Top 5 Considerations for a Horse Sale Agreement with a Trial Period

If you are thinking about buying or selling a horse on a “trial basis”, or if you are entering into a horse sale agreement with a trial period, here are five of the most important things you should consider:

1)      The Timing of the Pre-Purchase Exam.  The most important consideration in horse sales is usually, “is the horse sound”?  If the horse is not sound enough to perform the intended tasks of the prospective buyer, the prospective buyer shouldn’t be taking it “on trial” anyway.  It doesn’t happen often, but a horse can sustain an injury or get sick during even a short trial period.  Therefore, the pre-purchase exam should be conducted before the horse is ever taken by a prospective buyer to “try out.”  If a question is ever raised as to whose possession the horse was in when the horse was injured or got sick, both parties will be informed of the horse’s condition when it left the seller’s property if the pre-purchase exam is conducted before the horse leaves.  See the following posts for more information on the types of tests that should be conducted in a pre-purchase exam.

Guest Post:  Top 10 Pre-Purchase Exam Considerations

Tips for Equine Pre-Purchase Exams

2)      Insurance.  If the horse is nice / expensive, the seller should insure it for mortality and major medical before the prospective buyer leaves with the horse.  Note:  Sellers should speak with their insurance agent to make sure the seller’s insurance will cover incidents that occur during the trial period.  If the seller’s insurance will not cover the trial period, good equine insurance agents can often sell the prospective buyer a short-term insurance “binder” that will cover incidents that occur during the trial period.  These short-term "binders" may be extended by a formal policy if the prospective purchaser decides to keep the horse.  If the prospective buyer purchases an insurance “binder”, the seller should be named as additional insured.

3)      Written Purchase & Sale Agreement.  All terms of a purchase agreement “on trial” should be reduced to writing.  Among other things, the specific term of the trial period should be set out, as well as who will bear the risk if the horse is injured or dies during the trial period.  A “security deposit” can also be provided for in the agreement, along with specifics on when the seller can keep the deposit and in which instances the deposit will be refunded to the prospective buyer.  The bill of sale (which transfers title to the horse) and the registration papers should not be signed over until after the trial period has expired. 

4)      Liability Release.  The seller should consider having the prospective buyer sign a release of liability should the prospective buyer or its property be damaged during the trial period.  This will not cover injury to third parties in most instances.  A seller can procure a liability insurance policy to cover accidents involving the horse and third parties.

5)      Location of Horse During Trial Period.  A seller should have a prospective buyer agree in writing as to a single location where the horse will be kept during the trial period.  The seller can deliver the horse to said location or make other arrangements to either approve or disapprove the living conditions of the horse before the horse is released to the prospective buyer.  If the prospective buyer intends to board the horse with a third-party, it is wise for sellers to make sure that the prospective buyer pre-pays board for the trial period in advance.  This is to guard against stableman’s or agister’s liens being placed on the horse if the prospective buyer does not pay board during the trial period.

Due to all of these concerns (and others), I do not typically recommend that prospective buyers or sellers enter into "trial period" sale agreements.  In the best case scenario, a seller would allow a prospective buyer to inspect the horse as much as needed prior to the sale, either 1) on the seller's premises;  or 2) at some other venue to which the seller would transport the horse for purposes of inspection.

This post was in response to a special request I received from a reader for a blog post on horse sales with trial periods.  I’m kind of like one of those music groups that takes requests as long as the song is in their repertoire, and I don’t even ask for tips in return!  So please contact me if you have any special requests for a blog topic.  I’m always looking for good content that will be helpful to my readers.

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International Horse Sales Part II: Terms to Include in Your Purchase & Sale Agreement

In addition to the terms usually included in a contract to buy a horse, a Purchase and Sale Agreement involving the shipment of a horse to another country should include the following terms:

1)                  Applicable Law: Will your country’s law, or the law of the other party’s country apply to the contract? This is important, considering that certain German-speaking countries have “minimum warranty” statutes applicable to horse sales (die Gewährsmängel). These minimum warranty statutes may make it virtually impossible for a buyer to resell a horse if it has any of the problems (such as cribbing) that do not meet the “minimum warranties” in those countries.

2)                  Terms for Delivery of Horse & Money: Your agreement should set for a specific protocol for when and where the horse, the bill of sale, registration papers and health certificates, and sales proceeds should be delivered.

3)                  Commissions: Your should specify which parties are receiving a commission (buyer’s agent, seller’s agent, or both?), the amount of the commission, and the protocol for the delivery of the commissions.

4)                  Disputes. How will disputes, if any, be decided?  Having to bring suit in another country in the case of a horse sale gone bad is time-consuming, expensive, and may be impossible. I recommend including a provision for alternative dispute resolution in international horse sales contracts, naming a reputable mediation or arbitration forum such as Equestes to settle or decide disputes.

Legal Documentation for Owner / Trainer Profit Sharing Deals

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 writingI 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.

 

Purchase and Sale Agreement. In a horse sales transaction, a lot of people skip a purchase and sale agreement and go straight to a bill of sale. I do not recommend doing this in most horse sale transactions. A bill of sale is the document that transfers actual legal title of the horse from the seller to the purchaser. Once a seller signs a bill of sale, the horse then belongs to the buyer. 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. 

 

The purchase and sale document 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. 

 

Bill of Sale. The bill of sale to be executed by the seller when the transaction is complete should contain language similar to the following:

For good and valuable consideration, including the sum of ________DOLLARS, ($__,000.00), the receipt and sufficiency of which are hereby acknowledged by ________ (“Seller”), Seller hereby acknowledges the sale and transfer to __________(“Purchaser”) of all title and ownership rights to a certain horse known as “________”, more particularly described as follows:

 

The bill of sale should also contain a detailed description of the horse changing hands, the date the title passes, and signature lines for both the buyer and seller.

 

Owner/Trainer Agreement. In typical profit-sharing deals, once a bill of sale is executed by the seller and the owner obtains title to the horse, the trainer will receive his or her commission from the seller and the seller and owner will make arrangements for the horse to begin training with the trainer. Before the horse goes is delivered to the trainer, an agreement between the owner and trainer needs to be executed to include all the pertinent terms of the agreement.

 

Disputes between owners and trainers where a profit or commission was to be paid to the trainer are one of the most common types of cases that come through our office. These disputes almost never involve a written contract. No matter the terms of the profit sharing deal between an owner and trainer, my advice to both owners and trainers is to get the agreement is in writing to avoid the assertion of liens on the horse, disputes over possession and profits, and billing uncertainties.