Summary of a Recent
Judicial Development in
Finance and Credit

Oral Lease Agreement for Farm
Properties Enforced

Eugenio A. Lomba
National AgLaw Center Graduate Assistant

The Oregon Court of Appeals has ruled that an oral lease agreement made between cotenants of certain farm properties was valid and enforceable. Aylett v. Aylett, 60 P.3d 1114, 1115-18 (Or.Ct. App. 2003). The court ruled that acts of part performance on the part of two of the cotenants were exclusively referable to the parties' oral agreement, and therefore the oral agreement fell outside the scope of the statute of frauds. See id. at 1118.

Jedediah Aylett and the estate of his deceased wife, Juanita Aylett, plaintiffs, sought a declaratory judgment that no lease agreement existed between them and Earl and Deborah Aylett, defendants, for certain farm properties. See id. at 565 n.1. Earl Aylett is the son of Jedediah and Juanita Aylett, and Deborah Aylett is Earl's wife. See id.

The parties owned certain farm land as tenants in common. See id. at 565. In 1993, the parties leased the farmland to Mike Allison for five years for $150.00 per-acre per year. See id. The parties divided the rent payments equally. See id. In 1996, Mr. Allison informed the parties, in accordance to the terms of the lease, that he would no longer farm certain portions of the property. See id. at 566. Earl Aylett subsequently expressed an interest in farming the portion of land that Allison would no longer farm. See id. He also expressed an interest in farming the entire property after Allison's lease expired. See id.

In late 1996 or early 1997, Jedediah and Earl orally agreed that Earl would farm the portion of land that Allison was no longer farming. See id. They also orally agreed that the Earl would farm for five years all of the farm property once Allison's lease expired. See id. In addition, they agreed that Jedediah and Juanita, "as co-owners of the property would receive $75 per-acre, per-year in rent, for all crops, except for potato crops, which were to be negotiated separately." Id.

The parties were also involved with land that they leased land from the United States government and subleased to Allison "under an oral lease with substantially the same terms as the lease on the Aylett property." Id. When the parties' lease for the government property expired, Earl signed a lease agreement for the government property. See id. The parties orally agreed that they intended to be co-lessees with respect to the government property, even though Earl was the only individual that signed the new lease. See id. Under this agreement, Earl and Deborah paid rent to Jedediah and Juanita on the same terms as had Allison. See id.

In 1997, Earl informed Allison that he intended to farm the entire property when Allison's lease terminated. See id. After Allison's lease ended, "Earl began farming the property and obtained more financing from the bank for his operation on the Aylett property." Id. He also signed "a three-year contract to produce grass seed in September 1997 and subsequently planted grass seed on the property." Id. Earl and Deborah also invested $10,000.00 to improve the property's irrigation system. See id. at 567. Earl began farming the property leased from the government as well. See id.

In 1998, after the parties made several failed attempts to enter into a written agreement to memorialize their oral agreements, the plaintiffs filed an action seeking a declaratory judgment "that there was no lease between the parties and a judgment for a reasonable rental value of the Aylett property . . . ." Id. They also sought relief for breach of contract and for quantum meruit with respect to the government property. See id. The plaintiffs filed a motion for partial summary judgment, arguing that "although the court could 'look at evidence of 'part performance' or 'reliance' to take the [parties'] oral agreement out of the scope of the statute of frauds,'" the defendants first had to "'prove the oral agreement clearly and unequivocally by the preponderance of the evidence,' a burden that plaintiffs contended defendants could not meet as a matter of law." Id. The defendants agreed that part performance or reliance "could take the agreement out of the statute of frauds and that the oral agreement must be proved clearly and unequivocally by a preponderance of the evidence." Id. The trial court denied plaintiffs' motion for partial summary judgment and the case went to trial. See id.

The trial court ruled in favor of defendants, concluding that "the terms of the oral agreement are proven clear and unequivocally by a preponderance of the evidence" and that "taking the facts as a whole . . . there was a valid oral agreement between the parties." Id. The trial court also determined that the parties' agreement was "fair and reasonable." Id. The plaintiffs appealed the trial court's decision to the Oregon Court of Appeals. See id.

The plaintiffs argued that "the doctrine of part of performance cannot take the lease out of the scope of . . . [the statute of frauds] because the defendants' acts were not exclusively referable to the lease." Id. The plaintiffs asserted that the conduct of the defendant on the properties was not "exclusively referable to the contract because the parties are cotenants." Id. The plaintiffs reasoned that "'[a]s a cotenant Earl had the right to farm the land, although he was required to pay his [cotenant] the rental value of the latter's interest.'" Id.

The appeals court noted that the plaintiffs relied on the principle that for possession to be exclusively referable to a lease, "'it must be such a possession that an outsider, knowing all the circumstances attending it, save only the one fact, the alleged contract, would naturally and reasonably infer that some contract existed relating to the land of same general nature as the contract alleged.'" Id. (citation omitted). The court added that

[I]n other words, where a cotenant claims that a contract for the transfer of land is taken out of the scope of the statute of frauds by part performance due to possession of jointly owned land, "there must be such a change of relation between the parties as would challenge the attention of anyone seeing the change and would indicate that some contract had been made."

Id. at 1117-18 (citation omitted).

After a de novo review of the claims, the appeals court determined that the defendants' conduct "cannot be reasonably accounted for in the absence of a lease between the parties." Id. at 1118. The court noted that "[t]he parties were not on good terms with one another, and the history of their dealings shows that they always had leased the properties to third parties. However, at the end of the Allison lease, the parties did not attempt to find a third party to lease the properties. " Id.

The court concluded that

[A]n impartial observer, knowing all of the surrounding circumstances, including the past conduct of the parties and their strained relationship, would have concluded that there was a different relationship from the absent-owner cotenancy relationship that had existed previously. Because defendants' use of the properties cannot reasonably be explained without a change in the relationship between the parties, we conclude that defendants' acts of part performance are exclusively and unequivocally referable to the oral lease agreement. For those reasons, the trial court did not err in enforcing the oral lease between the parties.

Id.

The case was decided on January 8, 2003; this summary was posted April, 2003