Boatel Industries, Inc. v. Hester

• Decision Date: 01 September 1988
• Docket Number: No. 306,306
• Citation: 550 A.2d 389,77 Md.App. 284
• Parties: , 8 UCC Rep.Serv.2d 931 BOATEL INDUSTRIES, INC. t/a Bluewater Marine of North America v. James N. HESTER, et al. ,
• Court: Court of Special Appeals of Maryland

Page 284

77 Md.App. 284

550 A.2d 389, 8 UCC Rep.Serv.2d 931

BOATEL INDUSTRIES, INC. t/a Bluewater Marine of North America v. James N. HESTER, et al.

No. 306, Sept. Term, 1988.

Court of Special Appeals of Maryland.

Nov. 30, 1988.

Diana G. Motz (Dana Whitehead and Frank, Bernstein, Conaway & Goldman, on the brief), Baltimore, for appellant.

Ben Cotten (Patricia R. Collins and Cotten, Day & Selfon, on the brief), Washington, D.C., for appellees, James and Sharon Hester.

Elaine R. Lubin (Andrew L. Lipps, John Ferguson and Swidler & Berlin, Chartered, on the brief), Washington, D.C., for appellee, Executive Services, Inc.

Argued before BLOOM, WENNER and POLLITT, JJ.

POLLITT, Judge.

This case demonstrates the real-life consequences for some individuals who ignore the old maxim that it may be unwise to mix business with pleasure. The appellees in the instant case sought to enjoy all of the financial benefits of setting up and maintaining a corporate business, yet when that status later worked to their detriment, they attempted to disavow it on the grounds that it was only a "sideline" and essentially not the "business" which they had represented it to be. In this case, at least, they cannot have it both ways.

On 21 August 1985, appellees James N. Hester and Sharon E. Hester entered into a contract of sale under which they agreed to purchase a 51 foot Bluewater power boat manufactured by Boatel Industries, Inc. Under the terms of the contract Mr. Hester agreed to demonstrate and promote the Bluewater line of boats, in return for which the manufacturer would substantially reduce the purchase price. On 17 October 1986 Mr. Hester, his wife, and a corporation of which Mr. Hester is the sole stockholder Bluewater Cruisers of Annapolis, Inc., filed a suit against the manufacturer of the boat, Boatel Industries, Inc., and the dealer which sold the boat, Executive Services, Ltd. Citing dozens of minor as well as major defects in the boat, the Hesters alleged breach of warranty and fraud on the part of both defendants, and contended that appellees had successfully revoked acceptance of the contract. Executive Services cross-claimed against Boatel for any liability found on its part, charging that "such liability will have been brought about solely by the acts, omissions, conduct and negligence of the manufacturer and designer, Boatel Industries, Inc."

Following an 8-day trial in the Circuit Court for Anne Arundel County, Judge Bruce C. Williams presiding, the jury returned a verdict against Boatel only in the amount of $255,000, finding that the Hesters had justifiably revoked acceptance of the boat (Count I), that Boatel had breached warranties to the Hesters (Count II), and that Boatel had made false or misleading representations to the Hesters (Count III). On 13 October 1987, Judge Williams ordered that Boatel pay attorney's fees and costs of $53,709.78 to the Hesters and of $15,261.55 to Executive Services, Ltd. Boatel appeals both the judgment on the jury verdict and the awards of counsel fees to both parties.

We shall reverse, holding that Boatel had successfully limited the Hesters' remedies to repair or replacement of defective parts.

Facts

During the fall of 1984, James and Sharon Hester began looking for a boat to replace their 31 foot Silverton. In early May of 1985, they responded to a magazine advertisement for Boatel boats by contacting the local dealer, Executive Services Ltd. Soon thereafter, Hester went for a demonstration ride with the owner of Executive Services, Arthur Esch, on Esch's 51 foot Boatel Bluewater Cruiser, and obtained some additional sales literature from him. Hester felt that the original price of over $238,000 quoted by Mr. Esch was "definitely out of my range." Even the less fully equipped model, at $221,250, appeared to be unaffordable. Esch and Hester were able to arrive at an arrangement, however, which would allow Hester to receive a substantial "dealer discount" on the boat.

After making a $15,000 down payment, Mr. Hester, on 21 August 1985, signed a written agreement with Esch which would lower the total cost of the boat to $192,000. Under the terms of the agreement, Boatel provided a letter to Hester to assist him in obtaining financing for the boat. The letter indicated that Hester had made a deposit of $44,250 (consisting of the $15,000 down payment and $29,250 in "dealer discounts"), leaving an unpaid balance of $177,000. In return, Mr. and Mrs. Hester agreed, in pertinent part, to:

Immediately and not later than December 31, 1985 sell their Silverton boat and place the net proceeds ... into an escrow account in a Maryland bank assigned to Arthur Esch as custodian....

and most significantly, they agreed that:

The planned course of action is that Mr. and Mrs. Hester and their company Bluewater Cruisers of Annapolis will be long term successful sub-dealers for Bluewater [Boatel]. Each year they would sell the previous year's demonstrator at a profit and prior to the Annapolis Boat Show receive a new demonstrator.

Hester then formed a corporation, Bluewater Cruisers of Annapolis, the avowed purpose of which was to demonstrate the yachts to other prospective buyers. Some of the anticipated benefits of this corporate status included: the $29,000 reduction in the sales price of the boat; the elimination of the $8,000 Maryland excise tax on the boat; and possible substantial tax write-offs for expenses incurred in showing the boat.

Hester took delivery of the Boatel Bluewater Cruiser on 23 August 1985. With the purchase of the boat, Hester received Boatel's Bluewater Limited warranty, which provides, in pertinent part:

THERE ARE NO WARRANTIES EXPRESS OF [SIC] IMPLIED (INCLUDING WARRANTIES OR [SIC] MERCHANTABILITY AND OF FITNESS), ON PRODUCTS MANUFACTURED BY BLUEWATER CRUISERS EXCEPT THAT BLUEWATER CRUISERS will through its selling dealer, replace or repair, at BLUEWATER CRUISERS option any part (except as hereinafter provided) which is proven to its satisfaction to be defective under normal use and service within twelve (12) months from the date of delivery to the first owner if the part is returned, transportation prepaid, within thirty (30) days after the defect is discovered, to the DEALER or to such other point of manufacture as BLUEWATER CRUISERS may designate. [emphasis in original]

The warranty further provided that:

The foregoing is made in lieu of all other obligations or liabilities on the part of BLUEWATER CRUISERS, and the buyer waives all other warranties, guarantees or liabilities expressed or implied arising by law or otherwise (including without limitation any obligation of BLUEWATER CRUISERS for consequential damages.) ¹

On delivery, Executive Services arranged for the boat to be "prepped" by its designated service agent, Kopel's boatyard. This service entails basic assembly of certain items such as bridge parts and tarps, placing of kitchen utilities and furniture, and the installation of communications equipment. When the boat was returned to Mr. Hester over a month later, he noted there were still as many as 33 items which needed to be fixed or adjusted to his specifications. On 5 October, there was "still work that had to be done on the boat"; however, because the Annapolis boat show was the following weekend and because "there was no other time to get [the boat] up" to Annapolis, Mr. Hester, accompanied by several friends, transported the yacht to Annapolis that weekend. At the show a Boatel representative, Mr. Esch, and Mr. Hester all assisted in showing the boat, handing out promotional materials, and answering questions from at least 96 prospective buyers. For each of the next 5 or 6 weekends following the show, Hester continued to take the boat out to demonstrate it to prospective buyers. He characterized his promotional efforts over this period as "very intense."

It was during one such demonstration, on 24 November 1985, that Hester encountered his first major problem while operating the boat. On a clear day with one to two foot waves, Hester was operating the boat at about 14-15 knots when he and his two passengers heard a loud "cracking" in the hull of the boat. Mr. Hester immediately decided to return to harbor, but reported that "from then on it wasn't just like it would snap once. Every time you hit a wave there was a tremendous cracking and popping throughout the boat."

Hester immediately contacted Mr. Esch, who suggested that he return the boat to Kopel's if possible. Hester did so within the next week, and also reported major items still in need of repair, including problems with the generator, the combined air conditioning and heating system, and with the running lights. When Hester told Kopel of the hull problems, however, Kopel informed him that he did not perform hullwork, but that Hester could leave the boat in his marina in the interim. Mr. Esch then promised that he would have someone look at the boat "as soon as possible."

About six weeks later, in mid-January of 1986, Esch called Hester to tell him that a Boatel mechanic had repaired the hull by replacing a cross member which had cracked approximately 16 feet back from the bow of the boat. Hester did not operate the boat again until early April, 1986. At this time, however, there were additional problems with the hull. In accord with Mr. Esch's request, Mr. Hester was transporting his boat from Kopel's boatyard to an Annapolis boat show when he encountered a storm producing 3-4 foot waves, and again heard a "cracking" within the same general area of the hull as he had previously noted. Believing the structure of the boat to be in serious jeopardy, Hester returned to Kopel's and immediately notified Mr. Esch of the continued "cracking" in the boat. Esch offered that the Boatel representatives could examine the craft at the boat show, but by the time Hester was able to return to Annapolis, the representatives had left and consequently no repairs were made. Hester...