Ag Law
Ag Business Management
Chapter 11
Objectives
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Explain how laws are created and where to locate them
Define contract, the types of contracts and the elements of a contract
Understand what kinds of contracts must be in writing
Express knowledge of the statue of frauds and breach of contract
Identify ways to reduce the risk of non-payment
Explain leases and leasing situations
Understand the importance and use of insurance
Define the legal liabilities of farmers and ranchers with regard to land,
people, employees, fencing and animals
Explain the use and importance of livestock pollution laws and
agricultural chemical laws
Understand riparian rights
Know the legal aspects of estate planning
Explain property ownership
Identify sources of retirement income
Introduction
• The legal aspects of agriculture must be
dealt with daily
• Legal documents have words with special
meaning—words you may not recognize
or understand
• You should know the legal facts to help
make sound decisions!
Choosing Counsel
• Your attorney is your COUNSEL
• You should consult an attorney when you
have questions because ignorance of the
law is no excuse
• The law protects you and provides
backup you can use when dealing with
others!
What to Look for When Choosing
an Attorney
• Someone you trust
• Someone you know you can go to when
you have problems
• Someone who knows his/her limits
• Someone who would not hesitate to
refer you to someone else if they can’t
answer your questions or take care of
your problems
4 Major Sources of Law
Administration
(Government)
Custom
(People)
Judges
(Courts)
Lawmaking
Bodies
(Legislature)
Custom Law
• Rules developed through custom and usage
become statutory law
• Judges may uses these customs as guides
when they make court decisions
• When this happens custom becomes
“common law”
• Example: Treaties and Trade Pacts are
forms of international agreements often
based on the customs of the people
involved
Lawmaking Bodies
• Congress and city and state legislatures
write statutory and constitutional laws
• Ex: The Horse Protection Act, NAIS,
etc.
Judges
• Judges opinions are put on record
• They are used in future cases by other
judges to establish precedents
• These precedents become common-law
Administrative Rules
• Passed by government regulatory bodies
• Interpreted and given strength by
courts and people in administrative
positions
• Example: IRS develops interpretations
of income tax laws. They are published
in the Farmers Tax Guide
Places to Find Laws
• Attorneys
• Law books in local libraries and book
stores
• Statutes
• Article in newspapers and magazines
• Governmental agencies
• Federal, state, county and city officials
• Reports and fact sheets
Contracts
• A legally enforceable arrangement or
agreement between two parties
Types of Contracts
• Expressed
– Parties state the terms of the contract
orally or in writing
• Inferred
– The actions or conduct of the parties
indicate an intention to contract
Elements of a Contract
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Must have 2 or more legal parties
Offer and acceptance
Sufficient consideration
Must not offend public policy or morals
Statute of Fraud
• Law that requires certain arrangements
or agreements to be in writing to be
enforceable
Contracts that Must Be in
Writing
• Agreements, promises or contracts to pay commission for
the sale of real estate
• Contracts for more than 1 year
• Promises to be responsible for debt, default or misdoing
of another person
• Agreements, promises or undertakings made upon the
consideration of marriage, except the mutual promises to
marry
• A promise of an executor or administrator to pay debts of
the deceased out of their own property
• Contracts for the sale of goods above a certain value
unless a portion of the price is paid or a part of the good
delivered.
• Land Leases
Breach of Contract
• Failure to comply with the terms of a
contract
In the Event of Breach of
Contract
• The injured party may do the following
– Request completion or payment of compensation
(damages)
– Be entitled to specific performances of the
contract.
• Specific performances is when the court requires the
other party to carry out the contract.
– Agree in advance to the amount of damages to be
paid if the contract is breached.
• This is called liquidated damages.
– Request the contract be canceled (rescission) and
whatever has already been provided be returned
(restitution)
Risk of Non-Payment
• The sale of farm commodities is a contract
and in every sale there is a risk of
nonpayment.
• 3 common situations where non-payment is
a risk
– Crops or livestock are delivered and sold but
payment is not received
– Harvested crops or livestock are contracted
for later delivery
– Harvested crops are delivered for storage only
Packers & Stockyards Act
• Requires livestock buyers to pay
producers by the close of the next
business day after delivery.
Safeguards Against Non-Payment
• Deal only with licensed warehousemen, brokers or dealers
• Don’t be deceived by the size or appearance of the
company you deal with.
• Investigate the financial condition of the buyer before
forward contracting.
• Demand a scale ticket marked “sold” or “storage” with
each load of grain you deliver
• Demand payment immediately by a check drawn from a
nearby bank when delivery is complete
• Get a warehouse receipt immediately if you store crops
• Be on the lookout for practices that indicate financial
instability. Report them to the appropriate licensing
agency!
Leases & Leasing
• Legal agreements landowners and farm
operators use to do business
• About 1.5 million landowners and
farmers deal with leasing each year
Common Farm Leases
• Cash
• Share
• Manager Operator or Partnership
– This is also sometimes called profit sharing
Cash Lease
• Good for
– Any small farm
– A landlord that lives a distance away from
the farm
– A tenant who has adequate livestock,
equipment and working capital
The “Good” of Cash Lease
• Good for the Landlord because
– Less risk and guaranteed income
– Fixed rent
– Less supervision required on their part
• Good for the tenant because
– Provides more profit if the enterprises are
successful
– The size of the business can be expanded
and fixed cost of the lease lowered
The “Bad” of the Lease
• Not always best for the landlord from
the standpoint of
– Generally provides lower income
– Gives less control of the land
– Difficult to collect rent if crops fail
Livestock Share Lease
• Doesn’t require a large amount of
equipment or capital on the lease's part
• Landlord does most of the management
Livestock Share Leases
• landlords like this type of lease because
– Retain an active interest in management
– Encourages more efficient use of resources
– Generally makes more returns than other leases
• Tenants like it because
– Risk is less because payment is based on the
livestock enterprise production
– Gain experiences from the guidance of a
successful owner
– Landlord is more willing to make improvements
– Requires less of the tenant’s capital
Crop Share Leases
• Most common form of lease in the
United States
• Adapted to
– Areas where land is good and nearly all
tillable
– Young tenants and new farmers with less
capital
Landlords Like Crop Shares
Because
• More opportunity for supervision of the
land. Erosion and fertilizer application
rates can be controlled and the owner
can make sure the land is not abused.
• Probability that the rental may come
closer to the value of the land than
other leases
Tenets Like Crop Share Leases
Because
• Requires less capital
• Landlord is more inclined to improve the
farm and increase productivity
• Less risk of exposure on cash outlays if
the crop fails
• Landlord shares the risk as well as the
returns
Manager Operator or Partnership
Lease
• An agreement where the landowner and
tenant specify in advance what each will
furnish and how the returns will be divided
• Landowners furnish
– Capital
• Managers furnish
– Labor
• The manager shares in returns on the basis
of a fixed percentage –usually 35-40%
Suggestions for the Manager/
Operator of a Lease
• Separate living quarters for each of the
families
• Keep good records
• Make sure the farm business is large
enough to support 2 families
• Be able to get along
• Revise the agreement from time to time
Leasing Machinery: Financial
Lease
• When you use a financial lease for
machinery for a lease you must:
– Make an annual payment for the machine
– Make repairs
– Do the maintenance
– Provide shelter for the machine.
Leasing Machinery: Operating
Lease
• When using an operating lease you must:
– Keep the machine for more than 1 year
– Take care of repairs in the case of
negligence
• Otherwise you are not responsible for repairs
Insurance for the Farmer or
Rancher
• When you take out an insurance policy
you are paying a professional risk taker
(the insurance company) a small but
regular sum of money (the premium) to
assume the financial burden in case of
the unexpected.
Uses of Insurance
• It protects you and your family
financially and lessens the hardship of
unexpected economic loss
• It meets your obligation to others who
might suffer injury or loss because of
something you did.
• It makes it possible for you to take
certain risks you otherwise could not
take.
Common Kinds of Insurance
Coverage
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Life
Accident and Health
Property
Liability
Things to Remember When
Buying Insurance
• Insure against those losses that may lead
to financial disaster
• Insure the irreplaceable or the most
necessary property first
• Don’t insure anything you can easily afford
to replace yourself
• Be sure the coverage is adequate.
• Buy insurance that provides coverage for
situations in which you are likely to have a
claim
Legal Liabilities of Farmers &
Ranchers
• If a court judgment for damages is
awarded, the negligent party must pay
the damages or their property may be
seized to pay the sum.
• If a farmer or rancher is ordered to
pay such damages they could loose their
entire farm or ranch.
• Liability insurance reduces this risk.
Negligence
• In most cases liability depends upon it
• Generally considered to be:
– The omission by an individual to do
something which a “responsible person”
would do under similar circumstances
– Another definition is failure to use
reasonable care under the circumstances
Legal Liabilities in Regard to
Land
Adjacent Property
• Must exercise reasonable care to
prevent injury or property damage to a
neighbor
People On The Land
• 3 groups
– Invitees
– Licensees
– Trespassers
Invitees
• A person who is on your farm with your consent
and for your benefit or for your mutual benefit.
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Someone who comes to buy vegetables or eggs
A hunter who pays a fee to hunt
People who deliver supplies
Salesman
Postman
Repair Men
• Special guest though invited are not considered
invitees.
The Farmers Responsibility to
Invitees
• To warn of known hidden dangers. The
farmer is liable for injuries an invitee
may suffer from these known hidden
dangers.
• To inspect your property for hidden
dangers
Licensees
• Someone who comes on your land solely for
their own please, benefit, or convenience
• They have a legal duty to be on the
lookout, if they are careless in this
respect then you are not responsible
• Examples of Licensees
– Person who have permission to hunt but do not
pay a fee
– Anyone who does not enter the land at regular
times, such as social guest
The Farmer’s Responsibility to
Licensees
• Warn them of hidden, know dangers
• You have no obligation to
– Make the land safe
– Inspect the property to locate danger
Trespasser
• Someone who is neither invited or
desired on your land
Farmer’s Responsibility to
Trespassers
• Only liable for personal injuries you
intentionally inflict
• You do not have to:
– Make the land safe
– Warn of hidden dangers
– Search for hidden dangers
• You have the right to use reasonable force
to remove trespassers from your property.
• You may not use deadly force unless your
life or the lives of your family are
threatened
Doctrine of Attractive Nuisance
• Your responsibility to children is
greater than your responsibility to
adults. You are charged with a greater
duty to prevent injury to children. If
you negligently keep an object or
condition on your land that is attractive
and dangerous to children you will be
liable if a child is injured by that object
or condition.
For This Doctrine to Apply
• Landowner must know children trespass
where the object or condition is located
Liabilities of Employers
3 Legal Classifications of
Employees
• Employees
• Agents
• Independent Contractor
Employee
• A person that is under your direction
and control
• An employer has the greatest degree of
control over the employee and also the
greatest liability for their actions
Laws That Apply to Ag Labor
• Fair Labor Standards Act
• Migrant and Seasonal Agricultural
Worker Protection Act (MSPA)
• Immigration Reform and Control Act
(IRCA)
• Occupational Safety and Health Act
(OSHA)
Responsibilities of the Employer
to Employees
• As the employer it is your duty to
– Provide a safe place to work
– Provide reasonably safe tools, machinery
and equipment
– Warn and instruct the employee of dangers
which they could not reasonably be
expected to discover
– Provide competent fellow employees
– Make reasonable rules for the conduct of
the employee while at work
Workers Compensation
• In most states farm and ranch
employees are exempted from workers’
compensation because :
– The plan automatically makes the employer
liable for most injuries suffered by the
employee in the course of employment,
whether the employer is negligent or not
Agents
• Has the authority to either transact
business or manage the affairs of the
employer.
• Examples:
– Hired farm or ranch manager
• As the employer you are responsible for
your agent’s acts while the employee is
doing your work.
Independent Contractor
• A person or organization performing a
job without control from the employer.
• Examples of Independent Contractors
– Custom Harvester
– Crop Duster
– Well Driller
Employers Are Only Responsible
for Independent Contractors
When
• Negligence in selecting a competent
contractor
• Furnishing a contractor with faulty
plans or specifications
• Interfering with a contractor
• Hiring an independent contractor to
perform a task which is inherently
dangerous
Liabilities with Regard to
Fencing Animals
Inside & Boundary Fences
• No stipulation is usually made for the
materials used on inside fences
• Boundary fence laws vary from state to
state but it is generally required that
fences be tight enough and strong
enough to turn livestock
Division Fences
• Responsibility is shared between owners
• Each owner pays half
– This is usually the half on their right hand
side as they stand at the fence division line
on their own property
Before You Build…
• Check the state laws first.
Common Laws that Affect
Livestock Fences
• Owners who maintain good fences are
generally not held liable for damage
caused by livestock
• When animals break through an
adjoining owner’s part of a division
fence and the fence is not in good
repair or is not legally sufficient the
owner of the animal cannot be held
liable for their trespass
Owners of Trespassing Animals
May be Held Liable If
• The owner’s animals are in the habit
breaking out, regardless of the condition
of the fence
• The owners fences are defective or
insufficient
• Negligence such as leaving a gate open
• Animals being driven along a road get out
of control and enter adjoining fields, even
though the road is not fenced
Animals on the Road
• Farmers or ranchers who are negligent
in fence maintenace can be held liable
for damages resulting to people using
the highway if their animals escape.
• Can also be held liable if they know
their animals are out and make no
reasonable attempt to get them back in.
Laws Dealing with Strays
• Landowners or local authorities may confine strays
and care for them.
• A reasonable attempt must be made to locate the
owner
• Finder is entitled to make reasonable use of the
stray while it is in their care.
• If the owner comes for a stray they must pay the
finder for feed, housing, care and other costs.
• If an owner does not claim a stray it either
– Becomes property of the finder
– Must be sold at public auction. A reimbursement is
made to the finder for expenses and the balance is put
into county funds.
People Injured By Animals
• The owner can be held liable in these
events
– The owner negligently allows or causes
them to commit injury
– The owner is aware that the animal is
vicious and the animal inflicts injury upon
someone who is not acting negligently
Animal Diseases
• Controlled by health requirements
• Governed by State and Federal
Government
• Ex:
– Bulls, unless they are virgin or to be sold
for slaughter, must be tested for Trich.
– Cows must be vaccinated for Bovine
Brucellosis.
Brands
• Used to determine ownership
• Help to reduce theft
• Some states have laws governing the
recording and inspection of brands and
the transfer of branded animals
South Dakota Brand Law
Commonly Asked Questions
Regarding South Dakota Ag Laws
• http://sdda.sd.gov/AgPolicy/PDF/AGRI
CULTURE%20LAW.pdf
• http://aib.sd.gov/diseasecontrol.shtm#
cattle
• http://aib.sd.gov/diseasecontrol.shtm#
cattle
Livestock Pollution &
Agricultural Chemical Laws &
Regulations
Confinement Livestock Systems
• Must be coordinated with the disposal
area so pollution will not be created
when storage pits are drained
• Registration of the facility and a permit
may be necessary to operate open lots
and confinement areas
• Federal & state government monitor
livestock waste to make sure it is
properly handled.
Federal Regulations for
Chemicals & Drugs
• Carefully tested through properly
designed experiments before use
• Conform to federal & state laws
• Accurately labeled and state the uses
for the product
Pesticide Regulation
• Defined by the Federal Pesticide
Regulation Act of 1978.
• Pesticides must be registered with the
Environmental Protection Agency (EPA).
• Classified as “general” and “restricted”
use
• Restricted Use pesticides may only be
applied by or under the direct
supervision of a certified applicator
Riparian Rights
• Right: a power, privilege, demand or
claim possessed by a particular person
by virtue of law
• Riparian: someone who owns land
bordering on a stream or river
Riparian Rights
• Owners of stream banks have the right
to dam a stream or make other use of it
as long as they don’t
– Interfere with the use of the water by
downstream owners
– Divert the course
– Reduce the amount of water unreasonably
– Cause water to back up on land of those
above them
Surface Water
• Landowner may
– Dam
– Divert
– Store
• In irregular streams for water
conservation, livestock use or soil
conservation and improvement
Common Law on Damming
• Anyone who dams or impounds water
does so at their own risk.
General Rules of Drainage
• An owner who’s land naturally drains
across a neighbor below may increase
the amount of water flowing from their
land by artificial ditches constructed on
their land.
Rules for Flat Lands
• In some states where much of the land
is too flat to adequately drain, laws have
been passed legalizing the construction
of drainage works which cross property
lines.
• Accomplished through the formation of
drainage districts.
Irrigation Laws
• See p. 11-24
Domestic Water Use
• Household
• Watering Livestock
• Irrigation of land no larger than 2 acres
for growing gardens, orchards and lawns
• Domestic users may/may not have to
get use permits
Estate Planning
Estate Planning Is
• Planning for financial security during
retirement, the fair consideration of
heirs, and the provisions for continuing
the business.
Lack of Planning Results In
Ill feelings and bitterness among heirs
Uncertainty of eventual owners
Unequitable treatment of children
A farm being sold or split into small,
uneconomical units
• A widow or widower with young children
not being able to provide adequately for
the children under guardianship
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Factors to Consider When
Developing an Estate Plan Are
• Objectives for developing a plan
• How much of the estate is needed by the
surviving spouse for a supportive income
• Plans that will work regardless of who dies
first
• Provisions for the case of the surviving
spouse remarrying
• Retain an attorney for an annual legal
check-up including a review of your estate
plan.
Two Types of Property
• Real
• Personal
Methods of Owning Real Property
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Fee simple
Co-ownership
Tenancy
Joint Tenancy
Tenancy by entirety
Life estate
Deeds
• Documents that show what real
property is owned, who owns it and what
method of ownership they have
Warranty Deed
• Implies that at time of delivery
– The seller owns property free and clear of
legal claims such as liens and mortgages except
those specifically mentioned in the deed
– The seller has the right to transfer the
property
– The buyer will have quiet and peaceful
possession
– The seller will defend the title if anyone
lawfully challenges it’s legality
Quit Claim Deed
• Implies that
– The seller is only conveying the seller’s
right in the property
– Seller does not promise he/she owns
anything
• Used to clear property titles
Methods of Transferring Legal
Ownership
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Wills
Laws of descent
Contracts
Gifts
Combined sale & gift
Co-ownership
Will (X)
• Legal statement of a person’s wishes
concerning the disposal of property
after their death
• The only type recommended for estate
planning is a formally executed Will
drawn up by an attorney.
Facts About Wills to Consider
• Must be proven official and admitted to
the courts
• They have no force or effect until the
maker dies
• They must control only the property
individually owned by the maker of the
will
• Not effective immediately upon the
death of the maker
What Happens if you Die Without
a Will
• The state will distribute your property
according to its law
• There will be a court appointed
administrator of your estate.
• Courts can/will appoint a guardian for
minor children.
• Settling the estate will cost more
resulting in your loved ones receiving
less
Estate Tax
• Federal government has a “unified
transfer tax” which taxes the transfer
of property by gift or death. Most
states impose additional estate taxes.
Retirement
Best Plan
• Have several sources of retirement
income
Investments
Pension
Savings
Sources of Retirement Income
• Savings
• Employer-sponsored pension
plans
• Tax Sheltered Retirement
Plan
• Individual Retirement Plan
(IRA)
• Keogh Plan (HR-10)
• Simplified Employee Pension
Plan (SEP)
• Qualified Retirement Plan
(QRP)
• Annuity
• Trusts
• Social Security
• Continuing to Operate the
Farm
• Rental or lease of the farm
• Sale of the farm
• United States Saving Bonds
• Commercial Stocks and bonds
• US Treasury Bills
• Nonfarm Investments
• Certificates of Deposit
• School bonds
• Municipal Bonds
Assignment
• Complete Assignment Sheets 1-3 Due
Thursday (Dec 2)
• Test Review Thursday (Dec 2)
• Test Friday (Dec 3)