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Given the request the family have made, what are you ideally hoping for?
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Many thanks for your patience. This is not so much to do about laws surrounding breeding, and it is still a private arrangement which would depend on what was agreed between you and the other side. Just because they have provided the stud for breeding purposes does not mean they legally have the right to first pick of the litter. This is possible under a contract you had with them and they could have negotiated that benefit as part of providing the stud, but if this was never negotiated or agreed, they cannot force you to do it – there is simply no contractual or legal obligation on you to do that. They could threaten to sue you but they won’t get very far, especially as there is no evidence that this was ever agreed or part of any contractual agreement you had with them, be it written or verbal. Stick to your position, refuse to grant them such requests and make it clear that they do not have an automatic legal right to this, and because they failed to agree it in advance, it is not up to them who has first pick.
Does this answer your query?
They would have provided the stud on the terms you offered them so if that is all they had been given and they accepted it by proceeding with the provision of the stud, that would have implied their acceptance of those terms. If the choice on whether they get a stud fee or a puppy was theirs, you still need to ask the which one they prefer but without the requirement to give them first pick