Ask a Maritime Attorney: What are the disclosure obligations for selling a boat?
Question:
Last year I completed a major structural repair to my boat after another boat crashed into us during a race. I am now preparing to sell the boat and I am wondering whether I need to disclose the collision and the repairs to the person who buys the boat. I sold a house recently and spent a lot of time with the Transfer Disclosure Statement and other disclosure forms required in a real estate transaction, but does the seller of a boat have a similar obligation?
Answer
The purchase or sale of a yacht is frequently compared to a real estate transaction. It’s a tempting comparison, since the owner may live aboard a yacht, the purchase price may approach (or exceed) the value of a home, the buyer and seller are usually represented by brokers and the terms of the transaction are typically set out in a complicated contract. There are, however, significant differences between the sale of a yacht and the sale of a home, starting with the disclosure requirements.
California Civil Code section 1102 requires the seller of a home to disclose a wide assortment of features and equipment and to disclose significant defects or malfunctions, hazards, easements, damage, and a long list of other problems that may affect the value of the home or the decision of the buyer to go forward with the purchase. Civil Code section 1102 does not apply to a yacht purchase, and there is no similar provision anywhere else in the California Codes that would impose that obligation on the seller of a yacht. So, technically, it seems that the seller of a boat in California has no specific duty to disclose anything to the buyer. Unfortunately, it’s not that simple.
The lack of any specific disclosure statute relating to the sale of a boat does not let the seller off the hook completely. First, California law imposes an implied promise of good faith and fair dealing upon every contract or agreement. This implied promise means that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract. Good faith means honesty of purpose without any intention to mislead or to take unfair advantage of another. Generally speaking, it means being faithful to one’s duty or obligation.
Second, the definition of “fraud” or “deceit” under California law is extremely broad and includes “the suggestion, as a fact, of that which is not true, by one who does not believe it to be true” (Civil Code section 1710). This reference to a “suggestion” opens the door to a lot of very subjective allegations regarding the seller’s behavior during the transaction. In other words, it invites litigation.
Litigation regarding a seller’s disclosures will seek to unwind the transaction, to hold the seller liable for repair costs, or to hold the seller liable for the reduction in market value that would result from the publication of the defect. The lawsuit would first examine whether the seller took steps to intentionally conceal the damage. Absent evidence of intentional concealment, the lawsuit will focus on the representations and other behavior by the seller, and whether such behavior was designed to steer the buyer’s attention away from a defect. This type of behavior may be found to be a form of deceit, especially where no attempt was made to disclose the defect to the buyer.
The scope of the disclosures required in a vessel sale will vary depending on the condition and history of the boat, and on the experience and sophistication of the parties. It really is one of those questions that is impossible for an attorney to answer without knowing all the facts. A lot of it comes down to one of my favorite proverbs: It’s always better to avoid a lawsuit than to win one. Here, even without a legal duty to disclose a serious problem with the boat, disclosure may be the choice that keeps the seller out of trouble.
David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.
David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com, or via email at [email protected].
