A written bill of sale can include terms and conditions that will help avoid misunderstandings between the seller and buyer of a horse.

War Emblem in the past few months soared to the head of the three-year-old class when he won the Kentucky Derby and Preakness Stakes. Perhaps the only unfortunate sidenote to his accomplishments was a dispute arising because the colt was sold following his Illinois Derby victory at Sportsman’s Park and, by subsequently winning the Kentucky Derby, was entitled to a $1 million bonus offered by Sportsman’s Park. However, the Bill of Sale and Purchase Agreement did not state whether the buyer or the seller was entitled to the bonus. Such misunderstandings can be avoided with a properly drawn up bill of sale, and in this article we will identify some basic aspects to help you when you buy a horse privately.

The Uniform Commercial Code (UCC) Article 2 governs the “sale of goods,” which includes sale of horses. The UCC section commonly referred to as the “Statute of Frauds” requires that a contract for the sale of a horse over $500 generally must be in writing to be enforceable. This writer and the TOC strongly recommend a very thorough bill of sale to spell out all the agreed terms and conditions.

The first paragraph should specifically and accurately identify the parties and whether they are an individual, partnership, corporation, or other entity. It should also include the addresses and states of the individuals or other entities. The next portion is usually the “recitals.” These “Whereas” statements describe the background for the agreement, and that the parties wish to enter into an agreement. This can be important in interpreting the parties’ intent if other portions of the contract are ambiguous.

You should next specifically describe the horse being sold, including its name, sex, color, markings, birth year, sire, and dam. Then include the “transfer clause,” which conveys rights in the horse from the seller to the buyer. Here, retention of breeding rights, any bonus purses (such as the case with War Emblem), etc. should be addressed.

The bill of sale should specifically state the purchase price and payment terms for the horse. This will include the price, method of payment, and time of payment. If the seller is financing the deal, accepting a promissory note, and retaining a security interest in the horse, these terms must be included. It is important that the seller file a financing statement in the jurisdiction where the buyer resides and take other measures to best protect that security interest.

The agreement should address all warranties and disclaimers. Often the seller will expressly warrant that he/she has title to the horse and the ability to convey title to the buyer. Also, under the UCC horse sales involve certain implied warranties that are legally interpreted by the court to be included in the agreement unless expressly disclaimed by the agreement in conspicuous print. Most often the seller will disclaim all warranties, using the legally effective phrase “As Is.”

Other items a bill of sale can address are when title passes from seller to buyer, how the horse is to be delivered, the cost of transportation, insurance issues, and when “risk of loss” of the horse passes from seller to buyer.

Without a written agreement to the contrary, the UCC provides that the risk of loss generally shifts when the buyer tenders payment for the horse, even though the horse is still in the seller’s possession and control. A buyer might want a bill of sale to stipulate that the risk of loss does not shift at the time of payment, but rather at the time he or his agent takes possession.

If the buyer and/or seller are using agents, this writer recommends that the agreement identify the agents and the amount each agent will be paid as commission.

While the above issues are the most common sources of costly litigation, other things you might consider are 1) taxes and other impositions, 2) what constitutes a default on the agreement and what types of remedies are available in the event of any default, and 3) miscellaneous clauses concerning the jurisdiction where any dispute will be heard, whether the matter will be referred to arbitration, whether the losing party will be entitled to an award of reasonable attorney fees and costs, etc.

Finally, any party who is to be bound by the agreement’s terms must sign it. If a corporation or other entity is involved, it is important to ensure the signing party has authority to sign for the entity.

With a thoroughly drafted Bill of Sale and Purchase Agreement, many problems can be avoided. Without one, the transaction can become a war that no one wins.

(This article first appeared in the July 2002 issue of Owner's Circle and is reprinted with permission of Thoroughbred Owners of California )
 

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