Protecting the Seller and the Buyer During a Trial Period
Who would expect that a simple trial period arrangement could go bad? Unfortunately, these arrangements can and sometimes do. In the horse industry, sellers often allow potential buyers a “trial period.” In some trial period arrangements, a trainer may take a horse “on consignment” from the seller with the goal of finding a buyer and paying the seller later. Or, a cautious buyer might want to try out the horse for a while before deciding whether to make a purchase. These arrangements can invite many problems. This article discusses five possible problems and ways to avoid them.
Avoidable Problems in Trial Period Arrangements
Problem One: The “buyer” steals the horse – Sellers fear the chance of a “buyer” who wants a trial period, promises to pay later, hauls away the horse, and then disappears. Here are three ways to prevent the problem: * Require Payment Up Front. Sellers can demand full payment now and allow the buyer to return the horse within a specified time frame for a full refund, assuming that the horse is in good condition. * Registration Papers Until the Last Payment If the buyer needs the horse’s registration papers to breed, race, show, or re-sell the horse, the seller can keep the papers during the trial period but sign them over after the buyer pays in full. * Make the Transaction a Lease With Option to Buy. The parties can enter into a lease agreement that includes an option to change the transaction into a sale under specified terms. During the lease, the seller can continue holding the registration papers until the “buyer” has paid in full.
Problem Two: During the trial period the horse injures the buyer – Liability is a major concern during trial periods. Through these arrangements the seller owns the horse, but there is no telling what the buyer will do to test him out. Sellers can protect themselves by doing a few things: * Make the “Buyer” Sign a Well-Written Liability Release (Where Allowed By Law). In most states, courts will enforce properly worded and presented liability releases. Sellers can insist that buyers sign a well-written release in addition to the trial period contract. What goes into a well-written release of liability will vary with the law of each state. A knowledgeable attorney will explain the requirements and limitations based on the applicable state’s law. * Liability Insurance. Horse owners might want to buy a policy of liability insurance that is designed to “follow the horse” at any location where the horse might be during the trial period. One example is personal horse owner’s liability insurance policy.
Problem Three: Someone else gets injured during the trial period – Because the seller retains ownership of the horse during the typical trial period, this places the seller at risk of being sued by anybody who claims to be injured from the horse. A release signed by the potential buyer is not enough to protect the seller against claims of other people who might be injured by the horse, such as a motorist who collides with the horse if he wanders into a road. Sellers can protect themselves in several ways, one of which is a policy of liability insurance that is designed to “follow the horse” at any location where the horse might be during the trial period.
Problem Four: The “buyer” returns the horse lame or ill – Here are two suggestions for how sellers can protect themselves from this problem: * Keep the Horse. During the trial period the seller can insist on keeping possession of the horse but allowing the potential buyer limited access. Sellers can also set basic rules and restrictions for the horse’s use such as hours, places where the horse can be ridden, permitted riders, and others. This arrangement will give the seller a better chance to monitor the horse’s care and attention. * Equine Mortality and Major Medical Insurance. If the horse is insured with a policy of equine mortality or major medical insurance, the policy is designed to respond if the horse’s health should take a bad turn during the trial period. Make sure the potential buyer knows about the insurance and is aware of the insurer’s emergency contact information and the need to notify the insurer, as well as the owner, of any problems. * Veterinary Care. The parties can identify a specific veterinarian or clinic to attend to the horse if he becomes injured or ill during the trial period.
Problem Five: No written contract – Both parties to a trial period arrangement will benefit from a carefully worded written contract that protects their interests in the transaction. The most effective written contracts are designed to foresee and, as much as possible, prevent disputes before they happen. This takes careful attention and planning. The cost to hire a knowledgeable lawyer to draft a contract is a small fraction of the cost to hire a lawyer to handle a lawsuit. This article does not constitute legal advice. When questions arise based on specific situations, direct them to a knowledgeable attorney.
About the Author
Julie Fershtman is one of the nation’s most experienced Equine Law practitioners. A lawyer for 27 years, she is a shareholder with Foster Swift Collins & Smith, PC (www.fosterswift.com) and has successfully tried equine cases before juries in 4 states. She has drafted hundreds of equine industry contracts and is a Fellow and officer of the American College of Equine Attorneys. She has spoken on Equine Law in 28 states and is listed in The Best Lawyers in America.
For more information, visit www.fershtmanlaw.com, www.equinelaw.net, or www.equinelawblog.com.
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[Written by Julie Fershtman & published in Performance Horse Digest, Volume 1, Issue 4.]
Have you had a good (or not-so-good) experience leasing or offering one of your horses for a ‘trial period’? Spill your guts!
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