Iowa Court Interprets Oral Farm Lease

On September 2, 2020, the Iowa Court of Appeals issued an opinion regarding a claim for a breach of contract of a farm lease and for replevin. Without a written lease, the trial court analyzed the conduct and credibility of both parties in order to determine whether the farm lease was modified. The court affirmed the district court’s award of damages for the landlord, but reversed the ruling denying replevin of farm equipment.

Background

A couple owned farmland in southwest Iowa. These landowners allowed their son to farm about 1,430 acres for free and provided various equipment to use in the operation. The son passed away early in 2012 and his wife offered to pay rent in order to continue to farm the land. The landowners accepted her offer to become the new tenant, but refused any payment in 2012 because she was in debt. For 2013, they asked the tenant to pay $60,000 in order to cover the cost of property taxes.

The dispute started over the amount owed for the 2014 crop year. In December 2014, the tenant sent a check for $60,000. The landowners returned the check claiming they agreed on $275 per acre. In March 2015, the tenant sent another check based on $275 an acre. The tenant claimed this was for the upcoming year while the landowners believed the payment to be for the previous year. In March 2016, she sent another check based on $275 an acre. The tenant then terminated the lease after the 2016 crop year and did not make any more payments.

The landowners brought this lawsuit claiming the tenant breached the lease by not paying the full amount of the rent for the 2016 crop year. They also petitioned in replevin for the return of several pieces of farm equipment. The tenant denied the allegations and filed a counterclaim alleging the landowners sold her combine.

Trial Court Findings

At trial, one of the landowners testified he spoke to the tenant about the rental rate for the upcoming 2014 crop year when she was paying the yearly rent for 2013. He asked the tenant to pay $275 an acre which was the same amount they charged the other tenants. The tenant claimed that she believed the rental rate for 2014 would remain the same as the previous year and sent a check for $60,000 in December 2014. After the landowners voided the check, they sent a letter stating their accountant believed they needed to charge a more reasonable rent or be subject to gift tax. 

In March 2015, the tenant sent a check to the landowners based on $275 per acre. The landowners testified that they believed this to be for the previous 2014 crop year, but the tenant claimed this was for the upcoming 2015 rent because she had “already done [her] taxes.” In March 2016, the tenant wrote another check for $275 per acre and claimed this was payment for the 2016 crop year. The landowners, believing this to be for the previous year, wrote “YR 2015” in the memo line.

The district court found tenant paid for the 2014 and 2015 lease with the March 2015 and March 2016 checks, but never paid rent for the 2016 lease. The court found the landowners were entitled to damages for the amount of the unpaid rent. After considering the replevin action, the court found that the contested equipment belonged to the tenant, including a combine the landowners sold in 2013. The court ordered the value of the combine to be credited against the amount of damages the tenant owed. Both parties appealed.

Breach of Contract

The tenant appealed the district court’s finding she breached the oral farm lease by failing to pay rent for the 2016 crop year. The tenant argued an agreement to retroactively amend the 2014 lease terms is not valid. While this is true, through the parties’ conduct, the court found clear and convincing evidence they agreed to a new rental rate when the tenant paid for the 2013 crop year.

For example, the landowners returned the December 2014 check and explained they believed $275 per acre would be a fair price. They also wrote “YR 2015” in the memo line demonstrating they believed the payment sent in 2016 was for the previous year. At the same, the court found the tenant impliedly consented to the new rent as well. It was customary for the tenant to pay at the end of the crop year. The tenant’s testimony she paid the yearly rent in advance “was not customary for farm leases” and “not credible.” Additionally, if the tenant believed the new rental rate first applied to the 2015 lease, she would be obligated to issue another $60,000 check after the landowners voided and returned the one written December 2014.

Based on these actions, the court found the most credible explanation was that the landowners and tenant agreed to modify the lease at the end of 2013 for the upcoming year. Therefore, the tenant did not pay for the 2016 crop year and the landowners were entitled to damages at $275 per acre.

Replevin Action for Farm Equipment

The landowners appealed the district court’s finding that seven of the nine items listed in the replevin action belonged to the tenant as well as a combine the landowners had sold. After the son passed away in 2012, those seven items were listed as inventory in his estate. Because of this, the trial court found that this was property of the tenant as his surviving spouse.

The landowners submitted evidence at trial of a purchase order showing that four of the items were bought after the son’s death and listed the landowner as the purchaser. The landowner also submitted evidence that two of the wagons listed in the replevin action did at one point belong to the son, but the son traded them in to the equipment dealer which the landowner then purchased the same day as the other four pieces of equipment. The final piece of contested equipment was a drain drill the landowner testified he had obtained in a trade. Because the only evidence of ownership the tenant introduced was the inventory of her late husband’s estate, the court found this was not evidence of ownership and found the landowner owned the farming equipment listed in the petition.

Finally, the landowner appealed the district court’s award of damages in favor of the tenant for the sale of the combine. The Court of Appeals reversed the lower court’s ruling that the combine belonged to the tenant because it was listed in the son’s estate inventory. Because of the evidence, including the combine’s tax depreciation schedule submitted by the landowner, the court found the landowner owned the combine. The court reversed the credit granted to the tenant against the breach-of-contract judgment.