Equine Law Blog

Three Written Words That Might Prevent a Lawsuit

Gene buys a mare from a horse seller across the country, and pays the full purchase price, which the seller receives. Shipping was set for the next day. As the shipper pulls in to get the horse, it is discovered that the horse has become seriously ill and dies within hours, while still at the seller’s stable. Is Gene entitled to a refund?

The answer could depend on three important words, “Risk of loss.”

Who Bears The Risk of Loss?

“Risk of loss” is a phrase associated with the sale of personal property, including horse sales, and it refers to the risk that the item sold could be lost, damaged, or destroyed before the buyer has taken possession and control of it. With horses, risks of loss, damage, or destruction are always present. For example, the day after Gene sends his final payment and signs the contract, the horse could become lame merely by playing in its pasture. Generally:

• The risk of loss is whatever the parties have mutually agreed in writing (assuming they have a valid and complete sale contract); or
• If no agreement exists between that parties that sets the risk of loss, the risk of loss might be set by law, possibly by the applicable state’s Uniform Commercial Code, if any.
• If no written agreement exists, it is also possible that the circumstances of the sale can help address the issue. For example if Gene bought a policy of equine mortality insurance on the horse, effective the day he paid for it, and if Gene collected insurance proceeds because of the horse’s demise, it make no sense, legally and factually, for Gene to also recoup his purchase price from the seller.

In the example above, if Gene had a contract with the seller that had him accepting the risk of loss from the moment that he sent his payment, his entitlement to a refund is questionable.

Contracts Can Address

Legal battles often can be avoided if the parties plan ahead on the “risk of loss.” A written contract can specify which party — the buyer or the seller — has agreed to bear the risk of loss and when. Here is one example of contract language setting the risk of loss:

Buyer shall assume all risk of loss of the horse or diminution of the horse’s value as of the date a check or payment to Seller for the full purchase price clears the bank. From that date forth, and at all times thereafter, Buyer shall assume responsibility for all arrangements and expenses involving the horse.

A written contract can also require the buyer to purchase an equine mortality insurance policy on the horse for the full purchase price, effective the moment full payment is made.

These risk of loss issues present yet another reason why carefully written contracts are so vitally important in preventing disputes in equine transactions.

This article does not constitute legal advice. When questions arise based on specific situations, direct them to a knowledgeable attorney.

Categories: Sales/Disputes