Three Mistakes to Avoid When Selling Your Boat

In recent years, the sale of expensive new and used pleasure boats has become relatively commonplace, thus raising the stakes for buyers and sellers alike in sale and purchase transactions. Financially speaking, there are many reasons to make sure that sales transactions are conducted in such a way that both the buyer and seller are aware of their respective responsibilities both before and after the sale is completed. As attorneys who deal with issues within and related to the maritime industry, we are fairly regularly contacted by two categories of potential clients: 1. those that need assistance with various aspects of completing a vessel sale or purchase, and 2. Those who did not involve an attorney in their transaction and are now involved in legal disputes arising out of the sale. While not all-encompassing, the following are a few, fairly common, mistakes that you should try to avoid as a seller of a recreational vessel in South Carolina:

1. Caveat Venditor : “Let the Seller Beware”: Avoid giving unintended warranties on your equipment.

“South Carolina, unique among all the states, rejected the common law maxim [of caveat emptor – “let the buyer beware”] and, as early as 1793, recognized an implied warranty of soundness, based on the civil law maxim, ‘a sound price warrants a sound commodity’. See Timrod v. Shoolbred, 1 S.C.L. (1 Bay) 324, 325-26 (1793) (‘It has been decided, often, in our courts, that selling for a sound price, raises, in law, a warranty of the soundness of the thing sold.’)”           C. Ray Miles Construction Co. v. Weaver 296 S.C. 466 (1988). It is common for sellers to believe that “warranties” are only legal obligations of manufacturers who give a written warranty with the sale of a new product, however, this is not necessarily the case. Warranties of various kinds will be implied in transactions where the contract of sale does not include specific written disclaimers.

Sellers may also inadvertently create express warranties by making factual assertions about a boat to the buyer, whether oral or written. For example, a statement by a seller that the boat cruises at a certain speed with a certain load would create an express warranty which would obligate the seller to provide the vessel in the stated condition. Matters of opinion, however, or statements which are generally regarded as “sales puffing” – for example: “this is a beautiful boat”, or “this engine is a work-horse and will run forever” – or other similar statements, are not considered factual and do not create express warranties. The effect of such statements rising to the level of a warranty enforceable by the buyer may also be disclaimed under certain circumstances if done in writing as a part of the sales contract.

2. Disclose known, latent, material defects to buyers.

Another related situation occurs when the vessel or engines have defects which are known to a seller but may be difficult to discover during a purchaser’s routine inspection – i.e.  prior sinking or major collision, electrical demons, or defects or damage which remain but have been covered up through partial repair. In dealing with potential buyers, Sellers who are aware of serious issues with the vessel or its equipment may be tempted to keep silent and see if a buyer is savvy enough to discover them during an inspection. However, sellers have a legal duty to disclose known, material latent defects to a purchaser, and even contractual “as-is” clauses and waivers may not be a good defense to claims against a seller who intentionally concealed or failed to disclose material issues with a vessel to a buyer. The best policy to avoid a legal dispute and allegations that there was a seller cover-up is to disclose known problems to buyers up front and in writing.

3. Avoid Seller Financing without adequate security and insurance.

Last, but not least, is a situation where a seller agrees to finance the purchase for the buyer. In most circumstances, this should be avoided. Qualified purchasers can readily obtain third-party financing to purchase most vessels, and this scenario is usually best for sellers. But, for those situations where seller financing is needed, it should not be undertaken without adequate security and insurance. Documented vessels can serve as security by having the buyer execute a preferred ship mortgage, and a security agreement and collateral schedule including the vessel, along with a recorded UCC-1, can let the seller retain a financial interest in the boat and its equipment after the transfer of title of a state registered vessel or engine. If the buyer doesn’t pay as agreed, then the seller can foreclose on the interest to try to recover the balance. Requiring and demanding that buyers provide proof of adequate marine insurance coverage is also important. After all, you can’t recoup your lost payments from a vessel that is laying at the bottom of the ocean. In most situations, it is best to make sure that you are added as an additional insured on any vessel policy obtained by the buyer.

Making sure that you have a well-written contract of sale can go a long way towards limiting your liability as a seller to what is bargained for in the transaction. Knowing what your rights and duties are under the law can help ensure a smooth transaction and prevent litigation after the proceeds of the sale are long gone. The attorneys at Cooper and Bilbrey, P.C. have almost fifty years of combined experience in the legal field and are knowledgeable and experienced in assisting clients with vessel sales and charters. If you have questions regarding a sale or charter, please call or email us today for a free, confidential consultation with no obligation.

Disclaimers – The rules governing the professional conduct of lawyers mandate that we let you know the following information to prevent any confusion or misunderstandings about the content of this article:

The above information is provided for the reader’s general knowledge only and is not intended to be legal advice for anyone’s particular situation. The law is ever-changing, and different circumstances may require the application of different law or result in the above guidelines being irrelevant. If you have legal questions related to this content, you should consult an attorney of your choosing for advice regarding your individual situation.

Each case that we work on is different, and successful results that we may discuss related to cases that we have handled in the past do not mean that similar results are necessarily achievable in future cases that we may handle.

John Townsend Cooper is the attorney responsible for this content. His office is located at 1476 Ben Sawyer Blvd., Mount Pleasant, South Carolina 29464.