WASHINGTON, D.C. — The Iowa Supreme Court has upheld an arbitration decision by the National Grain and Feed Assoc. (NGFA), validating the common trade practice of confirming oral agreements with signed written grain contracts.

“The NGFA arbitration system has been in operation for more than 100 years,” said Charlie Delacruz, NGFA vice president and general counsel. “This decision reinforces our history of providing a fair and effective way to resolve disputes involving grain and feed transactions.”

Over the last several years, the NGFA has resolved thousands of disputes through arbitration decisions, which when challenged in court have been continually upheld, he explained.

The ruling stems from the case Bartlett Grain Co. v. Steven Sheeder, which focused on whether an enforceable agreement to arbitrate was valid if two parties agreed over the phone to a sale of grain. But it was later decided an agreement with a signed, written document containing an arbitration clause wasn’t part of the phone conversation.

The Iowa Supreme Court ruled because the parties signed final, written confirmations, which contained the arbitration clauses, those documents constituted valid agreements to arbitrate – reversing an Iowa district court’s decision with directions to confirm the arbitration award in favor of the grain seller.

In 2010, Bartlett Grain Co. of Kansas City, Mo., entered into eight oral agreements with Sheeder of Red Oak, Iowa, over the telephone for the sale of 155,000 bushels of corn to be delivered at various future dates. After each telephone conversation, Bartlett sent Sheeder written confirmation of the resulting agreement that both parties had signed.

“The confirmations were similar in terms with the exception of price, quantity and delivery dates,” said Erika Eckley, staff attorney at Iowa State University’s Center for the Agricultural Law and Taxation. “Each document, however, contained a clause that stated that telephone conversations were binding and that the written contracts were sent to ensure that the terms of the agreement could be confirmed and recorded.”

Eckley said the clause also stated if anything in the contract was inaccurate, Sheeder had to notify Bartlett Grain to correct the error.

“There was an additional paragraph within the agreement that notified the defendant that failure to advise the plaintiff of any discrepancies or objections to the terms of the agreement indicated an acceptance of the terms,” she added.

The court said the purchase confirmations referred to the “legally binding” nature of these agreements and Sheeder’s right to object to or disagree with any of the terms provided. The purchase confirmations further provided that they were subject to NGFA trade rules, and that any disputes arising out of the agreements were to be resolved through NGFA arbitration.

In April 2011, based upon “reasonable grounds for insecurity” on whether Sheeder was likely to fulfill the contracts, Bartlett requested “adequate assurances of performance” from Sheeder, which Sheeder failed to provide. Bartlett then filed an arbitration complaint with the NGFA against Sheeder.

In October 2011, after Sheeder failed to reply to various notifications from the NGFA to initiate the arbitration process, the NGFA entered a default judgment for Bartlett.

In November, Bartlett filed an application with the Montgomery County (Iowa) District Court for confirmation of the arbitration. Sheeder then argued the arbitration provisions in the written confirmations were not enforceable because they were not included in the initial oral agreements.

But the district court denied Bartlett’s application and concluded there was “no enforceable agreement between the parties to arbitrate,” even though the parties had signed the agreements containing those arbitration provisions.

Bartlett filed an appeal, and both the NGFA and the Agribusiness Assoc. of Iowa were permitted to join in the appeal as amicus curiae (“friend of the court” not a direct party to the case but allowed to join in order to advise).

The Iowa Supreme Court then reversed the district court decision and ordered confirmation of the arbitration award, stating “because the parties signed final, written documents that included arbitration clauses, we conclude valid agreements to arbitrate existed.”

“Agriculture has long been a business environment where an oral agreement can precipitate to a final agreement,” said Mark Jackson, president of the Iowa Soybean Assoc. (ISA) and a Rose Hill farmer. “The mere convenience of making verbal commitments, followed up with a written contract at a later date, lends itself to the personal veracity we in agriculture rely on daily.

“All parties involved need assurances to continue such a process in the future to maintain fairness and integrity. The test of time has been an indicator of the need for arbitration often in those times of volatility. With proper avenues of mediation, disagreements can often be resolved in a manner more conducive to both parties.”

Eckley said this case makes clear that courts will uphold terms agreed to in written, signed contracts.

“Therefore, it is imperative that parties read the proposed agreements before signing the documents and negotiate on terms about which the party does not agree to be bound,” she said. “Parties cannot avoid terms of an agreement by merely failing to read the contract and objecting at a later date.”