Farmers Failed to Show Economic Duress by Lender

On September 18, 2024, the Iowa Court of Appeals affirmed the summary judgment granted by the Business Specialty Court to Farm Credit Services in an action brought by farmers challenging the enforceability of a debt restructuring agreement. The farmers argued they entered into the agreement under economic duress because the agreement was made during planting season, which left them in a “vulnerable position.”  The appellate court agreed that the undisputed facts established that the farmers voluntarily entered into the agreement.  

Facts

The plaintiffs were a father and son farming duo who had banked with Farm Credit for decades. The trouble began in 2019, when several of the famers’ loans were due. On March 6, the farmers took out an additional $2 million line of credit to finance their Texas farming operation and pledged an additional 290 acres of previously unencumbered land.

A few weeks later, on March 29, the farmers were presented with a debt restructuring agreement. The agreement included the line of credit opened March 6, and restructured all of the farmers’ other outstanding debt with the bank. The agreement included a provision which released Farm Credit from liability arising from claims of wrongdoing associated with the restructuring agreement. The farmers signed the agreement on April 19, after consulting with their attorneys. The same day new operating loans and loan agreements were entered into between the farmers and Farm Credit.

In May 2021, the farmers sued Farm Credit, asserting multiple claims related to its actions during March and April 2019. Farm Credit filed a motion for summary judgment arguing the release meant the farmers waived the claims before the court. The farmers resisted the summary judgment arguing the waiver was not valid because it was made under economic duress. The business specialty court held an unreported hearing after which it granted Farm Credit’s motion for summary judgment.  The court found the undisputed facts showed the farmers did not enter into the agreement under economic duress. Additionally, it also found the farmers did not repudiate the contract.

Opinion

On appeal, the Court of Appeals agreed, first noting that the parties agreed that the summary judgment was valid if the waiver in the restructuring agreement was enforceable.  The court explained that to establish economic duress, the farmers had to establish three elements: “(1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the result of coercive acts of the other party.”

The court found that the farmers did not bring forward facts showing they involuntarily accepted the terms of the agreement.  Instead, the court found these were experienced farmers who often entered into lending agreements. They sought legal counsel to assist them, they considered the agreement for three weeks before signing it, and the terms were clear and unambiguous.

The court went further and found that even if the farmers had brought forth allegations of economic duress, their claim would fail because they did not repudiate the contract once the economic duress was over. The evidence showed that the farmers accepted the benefits of the agreement for about two years before filing their action. Their inaction was a ratification of the agreement. Furthermore, the court explained that the farmers could not repudiate only a portion of the agreement. A repudiation would have also invalidated the portions of the agreement that stopped Farm Credit from foreclosing on their property and providing them with additional funding.