Ag Land Sale and Grazing Lease Gone Wrong

Originally published by tiffany.dowell.

 

The facts underlying the Austin Court of Appeals decision in Marek v. Lehrer are an agricultural real estate deal gone terribly wrong.  This case is a great example of why it is so important to have every agreement  put into writing and timely signed by the parties.

Photo via TAMU AgriLife

Factual Background

R.L. Lehrer, a cattle rancher in San Saba County decided to sell 257 acres of his property and to lease the property back to continue grazing his cattle.  He planned to use the proceeds from the property sale and from selling calves each year from the cows he ran on the property to cover his living expenses and to allow him to travel.

Tom Marek, who lives in Austin, expressed an interest in the property.  Marek visited the land and he and Lehrer verbally agreed that Lehrer would sell the land for $200,000 down and carry an $800,000 note for five years at 3% interest with no principal payment required for the first five years, while Marek would lease the lang back to Lehrer for grazing and hunting.  Subsequently, prior to closing, Lehrer received another offer for $100,000 more than asking price and 4% interest.  Lehrer refused the offer because he had already made a deal with Marek.

On June 9, 2014, Marke and Lehrer signed a Farm and Ranch Contract that included a provision stating that “Seller and Buyer agree that at closing, Seller shall lease the Property from Buyer for grazing purposes for the sum of $2,500 per year for a period of five years.  The lease will be payable annually in advance, with the first payment of $2,500 being due at closing and the payments for each succeeding year of the lease term being due on the anniversary date of closing.”

Prior to the August 21, 2014 closing date, Lehrer proposed a one-paragraph lease that mirrored the term in the Farm and Ranch Contract.  Marek refused to sign it.  Instead, he had his ex-wife, Mary, who was an attorney, prepare a draft lease.  The initial draft by Mary provided a 5-year term, but allowed Marek to terminate with 180-day notice.  Marek did not like that lease, saying it was too long and complicated, and told her to draft another version. Mary then drafted a shorter lease with a one-year term, the possibility of renewal for another year, and a 90-day termination right for both Marek and Lehrer.  This lease was given to Lehrer at closing, but his attorney was not present due to a family emergency, so Lehrer refused to sign the lease until his attorney could review.  Because there was no agreed upon lease at closing, the parties signed a document that said the provisions in the Farm and Ranch Contract related to the lease would survive closing.   The land deal closed, and Lehrer provided Marek with the deed to the land and continued to graze his cattle on the property.

A few months later, Mary wrote another draft lease that had only a one-year term and allowed only  Marek to terminate the lease on 30 days notice.  Marek did not remember if he ever gave the lease to Lehrer, but it was not signed regardless.  In December, Marek presented Lehrer with another lease with one year term and the right for Marek only to terminate upon 7 days notice along with his payment for the following year.  Lehrer told Marek he would read the lease when he got the chance, but did not sign it.  Marek asked Lehrer to sign a receipt that listed the payment made by Marek that day, which Lehrer did.

When Marek presented what he said was a copy of that receipt to the jury, it contained two paragraphs about the grazing and hunting rights saying that if the parties did not enter into a lease, Lehrer would remove his cattle within 5 days notice from Marek.  Lehrer testified that that language was not on the receipt he signed.  Five days later, Marek called Lehrer’s attorney and said if the lease was not signed by 5:00 that day, he would remove all of Lehrer’s cattle the next day.  The attorney said that Lehrer would be happy to meet with Marek sometime in January to discuss the issue and was interested in cutting ties with Marek.  The attorney also explained that there was already  a written lease in place from what the parties signed at closing and that Marek had even accepted the lease money. Marek’s position was that there was no current lease in place until Lehrer signed an additional document.

A couple of weeks later, Marek locked Lehrer’s cattle up in a 4 acre turnip patch and, in the process of doing so, separated some baby calves from the cows and the calves died.  For several days, Lehrer had to climb over the fence in order to care for his cattle.  Lehrer removed the cattle from the property and took them to his ranch, which was already stocked with cattle, so he was forced to sell several cows.

Litigation Background

Lehrer sued Marek for breach of contract and for violating the Deceptive Trace Practices Act (DTPA) by committing deceptive and unconscionable acts.  Marek counterclaimed for breach of contract based on the alleged agreement from the receipt that Lehrer signed.  A jury trial was held, and the jury found in favor of Lehrer, awarding $2,695.41 in expenses, $45,982.85 in lost profits, and $50,000 in additional damages under the DTPA.  Marek appealed only the jury’s DTPA verdict and the award of lost profits.  He did not challenge the breach of contract verdict.

Appellate Court Opinion

The appellate court affirmed the trial court’s verdict.  [Read opinion here.]

The DPTA provides consumers with a cause of action for a false, misleading, or deceptive act relied upon by the consumer or for an unconscionable act.  A mere breach of contract, without more, does not constitute a DTPA violation.

False, misleading, or deceptive act

In order for Lehrer to recover under the DTPA’s false, misleading, or deceptive act standard in this case, he had to show that Marek “did not intend to perform the contract at the time the contract was made.”  The court found sufficient evidence to uphold the jury verdict that Marek did not intend to perform the agreement at closing to allow Lehrer to lease the property for five years.

In particular, the court relied upon the fact that Marek had never presented Lehrer a lease to sign containing a five year term, and that Marek had refused to sign the five year lease drafted by Lehrer, despite it being identical to the terms in the Farm and Ranch Contract.  Further, Marek testified that he did not think any lease had been entered into despite the signing of the document at closing, evidencing that he did not intend to comply with the contractual obligations that document did create.  Additionally, the court found intent not to comply by Marek because with each successive draft of lease he presented, he shortened the time frame on his right to cancel the lease.  The court reasoned that had Marek really wanted to get a lease signed, he would not have made the terms more onerous with each subsequent draft.

Unconscionable act

The court also found that Marek committed an unconscionable act under the DTPA.  An unconscionable act is “an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience or capacity of the consumer to an unfair degree.”  Lehrer argued, referring to the receipt, it was unconscionable for Marek to criminally alter a legal document and use it for grounds of eviction.  The court found sufficient evidence to uphold a jury verdict on this issue as well.

Lost Profits

Lastly, the court held that there was sufficient evidence to support the jury’s lost profit award of $45,982.85.  The jury calculated lost profits by relying on expert testimony that determined the value of calves Lehrer could have sold each year less expenses like lease and commission, times the five year lease term.  The court found there was sufficient evidence to support this verdict.

No appeal was filed.

Key Takeaways

Every agricultural lease agreement should be reduced to writing before the lease begins.  This is something we preach in our Ranchers Leasing Workshop events, and this case is a perfect example of why this is so important.  Had the parties waited to close until they had agreed upon a lease and signed it, this whole fiasco might have been avoided.  Additionally, this case is interesting because of the DTPA to a grazing lease–something that rarely (if ever) happens in Texas law, but that allows significant additional damages to be recovered by the successful plaintiff.

For more information on our Ranchers Leasing Workshops, click here.  For a copy of our Ranchers Agricultural Leasing Handbook, click here.

 

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