152 F.2d 215 (6th Cir. 1945), 10034, Greene County Nat. Farm Loan Ass'n v. Federal Land Bank of Louisville

Docket Nº:10034.
Citation:152 F.2d 215
Case Date:December 13, 1945
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 215

152 F.2d 215 (6th Cir. 1945)




No. 10034.

United States Court of Appeals, Sixth Circuit.

December 13, 1945

Page 216

F. H. Parvin and B. B. Fraker, both of Greeneville, Tenn., for appellants.

William C. Goodwyn, of Lousville, Ky., and W. Carroll Hunter, of Washington, D.C. (W. C. Goodwyn, of Louisville, Ky., John E. Lee, of Kansas City, Mo., W. Carroll Hunter, of Washington, D.C., David C. Walls, U.S. Atty., of Louisville, Ky., and Robert H. Shields, of Washington, D.C., on the brief), for appellees.

Before SIMONS, ALLEN, and MARTIN, Circuit Judges.

SIMONS, Circuit Judge.

The appellants seek review of a decree dismissing their complaint against the bank, the individual members of its Board of Directors and the Farm Credit Administration. The complaint sought to enjoin the bank from carrying out a plan approved by the Farm Credit Administration for the relief of National Farm Loan Associations in the Fourth Farm Credit District, the capital of which had become impaired, and for other purposes presently appearing. Originally four of the associations had joined in the action. Two of them have submitted to the decree, without appeal, the United States was permitted to intervene in support of the defendants below, and joins in their support of the District Court adjudication.

The Farm Credit Administration, the bank and the constituent Farm Loan Associations, owe their existence to and derive their powers from the Federal Farm Loan Act of July 17, 1916, as amended and now codified in 12 U.S.C.A. § 636 to 1012. Originally the banks and associations were under the supervision of the Federal Farm Loan Board within the Department of the Treasury. The functions of the Board were transferred to the Farm Credit Administration by Executive Order No. 6084, dated March 27, 1933, and later to the Department of Agriculture by Reorganization Plan No. 1, Sec. 401, effective July 1, 1939, 12 U.S.C.A.preceding section 636.

Detailed analysis of the statutory scheme is impossible within the normal confines of an opinion. The Supreme Court has had occasion to consider certain aspects of the Act in respect to the organization and functions of federal land banks, and to declare that they are instrumentalities of the federal government engaged in the performance of an important governmental function. Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577; Federal Aand Bank v. Gaines, 290 U.S. 247, 54 S.Ct. 168, 78 L.Ed. 298. It is necessary, however, to an understanding of the issues here presented to consider the general structure of the Farm Credit System.

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The Act provides for the organization, by persons desiring to borrow money on farm mortgages, of corporations to be known as National Farm Loan Associations, with the charter of each association specifying the territory within which its operations are to be carried on. The Farm Credit Administration is vested with supervisory authority over the federal land banks and the loan associations, subject to the general control and direction of the Secretary of Agriculture. The banks and associations function cooperatively as interdependent operating units of a long-term farm mortgage loan service provided by the Act. On December 31, 1943, there were in existence in the twelve farm credit districts, each with a federal land bank, 3024 associations, including the 432 associations in the Fourth Farm Credit District in which the appellants function.

The mechanics provided for the carrying out of the purposes of the Act require that a prospective borrower make application to the association in his locality for membership therein. Before a loan is made by the bank it must be approved by the association and by a land bank appraiser appointed by the Farm Credit Administration. The association endorses all loans made through it by the bank and services them. The borrower is required to purchase stock in the association in the amount of $5 for each $100 or major fractional part thereof borrowed, and pledges this stock to the association as collateral security for the loan. The association, in turn, purchases a like amount of stock in the bank and pledges it as collateral security for its endorsement liability. The stock of the borrower and the association is required to be paid off at par and retired upon full payment of the loan by the borrower. Where, however, the association is indebted to the bank on its endorsement liability, the proceeds of the stock of such association are set off against the indebtedness, When the association does not receive the proceeds for the retirement of its stock because of such set-off, and is therefore unable to redeem the borrower's stock, it issues to the borrower a stock retirement certificate reciting that the stock has been cancelled and retired and that the certificate evidences the right of the recipient to share in the association's net assets on the basis of the number of his shares, but not to exceed their par value.

For many years the bank here involved absorbed losses incurred in connection with the loans made by it and endorsed by national farm associations...

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