Case Illustrates Importance of Farm Leases Being in Writing

Background

Candido John Coniglio, Sr. (“Senior”) owned a 5,100 acre farm in Fannin County which was managed by his son, Candido John Coniglio, Jr. (“Junior”). Michael Woods owned the adjacent farm.

Woods hired workers to cut hay on his property. Senior agreed to allow Woods to cut and bale 107 acres of hay on Senior’s property in exchange for giving Woods a portion of the hay crop with Woods getting 60% and Senior and Junior getting 40%. Starting in 2015, Woods cut Senior’s hay based on this oral agreement. Senior and Junior testified this oral agreement was on a year-to-year basis, but Woods claimed he and Junior entered into a five-year lease of the farm, which would allow him to cut and bale hay until December 31, 2020.

In 2016, Woods drafted a letter that was sent to the County FSA Office stating: “This is to inform you that Michael J. Woods operated my farm no. 1077 (approximately 107 acres) agriculturally for hay. This lease agreement began in 2015 and will continue through December 31, 2020.” The letter was signed by Woods and Junior.

In 2018, Woods was denied permission to cut the hay.

Litigation

Woods filed suit against Senior and Junior for a breach of the written farm lease agreement.

Junior and Senior asserted the Statute of Frauds as an affirmative defense, claiming that the contract, if any, that formed the basis of the claims was too ambiguous. They argue that the only agreement was a year-to-year hay splitting agreement and not an agreement to lease the property. Junior admits to signing the FSA letter but says he only did so because Woods told him he needed it for his subsidy payments. Junior did not take any money in exchange for the lease and did not consider the letter to constitute a farm lease.

The trial court found the letter did constitute a memorandum of agreement that satisfied the Statute of Frauds, and the parties were bound by the terms of the agreement. It also found that Senior breached the agreement by excluding Woods from the property. Thus, the court granted partial summary judgment as to the breach of contract claim with a hearing for damages to come later.

A couple of months later, Woods added additional parties–entities owned by Senior– as defendants and added a number of claims including tortious interference with prospective contract, unjust enrichment, and violations of the Texas Deceptive Trade Practices Act. Senior filed an answer on behalf of the entities. Woods moved to strike the answer arguing the entities could not represent themselves without counsel and that their answer was filed beyond the time set forth in the scheduling deadline. After the answer was stricken, the court entered judgment against Senior and the entities, jointly and severally, for a total of over $1.25 million.

Senior and the entities appealed.

Court of Appeals Opinion

The Texarkana Court of Appeals reversed. [Read Opinion here.]

Summary judgment was improper

The court held that summary judgment was improper due to the existence of disputed facts. Specifically, the length of the lease and whether the letter was intended to be a lease agreement were both disputed.

Senior testified he was unaware of any written lease and that he allowed Woods to cut hay on a year-to-year basis. Junior testified that Woods had permission to cut and bale hay on a year-to-year basis and that he did so for two years. Further, Junior said he only signed the letter so that Woods could get his FSA subsidies and that he never intended for it to be a lease agreement. Junior claims that when he told Woods in 2018 he did not need Woods to cut his hay, Woods did not protest.

Woods testified that the parties operated under an oral agreement until he and Junior entered into a five-year lease confirmed by the USDA letter. Woods further testified that despite what he believes was a written lease agreement, Senior and Junior simultaneously leased the farm to other parties and received rent, which interfered with his ability to use the farm. This included allowing another farmer to cut hay in 2020 and a solar farm to begin construction the same year. He also presented a letter from the FSA office, asserting the letter to be a valid 5-year lease.

Statute of Frauds was not satisfied

When a promise or agreement cannot be completed within a year, it falls within the Statute of Frauds and is not enforceable unless it is in writing and signed by the person to be charged. Similarly, a lease of land for a year or more must also satisfy these requirements. Specifically, the Statute of Frauds requires “that a memorandum of an agreement…be complete within itself in every material detail and contain all of the essential elements of the agreement so that the contract can be ascertained from the writings without resorting to oral testimony.” The material terms of an agreement must be set forth with “a reasonable degree of uncertainty and definiteness.”

The court found the USDA letter insufficient to meet the Statute of Frauds. Although it purported to memorialize a lease, it lacked a number of material terms. First, it said that Woods “operated” the farm in the past under unspecified terms and without defining what “operated” means. It did not make clear whether Woods was obligated to do anything going forward. The letter contained none of the terms of the lease, but simply stated that it would continue to December 2020. It did not include terms of consideration or price, did not explain what other rights Woods might have typically associated with leases, and was insufficient to establish the parties’ obligations. Because there was no valid written agreement, Woods was not entitled to summary judgment.

Answer should not have been stricken

The court also found that the entities’ answer should not have been stricken. The judge struck the answer based on a scheduling order to which the entities were not a party. They should have been given the standard time to answer the complaint, with which they complied. Thus, the default ruling was reversed and the entities will be given the chance to answer.

Ruling

In light of this, the trial court judgment is reversed and remanded for further proceedings. The deadline to appeal has not yet passed, so it is unclear whether Woods will appeal this decision.

Key Takeaways

If I have said it once, I have said it a million times. It is critical for all agricultural leases to be put in writing. This does not mean a two sentence letter to the FSA office. It also does not mean a simple check box form with blanks to check. Taking the time to draft a written lease agreement protects the rights of both parties and protects the relationship between them. This endeavor need not be overly complex. We have leasing resources available here and the Ag Lease 101 website has good resources as well.

Additionally, it bears mentioning that a party should never sign anything without reading and understanding what it means. Here, Junior signing the letter for the FSA office that referred to the parties’ agreement as a “lease” with a 5-year term was problematic when he claims that he did not understand or intend for there to actually be a multi-year lease on the property.

Top photo via Ambar Culhane on Unsplash