Too Much Significance Placed on Bill of Sale During Title Transfer

I listed my boat for sale through a broker last year, but we were unable to find a buyer for quite a while. The broker finally faxed an offer to me several months ago, but the buyer was apparently unable to qualify for bank financing, and he asked me to accept monthly payments instead. I agreed, but to protect my collateral, I was allowed to hold onto the bill of sale until he paid off the boat. Unfortunately, he defaulted after only three payments and I took the boat back. I am now in a dispute with the brokerage over the buyer’s deposit. They claim to be entitled to a commission from the buyer’s deposit funds, even though I never recorded a bill of sale to transfer the title. I think I am entitled to the deposit, since the buyer breached the contract. It seems to me that I should not owe a commission, since I never transferred the title to the boat. Am I right?

Probably not. This is a tough question to answer without looking at all of the documents, but you seem to be placing too much significance on whether he recorded the bill of sale. A ’pink slip,’ a bill of sale or a Coast Guard Certificate of Documentation all provide ’evidence of title,’ but they do not necessarily have anything to do with whether ownership to the boat has actually transferred. The consequences of this question can extend far beyond the payment of a brokerage commission.

Transfer of ownership in a sale of personal property is determined by the contract between the buyer and the seller. A well-drafted purchase agreement will look to an easily identifiable event, such as the execution of a closing statement or the physical delivery of the boat, and provide for the transfer of ’title’ to occur upon completion of the event. The parties may agree to transfer ownership upon the recording of a bill of sale – but that task is frequently handled without the involvement of the buyer, so it may lead to ambiguity.

An accurate determination of whether the title has transferred is important for many reasons, including the seller’s obligation to pay a brokerage commission, as described in your question. However, the most significant consequence of this question is the assignment of the risk of loss between the parties. If the boat sinks in the course of the transaction, who suffers the loss? The parties need to pay careful attention to this question, since an insurance company will not pay a claim if its client does not own the boat.

The transaction you described would probably be characterized as a ’sale’ unless the purchase contract expressly called for the seller to retain the risk of loss until he recorded the bill of sale. However, the buyer would not be able to insure the boat without having title recorded in his name, so both parties were taking a big risk by structuring the deal in this manner.

The seller tried to protect his collateral by holding onto the bill of sale, but the ambiguity created by this decision could have led to some very unpleasant consequences. The proper approach to this would have been to record the bill of sale, and then to record a mortgage to secure the obligation.

Ambiguous contract language will invariably lead to a dispute, and frequently to litigation. The prospect of paying a lawyer to draft transaction documents (such as a note and mortgage) may be unpleasant, but those fees pale in comparison to the cost of litigation. Contact an attorney before entering into a complicated transaction.