Ask A Maritime Attorney: Do I need to do a sea trial or survey when I know I will be rejecting the boat sale, and can they keep my deposit?

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.   I sent the broker a written notice as required by the purchase agreement, advising that I was rejecting the vessel. The seller and his broker now claim that I did not reject the boat for a legitimate reason because I never did a sea trial or survey, and they are refusing to return my deposit.  What are my rights in a case like this?  Do I really need to do a sea trial or survey when I know I will be rejecting the boat? Can they keep my deposit?

 

Answer

Under the circumstances described by our reader, the broker and seller will probably be required to return his deposit.  But the answer will ultimately depend on the language of his purchase agreement.  Brokers in California use a variety of form contracts, but the agreements published by the California Yacht Brokers Association are the most widely used.  Under the terms of the CYBA purchase agreement, the vessel is “deemed rejected” unless the buyer signs a final acceptance prior to a certain date. The agreement does not require the buyer to give a reason for the rejection.

This is the same approach used by the California Association of Realtors in their form agreements for residential real estate transactions, and it dramatically reduces the likelihood of a dispute involving a purchase deposit.

Our reader described a scenario where he gave the broker written notice of his rejection of the vessel.  This would not have been necessary under the CYBA agreement – he would simply decline to execute the final acceptance, which would be deemed a timely rejection of the vessel, at which time he 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 similar agreement drafted by an experienced attorney, which may have been the case for our reader.  Many yacht purchase contracts are drafted by brokers who piece together various provisions from several different documents that they find online.  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.

The question of whether the sea trial and pre-purchase survey must be completed prior to rejecting the vessel may give rise to some confusion.  After all, the seller and the seller’s broker have both  invested time and resources into the transaction, and they may feel like that investment has been wasted if the vessel is rejected for a frivolous reason.  But vessel purchase contracts – even when they are drafted without the benefit of legal counsel – rarely (if ever) require the buyer to provide a reason for rejecting the vessel.  And if the buyer already knows that he will reject the vessel there would simply be no reason to follow through with the pre-purchase inspections.

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 agreement.  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 and the disposition of the deposit are both 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.