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Gift, Sale, or Lease: Horse Deals That Blur the Lines

Imagine getting a call at work one day that a friend, in a dispute over the use of your horse, drove up to your barn, loaded your horse up, and disappeared. A call to the local police produced the callous response: "We told her to do it — if you don't like it, go to court."

The case eventually devolved into a simple case of horse theft (albeit at the behest of the local police department.) Unfortunately, the horse involved in the ownership controversy was too fragile to fare well during its journeying between barns, and unfortunately for the local police, self help repossession is not a remedy allowed under Massachusetts law, despite their advice to the contrary. All parties emerged from this case worse off than before, though the horse was eventually returned to the owner. The genesis of this dispute lies in the blurred lines of the deal that the parties struck: whether gift, sale, or lease. These blurred lines are common in the equine world.

Because horses are expensive to maintain, with board fees typically running $500 or more per month, horse owners are prone to falling into a common trap. The typical thinking goes like this: "I will let Susie use my horse in return for paying board." A variation of this theme is: "I will let Susie have my horse as long as she pays board". A further variation of this theme is: "When Susie pays board, she can have my horse".

Arguably, the first deal is a lease; the second deal is a conditional gift; and the third is an outright sale. The legal duties and consequences for each are very different, as are the remedies available to the parties for breach. A lease means that a definite end of the usage period is contemplated by the parties, and so, title to the horse never changes hands. A gift means that title does pass hands, though there may be a condition upon which the horse must be returned. And a sale means that title DOES change hands in return for something, usually money, and that all responsibility and right to use the horse passes at the moment of sale.

Having now shown how easy it is to accomplish a giant mess, the way forward is relatively simple.

First rule: Write the deal down and have the parties sign and date the paper.

Any sale of goods over $500 requires a writing to enforce, under the law, called the "Statute of Frauds". Horses are goods under the Uniform Commercial Code, and so, any horse deal that results in a sale should be written down. Otherwise, if the parties do not write down the terms of the deal and one party reneges, then a seller will have difficulty enforcing the terms of the sale against a buyer; or a buyer will have difficulty obtaining a remedy against the seller if the horse has a problem after money has changed hands. The Statute of Frauds was created to prevent exactly the kind of self serving swearing contest that is likely to occur among motivated claimants to the same unique good.

If the deal has already been struck without writing and the horse has changed hands, then consult an equine law practitioner if a problem occurs. There ARE ways around the Statute of Frauds, but most attorneys not versed in equine law would be hard pressed to find the route.

Second Rule: Make the Intentions of the Parties Plainly Readable on the Document.

If the parties intend that ownership of the horse change hands, as is the effect of a gift or a sale, then use the words, "gift" or "sale", and then spell out the terms of the sale. Or if it is a gift, spell out the terms of the conditions, if any. This will protect the parties and will provide a clue to the judge (or jury) as to what the parties' intentions were at the moment of the deal. Gifts over $11,000.00 must be reported to the IRS by April 15 after the year in which the gift was given. The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift. Consult a tax professional with questions about the gift tax.

Third Rule: Value Your Valuables

If the horse involved has any value to you (however you define it), then invest in a good contract drafted by a professional. The horse involved in the theft case described above had very little monetary value, but was as dear as a family member to the owner. As is typical in such cases, the parties had to pay the professionals after the fact, which resulted in MUCH higher overall costs to all concerned, not to mention the wear and tear on the horse. A contract can typically be drafted for under $250 and is well worth the investment.

Though educating the police may be a bit beyond the scope of this article, rest assured that that is the next item on the agenda.

Kathleen A. Reagan, Esq. is an equine attorney practicing in Braintree, MA, available at www.kathleenreaganlaw.com, has developed a course in equine law at www.concordlawschool.com, and is co-founder and Vice President of QueryHorse, the largest horse information resource on the Internet.

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