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Written contracts in your forage operation

Paul Goeringer for Progressive Forage Published on 01 January 2018
Written contracts

As we enter the new year, many of you have set resolutions you hope to keep throughout the year – but may have broken them by the time you read this article.

A business resolution to consider for 2018 is always using written contracts. Many of you may be providing services with custom operations, selling hay or leasing pasture. Each of these services will require some form of a contract.

Although contracts can either be oral or written, many involved in production agriculture often utilize oral contracts in transactions. Written contracts may not be the norm in agriculture but can provide a record of the agreement by both parties.

Contracts, oral or written, must meet certain legal requirements to be considered “valid.” You may also want to consider including certain terms to better protect your interests.

Valid contracts require competent parties, legal subject matter, an offer, an acceptance and consideration. Contracts typically require parties with the mental capacity to understand the significance of entering into a contract.

Minors are typically never considered competent to enter into contracts; typically, you need to be at least 18 to enter into contracts in the majority of states. The subject matter of the contract, what you agree to do, must be legal to do. For example, in many states entering into contracts to sell illegal drugs would not be valid.

There needs to be an offer by one party, called an offerer. The offer is something that creates the power to accept in another party. Acceptance is in the hands of the person the offer was made to, called an offeree. The offeree cannot make any changes to the offer when accepting. If changes are made to the offer, the offer becomes a counter-offer.

Finally, the contract must be supported by consideration. Consideration is a value of exchange. The parties must be agreeing to give up something of value. For example, you agree to sell 20 bales of alfalfa hay to a neighbor for a good price. When the neighbor receives the hay, and you receive the money, we have a value of exchange to support the contract.

In agriculture, handshake deals are often the norm but, in many cases, state law may want the contract to be in writing. In many states, contracts for the sale of goods over $500, contracts for the sale of land and contracts for what cannot be performed in one year are required to be in writing.

States often require more types of contracts to be in writing, under what is known as the Statute of Frauds; I have only listed the most common ones to what you would typically see in your operation.

The writing requirement within the Statute of Frauds does not require any special document. In many cases, the writing requirement is pretty minimal. For example, with a custom service contract, we would want to know the service agreed to (swathing or baling or both), the payment rate and potentially how long you will provide the service (one season or longer).

Even if state law does not require the contract to be in writing, having a written contract is a good business practice. Written contracts provide both parties with a receipt of the transaction and help both parties remember the terms agreed to. Although we often are looking for a minimum of terms to be included in the contract, there are some common clauses you should consider adding in contracts.

One basic term to consider including is an alternative dispute resolution clause. If a dispute does occur on the contract and you do get sued, do you want to go to court? Litigation in court is often a slow and expensive process. Including in an alternative dispute resolution can provide both parties with a quicker resolution process. Alternative dispute resolution comes in two forms: arbitration and mediation.

With arbitration, the parties will agree on some arbitrators and present evidence to the arbitrators who will decide on the dispute. With mediation, both parties will agree on a mediator who will work with the parties until both parties agree upon how to resolve the issue. Many states offer discounted mediation services through joint programs with the USDA for agricultural disputes; it is worth exploring to see if your state has a program.

If you do go to court, where do you want the dispute settled – a court near you or a court near the other party? If you are working with parties across county lines or state lines, having the dispute settled in a location convenient to you is something you want to consider.

The other consideration is picking a county halfway between the two parties when dealing with parties located far apart. Forum selection clauses allow you to set a convenient location for disputes to be heard.

The final clause to consider is a choice of law clause. This clause may not be important if both parties are located in the same state. When parties are located in two different states, a choice of law clause tells those deciding the case which state’s laws to use in settling the dispute. For example, if we have parties near the Oklahoma and Texas state lines who agree to buy and sell hay from each other, the seller may require that the contract is based on Oklahoma state law.

In 2018, consider resolving to utilize more written contracts in your operation. A contract that includes just a minimum of terms will provide both parties with a reminder of what was agreed upon and help provide for smoother transactions in 2018.  end mark

Paul Goeringer
  • Paul Goeringer

  • Extension Legal Specialist
  • University of Maryland
  • Email Paul Goeringer