PROVIDE FOR CANCELATION OF CERTAIN NOTES MONDAY, MARCH 18, 1940 SUBCOMMITTEE OF THE COMMITTEE ON AGRICULTURE, Washington, D. C. The committee met at 3 p. m., Hon. Wall Doxey (chairman) presiding. Mr. DOXEY. Gentlemen, the next matter on our calendar is S. 1710. [S. 1710, 76th Cong., 1st sess.] AN ACT To provide for the cancelation of certain notes acquired by the Farm Credit Administration as a result of the activities of the Federal Farm Board Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Governor of the Farm Credit Administration is authorized and directed to cancel any notes given for the purpose of acquiring capital stock in the Northwest Grain Association, Minneapolis, Minn., by any person, association, or corporation in the States of Montana, Minnesota, North Dakota, and South Dakota which have been assigned to or otherwise acquired by the United States, or the Farm Credit Administration as an agency of the United States, as security for the payment of any sums now or heretofore owed to the Northwest Grain Association. Upon the cancelation of such notes, all persons shall be relieved of all liability for making any payment of principal or interest upon such notes and of all liability for making any payment upon any judgment which may have been secured in any action based upon such notes. Passed the Senate August 1, 1939 Attest: EDWIN A. HALSEY, [S. Rept. No. 1039, 76th Cong., 1st sess.] Secretary. The Committee on Agriculture and Foresty, to whom was referred the bill (S. 1710) to provide for the cancelation of certain notes acquired by the Farm Credit Administration as a result of the activities of the Federal Farm Board, having considered the same, report thereon favorably, with a recommendation that the bill do pass with the following amendments: On page 1, line 4, strike out the word "executed" and insert in lieu thereof the following: "given for the purpose of acquiring capital stock in the Northwest Grain Association, Minneapolis, Minnesota." On page 1, line 5, strike out the words "State of Montana" and insert in lieu thereof the following: "States of Montana, Minnesota, North Dakota, and South Dakota." The action of the committee was based primarily on the information contained in the report submitted to the committee by the Farm Credit Administration, which is printed below in full, as follows: Hon. E. D. SMITH, FARM CREDIT ADMINISTRATION, Chairman, Committee on Agriculture and Forestry, United States Senate. DEAR SENATOR: Further reference is made to your letter dated April 5, 1939, requesting a report on S. 1710, which, if enacted, would require the Governor of the Farm Credit Administration "to cancel any notes executed by any person, association, or corporation in the State of Montana which have been assigned to or otherwise acquired by the United States, or the Farm Credit Administration as an agency of the United States, as security for the payment of any sums now or heretofore owed to the Northwest Grain Association." The Farm Credit Administration holds notes acquired from two sources which apparently come within the terms of the bill. One group of notes was given by local cooperative associations for stock in Northwest Grain Association, Minneapolis, Minn., a cooperative corporation organized in 1929 to conduct cooperative grain marketing activities principally in the States of Montana, North Dakota, South Dakota, and Minnesota. This organization obtained a loan of $25,000 from the Federal Farm Board on January 16, 1930. The notes of the local cooperatives secured by the stock in Northwest Grain Association were either originally pledged to the Federal Farm Board as collateral for this $25,000 loan, or pledged in substitution for other similar notes, or are renewals of such notes. The note of the Northwest Grain Association and the accompanying collateral were among the assets of the Agricultural Marketing Revolving Fund which the Farm Credit Administration was given the duty of administering by Executive Order No. 6084, effective May 27, 1933. The present unpaid balance of the principal of this loan is $10.897.88. Notes held as collateral have unpaid balances of principal totaling $23,472.80. This total is composed of notes aggregating $4,880.47 from cooperatives in Montana, and $18,592.33 from similar organizations in North Dakota, South Dakota, and Minnesota. This group of collateral notes will be hereinafter referred to as stock notes. The notes in the second group were given also by local cooperative associations (some of which may also owe stock notes) to Northwest Grain Association and are secured generally by mortgages on grain elevators and other physical assets of the cooperatives. The records of the Federal Farm Board indicate that generally speaking these notes were given to Northwest Grain Association for funds with which to pay debts of the local cooperatives so as to enable them to finance their operations. For convenience, we shall hereafter refer to these notes as nonstock notes. These nonstock notes were pledged by Northwest Grain Association to Farmers National Grain Corporation, of which it was a member, and from which it obtained the funds to make the loans. Farmers National Grain Corporation in turn pledged to the Federal Farm Board, as security for loans made to it, the notes of Northwest Grain collateraled by the nonstock notes. These notes of Northwest Grain Association became the absolute property of the United States of America (Farm Credit Administration) pursuant to a settlement of June 12, 1936, referred to on page 82 of the Fourth Annual Report of the Farm Credit Administration. The present unpaid balance of the principal of the notes of Northwest Grain is $138,835.32. The present total unpaid balance of the principal of the nonstock collateral notes is $133,022.23, composed of $19,550.44 in notes from organizations in the State of Montana and $113,471.79 in notes from organizations in North Dakota and South Dakota. The collateral is, therefore, less than the principal amount secured thereby. It was the policy to permit Northwest Grain Association and Farmers National Grain Corporation to substitute collateral. For this reason, we are unable to determine the total of the stock notes and the nonstock notes which have been paid; however, since May 27, 1933, when Farm Credit Administration was given the responsibility of administering the agricultural marketing revolving fund, $2,616.59 has been paid on such stock notes. Of this sum, $577.92 was collected from organizations in the State of Montana, and $2,038.67 from local cooperatives in the other States. Since June 30, 1936, when the settlement agreement between Farmers National Grain Corporation and the United States of America (Farm Credit Administration) was made effective, $2,449.56 has been collected on nonstock notes from organizations located in Montana, and $63,278.21 from cooperatives in North Dakota and South Dakota. In several instances, arrangements have been made with cooperative associations to liquidate their entire indebtedness on an installment basis. The records of the Federal Farm Board indicate that the operations of the Northwest Grain Association were unprofitable and that in the latter part of August 1931 a considerable portion of its assets was taken over by Farmers National Grain Corporation because of unliquidated loans. Until a short time ago the Northwest Grain Association maintained more or less a skeleton organization; but, at the present time, it is our understanding that it has ceased to function and that its liabilities exceed its assets. For this reason the stock in Northwest Grain Association securing the stock notes is of no value and nothing can be realized on account of its liability for the $10,897.88 unpaid balance of the $25,000 loan and the $138,835.32 unpaid balance of the loans it obtained from Farmers National Grain Corporation secured by the nonstock notes. Therefore, the amount to be recovered by the United States on the unpaid balance of the loans in both groups depends entirely on the amount realized from the collateral, and in some instances the makers of the collateral notes are in poor financial condition. The bill as drawn would necessitate cancelation of $4,880.47 in stock notes and $19,550.44 in nonstock notes from Montana organizations, thereby reducing the collateral in each group. It is understood that the principal argument advanced on behalf of the makers of some of the stock notes is that the Federal Farm Board was responsible, in part at least, for the transaction by which Farmers National Grain Corporation acquired a substantial amount of the assets of Northwest Grain Association, thus causing the latter's stock to become of little or no value. From our examination of the Federal Farm Board records and the loan documents involved in this case, it does not appear that the Board was instrumental in effecting any change in the scope of operations of Northwest Grain Association, or that it actively assisted in carrying out any such change. The action appears to have been taken by Farmers National Grain Corporation as a creditor to protect its interests on account of loans it had made to Northwest Grain Association. It is the understanding of the Farm Credit Administration that the makers of stock notes have not received any dividends on the stock and, as stated heretofore, the stock at the present time is worthless; but the cooperatives owing the nonstock notes (which may in some instances owe stock notes) received cash or its equivalent for the original amounts of the notes, and in most cases used the funds to liquidate other indebtedness. During the past few years at least, droughts and other unavoidable conditions in the territories served by some of these associations have made it impossible for these organizations to operate profitably and some of them have been unable to operate at all. Because of these circumstances, and due to the unprofitable nature of the stock investment, Farm Credit Administration has followed as tolerant a collection policy as conditions would permit and has regulated its requests for payments in accordance with the borrower's ability to pay. In no case has legal action been brought unless it was essential for the preservation of the physical property securing the loan or a note maker declined to cooperate with respect to the indebtedness. Having in mind the continuance of such policy, it is believed that S. 1710 should not be enacted into law for the following reasons: (1) The bill as drawn would relieve only the debtors in the State of Montana and would, therefore, be unfair to those organizations owing similar indebtedness, but located in the State of North Dakota, South Dakota, and Minnesota. (2) In each of the States named some of the organizations have repaid loans of both types in whole or in part. Cancelation of the loans in the State of Montana would be unfair to those organizations in other States that have paid their loans. (3) There appears to be no possible chance for recovery from Northwest Grain Association for its liability in connection with the indebtedness to which the notes are collateral; but, on the other hand, the Government's chances of collecting on this indebtedness depend entirely on the amount which can be realized from the collateral. Therefore, if any portion of these collateral notes is canceled, it would increase the possibility of loss to the United States. (4) The debtors apparently received the actual cash value for the nonstock notes, and apparently hoped to realize profit from the investment evidenced by the stock notes. Therefore, in the circumstances, it does not appear that the United States should be subjected to loss in the transaction. I am advised that this proposed legislation would not be in accord with the program of the President. Sincerely, F. F. HILL, Governor. It will be observed that the committee adopted certain amendments in order to meet the objectives set forth by the Farm Credit Administration. Your committee recommend the enactment of the bill. Mr. DOXEY. We are happy to have with us this morning Mr. Jim O'Connor from Montana, who manifests such an interest in this. He has been here time and time again trying to get a hearing, and I feel like I owe you an apology for not being able to give it to you earlier, but we just cannot do everything we would like to. STATEMENT OF JAMES F. O'CONNOR, REPRESENTATIVE IN CONGRESS FROM MONTANA Mr. O'CONNOR. That is all right, Mr. Chairman. I realize the committee has many other matters. Mr. DOXEY. I invited Senator Wheeler, but he could not come here, but I understand that he has sent Mr. Thatcher here to testify. Mr. THATCHER. Yes; he asked me to appear today to represent him. Mr. O'CONNOR. Yes, Mr. Chairman. Mr. DOXEY. We are very pleased to hear from you. We will now proceed to take testimony on S. 1710, which is an act to provide for the cancelation of certain notes acquired by the Farm Credit Administration as a result of the activities of the Federal Farm Board. Mr. O'CONNOR. Mr. Chairman and members of the committee, I appear and urge the passage of Senate bill 1710, providing for relief of certain persons, associations, and corporations in the States of Montana, Minnesota, North and South Dakota from paying certain promissory notes given by such persons and associations, which notes are not held by the Farm Credit Administration. Take, for instance, Brady and Conrad, Mont. We have had these cooperative associations there now for years. They were doing a very good business long before the Agricultural Marketing Act was enacted. The Federal Farm Board and the Agriculture Marketing Act of 1929, in 1929 and 1930, proposed and carried out a plan to furnish $20,000,000 of working capital through a cooperative marketing structure known as the Farmers National Grain Corporation. There were several cooperative marketing associations located regionally in the United States at that time. These marketing associations were invited to participate in a subscription to the capital stock of the Farmers National Grain Corporation. Then it appears that Mr. McKelvie, a member of the Farm Board, set up additional cooperative marketing institutions for the purpose of expediting such a plan and caused to be set up in the territory embraced in the States mentioned what is known as the Northwest Grain Association. This was done about 1930. This association was set up really in competition, as I am informed, with those that had been in the field for years, and as it was set up by the Federal Farm Board many of the cooperative associations were led to believe that it was the favored institution. Meetings were held which in a way impressed this idea on the local farmers' cooperative elevators and the local cooperative elevators were thereby induced to become members of the Northwest Grain Association and asked to purchase stock in the Northwest Grain Association. One of the representatives of the grain association appeared at Brady, Mont., at which place a cooperative marketing farmers' elevator was conducting a good business, and such representatives induced the board of directors representing the local cooperative association at Brady to become a member and a stockholder of the North west Grain Association and to purchase stock on the basis of $20 worth of stock for each 1,500 bushels of grain handled through the elevator, requiring a payment of 10 percent down and the balance on time at one-fourth cent per bushel handled. Now, what happened at Brady was typical of other cooperative elevators, I am informed. It was represented to these local cooperatives that of course the Northwest Grain Association would be successful and that the dividends would pay the notes given for the stock. Now, the Farmers National Grain Corporation was merely a financial agency which loaned money to the Northwest Grain Association for operating purposes. The Northwest Grain Association was the corporation that was actually operating, and the Northwest Grain Association, in turn, loaned to local cooperative associations for buying grain, and later on in the summer, I think, of 1931, the makers of all of these notes were told they were due and payable. I am informed that through a series of transactions and over the protest of the Northwest Grain Association the Farmers National Grain Corporation acquired all of the assets of the Northwest Grain Association. The said association contended that it had taken these notes in good faith from these local elevator associations and that if it were put out of the business of marketing it could not carry out any contract with these local associations that had bought stock in it. However, it appears that the Farmers National Grain Corporation forced the Northwest Grain Association out of marketing within 1 year from the time when the Northwest Grain Association took the notes. Thus it is claimed that as a result of such coercion the makers of the notes should not be required to pay. The Department admits that the Northwest Grain Association has ceased to function; that its liabilities exceed its assets and that the stock is of no value and that nothing can be realized on account of its liability for the $10,897.88, unpaid balance of the $25,000 loan, and the $138,835.32, unpaid balance of the loans it obtained from Farmers National Grain Corporation secured by the nonstock notes. It is claimed by the Department that the action of the Farmers National Grain Corporation was taken as a creditor of the Northwest Grain Association to protect its interests on account of loans which it had made to the Northwest Grain Association. Now, the makers of the notes received no dividends on the stock whatever, and it is today worthless, and they were induced to buy the stock by an agency of the United States Government-namely, the Federal Farm Board. Drought conditions set in in the Northwest and made it impossible for these local cooperatives and the makers of these notes to pay them. As is well said in a letter by Mr. Hocking, of Glasgow, in view of the fact that the farmers have been unable to raise any crops since 1931 to speak of and the further fact that the understanding was by the Federal Farm Board that they were to pay for the stock at one-fourth cent per bushel for their future grain sales that they should not be called upon to pay this deficiency. The fact is that most of them are not in a position to pay the notes. Congress alone can give relief as these notes are now, through various transfers, etc., owned by the Farm Credit Administration, an agency of the United States Government. |