Lynch v. Santa Fe Nat. Bank

• Decision Date: 05 May 1981
• Docket Number: No. 4900,4900
• Citation: 97 N.M. 554,1981 NMCA 55,627 P.2d 1247
• Parties: Thomas H. LYNCH and Florence M. Lynch, his wife, Plaintiffs-Appellants, v. SANTA FE NATIONAL BANK, Defendant-Appellee. *
• Court: Court of Appeals of New Mexico

Page 1247

627 P.2d 1247

97 N.M. 554

Thomas H. LYNCH and Florence M. Lynch, his wife Plaintiffs-Appellants, v. SANTA FE NATIONAL BANK, Defendant-Appellee. ^*

No. 4900.

Court of Appeals of New Mexico.

May 5, 1981.

T. G. Cornish, George Foster Hannett, Hannett, Hannett & Cornish, P. A., Albuquerque, for plaintiffs-appellants.

Jeffrey R. Brannen, Montgomery & Andrews, P. A., Santa Fe, for appellee.

OPINION

WOOD, Judge.

The dispositive issue is whether a provision in an escrow agreement, which exculpates the escrow agent from liability for its negligence, is to be given effect. We discuss: (1) bargaining advantage, and (2) public interest.

Plaintiffs were purchasing real property from Lucero under a real estate contract. The plaintiffs, in turn, were selling this, and additional, real property to Buckley under a real estate contract. Both contracts were placed in escrow with defendant pursuant to written escrow agreements signed by the selling and purchasing parties. The escrows were accepted by defendant, subject to the terms and conditions of the escrow agreements.

Lucero declared the two real estate contracts to be in default and, at Lucero's request, defendant surrendered the various documents to Lucero. Litigation ensued; the trial court ordered specific performance of the Lucero-Lynch contract; the trial court's order was affirmed by the Supreme Court by an unreported decision in Carmichael v. Lynch and Lucero, No. 12,123, decided May 24, 1979.

Plaintiffs then sued defendant for damages. Defendant admitted that it was negligent in terminating the escrows, but denied liability because of an exculpatory provision in the escrow agreements. The trial court gave effect to the exculpatory provision and dismissed the complaint. Plaintiffs appeal.

The escrow agreement pertaining to the Lynch-Lucero contract shows that defendant collected a $40.00 initial fee and was to receive an annual fee of $6.00 from Lucero. The escrow agreement pertaining to the Lynch-Buckley contract shows defendant collected a $40.00 initial fee. The Lynch-Buckley contract provides that defendant's annual collection charge was to be paid by Lynch. The contested exculpatory provision reads:

7. As a controlling part of the consideration for the acceptance of this escrow, it is agreed that the Bank shall not be liable for any of its acts or omissions done in good faith, nor shall it be liable for any claims, demands, losses or damages made, claimed or suffered by any party to this escrow, excepting such as may arise through or be caused by the Bank's wilful or gross negligence.

Plaintiffs do not claim that defendant's negligence was either willful or gross negligence.

New Mexico law sanctions exculpatory clauses of this kind. Metropolitan Pav. Co. v. Gordon Herkenhoff & Assoc., 66 N.M. 41, 341 P.2d 460 (1959); see City of Artesia v. Carter, 94 N.M. 311, 610 P.2d 198 (Ct.App.1980).

Tyler v. Dowell, Inc., 274 F.2d 890 (10th Cir. 1960), states:

(E)xculpatory clauses in contracts of this kind are not favorites of the law. They are strictly construed against the promisee and will not be enforced if the promisee enjoys a bargaining power superior to the promisor, as where the promisor is required to deal with the promisee on his own terms.... Nor will a contract be enforced if it has the effect of exempting a party from negligence in the performance of a public duty, or where a public interest is involved.

Plaintiffs state: "This case involves the validity of such an exculpatory clause where both a public interest is at stake and where the party seeking the protection afforded by the clause enjoyed a decisive bargaining advantage over the victim of its negligence." Plaintiffs' argument is that a "public interest" or "bargaining advantage" situation modifies the rule stated in Loyd v. Southwest Underwriters, 50 N.M. 66, 169 P.2d 238 (1946): "The escrow holder's liability is both 'fixed and limited' by the contract under which it undertakes to perform the impartial function of stake-holder." We assume such a modification and decide whether the trial court properly gave effect to the above-quoted provision which exculpates defendant from its own negligence in handling the escrows.

Bargaining Advantage

It is uncontradicted that the exculpatory clause is part of a standard printed form, prepared and approved for use by defendant's attorney; that defendant does not negotiate with a party seeking to utilize defendant as an escrow agent, rather, defendant presents the form to the party for filling in the blanks and for signature; that a party cannot have the exculpatory clause removed by payment of an additional fee. Plaintiffs assert that defendant's form is presented to a party on a "take it or leave it" basis. We agree; under the evidence the only basis on which defendant will provide escrow services is stated in the terms and conditions of its printed form, and that form contains the exculpatory clause.

Plaintiffs assert that because the exculpatory clause was "written by the more powerful bargainer to meet its own needs," the clause "should not be enforced to relieve the more powerful bargainer of the consequences of its own negligence." This argument is based on the reference to superior bargaining power in Tyler v. Dowell, Inc., supra; however, this argument distorts what was stated in that case.

Tyler v. Dowell, Inc. refers to the promisee's "bargaining power superior to the promisor, as where the promisor is required to deal with the promisee on his own terms." (Our emphasis.) Plaintiffs were required to deal with defendant on defendant's terms if plaintiffs were to obtain defendant's services, but that is not the meaning of "required to deal". "Required to deal" involves the absence of alternatives; specifically, whether plaintiffs were "free to use or not to use" defendant's escrow services. Valley National Bank v. Tang, 18 Ariz.App. 40, 499 P.2d 991 (1972).

Two cases cited by plaintiffs are illustrative. Akin v. Business Title Corporation, 264 Cal.App.2d 153, 70 Cal.Rptr. 287 (1968), involved negligence by the escrow agent. The exculpatory clause therein involved was not enforced because a public service was involved. We discuss public service in the next issue. The references in Akin to a "standardized contract of adhesion" and the "practical necessity" of members of the public agreeing to the exculpatory clause suggests an absence of an alternative. Tunkl v. Regents of University of California, 60 Cal.2d 92, 32 Cal.Rptr. 33, 383 P.2d 441, 6 A.L.R.3d 693 (1963), involved negligence by a nonprofit, charitable hospital. The patient had signed an agreement containing an exculpatory clause which was not enforced because a public service was involved. Concerning superior bargaining power, Tunkl states: "The would-be patient is in no position to reject the proffered agreement, to bargain with the hospital, or in lieu of agreement to find another hospital. The admission room of a hospital contains no bargaining table ...." (Our emphasis.)

Plaintiffs also rely on Baker v. City of Seattle, 79 Wash.2d 198, 484 P.2d 405 (1971). That decision does not discuss relative bargaining power and is not in point. The disclaimer of liability clause in a rental agreement for a golf cart was inconspicuous. Referring to the equivalent of § 55-2-316(2), N.M.S.A.1978, Baker held: "To allow the respondent to completely exclude himself from liability by such an inconspicuous disclaimer, would truly be unconscionable." Other cases cited by plaintiffs deal with public interest and are discussed under that issue.

We agree with the following from defendant's answer brief: "(T)he record is devoid of any evidence that the Lynches sought any alternative sources of escrow, or alternatively, that in seeking such alternative sources of escrow, they encountered identical exculpatory language with no available alternatives, or that there were not available alternatives in the market place."

There being no showing of an absence of alternatives, there is no basis for applying the superior bargaining power concept of Tyler v. Dowell, Inc., supra. This holding answers plaintiffs' contention; this answer, however, does not intimate that a position of superior bargaining power is, in itself, a basis for refusing to enforce an exculpatory clause in a contract. Superior bargaining power may be no more than one factor involved in determining whether an exculpatory clause is not to be enforced because of a public interest. Valley National Bank v. Tang, supra; Tunkl v. Regents of University of California, supra; Akin v. Business Title Corporation, supra; Hy-Grade Oil Co. v. New Jersey Bank, 138 N.J.Super. 112, 350 A.2d 279 (1975). The question of whether superior bargaining power is a basis, in itself, for refusing to enforce an exculpatory clause is not presented because the record does not establish a superior bargaining power, as explained herein.

Public Interest

Tyler v. Dowell, Inc. states that an exculpatory clause will not be enforced "if it has the effect of exempting a party from negligence in the performance of a public duty, or where a public interest is involved." Southwestern Pub. S. Co. v. Artesia Alfalfa Ass'n, 67 N.M. 108, 353 P.2d 62 (1960), states:

The rule is well established that a provision in a contract seeking to relieve a party to the contract from liability for his own negligence is void and unenforceable, if the provision is violative of law or contrary to some rule of public policy. Under this limitation the courts are in complete accord in holding that a public service corporation, or a public utility such as an electric company, cannot contract against its negligence in the regular course of its business, or in performing one of its duties of public service, or where a public duty is owed, or where a public interest is involved.

There is no claim that the exculpatory clause in the escrow agreements is violative of statutory law, see ...