Can I Sue the Seller of a Boat with Hull Delamination for Fraud?

Earlier this year, I bought a sailing yacht that was advertised and rigged for offshore cruising. Six months after I bought it, some of the topside paint started to peel off, and it now appears that the boat has a serious fiberglass delamination problem that will cost thousands of dollars to repair. I have since learned that the previous owner had been under contract to sell the boat several months before I bought it, and the deal fell through because the buyer’s surveyor had identified the delamination problem. I also had the boat surveyed, but I believe that my surveyor missed the problem because it was concealed by the seller. The seller and the broker repeatedly stated that the boat was in seaworthy condition, but a delaminated hull is obviously not seaworthy for a bluewater cruising boat. Can I pursue legal action against the seller and broker for fraud?

The short answer to this question, as with most legal questions, is “it depends.” In this case, it depends mostly on whether the buyer can establish that the seller took substantial steps to conceal the problem for the sole purpose of selling the boat to an unsuspecting buyer, and whether the broker knew of the concealment.

We addressed the issue of seller disclosures in a previous installment of this column (“Ask a Maritime Attorney —Dealing with Disclosures,” The Log, Nov. 30, 2006). In that column, we pointed out that the law in California requiring various disclosures to be made in real estate transactions does not extend to boat sales. As such, it will be extremely difficult to hold a seller liable if he or she remains silent regarding any known faults with the vessel. A broker may be held under a different standard. For example, the scenario described by our reader involved a prior transaction, where the prospective buyer rejected the vessel when the delamination problem was discovered. If our reader was represented by a broker who was involved in the prior transaction or who otherwise knew of the problem, that broker may be found liable for breaching the fiduciary duty owed by every broker to a client. For several reasons, the representation by the broker and seller that the boat was “seaworthy” will probably not be deemed a fraudulent misrepresentation of the boat’s condition.

First, a person is liable for a fraudulent misrepresentation only if the victim of the fraud reasonably relied upon the false statement. Our reader indicated that the boat was inspected by his own surveyor, who apparently missed the delamination problem.

Leaving aside the question of why the surveyor failed to discover the problem, it is never reasonable for a buyer’s expert to rely upon the seller’s representations. The job of a buyer’s inspector is to perform an independent inspection, and any representations made by the seller should be disregarded during the inspection process.

Second, saying that a boat is “seaworthy” is like a used car salesman referring to a clunker as being “cherry” or saying it’s in “great condition.” In some contexts, such as a maritime personal injury claim, “seaworthiness” is a legal term that will be a significant factor in the case. However, in boat sales, it is a subjective term that has no particular legal significance. It’s known in the ad industry as “puffing.”

This is different than, for example, misrepresenting the length of the boat or the horsepower of the engine, which are objective facts. “Puffing” is subjective and it is not something you can hold someone liable for.

Finally, we should say something about our reader’s own surveyor. Our reader believes that his own surveyor missed the delamination because the problem was concealed by the seller. To prove this, the buyer would need to prove that work was performed on the boat after the problem was discovered by the previous buyer’s surveyor.

He would then need to establish that the work was not a legitimate repair, and that the only purpose for that work was to conceal the delamination problem. And, he would need to prove that the concealment was so effective that a qualified surveyor could not have discovered the underlying problem. A tall order indeed.

We have worked on a lot of “rotten boat” disputes over the years, and nobody ever wins these types of battles. The buyer generally wants to sue the seller, the broker or brokers and his own surveyor. These targets rarely have insurance, and in the end it is almost impossible for the buyer to be made whole.

The best approach is to avoid the dispute altogether by doing some homework before entering the market in the first place. Buying a used boat may be a complicated endeavor, but the process can be simplified enormously through a little preliminary research into the broker, the surveyor, and the make and model of the boat.

The broker and surveyor are the buyer’s best resources, and the success of the transaction may rely on the diligence, independence and integrity of these individuals.