A lot of horse owners call in complaining of disputes with their partner in a horse. Most disputes arise when a partner quits paying his or her share of the expenses on the horse, or when one partner wants to sell the horse and the other does not. Most predicaments arise when there is no written partnership agreement concerning the partners’ rights and duties with respect to the horse.
I advise all of my clients who co-own a horse with another party to put their agreement in writing. The agreement should include:
- the partners’ respective rights and responsibilities,
- designate who is allowed to take possession of the horse and when,
- a provision about what happens when one partner stops paying her share of the expenses,
- who gets to decide the horse will be sold, and
- how sales proceeds will be allocated between the partners.
Absent a written agreement, multiple owners of one horse will likely be viewed as a "general partnership" from a legal perspective if the parties intended to make a profit on the horse and share in the profit and expenses. The rules governing all partnerships in Texas (including those with no written partnership agreement) are found in Chapter 152 of the Texas Business Organizations Code.
In order for a Texas partnership to sell 100% of a horse, the "majority-in-interest" must agree if the sale is in the "ordinary course of business," and all partners must agree if the sale is "outside the ordinary course of business." Tex. Bus. Org. Code Sect. 152.209. In the case of 50/50 owners, this default rule can result in a stalemate if the partners disagree on a horse sales transaction. This highlights the necessity of a written partnership agreement.
In the case of a complete stalemate, a partner can bring a lawsuit against another partner under the Remedies Section (152.211) of the Texas Business Organizations Code for breach of fiduciary duty to the partnership (refusal to enter into a sales transaction to the detriment of the partnership) or breach of the partnership agreement (failure to pay their share of expenses). A partner can also ask the court to dissolve the partnership and order the assets of the partnership sold or distributed to the partners.
In some cases, one partner will buy a horse with his/her own money before the commencement of a partnership relationship. Later, the original owner might add partners by having them pay the original owner some portion of the purchase price and/or agree to pay a percentage of the expenses related to the horse. In those cases, the bill of sale and registration papers will initially be in the name of the partner who originally bought the horse.
It is important to note that horses acquired in the name of a partner will be presumed to be property of that partner, regardless of whether the property is used for partnership purposes, if the instrument transferring title to the horse (the bill of sale) does not indicate the owner’s capacity as partner or the existence of the partnership, and if the horse is not acquired with partnership funds. Tex. Bus. Org. Code Sec. 152.102(c).
The legal presumption cited above causes many problems in an unwritten partnership scenario. If a horse is intended to be partnership property, partners should create a new bill of sale transferring the horse from the original owner to the partnership or the names of all partners, and transfer the horse’s registration papers (if any) to the partnership.
Partnership lawsuits are notoriously messy…especially when there is no written agreement. Be very wary of entering into any kind of partnership on a horse unless you have an agreement in writing and you completely trust the other person. Also be aware that if your partner is in possession of the horse, your partner may deny you access to it or even sell it and pocket the proceeds in the event of a dispute.