Read, then re-read your purchase contract

We recently entered into a written agreement with a private party to purchase a boat. The “agreement” was a generic purchase agreement the seller found online, and we realize now that it was missing a lot of terms important for a boat purchase. We left a deposit check with the seller and the agreement stated the check would not be cashed for at least four days, which allowed us time to inspect the boat and confirm 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 we were no longer interested in the boat. Unfortunately he refused to return our deposit, claiming 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?

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 which ties the deposit into the seller’s remedy for a buyer’s breach of the contract (typically, a “liquidated damages” clause). If 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, 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 his case concluded that the contract was breached, and he is therefore entitled to retain the deposit, because he believed 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.

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 (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-438-8149 or at dweil@weilmaritime.com.

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