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Contracts Annotations (Agricultural Law and Tax)

This page contains summaries of significant recent court opinions involving agricultural-related contracts and other cases that involve issues of importance to the agricultural sector

Posted November 23, 2017

Pork Sale Contract Dismissed. The plaintiff agreed to prepare and sell various products to the defendant. Beginning in August of 2015, the plaintiff and defendant entered into a series of purchase orders in which the defendant ordered various fresh, non-GMO, hormone and antibiotic-free pork products including bacon, pork chops, salami, and sancocho, that were to be produced in and imported from Poland. The plaintiff was required to produce, ship and deliver the pork products in a timely manner and up to specification. The defendant claimed that it had an agreement with a national discount store to distribute the pork products it ordered from the plaintiff. The first order was placed in August 2015 and the plaintiff failed to ship the product until “mid-2016”, making the plaintiff unable distribute the product to its customer until September 2016. In addition, part of another order was delivered late. Some of the products ordered were delivered “mislabeled or un-labeled” and did not comply with USDA standards. In addition, the plaintiff shipped some pork chops that contained xanthan gum which prevented the defendant from distributing them because it would have been required to label them as “Pork Chop with Water-Binding Product.” The defendant also claimed that some of the plaintiff’s pork chops tested positive for listeria. Finally, in August of 2016, the defendant placed additional orders for fried pork skins, also known as sancocho. The plaintiff failed to notify the defendant when the sancocho shipped, causing the product to remain at ports in Houston and Los Angeles at extra cost to the defendant. On June 28, 2017, the plaintiff filed its complaint alleging that the defendant breached a number of the parties’ contracts, in the form of purchase orders when the defendant failed to pay for certain goods that it accepted or wrongfully rejected. The defendant filed a counter claim alleging causes of action for breach of contract, breach of covenant of good faith and fair dealing, breach of implied warranty of merchantability, breach of implied warranty of fitness for particular purpose and unfair business practices. The plaintiff then filed a motion to dismiss the defendant’s counterclaims. The court found that the purchase orders were incorporated by reference into the defendant’s counterclaim. None of the purchase orders mentioned any labeling specifications, requirements regarding xanthan gum, fat content, or the use of certain food coloring. Therefore, the court found that the defendant has failed to state a claim for breach of contract for breach of those requirements. In regards to the shipping requirements, state (CA) law required that “the time for shipment for any other action under a contract if not. . . agreed upon shall be a reasonable time.” As a result, the court held that the defendant had not alleged sufficient facts to state a claim that the timing of the plaintiff’s delivery was unreasonable under the circumstances surrounding the parties’ various agreements. The court also found that the defendant did not sufficiently allege pre-suit notice. Therefore, the court held that the defendant has failed to adequately plead its breach of contract claim. The court also held that the defendant’s claim for breach of covenant of good faith relied upon its breach of contact claim and was, therefore, duplicative and had to be dismissed. Finally, the court held that meat products are ordinarily sold and used for human consumption, and that the defendant’s status as a distributor in the food supply chain did not mean that its purpose was particular. Therefore, the court granted the plaintiff’s motion to dismiss as to the defendant’s claim for implied warranty of fitness for a particular purpose, and granted granted the plaintiff’s motion to dismiss the defendant’s counterclaims. Pini USA, Inc. v. NB Global Commodities, L.L.C., No. 2:17-CV-04763-ODW-PLA, 2017 U.S. Dist. LEXIS 181235 (C.D. Cal. Oct. 31, 2107).

Posted November 3, 2017

Defective Tractor Gives Rise To Numerous Warranty and Tort Claims. The plaintiff purchased a used tractor from the defendant for use in his manure hauling business to pull the tanks across fields where he spreads it as fertilizer. The plaintiff told the defendant the specific purpose for which he would be using the tractor, and the defendant sold him a 2008 tractor that had previously been used in liquid-manure disposal activities. There was extended warranty coverage on the tractor for specific parts from April 2010 until April 2013. For the warranty to apply, however, any repairs had to be approved by a specific insurance company and performed by someone they authorized. The defendant acquired the tractor on trade in 2010 and informed the plaintiff that the tractor had been serviced and was “ready to go” even though the defendant’s salesman had never seen the tractor. The plaintiff, in late 2012, signed a purchase agreement and paid $1,000 for the transport of the tractor, traded-in his existing tractor and took possession of the replacement tractor. The plaintiff began having mechanical problems on the day he took possession. The defendant’s salesman claimed to have told the plaintiff that there was no warranty on the tractor. Within days, the tractor’s turbo malfunctioned, as did the 19th gear. Also, multiple bolts were rusted and broken, the hydraulic pump exploded, the transmission overheated and the brakes failed. The plaintiff rented another tractor while his was being repaired by an authorized party. After getting his tractor back, the transmission again overheated and the brakes failed and the tractor became unusable. It later turned out that the tractor had a history of problems while it was under the original warranty and owned by the original buyer. The insurance company claimed the tractor was repairable, but the plaintiff filed suit for fraudulent misrepresentation and breach of implied warranties and good faith and fair dealing against the implement dealer, as well as equitable rescission. The plaintiff filed a breach of contract action against the insurance company, negligent design, manufacture, assembly, testing and warning against the manufacturer as well as breach of express and implied warranties and fraudulent concealment and nondisclosure. The trial court granted summary judgment to all of the defendants on all of the claims. On appeal, the appellate court upheld the trial court’s ruling granting summary judgement to the implement dealer on the fraudulent misrepresentation and nondisclosure claims. The court determined that the plaintiff had not shown any knowing misrepresentation that the dealer made about the tractor. The appellate court also upheld the trial court determination granting summary judgment to the implement dealer on the breach of implied warranty of merchantability and fitness for a particular purpose claims, noting that the disclaimer language was conspicuous. However, as for the express warranty the court reversed the trial court, finding that issues remained as to whether the implement dealer provided an express warranty that the tractor was in “good condition” and fit for the immediate use in manure hauling. The appellate court affirmed the trial court’s grant of summary judgment on the breach of the implied covenant of good faith and fair dealing on the basis that the plaintiff failed to provide facts that could support or create a genuine issue of fact regarding the dealer’s alleged knowledge that the tractor was defective. The court also noted that the purchase contract did not require the dealer to inspect the tractor or provide any type of disclosures. The appellate court also agreed with the trial court on the plaintiff’s rescission claim, noting that the plaintiff still had an adequate remedy in the form of a money judgment. As for the claims against the manufacturer, the appellate court noted that state (IA) law does not provide for recovery for economic losses, and that damages were only available under contract or warranty theories, and affirmed the trial court on this point. The court also upheld the award of summary judgment for the manufacturer on the plaintiff’s breach of express warranty, fraudulent concealment and nondisclosure claims. The appellate court determined that the plaintiff had failed to preserve its claim against the insurer for breach of contract. On further review by the Iowa Supreme Court, the Supreme Court only reviewed the express warranty issues decided by the appellate court. The Supreme Court determined that the disclaimers contained in the purchase agreement negated any express warranties that the implement dealer had allegedly made. Accordingly, the Supreme Court upheld the trial court’s determination, and affirmed in part and vacated in part the appellate court’s decision. Cannon v. Bodensteiner Implement Company, et al., No. 15-0741, 2017 Iowa Sup. LEXIS 93 (Iowa Sup. Ct. Oct. 27, 2017), aff’g in part and vac’g in part, 899 N.W.2d 740 (Iowa Ct. App. 2017).

Posted October 24, 2017

Suit Based on Faulty Fish Feed Survives Dismissal. The plaintiff in this case owns a largemouth bass farm in which he has about 360,000 bass of varying sizes and ages. Since 2008, the plaintiff fed the fish food distributed by the defendant. In 2015, another company began producing the feed for Purina, which allegedly lead to a change in the formula of the food. The plaintiff claimed that the new formulation contained higher percentages of digestible carbohydrates than largemouth bass can physically absorb. Despite the reformulation, the defendant’s packaging statements, representations, guaranties and warranties, and webpages continued to represent that the food was “100% nutritionally complete to maximize growth” for largemouth bass. By April of 2016, the plaintiff experienced significant disease and death amongst the largemouth bass population. The plaintiff filed a complaint against both Purina and the other company alleging that the substantial population problems were a direct and proximate result of feeding the fish the reformulated feed. Both defendants filed separate motions to dismiss. The plaintiff claimed that the defendants violated the Illinois Consumer Fraud Act (ICFA). The defendants however claimed that the plaintiff failed to state a claim under the ICFA because the facts fell squarely within an exception to the statute that prohibited the plaintiff from recovering for damage to property other than the property that is the subject of the allegedly unlawful practice. In other words, the defendants claimed that the exception prohibited the plaintiff from recovering for lost fish where the unlawful conduct relates directly to fish food rather than the fish themselves. The court disagreed, finding that numerous federal courts have allowed an ICFA claim to proceed against manufacturers for harm to property other than the product at issue. Purina, the only defendant subject to a breach of express warranty claim, also claimed that it cannot be subject to a breach of express warranty claim because there is no privity of contract between it and the plaintiff. Typically, to recover for damages that result from a product not living up to an express warranty, a claimant must establish privity of contract between himself and the alleged defendant. However, Illinois courts have developed a number of exceptions to the traditional notions of privity. The relevant exception to this case is “where an article of food or drink, intended for human consumption, is sold in a sealed container. In that situation, an implied warranty is imposed on the manufacturer that the article was fit for that purpose, enabling a consumer to recover for the warranty’s breach. Federal courts have further interpreted the exception in Illinois law and have determined that it should also apply to products intended for animal consumption. The defendant claimed that the exception only extended to all sealed products, citing numerous cases for support. However, the court determined that the key distinction to the privity requirement involved physical harm to people or animals. The court determined that the total death or serious injury caused to animals in other Illinois cases and in this case, is more serious than the harm and frustration that results from a faulty product. As a result, the court would not dismiss the claim against Purina for violation of an express warranty. However, the court did find that dismissal of the claims against both defendants for implied warranty of fitness for a particular purpose was appropriate because the claimed use (feeding largemouth bass) was not particular and there was no allegation that the plaintiff specifically approached the manufacturers to ensure that the product would do something above and beyond its normal advertised function. As a result, the Court of Appeals dismissed the complaints for breach of express warranty against Purina and allowed the remaining complaints to proceed. Veath Fish Farm, LLC v. Purina Animal Nutrition, LLC No. 17-cv-0303-MJR-SCW, 2017 U.S. Dist. LEXIS 166109 (S.D. Ill. Oct. 6, 2017).

Posted August 3, 2017

Failure to Get Farm Lease In Writing Costs Tenants. The plaintiffs, Emerick Farms and Fayette Farms, claimed that in October 2011 the defendant, the owner of two farms, verbally agreed to allow Emerick Farms to farm 254 tillable acres and Fayette Farms to farm a separate tract containing 531 acres. Both farms were located in Fayette County, Illinois. Both alleged leases were from 2012 through 2013. The plaintiffs applied fertilizer and performed fall tillage for each of the properties. After the plaintiffs performed these acts, but before the leases were renewed, the defendant sent a letter to the plaintiffs notifying them that the farms had been leased to another tenant farmer. The plaintiffs then sued for breach of oral contract. The trial court entered judgment in favor of the plaintiffs and against the defendant in the amount of $264,830. The defendant appealed. The court of appeals determined that the conveyance of the right to enter upon the land for the purpose of farming is a conveyance of an interest in the land itself. In addition, contracts conveying land or an interest therein are required to be in writing pursuant to the statute of frauds. The plaintiffs claimed that the leases should be enforced under the doctrine of partial performance. However, the court of appeals determined that to remove the bar of the statute of frauds, partial performance must be such that it is impossible to compensate the performing party for the value of his performance. Because the plaintiffs’ partial performance was of such a character that the plaintiffs could be adequately compensated for the value of their services, the plaintiffs’ breach of contract claims were barred by the statute of frauds. As a result, the trial court improperly invoked the doctrine of partial performance and the case was reversed and remanded for further proceedings. Emerick Farms, et al. v. Marlen No. 5-16-0260 2017 Ill. App. Unpub. LEXIS 879 (Ill. App. Ct. May 2, 2017).

Posted July 27, 2017

Contract Dispute Over Barn Construction. The plaintiff contacted the defendant, an experienced builder, to construct a pole barn on the plaintiff’s farm. The parties executed a written agreement on June 25 providing for the defendant to build an 80 x 105 foot barn with concrete floors, spray-foam insulation, and the framing for interior walls and doorways. The total contract price was set at $265,210, including supplies and labor. The plaintiff was to pay an initial amount of 65 percent of the total cost before work began. Another 25 percent was to be paid after assembly and construction, with the final 10 percent to be paid after the completion of the floor installation. The plaintiff claimed that the parties orally agreed that the barn would be completed by winter and that the defendant would keep the plaintiff’s payments in a separate account. The defendant disputed both of these points. The plaintiff made the initial payment upon contract signing and the building was up by October 21. The plaintiff made the second payment at that time. The parties then discussed overhead doors and “extras” and the defendant paid the deposit on the doors. The plaintiff wanted the defendant to work on completing the insulation and concrete floor while they waited for the doors to be installed, but the defendant refused. The plaintiff then sought the balance of his funds paid to the defendant after deduction for the amounts the defendant spent on ceiling steelwork. The overhead doors were then installed and the defendant invoiced for the remaining cost. Other disputes arose culminating in the plaintiff filing suit for breach of contract. The trial court determined that the plaintiff was responsible for any delay in the barn’s completion and that the defendant had acted reasonably. While the defendant was found to be in partial breach of the warranty of workmanlike construction due to the roof leaking, the plaintiff was determined to have been in material breach by frustrating the construction process and improperly terminating the contract. The trial court awarded the plaintiff $32,486 for the leaking roof and the defendant $32,701 for the extra work performed in accordance with the parties oral agreement. On appeal, the court determined that the plaintiff breached the contract, but that the defendant could not retain any prepayments that pertained to materials and labor not provided to the plaintiff. The appellate court remanded the matter for a determination of what materials were actually prepaid by the plaintiff which the defendant received for work in building the barn. In other words, both parties were entitled to the benefit of the bargain they struck. No more and no less. Bertram v. Harberts, No. 16-0919, 2017 Iowa App. LEXIS 729 (Iowa Ct. App. Jul. 19, 2017).

Manure Easement Requires Available Manure To Be Supplied Each Year. The plaintiff had a manure easement agreement (MEA) with the owners of an adjacent hog farrowing/finishing facility which he acquired at the time of purchase of his land. The MEA granted the owners of the hog facility the right to apply manure and other animal waste generated by the hog facility on the plaintiff’s 146 acres. The MEA was permanent and ran with the land. In August 2012, the owners of the hog facility sold it to the defendant. The defendant dramatically remodeled the facility and rebuilt it into a hog finishing facility. The defendant filed a manure management plan which provided that the plaintiff would maintain a corn-soybean rotation. Because soybeans don’t require manure it would only be applied every other year or 73 acres of manure would be provided each year. The plaintiff sued, claiming that the defendant breached the manure easement agreement (MEA) by virtue of the manure management plan. The defendant argued that it is the recipient of that MEA and therefore a burden can only be imposed upon the plaintiff as the grantor. However, the court determined that the MEA was a written contract and that and the burden of the agreement could be imposed in whatever way the parties agreed upon in the contract. The defendant also argued that the manure management plan impermissibly imposed a greater burden on the defendant than contemplated by the original MEA. That was the result, the defendant claimed, because the manure produced was more valuable as coming from a finishing barn than from a farrowing barn. The court determined that both parties intended the MEA to apply to either a farrowing or finishing facility. The MEA also stated that “application shall be permitted after crops are harvested in the fall of any calendar year during the term of this agreement and up until the time for planting the following spring” and that the plaintiff, “shall be allowed as much manure as needed to cover the ground associated with easement”. The court held that this language indicated that the parties intended for the manure to be available every year and not on an every-other-year basis. In addition, the court held that the land associated with the easement was the full 146 acres. As a result, the defendant had to provide the plaintiff with enough manure to cover his full 146 acres every year, limited only to the extent there is enough manure generated by the facility. Thompson v. JTTR Enviro. L.L.C., No. 16-1610, 2017 Iowa App. LEXIS 749 (Iowa Ct. App. Jul. 19, 2017).

Posted July 16, 2017

Rooker-Feldman Abstention Doctrine Bars Federal Court Review of Poultry Contract Case. The plaintiff was a chicken producer that began growing chickens for Tyson in 1987 in facilities that the plaintiff owned. In 2010, the defendant, Tyson Foods, implemented a new program mandating the upgrading of growers’ chicken houses. Contracts with farms that did not conform to the mandated upgrades by May 1, 2013 would be terminated on the same date. The plaintiff claimed that the defendant terminated his grower contract on May 6, 2012. In April 2015, the plaintiff sued the defendant in state court alleging multiple causes of action including fraud, unjust enrichment and breach of contract. The trial court dismissed with prejudice each of the claims except the breach of contract claim, and ordered the plaintiff to amend his complaint limiting his allegations to facts relevant to the breach of contract claim. The amended complaint did not comply with the directive and was dismissed without prejudice. The plaintiff appealed that decision and the court of appeals affirmed the trial court’s decision and amended the action to dismiss the breach of contract claim with prejudice. Two months later the plaintiff filed the present claim in federal court. The federal court determined, however, that it lacked jurisdiction over the case due to the Rooker-Feldman abstention doctrine. The Rooker-Feldman abstention doctrine applies when a party files a federal lawsuit complaining of injuries caused by a state court’s judgment and invites the federal court to review and reverse the state court. Because the underlying facts upon which the plaintiff's claims relied were virtually identical to those presented in the previous state court action, the federal court determined that the plaintiff was essentially asking the court to overrule the state court decision. Furthermore, the plaintiff referred to the state court case in his brief stating that it was unfair. Because federal jurisdiction to review the state court’s final judgment is exclusive to the United States Supreme Court, the federal court lacked the jurisdiction to hear the matter, dismissing it with prejudice. Crutchfield v. Tyson Foods, Inc., No. 2:17-CV-02075 2017 U.S. Dist. LEXIS 101644 (W.D. Ark. Jun. 30, 2017).

Denial of Motion Based on Compelling Arbitration is Appealable. The plaintiff sued the defendant on February 5, 2016 for breach of contract and conversion based on an oral contract for the sale of soybeans. The defendant moved to “motion to dismiss or stay” the court proceedings claiming the parties were subject to a written agreement for mandatory mediation. The defendant relied on a provision in the contract which stated that the National Grain and Feed Association (NGFA) Rules were to apply to the contract. The defendant claimed that Rule 29 of the NGFA mandated arbitration of disputes arising out of the February 5 contract. On May 2, following a hearing, the trial court issued an order denying the motion to dismiss or stay. The court characterized the defendant’s position as “this matter must be subjected to arbitration” and concluded that the NGFA Rule did not compel arbitration. The defendant did not appeal that order and instead filed an application to compel arbitration again using the NGFA Rule as a basis for the argument. The trial court denied the application to compel, finding that the matter was previously addressed by the court. on May 2. The defendant appealed, and the plaintiff moved to dismiss the appeal as untimely. The appellate court reasoned that the timeliness of Heartland’s appeal depended upon whether the trial court’s first order denying arbitration dated May 2 was a final order. On that point, the appellate court determined that an order denying a motion to compel arbitration is final and appealable as a matter of right. Because the defendant’s two motions relied on the same basis for their arguments, referenced the same form for the basis of the claim for mandatory arbitration and pointed to the same law to support their argument, the defendant’s first motion was a motion to compel. As a result, even though the caption of the April 18 motion was “motion to dismiss or stay” the appellate court determined that it was in fact an application to compel arbitration. Consequently, the trial court’s May 2 ruling on the motion was a final and appealable order that the defendant failed to timely appeal from, thus making the appeal from the second motion not properly before the court. Fell Partnership v. Heartland Cooperative, No. 16-1180 2017 Iowa App. LEXIS 683 (Iowa Ct. App. July 6, 2017).

No Legal Definition of "Crop Year" in Settlement Agreement. John, Doug (cousins)and Kim (Doug’s wife) formed an LLC in 2007. John owned 50% and Doug and Kim each owned 25%. Ultimately John, Doug and Kim had disagreements concerning the LLC's operations and John filed suit. They entered into a settlement agreement in January 2013 under which Kim and Doug would transfer their membership interest in the LLC to John in exchange for a cash settlement. In addition, the settlement agreement specified that the LLC was entitled to farm several leased farms and Kim and Doug were entitled to farm other leased farmland. At the end of the 2013 crop year, all leases were to be open for negotiation to any party. In July 2013, Kim and Doug expressed their interest to one of the landlord's whose land the LLC was entitled to farm of their desire to rent the landlord’s farmland after the landlord’s lease with the LLC ended. In addition, in July 2013 Kim and Doug contacted another of the landlords for the LLC lands, about leasing his farm in 2014. Both of the landlords leased their land to Kim and Doug for the 2014 crop year. John and the LLC filed suit against Doug and Kim for breach of contract. John claimed that "crop year" as used in the settlement agreement had a clear and unambiguous meaning of being March 1 through March 1. Because Doug and Kim began negotiating leases before March 2014, John claimed that they breached the settlement agreement. The court instructed the jury that there was no legal definition of crop year, and that they were to determine the meaning of all the words used by the parties in the settlement. The jury ruled in favor of Doug and Kim, and John and the LLC appealed. The appellate court stated that "when the interpretation of a contract depends on the credibility of extrinsic evidence or on a choice among reasonable inferences that can be drawn from the extrinsic evidence, the question of interpretation is determined by the finder of fact, except where the evidence is so clear that no reasonable person would determine the issue in any but one". In this case the settlement did not expressly define crop year and although there was testimony that the leases of farmland tend to commence March first, the evidence was not so clear that no reasonable person would determine "crop year "could only mean the period of time from March 1 to March 1. In addition, the court noted that applying the plaintiffs' definition of crop year to the settlement agreement would mean that negotiations for the 2014 crop year would not be open until March 2014, effectively barring lease negotiations for the 2014 crop year until the 2014 crop year begins. The court determined that would be a senseless result, and affirmed trial court. As a result, the court of appeals affirms the jury's verdict. Deppe v. Deppe, No. 16-0310 2017 Iowa App. LEXIS 676 (Iowa Ct. App. Jul. 6, 2017).

Posted July 10, 2017

Statute of Limitations Tolled by Reversal and Remand of Trial Court’s Summary Judgment Ruling. A father and son operate a hog and grain farm and sued the plaintiff asserting claims for breach of contract, consumer misrepresentation, negligence, and breach of warranties. The defendants claimed that the plaintiff failed to provide nitrogen fertilizer of a quality and quantity sufficient to produce a corn yield of 180-200 bu/ac which the plaintiff represented it would do. The plaintiff counterclaimed asserting that the defendants owed approximately $90,449.21 plus interest for the products sold in the past year. The trial court granted the plaintiff’s motion for summary judgment on the negligence claim and the jury returned a verdict in favor of the plaintiff on all of the other claims. The jury also found that the defendants breached their contract with the plaintiff and owed them $40,449.21 in damages. The defendants appealed the district court’s grant of summary judgment on the negligence claim, but the appellate court reversed and remanded. On remand, the trial court entered judgment in favor of the plaintiff and ordered the defendants to pay $193,805.91 in damages. The plaintiff then commenced a creditor’s bill action to void certain real property transfers the defendants made to a trust alleging they did so to make the collections against them more difficult. The trial court granted the defendants’ motion for summary judgment on the grounds that the judgment had expired under the three-year time limit provided by Minn. Stat. § 550.366. The court determined that the time limit ran from June 6, 2013 the date the trial court vacated the stay on the plaintiff’s judgment on its counterclaim. The plaintiff appealed claiming that Minn. Stat. § 550.366 is unconstitutional and that the district court erred in applying it. The appellate court determined that Minn. Stat. § 550.366 is constitutional, but that the trial court did err in applying it. Because the trial court’s grant of summary judgment on the defendants’ negligence claim was reversed on appeal, that part of the 2013 judgment was no longer in full force and effect. A new judgment on the negligence claim was entered in January 2016. As a result, the court determined that any time limit on the execution of the judgment on the defendants’ remanded negligence claim did not begin to run until January 2016. Earthsoils, Inc. v. Ptacek, No. A16-2012, 2017 Minn. App. Unpub. LEXIS 583 (Minn. Ct. App. Jul. 3, 2017).

Posted July 7, 2017

Wind Turbine Contract Properly Cancelled. The plaintiff entered into a contract with Alaskan Wind Industries (AWI) for the sale and installation of a wind turbine on the plaintiff’s property. The plaintiff paid the 60% down payment of $32,880 immediately after the contract was signed. The plaintiff was then notified by a neighbor of a land-use covenant that prohibited structures over 35 feet tall in the subdivision who also threatened legal action if the project to build the 49-foot wind turbine went forward. The plaintiff cancelled the contract and filed a suit claiming that AWI and its representatives had assured him that they were familiar with the subdivision covenants and the wind turbine would not violate them. The plaintiff asked the court to order the return of his down-payment less any offset the court deems appropriate. AWI responded by asserting that the plaintiff breached their contract. The court determined that under Alaska law, a contractor who installs steel towers or pylons is considered a steel erection contractor that must be registered as a specialty contractor. However, an exemption to the registration requirement applies if the installed finished product does not become a permanent, fixed part of a structure or does not become a permanent, fixed structure itself. The court concluded that the wind turbine kit, which would have been assembled, would become an individual free-standing fixed structure. As a result, the finished product exemption did not apply. In addition, the court concluded that under Alaska law an unregistered contractor who was required to be registered cannot not bring a breach of contract claim. Thus, AWI’s breach of contract claim was barred. However, the court determined that AWI was entitled to an equitable setoff compensating it for out-of-pocket and incidental expenses. However, AWI resold the parts for thie contract for a profit of $6,104.52. Because AWI was only entitled to offset its costs, to the extent that their costs are greater than the profit they gained, AWI was not entitled to any setoff. Daggett v. Feeney, 2017 Alas. LEXIS 73 (June 16, 2017).

Posted May 31, 2017

Cows Were Purchased By Part-Owner of Bankrupt Dairy Rather Than the Dairy. The plaintiff is part-owned by an individual that sold 116 dairy cows to the part-owner of the defendant, a land company that is associated with a dairy that had filed Chapter 12 bankruptcy. The trial court determined that the part-owner of the plaintiff sold the cows to the part-owner of the defendant personally and not to the dairy that was in bankruptcy. This determination was reached largely because the bankruptcy court did not approve the purchase of the cows and the seller’s testimony that he knew the dairy was in bankruptcy and would not sell to such a buyer. The trial court also rejected the part-owner of the defendant claim that the court misapplied the law of agency. As a result, the part-owner of the defendant was personally responsible for paying for the cows. The part-owner of the defendant appealed. The appellate court affirmed the trial court. The appellate court found the seller’s testimony persuasive. While noting that the dairy did not need court permission to buy the cows if the purchase was in the ordinary course of business (11 U.S.C. §1203; 11 U.S.C. 363(c)(1)), there was evidence that the purchase of a new herd (as this would be) was not. The appellate court also agreed with the trial court that the part-owner of the defendant was not acting as an agent of the dairy’s behalf at the time of the purchase. Green River Ranches, LLC v. Silva Land Co., LLC, No. 43548, 2017 Ida. LEXIS 146 (Ida. Sup. Ct. May 26, 2017).

Posted January 20, 2017

Class Certification Granted in Gas Royalty Case. The plaintiff landowner claimed it was underpaid royalties by the defendant energy company and sought class status on behalf of more than 10,000 property owners with oil and gas rights on their tracts and leases with the defendant. The purported class comprised approximately 6,500 leases and 1,900 wells. The plaintiff claimed that the defendant has an implied duty of marketability requiring it to “transform all raw or unprocessed natural gas into a marketable product without cost” to the landowners. The plaintiff claimed, however, that the defendant had charged for that transformative service. The court allowed class certification, but limited it to those landowners with leases that do not negate the implied duty to market. That limitation would limit the class to less than 5,300. The basic complaint was that the defendant was selling raw gas product at the wellhead to processing companies in exchange for a percentage of the sales proceeds that the midstream companies secure on the market. However, because the defendant bases the royalty on the price that the midstream company receives after the gas is processed, the claim was that the deductions were deducted from the landowners’ royalty payments. The court stated that the core of the argument was that the raw gas at the wellhead was not a marketable product. Naylor Farms, Inc. v. Chaparral Energy, LLC, No. Civ-11-0634-HE, 2017 U.S. Dist. LEXIS 6073 (W.D. Okla. Jan. 17, 2017).

Posted January 16, 2017

Mom’s Testimony Against Son Not Credible; Son Entitled to Set-Off Rent Against Repair and Reimbursement Claims. A son farmed family land with his brother that was held by various trusts for which his mother was the trustee. In 2002, they entered into an oral lease with their mother to lease the trust-owned farmland. In 2009, they divided up what ground each of them would farm with the son continuing to farm trust-owned land through 2012. In the spring of 2013, the son saw someone else using equipment in the fields and determined at that time that he would not be farming the trust-owned ground in 2013. The son filed bankruptcy in 2014, and his mother filed a claim for the 2012 farm rent of $28,152. The son claimed that his mother owned him for repairs he made to equipment and improvements to facilities to an extent that exceeded the rent that he owed her. Based on the evidence, the court agreed with the son. The practice between the parties was that the son would make repairs and improvements and be reimbursed for them. The son submitted an accounting of all of the repairs and improvements, and was reimbursed through 2009 for those amounts. The mother claimed that the lease was for the land and buildings only, but that the equipment was not part of the lease, but could be used if permission were sought. The parties ceased talking to each other in 2010, and the mother claimed that her son’s claims for reimbursement were barred by the five-year statute of limitations. The son claimed to have made a request for reimbursement as early as late 2012. But, the court determined, even those claims tied to work completed more than five years before he filed his reply to his mother’s claim in a court action and were asserted as a defense to his mother’s 2012 rent claim. As a result, the claims fell under Iowa Code §614.12 (the codification of the common law rule of recoupment) and were not barred by the five-year statute of limitations. The court determined that the mother’s testimony was not credible. Thus, the lease did include the equipment and tools and the parties had an established practice of reimbursement for expenses. Thus, the son was entitled to set-off the rent due by the amounts or reimbursement owed. In re Meyer, No. 14-01484, 2017 Bankr. LEXIS 77 (Bankr. N.D. Iowa Jan. 11, 2017).

Posted December 7, 2016

Continued Performance Constituted Acceptance of Modified Contract Terms. The plaintiff, an independent contractor, hauled milk from farms to the defendant’s facilities via an oral contract between the parties which could be terminated at-will by either party with reasonable notice. Thus, the contract was an “at-will” contract because it had no determinable term. The defendant notified the plaintiff that it would be phasing out a $100 trip fee it had been paying the plaintiff in addition to the agreed hauling rate. The plaintiff objected, but continued to transport milk and bill the defendant for the trip fees. The defendant continued receiving milk shipments and paid the agreed hauling rate but not the trip fees. After several months, the plaintiff sued for the unpaid trip fees and the defendant claimed that contract had been terminated via letter provided to the plaintiff on 30-days’ notice. The defendant moved for summary judgment and the trial court agreed. On appeal, the appellate court reversed on the basis that the modification of an existing contract requires mutual assent and consideration and because fact questions remained concerning acceptance. On further review, the state (IA) Supreme Court affirmed the trial court decision. The Court determined that an at-will contract could be modified by the parties upon reasonable notice. The defendant, the court determined, made it clear that it was altering the payment terms and the plaintiff understood the modifications and accepted the new terms by continuing performance even though objecting to the modification. The appellate court decision was vacated and the trial court’s decision was affirmed dismissing the plaintiff’s claims. Johnson v. Associated Milk Producers, Inc., 886 N.W.2d 384 (Iowa 2016).

Posted November 26, 2016

Court Orders Specific Performance of Farm Purchase. The plaintiffs entered into a farm lease with the defendant in early June which allowed them to farm 58 acres of the defendant’s land. The terms of the lease provided that the plaintiffs would pay $10,150 in annual rent. However, the lease agreement also stated that if the parties entered into a purchase agreement within 60 days of entering into the lease, the lease would be void and the cash rent would be applied to the purchase of the farm. In late June, the parties entered into an agreement for the purchase of 111 acres, including the 58-acres subject to the lease for $316,350. The parties set early August as the closing date. At the closing, the defendant refused to close, and two weeks later expressed his concern that the plaintiffs had farmed outside the boundaries certified with the Farm Service Agency (FSA) and that the defendant would be responsible for any penalties. The plaintiffs sued for specific performance and a motion for summary judgment. The trial court ordered the defendant to specifically perform the contract and left open for later resolution the plaintiffs’ request for attorney fees and whether the plaintiffs were entitled to a $10,150 credit toward the purchase price. The defendant filed a counterclaim, asserting that he was owed a money judgment for $10,150, $1,000 for adjoining land he claimed was damaged by the plaintiffs’ chemical usage and $824 in reimbursement for farm equipment he had to rent when he couldn’t access his own due to the plaintiffs. The trial court dismissed the counterclaim and gave the plaintiffs credit for $10,150 in rent, ordered the defendant to pay $3,000 in attorney fees (via the written contract) and denied the defendant’s claim for cost of rent of equipment and lost hay production. On appeal, the court affirmed. The appellate court determined that the defendant had no basis for delaying the closing. The defendant never told the plaintiffs of his concerns until after the closing date and never contacted the FSA office about his concerns. The equipment issue for not a legal issue for review and the contract between the parties allowed for attorney fees to a prevailing party in the event of suit. Snyder v. Baker, No 15-0440, Snyder v. Baker, 2016 Iowa App. LEXIS 1226 (Nov. 23, 2016).

Posted September 30, 2016

Custom Farming Arrangement Ends Up In Court on Conversion Claim. The plaintiff, a farmer, rented over 1,500 acres for the 2011 growing season and paid most of the rent in advance. However, the plaintiff lacked the financing necessary to buy seed and other crop inputs. The defendant introduced the plaintiff to the plaintiff’s employee, and the parties entered into a custom farming arrangement. Under the arrangement, the defendant would provide the inputs and the employee would provide the labor to get the spring crop planted. In return, the defendant would receive a lien on the harvested crop in the amount of the services provided under the agreement during the growing season. The employee also negotiated a line of credit with a supplier for operating funds for anhydrous, other chemicals and spraying. The defendant personally guaranteed the line of credit and specified that only he and/or his agent could make purchases on the line of credit. The defendant and employee planted all of the rented tracts and prepared invoices to be paid from the crop proceeds. The reported yields were low and the plaintiff believed that the defendant was stealing grain from the harvest. There were also unexplained fuel charges and an improper use of the line of credit into the employee’s personal account in the amount of $4,000. Harvest checks were mailed to the plaintiff from the grain elevators as multi-party checks with the plaintiff endorsing the checks and delivering them to the defendant. The defendant would keep what he thought he was owed based on the invoices. The plaintiff sued for conversion and breach of contract claiming that the defendant overcharged for services and products under the agreement. The trial court held that the plaintiff had failed to prove the conversion claim, but did find that the defendant had improperly billed the plaintiff. The improper billing resulted in a breach of contract and conversion of the grain proceeds. The court awarded the plaintiff $56,263.62 and $70,000 in punitive damages. On appeal, the appellate court affirmed. The court determined that the defendant had committed conversion when he retained more money from the multi-party checks that he was entitled to under the contract between the parties for custom farming. The court also upheld the trial court’s finding that the defendant had charged for items without a basis and overcharged for other amounts in light of the contract between the parties. The court also upheld the trial court’s award of punitive damages based on its finding that the defendant and employee “intentionally and systematically took advantage” of the plaintiff by charging whatever the felt like irrespective of the agreement between the parties. However, the court also upheld the trial court’s finding that the defendant did not steal grain from the plaintiff due to a lack of evidence to support the claim. Sheeder v. Jamison, No. 15-1120, 2016 Iowa App. LEXIS 1001 (Iowa Ct. App. Sept. 28, 2016).

Farmland Buyer Uses Anti-Assignment Clause of Wind Energy Lease To Get Out of Deal. The defendants, a married couple, owned 149 acres of farmland. They entered into a wind energy lease agreement with a wind energy company which erected an aerogenerator on the farm. They defendants sold 77 acres of the farm at auction in late 2013 to the plaintiffs (a daughter and her father) for $8,000/acre. The contract specified that the defendants would assign all of their rights under the wind energy agreement to the buyers and that if they defendants failed to do so, the contract could be terminated and any or all payments would be returned to the plaintiffs. The total purchase price was paid and a deed was signed in early 2014 specifying that the defendants assigned their rights and obligations under the wind energy lease to the plaintiffs. However, the wind energy company pointed out a provision in the wind energy lease that barred the defendants from assigning their rights under the lease because they couldn’t sever the wind energy rights from the property. But, the company agreed to allow the transfer to the plaintiffs of the rights under the lease for the 77 acres that they purchased. However, the plaintiffs rejected the deal and sued for breach of contract and sought termination of the transaction. The trial court agreed and terminated the purchase contract which resulted in a refund of the purchase price paid. The defendants appealed and the appellate court reversed. The appellate court reasoned that a contract to convey land becomes merged into the deed and becomes the operative document that eliminates the contract remedies and replaces them with the remedies via the deed unless the deed is ambiguous. Thus, the court reversed and remanded to the trial court for a determination of whether the contract merged into the deed such that the termination remedy was not available. There was no mention in the court’s opinion on the enforceability of the non-assignability clause. Some state courts, in the oil and gas context, for example, hold that a ban on assignment of the oil and gas lease context is an unreasonable restraint on alienation. Also, the opinion is silent on the fact that the parties could have entered into a separate agreement to have the seller pay the revenue from the lease portion that it couldn’t assign to the buyer. Hence, there was no discussion of the possibility that the plaintiffs simply changed their minds about going through with the sale and wanted their money back. Cornwall v. Winger, No. 15-1044, 2016 Iowa App. LEXIS 998 (Iowa Ct. App. Sept. 28, 2016).

Posted August 19, 2016

Poultry Supplier Had Right to Terminate Poultry Contract. The plaintiff, a grower, signed a contract with the defendant, a poultry supplier, to grow poultry for the defendant. One of the poultry houses flooded and the plaintiff told a representative of the defendant to come to the farm and take all of the birds. The defendant gave the plaintiff the contract-required 90-day written notice of termination of the contract, and came to the plaintiff’s farm and collected all of the birds (including those in the two other poultry houses that were not affected by the flood). The plaintiff sued for breach of contract, but the court granted summary judgment for the defendant. The court noted that the defendant gave proper notice of termination, that the birds were the defendant’s property, that the plaintiff told the defendant to come and get the birds and that even if the flood was an “act of God” which negated the plaintiff’s duty concerning the birds, that the plaintiff told the defendant to get the birds thereby abandoning the birds and failing to care for the defendant’s property. Oldham v. O.K. Farms, No. CIV-15-384-RAW, 2016 U.S. Dist. LEXIS 109831 (E.D. Okla. Aug. 18, 2016).

Posted April 29, 2016

No PSA Violation for Terminated Poultry Contracts. The plaintiffs are more than 200 poultry growers that had contracts with the defendant to raise poultry in their facilities and then sell the grown poultry to specific processing facilities of the defendant. After the contracts were entered into, the defendant later closed for economic reasons, thereby terminating the plaintiffs’ contracts. The plaintiffs claimed that the defendant’s conduct in closing the processing facilities and terminating the grower contracts violated 7 U.S.C. §192(e), a Packers and Stockyards Act (PSA) provision that proscribes anti-competitive conduct that is likely to suppress or destroy competition. The plaintiffs alleged that the defendant’s conduct was part of a plan to keep chicken off the market to increase price; lied to the public in claiming that the plant closings were due to underperformance of the plants; threatened the LA Governor by saying it would close another processing facility if the Governor forced the defendant to sell a different facility rather than closing it; was trying to increase market price rather than the defendant’s own internal pricing; committed an “unnatural” act of killing pullet flocks to stop production; had a competitor tell growers that the competitor would not accept their poultry unless they received a release from the defendant, and; the defendant had monopsony power at one of the plants. However, the court determined that none of the allegations, even if established, would amount to a violation of the PSA under applicable Fifth Circuit analysis. The court, based on the evidence, also determined that there was no evidence that the defendant caused the competitor to tell the growers about getting a release from the defendant. The court also believed the evidence showed that the defendant had less opportunity at monopsony power in the location in the area where it was claimed it had such power. On the plaintiffs’ claim that the defendant violated state (LA) unfair trade practice law by encouraging the plaintiffs’ to make long-term investments in their buildings and equipment to get contracts from the defendant with the defendant then closing the processing plants and leaving the plaintiffs without a viable market alternative, the court noted that the defendant did not encourage the plaintiffs to make such investments. Rather the defendant was building a reliable supply for its processing facilities. It was financial difficulties that motivated the decision to close the plants, and not fraudulent conduct, misrepresentation, deception or other unethical conduct which would have amounted to a violation of state law. Other claims also did not amount to a PSA violation – the requirement that growers upgrade their chicken houses from conventional to cool cell technology; the fact that some growers received 7-year contracts and others flock-to-flock contracts; the fact that some employee-growers received preferential treatment compared to non-employee growers. Adams v. Pilgrim’s Pride Corporation, No. 2:09-CV-397-RSP, 2016 U.S. Dist. LEXIS 53831 (E.D. Tex. Apr. 22, 2016).

Posted April 27, 2016

Builder Expressly Warranted To Build Pond That Would Hold Water. The defendants wanted a recreational pond constructed on their property, and hired the plaintiff to build it. After selecting a site, the pond was built at a cost of almost $117,000 which the defendants paid. Within a year, however, the pond failed to hold water. A second round of work on the pond resulted in a bill of over $93,000. The defendants refused to pay this amount and the plaintiff filed a petition to foreclose a mechanic’s lien. The defendants countered that the plaintiff was negligent in the construction of the pond and failed to perform the construction in a workmanlike manner which caused damages. The trial court held that the plaintiff had engaged in a second round of work voluntarily and refused to foreclose the lien. The trial court also rejected the defendants’ claim for damages because the oral agreement between the parties did not involve any express or implied warranties or guarantees. On appeal, the court reversed on the contract issues. The court found that the plaintiff had expressly warranted that the pond would hold water even though there was no written contract between the parties because the statement that the plaintiff made that he would “do a pond” expressly meant that the pond would hold water. The court also determined that the implied warranty of fitness for a particular purpose had been breached, and that the plaintiff had failed to construct the pond in a workmanlike manner due to miscalculating the soil conditions of the site selected for the pond. The court also held that the defendants had not assumed the risk that the pond would not hold water. However, the court did affirm the trial court’s determination that the mechanic’s lien should not be foreclosed. On remand, the trial court evaluated the expert testimony of the parties and awarded the defendants damages of $116,962.13 for the amount paid to have the pond constructed, plus $4,023.33 of additional incidental expenses related to the pond’s construction. The plaintiff appealed the damage award, but the appellate court upheld the trial court’s damage award, claiming that the property did not suffer any loss in value. The appellate court said that argument “did not hold water” because the evidence showed the site of the pond had soil that was not suitable for a pond. The plaintiff contracted for a pond, and didn’t get one. Thus, the plaintiff was to be reimbursed for the expenses incurred in the attempt to build the pond. Reilly Construction Co., Inc. v. Bachelder, Inc., No. 15-1192 (Iowa Ct. App. Apr. 27, 2016). Prior decision located at 863 N.W.2d 302 (Iowa Ct. App. 2015).

Posted April 15, 2016

Enforceable Contract Requires Meeting of Minds on Essential Contract Terms. The plaintiffs (a married couple) were long-time tenant farmers of the defendant. The farmland at issue was located in northwest North Dakota and the defendant lived in Virginia. The defendant sought to sell the farm and had telephone conversations with the plaintiffs about the purchase of the property. The plaintiffs told the defendant that they would get an appraisal of the property, however they got to valuations completed – one by a bank and one by a non-licensed appraiser. The bank’s valuation was lower, coming in at $525,827. Based on the bank valuation, the plaintiffs sent the defendant a check in that amount and deeds for her to execute along with a note telling the defendant that the purchase was contingent on all of the documents being signed, notarized and returned the same day. The defendant endorsed and deposited the check and signed the deeds, but did not return them. Instead the defendant called the plaintiffs and told them that she wanted an appraisal performed. The defendant returned the plaintiffs’ money. The plaintiffs sued for specific performance of the alleged oral agreement to sell the farm. However, the trial court determined that there was no enforceable contract between the parties, only an offer to buy and dismissed the case. On appeal, the appellate court affirmed. The court noted that there must be a “meeting of the minds” as to essential contract terms, price being one of them. Here, the court determined that there was no evidence of the parties agreeing on a purchase price. Instead, the plaintiff determined the price unilaterally. In addition, no actual appraisal of the property had been performed. In addition, the defendant did not comply with the contingencies accompanying the cashier’s check. For these reasons, the appellate court upheld the trial court’s determination that no enforceable contract for the sale of the farm existed. Lumley v. Kapusta, No. 20150228, 2016 N.D. LEXIS 77 (N.D. Sup. Ct. Apr. 12, 2016).

Posted April 7, 2016

Disclaimer Language in Contract For Irrigation Equipment Upheld. The plaintiff operates a sod and turf farm. The sole-proprietor/owner has over 40 years of experience in the business. The plaintiff purchased irrigation equipment from the defendant, a dealer in irrigation equipment. The signed purchase agreement included a warranty providing that the irrigation system would be free from defects in materials and workmanship. The details of the warranty were explained to the plaintiff. After installation of the system, the plaintiff experienced numerous problems requiring numerous service calls over a two-year period. The plaintiff sued for breach of implied warranty of fitness and breach of the purchase contract, seeking damages for crop loss, damage to the sod farm, emotional distress and other damages. The trial court ruled that the breach of contract claim against the manufacturer failed for lack of privity, and that the claim for breach of implied warranty for a particular purpose and implied warranty for merchantability failed because the disclaimer language was conspicuous, effective and enforceable. The trial court did determine that there was a triable issue of fact as to whether the manufacturer honored an express warranty. On appeal, the plaintiff argued that he entered into an oral purchase agreement that didn’t include any warranties or limitations of remedies, and that the written purchase agreement was an attempt to modify the oral agreement. The court dismissed this argument as meritless. The court also concluded there was no issue of genuine fact as to whether the plaintiff received the warranty, disclaimers, and limitations before entering into the purchase agreement. The court also held that the plaintiff’s claim that the “limited repair or replace remedy” in the warranty failed of its essential purpose also failed. The court also determined that the warranty disclaimers were not unconscionable, citing the plaintiff’s lengthy experience in the business and the ability to review the disclaimer language before signing the purchase agreement. The plaintiff also voluntarily dismissed his claim of express warranty against the manufacturer. The appellate court affirmed the trial court’s judgment. R.J. Meyers Company v. Reinke Manufacturing, et al., No. 15-0311, 2016 Iowa App. LEXIS 310 (Iowa Ct. App. Apr. 6, 2016).

Posted April 6, 2016

Ambiguous Written Farm Lease Terms Trigger Family Litigation. A father started a farming corporation for his family farming operation in 1976. The farm contained 485 tillable acres and 119 acres of pasture and timber. Dad farmed with two of his four sons before his wife died in 2006, and continued to do so after she died. In total, the family consisted of six children, the four sons, and two daughters. One of the sons had a written farm lease with his father that was entered into in the spring of 2010 at a time when Dad was the corporate president. From that time forward, the son farmed an additional 320 to 382 acres that he either owned or leased from others. The lease was a 10-year crop-share lease prepared by the corporation’s attorney using the standard Iowa Bar Association form lease. It said that input costs and expenses would be “split 50/50” between the son and the corporation, and an addendum said that the son had the right to use the corporation’s farm equipment, specified how equipment was to be replaced and gave the son the right to live in the farmhouse rent-free. The corporate board, Dad and the two farming sons, approved the lease. Dad died in 2012 with the farm passing 1/12 to each of the six children and one-half to the two farming sons and the non-farm siblings voted themselves in as the board, cutting out the farming siblings. The new board then gave the tenant/son notice of lease violations and demanded negotiation of a purchase of the farm equipment or the lease would be terminated. The corporation then sued for a declaratory judgment and money damages, and the son countered also seeking a declaratory judgment and partial summary judgment. The battle was over whether the lease allowed the son to use the corporation’s farm equipment on non-corporate land, the corporation’s responsibility for fuel and input costs, the corporation’s responsibility for the cost of hauling grain to market, the corporation’s authority to sell equipment the son was using, the corporation’s ability to designate the land that the son could use for cattle grazing and tillage, the corporation’s obligation to repair farm equipment, and court costs and attorney fees.

The trial court ruled that the lease clearly gave the son the right to use the corporation’s farm equipment, and that he didn’t have to pay rent for using it, but denied all other summary judgment claims. At the bench trial a few days later (before a different judge), the court ruled that the son could not use the corporate farm equipment on non-corporate land and resolved the other issues in the corporation’s favor including an award of attorney fees and costs. On appeal the appellate court first noted that the lease said that the equipment was to be furnished by the tenant, but that the addendum said that the tenant had the right to use any and all of the corporation’s farm equipment without limitation. The court determined that the addendum’s provision of rights to the tenant that went beyond his role in a crop-share operation meant that, as a whole, the addendum gave the son the right to use the corporation’s farm equipment wherever he was farming. This was bolstered, the court reasoned, by language requiring the tenant to maintain the farm equipment and pay for one-half of the purchase price of any new equipment. Thus, the son did not have to pay almost $34,000 in damages to the corporation for use of the corporate farm equipment on non-corporate land. The court also held that the corporation did not have the authority under the lease to sell three pieces of equipment that the son used in the farming operation because his right to use “any and all of the farm equipment” would have been undercut if the corporation could sell it out from under the son. As to the issue of responsibility for repairs to farm equipment, the lease said that the tenant shall “maintain such equipment.” That language, the court reasoned, meant both maintenance and repairs that were necessary to keep the equipment from being broken down. The corporation, the court ruled, had failed to show any damages on this issue. As for the payment for “crop inputs”, the court determined that fuel costs were not a crop input cost that was to be shared 50/50. The lease did not mention anything about fuel costs, but the evidence showed that they would be treated as a machinery cost that the son was responsible for as the tenant. Thus, the corporation was entitled to $7,862 in fuel costs. As for the cost of hauling grain to market, the lease clearly stated that the tenant bore the cost, and the failure to fill in the blanks on the lease form as to place of delivery did not change that. The corporation was entitled to over $10,000 in trucking expense. The court also determined that that son was not obligated to pay one-half of the crop input costs for the crop planted in the spring of 2010 that were incurred before the lease was entered into. The evidence showed that the father has made the decision to buy the inputs before entering into the lease. As for the lease language involving the son’s usage of the corporate land for grazing purposes, the court said that the language, “Tenant shall only be entitled to pasture or till those portions of the real estate designated by the Landlord,” did not bar the son from keeping livestock on the farm or bar the tenant from having the discretion to use the premises for tillage or pasturage as he saw fit in accordance with good husbandry practices as the lease noted. As for attorney fees and costs, the court remanded given the numerous issues that were reversed on appeal. Wischmeier Farms, Inc. v. Wischmeier, No. 15-0221, 2016 Iowa App. LEXIS 306 (Iowa Ct. App. Apr. 6, 2016).

Posted April 1, 2016

Oral Contract, Trees and Dead Man’s Statute – Get Your Agreements in Writing. The owner of the plaintiff entered into a land contract with the defendant and the defendant’s wife to buy farm property from the defendant and his wife. Under the contract, the farm was transferred the plaintiff’s owner personally rather than the plaintiff, but the plaintiff paid the land contract installment payments and kept equipment on the property. In addition, the plaintiff planted trees on the land. The defendant and wife then assigned their interests in the land contract to a trust of which they were the co-trustees. The buyer defaulted and the trust foreclosed, forgoing its right to collect on the remaining debt and seeking only to recover the property. During pendency of the foreclosure action the plaintiff’s president visited with the defendant at his home. The defendant stated in deposition testimony that the plaintiff’s president asked to remove his “things” from the property and that the defendant would allow that. “Things” was understood to refer to equipment stored in buildings on the property. The defendant denied that the plaintiff’s president mentioned anything about tree removed. However, the plaintiff’s president testified that he explicitly asked to be able to remove the trees and was told that he could. He also acknowledged that the plaintiff had items stored in the barn on the property. The foreclosure order was approved and the property reverted to the defendant’s trust. Two days later, the plaintiff attempted to remove trees from the property and were escorted off the property by sheriff deputies. The plaintiff sued, claiming the existence of an oral agreement creating a license allowing tree removal and that the defendant had breached the agreement by not allowing the removal. In addition, the plaintiff claimed that the defendant had been unjustly enriched by the trees. The defendant moved for summary judgment, but initially denied the motion. The defendant then died and the trust, on the decedent’s behalf, claimed that the previously admissible evidence was no longer admissible based on the state (WI) dead man’s statute. The trust filed a pretrial motion seeking to bar testimony regarding any pertinent transaction or communication with the decedent. The court granted the motion and the trust’s motion to dismiss on the basis that the remaining admissible evidence was insufficient to support the claim that the defendant breached an oral agreement and that the unjust enrichment claim failed. On appeal, the court affirmed. The court determined that the defendant couldn’t waive application of the dead man’s statute while living and that the trust didn’t waive it post-death because the attorney for the trust carefully did not present any testimony from witnesses regarding “any part of the transaction or communication with the deceased about removing trees. The court also affirmed the trial court finding that the defendant was not unjustly enriched by the trees, noting that the trees provided no economic benefit to the defendant. Midwest Landscape Garden Mart v. Metzger, No. 2015AP435, 2016 Wisc. App. LEXIS 186 (Wisc. Ct. App. Mar. 24, 2016).


Farmer Can Sue Pipeline Company For Damages and Contract Breach. The plaintiff leased farmland from his parents for $100.00 per acre. In 1999, the parents entered into an easement and right-of-way with the defendant. The easement agreement stated that the defendant “agrees to pay for damages to crops, pasture, fences, drainage, tile, structures, and timber which may arise from the laying, constructing, maintaining, operating, repairing, or removing of the said pipeline.” The pipeline was to be constructed and operated consistent with the Agricultural Impact Mitigation Agreement (AIMA) that existed between the defendant and the state. The parents received over $26,000 for the grant of the easement and over $115,000 for damages incurred when the pipeline was installed. The plaintiff, for 2010-2012, requested that the defendant collect crop yield data for crops in the easement area and the non-easement area. He claimed that the land above the pipeline was warmer which caused earlier thawing and faster draining and drying than land not above the pipeline. The defendant agreed to pay the plaintiff the value of the yield difference based on the collected data. However, the plaintiff rejected the defendant’s offers and demanded payments for “crop losses.” The defendant moved for summary judgment and the trial court granted the motion basing its ruling on the belief that the plaintiff’s claim was one for damage to the land itself (which the plaintiff did not own) rather than to crops. As such, the plaintiff could negotiate a lower rate of rent on the eased land. On appeal, the court reversed. The court held that “crop damages” can include more than physical damage to the standing crop and the plaintiff’s petition sought damages for “crop losses” – damages for continuing crop losses incurred for reduced yields due to the operation of the pipeline. As such the court determined that the plaintiff had presented a sufficient factual question concerning crop damage in the pipeline area for jury consideration. Tiemessen v. Alliance Pipeline (Iowa) L.P., No. 14-1727, 2016 Iowa App. LEXIS 48 (Iowa Ct. App. Jan. 27, 2016).


Lucy v. Zehmer Redux. In 1954, the Virginia Supreme Court decided a famous contract case that resulted in an enforceable contract for the sale of a farm resulting from conversations (aided, of course, with alcohol) and a writing on the back of a restaurant check. The Court determined that the parties’ conduct and words would warrant a reasonable person in believing that a real agreement was intended. There was an outward manifestation of mutual assent to the core contract terms, the Court found. Well, a similar case was recently decided by the U.S. Court of Appeals for the Fourth Circuit in a case from, you guessed it, Virginia. This time, an oil and gas drilling company sued a gas exploration company that engaged in hydraulic fracturing activities for $14 million for an alleged breach of an enforceable contract between the parties. The contract between the parties had actually expired by its terms, but when the exploration company, a year later, sent an “Addendum to Contract Purchase Order” to the drilling company, the drilling company signed it. The parties had business dealings with each other for over 20 years and had entered into numerous contracts over that time with each other. Under the 2008 contract at issue (that expired in 2010), the drilling company would be paid for each drilling rig at work on horizontal gas drilling, either $13,500 per day or $12,000 per day, depending on how the drilling was conducted. In addition, the exploration company would pay a per-foot fee during vertical drilling before the horizontal drilling occurred. The addendum said that the parties “agree to modify the term” of the contract purchase order and that the new term would be for one year, and the purchase order referenced in the addendum was the 2008 contract drilling agreement. However, the exploration company never asked the drilling company to drill and there were no communications about the addendum. A year later, the drilling company sent a $7 million bill for 328 days of take-or-pay standby charges. The exploration company said it had mistakenly signed the addendum and refused to pay. In response, the drilling company sent another invoice for another $7 million as liquidated damages. The court said that the evidence clearly showed that the addendum was sent in error, the result of an accounting system error. The accounting system, the court found, was not well suited to account for drilling contracts. Based on that fact, associated communications (or lack thereof) and the parties’ prior dealings, the court said a reasonable person would conclude that the exploration company did not intend to reinstate the 2008 drilling contract. So, they are off the hook for a $14 million bill, but they probably should update their accounting system. Lucy v. Zehmer lives on. Knox Energy, et al. v. Gasco Drilling, No. 14-2256, 2016 U.S. App. LEXIS 1739 (4th Cir. Feb. 2, 2016).