Merger Clauses in Contracts
Normally the terms of a written contract define the parameters of a deal. That’s particularly the case if the contract contains a “merger” clause. That’s a clause that says the terms of the written agreement constitute the entire understanding of the parties. But, without a merger clause, it might be possible to introduce evidence of additional terms or agreements that the parties entered into that might be contrary to the contract’s written terms.
For example, assume you agree to sell three acres so the buyer can build a house and the contract says that the buyer gets possession after you harvest your growing crop. But you and the buyer agree orally that the buyer can get possession early by paying you for the amount of lost net crop income if possession is taken before crop harvest. The buyer wants possession early and you provide an invoice for your estimated lost income. The buyer then pays for building materials, but you then change your mind and want to stick to the contact language on possession occurring after harvest. Without a merger clause in the written sales contract, the buyer will have a good argument that payment of your invoice for crop damage is enough to trigger early possession.
Tort Liability and Installment Land Contracts
Sometimes agricultural land is sold by an installment sale contract. It’s a method for the long-term financing of farmland purchases. The buyer gets possession and equitable title, but legal title stays with the seller until a specified part of the principal and interest has been paid. But does that mean that the seller has liability for damage to the property or persons on the property while holding legal title?
The seller finances the purchase of farmland under an installment sale contract and retains legal title until a certain amount of principal and interest has been paid. The down payment is usually low which helps beginning farmers and others with minimal amounts of cash. The buyer is also normally given possession, even though the general rule is that possession follows legal title. In most cases, the party in possession pays real property taxes and assessments, and the buyer typically has an obligation to insure the premises either at the time the contract is entered into or at the time of possession. That’s an important point.
A purchaser’s status as an equitable owner means that the seller under an installment land contract is not liable for torts on the property once it has been conveyed to the buyer. It’s the buyer’s possession of the property that is the key. And, that’s why it’s important that the buyer carry insurance even though the seller still has legal title.
Liability Insurance
Liability insurance is part of the overall risk-management program for a farm or ranch. But, when the farming or ranching activity changes, it’s a good idea to double-check to make sure existing coverage is adequate or whether a policy rider needs to be obtained.
In a recent case the insured’s homeowner’s policy provided coverage to others “caused by an animal owned by or in the care of an insured.” The insured then bought 10 black heifers and penned them inside a barbed-wire enclosure behind his home. But the heifers got out and onto the adjacent road where a motorist hit them. The motorist sued for damages and the insurance company denied coverage under a policy exclusion for “bodily injury or property damage arising out of business or farming engaged in by an insured.” The policy defined “farming” as “the operation of an agricultural… enterprise…” but did not define the term “enterprise.”
Despite the somewhat unclear policy language, the trial court concluded that the insured’s purchase and ownership of the cattle constituted an “enterprise” within the exclusion’s scope. The appellate court affirmed.
Make sure you evaluate your coverage when circumstances change. While it’s common to evaluate liabilities at insurance renewals, periodic checks on exposures can avoid coverage gaps like the one in this case.
The case is Clark v. Alfa Insurance Corporation, No. 2022-CA-01251-COA, 2024 Miss. App. LEXIS 296 (Miss. Ct. App. Jul. 23, 2024).
Property Rights
Property rights are a fundamental constitutional right. But recently the executive branch and certain administrative agencies have ventured into the realm of property rights in a negative way for rural landowners. Involved is a global agenda couched in altruism – saving people from the ravages of “climate change.”
A 2012 Earth Summit established a goal of setting aside 50 percent of the world’s land and water for conservation by 2050. In late January 2021, the President issued an Executive Order establishing a goal of putting 30 percent of U.S. land and water under permanent government control by 2030. That’s in addition to the 36 percent of U.S. land that is already owned or controlled by federal and state governments. At the same time, the Interior Department issued an order removing state and local control over federal land acquisitions.
Lawsuits have been filed challenging government control of private land that would curtail mining, ranching and other activities, and one State passed a law allowing it to overrule some federal directives. Historically, courts deferred to administrative agency efforts to withdraw land and natural resources from private use, but that deferential standard has now changed. It will take some time to see how that works out in the courts.
Also, some legal commentators are asserting that the U.S. Constitution should be used to negatively impact private property rights because of “climate change.” They’re calling for a “constitutional revolution.” That’s worth keeping an eye on. Land is the number one asset for farmers and ranchers and to the extent the government controls the land or farming and ranching activities, it controls the means of food production.
Stay tuned.
