IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 93,556
In the Matter of the Estate of DAVID E. SAUDER, Deceased.
SYLLABUS BY THE COURT
1. The questions of whether written or oral farm leases continue after the death of the lessee and whether a contract is a personal services contract that terminates on the death of the lessee are questions of law subject to de novo review by this court.
2. Construction of a written agricultural lease is a question of law subject to de novo review by this court.
3. Pursuant to K.S.A. 58-2506(d), a farm tenant becomes a tenant from year to year by occupying the premises after the expiration of the term in a written lease. Year-to-year tenancies following a holdover from a written lease are generally extended or renewed on the same terms as the original lease.
4. One who leases farm property and performs customary tillage practices, plants crops, or applies fertilizers, herbicides, or pest control is occupying and cultivating the leased premises within the meaning of K.S.A. 58-2506 and K.S.A. 58-2506a, which require a statutory notice to quit in order to terminate a farm lease.
5. Under K.S.A. 58-2519, a lease, including an agricultural sharecrop lease, continues in effect upon the death of the tenant unless the parties have contracted otherwise, and the executor or administrator of the lessee's estate has the fiduciary obligation to see that the lessee's obligations are met.
6. When courts are called upon to interpret a written instrument, the primary rule is to ascertain the intent of the parties. As a general rule, if the language of the written instrument is clear, there is no room for rules of construction. Courts must ascertain the meaning of a written agreement by considering all pertinent provisions and not by the critical analysis of a single or isolated provision.
7. When parties to a sharecrop farm lease agree that the terms of the contract shall apply to and be binding upon the heirs, successors, executors, and administrators of the parties, they express an intent that the contract is not a personal services contract that terminates on the death of one of the parties.
8. An agreement by the parties of a sharecrop farm lease that allows the landlord to reenter the premises or terminate the lease and relet it if the tenant fails to perform any covenant is enforceable, and the landlord may exercise those rights.
9. Generally, if a tenant abandons, surrenders, or repudiates a lease, the landlord has an obligation to mitigate damages, including reletting the premises.
10. While K.S.A. 58-2506 and K.S.A. 58-2506a prescribe the method for terminating an oral farm lease while the tenant is occupying and cultivating the property and thereby provide some protection to the tenant, the provisions do not force the landlord to suffer a loss of income when the tenant does not occupy and cultivate the land. The failure to timely plant crops in keeping with customary farm practices means that the tenant is no longer occupying and cultivating the premises pursuant to the oral lease and a statutory notice to quit is unnecessary.
11. Oral farm leases consist of a landlord's promise to furnish land, and a tenant's promise to furnish care, skill, and labor. The contract is executory, and the contractual provisions are mutually dependent. A tenant is not in control of the land to use it at the tenant's pleasure. The tenant is bound to plant, care for, and harvest crops from which proceeds will be obtained and divided. A failure to plant crops would defeat the essence of a farm lease justifying a landlord's recision of the lease.
12. An appellate court reviews the district court's findings of fact to determine if the findings are supported by substantial competent evidence and whether the findings are sufficient to support the district court's conclusions of law. Substantial evidence is such legal and relevant evidence as a reasonable person might accept as sufficient to support a conclusion.
13. Where a district court renders a correct judgment under the facts and the law, the judgment will not be disturbed merely because an appellate court relies upon a different rationale.
14. The theory of unjust enrichment rests upon three elements: (1) a benefit conferred; (2) an appreciation or knowledge of the benefit by the one receiving the benefit; and (3) the acceptance or retention of the benefit under such circumstances as to make it inequitable to retain the benefit without payment of its value.
Review of the judgment of the Court of Appeals in an unpublished opinion filed December 16, 2005. Appeal from Coffey district court; PHILLIP M. FROMME, judge. Judgment of the Court of Appeals affirming in part, reversing in part, and remanding with directions is affirmed in part and reversed in part. Judgment of the district court is affirmed in part, reversed in part, and remanded with directions. Opinion filed April 27, 2007.
Bryan K. Joy, of Joy Law Office, P.A., of Burlington, argued the cause and was on the brief for appellants/cross-appellees Michelle Thompson and Alexandria Cox, coadministrators.
Stephen J. Smith of Coombs, Hull & Smith, L.L.C., of Burlington, argued the cause and was on the brief for appellees/cross-appellants Gene Sauder and Spencer West.
The opinion of the court was delivered by
LUCKERT, J.: The coadministrators of the Estate of David E. Sauder (Estate) seek a determination of the effect of the decedent's written and oral sharecrop farm leases upon the ownership of crops that the decedent had planted as a sharecrop tenant but had not harvested at the time of his death and of crops planted, grown, and harvested after his death on property which the decedent had prepared for planting. The coadministrators contend that several oral leases and one written lease under which David farmed the property of others did not terminate upon David's death, entitling the Estate to ownership of the tenant's share of all crops on the property. Gene Sauder, one of the landlords who was also David's father, and Spencer West, the person who harvested the growing crops and planted new crops on the leased properties, contend farm leases, whether written or oral, are personal service contracts that do not survive the death of the tenant. Alternatively, they contend the common law relating to termination of commercial leases, general contract law, and equity do not allow the Estate's claim to the crops.
Facts
On January 1, 1999, David executed a written "Farm Lease Agreement" in which he obtained the right to occupy property owned by Gene in exchange for rental payments in the amount of one-half of all harvested crops. David and Gene agreed to each pay one-half the expenses for fertilizer and chemicals. As conditions of the lease, David agreed to "cultivate, fertilize and manage the farm in a husbandlike manner" and to "insure that all crops are cut, threshed, combined, or husked, and otherwise properly cared for at all times." The lease also provided that David would lease farm equipment from Gene and make an annual payment in addition to the crop sharing payments. The lease was for 12 months ending December 31, 1999.
Although the written lease was not renewed, David was still farming his father's land when he died intestate on March 30, 2004. At the time of his death, David had approximately 200 acres of winter wheat growing on Gene's land, and David was preparing other acreage for corn and beans. Within a week of his death and before estate administrators had been appointed, Gene and Spencer – Gene's grandson and David's nephew – planted corn on 302 acres that had been subject to the 1999 written lease.
At the time of his death, David also farmed approximately 460 acres under oral leases with several other landlords. Under these agreements, David was to receive two-thirds of the crops and the landlords one-third. David had not planted any crops on the property subject to the oral leases. However, the previous fall, David had worked the land and applied fertilizer. Within a short time of David's death and before estate administrators were appointed, Gene negotiated with these landlords to have Spencer lease these properties. Spencer borrowed money for seed and planted corn on the properties subject to the oral leases.
On April 30, 2004, David's ex-wife, Michelle Thompson, and his daughter, Alexandria Cox, were appointed coadministrators of the Estate. On May 28 and July 6, 2004, Cox signed United States Department of Agriculture (USDA) contracts which listed Spencer as an owner or operator of the leased premises.
After borrowing money, Spencer planted soybeans on the balance of the acreage David had leased from Gene and the other landlords. The beans were planted during May, June, and July, with the last planted on July 13, 2004.
Gene and Spencer also harvested the winter wheat growing on Gene's property. They delivered one-half of the crop for the benefit of the Estate and made a claim against the Estate for the custom harvesting expenses. The Estate did not object to the claim for custom harvesting or the splitting of the proceeds from the wheat.
On July 15, 2004, the coadministrators informed Gene and Spencer that the Estate was also claiming the corn and bean crops. Prior to this date, the coadministrators had neither authorized nor prohibited Gene and Spencer from farming David's leaseholds. Evidence indicates that the coadministrators were aware Spencer was farming the property. Specifically, there was evidence that Cox worked at the bank from which Spencer borrowed money to buy seed for the land, signed the USDA forms necessary for the crops to be farmed, and knew of the plans for harvesting the wheat and planting crops.
In an apparent response to the Estate's assertion of a right to proceeds from the corn and bean crops, Gene filed a petition in the estate proceedings. He requested that the district court "construe what farm lease rights, if any, the Estate of David E. Sauder, deceased, may possess and claim against the 2004 corn and bean crops planted by Petitioner and his assigns . . . ." Spencer joined him on the trial brief in which they requested a determination that the leases terminated upon David's death. (The landowners are not parties; rather, the issues involved in this appeal arise because Gene and Spencer object to the Estate's claim to the tenant's share of proceeds under these sharecrop farm leases).
The district court entered judgment against the Estate on Gene's petition, concluding that the Estate could not enforce the farm leases for three reasons:
"First, the agricultural leases are personal services contracts which terminate on the death of the tenant. Second, the Estate failed to obtain approval from the probate court to continue the farming lease under K.S.A. 59-1402; and so the Estate lacks authority to enforce the leases. Third, the Estate failed to act under circumstances which resulted in injury to Spencer West and the Estate is prevented from benefitting under the equitable doctrine of laches."
The Estate appealed, challenging each of these findings.
In its unanimous per curiam opinion, a Court of Appeals panel held that the district court erred in concluding the written lease terminated at David's death. In re Estate of Sauder, No. 93,556, unpublished opinion filed December 16, 2005. The panel relied upon a disclaimer which stated that "[t]his lease is not intended nor shall it be construed to be an employment contract" to conclude the parties did not intend that the contract be one for personal services. The panel further concluded that "it is well established that upon the death of a lessee, the personal representative assumes the rights and obligations of the decedent by operation of law." Consequently, the panel held the written agreement was enforceable by the Estate. Sauder, slip op. at 6.
Nevertheless, in discussing the oral leases, the Court of Appeals noted that there was policy support in Kansas for the principle that "agricultural leases are personal in nature" and further agreed that the principle had "received general acceptance" as the "majority rule." Sauder, slip op. at 8. However, the court ultimately did not opine whether these oral farm leases were personal services contracts that terminated on David's death. The Court of Appeals instead determined that David's interest, "if any," in the oral leases terminated either at the end of the lease term in February or at his death, and, therefore, the Estate had no interest in crops growing on third-party land; the crops were subject to the renegotiated oral leases. Sauder, slip op. at 9.
The Court of Appeals also held that the district court erred in concluding that court approval under K.S.A. 59-1402 was a necessary condition precedent to the Estate's authority to conduct farming operations under the leases. That statute requires the probate court's authority for the personal representative to operate any business of a decedent. K.S.A. 59-1402. The Court of Appeals determined that K.S.A. 59-1402 had no application to the leasehold interests of a decedent. Sauder, slip op. at 10-11. The parties did not seek review of this portion of the decision and, therefore, this issue is not before this court.
Finally, the Court of Appeals affirmed the district court's application of laches as to the soybean crop planted after the coadministrators of the Estate had been appointed; it agreed that the Estate was barred from any claims to that crop because substantial evidence supported the district court's finding that the Estate "sat back and watched the [crops] grow." Sauder, slip op. at 13. However, as to the corn crop planted on Gene's property, the Court of Appeals reversed the district court's application of laches because the corn was planted "well in advance of the appointment of the coadministrators. Under the circumstances presented, it was unreasonable to expect action well in advance of appointment in order to protect the interests of the Estate." Sauder, slip op. at 13-14. Consistent with this determination, the Court of Appeals remanded the case to the district court to determine the extent of the Estate's interest in the corn crop, offset by reasonable costs and the value of services provided by Gene and Spencer. Sauder, slip op. at 14-15.
The Estate petitions for review of the Court of Appeals' rulings that the oral leases were personal services contracts that terminated on David's death and that laches barred the Estate's claim against the soybean crop planted on Gene's land.
On cross-petition, Gene and Spencer seeks review of the Court of Appeals' decision that the written lease between Gene and David did not terminate with David's death. They also argue that if the doctrine of laches applies, it should have been applied to bar the Estate's claim against the corn crop. Finally, they seek clarification of the Court of Appeals' opinion on the issue of whether the oral leases were personal services contracts that terminated on David's death.
This court granted review, pursuant to K.S.A. 2006 Supp. 22-3602(e) and K.S.A. 20-3018(b).
Analysis
I. Did the Contracts Terminate Upon David's Death?
A. Standard of Review.
The questions of whether written or oral farm leases continue after the death of the lessee and whether a contract is a personal services contract that terminates on the death of the lessee are questions of law, as is the construction of the written agricultural lease at issue here. As such, the district court's determinations of these issues are subject to de novo review by this court. See Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001).
B. Holdover Status.
A threshold question is whether there were valid leases through which the Estate can claim a right to farm the various properties. In proceedings before the district court, the parties did not dispute that there were leases in effect at the time of David's death; thus, the district court did not discuss whether the leases were valid. However, the Court of Appeals panel did discuss the issue, and the analysis was critical to the panel's treatment of the leases, especially the oral leases. Therefore, we begin our review with the question of whether valid leases were in force at the time of David's death.
Regarding the written lease, the panel wrote:
"Although the district court did not address the continued vitality of the 1999 written lease agreement during 2004, it is apparent that David had occupied the premises on a continuous basis since 1999 and that in the absence of timely written notice of termination, he became a tenant from year to year after expiration of the fixed term by operation of law." Sauder, slip op. at 5.
The parties do not dispute this conclusion. Indeed, K.S.A. 58-2506(d) provides a farm tenant "becomes a tenant from year-to-year by occupying the premises after the expiration of the term in a written lease." Additionally, year-to-year tenancies following a holdover from a written lease are generally extended or renewed on the same terms as the original lease. See Kearns v. Clark, 159 Kan. 353, 355, 154 P.2d 479 (1945). Hence, the lease between David and Gene was in effect on the date of David's death on the same terms and conditions as in the original contract.
The panel reached a different conclusion regarding the oral leases, however, deciding that the leases terminated in February before David's death. The panel applied the provisions of K.S.A. 58-2506(a), which provides in part:
"Except as may be otherwise provided by this section or by a written lease signed by the parties thereto, in cases of tenants occupying and cultivating farms or occupying or leasing pastureland, the notice to terminate such a farm or pastureland tenancy must be given in writing at least 30 days prior to March 1 and must fix the termination of the tenancy to take place on March 1."
The Estate argues that because no notice of termination was given by either party, the oral leases were continued beginning March 1 and were in effect on March 30, the date of David's death. The panel questioned the "direct applicability of this statute" because "[n]either party contends that David was 'occupying' the leased premises pursuant to these oral leases at the time of his death or at anytime within 30 days of March 1." Sauder, slip op. at 7. After additional discussion of the nature of personal contracts and cases from other jurisdictions, the panel held:
"Based upon the unique facts of this case, including no apparent 'occupying' by the tenant during the statutory period for notice of termination and the renegotiations of leases by lessors who desired to provide for continued farming operations on their lands, we hold that David's interests, if any, in the oral agricultural leases, either terminated at the end of the lease term in February or upon his March 2004 death." Sauder, slip op. at 9.
Contrary to the panel's conclusion, the record reflects that both parties acknowledged that David was occupying the property at the time of his death. The Estate's case is premised upon occupation and continuation of the leases, and Gene testified that David was farming all the property at issue. Additionally, there was evidence that David had prepared the ground for corn and beans and applied dry fertilizer in the fall of 2003. The panel did not discuss this evidence, nor did it explain its construction of the phrase "occupying and cultivating."
The phrase "occupying and cultivating" is not defined in the statute. However, guidance as to the intended meaning of the phrase is provided through two other statutory provisions relating to the timing and effect of notices of termination. We must construe these provisions along with K.S.A. 58-2506 to determine the legislature's intent. See Pieren-Abbott v. Kansas Dept. of Revenue, 279 Kan. 83, 89, 106 P.3d 492 (2005) (several provisions of an act in pari materia must be construed together when determining legislative intent and reconciling provisions). First, K.S.A. 58-2506(b) provides that the termination date of leases will be extended to August 1 if a fall seeded grain crop "has been prepared in conformance with normal practices in the area." Second, pursuant to K.S.A. 58-2506a, if a landlord gives notice of termination of a lease, a tenant who "has performed customary tillage practices or has applied or furnished fertilizers, herbicides or pest control substances" but not planted crops is entitled to payment for the "fair and reasonable value of the services furnished and the fertilizers, herbicides or pest control substances furnished."
Thus, these provisions vest tenants with certain rights if a tenant performs one or more of the listed tasks. From these provisions, we discern a legislative intent that one who leases farm property and performs customary tillage practices, plants crops, or applies fertilizers, herbicides, or pest control is occupying and cultivating the leased premises within the meaning of the notice requirements of K.S.A. 58-2506 and K.S.A. 58-2506a. Because David had worked and applied fertilizer to the property that was subject to the oral leases, David was occupying and cultivating the property. Consequently, the leases were in effect at the time of David's death because no notice of termination was provided by any landlord or David before March 1, 2004.
C. Are the Oral Leases Personal Services Contracts?
Alternatively, the panel concluded the oral contracts terminated on the date of David's death. Sauder, slip op. at 7-9. The rationale for this conclusion appears to be that the contracts were personal in nature. The Estate, on review, asks us to reverse this conclusion.
The question of whether a sharecrop farm lease is a personal services contract is a matter of first impression in Kansas. The issue was discussed but not decided in Jinnings v. Amend, 101 Kan. 130, 132, 165 Pac. 845 (1917). In Jinnings, a sharecropping tenant had broken sod on 500 acres and plowed 400 acres of cultivated land but had not sowed a crop when he was arrested and placed in jail. Within a few days of the tenant's arrest, the landlords took possession of the property and would not return it to the tenant when he was paroled. The tenant argued that the parties' written agreement did not contain an express provision regarding termination of the tenancy and, as a result, the lease did not expire until the end of the 3-year lease term. He sought to characterize the lease as a standard property agreement. The landlords argued that the "croppers" agreement for sharing proceeds from crops and for receipts for pasturing cattle meant that the agreement was one for personal services. The court's opinion included language suggesting the contract was a personal services contract, stating: "His personal services were engaged; his skill as a farmer was involved; he had no power of substitution or subletting." 101 Kan. at 132. However, ultimately, the court declined to answer the question of whether the contract was one for personal services, concluding: "We do not consider it necessary to decide what expression most fitly describes the relationship into which the parties entered." 101 Kan. at 132.
The parties have cited no other Kansas cases addressing the question directly. However, several basic principles guide our consideration of the issue. Generally, "'the obligations of a lessee under the contract [pass] on his death to his personal representative who assumes in his fiduciary capacity the performance of the contract in the same manner that its performances could have been demanded of the lessee.' [Citation omitted]." Olson v. Frazer, 154 Kan. 310, 312, 118 P.2d 505 (1941).
However, where the existence of a particular person is necessary for the performance of a contractual duty, the death of that person, or his or her loss of capacity to perform the duty, discharges the obligor's duty to perform. See Restatement (Second) of Contracts § 262 (1979). Generally referred to as personal services contracts, these contracts are not assignable, do not survive without the consent of both parties, and terminate automatically upon the death of the party performing the unique service. See 1 Friedman on Leases § 2:1.7 (5th ed. 2004); 29 Williston on Contracts § 74:27 (4th ed. 2003); 30 Williston on Contracts § 77:72 (4th ed. 2004).
The rationale for considering sharecrop farm lease agreements to be personal services contracts was explained in Ames v. Sayler, 267 Ill. App. 3d 672, 642 N.E.2d 1340 (1994). In the case, the estate of a deceased farm tenant sought a determination that it could continue to farm the landowners' land under the terms of decedent's oral lease, and the landowners filed a counterclaim. The Illinois appellate court recognized the common-law rule that a farm lease is a personal services contract that terminates on the tenant's death, stating that
"a farm tenancy is an estate in land, but it is more than that. A farm tenant not only has possession of land, he is expected to perform services which require skill and judgment. A farm landlord usually does not view tenants as interchangeable, and usually chooses to lease his farm only to those in whom he has particular confidence. No satisfactory reason appears why a farm owner should be forced to accept a substitute, if the farm owner can be said to have entered into a 'tenancy,' but not if what is basically the same relationship is labeled a personal services contract. Farm tenancies and personal services contracts are not mutually exclusive categories. Farm tenancies in fact are more readily viewed as personal services contracts than are employee or custom hire relationships. A farm owner places more trust in a tenant than he does in an employee or a custom hire operator. The question in this case should be answered by determining whether the contract between the farm owner and the worker is a personal services contract." 267 Ill. App. 3d at 675-76.
See In re Estate of Long, 311 Ill. App. 3d 959, 964, 726 N.E.2d 187 (2000).
Other states have reached the same result upon similar rationales. E.g., Crump v. Tolbert, 210 Ark. 920, 924, 198 S.W.2d 518 (1946) (lease of land on shares, including use of buildings, farm implements, stock, and other personal property is personal contract because "the amount to be received by the lessor and the care of the property depend on the character, industry, and skill of the lessee"); Randall v. Chubb, 46 Mich. 311, 312, 9 N.W. 429 (1881) (farm lease is personal services contract because "[t]he rent or share which the [lessor] would receive, must depend very much upon the character of the lessee"); Greeson v. Byrd, 54 N.C. App. 681, 682, 284 S.E.2d 195 (1981) ("A farm lease [sharecropping] agreement is personal in nature and thus non-assignable without the landlord's consent since the landlord's receipts under the contract are directly related to the lessee's skill and industry."); Tipton v. Martzell, 21 Wash. 273, 276, 57 Pac. 806 (1899) ("[T]he landlord depends on the character and skill of the lessee, and [a contract of this nature] would seem to be personal and not assignable."); see 9 Corbin on Contracts § 865 (Interim ed. 2002). At least one jurisdiction has held that farm leases are not personal services contracts. Walker's Estate, 6 Pa. C.C. 515 (1889). However, the majority of jurisdictions have noted that considerable skill and judgment are required in farming and a landlord's confidence in the lessee is personal and not assignable, transferable, or inheritable.
In response to this line of authority, the Estate argues, in part, that it does not matter what common-law doctrines apply because the Kansas Legislature has prescribed the time and method for farm lease terminations through K.S.A. 58-2506, requiring that "the notice to terminate . . . must be given in writing at least 30 days prior to March 1 and must fix the termination of the tenancy to take place on March 1."
In support of its argument, the Estate cites Read v. Estate of Mincks, 176 N.W.2d 192 (Iowa 1970). In Reed, the Iowa Supreme Court concluded that the common-law rule that a share crop farm lease was ordinarily regarded as a personal services contract, which does not survive the lessee's death, was "materially restricted" by an Iowa statute that required several month's written notice to terminate a farm tenancy. 176 N.W.2d at 193.
However, the Illinois court in Ames reached the opposite conclusion. Considering a similar statute that required 4 months' notice of termination before March 1, the Illinois appellate court in Ames determined the statute did not apply when there was a death, stating:
"In any event we reject the view that the question presented in this case is answered (or even addressed) by the four-month statute, or by considering whether plaintiff was a tenant. The four-month statute deals with termination at the end of the year, not termination upon the death of one of the parties." 267 Ill. App. 3d at 675.
The court then engaged in a lengthy analysis of the nature of personal services required, but at the conclusion of that discussion again noted:
"We do not question there was a landlord-tenant relationship in this case and that the four-month notice statute would apply in the event an attempt had been made to terminate this lease at the end of the year. As we have explained above, however, that is not relevant on this appeal. What is important is whether the parties entered into this contract upon the understanding that it would be performed by decedent and no others. The trial court made that finding, that this contract was a personal services contract, and that finding is supported by the evidence." 267 Ill. App. 3d at 677.
The Estate argues that the Ames court's analysis cannot be applied in Kansas because of another statute, K.S.A. 58-2519, which states: "Executors and administrators shall have the same remedies to recover rents, and be subject to the same liabilities to pay them, as their testators and intestates." Without citing to K.S.A. 58-2519 as authority, this court applied the general rule of this provision to the lease of a business building. The Olson court determined that upon a lessee's death, the lessee's obligations pass to his or her p