Sellers and brokers often ask me what information they are required to share with potential buyers. This topic involves fraud and misrepresentation and is a complex subject, so it is difficult to ever provide a definitive answer. Most individuals believe that they are protected when they sell a boat “as is,” under a contract with “buyer beware” language. However, that is not always the case. That language might protect you from a breach-of-contract claim but not necessarily a claim under tort law.
Contract vs. Tort Law
A key step with this matter is to understand the difference between contract and tort law, both of which are branches of our civil legal system. Damages under both may occur when one party breaches a duty they had to the other. Under contract law, that is simply known as a breach of contract, or when one party violates the terms or conditions of a properly formed verbal or written agreement.
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On the other hand, tort laws impose duties on people to behave in an acceptable and responsible manner so as not to harm others. As courts have stated, duties under tort law are independent of contract and impose the obligation that every person is bound to refrain from injuring another person or their property. Hence, tort law is designated primarily to vindicate social policy. In the event a seller or broker is misleading, wrong, or even lies about a specific detail on a boat, a buyer may look to the torts of fraudulent and negligent misrepresentation to bring a claim.
Fraud and Negligent Misrepresentation
A misrepresentation is a false statement of material fact made by one party, which affects another party’s decision. Fraud, also known as intentional misrepresentation, is a false statement made knowingly by an individual, or one that is made recklessly with intent to deceive the other party and induce him to enter into an agreement. For example, a seller or broker cannot advertise that a boat has newly rebuilt engines if they know they have not indeed been rebuilt.
On the other hand, negligent misrepresentation does not require the individual making a statement to know it is false. Instead, it could be a scenario where a seller or broker made a specific statement without verifying it was indeed true, which is a violation of the concept of reasonable care. Hence, a court could find that a seller or broker did not know a statement was false but that they should have known, and the buyer indeed relied on those representations.
Silence can be Misrepresentation
It should be noted that a claim of misrepresentation does not necessarily require a verbal or written statement. Rather, it can also occur through silence or by specifically failing to share information, and are situations that should be avoided whenever possible. An example could be if a seller fails to disclose a known defect, which affects an individual’s decision to purchase. Indeed, this behavior almost certainly elevates to fraud if the seller also conceals the defect so that the buyer—or even a surveyor—cannot discover it.
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Most states have laws that specify what disclosures are required by the seller and Realtor in a real estate transaction. That is generally not the case for the sale of vessels, and under maritime law, there is not necessarily a specific duty to disclose certain information to a buyer. As a result, sellers, dealers and brokers oftentimes believe that they can simply hide behind the shield of an as-is/where-is clause in a contract. However, that language does not give a party the right to say whatever he wants to sell a boat. Rather, proof of fraudulent or negligent misrepresentation frequently overrides the as-is language in a contract. This is especially the case for brokers, who also have a fiduciary duty to be fair, honest and act in good faith.
We live in a litigious world, so as other attorneys have certainly advised, it is always best for brokers and sellers to err on the side of caution when determining whether information should be shared and how a vessel is to be described.
Raleigh P. Watson is a contributing author, and a Partner at Miller Watson Maritime Attorneys.