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

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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No.  In states that have adopted the Uniform Commercial Code (UCC), courts will probably hold that the possessory stableman's lien is superior, even if the bank's UCC Financing Statement was filed before the stableman took possession.

When Does the Conflicting Lien Situation Arise?  If someone borrows money to buy a horse or horses, the bank will often require the borrower to sign a security agreement pledging the horse(s) as collateral on the note.  When the borrower stops making payments on the loan, the bank normally will repossess the horses and sell them to foreclose on the note.  In some instances, when a borrower stops paying the bank, they also stop paying the boarding facility that is taking care of their horses.  The nonpayment of board gives the boarding facility a statutory stableman's lien on the horse(s) as long as the boarding facility maintains possession.  Let's assume the bank's lien was first in time--i.e. the bank lent the purchase money to the owner and filed a UCC Financing Statement before the boarding facility took possession of the horses. The question becomes, who is entitled to the first lien on the horses...the bank or the stableman?  Also, is the bank entitled to come onto the boarding facility's property and repossess the horses?

Under Section 9.333 of the UCC, the Possessory Lien Has Priority.  Section 9.333 and its Official Comment under the Texas version of the UCC states that "the possessory lien has priority over a security interest unless the possessory lien is created by a statute that expressly provides otherwise...the possessory lien takes priority, even if the statute has been construed judicially to make the possessory lien subordinate."  This means the bank's lien, even if prior filed, is subordinate to the stableman's lien.

WARNING--Courts May Follow Old Cases.  Even though the UCC is clear on this, a trial court in one of my cases found that the stableman's lien was subordinate to a bank's security interest.  The court cited Blackford v. Ryan, 61 S.W. 161 (Tex. Civ. App. 1901)(holding that a bank's pre-existing security interest is superior to an agister's lien when a horse was placed in a stable without the bank's knowledge).  This case, as well as several other pre-1930 Texas cases with similar holdings, interpreted the common law agister's lien and not the statutory lien under Section 70.003 of the then non-existent Property Code.  These cases were also decided before Texas adopted the UCC.  But the cases are still presented in Texas Jurisprudence and other legal treatises as being current law.  There are many cases that have found the possessory lien to be superior when it comes to garagemen keeping automobiles under Section 70.003, but no Texas cases involving stablemen.  Despite the current lack of appellate review on the issue, I think most courts will defer to the UCC and the car cases and hold that the stableman's lien is superior.

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In most states, trainers do not have a statutory lien for unpaid training fees and other training-related expenses such as show entry fees and hauling.  This means, unless a trainer has a written security agreement signed by the owner providing a lien on the horses in the event of nonpayment of training fees, the trainer cannot hold or sell the owner's horse when training fees remain unpaid.  You need to check your state's statutes, however, as there are exceptions. Oklahoma's stableman's lien statute, for example, does include a lien for training services.  You can find your state's lien statutes on Equine Law and Horsemanship Safety.

What if My State Has a Stableman's or Agister's Lien Statute but No Trainer's Lien?  Currently, every state except Rhode Island has a stableman's or agister's lien statute.  These statutes provide those who board, pasture, or stable the horses of another with a lien on the horse if charges related to the care of the horse are not paid.  Charges related to the "care" typically include the monhtly board rate, supplements, wormer, vaccinations, farrier, and veterinary services paid or advanced by the boarding facility on behalf of the owner.  The stableman's lien statutes do not create a lien for unpaid training fees unless training fees are included in the language of the statute.  See Carney v. Wallen, 665 N.W.2d 439 (Iowa Ct. App. 2003)(holding that a trainer who provided training and did not also provide board could not obtain a stableman’s lien because training services do not pertain to actions or services performed in the course of acting as a stable keeper).

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A gentleman recently told me that his stallion had gotten loose, gone onto his neighbor's unfenced property, and "worried" the neighbor's mares.  The neighbor shot at the stallion with a shotgun, and stated that the police told him he was justified in doing so because the stallion was "trespassing on his property."

Is the stallion owner liable for property damage or injury to persons caused by his stallion?  Generally speaking, not unless the stallion owner knowingly let the stallion roam free.

Important to this analysis is that Texas is, generally speaking, still an open range state.  That is--livestock may still roam at large in Texas with two exceptions:

1. Public highways.  The Texas Agriculture Code states "[a] person who owns or has responsibility for the control of a horse, mule, donkey, cow, bull, steer, hog, sheep, or goat may not knowingly permit the animal to traverse or roam at large, unattended, on the right-of-way of a highway." Tex. Agric. Code § 143.102 (Vernon 2004)(emphasis added). The statute defines a "highway" as "a U.S. highway or a state highway in this state, but does not include a numbered farm-to-market road." Id. at § 143.101. Therefore, U.S. and state highways in Texas are effectively considered closed ranged. Conversely, the 40,000-plus miles of farm-to-market roads in Texas are unaffected by this statute.
2. Stock Law Counties or Areas.  Chapter 143 of the Agriculture Code permits local elections to adopt a law (a.k.a. "stock law"), where a person may not permit any animal of the class mentioned in the proclamation to run at large in the county or area in which the election was held. A typical stock law will prohibit horses, mules, donkeys, sheep, goats, and cattle from running at large.
   
   As expressly provided by the Code, some counties in Texas have enacted county wide stock laws, yet others have chosen to elect stock laws only in certain precincts or areas within said county. Unfortunately, there is no statewide index that traces the counties or areas where stock laws have been passed.

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