Introduction

This article covers the essentials that parties to a sale of a horse need to know. Topics include a trial period,
bill of sale, purchase agreement, warranties, buyer and seller agency, and more.

A. Trial Period Prior To The Sales Transactions

A brief trial period (one to two weeks) to allow the potential buyer of a horse to determine if the horse is suited for their purposes, can be beneficial to close the sale and avoid unpleasant surprises and disputes after the sale. 

The first potential problem during a trial period is that the horse becomes injured. For instance, the buyer could be riding the horse and because of his action, the horse goes lame. Alternatively, the injury could be no fault of the buyer’s at all; rather it is the result of the horse becoming sick much like a person can catch a cold. 

A seller can prevent these injuries in three ways.  First, the seller can require that the buyer pay for insurance of the horse during the trial period. Specifically the seller would want the buyer to pay for both mortality insurance as well as loss of use insurance. 

Another way the seller can protect against the horse becoming injured is to specify what activities can be done during the trial period. For instance, in the horse trial agreement contract the owner can specify that the horse only be ridden in the ring, by certain people or whatever other stipulations might be appropriate. 

Finally, if the seller is very wary of the trial period, he or she can agree to a trial period that takes place at the seller’s barn.  In this situation, the buyer would come over on several subsequent days and ride the horse. While this may not be quite as beneficial as having a trial in a different location, it still allows the potential buyer multiple opportunities to determine if they are a match with the horse. 

The stable can use any peaceful and lawful means to prevent the horses from leaving the property, such as padlocking the horse’s enclosures. If the horse’s owners arrive to take the horses, the boarding stable can call law enforcement to asset them in preventing the horses from leaving.

The second concern that a seller must protect against is their potential liability.  Specifically, while out on trail their horse does something to injure either the potential buyer, or a separate third party. There are three ways that the seller can protect his liability. The first is to require that the buyer sign a waiver, releasing the seller of all liability from the horse. 

A second way the seller can protect his or her liability is to make sure there is an indemnification clause in the trial agreement. An indemnification clause is one that states that the owner/seller will not be responsible to any third parties that may be injured while the potential buyer is trying the horse. Rather, the potential buyer will be responsible for any injuries incurred by a third party. 

Third, the seller can protect his or her liability during the trial period by acquiring insurance coverage that covers the policyholder’s legal liability for both bodily injuries and property damage to others because of their horse ownership. Generally, this covers claims by third parties that were brought on by the seller’s horse even if the horse was no longer on the seller’s property. This type of insurance is an effective tool that helps protect the seller from liability during the trial period. 

B. Purchase and Sales Transaction

Once a decision to purchase a horse has been made, the parties should enter into and sign a purchase agreement and a bill of sale to complete the transaction. A purchase agreement is not always necessary, but it is highly recommended in most circumstances.  

1. Bill of Sale

The bill of sale is a document that simply evidences that a sale has taken place. It is the legal document that transfers actual legal title of the horse from the seller to the purchaser. A simple bill of sale document can cover the following:

• Names and address of buyer and seller;
• Name of horse, and registered name, if different;
• The horse's registration number(s) and tattoo or brand number, if any;
• Age of horse;
• Markings of the horse;
• Date of the sale, and;
• The amount that the buyer has paid for the horse, when paid, and in what form (cash, check, etc.)

A simple bill of sale can usually be signed by the seller, but the better practice is to have both parties sign.

In very limited situations, the bill of sale does not end the issue of ownership. For example, what if the seller, who has a written bill of sale, has no legal right to sell the horse. This may happen in settings such as the following:

• A stable might sell a horse claiming to exercise its rights under a stablemen's lien law because a boarder has become seriously behind in making payments. In fact, however, the stable might not have followed the law and, as a result, might have no legal right to sell the horse.
  
  
• A horse might be owned by two or more people, and the seller does not have permission from the other owners to sell the horse (i.e. husband and wife in divorce dispute, or Will contest).

To lessen these problems from happening, the buyer should insist on having a carefully worded purchase agreement in which the seller warrants, among other things, that he or she has legal title to the horse and is legally capable of selling it to the buyer. If the horse is registered, ask for a copy of the registration papers. Even if the buyer’s contact in the sales transaction is the seller’s agent, the Bill of Sale and Purchase Agreement should be entered into between the buyer and the owner of the horse.

2. Purchase and Sale Agreement

As a sale transaction grows more complicated, the terms and conditions of a sales agreement can become more complex, as well. This can occur, for example, when a seller makes warranties to the buyer (such as a warranty or promise that the horse is sound for breeding, showing or racing purposes) or if the seller has disclaimed warranties and is selling the horse "as is."

When a breeding stallion is sold, the contract can include special details, as well. As one example, in sales agreements involving breeding stallions, the sellers may retain a certain number of lifetime breeding rights that could be fulfilled for many years into the future. Unless the contract addresses these rights in sufficient detail, the seller would be powerless to claim an entitlement to them in a dispute arose.

(a) Contents of Purchase and Sale Agreement

• Parties
• Description of Horse
• Purchase Price
• Seller’s Representations and Warranties
• Risk of Loss
• Assignment
• Attorneys’ Fees
• Governing Law And Venue
• Entire Agreement
• Counterparts
• [Mediation/Arbitration]

(b) Warranties In An Equine Purchase And Sale Agreement

Warranties are normally express or implied. Express warranties are those which are specifically addressed by the parties in the sales agreement. Implied warranties are those which apply by application of law or by reason of a statute. Implied warranties which arise in equine sale situations occur by application of the Uniform Commercial Code. Thus, warranties specified under this Code apply to an equine sale agreement unless they are “waived” or otherwise excluded from the terms of the agreement.

Express Warranties
An express warranty is typically a warranty as to an objective fact about the horse stated in a sales contract. Facts which are usually covered are things such as the horse’s title, its lineage, its show or jumping history, and its health. A seller should not make any express warranties as to subjective facts or opinions, as the horse is “bomb proof” or “a great trail horse.” If a seller makes express warranties knowing that the true facts differ this would be fraud or intentional misrepresentation. If a sellers makes an express warranty without a reasonable basis for so doing, this would be a negligent misrepresentation. Both misrepresentations are actionable under the law. Fraud, an intentional tort, may give rise to punitive damages.

Implied Warranties
Implied warranties that normally apply to an equine sale are the warranties of “fitness for an intended use” and “merchantability”.  

The implied warranty of fitness for intended use generally means that the horse can be used as a hunter jumper if sold as such.  The warranty of merchantability means that the horse can be sold in commerce as meets the customary requirements of like horses sold in the equine trade or breed.

These warranties arise under the UCC and will apply to the sale transaction unless expressly waived by the sales contract.  Language that effects a waiver of these implied warranties usually includes words to the effect “any implied warranty of fitness for an intended use or merchantability are hereby waived and the horse is sold ‘as is’ with all faults.” This language is also in bold type with capital letters to ensure compliance with the notice requirements for an effective waiver of these warranties under the UCC.

C. Trainer Acting As The Seller’s Or Buyer’s Agent In The Purchase Or Sale Of A Horse

(1) Agency Defined

Agency is a legal relationship in which one individual (called the "principal") gives another individual (called the "agent") authority to act on the principal’s behalf. When this happens, the acts of the agent obligate the principal to complete the transaction. This relationship is what allows a bloodstock agent to buy a horse on behalf of someone else, who must ultimately pay for the animal. With a few exceptions, the agent incurs no financial liability in the transaction. Pursuant to Civil Code §2295 an agent is one who represents another, called the principal, in dealing with third parties.

In Alvarez v. Felker Mfg. Co.(1964) 230 CalApp.2d 987, the court stated that the essential characteristics of an agency relationship are as follows: (1) the agent holds power to alter legal relations between a principal and a third person, (2) the agent is a fiduciary with respect to matters within the scope of the agency, and (3) the principal has the right to control the conduct of the agent with respect to the matters entrusted to him.

To date, the role of an agent in equine sales transactions in the state of California, unlike that of an insurance agent, talent agent, athlete agent or real estate agent, has been largely unregulated.

(2) Actual Or Ostensible Agency Relationship

An agency may be actual or ostensible.  Pursuant to Civil Code §2299, an agency is actual when the agent is really employed by the principal, and pursuant to Civil Code §2300, an agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him. With limited exception, an agent may be authorized to do any lawful act which the principal would be able to do personally. Consideration or payment of a commission is not essential to the creation of an agency relationship.

(3) Scope of An Agent’s Authority

Civil Code § 2315 states that the measure of an agent’s authority is that authority actually or ostensibly conferred upon by the principle. Thus, it is always necessary, when dealing with an agent, to understand the scope of that agent’s authority. Persons dealing with an agent must inquire as to the extent of the agent’s authority.

Actual Authority

Civil Code § 2316 defines actual authority as being that authority which the "principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess." Actual authority may be implied or express. 

Section 2319 of the Civil Code provides, “An Agent has authority to do everything necessary or proper and usual, in the ordinary course of business, for affecting the purpose of his agency; . . .” The actual authority of an agent may arise as a consequence of conduct of the principal that causes the agent to reasonably believe that the principal consents to the execution of an act on the principal’s behalf. Every agent has that authority set forth in Civil Code §§ 2295-2423, unless specially deprived of that authority by the principal.

Ostensible Authority

Under section 2317 of the Civil Code, ostensible authority is that authority which a principal, "intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess."  It has been held that ostensible authority must be established through the acts or declarations of the principal and not the acts or declarations of the agent. Also, where the principal knows that the agent holds himself out as clothed with certain authority, and remains silent, such conduct on the part of the principal may give rise to liability.

A principal is liable for the acts of an ostensible agent when the party dealing with the agent reasonably believes in the agent’s authority, when the agent causes the belief, and when the third party is not negligent in relying on the agent’s apparent authority.

(4) Fiduciary Duties of Trainer Acting As An Agent

When a seller/buyer engages a trainer to assist them in purchasing or selling a horse, the trainer becomes the seller/buyer’s agent. As the seller/buyer’s agent, the trainer owes the seller/buyer’ fiduciary duties (i.e. duties of loyalty, good faith and fair dealing). An agent has the duty to act in the seller/buyer’s best interest, not his or her own. Furthermore, the agent’s  duty of full disclosure and accounting toward the seller/buyer means he or she is obligated to provide the seller/buyer with an accurate accounting of the transaction.

In the case of Thompson v. Stoakes, 46 Cal.App.2d 285 (1941), the court held that an agent must exercise the utmost good faith, is bound to disclose facts of the transaction, must acquire no secret adverse interest, and cannot lawfully make a secret profit. Further, the court determined that if an agent conceals his interest in property sold, or buys at a lower price than he charges his principal, he must disgorge the secret profits, even if the property was worth the larger amount and the principal was willing to pay it. This situation is most often referred to in the context of real estate litigation; however, its application to equine sales transactions would not be incongruous.

(5) Tips For Sellers and Buyers To Protect Themselves

In addition to entering into a written contract with the trainer, specifying the amount of the commission, what is expected of the trainer in exchange for the commission, and some timeline, clients can take other steps to protect themselves. 

A seller/buyer hires an equine professional to benefit from their knowledge and expertise. However, even if the seller/buyer is new to horses, they can arm themselves with information. For example, although horse sales prices are not generally publicly available, the seller/buyer can view asking prices for horses with comparable breeding and training through Internet horse ad sites.

A seller/buyer should also be alert to a trainer’s business practices and trust their instincts. If a trainer is condescending or sidesteps a seller/buyer’s questions, the seller/buyer should ask themselves if this trainer is the right person to help them, even if the trainer is an internationally known superstar. The seller/buyer and trainer should have a relationship of mutual respect, and the seller/buyer should feel comfortable asking questions. While trainers spend a lot of time outside and away from email and phones, seller/buyer should be able to expect relatively prompt responses. Seller/buyer should receive regular itemized invoices for any expenses that they are expected to pay. When a horse is sold or purchased, the seller/buyer should receive a contract stating all the terms of the sale.

The above article and all articles in this website are not intended to be legal advice. Readers should consult an attorney to determine how the law applies to their particular circumstances. Also, please understand that the law constantly evolves and changes. Certain of the decisions and legal propositions quoted in the above article may be out of date or superseded. Questions or comments about the above article can be directed to its author, Theresa LaVoie.

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