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Farmers, landowners should understand contracts they sign
By Michele F. Mihaljevich
Indiana Correspondent

INDIANAPOLIS – Farmers should remember the first rule of contracts – whoever wrote the contract took care of themselves. That was the message from Elizabeth Rumley, senior staff attorney with the National Agricultural Law Center, during a recent Indiana Farm Bureau webinar.
Many times with production and marketing contracts, she said producers are presented a contract by someone saying, “This is our contract. Do you want to sign it? Do you want to be a part of this?
“If that’s the case, you absolutely want to remember that there is no reason to assume that contract is fair. There’s no reason to assume that your interests are top of mind in the submission of the contract. These are business transactions. Both parties are looking out for themselves, and trying to make the best decisions for them and their businesses.”
It’s OK to walk away from a proposed contract if you’re not comfortable with it, Rumley said.
The farm bureau’s webinar on understanding agricultural contracts and leases was June 27.
Rumley pointed out some differences between marketing and production contracts. Under marketing contracts, ownership of the commodity remains with the farmer during production. The contract sets a price (or pricing formula), product quantities and qualities, and a delivery schedule.
With a production contract, the contractor usually owns the commodity during production, and the farmer is paid a fee for services rendered. The contract specifies the responsibilities of the farmer and contractor for inputs and practices.
“Many of the things to consider are going to be the same or very similar no matter whether it’s a marketing contract or a production contract,” she explained. “So whether you’re considering involvement in one or the other, I think a lot of these issues are going to be ones that you’re going to want to consider before you’re making that decision to sign on the dotted line.”
It’s important to read and understand any contract you’re signing, Rumley noted. When considering a contract, think about who the other side is, she said. Know the party’s financial situation and performance history.
Before signing a contract, think about what will happen if the buyer goes out of business or doesn’t pay. Get the contract in writing and have an attorney review it, Rumley stated. Don’t rely on oral commitments, she added.
Proposed contracts are subject to negotiation but that should be completed before they’re signed. Keep records, and ask questions if you don’t understand something in the contract, Rumley said.
Also, consider if the contract requires an investment in additional equipment or facilities, she said. Think about who would own any new facility, and who gets permits and pays fees.
Todd J. Janzen, a partner with Janzen Schroeder Agricultural Law LLC in Indianapolis, talked about handling contracts today.
When preparing for the webinar, “I was thinking about how fast and loose we’ve gotten in this digital era when we deal with contracts and how easy it’s become to get sloppy with our contracts,” he said.
Janzen defined a contract as an offer plus acceptance plus a form of consideration. A contract is the enforcement of a promise that is legally binding, he said. For a contract to be valid, the acceptance must always mirror the offer. Any consideration is usually sufficient, Janzen said.
A signature or some form of acceptance is necessary for a contract to be valid. “If a contract has a line for a wet signature, you want to make sure that you get that wet signature on that contract or some other way to demonstrate that it has been accepted,” he said. A digital signature is valid, Janzen said.
In Indiana and probably other states, you are presumed to have read a contract that you signed, he said, adding that’s a general rule but there are exceptions.
“Even though you never read it, it is a valid contract if you sign your name at the bottom. (It’s) a mistake to think that just because you didn’t read it, it’s not going to be enforced, or just because you clicked the box, it’s not going to be enforceable against you.”
Janzen also discussed contract boilerplate provisions such as liquidated damages.
Liquidated damages is a clause that says if one side breaches an agreement, how much money are they going to have to pay for that breach. Courts will reject liquidated damages that are viewed as punitive – they must be reasonable and related to actual damages, he said.
Janzen closed his presentation with what he said was advice for today’s world.
“Google contracts are just as good at being a lawyer as Dr. Google is at being a doctor. So take them with a grain of salt. Don’t forget to consult a lawyer before you commit.”