1. What lessons should boat buyers learn from this case?

2. What lessons should lenders learn about the security for their loans?

3. What effect does the change in the identification number have on the UCC rules on thieves in the title?

On August 23, 1995, Eric T. Small purchased a 37-foot (37’) Sea Ray 370 Sundancer Yacht from Gulfwind Marine for $251,000.00. Sea Ray had engraved the vessel’s hull identification number (“HIN”) into the fiberglass on the vessel’s transom. The vessel’s HIN was SER4860F596 Sea Ray. Northern issued a Master Mariner yacht policy to Small, providing insurance coverage for the Sea Ray yacht for theft or loss for $200,000.00.

On February 27, 2001, Daniel Dey, a Florida resident, stole the Sea Ray yacht while it was moored at her slip at Gulfwind Marina in Venice, Florida. A police report was filed, and Northern paid Small a total loss of $200,000.00 for the vessel. Subsequently, Dey altered the Sea Ray yacht’s HIN to SERF3571C298 and made other changes to the vessel to disguise the theft and manufacture date. Dey then advertised a 1998 Sea Ray for sale on an Internet Web site. On August 5, 2002, Dey signed a bill of sale conveying the Sea Ray yacht to Fat Boy, a Delaware limited liability company, for $127,500.00. No boat dealer, retailer, distributor, or seller was involved in the transaction.

Fat Boy gave a ship mortgage on the Sea Ray yacht to Carolina First. Carolina First filed the preferred ship mortgage on the Sea Ray yacht.

George Lee and Paul Degenhart, the lawyer for and principal in Fat Boy, became concerned that the Sea Ray yacht may have been manufactured in 1996, not 1998. Lee and Degenhart confronted Dey about the incorrect model year of the Sea Ray yacht. Dey admitted the alteration to make the boat seem to be a 1998, not 1996, model. Fat Boy and Lee then attempted to trade the Sea Ray yacht to a vessel dealer for another vessel that Lee wanted to purchase. The dealer determined that the vessel had been stolen and told Small. Small contacted Lee and Fat Boy to get back his yacht, but Lee refused.

In June 2004, the Sea Ray yacht was seized by the U.S. Marshal Service and Northern filed suit to get the yacht back. Fat Boy and Carolina First also claimed title and interest in the yacht.

JUDICIAL OPINION

WOOTEN, Judge … This Court finds that the Sea Ray yacht rightfully belongs to Northern. Small did not have knowledge of or consent to Dey’s “sale” of the vessel to Fat Boy and/or the alteration of the vessel’s HIN. Additionally, as is apparent, Small did not sell the vessel to Fat Boy or Lee. Dey did not have valid title to the Sea Ray yacht when he issued a bill of sale to Fat Boy. The “sale” of the Sea Ray yacht between Dey and Fat Boy was not consummated through a boat dealer, retailer, distributor, or seller of like goods. Dey is not a boat dealer, retailer, distributor, or seller of like goods. Neither Lee nor Fat Boy ever possessed valid title to the Sea Ray yacht.

Since Lee and Fat Boy did not have valid title to the Sea Ray yacht, neither Lee nor Fat Boy could grant a preferred ship mortgage to Carolina First. A preferred ship mortgage can only be granted by the owner of a vessel. Therefore, Lee and Fat Boy did not have authority to grant a preferred ship mortgage on the subject Sea Ray yacht.

The Court further finds that there is insufficient evidence upon which it can be concluded that either Lee or Fat Boy had knowledge that the Sea Ray yacht was stolen prior to their attempted trade-in of the vessel. Dey, a convicted felon ………………………..