Rachelle has a MS in Forensic Science. She has extensive crime lab experience which includes training and testimony as an expert witness.
Exculpatory is a form of the word exculpate, which means to exonerate or free someone of guilt. Similarly, an exculpatory clause is a statement that releases someone of any liability for damages. The purpose of an exculpatory clause is to prevent lawsuits being filed against a party for wrongdoing or negligence.
Example of an Exculpatory Clause
Here's a very basic example. You go to a restaurant and decide to use the valet parking service. The ticket the valet driver gives you contains an exculpatory clause, which states that the valet company is not responsible for any loss of contents or damage that may happen to your vehicle.
Exculpatory Clauses in Real Estate
Exculpatory clauses are common in contracts, especially in property and real estate. A lease agreement often contains an exculpatory clause stating the landlord is not responsible for any damage, injury or loss that occurs on the rented property.
A mortgage contract can contain an exculpatory clause that protects the buyer by limiting the liability to only the property itself. Exculpatory clauses in mortgages protect the buyer if there is a foreclosure, which occurs when the borrower can no longer make the mortgage payments. Because of the exculpatory clause in a mortgage, the bank can seize a foreclosed property, but they can't take any other items from you, such as cars or other property that you may own.
Exculpatory Clauses in Trusts
Exculpatory clauses are also common in a trust, which is an agreement that allows a designated trustee, who is in charge of the trust, to control assets such as money or property that will go to a beneficiary, who will receive the contents of the trust.
Exculpatory clauses protect the trustee by limiting or releasing their liability if they make a mistake in enforcing the trust, or breach the trust agreement, if the trustee wasn't acting with gross negligence or in bad faith. As long as the trustee didn't intentionally harm the beneficiary or profit from the trust, they are not responsible for any violations.
Here's an example. John creates a trust that will award his son ownership of his house. John appoints his longtime friend and neighbor Fred as the trustee. After John dies, Fred decides to remove the outdoor pool at the house. He hires a licensed contractor to remove the pool, but John's son is unhappy and sues Fred for breach of trust because he thinks it will decrease the value of the property. Fred cites the exculpatory clause in the trust, which relieves him of liability, and claims the cost of fixing and maintaining the pool is greater than any rental income the pool may provide. The judge agrees with Fred and finds his decision reasonable.
In the same scenario, Fred hires his handyman friend Bob, who isn't a licensed contractor. Bob tells Fred he can fill-in the and cover the pool instead of removing it properly and purchasing the required permits. Bob offers Fred a discount and a small fee for hiring him. Fred is hesitant because it seems illegal, but he hires Bob anyway. John's son sues Fred for breach of trust. Fred cites the exculpatory clause in the trust, but this time the judge disagrees. Because Fred knowingly hired an unlicensed contractor that performed work without the proper permits and he profited from the job, the judge found Fred was in breach of the trust and must assume liability.
Enforceability of Exculpatory Clauses
While most exculpatory clauses are enforced by law, there are some situations in which the court can decide the opposite. In general, exculpatory clauses are enforceable if they are reasonable and affect public health or well-being. The enforceability also depends on the state where the lawsuit was filed and judges often disagree in these cases.
Here's an example. A young boy suffered a serious injury at a play area that is connected to a store in Maryland. The boy's parents had signed a waiver that releases the store of any liability in the play area, which is an exculpatory clause. It stated that although the play area was supervised, the kids were playing at their own risk and parents could not sue if their child was hurt. The parents sued the store for negligence, and the store filed a countersuit for violation of the contract they signed, which released them of liability. The judge ruled in favor the store, agreeing that the exculpatory clause was enforceable and valid. The parents appealed that decision.
The Court of Special Appeals reversed the trial court's decision and stated the exculpatory clause was unenforceable because it was against public interest and would benefit a commercial enterprise. The Court of Appeals reviewed the case and reversed the decision by the Court of Special Appeals. The Court of Appeals stated that the exculpatory clause was enforceable because it did not violate public interest and therefore the store was not liable for any injuries. This case illustrates the different opinions judges may have regarding the enforceability of exculpatory clauses.
An exculpatory clause is a statement that releases liability of a person or company for damages. Exculpatory clauses are common in leases and mortgage contracts, which protect the property owner and buyer from liability if there is an accident at the home or if they buyer enters foreclosure on a property. Exculpatory clauses are also found in trusts, where a trustee is protected from liability of breaching the trust unless they did intentional harm or profited from their acts. Whether an exculpatory clause is enforceable or not depends on the nature of the contract. If it is reasonable and does not affect public health or interest, it will generally be upheld in court. State laws vary in rulings of the enforceability of exculpatory clauses, and judges often disagree on this issue.
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