Legal
issues of floods and grain contracts
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[August 06, 2008]
URBANA -- Loss of a crop to a flood usually
will not excuse a farmer's obligation to deliver grain at harvest
under a forward contract otherwise legally enforceable, concludes a
new University of Illinois Extension study. The full report, "Grain
Contracts, High Prices, Floods and Failure to Deliver," is
available on Extension's farmdoc site. (See
report.)
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"The 2008 flood that wreaked havoc on Midwestern farmland and
contributed to an increase in grain prices compared to the fall
of 2007 has left some grain farmers wondering what to do if they
cannot deliver on forward contracts to sell grain entered into
before their crops were lost," said Donald L. Uchtmann, a
professor emeritus in the Department of Agricultural and
Consumer Economics, who co-authored the report with colleague A.
Bryan Endres and Stephanie B. Johnson, a law student.
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"Also,
some elevators may be wondering what would happen if an
unscrupulous farmer who contracted to sell grain to the elevator
when prices were lower were to ignore these contracts for future
delivery and, instead, sell the grain on a higher spot market."
Is an agreement to sell grain binding even if it was never
signed by the farmer? What damages might be assessed against a
farmer who fails to deliver grain as required by contract? Is a
farmer liable for breach of contract if the farmer files
bankruptcy? What happens to contracts for future delivery if the
elevator loses its grain dealer license? The report, made
possible with the support of the Illinois Bar Foundation and
State Bar Association, addresses these questions.
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"In general, a farmer whose crop was lost to the flood of 2008
should not breach a contract, purchase substitute grain or enter
into a settlement with a grain elevator without seeking legal
advice," the authors conclude. "The best way to avoid a
breach-of-contract lawsuit may be to negotiate a settlement with the
elevator.
"Alternatively, a farmer could purchase grain from a third party
to deliver to the elevator, thereby fulfilling the farmer's contract
obligation. Through such actions, farmers may avoid litigation
costs, the elevator's incidental costs of purchasing substitute
grain and perhaps the elevator's attorney fees that otherwise would
be incurred."
[Text from file received from
University of
Illinois Extension]
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