Equine Law Blog : Texas Horse Lawyer & Attorney : Alison Rowe Law Firm : Equine Legal Matters, Racing, Thoroughbreds : Dallas, Bryan, Texas

Beginning September 1, 2009, all large animal veterinarians in the state of Texas will have a lien on treated animals to secure payment of vet bills. This lien will be effective both before and after the animal is released to the owner.

As of January 2009, twenty-eight other states provide veterinarians with a statutory lien. Texas's lien is unique in that it only applies to large animals (livestock) and is not purely possessory in nature (i.e. allows repossession after the animal is taken by its owner).

*The passage of this lien doesn't mean the vet "has" to take the treated animal as payment...it's just there as an alternative collections measure.*

FACTS ABOUT THE NEW STATUTE:

1) The lien will only apply to amounts that become due to vets after September 1, 2009.

2) When the vet maintains possession of the animal, the vet's lien will have priority over all other liens.

3) Once the vet relinquishes possession of the animal, the vet's lien should be filed of record in the county where the services were rendered and with the Secretary of State.  The vet's lien, post possession, takes priority in the order of filing the notice, per Article 9 of the Uniform Commercial Code.

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Horses are not required to be registered in any particular place or with any particular registry. In fact many horses are not registered at all. The way to clearly evidence the transfer of ownership of a horse is to document the transaction with a purchase and sale agreement, followed by a bill of sale. 

It is important to start any transaction with a purchase and sale agreement as opposed to a bill of sale.  This agreement should contain all the terms upon which the buyer and seller have agreed, such as when money will change hands, when and where the horse will be delivered, and the seller’s warranties about the horse. It is wise to also include a procedure for resolving disputes. If you are the buyer, you should document the fact that the sale is conditioned upon a complete veterinary examination, if that is the case.  If you are the seller, you should state that the sale is “as is” and that you are not making any warranties other than your 100% title in the horse, if that is the case. 

A bill of sale is the document that memorializes the transfer of legal title of the horse from the seller to the purchaser.  Many sellers hold breed registry transfer papers until the buyer has paid off the horse or met other conditions. These sellers should beware that under the Uniform Commercial Code (which governs horse sales transactions, including those where there is no written agreement), it is assumed that title passes to the buyer when the seller gives the buyer possession of the horse. Thus, a seller should never sign a bill of sale or give possession of the horse to the prospective buyer until the buyer has met all the terms and conditions of the sales agreement. 

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Sometimes horses can be as difficult to deal with in a divorce as children. A marriage relationship creates three estates: 1) the community estate consisting of property owned and debts owed by the spouses together; 2) the separate property estate of the husband consisting of his property owned and debt owed by him individually; and 3) the separate property estate of the wife consisting of her property owned and debt owed by her individually. In Texas, when a couple is getting a divorce, the characterization of property whether community or separate is important because the court must decide where all the property goes. The Texas Family Code creates a presumption that all property possessed by either spouse during or at the end of marriage is community property. Stanley v. Stanley, 294 S.W.2d 132, 136 (Tex.App.—Amarillo 1956, writ ref’d n.r.e.). 

The definition of community property is limited to property that is “acquired during marriage” that is not separate property. The community-property presumption in Texas is broader and includes all property in either spouse’s “possession” during marriage or at the time of dissolution as community property. See Tex. Fam. Code §3.003(a). 

To establish that a horse acquired during the marriage is not community property, you must present evidence to rebut the community property presumption. One common method of rebutting the presumption is to trace the title. Facts that affect title may be that one spouse bought the horse before the marriage, or was given the horse as a gift. Another way to rebut the presumption is to show that the spouses have a contractual agreement that property obtained during the marriage remains separate property. The presumption of community property may also be rebutted by establishing that one of the spouses purchased the horse exclusively with his or her separate property funds.

The person wishing to establish that the horse is separate and not community property must present clear and convincing evidence of the property’s character. See Tex. Fam. Code §3.003(a); see McKinley v. McKinley, 496 S.W.2d 540, 543 (Tex. 1973). 

If the court decides the horse is community property, the court may order a distribution of the property, for example, that the spouse that is awarded the property to care for the animals will maintain title and possession of the horse. In an amicable divorce, the spouses may agree to a solution. They can sell the horse and split the proceeds. One spouse can get the horse, while the other gets some other property. Family law courts typically strive to work things out fairly. 

When purchasing a horse, it is prudent to have documentation and also proof of where the money to purchase the horse is coming from. Follow the money.

Whose name is on the papers?  It is a common misconception that the registration papers of a horse determine the owner of the horse. Association and breed registry papers are not similar to the title on your car. A vehicle title evidences who owns the vehicle. Registration papers merely show who registered the horse for breeding or competing purposes. Although the facts of each case are unique, the name on the registration papers is not hard proof of ownership. To learn more about documents that evidence ownership read the upcoming post.

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Texas law provides liens for two specific types of services provided to horse owners: 1) the stable keeper’s lien, (Tex. Prop. Code §70.003) which secures payment for boarding or grazing services; and 2) the stock breeder’s lien, which secures payment for breeding services. The stable keeper’s lien also applies to an animal fed in confinement for slaughter, and thus can also be asserted by feedlot operators. See Tex. Prop. Code §70.005(c).

Unlike many other states, Texas does not provide veterinarians or farriers with a lien on a horse to secure payment for professional services rendered. However, the stableman’s lien in Texas does provide a farrier or vet who had a horse in his or her care a lien on the animal for costs of boarding the animal.

Two things to be considered are that 1) a service provider may attempt to hold your horses for nonpayment, even though no statutory lien exists. This may result in the necessity to get a writ of sequestration to regain possession; and 2) horse owners need to be aware of the lien laws in other states when shipping their horses across state lines in the possession of a service provider.
When a service provider refuses to turn over the horses until the full amount of the bill is paid, the local sheriff’s department and the Texas & Southwestern Cattle Raisers will rarely assist the horse owner in regaining possession of his horses due to the civil nature of the dispute. Without the aid of law enforcement, a horse owner may decide to pursue a lawsuit for conversion asking for the return of the animals that includes an application for a writ of sequestration to regain possession of the horses and to seek damages.

A writ of sequestration will enable the owner to regain possession of the horses within a short time, without a trial on the merits, and maintain possession until the lawsuit is disposed.

In the context of horses, a writ of sequestration is available to a plaintiff in a suit if the suit is for possession of horses or for foreclosure or enforcement of a lien or security interest in horses, and a reasonable conclusion may be drawn that there is immediate danger that the party in possession of the livestock will conceal, dispose of, ill-treat, waste, or destroy the livestock or remove it from the county during suit. Tex. Civ. Prac. & Rem. Code §62.001 (Vernon 1997). The defendant’s use of the livestock while the suit is pending is not enough for a writ to be granted. The plaintiff must fear that the livestock will be sold, mistreated, killed, or concealed. Mere depreciation in the value of the livestock during the pendency of the suit probably will not constitute injury that would warrant the issuance of a writ of sequestration. Commercial Acceptance Trust v. Parmer, 241 S.W.586 (Tex.Civ.App.—Fort Worth 1922, writ ref.)(involving depreciation of motor vehicle).

“Sequestration” is not a cause of action, but rather, a remedy available after suit has been filed, but before a judgment has been obtained. Its purpose is to prevent the destruction or disposal of property until the court can reach a final judgment.

To avoid these situations, horse owners and service providers should put all terms of the service agreement in writing. The contract needs to specify what the service provider has been hired to do with the horses, where they will keep the horses, and the expected payment for the care and services provided. Horse owners should ask all service providers to send a detailed bill at least once per month and be sure to pay bills timely.

Owners should not entrust their horses to anyone in whom they do not have full faith and confidence, and should keep in close contact with the person or company in possession of the horses. Similarly, a service provider needs to check references to make sure they are not accepting a client who will not end up paying for the services.
 

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In these economic times, horse industry businesses need to make sure they are effectively managing their credit, as well as their client relationships.

Many equine-related businesses owners have occasion to extend credit to their customers or clients. First of all, it is important to get everyone on the same page with respect to billing. “Everyone” includes you, others in your office who have client contact, and the client. For example, everyone who deals with your accounts should know when statements are mailed, when payment is due, and when or if the client may spread out payment over a number of installments. Similarly, your customer or client needs to clearly understand your expectations regarding payment. 

Your spoken words and your actions must match your paperwork and billing terms. This is one of the weakest areas for many horse businesses in debt management. I have seen, for example, many people who believe someone is boarding or training their horse for free in exchange for a commission when the horse is sold, only to receive a bill in the mail months later for thousands of dollars of boarding and training services. When this occurs, there is a much higher potential to really upset a client who believes your rules have changed between what was verbally offered and how they were actually billed. 

The following are some things you can do to avoid having to collect a debt in the first place:

1. Have clear, written terms from the outset.  You need to give your client a written confirmation of the product or service you will be providing before you provide the product or service.   The initial agreement should be signed by both you and the client.  

2. Publish your terms frequently.  Your terms should be published frequently after the original agreement. For example, the payment due date should be printed on each statement.

3. Send out detailed statements.  You should bill your clients at least once per month, and the bill needs to be as detailed as possible. People are more likely to pay a bill and pay it on time when they fully understand all the services that were performed. When a client sees a general entry such as “vet services” on a bill, for instance, when the client had no idea a veterinarian had treated their horse, the client may become suspicious that you are divvying up your vet expenses equally among all clients, whether that particular client received the vet service or not. 

4. Invoice clients on a consistent billing cycle.  Once a product or service has been delivered, invoice the client as soon as possible. Whichever date you choose to send out bills, send one out at least once per month on that same schedule as long as you are providing services or waiting for payment.

5. Encourage prompt payment.  To encourage the prompt settlement of bills, offer an incentive such as discounts for early payments (while always balancing the extent of the price cut with the benefits of an improved cash flow).

For more debt collection tips, continue reading.

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Profit-sharing arrangements between a horse owner and his or her trainer are commonplace in the horse industry. They are often referred to as “partnerships,” but a written contract is seldom used. I strongly advise my clients against doing any kind of profit-sharing or partnership arrangement without putting the terms in writing. I have seen countless relationships between owners and trainers break down over a profit-sharing deal, and it generally happens because the parties had a different idea about what the agreement was supposed to entail. These disputes can get ugly, and sometimes law enforcement even becomes involved in disputes over possession of the horse. 

Usual Scenario. The typical profit-sharing arrangement usually arises when the owner and trainer agree that the trainer will train, board, and promote the horse free of charge or at a very discounted rate to the owner in exchange for an increased percentage of the horse’s racing proceeds or a percentage of the proceeds from selling or breeding the horse.

Essential Documents. The following documents should be drafted to fit your specific terms and executed by the appropriated parties:

* A purchase and sale agreement between the owner and seller;

* A bill of sale transferring title of the horse from the seller to the owner; and

* A profit-sharing agreement between the trainer and owner.

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Last year, Alison posted 2 entries discussing the Economic Stimulus Act of 2008 signed by President Bush. The tax incentives for horse owners were to expire at the end of 2008, but have been continued with the new Stimulus Plan in 2009. 

The first incentive is the expensing allowance under Section 179, which allows horse owners who purchase horses or other business property and put it in service in 2009 to expense up to $250,000. A limit is in place such that if the total property purchased in the year exceeds $800,000, the expense allowance goes down a dollar for each dollar spent over $800,000. For a more detailed discussion please see Economic Stimulus Act Increases 179 Expense. 

The next continued incentive brings back the 50% first-year “bonus depreciation” for horses and most other depreciated property purchased and used in 2009. This incentive applies to horses and any other property with a useful life of 20 years or less. To take advantage of this depreciation the property must be “new,” meaning that its original use started with the owner taking the depreciation. “Original use” means the first purpose to which the property is put. For a more detailed discussion please see Bonus Depreciation in Economic Stimulus Act. 

Other newly added provisions include a deduction for state, local, and excise taxes on the purchase of new cars, lights trucks, and recreational vehicles. Unfortunately, it does not apply to taxpayers whose adjusted gross income is $125,000 or more or to those filing a joint return. The new law also allows net operating losses to be carried back 2 years before the operating loss occurs and carried forward 20 years after the loss. Small businesses with a gross revenue of $15 million or less will only be allowed a carryback period of 5 years. Additionally, the Stimulus Bill reduces the 2009 required estimated tax payments for some small businesses. 

For more information please contact your equine tax professional and visit www.horsecouncil.org. 

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A young assistant trainer recently approached me about an “opportunity” her boss, the head trainer presented to her. She would get to show a horse on a three week circuit if she paid for the horse to go to the show. The owners had already specified an amount of money they wanted from the sale of the horse. The boss told the assistant trainer that if she sold the horse for any amount over what the owner’s wanted, she would get to keep the extra money and receive a commission on the full sales price. The deal seemed great, but maybe a little too good to be true. The assistant trainer was not sure that the owners were privy to this arrangement and was confused as to whether this type of deal was ethical.

The answer is that if the owner is not privy to the amount the assistant trainer would ultimately receive, such practice is highly unethical and probably illegal. When it comes to horse sales, the trainer should always disclose all of the details of the sale to the person who has commissioned them to buy or sell the horse. For the protection of both parties, a written commission agreement should be signed so everyone is clear about the expectations for the transaction.

Under the common law of agency, agents have three fiduciary duties: obedience, care, and loyalty. If the trainer is acting as an agent for both the buyer and the seller, a conflict of interest exists. In Texas, trainers in horse sales transactions are considered to be similar to real estate agents who are selling property. If the trainer is working for the seller, he is trying to sell the horse to a good home, as quickly as he can, for the most money. If the trainer is working for the buyer, he is trying to buy the best horse he can for the client for the least amount of money. If one trainer is representing both parties, a conflict of interest exists and Texas law requires the agent to disclose the dual agency, because the parties should be made aware of the trainer’s position. Although Texas has not passed a statute to this effect in regards to horses, other states such as Kentucky and Florida have implemented such laws. See Ky. Rev. Stat. Ann. §230.357 and Fla. Stat. §535.16.
 

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Equine mortality and major medical insurance policies often contain a provision stipulating that any action or proceeding under the policy must be brought within a certain period of time, typically one year. 

Absent a contractual provision to the contrary, the statute of limitations applicable to an action based in contract will apply to an action under an insurance policy (for example, an insurance coverage dispute). 

Are contractual limitations periods in insurance policies enforceable?  Generally, courts will enforce the limitations provisions unless they violate limitations-related statutory law in the state the policy was issued or delivered, or in the state where the law suit is brought.  In rarer instances, courts have refused to enforce insurance policy limitations periods because they were judicially interpreted to be "unreasonable."

Statutory prohibitions.  Some states have statutes voiding limitations periods that are shorter than a given period of time.  Thus, the limitations-related statutes in the state in which you are seeking to enforce your policy must be consulted to determine the applicability of a given provision.  Under Texas law, any contractual limitations period is void if it is shorter than two (2) years.  See Texas Civil Practice & Remedies Code, Section 16.070(a).  In Maryland, an insurance or surety contract cannot set a shorter time to bring an action under the contract than required by the state where the insurance contract is issued or delivered.  See Section 12-104 of the Maryland Insurance Code.  Maryland has a 3 year statue of limitations for contract actions.  Thus, a one-year contractual limitations period in an equine insurance policy would be void in Texas and Maryland.  Absent such statutory prohibitions, however, the contractual limitations period in the insurance contract will be enforced.

Does the limitations period in the policy cover my tort-related claim of "bad faith" denial of coverage or "unreasonable delay"?  Probably.  Many insured litigants argue that their tort claims such as bad faith are not covered under the contractual limitations period because the tort claim is not a "claim under the policy."  Although courts have entertained (and sometimes agreed with) this argument, according to insurance fraud lawyer Rick Hammond, the weight of the cases tend to enforce the statutory limitations period for all claims related to the policy.  Of course, the contractual limitations period will not apply to any claim if it is void under state law, as discussed above.

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