Why Does My Boat Sales Contract Say ‘$1 and Other Valuable Consideration?’

I am in the process of selling a boat through a broker. The transaction is ready to close, and I am troubled by the bill of sale form that my broker has asked me to sign. The form is identified as Coast Guard form number CG-1340. The problem is that, under the “consideration received” section, my broker has inserted the phrase “one dollar and other valuable consideration.” In fact, we are selling the boat for $85,000. I am concerned that this is being done at the buyer’s request to help him to avoid the payment of sales or use tax on the purchase. I believe that this is illegal or unethical, or both, but the broker is now advising that if I refuse to sign the bill of sale, I could be in breach of the purchase contract. What can I do?

The “one dollar and other valuable consideration” language is pre-printed on the Coast Guard Bill of Sale form, and it is neither illegal nor unethical.

The Coast Guard Form CG-1340 (Bill of Sale) is used by the Coast Guard to record the transfer of ownership of a vessel. The purpose of the form is to provide evidence of the transfer, rather than to set forth the respective obligations of the buyer and seller. As such, it is not a part of the purchase agreement for the boat unless the purchase agreement expressly references it.

Notwithstanding the limited purpose of the Bill of Sale form, the document may serve as a bare-bones contract in the event that the parties fail to execute a conventional purchase agreement, and for that reason, the form does include certain provisions that are found in a purchase agreement.

The phrase “one dollar and other valuable consideration” is used as standard boilerplate language in many legal documents. Fundamental principles of contract law require each of the parties to exchange something of value, and there can be no enforceable agreement without that exchange. The “value” that is exchanged is referred to as “consideration,” and in most cases the courts will not challenge the actual amount of the exchanged consideration, so long that it has some recognizable form of value. The “one dollar and other valuable consideration” language is often used as a generic term, where the document needs to be enforceable but there is no reason to recite the amount or the nature of the actual consideration that is exchanged.

The Coast Guard probably printed the referenced language onto the Bill of Sale form for several reasons. As noted above, the document may serve as a simple purchase agreement in the absence of a real contract, and to be enforceable it needs to reference an exchange of consideration.

However, since most transactions are, in fact, made pursuant to a written purchase agreement, a blank line on the Bill of Sale form would invite ambiguity if it were left blank or if a typo or other mistake were made when filling in the actual purchase price.

And finally, parties to any transaction may wish to keep the sale price confidential. A purchase agreement is a private document, but a copy of the Coast Guard Bill of Sale for any boat may be requested from the Coast Guard for a small fee.

Our reader expressed concern that the referenced language was being used to misrepresent the purchase price to the California Board of Equalization as a fraudulent means of avoiding the assessment of use tax. The Board of Equalization (BOE) is actually smarter than that, and they will not buy into a representation that a boat was purchased for $1 without demanding a lot of other evidence to support that anomaly. The evidence may consist of a variety of materials, but the Bill of Sale form is never used for evidence of the purchase price where a purchase agreement was executed between the parties. And, the BOE will often contact the seller for confirmation of the facts represented by the buyer.

The biggest concern facing our reader in this transaction is the possibility that he will refuse to sign and notarize the Bill of Sale form. The transaction is scheduled to close and he will likely be in breach of the purchase agreement if he refuses to sell the boat at this point. A seller who breaches a purchase agreement will be liable for damages to the buyer, and he will probably owe a full commission to the listing broker, even though he still owns the boat.

Parties to any transaction should strive to understand all of their contractual rights and obligations, but they should seek legal advice from an experienced attorney before taking a strong position that may lead to a breach of the contract.