of losses sustained by the Association on account of credit extended to members. The funds thus accumulated were not held out as constituting part of the assets of the cooperative. The wholesale agency was placed in bankruptcy and its creditors contended that the members had no claims against the bankrupt on account of their contributions to the credit reserve fund. The court held otherwise. 14 In contrast, cooperatives using the revolving-fund plan of financing usually provide that the obligations of the association to the holders of revolving-fund certificates are junior and subordinate to the claims of other creditors. Thus, the opinion in this case seems to go much further than a court would ordinarily be called upon to go. The status of revolving-fund certificates which are junior and subordinate to other claims is similar to that of ordinary stock certificates.

Authority for the revolving-fund plan of financing is found in the general rule that a corporation may purchase stock it has issued. The general rule appears to be that:

A private corporation may purchase its own stock if
the transaction is fair and in good faith; if it is free
from fraud, actual or constructive; if the corporation is
not insolvent, or in process of dissolution; and if the
rights of its creditors are in no way affected thereby. 15

Since, under the conditions stated in this quotation, a corporation may purchase its capital stock, it seems clear that a cooperative may revolve the capital it has in its revolving fund. In the usual situation a cooperative would not be depleting its capital because the capital currently being supplied would normally be equivalent to the amount retired. The cooperative would thus be left with substantially the same amount of capital after the transaction. In any event, there would appear to be no basis for applying a stricter rule to the retirement of funds in a revolving fund

(1946). See Rev. Rul. 70-298, cited at footnotes 11 and 12, in this section. 14 Warner v. Schoner, 90 F.2d 579 (9th Cir. 1937).

15 Porter v. Plymouth Gold Mining Company, 29 Mont. 347, 74 P.938, 101 Am. St. Rep. 569 (1904). See also Griffin v. Bankers' Realty Investment Company, 105 Neb. 419, 181 N.W. 169 (1920); Howe Grain & Mercantile Company v. Jones, 21 Tex. Civ. App. 198, 51 S.W. 24 (1899); Atlanta

than is applied in a case involving the ordinary purchase by a corporation of its own stock.

As previously indicated, an association may use stock, revolving-fund certificates, certificates bearing a different designation, or capital credit notices to evidence capital in the revolving fund. But, again, it is not necessary that any form of certificate be issued to evidence such capital if the bylaws are clear and specific as to the rights and obligations of both the cooperative and its patrons. 16

Where it is clear that the obligation of an association to its members for money furnished by them for a revolving fund is junior and subordinate to the rights of creditors, the right of the association to retire any part of the revolving fund would be subject to the rights of existing creditors. The law is well established that a corporation may not retire any part of its capital stock if doing so would adversely affect the rights of current creditors.

In a Minnesota case involving a cooperative, it was said:

To the extent that money, goods or stockholder's
notes were exchanged for the stock, the capital of the
corporation was depleted. The capital was its own
property, but it could not be withdrawn or distributed
among stockholders without provision being first made
for the full payment of corporate debts.17

The revolving-fund plan of financing would seem permissible under the laws of any State, since it constitutes a valid contractual relationship for which there need be no specific statutory authority. Some States have specifically authorized such a plan.18

Although a member may have withdrawn from an asso

& Walworth Butter & Cheese Association v. Smith, 141 Wis. 377, 123 N.W. 106, 32 L.R.A. (N.S.) 137, 135 Am. St. Rep. 42 (1909); Koeppler v. Crocker Chair Company, 200 Wis. 476, 228 N.W. 130 (1929).

16See Appeal of Paducah & Illinois Railroad Co., 2 B.T.A. 1001 (1925), discussed under "Taxation of Nonexempt Cooperatives," supra, p. 364.

17 Lebens, As Receiver of the LeSueur County Cooperative Creamery v. Nelson, 148 Minn. 240, 181 N.W. 350, 352 (1921). See also Learmouth v. Caledonia County Cooperative Association, 109 Vt. 526, 1 A.2d 732 (1938).

18 Iowa Code Ann. §499.30, 499.33; Utah Code Ann. §3-1-9.

ciation, this does not give him a right to receive his interest in a revolving fund, except at the time and in the manner provided in the statute, the bylaws, or other agreement with the association. 19

Whether State blue sky laws apply to revolving-fund or other like certificates is a question which should be determined. A corporation was prohibited from offering for sale certain so-called goodwill contracts unless and until a permit had been issued by the Railroad Commission of Wisconsin. The court, in reviewing the matter, pointed out that the goodwill contracts were neither stock nor bonds, but held that this did not prevent them from being a security within the definition of the statute. 20

Associations Operating in Various States

May an association formed under the laws of one State do business in other States? The power of a corporation to act outside the State of its creation generally need not be expressly conferred, but but may be implied; provided, of course, the State in which a foreign corporation does business consents and there is no charter restriction.

19 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114 (1936), 70 P. 2d 190 (1937); Parker v. Dairymen's League Cooperative Association, Inc., 222 App. Div. 341, 226 N.Y.S. 226 (1927). In Clarke County Cooperative v. Read, 243 Miss. 879, 139 So. 2d 632 (1962), a patron's equity credits issued under a 'revolving-fund plan could not be used as a set off in a suit against the patron on his note. Cf. In the Matter of Great Plains Royalty Corporation, et al., 471 F. 2d 1261 (8th Cir. 1973), involving a bankrupt corporation, discussed in footnote 260, "Electric and Telephone Cooperatives," supra. See Lambert v. Fisherman's Dock Cooperative, Inc., 115 N.J. Super. 424, 280 A. 2d 193 (1971), modified and remanded, 61 N.J. 596, 297 A.2d 566 (1972); Evanenko v. Farmers Union Elevator, 191 N. W. 2d 258 (N.Dak. 1971); Claassen v. Farmers Grain Cooperative, 208 Kan. 129, 490 P.2d 376 (1971); and "Termination of Membership," supra, at p. 99 and "Interest in Association," supra, at p. 102. Cf. Weise v. Land O' Lakes Creameries, Inc., 191 N.W.2d 619 (Iowa 1971), where the court found that the acquisition of the assets of a turkey producers' association by another cooperative was not a merger but a sale and dissolution entitling dissatisfied members of the turkey association to payment of their revolving fund credits on dissolution of their association.

20 Brownie Oil Company v. Railroad Commission, 207 Wis. 88, 240 N.W. 827, 87 A.L.R. 33 (1932). See also State v. Gopher Tire & Rubber Co., 146 Minn. 52, 177 N.W. 937, 938 (1920).

The charter of a corporation is the same abroad as it is at home. Wherever a corporation goes for business it carries its charter as the law of its existence. When a State permits a foreign corporation to come within its borders, it is presumed to have consented that the corporation may exercise all the power conferred by its charter and the applicable laws.1

If an association desires to enter into marketing contracts with producers in States other than that in which organized, must the association comply with the laws of those States respecting foreign corporations? corporations? All States appear to have statutes relative to foreign corporations doing business within their borders. If a cooperative formed in one State enters into marketing contracts with producers in another State, and the products covered by the contracts on delivery to the association are to be moved out of the State or delivered to the association outside the State in which grown, then it seems clear that an association would not be required to comply with the laws of the State with respect to foreign corporations.2

The situation would involve interstate commerce, and a corporation of one State may purchase goods in another State for shipment out of the State without the consent of the latter. The following quotation is taken from an opinion of the Supreme Court of the United States.3

***In no case has the court made any distinction
between buying and selling or between buying for
transportation to another State and transporting for
sale in another State. Quite to the contrary, the import
of the decisions has been that if the transportation was
incidental to buying or selling it was not material
whether it came first or last.

A corporation of one State may go into another, with-
out obtaining the leave or license of the latter, for all

'Milton-Freewater & Hudson Bay Irrigation Co. v. Skeen, 118 Ore. 487, 247 P. 756, 761 (1926).

2 Currin v. Wallace, 306 U.S. 1 (1939). But see Gwin, White & Prince, Inc. v. Henneford, 193 Wash. 451, 75 P.2d 1017 (1938).

3 Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 291 (1921). See also Currin v. Wallace, 306 U.S. 1 (1939); 36 Am. Jur.2d, Foreign Corporations, $$246, 247.

the legitimate purposes of such commerce, and any
statute of the latter State which obstructs or lays a bur-
den on the exercise of this privilege is void under the
commerce clause *:

In a Nebraska case, it was urged that a cooperative incorporated under the laws of Kansas could not maintain a suit in Nebraska because the association had not complied with the laws of that State respecting foreign corporations, but the Supreme Court of Nebraska held that the association was engaged in interstate commerce and hence was not required to comply with the laws of Nebraska affecting foreign corporations.

The Dark Tobacco Growers' Cooperative Association, incorporated in Kentucky, applied for and received a license to do business in Indiana. It successfully brought suit on a contract it had entered into with a producer in Indiana.5 One of the defenses interposed was that an association similar to the Dark Tobacco Growers' Cooperative Association could not have been organized in Indiana and hence the license to do business in the State issued to the association was void. The Indiana statute authorized the granting of licenses to do business in the State to associations of a type that could have been formed in Indiana.

The association claimed that it was engaged in interstate commerce, but the court pointed out that the application for a license appeared to be an admission that the association was not engaged in such commerce. The court also noted that the association's complaint had not alleged that the contract sued on was a part of an interstate commerce transaction. The court, however, stated: "If the contract entered into had been a part of a transaction connected with interstate commerce, such license would not have been necessary."

The general statutes of each State regarding the right of a corporation formed in another State to do business

4Nebraska Wheat Growers' Association v. Norquest, 113 Neb. 731, 204 N.W. 798 (1925).

"Dark Tobacco Growers' Co-op Association v. Robertson, 84 Ind. App. 51, 150 N.E. 106, 110 (1926).