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Published September 05, 2011, 05:14 AM

Handshakes, contracts and farmer merchants

BISMARCK, N.D. — With the small grains harvest in full swing in North Dakota, it is a good time to revisit some legal issues that relate to grain marketing by farmers.

By: Derrick Braaten, Special to Agweek

BISMARCK, N.D. — With the small grains harvest in full swing in North Dakota, it is a good time to revisit some legal issues that relate to grain marketing by farmers.

A few decades ago, grain marketing for most farmers was fairly simple, and consisted of little more than a handshake.

Agriculture these days has become big business, however, and some of the big business practices have made their way into the local elevators. Many of the transactions taking place at the local elevator are governed by the Uniform Commercial Code. A couple provisions of the UCC are applicable and important for farmers marketing their grain to be aware of.

A common practice for farmers is to call a few of the local elevators at various times to find out what the elevators are paying. While this is an easy way to do market research, it is possible for these casual phone calls to be misinterpreted by the staff at the local elevators as a more concrete request to sell them your grain. If an employee or manager at the elevator begins asking you questions about your acreage, projected yield, quality of your grains, etc., be sure to clarify you only are asking about prices and are not intending by your phone call to actually enter into a contract to sell them your grain. There are certain situations under the UCC where you might subject yourself to contractual liability beyond what you expect, and it is important to be aware that “loopholes” to standard contracting rules exist.

Statute of frauds

An important provision of the UCC is called the “statute of frauds.”

Without going into a lot of history, the basic purpose of the provision is to avoid fraudulent conduct among parties to sales of goods, by requiring a written contract signed by the person who it is being enforced against. In other words, a person cannot hold you to a contract unless you signed something in writing. There are some exceptions, though, and one of them is important for farmers this time of year.

It might come as a surprise, but under the UCC, in some circumstances, farmers are considered grain merchants. If you have significant experience marketing a certain commodity — for example barley — you might be considered a merchant when you are selling your barley.

This is important because there is a significant exception to the signed contract requirement for merchants. If you contact the local elevator and they think you expressed an intention to sell them your barley and a few days later you receive a contract listing your acreage and your barley, that contract might be binding on you even if you didn’t want it and never sign it.

In this situation, you need to object to the contract in writing within 10 days. The best practice would be to send a certified letter (with return receipt requested) to the elevator stating clearly that you did not intend to enter into a contract for sale of your grain and do not agree to the terms of the contract they sent to you. It always is a good practice to contact an attorney any time you have questions about a contract.

It seems that it is not uncommon for local elevators to misunderstand pricing requests from farmers as requests for contracts, so it is important to be clear about your intentions, and if you receive a contract in the mail out of the blue from the elevator, do not ignore it.