Most litigation between custom harvesters and their clients is due to miscommunication and misunderstandings.
A good written contract can prevent both problems, says George Twohig, a Chilton, WI, attorney whose clients include custom harvesters and farmers.
“When you have a complete written contract, you've documented the parties' understandings. The potential of conflicts is reduced,” he says.
“If the custom operator and the farmer have fully discussed, and placed in writing, the scope and nature of the services to be performed, the price and plan for payment and other essential terms, problems can be avoided.”
But the contract has to be well-written and very specific to the project, says Twohig. Both parties must also sign it. If the client is a sole proprietor, he is personally obligated by the contract and his signature is sufficient. If the contract is with a farm corporation, limited liability company or limited liability partnership, the harvester's contract is with the entity — the owners aren't personally liable.
Twohig suggests the following basics in a custom harvester-grower contract:
The contract needs to clearly state the harvester's required services, number of acres, price per acre per service and any other information explaining what services will be provided by the custom harvester.
More and more, Twohig's clients are asking for contracts with terms of more than a single crop year. This makes sense for both parties. The harvester needs some assurance of ongoing income to make payments on his equipment investment. The farmer needs to know that a qualified harvester will harvest his crops — at an established price.
Longer-term contracts sometimes allow for price adjustments, he adds, particularly in years like 2000, when fuel prices jumped.
The contract must state the method of payment. “We're seeing contracts that budget payments for harvesting services. Often, the customer will pay an annual estimated charge in a series of monthly or quarterly payments. This gives the harvester an ongoing source of income while allowing the farmer to budget harvesting costs, rather than getting one large bill,” Twohig says.
The harvester may want a client to provide a letter of credit from a bank or other lender, assuring available funds to pay the contract amount.
“When the client is under financial pressure or purchasing large amounts of services, the contract may require a milk assignment — a granting of a security interest in the customer's milk to assure payment,” he adds.
In most states, interest can only be charged at a low legal rate, such as 5% — unless a higher rate is agreed to in writing. “The contract must provide the interest rate to be charged to a customer on unpaid balances.”
“Often, we'll include provisions that make it clear that the harvester can make only a reasonable effort to perform services at suitable times,” says Twohig. “The harvester will want to avoid being responsible for delays or failure to perform due to conditions beyond his direct and immediate control.”
Those conditions include adverse weather, field conditions, actions of third parties, equipment breakdowns or the unavailability of timely repairs.
Limitation of liability statement
Contracts normally define a harvester's liability in the event of a breach of the contract. Sometimes a farmer claims that a harvester's services were inadequate as a defense for his failure to pay that harvester, Twohig says. Some contracts attempt to limit the harvester's liability to the farmer to the contract amount.
Field condition provision
Twohig suggests a contract provision in which a farmer acknowledges his responsibility in keeping fields in a condition that prevents equipment damage and keeps harvesting on schedule. For example, a farmer should be obliged to keep land free of rocks and debris.
The grower should also provide reasonable access to fields, fully considering the size of the harvesting equipment.
Road cleanup designation
“The contract needs to define whether the client or the harvester is responsible for cleaning up mud and other debris from roads. Both need to be aware of potential liability if the debris should be a factor in a motor vehicle accident. Adequate liability insurance is critical,” Twohig says.
The contract should document that the harvester won't assume responsibility for injuries or damages to a farmer, his employees or family members who ride in or operate equipment owned by the harvester.
Contracts often provide for mediation or arbitration in lieu of a court action. “Generally,” Twohig says, “mediation is effective in resolving most conflicts; even arbitration is less expensive and quicker than a court trial.”
Custom harvesters also need to maintain good files and information to back up their contracts.
“Good records are essential if you have to bring a matter for collection,” Twohig says.