Ask a Maritime Attorney: Can a broker keep my deposit if I back out of a sale?

Question:

I made an offer to purchase a boat through a yacht broker and the offer was accepted. The offer was contingent on a sea trial and survey, but I had to back out of the deal for personal reasons before the date of the survey. The seller and his broker now claim that I did not reject the boat for a legitimate reason and they are refusing to return my deposit. What are my rights in a case like this? Can they keep my deposit?

 

Answer

You are probably OK, but the answer will ultimately depend on the language of your purchase agreement. Brokers in California use a variety of form contracts, but the agreements published by the California Yacht Brokers Association are the widely used. The philosophy used by the CYBA in drafting the document was that they did not want to force anyone to buy a boat. Therefore, under the CYBA purchase agreement, the vessel is “deemed rejected” unless the buyer signs a final acceptance prior to a certain date.

This is the same approach used by the California Association of Realtors in their form agreements, and it dramatically reduces the likelihood of a dispute involving a purchase deposit. When a vessel is rejected, the contract requires the return of the buyer’s deposit, net of any unpaid costs relating to the transaction (such as the cost of a haul-out and survey). In the scenario described by our reader, the buyer would simply decline to execute the final acceptance and he or she would be entitled to a return of the deposit.

The outcome may be different if your broker does not use the CYBA contract or a contract drafted by an experienced attorney. Many yacht purchase contracts are drafted by brokers who piece together various provisions from several different documents. These documents may be created without the benefit of any legal advice, and they may be very ambiguous. For example, many of the non-CYBA forms make no provision for the “signing off,” or acceptance of the survey or other contingency, or they fail to describe the circumstances in which the buyer’s deposit may be at risk.

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, due to ambiguous contract language, it may be 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 end up in court.

The best advice that I can offer a buyer regarding the purchase deposit is to read the contract carefully, and be sure that all of the buyer’s obligations in the contract are clearly spelled out. A “form contract” published by an organization such as the CYBA will probably favor the broker, but it has been drafted by attorneys and vetted over time, so the ambiguity described above may be avoided. Also, don’t be afraid of “legalese.” If the language of a contract is so convoluted that it is impossible to understand, a jury won’t understand it either. Ask the broker to explain your rights and obligations in plain English, or – better yet – talk to an attorney.

 

 

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 (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com,  or via email at dweil@weilmaritime.com.