What is an Exculpatory Clause? - Definition & Examples

Instructor: Rachelle Fobbs

Rachelle has a MS in Forensic Science. She has extensive crime lab experience which includes training and testimony as an expert witness.

In this lesson, you will learn about exculpatory clauses and the different scenarios in which they are used. You'll also learn about the conditions that make exculpatory clauses enforceable.

Definitions

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.

Banks are allowed to seize a foreclosed home, but exculpatory clauses prevent banks from seizing other property like cars and household belongings.
House in Foreclosure

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.

When Fred hired an unlicensed contractor to do work on the pool without proper permits and took a kickback, he breached the trust agreement and is no longer protected from liability by the exculpatory clause in the trust.
Backyard pool

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.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support