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When Farm Debt Goes Bad: Garvick’s Farms, Inc v. Agricultural Commodities, Inc

Updated: Jul 2, 2020

Silos (Photo by Edwin Remsberg).

This post should not be considered legal advice.

Happy New Year, everyone! Hope you had a restful and happy holiday season.

I want to start off 2016 looking at an issue that is not always an easy topic to discuss: farm debt. USDA projected that farm debt would grow by 6.3 percent in 2015. In periods of declining prices, producers often borrow against equity to cover input costs. But borrowing capital can come with consequences. And what happens if you become unable to pay off the debt? The Court of Special Appeals of Maryland recently dealt with this issue in Garvick’s Farms v. Agricultural Commodities, Inc.

In Garvick’s Farms, the farm purchased inputs from Agricultural Commodities, Inc. (AgCom), and had been a good customer from the late ‘70s or early ‘80s to 2000. In 2001, the farm and AgCom entered into a promissory note, loan agreement, guaranty signed by the farmer, and a deed of trust. This security package was to mature in 2002 (that is, this is the date the debt was to be repaid by). The loan was not paid back in 2002, and AgCom continued to extend credit to the farm. Farm had trouble paying back the loaned funds until 2012.

At trial, the circuit court found that the parties knowingly extended the maturity date (the 2002 date) and the farmer still owed money. The circuit court also concluded the claim was not barred by the four-year statute of limitations. The farmer appealed.


On appeal, the Court of Special Appeals had to consider two issues:

Man operating a tractor (Photo by Edwin Remsberg).

1. Did the circuit court mess up in concluding that 1) the parties’ actions had extended the maturity date, 2) the parties had agreed to change the amount owed, and 3) the guaranty had been modified to reflect those new balances?

2. Did the circuit court mess up in concluding that AgCom’s claims were not barred by the four-year statute of limitations because the debt was acknowledged within four years of the suit being filed?

Modifying the Loan

On appeal, the farmer argued that the original note had maturity in 2002, and he had not personally guaranteed any debt after that date. The original documents had contained language that appeared to limit the parties’ ability to modify the terms, except in limited situations. AgCom argued that both parties’ actions supported the conclusion that the parties had modified the documents over the years.

The Court of Special found the rule in Maryland to be that parties can modify contracts by oral agreement or conduct. Previous cases allowed courts to look beyond contract language forbidding modification and examine the parties’ actions. In this case, the parties’ actions clearly extended the agreement past the 2002 date. The parties met annually to discuss the balance owed by the farmer, typically with the farmer’s accountant. Credit was only extended originally because of the existence of the security package. Evidence also supported the circuit court’s decision that the loan balance was unpaid – and in fact, more was unpaid than what the circuit court had calculated.

Statute of Limitations

The farmer also argued that the statute of limitations barred AgCom’s claims. A statute of limitations is a law that ends claims after a certain period, in this case, four years. The idea behind them is to encourage individuals in being diligent about bringing claims and providing some finality and predictability to legal claims. For example, if you injured someone ten years ago, would you have the records or the memory to be able to respond to such a claim? The answer is probably not, so statute of limitations act as a way to force individuals to bring claims before evidence is lost.

Old tractor in a field (Photo by Edwin Remsberg).

In this case, the financing documents were breached in 2002 when the farmer failed to settle the debt and farmer argued that AgCom should have brought the claims by 2006 and not 2013. AgCom, on the other hand, argued that the statute of limitations had been tolled and farmer had agreed to pay multiple times within four years of the lawsuit being brought.

Tolling a statute of limitations is the legal equivalent to hitting the pause button on the time period. One way to do this is by acknowledging the debt. The court agreed that the farmer had done that numerous times over the years, most recently in 2009 when he sought financing from Farm Service Agency and signed a letter of understanding with AgCom to potentially refinance the outstanding debt.

Why Care?

We all take loans/debt out at some period in our lives. The vast majority of us will pay that loan off on time, but life may happen, causing us to fall behind in payments. In this case, it was a drought, a barn fire, and an ill parent that potentially caused the farmer to fall behind to AgCom.

Things to take away from this case are that working with your lender to modify the terms will potentially be considered a modification of the original agreement – especially if you both operate as if the new terms are the binding terms. Actions in these types of cases will have consequences.

The other takeaway is that although statute of limitations can operate to end actions after certain time periods, our own actions can potentially extend those dates. Borrowers and lenders should pay attention to what they are agreeing to and consider how it will operate in barring or extending personal claims.


Garvick’s Farms, Inc. v. Agricultural Commodities, Inc., No. 2045, 2015 WL 7941091, at *1 (Md. Ct. Spec. App. Dec. 4, 2015).

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