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 theTwin 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.
1 770 N.E.2d 393 Indiana Court of Appeals, 2002
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: What is an exculpatory clause?
Question: Why did the court hold this exculpatory clause to be unenforceable?
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
Question: Why?
Answer: Courts should rarely second-guess the fairness of decisions made by businesspeople in
Question: Can you explain further?
Answer: The text makes this point on p. 310, Economics & the Law. 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
Role Play: Exculpatory Clauses
An exculpatory clause is one that attempts to release one party from liability in the event of injury to
the other party. These clauses have an obvious attraction to many companies, but they carry one major
risk: a court may ignore them. Courts frequently reject exculpatory clauses that they consider
overbroad. In this exercise students will hear the facts of a case and then formulate and respond to
various arguments about an exculpatory clause.
Divide the classroom into three sections. One section will represent the injured plaintiffs in this
automobile accident case, the second will represent the defendant, Hertz, and the third will judge the
arguments and ask questions. The case is Hertz Corp v. Garrott.2. The standard Hertz lease, used in
Illinois, included a provision stating that the rented vehicle would be driven only by the customer and
certain authorized persons who had the customer’s permission. One such authorized person was an
immediate family member who was a licensed driver over the age of 25.
Angelique Garrott rented a Hertz car. The next day Angelique’s husband, Rodney, was driving the
vehicle when it struck a Chicago taxicab, injuring the cab’s passengers and damaging both cars.
2 238 Ill. App. 3d 231, 606 KEW 219, 1992 Ill. App. LEXIS 1751 Michigan Court of Appeals, 1992
Regrettably, Rodney was under age 25, intoxicated, and driving without a license, which had been
suspended several months earlier. All of the injured parties sued Hertz.
The standard lease, which Ms. Garrott signed, contained a provision for Hertz to provide liability
insurance for the car. But Hertz argued that its coverage did not apply in this case. On the back of the
lease form, in small print, an exculpatory clause stated that if the customer permitted an unauthorized
or prohibited use of the vehicle, the insurance would be voided and the customer would be responsible
for all losses. Hertz claimed that since Rodney, unlicensed, underage, and drunk, was obviously an
unauthorized driver, the insurance was void, and the company was off the hook. The taxi company and
the injured passengers argued that Hertz’s insurance still applied.
Question for Hertz Lawyers: Make an argument for Hertz that its insurance coverage did not apply to
this accident.
Possible Answer: This argument is simple and straightforward. The lease agreement explicitly stated
Question for Injured Parties’ Lawyers: Make an argument for the taxi company and its passengers
that Hertz’s insurance coverage did apply.
Answer. The policy should be void as against public policy. The primary purpose of this liability
insurance is to protect innocent third parties. Hertz should not be entitled to void a policy, causing
innocent people to suffer. Rodney’s use was foreseeable, even if it was illegal and in violation of the
contract. Hertz should pay.
Suggested Additional Questions:
For Hertz: If Hertz can avoid paying damages because of this violation of the law (driving without a
license and drunk driving), couldn’t Hertz rewrite the contract so that its insurance is voided by any
improper driving, such as speeding, an illegal turn, and so forth? Couldn’t Hertz in fact make the
policy useless if it chose to?
Answer: It would be unfair and unjust to write insurance that became void whenever there was an
For Injured Parties: The Garrotts knew perfectly well that Rodney should not be driving. Even
without reading the contract, they could have guessed that a drunk, unlicensed driver did not have
permission to use the car. Further, both driving without a license and drunk driving are serious
violations of the law. Why should a court help people who violate the contract and break the law?
Answer: A court probably should not help such people, but it must protect innocent parties such as the
For Judges: Who should win and why?
Answer: The trial court ruled in favor of Hertz on the insurance issue, declaring the exculpatory
clause valid and the insurance void. But the Illinois court of appeal reversed, holding that Hertz’s
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.
Landmark Case
Williams v. Walker-Thomas Furniture Co.
Facts: Walker-Thomas Furniture Company, operated a retail furniture store in an economically
disadvantaged DC neighborhood. The store’s standard boilerplate contract provided, in fine print, that
when a purchaser bought more than one item, any payment she made would be applied equally to
everything she had purchased. In this way, the purchaser would not actually own any item until she had
paid for everything in full. As a result, when customers missed a payment, Walker-Thomas would
repossess every item they ever bought.
Ora Williams was a single mother raising seven children on a $218 monthly welfare check.
Despite this knowledge, Walker-Thomas sold her fourteen household items totaling $1,800 from 1957
to 1962. Williams dutifully made her monthly payments. In 1962, Williams bought a stereo valued at
$514.95. At the time of this purchase, she still owed $164 from her prior purchases. When Williams
defaulted on her payment, Walker-Thomas sought to repossess every item she had ever purchased.
With the help of a legal aid society, Williams and other Walker-Thomas customers sued the
company, arguing the contract was void for unconscionability. Lower courts sided with
Walker-Thomas, and the customer appealed.
Issue: Is this contract unconscionable?
Excerpts from Judge Skelly Wright’s Decision:
Unconscionability has generally been recognized to include an absence of meaningful choice on the
part of one of the parties together with contract terms which are unreasonably favorable to the other
party. Whether a meaningful choice is present in a particular case can only be determined by
consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness
of the choice is negated by a gross inequality of bargaining power.
The manner in which the contract was entered is also relevant to this consideration. Did each
party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to
understand the terms of the contract, or were the important terms hidden in a maze of fine print and
minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full
knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain. But
when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable
contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an
objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule
that the terms of the agreement are not to be questioned should be abandoned and the court should
consider whether the terms of the contract are so unfair that enforcement should be withheld.
The test [of unconscionability] is not simple, nor can it be mechanically applied. The terms are
to be considered in the light of the general commercial background and the commercial needs of the
particular trade or case. The test [is] whether the terms are ‘so extreme as to appear unconscionable
according to the mores and business practices of the time and place.’
[Now that this court has established the test for determining “unconscionability” the case is
remanded to the trial court to decide if this contract meets the test.]
Question: What did the court determine the test of unconscionability to be?
Question: What was the ruling of the appeals court in this case?
The UCC: Unconscionability and Sales Law
With the creation of the Uniform Commercial Code (UCC), the law of unconscionability got a
boost. The Code explicitly adopts unconscionability as a reason to reject a contract. Although the
Code directly applies only to the sale of goods, its unconscionability section has proven to be
influential in other cases as well, and courts today are more receptive than they were 100 years ago
to a contract defense of fundamental unfairness.
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
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, and 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.
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
Case 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 does matter. Because the exculpatory clause was negotiated and was reasonable, the
New York Court of Appeals held that it was valid as to ordinary negligence. However, the clause
5. 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 were 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,
.
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. Imagine that you are starting your own company in your hyper-competitive industry: You are
putting your life savings, your professional contacts, and your innovative ideas on the line. As you
begin to hire a sales force, you consider binding new employees to noncompete agreements.
Outline the ideal terms of your employees’ noncompetes. What is its duration? What is its
geographical radius? Are these terms appropriate for your industry? When you are done, pass your
proposed terms to classmates and discuss its enforceability. Answer: Answers will vary.
5. When Ruth Klopp was injured in a serious accident with an uninsured motorist, she filed a
claim under her own policy with Worldwide Insurance. Her policy contained an arbitration
provision, stating that if the arbitrators awarded more than $15,000, either side could appeal
to the courts, but a low award could not be appealed. The arbitrators awarded Klopp
$90,000, and Worldwide demanded a full trial. Klopp claimed that the appeal provision was
unconscionable. What result?
6. ETHICS: Some commentators argue that Walker-Thomas was providing a valuable service to Mrs.
Williams and that the litigation ultimately harmed her community. No other business of the time
was willing to offer credit to people of such limited means, much less to African Americans. As a
result of that landmark case, Walker-Thomas went out of business and an entire group of people
lost access to essential household items. Comment.