Considerations for buyers and sellers
By Mary Westman, Esq.
When folks find out I practice equine law, they frequently ask what kind of horse-related issues I encounter in my practice. While equine law is wide-ranging, the vast majority of issues centers around the sale and purchase of horses.
Unfortunately, complicating matters, it is not uncommon for there to be no written sale agreement between the parties. Certainly, while a written sale agreement is important, it is not the only thing to consider in the equine sale transaction. In a 2019 issue of OklahomaHorses, I wrote about “The Pitfalls and Challenges of Equine Sales,” and it’s a topic certainly worth revisiting with points to consider and questions to ask when selling or buying a horse.
If you are considering selling a horse, or if you are contemplating the purchase of a horse, are there things you should be aware of? In a word, absolutely! Much like buying a car or a bicycle, the sale and purchase of a horse is considered a “sale of goods” and is governed by Oklahoma Statutes.i
Even though the law often requires it, many of these purchase and sale transactions are not reduced to writing and result in a host of disputes. Numerous handshake deals are found to be unenforceable because the purchase price was $500 or more.ii
Elation over that new barrel horse turns quickly to disappointment when the new buyer, who did not obtain a pre-purchase exam, finds out the horse’s hocks are shot, and he cannot compete. While on the surface it seems the sale of a horse should be fairly straight forward, in a few short paragraphs, I’ll illustrate for you why that is not the case.
The Buyer’s Perspective
To begin, accurately identifying the horse bargained for and delivered can be a challenge. Today, many interstate horse sales are conducted sight unseen. At best, the buyer may get a few pictures or a video of a horse purported to be the horse being purchased. But how can the buyer be sure the horse that gets off the transport van is actually the horse he or she bargained for?
While some horses may have unique characteristics setting them clearly apart from all the other horses in the world, in reality, the vast majority do not, and it can be very difficult to distinguish one bay horse from another. You would be correct to suggest that tattoos, microchips and branding could help distinguish that new prize stallion; however, except for a few equine industry performance associations, these methods of identification are not universally or even frequently used.
Moreover, even microchips are not fool proof. Unscrupulous wrongdoers can easily remove the microchip from a $100,000 cutting champion and place it in another not-so-talented nor valuable but similar-looking gelding.
Even if the identity of the horse is not an issue, is title to the horse an issue? Could there be an agister’s lien on the horse? How would you know? What the heck is an agister’s lien anyway? Where would you even look for a lien on a horse? Do lien holders bother to file liens so the would-be buyers can find them? Sellers can only convey the title possessed, so how can you be sure the title to your new filly is unencumbered by a lien?
We’ve only covered identification of the horse and seller’s title, and we already have a headache. Next, can the buyer sue a seller who proudly boasts, “My stallion is a great prospect for your breeding program”? Is that a warranty, or is it considered common horse industry puffing? No one ever exaggerates when trying to sell his or her horse, right? Wrong! What should a buyer do to ensure the horse is fit for his or her particular or even ordinary purpose when the seller has disclaimed all implied and express warranties?
Can a seller, through his or her words and actions, make warranties about the horse being sold and then at the time of executing the sale documents effectively disclaim express warranties? If a seller disclaims all express warranties in the sale contract, he or she is really saying to the buyer, “Oops, I really didn’t mean those great things I told you about my horse!”
Make sure you read the fine print and seek the advice of counsel if you don’t understand the legal jargon. What if a buyer is contemplating the purchase of a young Thoroughbred believed to be the next American Pharoah or, dare we suggest, the next Secretariat?
Are there specific warranties a buyer should look for from the seller? Absolutely! The prudent buyer should insist on the seller warranting this promising racing prospect is free of certain physiological anomalies that, if present, would certainly guarantee a short-lived run for the Triple Crown. If you are not sure of all the warranties you should be asking for, seek the advice of an experienced veterinarian or trainer.
The Seller’s Perspective
We’ve focused so far on the equine sale from the buyer’s perspective but what about from the seller’s perspective? What if the buyer insists on taking the horse for a “test ride”? Could that prove to be a liability risk for the seller? If so, how can the seller facilitate the buyer’s evaluation of the horse while minimizing risk to the seller? A seller should routinely have perspective buyers sign a liability waiver before coming into contact with the subject horse. What should you put in the liability waiver? Now that is a great question and a topic for a future article!
And then there is the dreaded risk of loss considerations. Does the risk of loss pass to the buyer when title passes? What happens if the buyer is delayed in coming to pick up his or her new colt? Who is responsible when the colt experiences a bout of colic and needs emergency surgery? Remember when I mentioned the frequency of interstate horse sales? Who bears the risk of loss if the horse is injured during transport? What if the horse is stolen? Unfortunately, horse rustling is still a potential hazard in interstate transport.
Also, did you know the risk of loss rules are different for merchant and non-merchant sellers? In the horse industry, it can be difficult to determine who is a merchant engaging in the sale of horses and who is not.
Is Aunt Sally a merchant when she regularly sells horses to fund her efforts to find that perfect trail horse, or is merchant status reserved for the large breeding barns down in Purcell, Oklahoma? These questions reflect just a few common horse industry practices that impact risk of loss. If parties to a purchase and sale contract do not include terms outlining when risk of loss passes from the seller to the buyer, Oklahoma law will step in and fill that gap, so it is important to understand the law of risk of loss.
Moving on to the actual purchase, when is payment received: before delivery, at delivery or even over time? In the context of interstate sales, who is responsible for sales tax? How would you determine if sales tax even applies? And oh yes, back to the issue of risk of loss, how does the method and timing of payment impact the risk of loss?
Further, international sales interject another set of issues to be considered, such as currency,
import/export regulations, transportation costs, tariffs, quarantine, vaccinations, or residence of the seller for purposes of calculating taxes on gains, etc. What law governs interstate or international horse sale agreements? Would you prefer one to the other depending on whether you are the seller or the buyer?
International and state laws governing the sale of horses varies, and if you are selling or purchasing a horse in international or interstate commerce, you will need the advice of an equine transaction specialist.
We’ve talked a lot about the mechanics of the purchase and sale of a horse, but what about the all-important price term? If you are the seller, how do you place a dollar value on your horse? Even if you aren’t selling a horse, this is something you may need to do for a variety of reasons, such as to insure your horse or maybe to claim damages in the event of a law suit. While there is no hard and fast formula for computing a horse’s value, the consensus is a horse’s value is its “fair market value.”iii
However, because each horse is different, there is no concrete methodology to determine fair market value, and in the event of a lawsuit, expert testimony is often required.iv
So how does one go about determining a horse’s fair market value? Is there a discrete list of factors consistently utilized to come up with that magic price point? Simply put, of course not!
Factors are breed and even discipline specific, and the question of how much you can sell your horse for will often be dictated by what your market will support.
As promised, these few paragraphs illustrate just a few of the pitfalls and challenges of equine sales. To be sure, this just scratches the surface as I have made no mention of documents to be provided at title transfer, syndication, fractional interests, leasing, racing regulations, bloodstock agents, auction house rules, selling breeding rights or reserving breeding rights to name just a few additional possible transaction variables.
This short article poses many questions and offers few answers for one simple reason—each sale is so unique it would be impossible to provide just one right answer. By now it should be clear that an equine sale transaction requires more than just the standard terms of a purchase and sale agreement; it also requires terms that are unique to the local, regional, national and even international equine industry.
Breed associations, sport or riding federations, state regulatory bodies, equine industry lobbying associations and equine welfare advocacy groups all play a role in the evolving body of equine law. Staying active and current within the industry and seeking the advice of an attorney knowledgeable in equine law is the best way to ensure a good outcome for those participating in an equine sale transaction.
This article does not constitute legal advice and is intended to be used for educational purposes only.
About the Author: Mary Westman is an Oklahoma attorney with an MBA, Morgan horse breeder and registered nurse. A native of West Virginia, she now lives with her husband, David, in Norman, Oklahoma. She can be contacted at firstname.lastname@example.org.
© Mary Westman 2019. All Rights Reserved.
i Oklahoma Statutes, Title 12A, Uniform Commercial Code.
ii Okla. Stat. tit 12A, § 2-201
iii FRANK T. BECKER, EQUINE LAW 285-286 (2013).