Exculpatory Clause a provision designed to relieve a trustee from liability for certain breaches of trust. Provisions of this nature are strictly construed by the courts. In addition, no clause in a trust instrument is effective to relieve a trustee from liability for a breach of trust that is committed in bad faith, intentionally, with reckless indifference to the interests of the beneficiary, or for a breach of trust from which the trustee personally profits. New York has gone further than the ordinary standard and by statute has declared that an attempted grant to an executor or trustee of a testamentary trust of exoneration of his fiduciary liability for failure to execute reasonable care, diligence, and prudence shall be deemed contrary to public policy and void.
Examples of exculpatory clause
For example, that Madison Manufacturing Company requires all of its employees to sign an employment contract with a clause stating that employer (Madison) is not responsible for any injury or damage that an employee may suffer as a result of accidents, carelessness, or misconduct of that employee or any other Madison worker. In this situation, because the exculpatory clause attempts to remove the employer's potential liability for any injuries to its employees, a court would usually find that the clause is contrary to public policy and unenforceable.
Exculpatory clauses are very common in bailment cases. Bailment means giving possession and control of personal property to another person. The person giving up possession is the bailor, and the one accepting possession is the bailee. When you leave your laptop computer with a dealer to be repaired, you create a bailment. The same is true when you check your coat at the restaurant or lend your Matisse to a museum. Bailees often try to limit their liability for damage to property by using an exculpatory clause.
Judges are slightly more apt to enforce an exculpatory clause in a bailment case because any harm is to property and not persons. But courts will still look at many of the same criteria we have just examined to decide whether a bailment contract is enforceable. In particular, when the bailee is engaged in an important public service, a court is once again likely to ignore the exculpatory clause.
Courts often but not always ignore exculpatory clauses, finding that one party was forcing the other party to give up legal rights that no one should be forced to surrender. An exculpatory clause is generally unenforceable when:
- it attempts to exclude an intentional tort or gross negligence
- the affected activity is in the public interest, such as medical care, public transportation, or some essential service
- the parties have greatly unequal bargaining power
- M.R. Fremont-Smith 2010, p.199
- R. Miller, G. Jentz 2007, p.247
- J.F. Beatty, S.S. Samuelson 2012, p.306-307
- J.F. Beatty, S.S. Samuelson 2010, p.279
- Beatty J.F., Samuelson S.S., (2012), Business Law and the Legal Environment, Cengage Learning, Brazil.
- Beatty J.F, Samuelson S.S., (2010), Essentials of Business Law, Cengage Learning, Canada.
- Fremont-Smith M.R., (2010), Governing Nonprofit Organizations, Harvard University Press, London.
- Miller R., Jentz G., (2007), Business Law Today: The Essentials,Cengage Learning, Singapore.
Author: Małgorzata Oleksińska