You Be The Judge: Ransburg v Richards1
Facts: Barbara Richards leased an apartment at Twin Lakes, a complex owned by Lenna Ransburg. The
written lease declared that:
• Twin Lakes would “gratuitously” maintain the common areas.
• Richards’ use of the facilities would be “at her own risk.”
• Twin Lakes was not responsible for any harm to the tenant or her guests, anywhere on the
property (including the parking lot), even if the damage was caused by Twin Lakes’ negligence.
It snowed. As Richards walked across the parking lot to her car, she slipped and fell on snow-covered
ice. Richards sued Ransburg, who moved for summary judgment based on the exculpatory clause. The
trial court denied Ransburg’s motion and she appealed.
Issue: Was the exculpatory clause valid?
Argument for Tenant: An exculpatory clause in a contract for an essential service violates public
policy. When an ill person seeks medical care, his doctor cannot require him to sign an exculpatory
clause. In the same way, a person has to live somewhere. Her landlord cannot force her to sign a
waiver.
Landlords tend to be wealthy and powerful. There is generally no equality of bargaining power
between them. The tenants are not freely agreeing to the exculpatory language.
Moreover, if a landlord fails to maintain property, not just the tenant is at risk. Visitors, the mail carrier,
the general public, could all walk through the Twin Lakes parking lot. The public’s interest is served
when landlords maintain their properties. They must be held liable when they negligently fail to
maintain common areas and injuries result.
Argument for Landlord: Ms. Richards does indeed have to live somewhere, but she does not have to
live on the plaintiff’s property. Surely there are many dozens of properties nearby. If Richards had been
dissatisfied with any part of the proposed lease – excessive rent, strict rules, or an exculpatory clause –
she was free to take her business to another landlord.
Landlords may generally be wealthier than their tenants, but that fact alone does not mean that a
landlord is so powerful that leases are offered on a “take it or leave it” basis. Here, the landlord stated
the exculpatory clause plainly. This is a clear contract between adults, and it should stand in its
entirety.
Holding: Judgment affirmed. Excerpts from the court’s opinion:
Resolving the question of whether this lease provision is void as against public policy turns on fairly
balancing the parties’ freedom to contract against the policy of promoting responsibility for damages
caused by one’s own negligent acts. A tenant’s choices may be limited; he can accept one landlord or go
to another who charges the same rent and asks the tenant to sign the same standard form lease. We
conclude that five factors weigh in favor of not enforcing this type of clause in residential leases: (i) the
nature of the subject matter of the contract; (ii) the strength of the public policy underlying the statute;
(iii) the likelihood that refusal to enforce the bargain or term will further that policy; (iv) how serious
or deserved would be the forfeiture suffered by the party attempting to enforce the bargain; and (v) the
parties relative bargaining power and freedom to contract.
Given the vast number of people clauses like these affect, the inequality of bargaining power caused by
the need for housing, the fact that people who are not parties to the contracts could suffer as a result of
such clauses, and the desire to promote responsible maintenance by landlords to avoid personal injuries
by tenants and third parties, we find that the factors weigh in favor of public policy.
Dissent: The majority ignores the plain meaning of the exculpatory clause and violates the well-settled
common law right of the parties to make such a provision and to have it enforced according to its
terms.
Question: Why did the court hold this exculpatory clause to be unenforceable?
1 770 N.E.2d 393 Indiana Court of Appeals, 2002.
Answer: It relied on the disparity in bargaining power between landlords and tenants, stating that
Question: Is that always true?
Answer: No. The relative leverage between landlords and tenants will depend on many factors
Question: Many of the examples in the text show exculpatory clauses to be unenforceable. Is that
the general rule?
Answer: Note that the text distinguishes between exculpatory clauses in consumer contracts, or
Question: Why is that distinction important?
Answer: Courts may, as in this case, be more willing to take an active role in determining the
fairness of consumer or other contracts between individuals and businesses. However, courts will
Question: Why?
Answer: Courts should rarely second-guess the fairness of decisions made by businesspeople in
Question: Can you explain further?
Answer: A valid exculpatory clause may enable a business to offer products or services at a lower
cost than it would charge if it had to cover the cost of potential liability. A customer may choose to
Bailments
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.” Courts are more apt to enforce an exculpatory clause in a bailment
case because any harm is to property and not persons.
Unconscionable Contracts
An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness.
Even if a contract does not violate any specific statute or public policy, it may still be void if it “shocks
the conscience” of the court. The two factors that most often lead a court to find unconscionability are
(1) oppression, meaning that one party used its superior power to force a contract on the weaker party,
and (2) surprise, meaning that the weaker party did not fully understand the consequences of its
agreement.
Adhesion Contracts
An adhesion contract is a standard form contract prepared by one party and given to the other on a
“take it or leave it” basis. When the contract is simply presented to a consumer who has no ability to
bargain, it is an adhesion contract and subject to an unconscionability challenge.
Case: Worldwide Insurance v. Klopp2
Facts: Ruth Klopp was permanently injured in a serious auto accident. The other driver was uninsured,
so Klopp filed a claim with her insurer, Worldwide, under her “uninsured motorist” coverage. Her
policy required arbitration of such a claim, and the arbitrators awarded Klopp $90,000. But the policy
also stated that if the arbitrators awarded more than the statutory minimum amount of insurance
($15,000), either side could appeal the award and request a full trial. Worldwide appealed and
demanded a trial. In the trial court, Klopp claimed that the appeal provision was unconscionable and
void. The trial court agreed and entered judgment for the full $90,000. Worldwide appealed.
Issue: Is the provision requiring arbitration and then permitting appeal by either party void as
unconscionable?
Decision: Affirmed. The contract provision is unconscionable.
Reasoning: Worldwide contends that the arbitration provision is clear and unambiguous, but Klopp
argues that it is grossly unfair. State policy favors the use of arbitration to resolve disputes, but it
rejects any part of a contract of adhesion that is unconscionable.
This contract binds both parties to a low award, one that an insurance company would be unlikely to
appeal anyway. Either party may appeal a high award, but common sense suggests that only the insurer
would do so. The policy enables the insurer to avoid a high arbitration award that may have been
perfectly fair.
This policy promotes litigation and provides an arbitration “escape hatch” that favors insurance
companies. The provision is unconscionable and void.
Question: What is an “unconscionable” contract?
Question: What are the two factors that courts most often look at in deciding whether a contract is
unconscionable?
Answer: The two factors that most often lead to a finding of unconscionability are oppression,
Question: Evaluate the Klopp case in terms of those two criteria.
Answer: As to oppression, the insurance company drafted the contract and presented it to Klopp as
a “take it or leave it” agreement. She had no opportunity to bargain any terms. As to surprise,
Klopp probably gave little or no attention to the arbitration clause. Even if she read the arbitration
The UCC: Unconscionability and Sales Law
The Uniform Commercial Code (UCC) explicitly adopts unconscionability as a reason to reject a
contract.
Multiple Choice Questions
1. At a fraternity party, George mentions that he is going to learn to hang glide during spring break.
Vicki, a casual friend, overhears him, and the next day she purchases a $100,000 life insurance
policy on George’s life. George has a happy week of hang gliding. But on the way home, he is
2 603 A.2d 788, 1992 Del. LEXIS 13 Supreme Court of Delaware, 1992.
bitten by a parrot and dies of a rare tropical illness. Vicki files a claim for $100,000. The insurance
company refuses to pay.
(a) Vicki will win $100,000 but only if she mentioned animal bites to the insurance agent.
(b) Vicki will win $100,000 regardless of whether she mentioned animal bites to the insurance
agent.
(c) Vicki will win $50,000.
(d) Vicki will win nothing.
2. Now assume that Vicky has loaned George $50,000. George again mentions that he is going to
learn to hang glide during spring break, so Vicki purchases the $100,000 life insurance policy on
George’s life. If George dies and the insurance company refuses to pay,
(a) Vicki will win $100,000 but only if she mentioned animal bites to the insurance agent.
(b) Vicki will win $100,000 regardless of whether she mentioned animal bites to the insurance
agent.
(c) Vicki will win $50,000.
(d) Vicki will win nothing.
3. KwikFix, a Fortune 500 company, contracts with Allied Rocket, another huge company, to provide
the software for Allied’s new Jupiter Probe rocket for $14 million. The software is negligently
designed. When the rocket blasts off from Cape Kennedy, it travels only as far as Fort Lauderdale.
Allied Rocket sues for $200 million and proves that as a result of the disaster it lost a huge
government contract, worth at least that much, which KwikFix was aware of. KwikFix responds
that its contract with Allied included a clause limiting its liability to the value of the contract. Is the
contract clause valid?
(a) The clause is unenforceable because it is unconscionable.
(b) The clause is unenforceable because it is exculpatory.
(c) The clause is enforceable because both parties are sophisticated corporations.
(d) The clause is enforceable because $200 million is an unconscionable claim.
Answer: C. The clause is enforceable. There is no unconscionability problem because this is not an
4. Ricki goes to a baseball game. The back of her ticket clearly reads: “Fan agrees to hold team
blameless for all injuries – pay attention to the game at all times for your own safety!” In the first
inning, a foul ball hits Ricki in the elbow. She ____________ sue the team over the foul ball.
Ricky spends the next several innings riding the opposing team’s first baseman. The very nicest
thing she says to him is, “You suck, Franklin!” In the eighth inning, Franklin has had enough. He
grabs the ball boy’s chair and throws it into the stands, injuring Ricki’s other elbow. Ricki
_____________ sue the team over the thrown chair.
(a) can; can
(b) can; cannot
(c) cannot; can
(d) cannot; cannot
5. Jim, about to start a pickup soccer game, asks Desiree if she will hold his wallet while he plays.
Desiree, a law student, says, “Sure, if you’ll sign this exculpatory clause holding me blameless for
negligence.” Jim is very surprised, but he signs the paper that Desiree holds out for him. A bailment
_________ been created. If Desiree is careless and loses the wallet, she __________ be liable to
Jim.
(a) has; will
(b) has; will not
(c) has not; will
(d) has not; will not
Essay Questions
1. For 20 years, Art’s Flower Shop relied almost exclusively on advertising in the yellow pages to
bring business to its shop in a small West Virginia town. One year the yellow pages printer
accidentally omitted to print Art’s ad, and Art’s suffered an enormous drop in business. Art’s sued
for negligence and won a judgment of $50,000 from the jury, but the printing company appealed,
claiming that under an exculpatory clause in the contract, the company could not be liable to Art’s
for more than the cost of the ad, about $910. Art’s claimed that the exculpatory clause was
unconscionable. Please rule.
Answer: The West Virginia Supreme Court gave judgment for Art’s, holding that the clause was
indeed unconscionable. The yellow pages were a monopoly in this part of West Virginia, there was
2. Brockwell left his boat to be repaired at Lake Gaston Sales. The boat contained electronic equipment
and other personal items. Brockwell signed a form stating that Lake Gaston had no responsibility
for any loss to any property in or on the boat. Brockwell’s electronic equipment was stolen and
other personal items were damaged, and he sued. Is the exculpatory clause enforceable?
Answer: No, said the North Carolina Supreme Court. The court held that boat repairing is in the
public interest and that it is against public policy for a company in that business to use an
3. Guyan Machinery, a West Virginia manufacturing corporation, hired Albert Voorhees as a salesman
and required him to sign a contract stating that if he left Guyan he would not work for a competing
corporation anywhere within 250 miles of West Virginia for a two-year period. Later, Voorhees left
Guyan and began working at Polydeck Corp., another West Virginia manufacturer. The only
product Polydeck made was urethane screens, which comprised half of 1 percent of Guyan’s
business. Is Guyan entitled to enforce its noncompete clause?
Answer: No. The noncompete clause is unenforceable here because the two companies are not
4. 810 Associates owned a 42-story skyscraper in midtown Manhattan. The building had a central
station fire alarm system, which was monitored by Holmes Protection. A fire broke out and Holmes
received the signal. But Holmes’s inexperienced dispatcher misunderstood the signal and failed to
summon the fire department for about nine minutes, permitting tremendous damage. 810 sued
Holmes, which defended based on an exculpatory clause that relieved Holmes of any liability
caused in any way. Holmes’s dispatcher was negligent. Does it matter how negligent he was?
Answer: It matters. Because the exculpatory clause was negotiated and was reasonable, the New
You Be the Judge: WRITING PROBLEM Oasis Waterpark, located in Palm Springs,
California, sought out Hydrotech Systems, Inc., a New York corporation, to design and construct a
surfing pool. Hydrotech replied that it could design the pool and sell all the necessary equipment to
Oasis, but could not build the pool because it was not licensed in California. Oasis insisted that
Hydrotech do the construction work because Hydrotech had unique expertise in these pools. Oasis
promised to arrange for a licensed California contractor to “work with” Hydrotech on the
construction; Oasis also assured Hydrotech that it would pay the full contract price of $850,000,
regardless of any licensing issues. Hydrotech designed and installed the pool as ordered. But Oasis
failed to make the final payment of $110,000. Hydrotech sued. Can Hydrotech sue for either breach
of contract or fraud (trickery)? Argument for Oasis: The licensing law protects the public from
incompetence and dishonesty. The legislature made the section strict: no license, no payment. If the
court was to start picking and choosing which unlicensed contractors could win a suit, it would be
inviting incompetent workers to endanger the public and then come into court and try their luck.
That is precisely the danger the legislature seeks to avoid. Argument for Hydrotech: This is not
the kind of case the legislature was worried about. Hydrotech has never solicited work in
California. Hydrotech went out of its way to avoid doing any contracting work, informing Oasis
that it was unlicensed in the state. Oasis insisted on bringing Hydrotech into the state to do work.
If Oasis has its way, word will go out that any owner can get free work done by hiring an
unlicensed builder. Make any promises you want, get the work done to your satisfaction, and then
stiff the contractor—you’ll never have to pay.
Answer: Oasis Waterpark won, and Hydrotech’s case was dismissed. The court was not persuaded
that many owners would seek out unlicensed builders and then trick them into working, with the
intention of denying payment. The judges believed that awarding damages would encourage
unlicensed builders to ignore the statute’s requirement; in the long run, homeowners and others
who rely on licensed workers would suffer. Hydrotech Systems, Ltd. v. Oasis Waterpark, 52 Cal.3d
988, 803 P.2d 370, 1991 Cal. LEXIS 139, (Sup. Ct. Cal. 1991).
Discussion Questions
1. ETHICS: Richard and Michelle Kommit traveled to New Jersey to have fun in the casinos. While in
Atlantic City, they used their MasterCard to withdraw cash from an ATM conveniently located in
the “pit” – the gambling area of a casino. They ran up debts of $5,500 on the credit card and did not
pay. The Connecticut National Bank sued for the money. Law aside, who has the moral high
ground? Is it acceptable for the casino to offer ATM services in the gambling pit? If a credit card
company allows customers to withdraw cash in a casino, is it encouraging them to lose money? Do
the Kommits have any ethical right to use the ATM, attempt to win money by gambling, and then
seek to avoid liability?
Answer: They should and did claim that they borrowed the money to gamble. They argued
correctly that a gambling debt is unenforceable in Connecticut. The appellate court remanded the
case so that the trial court could determine whether the bank knew that the money was borrowed
for gambling. If the bank knew the intended use of the money (which a court could but need not
2. The Justice Department recently shut down three of the most popular online poker websites (Poker
Stars, Absolute Poker, and Full Tile Poker). State agencies take countless actions each year to stop
illegal gaming operations. Do you believe that gambling by adults should be regulated? If so, which
types? Rate the following types of gambling from most acceptable to least acceptable:
-online poker -state lotteries -horse racing
-casino gambling -bets on pro sports -bets on college sports
3. Van hires Terri to add an electrical outlet to his living room for his new HDTV. Terri does an
excellent job, and the new outlet works perfectly. She presents Van with a bill for $200. But Terri is
not a licensed electrician. Her state sets licensing standards in the profession to protect the public.
And so, Van can refuse to pay Terri’s bill. Is this reasonable? Should he be able to avoid payment?
4. Should noncompete agreements in employment contracts be illegal altogether? Is there equality of
bargaining power between the company and the employee? Should non-competes be limited to top
officers of a company? Would you be upset if a prospective employer asked you to agree to a one
year covenant not to compete?
5. Revisit the Gail Waters example on page. Imagine now that Beauchemin was not her boyfriend,
and that he had not introduced her to the drugs to which she became addicted. If all other facts in
the case remain the same, would the purchase of the annuity for $50,000 still be unconscionable, in
your opinion?