Implied Warrant of Merchantability

Steve, an active adult amateur rider is ready to sell his 14-year-old Quarter Horse reining gelding, Gus. Because Steve’s work-life consists of long hours and a busy schedule, he hires his trainer, John, to market and sell Gus. In exchange for John’s efforts, Steve agrees to give John a percentage of the sale price. John is familiar with Gus and is happy to help Steve, especially because once Steve sells Gus sells, Steve plans to buy a reining futurity prospect and put it in training with John.

John reaches out to some of his contacts and is connected with an older woman named Betty. Betty comes to John’s facility for a trial-ride and falls in love with Gus. The following day, Betty has a veterinarian conduct a pre-purchase examination on Gus which includes a medical exam, an auscultation of Gus’ heart, lungs, and abdomen, and a series of flexion tests.

Later that day, the veterinarian calls Betty with his findings and gives her the green light to buy Gus. John, acting as Steve’s agent, and Betty sign a basic bill of sale and Gus is loaded on a trailer headed to Betty’s farm.

A few weeks after Gus’ arrival to Betty’s farm, he comes up lame on the hind-end. Betty has Gus examined by a sports medicine veterinarian who conducts a lameness evaluation and performs a series of nerve and intra-articular blocks. It is determined that Gus’ lameness is coming from his stifle joint, so the veterinarian takes a series of radiographic and ultrasonographic images. Gus is diagnosed with having a cyst on the medial femoral condyle and, according to the veterinarian, this condition was present at the time of the sale. The veterinarian recommends surgery, but with a guarded prognosis.

Betty reaches out to John and demands that Steve either take Gus back and refund her money or that Steve pays for Gus’ surgery and rehabilitative care. By this time, Steve has already purchased another horse, he has no interest in paying for Gus’ surgery or refunding Betty, and he had no idea Gus had an issue with his stifle. Believing Betty will never be able to prove that he committed fraud, he simply ignores Betty’s demand.

Betty ultimately takes Gus for surgery and sends him to a rehabilitation facility for 3 months. Unfortunately, Gus never returns to soundness and Betty was never able to show or ride Gus as she originally intended. Although Betty does not consider herself to be a litigious person, and she has never sued anyone in her life, Betty files a lawsuit against Steve for, among other causes of action, breach of the implied warranty of merchantability.

In most states, unless properly excluded or waived, a warranty that goods (here, the horse) shall be merchantable is implied in a contract for their sale if the seller is a merchant. In the equine context, merchantability means that the horse is fit for the ordinary purpose for which its used or will otherwise pass without objection in the trade.

Normally, a merchant is defined as a professional that holds themselves out as having skill or knowledge related to the sale or someone that is using an agent or broker who holds themselves out as having such knowledge or skill.

In this case, because Steve is an amateur and does not hold himself out as having any particular skill or knowledge related to the sale of horses, he normally would not be considered a merchant for purposes of the implied warranty of merchantability. However, because Steve utilized John as his agent for the sale and John does hold himself out as having skill and knowledge related to the sale of horses, John’s merchantability status was imputed to Steve in this case.

Betty claimed that Gus was “unmerchantable” at the time of his sale because the cyst caused him to be unsuited for her intended use. Steve argued that because Betty had a veterinarian inspect Gus, she effectively waived the implied warranty so that there is no warranty of merchantability in connection to this sale. The court, however, disagreed.

According to the court, when a buyer reasonably examines the horse there is no implied warranty only with respect to defects which ought to have been revealed and that the warranty will still be effective as to those defects which cannot be discoverable by a reasonable inspection.

The court found Betty’s pre-purchase examination to be reasonable, and because the defect was not found during that reasonable inspection, the implied warranty of merchantability was still in effect. Steve alternatively argued that he had no idea Gus had the cyst so he should not be liable to Betty. The court again disagreed, stating that even defects that are not discoverable by a merchant are still grounds for liability under the implied warranty of merchantability.

In other similar cases, courts have considered horses with blindness, deafness, one leg longer than another, lameness, and infection with disease to be “unmerchantable” for purposes of the implied warranty of merchantability. In these cases, the courts either forced the parties to rescind the sale or allowed the buyer to recoup damages.

This case illustrates the importance of utilizing a carefully drafted sale agreement to properly exclude such implied warranties. This applies not just for trainers and other equine professionals, but for amateur riders who use an agent to periodically sell horses as well.