Enforcability of "Soundness Guarantees"

A Texas caller bought a horse without getting a pre-purchase exam. The caller has emails from the seller that say the horse “never took a lame step” and was “always sound” while the seller owned the horse. The horse became lame about two months after the caller got him home, and the caller’s veterinarian speculated that the lameness was due to a condition that pre-dated the caller’s purchase of the horse. The caller wants to reverse the sale because the seller “guaranteed” the horse to be sound.

First, the horse trade is one where the phrase caveat emptor (“buyer beware”) applies. It is the buyer’s responsibility to get a pre-purchase exam before buying a horse. Every pre-existing condition cannot be determined in a routine pre-purchase exam. Thus, it is the buyer’s burden to ask the seller specific questions about soundness and suitability for the buyer’s intended purpose, and obtain access to all prior veterinary records on the horse from the seller prior to taking possession of the horse.

Unless the seller expressly promises a refund if the horse is found to be lame, or otherwise expressly guarantees or warranties that the horse is sound, a court will likely not find an express warranty of soundness to have existed. There are no implied warranties on livestock or their unborn young in Texas, as provided in Texas Uniform Commercial Code Section 2.316.

In the absence of an express warranty of soundness, the buyer will have to pursue a fraud action against the seller. To prevail on a fraud claim, the buyer must prove (among other elements): 1) the condition causing the lameness was there when she bought the horse (through a veterinarian’s opinion); and 2) the previous owner knew about the condition at the time of the sale and intended to defraud her.

Plaintiffs lawyers also like to bring horse sale actions under the Texas Deceptive Trade Practices Act ("DTPA") or similar consumer protection statutes in other states.  The DTPA is attractive to plaintiffs because they allow for treble damages and attorneys' fees in some cases.

Fraud and DTPA cases are often "tough sledding'" because the buyer must prove the seller knew about the defect at the time the sale took place.  See Tex. Bus. & Com. Code Sec. 17.46(b)(24). 

Proving the seller knew about the defect is hard to do if there are no vet records or other evidence pre-dating the sale showing a diagnosis of the condition or treatments related to the condition.  

Take aways:  When buying a horse,

  • get a pre-purchase exam done by a vet you know and trust;
  • get a written Purchase & Sale agreement on each horse you buy. This agreement should contain a disclosure by the seller of all known faults with the horse;
  • and ask the seller specific questions about past injuries and illnesses;
  • ask the seller who their vets are and obtain releases from the seller so that you can get copies of prior vet records on the horse. Most veterinary practices adhere to confidentiality practices that prevent them from providing a buyer with acces to records that pre-date the buyer's purchase of the horse; and
  • if you think the seller is guaranteeing a horse sound, get the guarantee in writing.

 

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.