Dealing With Disclosure

Last year, I completed a major structural repair to my boat after we suffered a high-speed collision with another vessel. I am now preparing to sell the boat and am wondering whether I need to disclose the collision and repairs to the person who buys her. I am familiar with the Transfer Disclosure Statement required in a real estate transaction, but does the seller of a boat have a similar obligation?

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 and the terms of transaction are typically set out in a complicated contract. There are, however, significant differences between a yacht purchase and the purchase of a home, starting with the disclosure requirements.

California Civil Code section 1102 requires the seller of a home to disclose a wide variety of features and equipment and to disclose significant defects, 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.

Or, maybe he or she does.

The lack of any specific disclosure statute relating to the sale of a boat does not let the seller off the hook completely. First, the sale of a boat will fall within the scope of the Uniform Commercial Code, which broadly imposes ’an obligation of good faith’ in the performance and enforcement of every contract (Commercial Code section 1203). 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 would 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, regardless of whether you have a legal duty to disclose a serious problem with the boat, disclosure may be the choice that keeps the seller out of trouble.