Legal Advice for Sellers at Horse Auctions

1. Avoid Undisclosed Dual Agency Problems.   Sellers should enter into written agreements with their consignors or other agents, and agree upon commissions, reserve prices, and how disputes will be handled. You should also get an agreement from the consignor that all commissions will be fully disclosed to you.  If a bloodstock agent, trainer, or someone else acting on behalf of a buyer approaches you or your consignor and asks for a commission, do not pay it.

2. Avoid Turnback. The prospective buyer has the right to ask the consignor anything relative to the horse’s condition and ownership. Be truthful and straightforward in your answers to avoid problems. Read the Conditions of Sale with your consignor. If a buyer purchases your horse and it does not pass the post-sale veterinary exam within the give time frame (24 or 48 hours), if the problem with the horse one of the conditions warrantied in the Conditions of Sale, the buyer has the right to return the horse to you (otherwise known as “turnback”), and you will not be able to keep the sales proceeds.

To avoid turnback, it is advisable to negotiate with the buyer and reach a mutually-acceptable agreement. One strategy is to reduce the price of the horse, or offer to pay for surgery if the problem is operable. A consignor might also offer to give the buyer some compensation for the risk of surgery.

3. Bidding on Your Own Horse.  Although some people view consigned bidding as unethical, the rules and the law clearly permit it. The practice of bidding on your own horse has also been approved by the Sales Integrity Program. Note, however that if you bid on your own horse and are the final bidder, you will remain the owner of the horse but still owe a commission to the sales company (generally 5% of the final bid).

Legal Tips for Purchasers at Horse Auctions

You do not have to risk being the victim of fraud or other legal issues when you set out to buy a horse at auction. Listed below are some ways prospective buyers can protect their interests and their equine investments:

1. Choose the Right Agent.  No license is required for bloodstock agents to conduct business. Therefore, literally anyone who wants to call themselves a bloodstock agent can do so. It is thus essential that you check references before enlisting a bloodstock agent.  Any auction company issuing a catalog will be willing to offer names of trusted agents in the area. You can also screen agents through an advocate organization, such the Texas Thoroughbred Association, by requesting references. Finally, ask others in the industry about the reputation and character of your candidates. There will be reluctance on the part of many in the industry to make less than complimentary remarks about an individual. Instead, they may refer you to someone else or offer an evasive answer; which can provide you some clues.


2. Establish Agreement with Trainer or Other Advisor Before the Sale.  Trainers or boarding farm managers often provide advice to buyers in selecting racing or breeding prospects. Once a sale is consummated, however, the buyer does not always guarantee that the trainer or breeding farm manager will have the opportunity to train or board the prospect.  If you call upon a trainer or breeding farm manager to provide advice with respect to a racing or breeding prospect, you should provide, and follow through with, an agreement with such advisors before the sale as to what the compensation and/or boarding or training opportunity is implicit in the business arrangement with the advisor.

3. Avoid Undisclosed Dual Agency Problems.  “Dual Agency” is defined by TOBA’s Sales Integrity Program as, “the practice of an agent accepting a commission from the buyer for purchasing/bidding on the horse on the buyer's behalf and also accepting any commission or other commercial benefit from any party involved with the selling/consigning of the same animal, without disclosing this.”   The most common dual agency practice is a pre-arranged agreement between the agent for the buyer and the agent for the seller that establishes a secret price for a horse prior to the sale, and then bidding up the price and dividing any overage between the agent and the consignor.   Avoid dual agency by getting a written agreement with your agent, or use the forms posted on the Sales Integrity Program website at: www.salesintegrity.org. Your agreement should include amount of commissions, and an agreement that the agent will fully disclose all commissions for every transaction.

4. Familiarize Yourself with Limited Warranties in Conditions of Sale.  Major Thoroughbred auction companies recognize extenuating circumstances that allow buyers to return a horse if the horse has a condition or conditions of which the buyer was unaware at the time of purchase (“limited warranties”). The limited warranties are stated in the front of each catalog under “Conditions of Sale.”   Some examples of conditions auction companies might warranty include: breathing problems, vision problems, pregnancy (if mare declared to be in foal), cribbing, and spinal ataxia (a/k/a “wobbler syndrome”) in yearlings or weanlings, and bone warranties.

The warranties in the sales conditions have a very strict time limit which expire at different times (either 24 or 48 hours) after the sale or upon removal from the grounds (whichever comes first).
Make sure you are aware of all the sales conditions and limited warranties for a particular auction prior to bidding on a horse, as you will be bound by the conditions of sale whether you have read them or not. You should also listen to all announcements made from the auction stand prior to the sale of the horse, as there are also some conditions and warranties that must be announced at the time of sale.

5. Know When Title and Risk Pass to You.  Both title and risk pass to the winning bidder at the fall of the auctioneer’s hammer. The winning bidder becomes responsible for the horse and its actions at that moment. Horses must be removed from the sales grounds within 24 to 48 hours, depending on the sale. Taking possession of the horse constitutes delivery and acceptance. Under most conditions of sale, the purchaser’s right to rescind a sale pursuant to the warranties in the conditions of sale is prefaced upon veterinary examination occurring on the grounds.  Consequently, it’s imperative that before moving the horse, a veterinarian determines that the horse does not have any conditions that would allow the sale to be rescinded under the conditions of sale.