The Fine Print – Breeding Contracts, by Julie I Fershtman

If you are breeding a mare this year, as you go through the process of selecting a stallion, here are some elements of breeding contracts in the equine industry to consider:

Contracting With the Right Person – Mare owners should make sure that the one with whom they are contracting has authority. Never accept a contract signed by an employee or agent unless you have first confirmed that the party presenting the contract and signing it has authority to do so. If the stallion is managed by someone other than its owner, the contract should specify that the manager has authority to transact business on behalf of the owner and, of course, execute contracts. And unless a farm name is a true legal entity (such as a corporation or limited liability company), it should not be named as a party to contract.   The contract can include a clause stating that the party signing the contract on behalf of an entity (such as a partnership, corporation or LLC) is duly authorized to do so and to bind the entity to the terms of the contract.   This issue has actually come up in litigation over the years.

Stallion Availability“¨- The stallion’s availability during the breeding months is critical: Some stallions maintain showing schedules while advertised to the public for breeding. For breedings requiring timely access to the stallion ““ breeding with fresh semen via live cover or artificial insemination, or cooled shipped semen (as opposed to frozen semen that can be stored for shipment) ““ the contract can specify a range of months in which the stallion is available.

Disclosure of Diseases and Hereditary Conditions“¨- The health of the stallion is vitally important, as it can directly affect the health of the mare, her offspring and even the mare owner’s farm.   The breeding contract provides an excellent opportunity for the stallion owner or manager to certify that the stallion is in good health and whether or not, for example, he is a carrier of diseases such as equine viral arteritis (EVA), hereditary equine regional dermal asthenia (HERDA) or hyperkalemic periodic paralysis (HYPP).   Mare owners might want assurances within the breeding contract that the stallion has been tested for any or all of these.

Payment ObligationsҬ- To prevent surprises and stay within budget, mare owners can look to the contract to specify fees that the stable expects to charge in the breeding process. By listing fees and charges, the parties to the breeding contract can avoid disputes and clarify the process.

Mare owners should examine the contract for these fees:

“¢  Shipped semen collection fees and/or shipping fees

“¢  Shipping container deposits and refund terms for the deposit

“¢  Booking fees: While breeding farms vary in their reasons for using a booking fee, a common reason is to secure a spot on the stallion’s breeding list for a given year.

“¢  Sales taxes

Other services that the stallion manager might secure for the mare and pass along to the mare owner for payment, such as veterinary fees and expenses associated with the breeding process, including uterine culture tests, ultrasound, hormonal treatments, etc.

Look for dates when payments are due. Contracts frequently address nonpayment or late-payment problems, such as late-payment fees and interest on unpaid balances. While reasonable late-payment fees are commonly found in equine industry contracts, interest rates can vary considerably because state laws regulate maximum interest rates. What is legal in one state could be considered excessively high in another.

Foal Guarantees“¨In the American Quarter Horse industry, breeding contracts customarily come with a “live-foal guarantee.” Some stallion managers even offer “live color foal guarantees.” As simple as the terms may seem, they can generate widely different expectations among mare owners and stallion management. To prevent misunderstandings, the breeding contract can define these terms. As examples, the live-foal guarantee can be defined as:

A single foal that can stand and nurse; or   – A foal that survives for 24 hours (some contracts extend this to 72 hours) after birth

Less common are “no guarantee” breeding contracts in which the mare owner receives a breeding right for a season, but no rebreeding rights follow if the mare fails to generate a live foal.

In other breeds where frozen semen is the norm, occasionally stallion owners offer frozen semen straws for sale with no return rights, no guarantee of fertility and no live-foal guarantee.

Authorized Services“¨- When a broodmare is stabled at the stallion owner’s facility, disputes sometimes arise when management arranges for the mare to receive professional services such as veterinary or farrier attention.   Mare owners can request a contract that stipulates advance notice and an opportunity for the mare owner to consent to such services (except, possibly, in emergency situation when the mare owner can’t be reached). Or, if the mare owner does not approve certain procedures, such as invasive testing, he or she can insist that the contract specify that no permission is granted for specified services.   By comparison, stallion managers handling visiting mares often prefer language within the breeding contract giving broad authorization to arrange for routine or emergency professional services at their discretion, such as inoculation, reproductive examinations, hoof trimming or others.

Entitlement to Refunds –“¨The breeding contract can specify whether or not and when the mare owner is entitled to receive a partial or full refund. For example, the mare owner might only have one mare to breed. If something happens to the mare before the breeding takes place, a refund would be far more important than an option to breed with a substitute mare.   Conversely, if the mare owner is interested in the genetic match between the mare and a specific stallion, should that stallion die or become infertile before the breeding can take place, a refund would be far more important than the stallion owner’s right to select a substitute stallion to fulfill the contract.   Mare owners who seek to fulfill re-breeding rights under the breeding contract are sometimes surprised to learn that they are expected to pay additional booking fees. To avoid misunderstandings on the issue, mare owners should look for how the contract defines re-breeding rights.

Insurance in WritingҬ- Insurance can play an important role in the breeding transaction, especially when a mare is kept in the care, custody and control of stallion management. The breeding contract can account for insurance in several respects. Here are two:

1.                         If the broodmare (or foal) is insured, the stallion owner should keep on file the name of the insurance company (not the agency that sold the policy), the policy number and the insurer’s designated 24-hour emergency contact number. That way, in situations of injury or illness to the insured horse when the mare owner cannot be reached, stallion managers can fulfill the mare owner’s obligation to notify the insurer. Mare owners, recognizing that compliance with policy’s notice requirement can be important, have every incentive to make sure that stallion management has this information and that the managers will notify the insurer in these situation.

2.                         Mare owners might want the contract to specify that the facility is insured with “care, custody and control” liability insurance. This insurance is designed to respond to claims involving injuries to or losses involving horses a boarding stable cares for but does not own.

Release of Liability“¨- Reputable stallion owners and managers pride themselves on quality service and satisfied customers. Nevertheless, their breeding contracts often include releases of liability that are designed to protect the stallion owner and affiliated persons from liability if the mare or foal become injured or die from the breeding or care.   Mare owners shouldn’t assume these clauses are unenforceable. In fact, most states have shown a willingness to enforce them, even when the business protected by the release was negligent.   By comparison, releases that attempt to disclaim liability for severe wrongdoing, such as gross negligence or wanton and willful misconduct, are far more likely to fail in a legal challenge.

Disputes and Legal Fees“¨- The inescapable fact is that even with a well-worded breeding contract, disputes can arise. These disputes sometimes escalate into litigation. In equine matters, litigation can be expensive, and very rarely will a court order a party to pay the other’s legal fees unless the judge is convinced that a specific statue or contract has carefully addressed the matter.

Mare owners who want to protect the right to be reimbursed their legal fees can make sure that the breeding contract includes language that if legal action is undertaken to enforce the contract, the prevailing party can collect attorney fees and court costs.   Never assume that the court will award attorney fees to either party without a specific statue or contract creating an entitlement. Whether the dispute involves collection of fees or another matter, the contract should include language that if legal action is undertaken to enforce the contract or collection fees, the prevailing party shall collect attorney fees and court fees.

The right breeding contract between a stallion and mare owner can prevent a number of foreseeable problems. Both stallion and mare owners are sometimes surprised to learn ““ especially after things go wrong ““ that their breeding contracts have failed to address critical and foreseeable problems.

Julie Fershtman, a Shareholder with the full-service law firm Foster, Swift, Collins & Smith, P.C., practices primarily business litigation, insurance law, and equine law. She has tried equine cases before juries in 4 states and has spoken at conferences in 28 states.   For more information, please visit www.equinelaw.net.