While they may be seen as paperwork, grain contracts and their terms and conditions can carry significant legal and financial consequences.
Understanding your obligations set out in your grain contract is as important as deciding what you will grow that year.
They can be viewed as a spectrum with grain production contracts on one end and grain delivery contracts on the other.
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While most grain contracts are standardized, the changes negotiated into the contract can affect where they fall on the spectrum. Knowing what each side of the spectrum looks like can help farmers understand what type of contract they may have.
Grain production contract
A grain production contract requires the producer to plant, grow, harvest and deliver a certain type of crop from specific lands to the buyer.
Not all contracts are clearly labelled or identified as production or delivery contracts. It is up to the parties to understand the contract and know what type of contract they are entering into.
Failure to read a contract is not an excuse for not fulfilling your obligations. The key pieces of a production contract are:
- Expressly stating it is a production contract or referring to production of grain.
- Specifying and/or identifying the land on which the grain is to be produced.
- Includes an Act of God clause, relieving the producer of liability if the crop fails for reasons beyond their control.
- Specifying the variety of crop being grown.
- Specifying the yield per acre.
- Does not contain a discount schedule.
A production contract requires a particular producer to successfully grow the identified crop in question.
Due to the number of restrictions on the producer, including the type of crop, location, and buyer, the buyer ends up having to take on more of the risk if the crop fails and no crop is delivered.
Normally, the buyer has limited recourse against the producer if the producer fails to deliver. This transfer of risk is normally set out in an Act of God or force majeure clause.
Typical events that engage an Act of God or force majeure clause include:
- severe flooding
- hail
- drought
- fire
- insect damage or plant disease beyond the control of the producer
Grain delivery contract
Conversely, the parties may enter into a grain delivery contract, which tend to be the most common contracts in the industry.
The sole obligation in a delivery contract is for one party to deliver the grain described in the contract in accordance with its terms — normally, the quantity, quality, price and delivery time are specified. Who produces, where it is produced and how it is produced does not matter.
Because the obligation is different compared to a production contract, the producer might take on more risk.
Normally, there is a much more limited Act of God clause, and if the producer chooses to grow the grain to fulfill the delivery contract but they suffer a crop failure, their obligation to deliver is not relieved.
Best practices
If you want to pre-sell your grain to a buyer, it is best to have a written contract.
Verbal agreements can have legal implications and documenting what you have, or have not, agreed to is critical.
If the only record of the agreement is the recollection of the parties involved, it does not benefit anyone. Writing down the terms helps resolve disputes about whether an agreement was reached and the associated terms.
Take the time to read the contract.
Someone has taken a lot of time to prepare it and distribute the risks on paper. If you sign it, chances are you will be considered to be bound by the terms, even if you don’t read them.
If you are unclear about the meaning of any clause or provision, you should ask for clarification, and if necessary get legal advice.
Most, if not all, grain companies these days will send you a copy of your contract before you execute it.
Also, how you communicate your intention to be a party to a contract is important. Texting with a grain dealer can be a part of the contract you have.
With new technologies, wet ink signatures are not the only way to express your intention to be a party to an agreement. What you say and how you say it is meaningful — and expressing yourself clearly is critical.
In Saskatchewan, the “emoji case” determined that a thumbs-up emoji constituted acceptance of a contract.
While the court was careful to specify that a text message will not always amount to acceptance of a contract, it is important to note that you must take the time to express yourself clearly.
The test to determine whether you entered into a contract is whether a reasonable, objective bystander would view the parties as having entered a contract. If you text that you agree to the contract, this may be enough to be bound.
Tristan Culham is a partner at MLT Aikins LLP and Mark Roney and Josh Dubiel are associates at MLT Aikins LLP. This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
