A case from the Iowa Court of Appeals yesterday demonstrates the need for clear contractual language in farm leases. Some may say this principle is important even when family members are involved. This case demonstrates the importance of this principle especially when family members are involved.
The case before the court involved the interpretation of a 10-year crop-share lease. The son, who had five siblings, was the tenant, and the landlord was a family farm corporation. The father was the president of the corporation and executed the agreement on behalf of the corporation. The board of directors, which ratified the agreement, consisted of the father, the son, and another son who also farmed with the father. The father died two years into the lease term. Within two months of the father’s death, the siblings elected a new board of directors, voting the tenant and the other farming son off the board. Within a year, the corporation filed a declaratory judgment action against the tenant, claiming that he had violated terms of the lease. The lawsuit also sought a money judgment against the tenant.
The trial court ruled primarily in the corporation’s favor, but, on appeal, the Iowa Court of Appeals interpreted portions of the ambiguous lease in the tenant’s favor.
The lease was created from the standard Iowa State Bar Association crop-share lease form. Much of the ambiguity at issue in the case arose from an addendum attached to the lease. The addendum began by stating, “Included as a part of this Farm Lease shall be the right granted to the Tenant to use any and all farm equipment owned by the Landlord. Tenant shall maintain such equipment.”
Two big questions before the court with respect to the equipment were (1) whether the addendum gave the tenant the right to use the corporation’s equipment when farming property not owned by the corporation and (2) whether the addendum’s requirement to “maintain” the equipment was a requirement to make all repairs necessary to keep the equipment operational.
As to question one, the trial court found that the addendum did not give the tenant unfettered discretion to use the equipment on the other land he leased. The trial court found that such an interpretation would lead to illogical results, such as the tenant using the corporate farm equipment to do custom work for other farmers for cash and then keeping the proceeds. The trial court ordered the tenant to pay $33,850 to the corporation to reimburse it for the fair rental value of the equipment he had used on his other ground.
On appeal, the Court of Appeals disagreed. The court first reasoned that the lease did not restrict the tenant from using the equipment on another farm. The evidence also showed that the tenant had used the equipment on his other land during the time he farmed with his father. Thus, the parties’ course of performance suggested that the addendum was written in support of that arrangement. Finally, the court stated that since the agreement was ambiguous, it was to be construed against the drafter, which was the corporation. The court also ruled in favor of the tenant in finding that the addendum restricted the corporation from selling the equipment the tenant was using in his farming operation. To allow a sale, the court reasoned, would defeat the entire purpose of the “right to use” the equipment provision.
The court did, however, agree with the trial court as to the obligations placed upon the tenant by the addendum’s directive that he “maintain such equipment.” The tenant argued that there was a distinction between maintenance and repairs. He contended he was only required to do those things recommended by the maintenance manual to keep the equipment in good operating condition. The corporation, on the other hand, argued that the addendum obligated the tenant to make repairs until the farm equipment could no longer be repaired. The court found that there was substantial evidence to support the trial court’s interpretation of “maintenance” as including repairs. In so finding, the court looked to the evidence of a tractor mechanic who testified that the two terms overlapped and the drafting attorney, who testified he believed “maintenance” included “repairs.”
On appeal, the tenant also challenged the trial court’s determination that the lease required the tenant to pay “all fuel costs.” The tenant argued that fuel was a “crop input” cost that was to be split 50-50 under the crop share lease. The court of appeals sided with the corporation and the trial court, finding that fuel costs were part of the expense of machinery and equipment that the tenant was to furnish. The court found that fuel cost was not a “crop input” and did not fall under the “input costs and expenses” section of the lease. Rather, the court found that fuel was covered by the portion of the lease that stated that “machinery and equipment” were to be “furnished by and at the expense of the tenant.” The court noted that an expert testified and even the tenant agreed that it was not standard practice under a 50-50 crop share lease for the landlord to pay half of the fuel costs. The court thus affirmed the trial court’s judgment of $7,682 in favor of the corporation for the cost of fuel.
The court again sided with the corporation in finding that the tenant was responsible for the cost of hauling the grain to the elevator. The lease clearly provided that the tenant was responsible for this cost and the tenant could not alter the provision by pointing to past practices with his father. The court thus affirmed the $10,158.66 judgment in favor of the corporation for trucking costs.
Finally, the court ruled that the lease did not prevent the tenant from raising cattle on that land and that he was “entitled to pasture or till” any number of acres that would be consistent with “good husbandry.” The trial court had also found that the lease did not prevent the tenant from keeping livestock on the farm; however, the trial court had ruled that the corporation had “unfettered discretion” to determine which portion of the ground could be pastured or tilled.
Because the lease provided that the “prevailing party” in any action under the lease was entitled to attorney fees and costs, the trial court awarded the corporation $25,000 in attorney fees plus costs. Because the appellate court reversed three claims upon which the corporation had previously prevailed, it remanded for a revised determination of fees. The trial court, on remand, was also directed to determine and apportion appellate attorney fees and costs.
And so concludes another costly family battle, unless or until the case sees further review. The lease, meanwhile, continues for another four years, through 2020.
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