Horse sales usually occur with little or no dispute between buyer and seller. There are, however, instances when a horse sale goes bad. Occasionally, this dispute will result in legal action. This five-part series will address the legal aspects of horse sales, as well as what parties to a horse sale can do to prevent a legal dispute before it occurs. Part I deals with the seller's obligations when selling the horse. Next month, Part II, addresses the buyer's duties when buying the horse. Part III identifies the value of a pre-purchase exam in horse transactions. Part IV illustrates the benefits of using contracts in horse sales, as well as the key elements of a sales contract. Finally, Part V shows special considerations when buying or selling a horse at auction.
Overview
It is every seller's biggest question: "How much do I have to tell this potential buyer?" Many horse owners and trainers deal with this issue of disclosure on a regular basis. Nearly every horse has at least one condition or habit that, if known to the potential buyer, could impact their decision to purchase. This article will attempt to clarify the obligations sellers have when selling horses. As a general rule, sellers have no duty to disclose - it's a buyer beware market. There are, however, several exceptions of which sellers should be aware.
The Rules
General Rule - No Duty to Disclose
As a general rule, the law does not require sellers to disclose conditions or habits of a horse to the potential buyer. In essence, the market is "buyer beware." Please keep in mind that this rule has several exceptions. Many courts have held that potential buyers have the duty to inspect the horse, and the seller need not, on their initiation, disclose all known defects, conditions or vices. These holdings change, however, if one of the following exceptions exists.
Exception; Contractual Obligation
If a horse sales contract includes a provision which requires the seller to disclose all existing defects, then the buyer has a right to rely on the seller's representation that all existing defects have been disclosed. Thus, if such a contractual obligation has been created in a contract, and the horse has a history of colic, then the seller must disclose this history to the buyer. Another more common example arises when the seller contractually represents a horse as "child safe." If such representation is made, then the buyer has a right to rely on the representation. If the seller has misrepresented or failed to disclose certain aspects of the horse, the contractual obligation could result in liability of the seller to the buyer. It is important to keep in mind that the seller's obligations may not end with the purchase price of the horse. If the buyer incurs additional losses, such as vet bills or personal injury, the seller could also be responsible for those losses.
Exception: Express Inquiry
The seller cannot lie. If a potential buyer asks the seller a question, the seller has a duty to answer the question truthfully. Take for example a situation where a potential buyer asks the seller if the horse experienced any lameness problems in its past. The seller must truthfully disclose all lameness problems of which the seller is aware. Additionally, the seller's obligation is not satisfied by saying, "I don't know," if the seller actually knows of the history. If the seller knows the horse has had treatment for lameness in the past, whether by veterinarian, trainer, previous owner or the seller, the law requires the seller to inform the potential buyer of such history upon inquiry. This exception should be of the utmost importance to potential buyers. If the potential buyer knows that the law requires the seller to answer questions truthfully, it should key the potential buyer into asking as many pertinent questions regarding the horse as possible. This will be discussed further in the next article, the buyer's duties in horse sales.
Exception: Fiduciary Duty
A fiduciary duty arises when one party places his or her trust in another. It does not, however, arise merely by a buyer relying on representations of the seller. Rather, it must be a situation where the buyer and the other party are working together - on the same team. The perfect example is when a buyer uses their trainer in assisting them to purchase a horse. This trainer has a higher duty toward the buyer in this transaction than would an uninterested party, and must disclose to the buyer all conditions and habits known about the horse. If the trainer knows, and fails to advise the client of a bad habit regarding the horse, the trainer could be held responsible for resulting damages. This exception occurs most commonly when a trainer sells a horse from one client to another client. In this situation, the trainer owes a fiduciary duty to both the buyer and the seller. Most importantly, the seller must disclose to the buyer all habits and conditions of the horse which could have an adverse impact on the potential buyer purchasing the horse. While this may seem harsh, it is the law.
Exception: Known Misperception
As we have stated, the general rule is that sellers have no duty to disclose conditions or habits to potential buyers. This "known misperception" exception, however, does not allow the seller to stand by silently while a potential buyer incorrectly believes something to be true about the horse. Take for example where a potential buyer wishes to buy a show mare, and plans to breed them following the mare's show career. If the seller knows of the mare's breeding problem, the seller must clarify the buyer's misperception that the mare could carry a foal.
Exception: Fitness for a Particular Purpose
Usually a potential buyer will tell the seller what the horse will be used for if purchased. If the seller knows that the horse should not or could not be used for that purpose, the seller has a duty to inform the potential buyer of the horse's inability to serve that purpose. This exception, along with the known misperception exception, has great application for buyers intending to use horses for young or beginner riders. Sellers should disclose to buyers when a horse is unsuitable for such a young or inexperienced rider. This requirement should be closely followed by the seller. If the seller fails to tell the buyer of a horse's problem, and a child or inexperienced rider is later injured as a result, the buyer could potentially hold the seller responsible for the resulting injuries.
Your Word is Your Bond
When a seller is marketing a horse, they need to bring forth the horse's best attributes. This often includes statements regarding the quality, suitability, and future of the horse. When making these representations, the seller must be careful to not make warranties. The seller must make it clear when a warranty is being made and when they are merely discussing the horse's potential. Failure to act or speak properly could result in the creation of an express warranty.
Results of Not Upholding Your Obligations
Historically, when a horse sale went bad, the buyer was the loser. In today's world, where lawsuits are more prevalent and horses are selling for higher dollar amounts, a seller's failure to uphold their disclosure obligations can have significant ramifications.
Return of Horse and Money
If a buyer finds that the seller misrepresented certain aspects of the horse, they will likely seek to return the horse in exchange for their money. Often times, they will not be satisfied with only that. They will also demand return of all other expenses related to their purchase of the horse, including transportation, vet exams, and other related expenses. While this may begin as merely a request from the buyer, it will likely turn into a lawsuit if the buyer is not satisfied.
Lawsuit
Undoubtedly, lawsuits are on the rise in this country. When people they have been wronged, they no longer have any qualms with contacting an attorney to protect their rights. In a lawsuit, if a buyer can prove that the seller had a duty to disclose a certain fact which was not disclosed, they could have the ability to return the horse for a full refund. In addition, the buyer could collect from the seller all of the buyer's expenses related to purchasing and keeping the horse. Furthermore, depending on the state, the court could hold the seller responsible for paying the buyer's attorney's fees and awarding interest on the amount due. Even if the seller can properly defend the case, the seller will still have to pay the expense of defending the case. Thus, it is a good idea to prevent such problems before they occur - disclose everything you are obligated to disclose under the law.
The largest concern of a seller should be selling a horse with dangerous habits. If the buyer can establish that the seller know of the dangerous habit, but failed to tell the buyer, and the buyer is subsequently injured, the buyer may be able to hold the seller responsible for all injuries.
Embarrassment/Reputation
In the relatively small horse industry, a person's reputation carries a large value. The weight of a bad horse sale and/or lawsuit can have significant impact on this valuable reputation. Usually the value of your reputation cannot be quantified. In order to protect your reputation and prevent embarrassment, you should endeavor to make all necessary disclosures when selling horses.
Conclusion
The law usually requires very little from sellers. When selling horses, it is generally considered a buyer beware market, and horses sell "as is." Both buyers and sellers should be keenly aware of the exceptions to this general rule. Sellers should be aware of the exceptions so that they disclose all that is required under the law. Buyers should ensure that they ask all the right questions and act in ways which require disclosure by the seller. In most cases, if both the buyer and seller act appropriately, the horse sale will be successful and uneventful.
