2d Cir. 1926), petition for certiorari dismissed, 273 U.S. 781 (1927) (breach of sales contract); Kansas Wheat Growers' Association v. Farmers' Elevator Company of Luray, 127 Kan. 27, 272 P. 181 (1928) (conversion); Farmers National Grain Corporation v. Kirkendall, 183 Okla. 17, 79 P. 2d 570 (1938) (conversion); Associated Seed Growers, Inc. v. South Carolina Packing Corporation, Co-op, 186 S.C. 118, 195 S. E. 107 (1938) (cooperative liable on trade acceptances); Baker v. Farmers' Welfare Union, 3 S. W. 2d 155 (Tex. Civ. App. 1927) (suit against former employee for recovery of furniture, etc.); Genco v. Union Berry & Truck Association, 167 So. 890 (La. App. 1936) (suit for salary-defense that no salary was to be paid unless profits made); Gust v. Muskegon Cooperative Oil Company, 226 Mich. 532, 198 N. W. 175, 33 A.L.R. 772 (1924) (suit for personal injuries resulting from gasoline); Federal Reserve Bank of San Francisco v. Idaho Grimm Alfalfa Seed Growers' Association, 8 F. 2d 922 (9th Cir. 1925), certiorari denied, 270 U.S. 646 (1926) (recovery allowed because taking of deposit by insolvent bank was a fraud on depositor); California Pear Growers' Association v. Herspring, 60 Cal. App. 503, 213 P. 518 (1923) (sales-right of inspection); California Packing Corporation v. Sun-Maid Raisin Growers of California, 64 F. 2d 370 (C.C.P.A. 1933) (trademarks); California Packing Corporation v. Sun-Maid Raisin Growers of California, 81 F. 2d 674 (9th Cir. 1936) (trademarks); Janes v. Lake Wales Citrus Growers Association, 110 F. 2d 653 (5th Cir. 1940) (who are necessary parties to an injunction suit involving Fair Labor Standards Act?); Grandin Farmers' Cooperative Elevator Company v. Langer, 5 F. Supp. 425 (D. N. Dak. 1934) (Agricultural Products Embargo Statute of North Dakota); Sun-Maid Raisin Growers of California v. American Grocer Company, 40 F. 2d 116 (C.C.P.A. 1930) (trademarks); California Fruit Growers Exchange v. Windsor Beverages, 118 F. 2d 149 (7th Cir. 1941) (trademarks); Pavilis v. Farmers Union Livestock Commission, 68 S.D. 96, 298 N.W. 732 (1941) (check signed in blank).

For a step-by-step approach to organizing a cooperative, see Rust, How to Start a Cooperative, FCS Ed. Cir. 18, Farmer Cooperative Service, U.S. Dept. Agr. (1972).

There is no Federal statute for the incorporation of agricultural cooperative marketing and farm supply associations. There are, however, Federal statutes administered by the Farm Credit Administration for the incorporation of banks for cooperatives, and production credit associations,3 which may be regarded as farmer cooperatives. In 1940, Congress enacted for the District of Columbia a statute authorizing the incorporation of consumer cooperatives.4 There is a Federal statute under which credit unions may be incorporated, and one under which savings and loan associations may be formed."

All States have statutes adapted to the incorporation of agricultural cooperatives. Incorporation of such a cooperative must be done under an appropriate State statute.

These laws generally require that a certain number of individuals, usually three or more, must unite in articles of incorporation. The term "articles of incorporation" describes the paper which is filed for record, in conformity with law, for the purpose of forming a corporation. Those whose names appear in the articles of incorporation are known as the incorporators.

An incorporation statute normally requires that the objects and purposes for which the corporation is formed shall be clearly stated in the articles; that the name by which the corporation is to be known shall be given; and that the amount of capital stock, if it is to have capital stock, shall be stated.

Other usual statutory requirements include the length of time the organization is to exist, its principal place of business, the number of directors, and the period the incorporating directors are to serve. The principal place of business specified in the articles need not be the place where the major part of the business of an association is transacted.' If an unauthorized provision is included in the articles, it is void even though the corporation

seq.

eq.

212 U.S.C. 1134 et seq. See now Farm Credit Act of 1971, 12 U.S.C. 2001 et

'12 U.S.C. 1131d et seq. See now Farm Credit Act of 1971, 12 U.S.C. 2001 et

+54 Stat. 480; District of Columbia Code Encyclopedia (1968 Ed.), § 29-801 et seq.

12 U.S.C. 1751 et seq.

12 U.S.C. 1464, upheld in First Federal Savings and Loan Association v. Loomis, 97 F. 2d 831 (7th Cir. 1938).

'Dairymen's League Coop. Association, Inc. v. Brundo, 131 Misc. 548, 227 N.Y.S. 203 (1927).

may be a valid corporate entity, and as such authorized to exercise its lawful powers; but "all acts done by it in the exercise of its assumption of unauthorized and illegal powers are invalid and unlawful."8

Application to be incorporated or for a charter is usually made to an official of the State, such as the secretary of state. The articles of incorporation, or the certificate of incorporation as it is called in some States, which is the application to be incorporated, is submitted to this official. If he finds that the statute under which the incorporators are seeking to incorporate has been complied with and that the purpose of the corporation is authorized in the statute, he approves the application.

The statutory requirements for incorporation should be followed strictly, and care should be taken to see that the State officials concerned with the formation of corporations function properly. A cooperative was held not to be incorporated, after an attempt to incorporate had been made, because of defects in the filing, acceptance, and verification of the articles of incorporation by the secretary of state, and hence a creditor of the association recovered from the stockholders as partners."

The amount of discretion the secretary of state, or like official, has with respect to the acceptance or rejection of an application for a charter is not the same in all States. 10 In most States, upon approval by the secretary of state of the application for incorporation, the corporation comes into existence. The procedures in the different States, however, are not uniform.

A State may require that the articles be recorded in the county where the association is to have its principal place of business. In some States, it is necessary to advertise for a given length of time that an application for incorporation or a charter is being made. The exact moment when a corporation comes into existence varies in the different States depending upon their statutes. States usually require the payment of certain fees as an incident to incorporation.

The actual work of organizing a cooperative is sometimes carried on by an organization committee which may be a volun

People v. California Protective Corporation, 76 Cal. App. 354, 244 P. 1089

(1926).

9 Wilkin Grain Co. v. Monroe County Coop. Association, 208 Iowa 921, 223 N.W. 899, 225 N.W. 868 (1929).

10 Lloyd v. Ramsay, 192 lowa 103, 183 N. W. 333 (1921).