the Federal Farm Loan Board. They shall bear a rate of interest not to exceed 5 per centum per annum.

"The Federal Farm Loan Board shall prescribe rules and regulations concerning the circumstances and manner in which farm loan bonds shall be paid and retired under the provisions of this act.

"Farm loan bonds shall be delivered through the registrar of the district to the bank applying for the same.

"In order to furnish farm loan bonds for delivery at the federal land banks and joint stock land banks, the Secretary of the Treasury is hereby authorized to prepare suitable bonds in such form, subject to the provisions of this act, as the Federal Farm Loan Board may approve, such bonds when prepared to be held in the treasury, subject to delivery upon order of the Federal Farm Loan Board. The engraved plates, dies, bed-pieces, and so forth, executed in connection therewith shall remain in the custody of the Secretary of the Treasury. Any expenses incurred in the preparation, custody, and delivery of such farm loan bonds shall be paid by the Secretary of the Treasury from any funds in the treasury not otherwise appropriated: Provided, however, that the Secretary shall be reimbursed for such expenditures by the Federal Farm Loan Board through assessment upon the farm land banks in proportion to the work executed. They may be exchanged into registered bonds of any amount, and re-exchanged into coupon bonds, at the option of the holder, under rules and regulations to be prescribed by the Federal Farm Loan Board.

"Special provisions of farm loan bonds. Sec. 21. That each land bank shall be bound in all respects by the acts of its officers in signing and issuing farm loan bonds, and by the acts of the Federal Farm Loan Board in authorizing their issue.

"Every federal land bank issuing farm loan bonds shall be primarily liable therefor, and shall also be liable, upon presentation of farm loan bond coupons, for interest payments due upon any farm loan bonds issued by other federal land banks and remaining unpaid in consequence of the default of such other land banks; and every such bank shall likewise be liable for such portion of the principal of farm loan bonds so issued as shall not be paid after the assets of any such other land banks shall have been liquidated and distributed: Provided, that such losses, if any, either of interest or of principal, shall be assessed by the Federal Farm Loan Board against solvent land banks liable therefor in proportion to the amount of farm loan bonds which each may have outstanding at the time of such assessment.

"Every federal land bank shall by appropriate action of its board. of directors, duly recorded in its minutes, obligate itself to become liable on farm loan bonds as provided in this section.

"Every farm loan bond issued by a federal land bank shall be signed by its president and attested by its secretary, and shall contain in the face thereof, a certificate signed by the Farm Loan Commissioner to the effect that it is issued under the authority of the Federal Farm Loan Act, has the approval in form and issue of the Federal Farm Loan Board, and is legal and regular in all respects; that it is

not taxable by national, state, municipal, or local authority; that it is issued against collateral security of United States government bonds, or indorsed first mortgages on farm lands, at least equal in amount to the bonds issued; and that all federal land banks are liable for the payment of each bond."

IV. OTHER FIRST MORTGAGE SYSTEMS.

State systems. Most of the states that have developed farm loan systems have shown a tendency to follow the federal law in its general outlines. The majority of the states accordingly limit their loans to about 50 per cent of the value of the land, and make no provision for second mortgages. In a number of cases, the states follow the federal system so closely that the net result is duplicated machinery for accomplishing the same purpose.

It has been urged that the states should develop systems that would supplement the federal system and that the state farm loan bureaus are in a peculiarly advantageous position to advance loans on second mortgages because they are in a position to check up local conditions and to make such loans without undue risk. But whatever reasons have been urged for or against existing methods, the fact remains that present state systems frequently duplicate work done by the Federal Loan Board.

The South Dakota constitution provides that "the State or any county or two or more counties jointly may establish and maintain a system of rural credits and thereby loan money and extend credit to the people of this State upon real estate security in such manner and upon such terms and conditions as may be prescribed by general law." (Art. 13, Sec. 1.)

Under this provision a rural credit system was enacted in South Dakota in 1917. (Rev. Code 1919, Secs. 10, 150-10, 173.) And within a two-year period a little more than $10,000,000 was loaned on the farm lands of that state.

The South Dakota law limits the amount that can be loaned to 70 per cent of the appraised value of the land and 40 per cent of the insured value of the improvements. The maximum amount that can be loaned to any one person is $10,000. The interest rate for farm mortgage loans varies from 51⁄2 to 6 per cent. Under the amortization plan of paying the principal, the borrower actually pays 7.26 per cent annually, in two semi-annual payments on the 6 per cent basis, and 6.88 per cent on the 54 per cent basis. Payment at this rate for a period of 30 years pays all the interest and wipes out the principal. A borrower may pay all or any part of his loan on any interest date after 5 years. There are no commissions of any kind to be paid for securing loans and the borrower gets all the money he borrows; none being retained for stock in the farm land bank, as is the case under the federal system. No liability is incurred by the borrower except for his own loan. In case the borrower is unable to meet the interest payments when due, the Farm Loan Board may, in its descretion, defer these payments for

a reasonable length of time. The interest charge on all overdue payments is 8 per cent.

Money loaned under this law may be used for any of the following purposes: (1) To purchase farm land; (2) to purchase equipment, fertilizers, etc., for the proper and reasonable operation of the mortgaged land; (3) for buildings and other improvements on the land; (4) for paying mortgages or other indebtedness incurred for the purposes provided for in the law.

The South Dakota law follows the general plan of the federal act. It has the same general purpose, and it operates practically in competition with the federal farm loan system.

Amendments to the constitution of North Dakota adopted in 1918 opened the way for the development of state farm loans. Sections 182 and 185 as amended provide the basis for the state farm loan system.

Sec. 182, as amended in 1918: "The state may issue or guarantee the payment of bonds, provided that all bonds in excess of $2,000,000 shall be secured by first mortgages upon real estate in amounts not to exceed one-half of its value; or upon real and personal property of state-owned utilities, enterprises, or industries, in amounts not exceeding its value, and provided further, that the state shall not issue or guarantee bonds upon the property of state-owned utilities, enterprises. or industries in excess of $10,000,000.

"No future indebtedness shall be incurred by the state unless evidenced by a bond issue, which shall be authorized by law for certain purposes, to be clearly defined. Every law authorizing a bond issue. shall provide for levying an annual tax, or make other provision, sufficient to pay the interest semi-annually, and the principal within thirty years from the passage of such law, and shall specially appropriate the proceeds of such tax, or of such other provisions, to the payment of said principal and interest, and such appropriation shall not be repealed nor the tax or other provisions discontinued until such debt, both principal and interest, shall have been paid.

Sec. 185 as amended in 1918: "The state, any county or city may make internal improvements and may engage in any industry, enterprise or business not prohibited by Article 20 of the Constitution, but neither the state nor any political subdivision thereof shall otherwise loan or give its credit or make donations to or in aid of any individual, association or corporation except for reasonable support of the poor, nor subscribe to or become the owner of capital stock in any association or corporation."

Pursuant to the authority granted in these amendments to the constitution the state legislature in 1919 established the Bank of North Dakota and also made provision for the issue of real estate bonds. based on first mortgages.

The distinguishing feature of the North Dakota law is the state bank which performs practically the same functions for the state farm. loan system that are performed in the federal system by the federal land bank. Although the bank did not begin business until July 28th, 1919, on December 6th of that year it had made loans aggregating

$1,700,000. Additional loans amounting to $1,300,000 had been approved subject to the borrower furnishing a merchantable title.

In construing section 182 of the constitution as amended, the Supreme Court of the state held that the language of the amended section authorized the issue of $2,000,000 of bonded indebtedness, unsecured except by the faith and credit of the state, in addition to any bonded indebtedness existing at the time of its adoption. (State v. Hall, 173 N. W. 763 (1919). This decision of the Supreme Court, given in mandamus proceedings against the secretary of state to compel him to certify the bonds as within the debt limit, settled the question as to the validity of the bonds, and left the way open for putting the rural credit laws into practical operation.

The state of Oregon adopted a constitutional amendment providing for rural credits in 1916. It furnishes a typical example of legislative details embodied in a state constitution, and reads as follows:

"Constitution, article XI a, Rural Credits, Sec. 1. Notwithstanding the limitations contained in Section 7 of Article XI of this constitution, the credit of the state may be loaned and indebtedness incurred to an amount not exceeding two per cent of the assessed valuation of all the property in the state for the purpose of providing funds to be loaned upon the security of farm lands within the state, subject to the limitations herein contained.

"Sec. 2. The governor, secretary of state, and state treasurer shall constitutute the state land board, which board is hereby authorized and directed to issue and sell or pledge bonds in the name of the state to be known as Oregon farm credit bonds in an amount not to exceed said two per cent of the assessed valuation of all the property in the state, and to place the proceeds in the state treasury in a fund to be known as the "rural credits loan fund."

"Sec. 3. Said bonds shall be issued in denominations of $25.00, $100.00, $500.00, and $1,000.00, and shall be issued in series of $50,000.00, or multiples thereof, drawn to mature in not more than thirtysix years. They shall bear interest at the rate of four per cent per annum and shall be exempt from all taxes levied by the state of Oregon, or any of its subdivisions.

"Sec. 4. Said state land board is authorized and directed to loan the moneys in said rural credits loan fund to owners of farm lands in Oregon upon notes secured by mortgages or deeds of trust constituting first liens on such farm lands in amounts which shall not exceed fifty per cent of the value of such lands, nor $50.00 per acre on such lands, nor less than $200.00 nor more than $5,000.00 to any individual. If pending applications shall at any time exceed the funds available, preference shall be given to loans not exceeding $2,000.00 in amount.

"Sec. 5. Such loans shall not be made except to owners who operate and occupy the lands mortgaged, and shall be made only for the following purposes: (a) The payment for lands purchased; (b) the purchase of livestock and other equipment, and the making of improvements which, in the judgment of said board, will increase the productivity of such lands or add to their value as a farm home in a