Court Opinion

ID: 9456059
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:41:02.264377+00
Date Added: 2024-06-11T17:34:49.978319
License: Public Domain

GODBOLD, Circuit Judge
(dissenting) :
The majority opinion is a demonstration of what one of the few authorities on the law of cooperatives has counselled against:
The entire field of cooperative corporation law is so relatively new, the basic principles of the cooperative plan are so fundamentally different from those of corporations for profit, and the temporary or interim character of the capital required for proper functioning of a cooperative is so different from the permanent share capital of other business corporations, that even well established concepts in the field *1327of business corporation law cannot safely be applied to cooperative corporations without careful understanding of the reasons underlying those principles and the applicability or inapplicability of those reasons to cooperatives. The fable of the three blind men’s impressions of an elephant holds a pointed moral for judges and lawyers approaching the problems of cooperative corporation law and, particularly, the problems of financial structure and operation of cooperatives. Revolving capital cannot be assumed to result from the creation of either an exclusively debtor-creditor relationship or an exclusively corporation-shareholder relationship. Rather it involves a blending of certain elements of both, and frequently something new has been added as well. The resultant product is sui generis. In the long run, the public interest will best be served by thorough, patient, and understanding comprehension of what participants in a cooperative enterprise are trying to achieve, rather than by unwarranted assumption that new legal relationships arising from cooperative business transactions and organizations must be neatly and quickly, albeit somewhat forcibly, classified according to preexisting legal concepts developed under different conditions for different purposes in different kinds of transactions and organizations.
Nieman, Revolving Capital in Stock Cooperative Corporations, 13 Law and Contemporary Problems 393 at 402 (1948).
The taxpayers are incorporated farmers’ cooperatives. In issue is the tax treatment of amounts which they have paid for Class C stock which they hold of the New Orleans Bank for Cooperatives, an incorporated stock cooperative of which they are members and from whom they borrow.1 The taxpayers say on the one hand that the amounts were not paid for a capital asset, which under 26 U.S.C. (1964 ed.) § 1221 is “property held by the taxpayer” (with designated exceptions none of which is contended to be applicable). They say that in truth all or substantially all of the amounts paid, though cast in the form of the purchase price of capital stock, really were amounts which they had contracted to pay for the use of borrowed money and therefore were interest.2 As probative of both of these contentions their underlying argument is that the Class C stock lacks many of the usual characteristics of stock and that it has only nominal value. The government contends the stock is a capital asset, and, recognizing that it may not have fair market value in the usual sense of a willing buyer and a willing seller, says it has intrinsic value.
Once one grasps the function of this particular stock in an institution organized by the Congress as a cooperative 3 it is seen that the stock is a capital asset, “property held by the taxpayer,” although it does not have the usual characteristics of stock in a commercial enterprise organized under general corporation laws. Once that is seen — if not before — the contention that the payments for Class C stock are interest falls.
The Eighth Circuit, in M.F.A. Central Cooperative v. Bookwalter, 427 F.2d 1341, has reached the same conclusion which I reach. That court held that the required quarterly investments in Class C stock were payments for capital assets. It affirmed the holding of the District Court4 that the payments were not interest, and reversed the holding that *1328they were ordinary and necessary business expenses. In so doing it considered Penn Yan Agway Cooperative v. United States, 417 F.2d 1372 (Ct.Cl.1969) and the District Court opinion in the present case and would not follow them.5
1.
Central to this case is the fact that the New Orleans Bank for Cooperatives is itself a cooperative. “A cooperative is an association which furnishes an economic service without entrepreneur profit and which is owned and controlled on a substantially equal basis by those for whom the association is rendering service. * * * ‘[Entrepreneur profit’ * * * really represents the antithesis of the benefits normally ascribable to cooperatives. ‘Entrepreneur profit’ is used in the true economic sense of a return for the speculative or risk element in an enterprise. In a cooperative, all the members assume, in a broad sense, the economic risk, and they contemplate no return for the undertaking of the risk.” Packel, The Law of Cooperatives, § 1, pp. 2-3 (3d ed.).
“The primary objective of an ordinary cooperative is not charitable. * * In the normal case * * * the cooperative is designed to further the economic interest or welfare of its members. Economic welfare does not merely refer to financial savings or increased monetary returns. It cuts much deeper and takes into consideration basic aspects of economic life. Quality of product, decency of service, ownership, control and satisfaction of self-help are important benefits of cooperatives and sometimes are even more important than the direct financial benefits.” Id. at pp. 6-7.
Among the normal attributes of a cooperative are:
(3) transfer of ownership interests is prohibited or limited;
(4) capital investment receives either no return or a limited return;
(5) economic benefits pass to the members on a substantially equal basis or on the basis of their patronage of the association;
Id. at 3.
Justice Brandeis pointed out in his dissent in Frost v. Corporation Commission, 278 U.S. 515, 536, 49 S.Ct. 235, 73 L.Ed. 483, 495 (1929) that farm cooperatives seek, in addition to the immediate and direct financial advantage of members, a type of economic democracy as well in which there is equitable assumption of responsibilities and equitable distribution of benefits, and that in addition to financial benefits they promote and effect cooperation among farmers. These objectives, coupled with that of economic strength springing from the combination in a single institution of the combined effort and contributions of all, is important in grasping the relationship between the appellant cooperatives and the cooperative financial institution from which they borrow.
2.
As Professor Nieman points out, the capital of a cooperative, insofar as permanence or impermanence of shares of stock or other units of capital is concerned, is essentially different from the capital of other business corporations.6 The commercial shareholder does not anticipate his contribution to capital will be returned to him until dissolution. Prior to dissolution he can recover his contribution by selling his shares to another.
A cooperative’s capital, however, more often represents essentially a loan or temporary contribution by its patrons to finance certain economic services for them. The patron-member or patron-shareholder expects that the capital which he contributes will be *1329returned to him prior to dissolution, but not until his own and other patrons’ subsequent contributions to capital render his earlier contribution unnecessary to finance the cooperative’s facilities and operations. He does not expect to wait until dissolution, and he knows that his share are not readily salable. He looks to the cooperative to return his capital contributions to him if, and as soon as, it can do so.
Nieman, supra, at 393-394. This concept is a formalization of early, informal cooperative arrangements.7 As cooperatives became more permanent and more continuous in their operations the patron who temporarily put his capital at the service of the group, footnote 7, supra, no longer took it home with him when his transaction was over but left it for the use of the continuing activity, though not for its permanent use. But the bedrock principle remained that he received no return or a limited return on his investment in capital.
Most of the formalized early cooperatives were corporations, which organized and structured their capital under the general corporation laws, the only laws available, though unrelated to the particular capital requirements of the cooperative. Id. at 393 and 395. “There ever since has been a trial-and-error effort to develop for cooperatives a kind of capital more adequately suited to their peculiar needs and still within the corporate form.” Id. at 395.8
As cooperatives evolved, necessity imposed the creation of a new kind or temporary of interim capital, revolving fund capital.
Provision frequently was made for the return of a member’s share of the capital upon the termination of his membership. The risk to the cooperative’s financial integrity in the event that a substantial number of members should withdraw and demand the return of their membership capital at the same time required modification of the right to demand a return of membership capital promptly upon termination of membership. Provision was made to suspend the rights and privileges of membership or to retain the member’s share of the capital until such time as the cooperative should be financially able to pay it out without undue prejudice to other members or creditors. The problems incident to the existence of permanent capital, even membership capital repayable upon termination’ or suspension of membership or reasonably soon thereafter, eventually were met by the creation of a new kind of temporary or interim capital which has now become quite common, although peculiar to cooperatives — that is, revolving-fund capital.
Id. “The revolving fund plan ‘has been likened to a water wheel, picking up water, using it to create the power that turns the mill machinery, and returning the water to the midstream.’ ” Id. at 396. As the fund of capital becomes adequate it is maintained at that level by continuing to receive each year new con*1330tributions to capital by current patrons, and to the extent that new contributions increase the capital above that needed the excess is returned to the patrons who made the earliest contributions. Necessarily there is some awkwardness in the use of shares of stock in a cooperative with revolving capital, but these are tempered by employing different classes of shares. Id. at 398-402.
The relationship of the stock cooperative to the member-stockholder who contributes capital is not strictly debtor-creditor, for there is no loan with a maturity date, nor corporation-shareholder in the commercial sense. Though styled corporation-shareholder it is in fact sui generis. Nieman, swpra, at 397 and 402.
3.
It is against this background of recognized principles of cooperative reorganization and operation that Congress has established a comprehensive farm credit system, which is but a part of a broader program of encouraging the organization and development of effective cooperatives.9 The cornerstone was the Federal Farm Loan Act of 1916,10 establishing the federal land banks with goals of providing low cost farm credit, promoting farmer ownership of the banks, and established and stimulating among farmers cooperative effort.11 Farmers could not borrow directly but were required to form national farm loan associations, which, operating on cooperative principles, would serve as middlemen in securing loans. These cooperative associations were required to purchase stock in the federal land banks in amounts relating to the size of loans (5 per cent of face.)12
The Farm Credit Act of 193313 established a much broader structure of farm credit around the original twelve federal land banks. Among the new institutions were the Central Bank for Cooperatives and twelve regional banks for cooperatives which had the specific function of lending to farmers’ cooperatives. The initial capital, comparatively nominal, was furnished by the United States in the form of $110 million, divided between the twelve regional banks and the Central Bank.14 Each regional bank had but one class of stock. Each borrowing cooperative had to become a member of the regional cooperative bank and a contributor to its capital by purchasing stock (or subscribing to a guaranty fund) in an amount related to the size of his loan. The purchase price of the stock was paid when the loan was closed, either by being deducted from the proceeds or added to the amount of the loan. However, upon repaying his loan a borrower could withdraw his contribution to capital by demanding redemption of his stock. These withdrawals caused the capital funds remaining in the banks to be insufficient to permit them to operate on a sound basis and to meet the needs of the farmer cooperatives for credit.15 This is the difficulty which, as Professor Nieman points out, gives rise to revolving fund capital. In 1955 Congress changed the capital structure of the 12 regional banks and the Central Bank for Cooperatives to the revolving fund system.
The Farm Credit Act of 1953 required a study of methods by which to effect increased borrower participation in the management, control, and ultimate ownership of institutions operating under the permanent system of agricultural *1331credit available through the Farm Credit Administration. 2 U.S.Code & Admin. News 1955 at pp. 2947, 2949. The Farm Credit Act of 1955, 69 Stat. 655, which overhauled the entire system of farm credit, was the result of that study. The Senate Committee reported that the House Bill (in no relevant aspect different from the Senate Bill or the Act as passed) “would be a forward step in the goal of having private borrowers owning and managing these credit agencies.” Id. at 2948.
The House Committee Report described the purpose of the legislation in this way:
The primary purpose of title I of the bill is to provide a plan under which the banks [for cooperatives] would be organized on a truly cooperative basis. Borrowing cooperatives would continually make capital contributions to the system so long as they used its credit service. Each year final net savings (after taxes, dividends, reserves, and surplus requirements) would be distributed as patronage refunds to borrowing coopei’atives in the form of capital stock, all of which capital would remain in the system until all of the capital stock of the United States had been retired. Each year Government capital would be retired in an amount equal to the required stock contributions of and the patronage refunds to the borrowing cooperatives.
Id. at 2951.
The Act established a pure revolving fund capital structure. Penn Yan, supra, 417 F.2d at 1374. It created Classes A, B and C stock, A owned by the government (nonvoting and no dividends), B owned by investors (nonvoting but dividend paying), and C (voting but only one vote to a member, no dividends). 12 U.S.C. § 1134d. Each year, as capital is added through investment in Class C shares by each borrower, and through distribution to borrowers of patronage refunds in the form of Class C shares, an equal amount of Class A shares is retired. Retirement of Class C shares will commence when all Class A stock has been retired, except that as Class C is retired all earlier issued Class B must also be called for retirement.16 There is no retirement of stock on demand.
In lieu of the one-time purchase of stock previously required of each borrower, the 1955 Act substitutes a system of scheduled purchases of Class C stock. “[E]ach borrower * * * shall be required to invest quarterly in class C stock an amount equal to not less than 10 nor more than 25 per centum * * * of the amount of interest payable by it to the bank during the calendar quarter. Payment for such stock shall be made quarterly or when the regular interest payments of the borrower are payable.” 12 U.S.C. § 1134d(a) (3). Prior to the 1955 Act required purchases were unrelated to interest but keyed to the amount of the loan. Post-1955 purchases are keyed to interest only as a measure of the amount of stock to be purchased. It is obvious that they are keyed to payments of interest for convenience of billing and payment — the borrower pays his scheduled contribution to capital when he makes his interest payment, whether quarterly or otherwise. Amounts due for interest and investment in stock are rendered in the same bill, although separately stated and identified. A borrower who owns Class B stock and does not want to make the required investment in Class C stock by paying cash can convert his Class B to Class C. 12 U.S.C. § 1134d(a) (3). This has been done by the New Orleans Bank in many instances, always on a dollar-for-dollar basis, $100 par value of Class C for $100 par value of Class B.16a
*1332Pre-1955 stock can be converted to Class B or Class C. This has been done on the same basis of dollar for dollar of par value. Some holders of pre-1955 stock have been allowed to apply the full par value thereof against their loans outstanding.
The bank has a statutory lien on the borrower’s Class C stock. In cases where it has been exercised against a defaulting borrower, the full par value of the stock has been applied to the loan balance.
In 1956, promptly after the 1955 Act went into effect, the New Orleans Bank established 15 per cent of interest payable during the quarter as the amount of quarterly investment in stock required of the borrower. It did so pursuant to a policy determination that it hoped to retire all Class A stock by 1976, a 20-year period, and projected the 15 per cent figure as sufficient to achieve that. Retirement has been carried out each year as planned except that the rate of retirement has been better than expected. By 1963 Class A stock had been reduced from the 1956 level of $7,000,-000 to $4,880,000, as against the projected level for that year of $5,150,000. In 1966 the Bank estimated informally that all Class A stock would be retired by 1972 or 1973.17
4.
Purchase of a single Class C share is a prerequisite to eligibility to borrow from the bank. 12 U.S.C. § 1134d(a) (3). The District Court, the majority in this case and the court in Penn Yan viewed the purchase of this single share as conferring upon the purchaser the full spectrum of benefits that could flow to it from stock ownership, so that no additional benefit could accrue by its securing a loan and, as an incident thereof, purchasing additional stock as required. This misses the whole point of the cooperative structure of the banks. The thrust of the Congressional scheme is the promotion of permanent institutions to supply low cost credit to farmers’ cooperatives and to foster the creation of additional cooperatives.18 Ownership of the bank ultimately will be in the cooperatives. They will also participate in management, to the extent of the private sector of the joint government-private management scheme. A purchase of Class C stock does not increase the capital of the bank or its current lending capacity, since Class A stock in a like amount is retired. But each purchase moves the bank toward its ultimate institutional status as a farmer-owned cooperative supplying low cost farm credit to these taxpayers and others like them. The government “primed the pump” by “revolving in” the initial capital of a joint government-private undertaking, the societal values of which it is not the judicial function to question, and from which the government’s capital was designed ultimately to be wholly “revolved out.” To view the process of replacing government capital by private capital, as do taxpayers, as producing no benefit to anyone except the government which gets its money back, is to misunderstand both the purpose of Congress and the insti*1333tutional value of the cooperative bank to the cooperatives which will own it and borrow from it.19
There are institutional values other than that of continued availability of low cost credit. There is the inherent cooperative concept that it is beneficial to channel into a single integrated effort the assets and needs of the group of patrons. There is the benefit of simple economic power, through ultimate substantial ownership of the established, fully capitalized, staffed, and accepted financial institution.19a
Other benefits are perhaps more easily perceived because in the more conventional garb of dollars. As borrowers, taxpayers qualify for patronage refunds, distributed to them annually in proportion — as in all cooperatives — to their use of the services offered, thus in this instance measured by interest paid. In 1958-63 Coastal received patronage refunds in Class C stock of $289,309.81. In 1961-63 Mississippi received $81,272.-57. Together these are 14 per cent of all Class C stock (purchases and refunds) outstanding at the end of fiscal 1963. When their purchases of Class C stock for those years are added, it is revealed that together the taxpayers owned 24 per cent of the outstanding Class C stock.
Also each bank allocates on its books each year to each patron, in proportion to interest paid by the patron, a portion of the amount by which the bank’s contingency reserves exceed its needs.20 For the . same years as above, Coastal was allocated from surplus $127,748.62, Mississippi $35,771.48. This “allocated surplus” eventually is distributed in the form of Class C shares.21 The patronage refunds and the allocated surplus are not a return of the borrower’s contributed capital but distributions of earnings, not presently convertible to cash but in due course “revolved out” of the cooperative capital into cash to the borrower.
These benefits are measured by the borrower’s use of services. But he does not qualify for them by the act alone of borrowing, only by borrowing plus contributing to capital. Congress could have chosen other approaches. A large contribution to capital to become eligible for service was a possibility, but this would be inconsistent with the cooperative concept of nominal financial outlay to become a patron (a small membership fee for the nonstock cooperative, a small purchase of stock for the stock cooperative), with the real and substantial contribution to capital made in proportion to use of services. It would be inconsistent with the aim of fostering organization and growth of fledgling cooperatives. Congress could have required a large one-shot contribution when the loan is made, but it had discovered the disadvantages of this before 1955. It *1334could have provided for adding to capital by higher interest rates carried forward into earned surplus, but this would be inconsistent with its purposes of offering low rates and at the same time shifting from government to private ownership through the normal revolutions of revolving fund capital.
5.
The sui generis stock of an incorporated cooperative need not have the same characteristics as ordinary commercial stock to be a capital asset. But the differences loom so large in the minds of the plaintiffs, of the District Court22 and the majority in this court that brief comment is appropriate.
No Class C stock certificates are issued. A form for the certificates has been approved by the Farm Credit Administration, but the Board of Directors of the New Orleans Bank exercised the discretion given them by the bylaws not to issue certificates. The Bank reflects on its stock ledger the amount of each type of Class C stock owned and at the end of each fiscal year notifies each owner of the amount owned at the beginning and end of the year.23
The stock has no dividend and no growth potential. This is normal for a cooperative.
Only the first share of Class C stock carries a voting right. “One person one vote” is a basic cooperative principle, which gives recognition to the concept of an economic democracy. Packel, supra, at 138-340.24
Class C shareholders will not enjoy sole control of the bank in the commercial sense even when all Class A stock is retired since they will not elect all directors of the joint board which administers it and other farm credit agencies of the region. This makes the stock different from some commercial stock25 but no less a capital asset.
The stock is not transferable except to other cooperatives and with the consent of the Bank.26 This is usual in a cooperative. Packel, supra, pp. 3, 127. It is essential to keep out of the membership persons with interests antagonistic to the cooperative and is an effective means to keep patrons from transferring their interests at a profit. Id. at 127-128 and cases there cited.
6.
The majority center on, and repeatedly employ, the phrase “interest override,” and even characterize the requirements of the statute in those terms. The term nowhere appears in the statute, the Congressional history, the loan agreements, *1335or the quarterly bills sent taxpayers showing separately interest, principal and “C stock subscription.” The President of the New Orleans Bank explained that the term had grown up in that regional bank and in turn had been picked up by its borrowers.
Class C stock purchased under the required investment provisions is shown in the stock ledger separate from that issued as patronage dividends, and under the heading “Investment in C Stock (Interest Override).” The President defined “interest override” as “the amount we require our borrowers to pay over and above interest for the purchase of C stock.”
The promissory notes signed by taxpayers provide for interest. Each separate loan agreement provides:
Stock Purchase: The association shall invest quarterly in class C stock of the bank at its fair book value, not exceeding par, an amount equal to 15 per cent of the amount of interest payable by the association to the bank on said loans for said calendar quarter or part thereof. The association shall pay for said class C stock on the date interest is due and payable. * * *
7.
The plainly erroneous rule applied to the finding of the District Court that the Class C stock has only nominal value, may not be the basis of an affirmance. What has been said makes clear that the stock has, as the Eighth Circuit concluded in MFA, an intrinsic value. Also it is apparent that the District Court’s finding was based on the erroneous basis of comparing the stock, characteristic by characteristic, with that of the usual commercial corporation and totally overlooking its value as a capital contribution to a cooperative under the plan of the Congress.
On the issue of value, in Columbia Bank for Cooperatives v. Lee, 368 F.2d 934 (4th Cir. 1966), a bankrupt cooperative owned Class C stock of the Columbia regional bank with a par value (in round figures) of $54,200, Class B stock with a par value of $45,800, and there had been allocated to the bankrupt surplus of $13,000, total $113,000. The referee ordered the bank to allow a setoff of this $113,000 against the cooperative’s indebtedness to it of $162,000, and the District Court affirmed.27 Another cooperative had offered to buy the stock for $50,000, which was 45 per cent of its par value and allocated surplus. The Fourth Circuit held that the bank was not required to offset at par value and remanded for valuation by the referee. It declined to accept the single offer of $50,000 as a reasonable reflection of true value and noted, “However thin the general market for these shares may be, the continuing stream of borrowers from the bank provides it with a ready market.” 368 F.2d at 940.28 The Columbia Bank projected retirement of all Class A stock by 1967. New Orleans Bank stock may be worth less than 45 cents on the dollar because of the difference between projected 1967 retirement of Class A and projected 1972-1973 retirement. But the discount is not to $1.00 per share or less. In the present case an expert familiar with cooperative financing presented a full and careful analysis of Class C stock of each year separately and assigned values ascending from $3.42 per share for 1958 Class C stock to $38.65 per share for that of 1963.
8.
My brothers have, in Professor Nei-man’s terms, felt the leg of the elephant *1336and concluded that the beast is interest. A look at the concept of cooperatives, the legislative history, the expressed intent of Congress, the language of the statute, the books and records of the parties and the loan agreements signed by the taxpayers, reveals that it is an elephant after all. I would join with the Eighth Circuit and would reverse.

. The purchases were made by Coastal between 1958 and 1963 in the total amount of $211,799.68, and by Mississippi Chemical between 1961 and 1963 in the total amount of $55,113.19. Tax refunds ordered by the District Court are $265,044.35 to Coastal and $85,298.51 to Mississippi Chemical.

. E. g. Old Colony R. Co. v. Commissioner of Internal Revenue, 284 U.S. 552, 52 S.Ct. 211, 76 L.Ed. 484 (1932).

. Under a charter issued by the Farm Credit Administration.

. M.F.A. Central Cooperative v. Bookwalter, 286 F.Supp. 956 (E.D.Mo.1968).

. Perm Yan held that the purchase price of Class C stock was interest to the extent that it exceeded $6.60 per share, which the taxpayer conceded was its value.

. Nieman, supra, at 393.

. “When more than a century ago, a group of Ohio farmers joined together to ship their cattle to market at Pittsburgh, each of them presumably furnished his share of the cattle, wagons, and equipment which were the capital for the expedition; and each participant’s capital was returned to him upon the completion of the project. The horses, wagons, machinery, and labor required for barn raisings or threshing were furnished by the participants, and were returned to them after each job or threshing season. Each participant ceased to provide such capital, and capital previously furnished was returned to him, when he ceased farming and, thus, no longer had need for the barn-raising or threshing services and equipment of his neighbors. In such informal, cooperative enterprises, the temporary nature of the capital employed was plain.”
Id. at 394.

. Today, in most jurisdictions, a cooperative can incorporate either with or without capital stock. Packel, supra, § 5(c) at p. 35.

. Packel, supra,, § 60, p. 275 et seq.

. 39 Stat. 360.

. S.Rep. No. 144, 64th Cong.; 1st Sess. pp. 2, 4 and 10.

. The Senate Report said of this requirement :
“At the outset we secure the personal interest of the borrower by requiring him.to contribute to the capital of the loan association 5 per cent of the face of his loan. This personal stake makes the * * * borrower a cooperator.”
S.Rep. No. 144, supra, p. 10.

. 48 Stat. 257.

. 2 U.S.Code & Admin.News 1955, p. 2949, at 2950.

. 2 U.S.Code & Admin.News 1955 at p. 2951; Perm Yarn, supra, 417 F.2d at 1374.

. The Class B shares are of nominal importance. In 1963 they constituted only approximately 5 per cent of total stock outstanding in the New Orleans Bank.

. The necessity of not being hypnotized by the phraseology of the commercial corporation is pointed up by 12 U.S.C. § 1134d(b). If a borrower is not author*1332ized under the law of the state of its organization to take stock in the bank, it must deposit in the “guaranty fund” of the bank the amount it would have invested in stock. This is the contribution to capital by the cooperative patron in its pure sense, unencumbered by share of stock conceptualism. Patronage refunds to such a borrower are credited against its contributions to the fund. Its deposit is returned to it in the same manner as Class C stock is redeemed.

. The supplemental brief of the United States quotes from an exhibit in the M.F.A. record which states that five of the regional banks have retired all Class A stock and that it is anticipated that all others will accomplish full retirement of the government’s investment by 1971.

. The 1963 report of the New Orleans Bank states that more than half of the cooperatives regularly financed by it are the outgrowth of conferences held by its staff with groups of farmers contemplating the establishment of new cooperatives.

. The benefit to these taxpayers, of the New Orleans Bank as a source of low cost credit, is quickly seen by a look at the years here in question. Their purchases of Class C stock for these years were, in round figures: Coastal (1958-63)— $11,700; $33,900; $47,100; $41,700; $35,000; and $42,100. Mississippi (1961-63) — $18,900; $16,800; and $19,-300. Each purchase represents 15 per cent of the interest paid for the year. Interest usually was between 4 and 5 per cent. A simple calculation reveals the massive extent of the loans which they were enjoying.
From its organization through fiscal 1963 the New Orleans Bank made loans to its limited class of borrowers in its region (Louisiana, Mississippi and Alabama) of more than $618 million.

. Also it should be noted that the major source of loan funds for each bank is not its capital but funds which it obtains by borrowing from the Central Bank and the federal intermediate credit banks and by sale of debentures in cooperation with other regional banks. This access to low cost funds, and government-assisted credit, continues after Class A stock is retired.

. Included therein are like distributions which the regional bank receives from the Central Bank for cooperatives.

. The separate increments of value represented by the Class C stock (purchased and patronage refunds) and the allocated surplus are pointed out in Columbia Bank for Cooperatives v. Lee, 368 F.2d 934 (4th Cir. 1966).

. The District Court, after emphasizing the differences, concluded that the stock “does not enjoy the usual attributes of shares of stock but are mere bookkeeping entries or devices.” The District Court made no references to the peculiarities of cooperative financing. In fact its opinion does not even reveal that the New Orleans Bank is a cooperative.

. This system of recording stock ownership without issuing certificates is no surprise to any holder of shares of almost any one of the major mutual funds which employ the same method for shareholders authorizing automatic reinvestment of dividends and which, like the New Orleans Bank, notify the shareholder periodically of how many new shares he has acquired.
A certificate of stock is not the stock itself but only evidence of ownership. The rights and duties between corporation and stockholder exist apart from the certificate. 11 Fletcher, Corporations, § 5092 (Perm. ed.).

. The principle is carried forward into the Capper-Volstead Act under which a cooperative marketing association, if it wishes to enjoy immunity from the Sherman Act, must not allow a member more than one vote regardless of how much stock he owns. 7 U.S.C. §§ 291-292.

. Commercial preferred stock often is nonvoting, and nonvoting common of many companies is traded daily on the stock exchanges.

. There have been a few approved transfers incident to liquidation, merger or accommodation between cooperatives.
But compare Columbia Bank for Cooperatives v. Lee, 368 F.2d 934 (4th Cir. 1966), stating that once issued Class C stock is transferable to any person.

. The New Orleans Bank in many instances has made just such a full offset without legal proceedings.

. On remand (not officially reported) no valuation by the referee was necessary. The parties agreed that the trustee would receive a credit in the amount of the value of bankrupt’s stock plus allocated surplus, a total of $112,694.97, and the trustee agreed to pay the bank cash of $49,305.03, which was the balance of the bank’s claim.