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Right of First Refusal Clauses: Are They Worth the Paper They’re Written On?

What is a Right of First Refusal?

Equine-related contracts sometimes include a “right of first refusal” clause that restricts how a horse can be re-sold. Through these clauses, a horse buyer agrees to give the seller an opportunity to buy back the horse later under certain specified conditions. For example, these clauses sometimes provide that if the buyer (after becoming the horse owner) later receives a legitimate offer to buy the horse and is inclined to sell, the former owner must first receive the opportunity to match that purchase offer and pay within a certain time frame.

Risks and Options for Action

Right of first refusal clauses sometimes generate disputes in the horse industry. This can happen when horse buyers file away their contracts and, years later, forget the promises they made. Sometimes, these clauses are so unclear or unenforceable as written that the parties don’t understand their rights and obligations.

Generally speaking, what rights do people have if they believe someone violated a right of first refusal?

  • Depending on the contract’s language and applicable state law, if the former owner who holds a right of first refusal is denied his or her contractual right to repurchase a horse and learns that a sale is in progress, that party – before the sale – could potentially bring a lawsuit seeking an injunction to stop the sale so that a court can enforce the right of first refusal clause. These types of lawsuits also ask the court to order specific performance to allow the former owner to buy back the horse as the contract terms permit.
  • If the right of first refusal was part of a verbal equine sale agreement, with nothing in writing, chances are good that the claimed “right” will not be enforceable based on the state’s statute of frauds.
  • If the horse has already been sold, in violation of a right of first refusal, the would-be buyer’s lawsuit might potentially seek monetary damages. Proving what those damages are can be especially complex, however, raising numerous questions such as: Did the former owner (who was denied a re-purchase right) lose profits? Are the claimed lost profits too speculative and therefore not recoverable by law? Did (or could) the would-be buyer take reasonable efforts to mitigate his or her claimed losses?

When you include “right of first refusal” clauses in your equine sale contracts, draft the language with great care and consider seeking legal counsel to help in the process. Equine sellers who rely on these clauses might want to remind the buyers about them as time goes on, before the buyer places the horse on the market; this may also help the buyer notify others that all sales will be subject to a right of first refusal.

Conclusion

Disputes involving rights of first refusal can be complicated, especially when the parties draft unclear clauses or fail to honor them. When drafting these clauses and when evaluating your rights under them, consider seeking timely advice of knowledgeable counsel.

Categories: Contracts, Sales/Disputes

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is considered to be one of the nation's leading attorneys in the field of equine law. A frequent author and speaker on legal issues, she has written over 400 published articles, three books, and has lectured at seminars, conventions, and conferences in 29 states on issues involving law, liability, risk management, and insurance. For more information, please also visit www.fershtmanlaw.com and www.equinelaw.net, and www.equinelaw.info.

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Julie Fershtman, author of our popular and prolific Equine Law Blog, was interviewed this week by the State Bar of Michigan. The interview, which called Fershtman "Lawyer-Blogger," discussed our Equine Law Blog. We truly believe that this blog is the nation's most active blog serving the equine industry on equine law topics, and we thank you for visiting it. Read more here.

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Congratulations, Julie! We're proud to share that Julie Fershtman has received two prestigious awards.

On April 13, 2013, she received the American Youth Horse Council's 2013 "Distinguished Service" Award. As the award itself states, she received it "[i]n recognition of years of dedicated service to the American Youth Horse Council and tireless efforts to touch the lives of youth involved with horses." For more information about the American Youth Horse Council, please visit www.ayhc.com/.

On May 7, 2013, Julie received the 2013 "Industry Award" from the Michigan Equine Partnership for her work over the years supporting legislation to promote and protect the Michigan equine industry. For more information about the Michigan Equine Partnership, please visit www.miequine.com/.

RECENT EQUINE LAW COURTROOM VICTORY

We're pleased to share that Julie just won a case in Michigan where she defended a boarding and training stable that was sued by a visitor who was injured in the barn aisle. Julie cautions that this case might have been avoided altogether if the stable required every visitor to sign its waiver/release of liability. (Julie, interestingly, drafted that stable's release document years ago but the stable only presented it to customers.) Make sure that your release is well-worded and complies with the laws of your state.

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Did you know Julie Fershtman has spoken at the American Horse Council Annual Meeting, Equine Affaire, Midwest Horse Fair, Equitana USA, US Dressage Federation Annual Meeting, North American Riding for the Handicapped (now PATH International) Annual Meeting, American Morgan Horse Association Annual Meeting, American Paint Horse Association Annual Meeting, US Pony Clubs, Inc.'s Annual Meeting, All-American Quarter Horse Congress, American Youth Horse Council Annual Meeting, American Riding Instructors Association Annual Meeting, CHA Annual Meeting, and numerous others? Consider signing her up for your convention. Contact Julie.

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