The Amarillo Court of Appeals’ decision issued in Arriola v. Kutscherousky, a case involving a farm lease, offers an interesting discussion of legal issues surrounding co-ownership of land and the alleged breach of a farm lease.

Background

When their father died, three siblings, Robynn, Jack, and Raven, inherited the family farm.  Each was given an undivided one-third interest in the farmland.  Robynn decided to live on the property, a decision supported by her siblings/co-owners.  Her husband, Joey, met with a prospective tenant of the land in May 2011.  The parties came to an initial lease agreement, consisting of one sentence that said they agreed to a cash lease from January 1, 2011 to December 16, 2016.  Joey signed the lease.  The same day, the lease was amended to insert the words “cash lease.”

In July, after the lease began, Joey presented a revised written lease to the tenant.  This lease contained a description of the yearly rental payments due and stated that the lease would end on December 31, 2015 (a year shorter than was provided for in the initial lease).  Joey, Robynn, and the tenant all signed the July lease agreement.

Things came to a head when the tenants tendered their 2013 land rental in January 2013.  Joey refused to accept the payment, claiming that the tenants had breached their lease agreement, thereby allowing termination of the lease.  At that same time, the siblings had decided to sell the property to another party.

The tenants filed suit against the three siblings and Joey claiming breach of contract.  The case was tried to a jury, who found that it was the landowners and Joey who breached the lease agreement.  Damages were awarded to the tenants.

The landowners and Joey appealed.

Court of Appeals Decision

The Court of Appeals considered six issues.  [Read full opinion here.]

First, the landowners claimed the jury failed to determine the essential terms of the lease agreement at issue, which they argued was required for a breach of contract verdict.  The jury found that a lease agreement did exist, that the tenants did not breach the lease, and that the landowners did breach the lease agreement.  That was sufficient for the breach of contract verdict to stand.

Second, the court addressed which document constituted the lease agreement.  Here, where there were essentially three agreements to lease the same land, the trial court did not err in finding that the lease was essentially a compilation of all of the signed documents.  None of the leases contained a “merger clause,” which would have declared that particular lease to be the entire agreement between the parties, thereby rendering moot prior leases.

Third, the landowners claimed that the tenants breached a term of the July lease that said “hunting of any kind” was prohibited, by placing hog traps on the land.  When the tenants were asked to remove the traps, they did so.  The jury was tasked with determining whether using hog traps was included in the commonly understood meaning of “hunting.”  Apparently, they did not believe so as they found no breach by the tenants.  The Court of Appeals affirmed.

Fourth, the landowners argued that they conclusively proved that the tenants breached the lease by failing to pay 2011 rent, failing to maintain fences, and by trapping hogs violating the no hunting clause.  The court noted evidence contradicting each of these arguments: witnesses testified that Joey agreed to waive the 2011 rental payment; the tenants offered proof that they had maintained fences when needed; the traps were needed to protect the crop and were not “hunting.”  The court held that this evidence supported the jury’s verdict that no breach by the tenants occurred.

Fifth, Joey argued that he did not breach the lease by terminating it, since the termination was allowed based on the tenant’s material breach of lease.  This was easily dismissed by the Court of Appeals, because they found no breach by the tenants.  Without a breach–much less a material breach–Joey did not have the right to terminate the lease and his doing so constituted his own breach.

Finally, the Court of Appeals addressed the question of whether Jack and Raven could be liable for the breach of contract.  The jury found that they were bound by the lease and entered a judgment against them, as well as against Robynn and Joey.  The Court explained that being co-tenants, alone, does not automatically make persons agents or partners of each other.  Simply by being co-tenants does not allow one tenant to bind the others to an agreement.  The other co-tenants must authorize or ratify the agreement before liability occurs.  Further, the fact that Robynn was allowed to live on the property did not give her any additional authority or authorization to lease the land and bind the siblings.  There was no evidence that Jack and Raven knew about the lease, there was no evidence that they were given their share of lease payments, and there was no evidence that they ratified the lease agreement.  Thus, the Court of Appeals found that Raven and Jack were not bound by the lease and modified the judgment against them.  The tenants can recover the damages they were awarded from Robynn and Joey, but may take nothing from Raven and Jack.

The landowners and Joey appealed to the Texas Supreme Court, but the Court refused to consider the case.

Why We Care

First, this case illustrates the complicated issues that can arise when farms are left to children as co-tenants.  Although Jack, Raven, and Robynn were all co-owners, Robynn was able to lease the land out without permission from the other owners.  Here, it did not appear that the co-owners objected to the lease, but that certainly could have been an issue.  Additionally, under the law, Robynn should have been sharing the profits from the lease with the other co-tenants, which she did not do.  Another issue arose with regard to authority to bind the co-tenants and whether ratification occurred.  These types of issues can make co-tenant ownership of land particularly problematic in many instances.

Second, the case offers a good reminder that when a person terminates a lease because they believe the other side breached, there is always a risk the court may not agree.  Here, Joey believed that the tenants breached the lease agreement first, allowing him to terminate.  But when the court found that no material breach occurred by the tenants, it was Joey who breached the lease by cancelling it for no reason.  Parties should carefully consider whether a material breach has occurred before terminating a lease based on that reasoning.

Third, the issue of whether hog traps constituted “hunting” is a reminder that parties should carefully consider wording used when drafting a lease agreement, and try to define every term.  Had Joey really wanted to prohibit the use of hog traps, a definition that said hunting included trapping would have been helpful.

Finally, the lease illustrates the importance of a merger clause when there  are multiple versions of the same lease.  If parties wish for the most recently document to be the only valid lease agreement, a merger clause makes clear that is the case.  Without a merger clause, a jury could find, as they did here, that the lease actually consists of all prior documents and interpret it as such.