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Beware of Secret Liens when Buying or Selling
When a vessel sells, there are significant TITLE ISSUES for both Buyers and Sellers which may not be readily apparent. Advice from a knowledgeable attorney and documentation service benefits Buyers and Sellers concerned with clear title and indemnity for title. New vessels and previously owned vessels each have their own process for transfer of title and potential pitfalls.
When it comes to the title of your vessel, any new purchase should come with a Bill of Sale and a Manufacturer’s Certificate of Origin (also known as an “MSO”). These documents will allow the owner to register the vessel in the state of his or her choice and/or with the United States Coast Guard or a foreign registry.
When buying a used vessel, the Buyer should also receive a Bill of Sale. Sellers should be aware of the fact that their signature on the Bills of Sale generally will put the Seller in a position of indemnifying the Buyer for any claim against the title should a claim arise.
So, what types of claims can come up? Maritime Liens are a creation of US Federal Law, and may also fall under State Law. Individuals and companies that provide “necessaries” to a vessel may claim a Maritime Lien without any filing or notice whatsoever. Thus the liens are “secret” until such time as the lien holder decides to take action against the vessel. And since the lien is against the vessel (known as an in rem claim against property) and not the owner at any given time, the lien follows the vessel. Therefore a recent Buyer might find his or her new vessel saddled with a valid and enforceable lien they did not know existed, and for goods or services they did not purchase.
How can Buyers and Seller know about the claims, should they arise? An abstract of title can be requested for U.S. documented boats, which should show any mortgages or other liens against the vessel. But, be aware that under both federal law (U.S.C. Title 46 § 31343, the “Maritime Lien Act”) and Florida law (Fla. Stat. § 713.60) secret liens may exist which may give rise to future claims against vessels. These are generally liens in favor of persons or companies that provide necessary maintenance or services to a vessel.
A lien may not be known about or no claim may be made at the time the yacht is sold. To protect against future claims against the vessel, the Buyer should insist on a title warranty from the Seller stating that the vessel is being sold free and clear of any and all mortgages, liens or encumbrances against the vessel. This is in addition to the warranty of title generally stated in the Bill of Sale. With proper preparation you will have the Seller in a position to indemnify the Buyer should a claim arise. Also, Buyers should consider title insurance, which is fairly new to the market, but includes coverage for legal fees in defending title.
As a crew member, knowledge of the recent whereabouts and happenings surrounding a yacht which the Buyer is considering for purchase can be a significant benefit. Issues of whether the current dock bill, recent engine work or a paint job has been paid may be invaluable to a purchaser about to take possession. Due diligence may come in the form of assuring that bills have been paid by the party who incurred those bills prior to the transfer of ownership.
By taking the above precautions, you can help ensure that an owner’s dream of a yachting lifestyle does not turn into a sinking nightmare.
By David E. Irwin, Esquire, November 19, 2008.
David E. Irwin is a Florida attorney. This article is intended for general informative purposes, and is not intended to provide anyone legal advice as to any specific legal issue. You may contact David E. Irwin of Irwin Law Firm by telephone at (954) 775-2301, or by e-mail at david@irwinlegal.com.
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Admiralty Law Corner: Salvage, Contract or Common Law
Introduction to the author: As a native of Ft. Lauderdale, Florida the recreational marine industry surrounds my entire life. In the practice of law I focus on the marine industry and serve a wide variety of clients. The Triton, which has my dedication and respect, provides excellent insight into the industry and I hope that this legal column, and future ones, adds to that insight.
When the subject of admiralty and maritime law comes up there are usually questions of great speculation and interest. This is largely due to the ancient traditions of the sea which form the basis of modern day admiralty law. Indeed, even the United States, a part of the “new world,” bases its general maritime law on traditional maritime law principles. In fact, much of the case law relied on by maritime attorneys today is precedent set by cases which were heard in courts during the nineteenth century.
One subject of maritime law in particular is often of interest to those who sail the seas. That is the question of salvage rights. It is true that a person, a crew of persons or an entity can claim an interest in a vessel which was rescued from a certain marine peril.
Salvage is defined as compensation allowed to persons by whose assistance a ship or its cargo have been saved, in whole or in part “from impending peril on the sea, or in recovering such property from actual loss, as in the case of shipwreck, derelict or recapture.” The Blackwall, 77 U.S. 1 (1869).
Basic salvage is a common law right. That means there is no written statue or codified law on the matter, but rather that past decisions from competent courts spell out how the law will be applied. In the case of common law salvage rights, there are two essential elements which are required for anyone seeking to enforce those rights against a vessel. First there must be a marine peril which is reasonably perceived by the salvor. Second, the service must be voluntary and not the duty of the person conducting the salvage operation. Terms like “marine peril” and “the duty” have been more specifically defined in case law through the years. In general, a marine peril exists when a vessel at sea will surely go to waste if something is not done. A crew member of a yacht may not be in a position to claim a salvage right if the vessel he or she saves is the vessel he or she is charged with sustaining, operating and maintaining.
Common law salvage rights are often asserted after a rescue of property in cases when no one was around to “save the sinking ship” except the magnanimous salvager who, with skills and effort put out the fire or pumped the bilge. In cases of common law salvage the courts have formed an equitable method of reaching what is considered a just salvage award.
Courts in the US will consider the following factors in awarding salvage rights: 1) the time and labor expended by the salvors in rendering salvage services, 2) the promptness, skill and energy displayed by the salvors in rendering service and saving property, 3) the value of the property employed by the salvors in rendering service, 4) the danger and risk in which salving vessels, equipment and crew were exposed in securing property from peril, 5) the value of the property saved and 6) the degree of danger from which the lives and property were saved. The Blackwall, 77 U.S. 1 (1869).
Of course these factors come into play when there was no prior agreement for salvage and the property was saved voluntarily. Often salvage is a matter of contract. Both the potential salvor and the owner of a vessel in marine peril may have an interest in contracting for salvage when time permits and the parties are available to one another.
In contract salvage the rescuer and the owner or owner’s representative agree upon an amount to be paid for the salvor’s services. This is often the case when a vessel simply needs a tow in, but can also arise from pre-existing contracts such as those with some of the towing services currently available. Contract salvage has benefits for both parties. For the salvor, he or she need not go to the lengths it takes to prove all the elements of salvage or the factors of a just award because the terms are already set out in the party’s agreement. From the perspective of the owner or owner’s representatives, there is not costly surprise. The terms are known from the out set and the costs expected in the event of a breakdown or mechanical failure.
As a potential salvor you may have the opportunity to create a contract salvage situation if an owner representative is available and you can make an agreement (even an oral one) before responding. Likewise, as a mariner in trouble at sea, time permitting, upon contact with the potential salvor an agreement for payment can be made prior to the salvor extending its efforts.
David E. Irwin is a Florida attorney with Irwin Law Firm. He practices Admiralty and Maritime law with an emphasis on transactions, litigation and contracts. His office is in downtown Ft. Lauderdale and he can be reached at (954)775-2301 or by e-mail at david@irwinlegal.com. *The hiring of a Lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask the lawyer to send you free written information about their qualifications and experience.
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