Honorable   Jesse James                     Opinion       No. WW-1233
State Treasurer
Trea.sury Department                        Re:        Whether a “book credit”       in
Austin,   Texas                                        a coo~perative  a.ssociation
                                                       is “personal   property”     with-
                                                       in the meaning of Article
Dear Mr. James:                                        3272a, V.C.S.

             This   refers   to your   letter     of    November,    1961,   from
which    we quote   as follows:
        1,
          . . . On January 1, 1955, a coo,perative       association
         apportions      equity to a patron in a formof          a
         “book credit”.        In compliance    with U. S. Treasury
         Department regulations,        the cooperative      associ-
         ation attempts       to notify  the patron (for example,
         by United States mail) of the a.pportionment              on
         the books of the coopera.tive         the dollar    amount of
         assets     for the account of the patron.          The January
         1, lg.55 notification       is undellvera.ble    and the
         whereabouts      of the patron unknown as of that date.

        “The question     is whether or not the “book credit”
         equity becomes subject      to eschea.t seven (7) years
         following    January 1, 1955, even though the cooper-
         ative   has never made available       funds to redeem or
         retire    the “book credit    equity”.

          We refer    also the letter to you from the General Counsel
for the Farm Credit Hanks of Houston,    which letter was made a
part of your request:

        “The great majority    of the coo,peratives      In this
         State have followed     the practice    of issuing
         common and preferred     stock on the basis of a
         par value of $1.00 per share.         They have also
         incorporated   in their    charters   and by-laws   pro-
         visions   which permit the retirement      of capital
         on what is commonly referred        to as the “revolving
         p1a.n” . Under this plan the coopera.tive        may, from
         time to time, call    In for retirement      a.t par plus
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Honora.ble   Jesse   James,   ,pa.ge 2 (w-1233)



       any dividends      unpaid thereon,    such of its out-
       standing    capita.1 stock as is in fina.ncial
       position    to retire,    but in so doing must re-
       tire   such stock in the date order in which it
       was issued.       In other words,    the oldest    out-
       standing     shares must first    be retired    before
       later    shares can be called     for redemption,

      “Farmers cooperative       associations     organized     under
       the Texas Coopera.tive       Marketing Act are non-
       profit    in nature and are designed        to render
       services     to their members and pa.trons at cost.
       It is the universal      pra.ctice,    however,    for these
       organizations      to charge for their      services     the
       usual and customary charges prevailing             in the
       area and at the end of each fiscal            year refund
       to the patrons      any overcharge     to which they have
       been subjected      as a result     of paying the going
       charges for the services         rendered.     These refunds
       are commonly called       “patronage    refunds”     or “pa-
       tronage dividends”      and are made to the patrons on
       the basis of the amount of business            done with or
       for them by their      cooperative;     hence the man who
       may have paid $500.00 to the cooperative              for gin-
       ning his cotton      would receive     in patronage      refunds
       five   times as much as the man who may have paid
       only $100.00 for having his cotton            ginned by his
       cooperative.

      “The obligation     to make these patronage        refunds
       is a contractual     one set forth    in the Articles
       of Incorporation     and/or laws of the association.
       The by-laws    also carry a reciprocal       obligation
       on the part of the patron to see that his cooper-
       a.tive organization    is adequately     ca.pitalized,
       This contractual     agreement obligates       refunds which
       he receives.      It is based upon the premise that
       the pa.trons who are ma.king use of the services           and
       facilities    of the cooperative     organization      are the
       ones who should have their       investment     in it.

      “When the amount of needed capital       is iufficient
       and the cooperative     is in the position    to make a
       cash distribution,    it does so by retiring’its
       oldest   outstanding  stock on the revolving       plan
       a.bove-mentioned.    However, some cooperatives
       follow   the plan of making their   annual distributions
       partly   in cash based upon current     patronage     and
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              Honorable       Jesse   James,   page 3 (W-1233)



                       partly  to retire  the oldest    outstanding     stock.
                       This determination   varies   from year to year and
                       is governed by a. number of different        factors.

                      ""'hen a patronage       refund is made by a. capital
                        rltock cooperative      operating     under the revolving
                        capital    plan, the amount which is not distributed
                        in cash is distributed         in the form of allocations
                       of ca.pital     stock.     Thus if a patron is entitled            tc
                       a patronage      refund of $100.00 a.t the end of the
                       year (assuming tha.t the entire            refund is ma.de in
                        the form of stock)        he will be given credit          upon
                        the books of the coopera.tive          as ha.ving purcha.sed
                        its preferred      stock in the amount of .jlOO.OO at
                       par.     When making this allocation            and credit,
                        some cooperative       organizations      follow     the practice
                       of issuing      and delivering      to the recipient        a
                        stock certificate       representing      the shares of stock
                        so issued.      Other coo,pera.tives      do not follow      the
                       practice     of a.ctua.lly issuing      certifica.tes     of
                        stock but in lieu thereof          give notice       to the pa-
                        tron of the amount of stock which has been posted
                       upon the books of the orga,nization              for his a.ccount”.

                          Article   3272a., V.C.S.,         a.fter requiring       the reporting
              of personal   property   subject   to        eschea.t,  provides      in Section   1
              (b) as follows:

                      "The term 'personal        property'      includes,      but is not
                       limited     to money, stocks,        bonds and other securities,
                       bills    of exchange,     claims for money or indebtedness
                       and other written        evidences     of indebtedness,          divi-
                       dends, deposits,       accrued     interest       purchase     pay-
                       mm,        sums paya.ble on certified          checks,     certificates
                       of membership in a corpora.tion             or association,         amounts
                       due and payable under the terms of any insurance
                       policy,     security    deposits,     unclaimed      refunds and
                       deposits     for utility     or other services,          funds to re-
                       deem stocks       and bonds, undistributed           ~profits,     divi-
                       dends, or other interests,            production       and proceeds
                       from oil,      ga.s and other mineral         estates,    a.nd a.11
                       other personal       property     a.nd increments       thereto,
                       whether tangible       or intangible,        a.nd whether held
                       within    this State,     or without       the Sta.te for a. per-
                       son or beneficiary        whose last known residence               was
                       in this Sta.te”.        (Emphasis Supplied).

                              If the "book entry"       represents   a certain amount of
              stock    that    ha.s been purchased      by the pa.tron (a.nd we are told
Hon0ra.bl.e Jesse     James,    page 4- (W-1233)



tha.t it does) there ca.n be no doubt tha.t the property              repre-
sented by the “book credit”       is “persona.1 property”         within    the
mea.ning of the statute.       The sta.tutory     definition     of “persona.1
~property” expressly    inclu,des   “stocks” I Coopera.tives         operating
under the Texas Coo,pcrative      Marketing Act are authorized            TV
sell and issue to their members and stockholders               shares of ca,pi-
tal stock in such manner and upon such terms and conditions                   ads
are provided   in their bylaws.        Article    5744, V.C.S.      Ve a.ssume
tha.t the bylaws of the subject        cooperatives      authorize    the sale
and issuance   of capita.1 stock in the aforesaid            ma.nncr.

              The objection      tha.t there is no fund yet established
with which to retire         the shares of stock purchased with patron-
age refunds goes only to the value of the stock and not to its
identity     as stock,    at-d as personal      property.         Ye f 1nd no t h ping
in logic     or legal    precedent    which would make the a.va.ila.bility
of fu~nds to retire       stock a prerequisite            to the classifica.tioo
of such stock as personal           property.        ?,fore important,    Article
3272a neither       expressly,     nor by implication,          makes such a.
requirement      in its definition        of “personal       property’.       To tkl2
contrary,     the statutory      definition      itself     discloses    that the
legisla,ture     rega.rded “stocks”       a.nd “funds to redeem stocks and
bonds” aa two sepa.ra.te and distinct              forms of persona.1 property.
See Section      l(b)   of Article     3272a quoted a.bovc.

             Purther,     the fact  tha.t no stock certifica.te      i3 issued
or delivered     to t’he patron does not destroy        the status of the
pa.tronl s allocaticn,evidenced       by a. “bock entry,‘,    a.s stock or
a.s personal   property.      A stock certificate    a.nd the sha.res which
it represents     are two different      forms of personal      prop:crty and
ownership    of the shares may exist without        the possession       of any
certificate.      10-B Tex.Jur.     2, 3, Corporations,     Sec. 168.

              The sta.tute requires          “every ,person holdin          personal
property     subject      to escheat”     to re ort such proper y to the
State Treasurer         (tiphasis     Supplied ‘i . It is our   ---+ opinion    that
the cooperative         is a “holder”      within   the meaning of Article
3272a.     The term “person”          is defined,     in part,      a.3 “any. ~.
business     association...of         other legal,      commercial,      governmental
or political       entity”.       Article    3272a, V.C.S.,        sec. l(a).      Palpa.bly,
cooperative      associations       formed’under      Articles      5737-5764,     V.C.S.,
are “business        associations”.         It has been held tha.t shares of
coroora.te    stock are persona.1 property            in the nature of chases in
action    and the situs        of the stock ma.y be a.t the domicile             of the
corporation      and a.t the same time ma.y be at the place of residence
of the owner when he is in oossession                 of a certificate         evidencinx
such ownership.           Benson v. Greenville        Na.tiona.1 Exchange Panic,           -
253 S.!,J.2d 918 (Civ.App.           1952, error ref.       n.r.e.    ).   The stock of
a cooperative        is     in our 0 inion,      analogous     to the stock of a.
corporation      Tin t&is respec t.
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                  Honora.ble   Jesse    James,   Page 5 (WJ-1233)



                                It is our further       opinion    that the seven year period
                  referred    to in Article       3272a commences to run on the date the
                  patronage     refund is declared.         The “indebtedness”     came into be-
                  ing when the cooperative          declared    the patronage   refund.    It un-
                  questiona,bly     retained    its character     as “indebtedness”     when con-
                  verted   into another form of “indebtedness”,             namely, shares of
                  stock.     The absurdity      of viewing     the period  as commencing anew
                  each time “personal        property”     changes from one form of personal
                  pro~perty to another is manifest.

                               We are aware that often        the thing the patron receives
                  from the investment       of his patronage      refunds     in the cooperative
                  Is not referred     to as stock,     and the evidence        of such investment
                  is not referred     to as a stock certificate.             The allocation       re-
                  sulting   from the book credit        is frequently       in the form of re-
                  volving   fund certificates,      retain    certificates,       certificates       of
                  Indebtedness,    letters     of advice,    or similar      documents.        It Is
                  our opinion    that regardless      of what the interest         thus acquired
                  by the patron is called,        it is “personal        property”    within     the
                  meaning of Article       3272a  if it amounts to a “claim           for money or
                  indebtedness”.

                                In conclusion,     it is our o,plnlon that the fact that
                  written    evidence    of the book credit        allocation    of patronage
                  refunds    is not deliverable       to the patron does not destroy            its
                  character     as personal    property     for purposes      of Article    3272a.
                  It may be true that this would prevent                the cooperative     from
                  claiming     the book credit     allocation      as a deductible       expense for
                  income tax purposes       under the Federal         Tax Regulations.        However
                  valid    that ru.le may be In connection          with Income tax liability,
                  It has no application        to the question        of whether the book credit
                  allocation      is “personal   property”      within     the meaning of Article
                  3272a.     Our statute     is obviously      designed     to apply to this very
                  situation     where the owner ismissing           and neither     the personal
                  property     nor the evidence      thereof    is deliverable      to the owner.


                                                            SUMMARY


                                  A cooperative’s     “book credit”    allocation   of
                               equity   to a patron on the basis       of patronage
                               refunds    is personal   property   within    the meaning
                               of Article    3272a to the extent      that it rep-
Honorable    Jesse     James,    page    6   (WW-1233)




                  resents,     under    the facts  of each particular
                  case,    "stocks"     or a "claim for money or in-
                  debtedness".



                                                 Very truly   yours,

                                                 WILL WILSON
                                                 Attorney General      of   Texas




hgbhaj

APPROVED:

OPINION COMMITTEE

W. V. Geppert,       Cha.lrman

Marvin   Thomas
Vernon   Teofan
Bob Shannon
W. 0. Shultz

REVIEWEDFOR THE ATTORNEYGENERAL
BY: Houghton Brownlee, Jr.
