Legal Issues Confronted by Community Supported Agriculture Agreements

Mary “Molly” Barnett[1]

Introduction

Since their start in the 1980s, Community Supported Agriculture programs (CSAs) have gained tremendous popularity, with a 2007 USDA census survey identifying 1,250 in the United States and over 200 in Colorado.[2] CSAs offer fresh, local produce to customers or “members” who pay for a “share” of a local farm’s produce in the spring and receive weekly distributions of available vegetables throughout the season.[3] In this way, CSA members commit to purchasing produce from “their” farm and share in the risks and bounty of the farm.[4] By receiving capital at a crucial time of year, farmers are able to buy seeds and hire labor; farmers can also hedge against loss by planting a diversity of crops that CSA members prefer over one single item.[5] During good seasons, CSA members will share in a large variety of fresh vegetables, and during seasons in which growing conditions are less than favorable, CSA members only share in the produce that is available.[6]

While CSAs are gaining momentum, it is important that the basic legal instrument constituting the CSA agreement is valid. A written agreement protects both farmers and CSA members by creating a valid contract under the Uniform Commercial Code and by clearly defining what members are purchasing. Clarity is especially important to those new to the CSA concept and to those who may not initially understand the risks and benefits of their share. With many start-up farms on a shoestring budget, a valid CSA agreement, clearly written, can help reduce costs by avoiding the misunderstandings that lead to customer complaints or lawsuits.[7] After briefly discussing the impact of CSAs in today’s social and legal climate, this article sets forth a few important considerations in drafting a CSA agreement under Colorado law, including a written and signed agreement, a disclaimer of warranty, and a clear statement regarding ownership.

The CSA Movement

Community Supported Agriculture is a part of a larger social, environmental and economic movement towards sustainable food production and healthier food consumption. CSAs offer health benefits by selling seasonably fresh, nutritious foods that are typically grown without harmful pesticides or fertilizers.[8] By connecting farmers and CSA members, CSAs also offer community and educational opportunities to learn about sustainable agriculture, to share in the ups and downs of the growing season, to volunteer, and to convene for events at the farm.[9] CSAs sell “local foods” produced near their customers, decreasing the amount of gas used to transport foods and decreasing the amount of waste from storage and packaging.[10] In these ways, CSAs are more environmentally sustainable than mass farming operations.

Legislation is encouraging the growth of CSAs.[11] The federal Farmer to Consumer Direct Marketing Act, for example, supports CSAs and other agricultural entities selling produce directly to consumers.[12] The Act provides technical assistance and grants to promote direct marketing of local produce.[13] The Act also provides funding to states to further “initiate, encourage, develop, or coordinate methods of direct marketing from farmers to consumers within or among the States.”[14] Finally, a new amendment to the Act creates the Seniors Farmers’ Market Nutrition Program “to provide resources in the form of fresh, nutritious, …locally grown fruits, vegetables, honey and herbs from farmers’ markets…. and community supported agriculture programs to low-income seniors.”[15]    

Unlike the social and political forum, courts in this country have not extensively dealt with CSAs. One case from Iowa, however, is perhaps a harbinger of future cases. In Lang v. Linn County Board of Adjustment,[16] the dissent in an Iowa Court of Appeals case used the example of CSAs to challenge the very definition of agriculture. The majority in Lang upheld the Board of Adjustment’s denial of an agricultural zoning exemption for a small farm.[17] The dissent, however, criticized the Board’s definition of “agriculture” because it placed too much importance on the size of the farm:

Now that the conventional view of Iowa agriculture as the production of corn, soybeans, cattle, and hogs is being challenged by the emergence of Community Supported Agriculture involving smaller farms growing fruits, vegetables, and livestock, it is critical that county boards of adjustment do not employ a litmus test for the number of acres necessary to qualify for an agricultural exemption.[18]

The dissenting judge argued that a small, 6.5-acre farm may be “primarily adapted” for “agricultural purposes” and thus could qualify for the agricultural exemption, because the farm land, even though small, was primarily used to grow asparagus, trees, raspberries, blackberries, grapes and tomatoes.[19] Thus, CSAs are literally challenging the way we—as a legal system and a community—define agriculture. So, how do we define the CSA arrangement itself?

The Uniform Commercial Code and the Statute of Frauds

The Uniform Commercial Code (“UCC”) applies to sales of “goods,”[20] including crops that are not yet “severed”, or harvested.[21] Thus, the UCC provides the statutory framework for drafting CSA agreements because CSA agreements are sales of crops to be harvested throughout the season.

The statute of frauds in the UCC sets forth requirements for a valid sales contract for goods over five hundred dollars ($500). The statute of frauds in Colorado provides that “a contract for the sale of goods for the price of five hundred dollars or more is” invalid and “not enforceable by way of action or defense” unless two conditions are met: 1) “there is some writing sufficient to indicate that a contract for sale has been made,” and 2) the writing is “signed by the party against whom enforcement is sought.”[22]

While many CSAs offer “half shares” of produce for less than $500, most CSAs in Colorado offer “whole shares” costing over $500. Thus, the statute of frauds applies, and CSA agreements for shares costing over $500 must be in writing and signed. Practically-speaking, CSA farms and members will also want to get CSA agreements for “half shares” in writing and signed.

In addition to a signature, the written contract must also specify a quantity of goods to be sold.[23] It is challenging to identify a specific quantity of goods in a CSA agreement, however, because each season offers different quantities of crops, depending on environmental factors such as weather. This issue has not been tested in Colorado courts. Most CSAs, however, measure the quantity of crops sold in terms of a “share,” or a proportion of the total available harvest. The weekly harvest of crops is usually divided up and delivered in measurable containers, which may or may not be full. With this “share,” comes the inherent risk of loss, i.e. no crops, which is also a quantity or condition that should be specified in the contract. While a specific quantity may fluctuate, this author believes that carefully defining a “share” with the associated risk of loss is a sufficient description of quantity.[24] In this way, the agreement should still be valid within the confines of how a “share” is defined.

There are some exceptions to the statute of frauds. Notably, when a seller accepts a payment or a buyer accepts a good, this constitutes “partial performance” and the contract is valid to the extent of the accepted payment or good.[25] Thus, if a farmer accepts payment of a CSA share in the beginning of the season, there is still a contract obligating the farmer to provide produce, even though there is no written agreement. The details of the contract, however, are best memorialized in writing to avoid misunderstanding and conflict. Additionally, if a farm offers deferred payment as an incentive to join the CSA, a written contract signed by the CSA member is necessary to ensuring future payment.

The UCC governs a CSA agreement because it is a contract for the sale of goods. Further, the UCC’s statute of frauds applies to CSA agreements over $500. Thus, CSA agreements over $500 should be a written, signed agreement that carefully defines a CSA “share.”

Express and Implied Warranties

Often, farms will make some form of express warranty regarding the quality or freshness of their produce. Many farms, for instance, warrant that their agricultural practices are “organic,” which requires additional regulatory compliance to meet the definition of “organic.”[26] Any express warranties should be in writing to ensure complete understanding between a CSA farmer and member.[27]

Implied warranties in the UCC also deserve close scrutiny. The UCC provides that, in the absence of an express disclaimer, contracts for the sale of goods from a merchant seller (e.g. a farmer selling his/her produce) include, by default, the implied warranty of merchantability and the implied warranty of fitness for a particular purpose.[28] While implied warranties generally help to protect the consumer, in a clearly drafted CSA agreement defining the risks and benefits of a CSA share, implied warranties are not necessary to meet consumer expectations. Further, as explained below, implied warranties may even run counter to the concept of a CSA agreement. Thus, it is necessary to pay particular attention to implied warranties when drafting a CSA agreement.

As applied to CSA sales, the implied warranty of merchantability guarantees that the produce will be will be “fit” for consumption by the CSA member and be “of fair average quality.”[29] These are not high standards, but the produce from CSA farms may not be on par with other produce, in terms of cleanliness or a number of other factors. For example, the lack of pesticides may lead to a bug or two in the vegetables. This may be a novel experience for a consumer used to bug-free supermarket produce. While there are numerous health benefits to eating pesticide-free foods, it will take time for the market to adjust its expectations of food standards. Just as the definition of agriculture has a long way to go (see above), so too does the definition of “average quality produce.” Additionally, the quality of the CSA share as a whole may vary from season to season, depending on environmental conditions. An attorney should carefully draft CSA agreements to address or disclaim the implied warranty of merchantability because of the lack of an acceptable quality standard and the variable nature of CSA offerings.[30]

The implied warranty of fitness guarantees that produce will conform to the “particular purpose” for which the CSA member intends, if the CSA farm is aware of this particular purpose.[31] For example, a CSA member may buy a farm share so that she will have a bounty of organic zucchini to make her award-winning zucchini bread all summer long. If she communicates this particular purpose to the CSA farm, the CSA farm could be contractually liable to deliver zucchini. The availability of produce, however, varies greatly for every CSA and the CSA may not have a successful zucchini crop. To be safe and to clearly set expectations for both CSA farmer and member, it may be advisable to disclaim the implied warranty of fitness in a CSA agreement.[32]

Disclaiming or at least refining the implied warranties of merchantability and fitness is in keeping with the spirit of a CSA arrangement because the risks of not receiving a particular quality or quantity of produce should already be clear. And, in exchange for this added risk, CSA members gain educational, social and political opportunities by connecting with their farm through the ups and downs of a season.

“Memberships” and “Shareholders”

A CSA “member” or “shareholder” purchasing a “share” does not actually purchase an ownership or management stake in the CSA farm. A “share” is a quantity of available crops per season, not an ownership stake in the overall farming business. While these terms may be somewhat confusing, they are seen in most CSA agreements. Thus, to avoid an apparent authority situation where the CSA member could act on behalf of the farm and to avoid an unintended partnership between the CSA member and farm, it is wise to clarify that a CSA member does not purchase an ownership or management stake of the company.

Apparent authority (versus an express authority to act on behalf of the principal, or farm) “is [established by evidence of] written or spoken words or other conduct of the principal which, reasonably interpreted, causes a person to believe that the principal consents to have the act done on his behalf by a person purporting to act for him.”[33] Thus, words in a CSA agreement such as “member,” “share-holder,” and “sharing in the risks and benefits” could conceivably convey to a third party not familiar with the CSA concept that the CSA member has some ownership stake in the farm. The CSA member then may appear to have more authority than intended. While it is arguable whether this is a “reasonable interpretation” of a CSA agreement, to be safe, it would be prudent to clarify that no agency exists.

Similarly, a general partnership is created, with or without an express agreement, when there “is an association of two or more persons . . . [who] carry on, as co-owners, a business for profit . . . ”[34] It is possible that, based on the face of the CSA agreement alone, one could interpret a CSA “member” who receives a “share” of the CSA as a partner or part owner of the farm, carrying on as a communal farm business. A general partner under Colorado’s Uniform Partnership Code will then be able to act as an agent for the CSA farm, incur liability on behalf of the farm, and share in the farm’s profits and property.[35] Obviously, this is not the intent of the farm in entering into a CSA agreement and care should be taken to clarify that the agreement does not create a partnership or other business relationship conferring ownership or management rights.

The terms “shareholder,” “member,” and “share” typically seen in CSA agreements may confuse those not already familiar with CSAs. Often, these are legal terms expressing an agency relationship, ownership or management in a company; however, this is simply not the case in a CSA agreement, where the terms instead refer to a sales agreement. Thus, CSA agreements should clarify that memberships and shares do not create an agency or convey ownership or management rights.

Conclusion

With the advent of CSAs changing the culture of business and agriculture, CSA farms and members alike are wise to define the concept of a CSA through a valid contract. In Colorado, the UCC guides the drafting of a CSA agreement because crops are considered goods, even if they are not yet harvested. The statute of frauds provides that CSA agreements for over $500 must be in writing and signed to be valid. Implied warranties in the UCC should also be carefully considered, as a CSA farm may not be in a position to guarantee particular qualities or quantities of produce—at least beyond what Mother Nature can guarantee. Finally, care should be taken to clarify that a CSA member, unlike an LLC member or other business partner, does not own or manage the CSA by virtue of owning a “share.” These are a few issues to consider in drafting a CSA agreement that protects CSA farms and members.

 


[1] Mary Barnett ("Molly") owns her own private practice in Boulder, CO. Molly is devoted to representing small businesses and individuals in diverse practice areas, including employment law, contracts, business formation, mediation, Native American law and family law. For more information on the law firm of Mary E. Barnett, LLC, please visit http://www.mbarnettlaw.com. This article is for informational purposes only; it is not intended to be legal advice. Please consult an attorney of your choice for legal assistance.

[2] United States Department of Agriculture, 2007 Census of Agriculture: Table 44. Selected Practices.,

http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_2_US_State_Level/.

[3] Suzanne DeMuth, Excerpt from Community Supported Agriculture (CSA): An Annotated Bibliography and Resource Guide (1993), http://www.nal.usda.gov/afsic/pubs/csa/csadef.shtml.

[4] Id. See also Neil D. Hamilton, Tending the Seeds: The Emergence of a New Agriculture in the United States, 1 Drake J. Agric. L. 7, 15-16 (1996).

[5] Marne Coit, Jumping on the Next Bandwagon: An Overview of the Policy and Legal Aspects of the Local Food Movement, 4 J. Food L. & Pol’y 45, 59 (2008).

[6] DeMuth, supra note 3; Coit, supra note 5, at 59.

[7] See Derrick Braaten, Marne Coit, Legal Issues in Local Food Systems, 15 Drake J. Agric. L. 9, 16-17 (2010).

[8] See Jason J. Czarnezki, Food, Law & the Environment: Informational and Structural Changes for a Sustainable Food System, 31 Utah Envtl. L. Rev. 263, 267-268 (2011); Coit, supra note 5, at 50-51; Michael Pollan, The Omnivore’s Dilemma: A Natural History of Four Meals (2006).

[9] Coit, supra note 5, at 48-50; Czarnezki, supra note 8 at 8-10.

[10] Coit, supra note 5, at 51-54.

[11] There are many new laws and federal/state grant money which support or recognize CSAs. See Coit, supra note 5, at 63-65; but see Czarnezki, supra note 8, at 289 (there is still much to be done to support sustainable agriculture in this country: “Progress has been made at both the federal and state levels to find financial and technological avenues to increase producer and consumer access to these programs [including CSAs]. Moving forward, structural change must include better food system planning, increased government support for local food and regional economies, and improved management of alternative agricultural distribution and production systems.”).

[12] 7 U.S.C. § 3001 to § 3002 (1976); Coit, supra note 5 at 63.

[13] 7 U.S.C. § 3004 (2002) to § 3005 (2008).

[14] Id. § 3004 (2002).

[15] Id. § 3007 (2008).

[16] 2012 WL 1438986 (Iowa Ct. App. 2012).

[17] Id. at *7.

[18] Id. at *8 (Tabor, J, dissenting).

[19] Id.

[20] Colo. Rev. Stat. § 4-2-102(1) (2002).

[21] Id. §§ 4-2-105(1) to 107(2).

[22] Id. § 4-2-201(1).

[23] Id. and Official Comment 1.

[24] See id. § 4-2-303. Even if the amount of produce fluctuates, the CSA may still have an obligation of good faith in selling CSA shares. See Colo. Rev. Stat. § 4-2-306 (2002).

[25] Id. § 4-2-201(3)(c) and Official Comment 2.

[26] Kate L. Harrison, Organic Plus: Regulating Beyond the Current Organic Standards, 25 Pace Envtl. L. Rev. 211, 219-221 (2008).

[27] Also take heed of the Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-105 (2010).

[28] Colo. Rev. Stat. §§ 4-2-314 to 316 (2002).

[29] Colo. Rev. Stat. § 4-2-314 (2002).

[30] Of course, any food sold needs to be safe for consumption. See Gonzales v. Safeway Stores, Inc., 363 P.2d 667, 669 (Colo. 1961). Federal and state laws may regulate CSA farms for safety, but other quality issues could be subject to debate and, therefore, may necessitate a waiver of the implied warranty for merchantability; see Colo. Rev. Stat. § 4-2-316 (2002).

[31] Colo. Rev. Stat. § 4-2-315 (2002).

[32] Id. § 4-2-314.

[33] In re Marriage of Robbins, 8 P.3d 625, 628 (Colo. App. 2000) (quoting Lucero v. Goldberger, 804 P.2d 206, 209 (Colo. App. 1990)).

[34] Colo. Rev. Stat. § 7-60-106(1) (2002).

[35] Id. §§ 7-60-108 to 126.