Equine Law Blog

Selling a Horse on Installment Payments: Part III – Avoiding Common Disputes

Over the years, horse sellers have entered another’s property, such as a private barn or pasture, in an attempt to repossess a horse, only to face costly legal battles and sometimes even criminal charges of trespass and theft, as a result.

Here are suggestions for avoiding equine installment sales disputes.

1) The Buyer Stops Making Payment

When the buyer stops making payments, the seller’s options include:

• Hold the Registration Papers until the Final Payment Clears the Bank
  Especially if the horse’s value for racing, showing, or breeding purposes depends on its registration papers, sellers would be wise to retain the papers in their own name and to hold them until the buyer’s final payment has cleared the bank.  This alone is strong motivation for some buyers to pay on time, and sometimes to even make early payments.
• Properly Document the Seller’s Right to Repossess
  A carefully written installment sales contract can give sellers a security interest in the horse.  Consider a legally proper UCC (Uniform Commercial Code) financing statement in a form required under the applicable state’s law, and specify from the beginning how and when you may repossess the horse. Without proper documentation, repossession is not easy.

2) The Horse Becomes Injured, Ill, or Dies Before the Buyer Makes the Final Payment

Of the many ways to avoid this problem, here are two:

• Address "Risk of Loss" in the Sales Contract
  For the seller’s protection, an installment sale contract can specify that the buyer exclusively bears all risk of the horse’s loss after the horse has been delivered to the buyer or after the buyer has signed the contract.  This means that the buyer will accept the risk of injury to or loss of the horse, and that the buyer is still responsible for paying the full sale price, as agreed.
• Insure the Horse
  Insurance cannot prevent a horse’s illness or death, but it can protect both parties if something should happen to the horse before it is fully paid for.  The sales contract can require the buyer to purchase a policy of full mortality insurance on the horse, which designates the seller to receive certain proceeds in the event that a claim is made (this is often called naming you the seller as a “loss payee” on the insurance policy).  Remember that the buyer and the seller cannot insure the horse at the same time. For the buyer’s protection, and to prevent the seller from reaping a windfall from collecting installments and also an insurance payout, the contract can specify that  the seller, if mortality insurance proceeds are paid out, can only accept insurance proceeds equal to the amount of the remaining installments, and the rest will go to the buyer.

3) The Seller is Either Paid in Full or Has Repossessed the Horse – But It Took a Fortune in Legal Fees To Get This Result

Installment sales arrangements can generate costly legal battles.  Here are two options for addressing the problem:

• Address attorney’s fees in the sales contract
  An equine sales contract can protect the seller by specifying that the buyer agrees to pay the seller’s legal fees if a legal dispute arises involving the contract.  Or, the contract can state that the losing party must pay the winning party’s legal fees. Unfortunately, there is never a guarantee that a court will enforce an attorney fee clause; without them, however, the seller has very little chance of recouping the cost of legal bills.
• Include an interest rate clause in the contract
  Banks and credit card companies charge interest on unpaid balances through carefully written contracts that specify the rate of interest.  Maximum interest rates vary by state law. Financial institutions and credit card companies are usually legally permitted to charge higher rates of interest, mainly because of the heavy degree of regulation these institutions receive from the government.

By proceeding cautiously before entering into an installment sale, you can avoid legal disputes altogether or narrow them considerably.  Legal advice is strongly recommended.

Categories: Sales/Disputes