What is the statute of frauds?

Nebraska, along with every other state, has what is called a statute of frauds.  The purpose of the statute of frauds is to protect all parties to a contract; it is, as the name suggests, to prevent fraud.

Sales and Leases of Land:

For sales and leases, Neb. Rev. Stat. § 36-105 requires “Every contract for the leasing for a longer period than one year, or for the sale of any lands, shall be void unless the contract or some note or memorandum thereof be in writing and signed by the party by whom the lease or sale is to be made.”

We begin with a discussion of leases.  As § 36-105 states, “every contract for the leasing for a longer period than one year … shall be void unless the contract … be in writing and signed by the party to whom the lease … is to be made.”  If you have a lease for five years, that lease must be in writing and it must be signed by you, the person leasing the property (otherwise known as the tenant).  But what if you have a lease that is only for one year?  A one-year lease does not fall into the requirements for the statute of frauds.

(Keep in mind, however, that there are other good reasons to obtain a written lease, regardless of the statute of frauds.  It is a good idea to memorialize the essential terms of a contract, such as names of the parties, description of the land, price/rent, other general terms, and signatures.  This allows for a reference point in the future about the terms of the contract and can hopefully dispel disputes before they begin.)

The other category of contracts considered by the statute of frauds is the sale of land.  The “sale of any lands[ ] shall be void unless the contract or some note or memorandum thereof be in writing and signed by the party by whom the … sale is to be made.”  Again, this is a seemingly simple statement, that the sale of land must be accompanied by a written agreement signed by the seller.

There is an exception to the above, found in Neb. Rev. Stat. § 36-106.  A contract may be enforced in cases of part performance.  What this means is if a person is seeking to enforce the contract (specific performance), that person is required to prove an oral contract, the terms of which are clear, satisfactory, and unequivocal.  Additionally, the person must prove acts done in part performance of the oral contract were referable solely to the contract sought to be enforced, and not such as might e referable to some other or different contract.  Finally, the person must prove that nonperformance of the oral contract by the other person would amount to a fraud upon the person seeking specific performance.  See American Central City, Inc. v. Joint Antelope Valley Authority, 281 Neb. 742 (2011).

What does that mean?  To be frank, it means that you should get a written contract and not rely upon the exception in § 36-106.

Uniform Commercial Code:

If you are a farmer who is considered a merchant, the Uniform Commercial Code (“UCC”) provides that a contract for the sale of goods of $500 or more is not enforceable without some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent or broker.  Neb. U.C.C. §2-201.  There are specialized provisions in § 2-201 and we will discuss those at a later date.

A merchant, for our purposes, is defined as “a person who deals in goods of the kind or otherwise by his or her occupation holds himself or herself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.”  Neb. U.C.C. § 2-104.

Keep in mind that this provision is for ‘goods’, such as crops, dairy, or livestock.  It is not for land leases or sales.  If you want to read an in-depth discussion today, this publication from the Farmers’ Legal Action Group is great.

Clearly, this is not a simple topic and we’ve only scratched the surface.  Feel free to contact us if you have specific questions, especially if you are a beginning farmer!

Offer + Acceptance + Consideration = Contract

I have been reading a number of articles on contracts entered into by farmers for their produce, crops, and/or livestock at the same time I was writing last Thursday’s post about leasing land.  It got me to thinking that perhaps a blog post about the elements required to form a contract was in order.

First, what are the elements of a contract?  A contract requires:

  1. Offer;
  2. Acceptance; and
  3. Consideration.

An offer is an intention to be contractually bound upon the acceptance of another party.  In other words, Person A offers certain terms to Person B as an offer.  Person B can then accept the offer.  Consideration is when Person A makes a promise, Person B makes a promise in return.  The promise must be something of value and can take the form of money, action, abstaining from action, services, and other valuable consideration.

Lets use some examples to illustrate offer, acceptance, and consideration.

Example 1:

Person A approaches Person B and states, “I’d like to rent your 300 acres to plant corn and I will pay 40% of the input costs and receive 40% of the profits.”  Person B agrees to Person A’s terms.

In Example 1, the Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that she will pay 40% of the input costs and 60% of the profits to Person B.  Person B’s consideration is agreeing to Person A renting his land and paying 60% of the input costs.

Example 2:

Person A approaches Person B and states, “I will not grow crops on my land for ten years if I receive $100 per acre per year.”  Person B agrees to Person A’s terms.

In Example 2, Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that he will abstain from using his land for ten years to grow crops.  Person B’s consideration is that she will pay $100 per acre per year for Person A not to grow crops.

Example 3:

Person A approaches Person B and suggests renting 80 acres for cow/calf grazing from May 1, 2013 to October 31, 2013.  Person B replies that she is willing to rent 50 acres from May 1, 2013 to September 30, 2013.  Person A agrees to Person B’s proposal.

Here, Person A makes an offer to Person B.  Person B, however, rejects Person A’s offer and instead, issues a counter-offer.  Person A then accepts Person B’s counter-offer.  The consideration by Person A is the payment of rent.  The consideration by Person B is permitting the use of her land.

Example 4:

Person A contracts with Person B to custom harvest hay for $2,000.  When Person B has partially completed the custom harvest, she approaches Person A and says she will only complete the custom harvest for an additional $2,000, for a total price of $4,000.

Here, Person A is obligated only to pay $2,000, the price originally agreed because a contract existed (as there was offer, acceptance, and consideration) and thus, Person B was under a contractual obligation to perform the custom harvesting for $2,000.  In other words, Person B had a pre-existing obligation to perform the work in exchange for $2,000.

Example 5:

Lets change the facts of Example 3 a little bit.  Person A contracts with Person B to custom harvest hay on a quarter section for $2,000.  When Person B has partially completed the custom harvest, Person A approaches Person A and suggests that Person B custom harvest hay on a second quarter section.  Person B responds that to do so will require an additional $2,000.  Person A agrees to pay the additional $2,000.

Unlike Example 3, Person A and Person B entered into a new, second contract.  The offer from Person A is to custom hay the second quarter section.  Person B counter-offers that to do will require $2,000.  Person A accepts.  The consideration from Person A is $2,000 and the consideration from Person B is completing the custom hay work.

Offer, acceptance, and consideration are bedrock elements of contract law but the specifics of contract law varies by state.  Thursday we will discuss implications of the Uniform Commercial Code and the statute of frauds for contracts.  If you are from Nebraska or South Dakota, feel free to contact us if you have questions.  If you are from a different state, contact a licensed attorney should you have questions.

What is this I hear about liens?

It is not a topic many people want to think about, but what happens if you do custom work for a farmer and you do not get paid?  Every state has various laws to deal with this scenario. Nebraska and South Dakota have a number of different liens that may be filed, as every state does.

The National Agricultural Law Center maintains a listing of Nebraska and South Dakota liens.  Each state is discussed below:

Nebraska:

Nebraska requires most individuals filing a lien to do so through a financing statement.  A financing statement is part of Article 9 of the Uniform Commercial Code.  What is a financing statement in Article 9 of the Uniform Commercial Code?  It is a form that a creditor (here, the person filing the lien) files to give notice that the creditor may have an interest in the personal property of a debtor (the person who owes the creditor money).  The filing allows the creditor to “perfect” his or her interest, meaning that the creditor has an interest in specific property which would then be given a specific place in the priority of creditors to be paid.

The Nebraska Secretary of State is where financing statements are filed.  To obtain a financing statement to file, the Nebraska Secretary of State provides the form to fill out.  There is a filing fee to file the financing statement; the fees are listed here.

Keep in mind that a financing statement is effective for five years after the date of filing and is considered lapsed.  A continuation statement may be filed within six months of the expiration of the five year period.  Should the financing statement lapse, the lien will no longer be perfected, meaning your place in the priority for payment will be considered to have never existed.

In summary, know what type of lien is applicable to you and whether you must file a financing statement.  If you need assistance answering these questions, contact us!

South Dakota:

South Dakota does not have the Uniform Commercial Code requirements that Nebraska has.  In South Dakota, the county Register of Deeds is where liens are filed.  The procedures under the Uniform Commercial Code are not applicable in South Dakota for agricultural liens.

But just like Nebraska residents, if you have a question about liens, feel free to contact us!