Catanese & Wells, a Law Corporation, provides a quarterly newsletter to the equine industry of and concerning legal, tax and business issues for participants in the horse business or sport. www.cataneselaw.com
The purpose of this equine legal summary is to address two important issues facing horse owners when presented with certain transactional and insurance related concerns. The first issue relates to documenting equine sales and related agency relationships and the second issue relates to recommendations on insurance coverage in equine lease transactions.
California's Business & Professions Code Section 19525
In 2009, the California legislature enacted Section 19525 of the Business & Professions Code. The statute specifically refers to horses of any breed used for racing or showing. The law requires that any sale, purchase or transfer of an "equine" as defined by the statute requires a written bill of sale or acknowledgement of purchase setting forth the purchase price and the document must be signed by both the purchaser and the seller (or their agents). The statute also provides that any person injured by violation of the statute shall be entitled to recover "treble damages" from persons violating the new law.
Section 19525 also prohibits any person from acting as a "dual agent" (defined as a person representing a purchaser and a seller in an equine sale, purchase or transfer) unless both the purchaser and the seller in writing first consent to the dual agency. Further, the dual agent may not receive compensation in excess of $500.00 unless the agent discloses in writing to the buyer and the seller the amount the agent is receiving as a commission and both the buyer and seller agree in writing to the compensation for the agent. Moreover, if the buyer or seller asks the agent, whether the agent is a dual agent or a single agent, to provide financial records in the agent's possession related to the equine sale, the agent is required to produce the records to the principals. This includes any work product created by the agent in his or her evaluation of the horse.
The purpose of Section 19525 is to prevent unscrupulous individuals from defrauding people in the sale of horses.
Note: Given that Section 19525 is intended to protect persons in horse sale transactions it is very important that sellers and agents abide by the requirements of the statute. The meaning of "treble damages" is yet to be fully determined by any court. In our view the statute has some ambiguity which may bode ill for a seller or an agent found to have violated the statute. We recommend that any seller or agent be careful to document any horse sale which includes obtaining appropriate signatures to documents from both the seller and the buyer.
The Use of Insurance to Mitigate Risk in Equine Lease Transactions
It is not uncommon in certain horse breeds for parties to engage in horse lease agreements. This occurs in hunter/jumper competition and in other show and competitive breeds. Because of tradition and custom and usage in the horse business and sports areas, participants frequently dispense with any formal written agreement. This occurs not only in the purchase and sale of horses, but particularly where short-term leases for horses are involved.
When a horse is leased the single biggest risk for both parties (the lessor and the lessee) is who bears the loss if a horse is injured or suffers a life-ending event. Even if a contract transfers the risk to the lessee, there are occasions where the lessee desires to limit any risk for instances of gross negligence versus ordinary negligence. In other words, the lessee may agree to pay in the event of their extraordinary failure of care, but this type of "verbal" agreement simply creates the likelihood of a lawsuit if the horse suffers injury or death.
The best way to manage risk for both the owner of the horse and the lessee is to provide for all risks of mortality insurance coverage including loss of use. Insurance policies can be tailored to provide coverage for the duration of the lease. And, insurance for this purpose can usually be obtained at a reasonable cost (far less than the cost of attorneys' fees in the event of a dispute). Lastly, where a horse of any value is involved it is always a better practice to use a written agreement for the lease relationship.
For further questions feel free to contact our offices.