Question:
We recently entered into a written agreement with a private party to purchase a boat. The “agreement” was a generic purchase agreement that the seller found online, and we realize now that it was missing a lot of terms that are important for a boat purchase. We left a deposit check with the seller, and the agreement stated that the check would not be cashed for at least four days, which allowed us time to inspect the boat and confirm that the boat was acceptable to us. We are looking for a liveaboard boat, and after talking with some knowledgeable people, we decided the boat was not for us. We called and emailed the seller one day after signing the purchase agreement to advise him that we were no longer interested in the boat. Unfortunately, he has refused to return our deposit, claiming that our reason for rejecting the boat needs to be better than “it is just not for us.” Is he correct? Have we lost our deposit?
Answer:
Our reader may learn the hard way that ambiguity in a written agreement often leads to litigation. The language of an agreement for the purchase and sale of a yacht provides a road map for the transaction, and the language relating to the handling and disposition of the deposit is especially important.
Most established yacht brokers use form contracts that have been developed over many years by the attorneys who work in the industry. A transaction that is not covered by a form contract may use a document that was pieced together from various other agreements or haphazardly modified to fit a transaction that it was not intended for. The language of these modified contracts is often so ambiguous that litigation is almost certain to follow if there are any problems at all with the transaction, particularly when dealing with a rejected boat and the return of a deposit.
Regardless of the language of the contract, a buyer’s deposit will not be at risk unless the buyer breaches the purchase contract. Problems arise when the ambiguity of a contract makes it difficult to determine whether the contract has been breached. Even in the event of a breach, the contract must include some language that ties the deposit into the seller’s remedy for a buyer’s breach of the contract (typically, a “liquidated damages” clause). Suppose the language of the contract is so ambiguous that it is impossible for the parties to determine whether a breach has occurred or whether the deposit should be returned. In that case, the entire mess will probably end up in court.
We are nonetheless able to make a few observations that may help our reader. The seller of the boat, in this case, concluded that the contract was breached and, therefore, claims to be entitled to retain the deposit, basing this on his belief that our reader’s stated reasons for rejecting the boat were not sufficient. We would need to see the entire agreement to provide solid advice in this case, but the seller is probably wrong. Even assuming that the agreement included a proper “liquidated damages” clause, the buyer would probably not be deemed to have breached the contract. The nature of a vessel inspection and criteria for rejecting a vessel are not obligations that the buyer owes to the seller. Unless the agreement provides otherwise, the buyers of a yacht may reject a vessel for any reason that suits them, and their reason for rejection will not, by itself, be deemed a breach of a purchase contract.
Unfortunately, the seller in our reader’s case is holding the deposit funds, and he may, therefore, be reluctant to return the deposit without a court order. This is another problem with buying a boat through a private party. Yacht brokers in California maintain trust accounts that are authorized by statute and regulated by the California Division of Boating and Waterways. A brokerage transaction is not immune from disputes over the return of a deposit, but the funds will, under most circumstances, be protected until the dispute is resolved.
A final note about private party deals (sales without a broker): We encourage the parties to proceed without a deposit or with a very small symbolic deposit. The purpose of a deposit in a boat purchase transaction is two-fold. First, it compensates the seller for the time that the boat was “off the market” in the event of a buyer’s actual breach of the agreement. Second, it provides “consideration” for the seller’s obligation to follow through with the sale if the boat is ultimately acceptable to the buyer. The seller could otherwise, theoretically, back out of the deal at the last minute. These issues are somewhat important in a boat sale transaction, but in my opinion, the risk of a deposit dispute in a private party transaction is just too great to go down that road. The better approach is to go through a yacht broker.
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].
