Question Surround Farm Purchase Agreement

Here, buyers and sellers entered into a purchase agreement for an 80-acre parcel of farmland in 2003. Included in the purchase agreement was a clause governing “contingencies.” The parties agreed that the buyers’ performance of the purchase agreement was contingent on the sellers entering into a separate “option agreement” with the buyers- an option granting the buyers the first right to lease and purchase an additional 331 acres from the sellers. Nearly a month later, the parties did execute a written “option agreement.” The second agreement gave the buyers the option to purchase the additional acreage at $2100/acre or rent the ground at $135/acre. The agreement stated that the lease agreement and purchase agreement for the additional acreage were attached to the option, but they were not. 

In 2007, the buyers, through their attorney, indicated that they wished to exercise their option to purchase the additional acreage. The sellers ignored the letter and the buyers filed a petition with the trial court, asking them to “reform” the option agreement by including the purchase and lease agreements. They further argued that the sellers were in breach of contract for failing to recognize the option to purchase. The seller argued that the option agreement was inconsistent with the original purchase agreement and “unenforceable” because it lacked “new consideration.” The trial court agreed and held that the language in the first purchase agreement created a “right of first refusal,” which was inconsistent with the option agreement. 

On appeal, the buyers argued that the option should be enforced because they gave “adequate consideration” under the option agreement to compensate the sellers. But, the court found that the contract was ambiguous. So, the court looked to the intent of the parties to resolve the ambiguity and determined that the original purchase agreement and the subsequent option agreement should represent one transaction. There was adequate consideration, the court found, when both documents were viewed as a single agreement between the parties. This was one transaction involving two separate documents. Even though the purchase agreement mentioned a “right of first refusal,” the option agreement trumped that and adequately indicated the seller’s intent to sell to the buyer. Agr-Keast, L.L.P. v. Steen, No. 0-890/10-0835, 2011 Iowa App. LEXIS 147 (Iowa Ct. App. Feb. 23, 2011).