Get It In Writing: Why Sales Contracts And Lease Agreements Are Essential
I can’t tell you how many times I hear, “My handshake means something,” and “My word is my bond.” I also can’t tell you how many times I read about sales or leases gone wrong – dishonest sellers/lessors, buyers that go silent when it comes time to pay, or even lessees who don’t return the horse to the lessor at the end of the term.
Additionally, social media and the increased number of transactions where buyers purchase horses over the internet, sight unseen, and not locally, have spotlighted these issues.
Each time I see these scenarios, I can’t help but think: handshakes are nice…but contracts are nicer.
***Now might be a good time to give you an important disclosure: I’m a lawyer. I love contracts. And I’m about to provide you with some legal advice…free of charge!
What Do Contracts Help With?
Contracts are one of the most effective tools in a lawyer’s toolbox. Contracts perform two essential functions, they: (1) lay out the essential terms of a transaction/relationship and (2) allocate risks.
Contracts may seem like a large burden upfront, when a handshake is far easier. However, in my experience as a litigator, I’ve seen many contracts end disputes and many handshakes start them. This is mostly due to the fact that the majority of disputes arise out of misunderstandings, changed circumstances, and unbalanced obligations or risks.
By putting the essential terms of a transaction in writing, you set yourself up for fewer misunderstandings and give yourself a roadmap for dealing with changed circumstances and worst-case scenarios.
Our Industry Helped Write the Case Book for Contracts
My first day of contracts class in law school involved a case study around the sale and board of a horse (it was a great way to establish my love for the subject).
The case, known as Bailey v. West, involved a situation in which a buyer, Mr. West, refused to accept the delivery of a lame racehorse. Mr. West told his trainer to return the horse to the seller. The seller did not accept the return of the horse and the animal was shipped to a nearby farm owned by Mr. Bailey (the Plaintiff). Here is where things got strange…
Mr. Bailey cared for the horse and sent monthly bills to Mr. West, which were never paid as he refused to accept the horse and believed it did not belong to him. There was never a written board agreement.
The appellate court ultimately ruled there was no implied contract and Mr. Bailey was not entitled to years of back-board for the care of the horse because it was unclear who the horse belonged to. You can’t have a contract where the parties to it are unclear. The moral of the story is this: If you want to make sure you get paid…get it in writing.
Our Industry Is Ripe For Lawsuits
We lawyers believe there are certain situations that are begging for conflicts. They tend to involve (1) lots of money, (2) someone’s kids, and (3) where emotions are high.
The horse industry hits the trifecta on those elements! Whether the “kid” is someone’s actual child who loves the horse, or the horse itself is the “child,” we deal in situations daily where people are heavily invested in these transactions with money, time, and emotions.
Therefore, friendships are far more likely to be torn apart by deals gone wrong in our industry than other bad deals. When you mess with money and somebody’s furbaby…well, things are set up to go south very quickly.
What Are The “Essential Terms” I Should Include In My Sales Contract?
The best way to protect yourself from a deal gone wrong and a finger-pointing social media thread is to have a good contract.
A good contract doesn’t need to be as long as your mortgage documents, but it must include the essential terms. These include, but are not limited to:
(1) A description of the animal to be sold (i.e., name, registration number, perhaps a photo);
(2) The purchase price;
(3) How the purchase price is to be paid (i.e., is there a deposit? Is there a payment plan? What is the method of payment?);
(4) An allocation of risk (i.e., what happens if the buyer backs out? Is the deposit non-refundable? What happens if the horse dies after the deposit is paid? What happens if the horse is injured during the haul to the buyer? Is the horse sold “as is” or does the seller guarantee it for a particular purpose?);
(5) An opportunity to inspect (buyers need to have the right to see the horse or have the horse examined by a licensed veterinarian of their choosing, if they elect not to, it is at their risk); and
(6) Signatures of the parties to the sale or lease.
While there are many additional terms that can be included in a contract, this is a good start.
What Are The “Essential Terms” I Should Include In My Lease Agreement?
Lease agreements can be prone to even more disputes, given that they require an ongoing relationship between the lessor (owner of the horse) and the lessee (person leasing the horse form the owner).
Here, important terms include, but are not limited to:
(1) A description of the animal to be leased (i.e., name, registration number, perhaps a photo);
(2) The lease amount (i.e., what costs are included in the lease?, who is responsible to pay for vet, farrier, board, training, insurance, etc. during the lease term?);
(3) The term of the lease (i.e., when will the lease expire of its own terms?);
(4) A structure for early termination (i.e., if either party seeks to back out before the term expires, the circumstances in which that is allowed without penalty);
(5) An allocation of risk (i.e., what is the penalty for terminating the lease early, if any?, what happens if the horse dies during the lease term?, what happens if the horse is injured during the lease term?);
(6) An opportunity to inspect (lessees need to have the right to see the horse or have the horse examined by a licensed veterinarian of their choosing, if they elect not to, is it at their risk?); and
(7) Signatures of the parties to the lease.
Again, this is a very “bare bones” list.
When In Doubt, Ask A Lawyer
I wouldn’t be a real lawyer if I didn’t encourage you to seek legal counsel for large transactions, unique scenarios, and complex terms (like right of first refusal, retention of embryos, where the horse is sold in partnerships/shares, lease agreements for renowned horses, leases of a stallion, etc.).
Be skeptical of people who don’t want a contract. Many years ago, this may have been a sign that they were honorable and their word was their bond, but by today’s standards, you might be priming yourself for a lawsuit. You will always be better served by putting something in writing than nothing at all.
Indeed, the sentence, “I, John Smith, agree to sell Jane Doe the AQHA gelding ‘Shudda GotAContract’ for $5,000 USD” is a contract at its most basic level.
So, buyers and sellers (or lessees and lessors) BEWARE: we may show in western classes, but this isn’t the wild west. Get. It. In. Writing.