BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 254
Senator Wiggins
As Introduced
Hearing Date: May 12, 2009
Business & Professions Code
KB:jd
SUBJECT
Horses: sale, purchase, or transfer.
DESCRIPTION
This bill would revise horse racing law relative to the sale of
equines. Specifically, this bill would, among other things: (1)
require each purchase, sale, or transfer to be accompanied by a
written bill of sale, and a security agreement setting forth the
price signed by the buyer and seller; (2) prohibit any person
from acting as a dual agent, as defined, without the knowledge
and written consent of the buyer and seller; (3) restrict an
agent's compensation to no more than $500 per transaction unless
the amount of compensation is disclosed in writing and the buyer
and seller provide written consent; (4) allow any person injured
by a violation of its provisions to recover treble damages, and
attorney's fees and costs; and (5) enhance penalties for
violations of this section of law.
BACKGROUND
Business and Professions Code Section 19525 generally governs
the sale of racehorses, and contains specific requirements for
sale transactions intended to reduce fraud and the practice of
undisclosed dual agency in the horse industry. This bill,
sponsored by Jess Jackson, owner of Stonestreet Farms and
Stonestreet Stables, seeks to clarify and strengthen current law
in order to further deter fraud in equine transactions.
This bill was approved by the Senate Committee on Governmental
Organization on April 28, 2009.
(more)
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CHANGES TO EXISTING LAW
Existing law prohibits a person from receiving any form of
compensation in connection with the sale or purchase of a
racehorse, prospective racehorse, stallion, or broodmare, unless
the purchaser and seller have agreed in writing to the payment
of that compensation. (Bus. & Prof. Code Sec. 19525.)
Existing law provides that no contract or agreement shall be
enforceable by way of an action or defense unless there is a
document in writing sufficient to indicate that the party
against whom enforcement is sought or his or her authorized
agent or broker has agreed to the commission, fee, gratuity, or
other form of compensation. (Bus. & Prof. Code Sec. 19525.)
Existing law provides that anyone who receives a commission,
fee, gratuity, or any other form of compensation in violation of
this section is subject to treble damages to the injured
purchaser or seller. (Bus. & Prof. Code Sec. 19525.)
Existing law authorizes the California Horse Racing Board (CHRB)
to suspend or revoke the license of any person who violates this
section. Any transfer of an interest in a racehorse,
prospective racehorse, stallion, or broodmare shall be
accompanied by a written bill of sale setting forth the purchase
price. (Bus. & Prof. Code Sec. 19525.)
This bill would define "equine" to mean a horse of any breed
used for racing or showing, including prospective racehorses,
breeding prospects, stallions, stallion seasons, broodmares,
yearlings, or weanlings, or any interest therein.
This bill would require any sale, purchase, or transfer of an
equine to be: (1) accompanied by a written bill of sale or
acknowledgment of purchase and a security agreement setting
forth the purchase price; and (2) signed by both the purchaser
and the seller or their duly authorized agents or, in a
transaction solely relating to a season or fractional interest
in a stallion, signed by the syndicate manager or stallion
manager.
This bill would provide that when a sale, purchase, or transfer
of an equine is accomplished through a public auction, the bill
of sale requirement may be satisfied by the issuance of an
auction receipt generated by the auction house and signed by the
purchaser or an agent whom the purchaser has authorized.
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This bill would make it unlawful for a person to act as a "dual
agent," which is defined as a person acting as an agent for both
the purchaser and the seller, in a transaction involving the
sale, purchase, or transfer of an interest in an equine without
the prior knowledge of both the purchaser and seller, and the
written consent of both the purchaser and seller.
This bill would make it unlawful for a person acting as an agent
for either a purchaser or a seller or acting as a dual agent in
a transaction involving the sale, purchase, or transfer of an
equine to receive in excess of five hundred dollars ($500) worth
of compensation, fees, gratuities, or other items of value,
related directly or indirectly to that transaction, from an
individual or entity, including any consigner involved in the
transaction, other than the agent's principal, unless both of
the following occur: (1) the agent receiving the item of value
and the individual or entity giving the item of value disclose
the transfer of that item of value in writing to both the
purchaser and seller; and (2) the purchaser and seller each
consent thereto in writing.
This bill would require any person acting as an agent for a
purchaser or seller or acting as a dual agent in a transaction
involving the sale, purchase, or transfer of an equine shall,
upon request by his or her principal or principals, provide to
the requesters, copies of all financial records in the
possession or control of the agent pertaining to the
transaction. For purposes of this subdivision, financial
records shall not include the agent's or owner's work product
used to internally evaluate the equine.
This bill would provide that any person injured by a violation
of this section of law shall recover treble damages from persons
or entities violating the law and the prevailing party in any
litigation under this section shall be entitled to an award of
costs of the suit, reasonable litigation expenses, and
attorney's fees. As used in this section, treble damages shall
equal three times the sum of both of the following: (1) the
difference, if any, between the price paid for the equine and
the actual value of the equine at the time of sale; and (2) any
payment made in violation of the new section of law governing an
agent's compensation.
This bill would provide that no contract or agreement for
payment of a commission, fee, gratuity, or any other form of
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compensation in connection with any sale, purchase, or transfer
of an equine shall be enforceable by way of an action or defense
unless both of the following occur: (1) the contract or
agreement is in writing and is signed by the party against whom
enforcement is sought; and (2) the recipient of the compensation
provides a written bill of sale or auction receipt for the
transaction of the equine.
This bill would authorize the California Horse Racing Board
(CHRB) to suspend or revoke the license of any person who
violates this section.
This bill would provide that the provisions related to the award
of damages or enforceability of an action shall not apply to the
acts or omissions of an entity or individual engaged in
conducting a public auction of an equine, or the entity or
individual's employees or agents, if both of the following
conditions apply: (1) the acts or omissions of the entity,
individual, employee, or agent are in furtherance of or pursuant
to the conduct of the public auction of an equine; (2) the
entity or individual is appropriately licensed or authorized to
conduct that specific public auction by CHRB and any other
governmental entity whose permission or authorization is
required to conduct the auction.
COMMENT
1. Stated need for the bill
According to the author's office, "current law lacks clarity and
has resulted in opportunities for unscrupulous individuals to
defraud people in the sale of horses. SB 254 seeks to remedy
this problem by mandating a reliable written record of horse
transactions and punishing, through treble damages and potential
license revocation, those who use equine transactions to
defraud."
2. Definition of "Equine"
Business & Professions Code Section 19525 does not specifically
define "equine," but rather lists the types of horses whose
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sales are governed under the statute. This bill would define an
"equine" as a horse of any breed used for racing or showing,
including prospective racehorses, breeding prospects, stallions,
stallion seasons, broodmares, yearlings, or weanlings, or any
interest therein. This definition is broader than what is in
current law, which only mentions racehorses, prospective
racehorses, stallions, and broodmares. In addition, the current
definition does not specifically include horses used for
showing. Thus, this bill would expand the type of horses whose
sales are governed by this statute.
3. Required Bill of Sale and
Security Agreement
This bill would require that any sale, purchase, or transfer of
an equine shall be accompanied by a written bill of sale and a
security agreement setting forth the purchase price. The
requirement that all sales of racehorses be accompanied by a
written bill of sale is already in existing law, however,
current law is silent as to the security agreement.
A security agreement is an agreement that creates or provides
for a security interest. (Cal. Uni. Com. Code. Sec. 9102.) A
security interest exists when a borrower enters into a contract
that allows the lender to take collateral the borrower owns in
the event that the borrower cannot pay back the loan. Secured
transactions are usually reserved for instances when a person or
other entity borrows money for the purpose of acquiring
property, for example, racehorses. However, there may be
instances where a purchaser of an equine, as defined in this
bill, may be paying for the equine with cash, eliminating the
need for borrowing, and thus a security agreement. This
committee may wish to consider whether this bill should specify
that security agreements are only required in instances where
the purchaser is borrowing the funds for the purchase of the
equine. The amendment would be as follows:
One page 2, line 30, after "and" insert: ", if applicable,"
Alternatively, the reference to a security agreement could
simply be removed entirely as follows:
On page 2, line 30 strike "and a security agreement"
4. Prohibition of Dual Agency
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This bill would provide that it is unlawful for a person to act
as a "dual agent" without the prior knowledge and written
consent of both the purchaser and seller. "Dual agent" would
be defined as "a person acting as an agent for both the
purchaser and the seller, in a transaction involving the sale,
purchase, or transfer of an interest in an equine."
The relation of an agent to a principal is of a fiduciary
nature, which requires the agent to act in good faith toward the
principal, and precludes him from obtaining any advantage over
the principal in any transaction had by virtue of his agency.
(See Langford, et al. v. Thomas, et al. (1926) 200 Cal. 192;
Calmon, et al. v. Sarraille, (1904) 142 Cal. 638.) California
courts have established that an agent may not simultaneously
represent a purchaser and a seller without the informed consent
from each principal. (See Gordon v. Beck, (1925) 196 Cal. 768,
772 (stating that an agent will not be permitted without a
principal's full knowledge and consent, to undertake to
represent the other party also in the same transaction.)) This
bill's prohibition on dual agency without written consent from
both parties to a racehorse transaction is thus consistent with
current law, and will arguably serve to reduce fraud in the sale
of equines.
5. Limits on Unauthorized
Compensation
Under current law, the purchaser and seller of a racehorse must
agree in writing to the payment of commission, fee, gratuity, or
other form of compensation. This bill would provide that it is
unlawful for an agent in an equine transaction to receive in
excess of $500 worth of compensation, fees, gratuities, or other
items of value related to the transaction from any one other
than the agent's principal, unless (1) the agent receiving the
compensation and the entity providing the compensation disclose
the value in writing to both the purchaser and seller, and (2)
the purchaser and seller consent to the exchange in writing. In
other words, an agent would not be allowed to accept
compensation or anything else of value in excess of $500 from a
party other the principal unless the value of the compensation
is disclosed and both the seller and purchaser have consented to
it in writing.
The $500 amount is based on common law, which has also been
codified in the Uniform Commercial Code, which provides that all
contracts for the sale of goods in excess of $500 are not
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enforceable unless they are in writing. (Cal. Uni. Com. Code
Sec. 2201.) This is intended to further reduce the likelihood
of fraud or dual agency in an equine transaction.
Presumably, the requirement that both the purchaser and seller
must agree to all compensation to an agent from a third party
was intended to increase transparency in agency relationships,
and ensure full disclosure between agents and their principals.
However, it seems unnecessary to require that both the purchaser
and seller agree to all forms and amounts of compensation for an
agent when the agent is only representing one party in the
transaction. Accordingly, this committee may wish to consider
whether the bill should be amended to provide that the
disclosure and written consent requirements only apply between a
principal and his or her agent. This would ensure that
principals are kept informed of all compensation in excess of
$500 received by their agents, but not mandate disclosures to
and consent from parties who are not involved in the agency
relationship. If an agent is acting as a dual agent (with the
informed consent of both parties) then he or she would have to
disclose the compensation received to both the purchaser and the
seller.
The suggested amendment would be as follows:
On page 3, line 19, after "to" insert "the principal or
principals for whom the agent is acting."
On page 3, line 19, strike "both the purchaser and seller."
On page 3, line 19, after the period insert "(2) Each principal
for whom the agent is acting consents thereto in writing."
On page 3, strike line 20
6. Recovery of treble damages and
attorneys' fees and costs
Current law provides that anyone who receives an unlawful
commission in an equine transaction is subject to treble damages
to the injured purchaser or seller. The authorization of treble
damages permits a court to triple the amount of the
actual/compensatory damages to be awarded to a prevailing
plaintiff, generally in order to punish the losing party for
willful conduct. Treble damages are a multiple of, and not an
addition to, actual damages. Thus, where a person received an
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award of $100 for an injury, a court applying treble damages
would raise the award to $300. This bill would provide that the
treble damages recovery applies to any undisclosed payment over
$500 and to the difference between the price paid for the horse
and the actual value of the horse at the time of sale.
The calculation of damages is usually fact-specific, and there
may be instances where a plaintiff's damages are not limited to
the difference in the value of the horse and the amount of
unlawful compensation. This committee may wish to consider
whether the provisions of the bill defining treble damages
should be stricken so that courts may use their discretion to
calculate awards of damages according to the facts of each case.
The suggested amendment would be as follows:
On page 3, line 33, strike "As used in this section, treble"
On page 3, strike lines 34-37 inclusive
In addition to treble damages, this bill would provide that the
prevailing party in any litigation under this bill is entitled
to attorney's fees and costs. Generally, in the United States,
the "American rule" is that parties must bear their own costs of
civil litigation. The Legislature has crafted exceptions to
this rule when it has recognized that privately initiated
lawsuits are often essential to the effectuation of the
fundamental public policies embodied in statutory provisions.
The lawsuits initiated under this bill would be contract
disputes between two private parties who should arguably bear
their own costs of litigation, absent a compelling public policy
interest. This committee may wish to consider whether the
provisions regarding attorney's fees and costs should be
stricken from this bill, especially since a prevailing plaintiff
would already be entitled to treble damages. The suggested
amendment would be as follows:
On page 3, line 30, strike ", and"
On page 3, strikes lines 30-31 inclusive
On page 3, line 33, strike "expenses, and attorney's fees."
7. Exemptions for sales conducted
at auction houses
This bill would provide that individuals conducting public
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auctions of equines are not subject to the requirements for
written contracts and written bills of sale, or to treble
damages, if the individual is licensed to conduct public
auctions by the California Horse Racing Board. This bill would
also provide that the issuance of an auction receipt generated
by an auction house, and signed by the purchaser or the
purchaser's agent satisfies the bill of sale requirement.
These provisions are seemingly intended to recognize the
difference in sales conducted at licensed public auctions as
opposed to those arranged between two private parties.
Support : Hey & Hey Attorneys at Law LLP; Barretts Equine
Limited
Opposition : None Known
HISTORY
Source : Stonestreet
Related Pending Legislation : None Known
Prior Legislation :
SB 560 (Wiggins, 2007) was gut and amended on the Assembly Floor
to contain provisions identical to SB 254. The bill was
referred to Rules Committee pursuant to Assembly Rule 77.2 and
held in that committee.
AB 1418 (Tucker, Chapter 311, Statutes of 1994) enacted Business
and Professions Code Section 19525 which governs the sale,
purchase, and transactions of racehorses.
Prior Vote : Senate Committee on Governmental Organization (Ayes
10, Noes 1)
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