257 Ind. 458
Appellant gas station lessee sought review of a judgment of the Appellate Court (Indiana) that found a lease’s exculpatory clause invalid and the lease’s indemnifying clause valid. In a declaratory judgment action filed by appellees, an oil company and its employee, the trial court determined that the lessee was liable for injuries sustained on the premises under the provisions of the lease contract.
-The oil company’s employee sprayed gasoline over the gas station lessee and his assistant, causing them to be burned and injured on the leased premises. The lease with the oil company contained a “hold harmless” clause exculpating the oil company from liability for its negligence, and further compelling the lessee to indemnify the oil company for any damages or loss incurred as a result of its negligence. The trial court found the gas station lessee liable under the terms of the lease; the appellate court held that the exculpatory clause was invalid and that the indemnifying clause was valid.
The court granted the gas station lessee’s petition to transfer the appeal, and reversed the trial court’s judgment, directing that a judgment be entered for the gas station lessee. Analogizing to sales contracts under the Uniform Commercial Code, the court found the lease provisions unconscionable and unenforceable as against public policy, noting that the gas station lessee, a man of poor education, was the party with lesser bargaining power.
-Where there is no showing of a voluntary knowing and understanding release of rights, and there is unequal bargaining power and the clause is grossly unfair, the court may find it unconscionable.
- The basic test of unconscionability is whether, in light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.
- It is not the policy of the law to restrict business dealings or to relieve a party of his own mistakes of judgment but where one party has taken advantage of another’s necessities and distress to obtain an unfair advantage over him, and the latter, owing to his condition, has encumbered himself with heavy liability or an onerous obligation for the sake of a small or inadequate present gain there will be relief granted.
- The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. The weaker party, in need of the good or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses.
- The party seeking to enforce such a contract has the burden of showing that the provisions were explained to the other party and came to his knowledge and there was in fact a real and voluntary meeting of the minds and not merely an objective meeting.
- Parties may make contracts exculpating one of his negligence and providing for indemnification only if it is done knowingly and willingly as in insurance contracts made for that very purpose.
The court ordered that the trial court judgment be reversed and directed that a judgment be entered for the gas station lessee.