By John Alan Cohan, Attorney at Law
Disputes are commonplace in horse sales, particularly if the buyer discovers that the horse is unsound or not fit for its intended purposes. This is a problem that can often be traced to the buyer’s failure to ask questions, or efforts on the seller’s part to conceal infirmities or an inadequate pre-sale veterinary check.
This is why a written sales contract is important. A sales contract not only sets forth the terms of the sale, but provides express warranties if the parties have bargained for that. An express warranty might state that the horse is in a sound state of health, that it has the ability to breed or that it is fit for athletic abilities such as racing, jumping, driving or to perform tasks such as cutting. Sellers are often reluctant to provide such warranties.
Now, a new law in California requires a written bill of sale for horses (or fractional interests or stallion seasons) in an effort to reduce fraud and other improper practices. The law applies to all breeds of horses.
The law provides that the sales contract must set forth the purchase price, and that it is to be signed by both the buyer and seller or their authorized agents. For sales by auction, the requirement will be satisfied by the issuance of an auction receipt generated by the auction house and signed by the purchaser or an agent whom the purchaser has authorized.
The law also requires that bloodstock agents obtain the written consent by both purchaser and seller for any fee arrangement and prohibits any person to act as a duel agent (for both buyer and seller) without the written consent of both parties. The relation of an agent to a principal is of a fiduciary nature, which requires the agent to act in good faith toward the principal and precludes him from obtaining any advantage over the principal in any transaction had by virtue of his agency. This provision is intended to increase transparency in agency relationships and ensure full disclosure between agents and their principals.
The law makes it unlawful for a person acting as an agent for either buyer or seller to receive more than $500 in commission, other than from the agent’s principal, unless both the purchaser and seller consent in writing.
The bill provides for treble damages and attorney’s fees for any person injured by a violation of its provisions and allows the California Horse Racing Board to revoke or suspend the license of any person who violates its provisions.
The California law does not require the seller to provide any warranties or guarantees. However, particularly with the purchase of expensive horses, broodmares or race horses, it is important to have specific terms in the sales contract stating that the seller guarantees the soundness of the animal or the fitness of the horse for its intended purposes.
A veterinarian check of the horse should always be a prerequisite before finalizing the sale of a horse. In many instances, disputes have occurred because of undisclosed ailments or defects that a thorough vet check could have detected.
For sales that involve installment payments, it is crucial for the seller to have a security agreement accompanying the sales contract. This is to enable the seller to place a lien on the horse or other assets in case of default in payments.
“I have seen the ramifications of transactions where buyers and sellers never had full disclosure of the parties involved or the fees paid to the agent, and they often ended in litigation,” attorney Lisa L. Lerch, of Yorba Linda, Calif., said of this new law. “This revision of the code should dramatically reduce fraud in sales transactions, as well as agent conflicts of interest.”
John Alan Cohan is a lawyer who has served the horse, livestock and farming industries since l98l. He has clients in all 50 states. He can be reached at (3l0) 278-0203, by e-mail at [email protected] or at JohnAlanCohan.com.