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Writing enforceable farming contracts

Saturday April 20 2019

Jean Munene in her banana farm in Kirinyaga County.

Jean Munene in her banana farm in Kirinyaga County. Farmers need to keep in mind when entering contracts the so-called Parol Evidence Rule, which is used to interpret contracts in Common Law. PHOTO | JOSEPH KANYI | NMG 

SUBIRI OBWOGO
By SUBIRI OBWOGO
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The case in which a contract between a processor and 1,700 farmers in Kirinyaga went awry shines the spotlight on the vital question of contracts in farming.

Besides being a good business practice, well-written contracts reduce disputes and minimise risks.

And you can’t run away from contracts. Farming works best when inputs and ideas are shared. As such, farming in groups, rather than independently, makes it easy to share knowledge and skills, access markets, funding and new technology.

It minimises cost of inputs, extension services and automation.

So what might have gone wrong in this case?

The farmers signed a contract with the processor to supply 40 tonnes of bananas every month at Sh21 per kilogramme.

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For a year, the growers were paid promptly for their supplies and even increased the acreage under bananas.

But come January, the firm reduced the tonnage to five. The owners of the processor said they needed time to upgrade their cold storage facilities before resuming the purchases.

The group accused the company of short-changing them by taking advantage of a market glut to buy bananas from non-contracted farmers at a lower price.

Are farming contracts enforceable and how do we avoid cases of double dipping or side-selling?

Any good dictionary will tell you that a contract is an agreement between two or more parties creating obligations that are enforceable, or otherwise recognised in law.

But then, having a signed document does not make an agreement a contract. For a court to deem a contract legally enforceable, it must meet some conditions.

WRITTEN AGREEMENTS

The three important elements are “offer” by one party, “acceptance” by a second party and “consideration”. For a contract to be legally binding, whether oral or written, the three conditions must be met.

In this case, the farmer (or the processor) proposed to sell or buy bananas (the offer) at Sh21 a kilo and the farmer (or processor) agreed to the offer (acceptance).

The consideration here related to the farmer agreeing to give up ownership of the bananas and the processor would pay Sh21 if the bananas were delivered.

"Consideration” is a legal requirement that the parties must exchange something of value.

Farmers need to keep in mind when entering contracts the so-called Parol Evidence Rule, which is used to interpret contracts in Common Law.

The theory behind it is that that a written agreement contains all agreed upon terms of the contract and anything not included was not part of the deal and cannot be introduced as evidence in court.

This means that parties must include as much detail in the contract because anything excluded cannot be introduced in court as evidence of the deal.
For example, did the agreement explain that crop failure is always a possibility, or how to deal with surplus?

And just because a good contract must capture important details, it doesn’t have to be complicated.

Although detailed contracts mitigate against leaving out evidence that could add to, or contradict the written agreement, it is not an excuse to use excessive “legalese”.

An agreement is simply an extension of a farm’s daily operations and standards and it must be written in plain English that farmers can understand.

Minimise legalese and ensure open communication between the farmer and processor.

Dr Obwogo, a farmer who runs Kienyeji Kenya Farmers Network, is a public policy consultant.

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When parties cannot fulfil contract

What happens when a party cannot fulfil contractual obligations? Do you simply terminate the agreement? Which party pays for court costs and lawyer’s fees? You’ll need a lawyer.

Farming is a risky venture and both parties must be open about unexpected outcomes such as crop failure and surplus and how to deal with the same.