Case No. EXCULPATORY CLAUSE Public Service Mutual Insurance Company New York Cit
ID: 368080 • Letter: C
Question
Case No. EXCULPATORY CLAUSE Public Service Mutual Insurance Company New York City Civil Court 394 N.Y.S.2d 524 (1977) FACTS: Defendant Royal Burglar and Fire Alarm Inc. (Royal) was in the husi renting burglar alarm systems. A customer signed a contract to rent a system fro Royal agreed in a written contract to maintain the system and to repair and re needed. The contract contained a clause that relieved Royal from liabilit replace parts as y for damaoe arising from its own negligence. This limitation was printed in large, bold print and wac clearly stated. During the term of the lease the alarm malfunctioned. The customer called Royal who negligently replaced the malfunctioning alarm with another malfunctioning a following day the property on which the alarm was located was burglarized. The alarm failed to operate and the burglars stole $712.75 worth of property. The customer was compensated for the loss by its insurance company, Plaintiff Public Service Mutual Insurance Company (Insurance Company). In this action Insurance Company sought to collect from Royal the money paid to the customer on the grounds that Royal acted negligently by not verifying that the second system it installed worked properly. Royal claimed the exculpatory clause freed it from liability for negligence. larm. The ISSUE: Is the contract provision seeking to free Royal from liability for its own negligence enforceable? DECISION: Yes. REASONING: Generally, parties to a contract can exempt or limit their liability for losses resulting from their own negligence, absent a statute to the contrary. The exculpatory clause in the contract between the customer and Royal was con presented in large, bold print and the language was clear. Under these circunm clause limiting a party's liability for negligence is enforceable. spicuously QUESTIONS* (See back of text for answers) D The reasoning in this case suggests statutes may exist which preclude parties tn inserting exculpatory clauses into certain types of contracts. What are some ex of contracts that are prohibited by New York statutes from including excuip clauses? les exampExplanation / Answer
A holder in due course is a person who is a holder of a negotiable instrument and has accepted the same in good faith and had exchange something valuable for it. There are certain requirements to be a holder in due course
1) The holder must have accepted the instrument in good faith
2) For some value
3) Without the notice of defect
4) And before the date of maturity.
In the above case a draft of amount $ 12000 was issued by Royal Insurance Company Ltd. (Royal) which was payable through Morgan Guaranty Trust Company (Morgan Guaranty).The draft was made payable to Gary E. Terrell for claim settlement for fire damages to a premises which was located in Kansas city, Missouri. Subsequently it was notified to Royal, by the attorney for Mr. and Mrs. Louis Wexler that Terrell’s client had an insurable interest in the damaged property and so Royal immediately stopped the payment.
However Terrell indorsed the draft and deposited the amount on the same day at the UAW-CIO Local #31 Federal Credit Union (Credit Union). Over the next two days Terrell had withdrawn $9000 from his account. On receiving the draft credit union indorsed it and forwarded it to Morgan guaranty for payment and the same was returned to credit union with notation ‘payment stopped’. When royal refused the payment, credit union sued royal and the basis of the lawsuit was whether credit union is a holder in due course.
In this case federal credit union wins since they are holder in due course and thus can enforce payment of the draft. To be a holder in due course the transferee must meet the requirements which are set forth in the UCC.