Ag Law Ag Business Management Chapter 11. Objectives Explain how laws are created and where to locate them Define contract, the types of contracts and.

Ag LawAg Business Management

Chapter 11

Objectives• 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

• 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

• 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.

• Examples:– 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/AGRICULTURE%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

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

• 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

• 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

Savings

Pension

Investments

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)