For the record: Hold for release…of liability

As sellers of all kinds attempt to shield themselves from liability, prospective buyers are being presented with agreements that aim to have the buyer give up certain rights in exchange for using a service or purchasing a product. The terms differ, but the common intent is for the buyer to relinquish any right to hold the seller legally responsible if the service or product is involved in an event resulting in injuries, death, or property damage. Commonly called a waiver or release, these exculpatory clauses can be in a sales contract or a separate document.

Consider a sales contract for a kit aircraft that was at the center of a case heard by the U.S. Court of Appeals in 1986. The builder of the kit aircraft, who was also the pilot, was injured when it crashed on takeoff. He sued the seller of the kit, alleging negligence, product liability, and warranty claims. The seller asserted that the builder waived these claims when he signed the sales contract.

The sales contract provided that the seller “is not responsible, and makes no warranties, express or implied whatsoever, regarding the structural integrity, performance, flight characteristics, or safety of the buyer’s completed aircraft and its component parts.... Buyer expressly waives any and all claims arising from structural integrity, performance, flight characteristics, mechanical failures, and safety... Buyer acknowledges awareness of the risks of flying a homebuilt aircraft.”

Are these types of exculpatory clauses enforceable? It depends. State laws and case precedent vary widely. In this case, the court was guided by case law to determine if the contract was “unconscionable” (unjust or extremely one-sided in favor of the party having superior bargaining power), and whether the exculpatory clause was valid.

Closely examining the circumstances surrounding the contract, the court found that it was not unconscionable. Particularly significant to the court was that the simple, one-page contract used plain language that the builder had made his own changes to, which the seller accepted. The court held that given the builder’s “expertise with respect to airplanes, his ability with woodworking, his awareness of the recreational nature of a home-built aircraft, his thorough investigation of the…aircraft prior to ordering it, his modification of the sales agreement, coupled with all of the circumstances surrounding the formation of the contract, we do not view the disclaimer provision as unconscionable.”

The court also enforced the exculpatory clause because the seller did not have any legal obligation to the public, the nature of the contract was for the sale of unassembled goods, and the purchaser had the opportunity to buy a similar kit elsewhere. Furthermore, the contract was fairly entered into and the intention of the parties was expressed in clear and unambiguous language.

However, one question left unanswered by the court was if the state’s law allowed strict product liability claims to be barred by an exculpatory clause. In strict product liability, the focus is on the defective nature of a product rather than the conduct of the parties involved.

An unrelated case, heard by the state supreme court many years later, sheds light on the answer to this question. In deciding whether a strict product liability claim against a tanning-bed manufacturer was barred by a release a customer had signed to use the tanning facilities, the court held “that an agreement releasing a manufacturer from strict product liability for personal injury, in exchange for nothing more than an individual consumer’s right to have or use the product, necessarily violates the public policy of this jurisdiction and is void.”

There may be other reasons not to agree to these clauses. Many insurance policies restrict or prohibit the insured’s ability to waive subrogation rights of the insurance company, so agreeing to an exculpatory clause could jeopardize the policy’s effectiveness. Likewise, indemnification clauses that often accompany waivers or releases seek to make the purchaser pay for the seller’s litigation expenses or attorney fees in the event of a legal dispute. Once again, state law plays a significant role in determining the enforceability of indemnification clauses.

For these reasons, you should never willingly sign a contract without fully understanding its terms. Consider having any proposed contract reviewed by an experienced attorney, who may also be able to help you negotiate more favorable terms.

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