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PART 11–NATIONAL FARM LOAN ASSOCIATIONS

Sec.

Sec.
Membership

11.2025 Effective date of membership. 11.2016 Membership as determined by

Stockholders' meetings location of land to be mort. 11.2026 Notice of stockholders' meetgaged.

ings; quorum. 11.2017 Land situated in territory of 11.2027 Voting by members. more than one association.

11.2028 Voting by proxy. 11.2018 Husband or wife as sole owner.

Retirement of stock 11.2019 Joint owners.

11.2145 Classification of associations. 11.2020 Voting by joint owners.

11.2146 Disposition of stock proceeds ,

Class 1. 11.2021 Same; illustrations. 11.2023 Livestock corporations; mem

11.2147 Disposition of stock proceeds ;

Class 2.
bership in case of assumption ;
authorization of shareholder

11.2148 Disposition of stock proceeds;

Class 3 or 4. to act for corporation in as

11.2149 Permission to accept applicasociation; rights of such per

tions. son. 11.2024 Other corporations; ownership

Consolidation of associations of beneficial interest in stock; 11.2228 Procedure. status of owner of legal title to stock when beneficial interest assigned.

MEMBERSHIP Section 11.2016 Membership as determined by location of land to be mortgaged. A land owner shall be eligible to membership in the chartered association within whose territory the land to be mortgaged is located, regardless of the applicant's place of residence. A farmer may become a member of two or more associations if he owns eligible land within the territory of each association.**

*88 11.2016 to 11.2023, inclusive, issued under the authority contained in sec. 6, 47 Stat. 14, secs. 7, 8, 9, 12 "Sixth", 39 Stat. 365 ff., as amended ; 12 U.S.C. 665, 716, 733, 745, 771 "Sixth”, and Sup.

fin $$ 11.2016 to 11.2228, inclusive, the numbers to the right of the decimal point correspond with the respective section numbers in the Manual for Federal land banks, issued as of April 1, 1938, by the Land Bank Commissioner and approved by the Executive Committee of the Federal Farm Mortgage Corporation insofar as the Manual sections deal with matters relating to the Federal Farm Mortgage Corporation.

11.2017 Land situated in territory of more than one association. If the farm to be mortgaged lies within the territory of two or more chartered associations, the applicant shall be eligible to join any one of the associations, but if the lands to be mortgaged are not contiguous, they will be treated as a single farm for loan purposes only if the separate units are under common management and are in such proximity to each other as to constitute practically one operative agricultural unit.*+

11.2018 Husband or wife as sole owner. When husband and wife both sign a mortgage but one or the other is sole owner, the one in whose name the title stands is the one who is eligible to membership in the association.*+

11.2019 Joint owners. In cases of joint ownership, each owner who assumes personal liability for a loan must be elected to membership in the national farm loan association through which the

**For statutory and source citations, see note to § 11.2016.

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loan is made and the association stock must be issued jointly to all such owners. **

11.2020 Voting by joint owners. Only one of the joint owners may vote or participate in the affairs of the association. He must be authorized by duly executed power of attorney to act for the others in all association matters. Since under Section 8 of the Federal Farm Loan Act as amended (39 Stat. 367, 50 Stat. 710; 12 U.S.C. 732 and Sup.), every shareholder is “entitled to one vote, and no more," a shareholder who casts one vote in connection with a joint loan may cast no more votes, even though he may have one or more single loans, or be a joint shareholder in connection with other joint loans, through the same association. Likewise, a shareholder having a single loan and a joint loan through the same association, who casts one vote in connection with the single loan, may cast no more votes; but one of the other joint shareholders in connection with the joint loan may cast one vote, provided he has proper authority from the other joint shareholder or shareholders. To permit a shareholder to have more than one vote because he is interested in more than one loan would mean that through use of a proxy in this situation the fundamental principle of only one vote for each shareholder would be defeated.**

11.2021 Same; illustrations. The following examples illustrate an application of the foregoing principles :

(a) If the bank has made through one association a joint loan to A and B and a joint loan to B and C, there is one vote for each joint loan, but B can cast only one vote. If two votes are to be cast, either A or C must cast one of the votes.

(b) If A and B have a joint loan and A has a separate loan, there would be one vote on the joint loan and one vote on the separate loan, provided B, having a power of attorney from A, cast the vote on the joint loan.

(c) If there is a joint loan to A and B, and A and B each have separate loans, only two votes may be cast.** 11.2023 Livestock corporations; membership in

case of assumption; authorization of shareholder to act for corporation in association; rights of such person. Corporations engaged in the raising of livestock are eligible to become members of national farm loan associations. If a livestock corporation which is eligible for a Federal land bank loan purchases property mortgaged to a Federal land bank it may, with the approval of the bank, assume the mortgage and stock interests of the vendor. If an association approves the application of a livestock corporation, the corporation itself should be elected to membership and the association stock issued in its name. The corporation must authorize, by power of attorney, one of its shareholders to act for it in all association matters. The person so authorized to act for the corporation may be elected a director of the association, provided he is a bona fide resident of the territory within which the association is authorized to do business. The power of attorney referred to should be so drawn that it will continue in full force and effect until the association has received

a

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**For statutory and source citations, see note to § 11.2016.

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another power of attorney to supersede the old one or until the old power has been revoked.**

11.2024 Other corporations; ownership of beneficial interest in stock; status of owner of legal title to stock when beneficial interest assigned. In the event a corporation becomes the purchaser of the mortgaged property, while it may assume the payment of the existing mortgage, it cannot become a member of or an actual stockholder in an association unless it qualifies as engaged in the raising of livestock. However, any corporation may purchase the equity of redemption of the original borrower in such stock and thereby become entitled to any dividends on said stock and ultimately to the proceeds thereof. Stock that has been so purchased cannot be transferred on the stock certificate book of the association, but the fact that an assignment has been made may be noted on the back of the certificate so that the proceeds, including the dividends, may be paid the person equitably entitled thereto. In this connection, it should be borne in mind that the stock in the association is collateral security for the payment of the loan, and, in addition, may carry the statutory double liability. The original owner, so far as the association is concerned, remains the stockholder whether the purchaser of the equity does or does not agree to assume the liability.t (Sec. 6, 47 Stat. 14, secs. 7, 8, 9, 12 "Sixth,” 39 Stat. 365 ff., as amended, sec. 72, 48 Stat. 271; 12 U.S.C. 665, 716, 733, 744, 745, 771 "Sixth," 744a, and Sup.)

11.2025 Effective date of membership. Charter members of national farm loan associations shall be considered as stockholders as from the date they sign the articles of association. A noncharter

A member is not a stockholder until his stock is issued. Associations shall be guided by the foregoing in determining who shall be given notice of stockholders' meeting under association bylaws.t (Sec. 6,

, 47 Stat. 14, secs. 7, 8, 9, 39 Stat. 365 ff., as amended; 12 U.S.C. 665, 716, 733, 745, and Sup.)

STOCKHOLDERS' MEETINGS 11.2026 Notice of stockholders' meetings; quorum. When written notice has been given to each stockholder of the time and place of meeting, as provided in the bylaws of the association, the stockholders who actually attend the meeting, provided there are two or more, will constitute a quorum for the transaction of business.t (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

11.2027 Voting by members. Every shareholder of a national farm loan association is entitled to one vote, and no more, at all elections of directors and in deciding all questions at meetings of shareholders.(Sec. 6, 47 Stat. 14, sec. 8, 39 Stat. 367, sec. 23, 50 Stat. 710; 12 U.S.C. 665, 732, and Sup.)

11.2028 Voting by proxy. Voting by proxy shall not be permitted at stockholders' meetings of associations unless the proxy holder is (a) the person authorized to act for a livestock corporation owning the stock, (b) a joint owner of the stock, or (c) the husband or wife

**For statutory and source citations, see note to 8 11.2016.

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(539)

of the owner of the stock. In the latter case, said husband or wife shall not be eligible to any office in the association. (Sec. 6, 47 Stat. 14; 12 U.S.C. 665)

RETIREMENT OF STOCK 11.2145 Classification of associations. Each Federal land bank shall establish a practical procedure for carrying out the provisions of the Federal Farm Loan Act, as amended, with respect to the retirement of the capital stock of the Federal land banks and national farm loan associations in the case of repayment of loans. In making a specific application of the general legal principles of stock retirement to the problems presented by the individual associations in its district, each bank should classify such associations with respect to their financial condition, on the following general basis:

(a) Associations able to meet their obligations currently and free from distressed loans are to be placed in Class 1;

(b) Associations apparently unable to meet their obligations currently without a present impairment of their capital, but, in the opinion of the bank, able to work out of their difficulties within a reasonable time, are to be placed in Class 2;

(c) Associations unable to meet their obligations currently without a material impairment of their capital, although to an extent not exceeding the aggregate amount thereof, and, in the opinion of the bank, unable to work out of their difficulties within a reasonable time, are to be placed in Class 3;

(d) Associations whose unsatisfied obligations equal or exceed the amount of their capital are to be placed in Class 4.7 (Sec. 6, 47 Stat. 14, secs. 7, 8, 39 Stat. 365, 367; 12 U.S.C. 665, 721, 733)

11.2146 Disposition of stock proceeds; Class 1. When a borrower pays his mortgage debt in full and the association through which the loan was made is in Class 1, the bank shall

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off at

par and retire the stock standing on its books in the name of the association, which was subscribed for by it at the time the loan was made, and shall pay the par value of such stock to the association. In that event, if the association does not have other outstanding obligations to such an extent that the association's capital has thereby become impaired, the association shall pay to the retiring borrower the par value of said stock less any personal indebtedness of said borrower to the association; Provided, however, That the bank may, upon the order and with the consent of the association, credit the par value of said stock upon the retiring borrower's mortgage, after the bank has satisfied itself that the association does not have outstanding obligations to persons other than the bank to such an extent that the association's capital has thereby become impaired. (Sec. 6, 47 Stat. 14, secs. 7, 8, 39 Stat. 365, 367; 12 U.S.C. 665, 721, 733)

11.2147 Disposition of stock proceeds; Class 2. Where the association is in Class 2, the bank after retiring its stock may, in its discretion, pay to the association all or a portion of the proceeds of such retired stock. If the bank pays to the association in cash a portion of the proceeds of its retired stock, the association may pay the retiring stockholder a similar amount, less any personal indebtedness of

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† For source citation, see note to g 11.2016.

the borrower to the association, in full settlement of the value of his stock. If, however, the bank elects to retain all the proceeds of its retired stock, the association, unless it has other funds available, may not make a payment to the retiring borrower until it has paid, or has made adequate provision for paying, its indebtedness to its creditors and has sufficient funds available for distribution among its former shareholders on a pro rata basis. In such cases the association may issue to each retiring borrower a certificate which would recite, in effect that "the holder of this certificate is entitled to share pro rata on the basis of ---- shares of capital stock of the aggregate par value of $-of the

National Farm Loan Association of

in the distribution of the net proceeds of all its capital stock after all of its indebtedness has been satisfied.” † (Sec. 6, 47 Stat. 14, secs. 7, 8, 39 Stat. 365, 367; 12 U.S.C. 665, 721, 733)

11.2148 Disposition of stock proceeds; Class 3 or 4. Where the association is in Class 3 or 4, the bank shall retain the full amount of the proceeds of such retired stock and apply the same as a credit on the debts due by such association to the bank. In such cases, the association may issue to each retiring borrower a certificate in the form indicated in the preceding paragraph. (Sec. 6, 47 Stat. 14, secs. 7, 8, 39 Stat. 365, 367; 12 U.S.C. 665, 721, 733)

11.2149 Permission to accept applications. An association in Class 1 may, unless disqualified for some other reason, accept applications for loans. Applications for new loans may be accepted through an association in Class 2 if the bank is willing to pay cash for the par value of its stock in connection with loans through the association which are paid in full. Associations in Classes 3 and 4 shall not be permitted to accept applications for loans. (Sec. 6, 47 Stat. 14, secs. 7, 8, 9, 39 Stat. 365 ff., as amended ; 12 U.S.C. 665, 721, 733, 745, and Sup.)

CONSOLIDATION OF ASSOCIATIONS 11.2228 Procedure. Two or more associations operating in a territory which can be covered legally by one association may consolidate as follows:

(a) Agreement and articles of association; action by directors. The board of directors of each of the associations proposing to consolidate (which associations are hereinafter termed the constituent associations) shall at a regular or duly called meeting adopt a resolution authorizing its president or vice president to execute on behalf of the association subject to the approval of the stockholders, an agreement of consolidation, specifying the terms on which the associations shall be consolidated, and also to execute appropriate articles of association for the organization of a consolidated national farm loan association, and authorizing the secretary-treasurer of the association to do all acts necessary to effect the consolidation.

(b) Forms; execution by officers. The officers designated by each of the constituent associations shall execute on behalf of such associations, an agreement setting forth the terms of the consolidation and also execute appropriate articles of association for the organization of a consolidated national farm loan association. Forms of

† For source citation, see note to 8 11.2016.

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