O'Callaghan v. Waller & Beckwith Realty Co.

Schaefer, Justice.

This is an action to recover for injuries allegedly caused by the defendant's negligence in maintaining and operating a large apartment building. Mrs. Ella O'Callaghan, a tenant in the building, was injured when she fell while crossing the paved courtyard on her way from the garage to her apartment. She instituted this action to recover for her injuries, alleging that they were caused by defective pavement in the courtyard. Before the case was tried, Mrs. O'Callaghan died and her administratrix was substituted as plaintiff. The jury returned a verdict for the plaintiff in the sum of $ 14,000, and judgment was entered on the verdict. Defendant appealed. The Appellate Court held that the action was barred by an exculpatory clause in the lease that Mrs. O'Callaghan had signed, and that a verdict should have been directed for the defendant. It therefore reversed the judgment and remanded the cause with directions to enter judgment for the defendant. We granted leave to appeal.

In reaching its conclusion the Appellate Court relied upon our recent decision in Jackson v. First National Bank, . . . There we considered the validity of such an exculpatory clause in a lease of property for business purposes. We pointed out that contracts by which one seeks to relieve himself from the consequences of his own negligence are generally enforced "unless (1) it would be against the settled public policy of the State to do so, or (2) there is something in the social relationship of the parties militating against upholding in the agreement." And we held that there was nothing in the public policy of the State or in the social relationship of the parties to forbid enforcement of the exculpatory clause there involved.

The exculpatory clause in the lease now before us clearly purports to relieve the lessor and its agents from any liability to the lessee for personal injuries or property damage caused by any act or neglect of the lessor or its agents. It does not appear to be amenable to the strict construction to which such clauses are frequently subjected. The plaintiff does not question its applicability, and she concedes that if it is valid it bars her recovery. She argues vigorously, however, that such a clause is contrary to public policy, and so invalid, in a lease of residential property.

Freedom of contract is basic to our law. But when that freedom expresses itself in a provision designed to absolve one of the parties from the consequences of his own negligence, there is danger that the standards of conduct which the law has developed for the protection of others may be diluted. These competing considerations have produced results that are not completely consistent. This court has refused to enforce contracts exculpating or limiting liability for negligence between common carriers and shippers of freight or paying passengers . . . between telegraph companies and those sending messages . . . and between masters and servants . . . .The obvious public interest in these relationships, coupled with the dominant position of those seeking exculpation, were compelling considerations in these decisions, which are in accord with similar results in other jurisdictions. . .

On the other hand, as pointed out in the Jackson case, the relation of lessor and lessee has been considered a matter of private concern. Clauses that exculpate the landlord from the consequences of his negligence have been sustained in residential as well as commercial leases . . . . There are intimations in other jurisdictions that run counter to the current authority . . . The New Hampshire court applies to exculpatory clauses in all leases its uniform rule that any attempt to contract against liability for negligence is contrary to public policy. . . But apart from [New Hampshire] we know of no court of last resort that has held such clauses invalid in the absence of a statute so requiring.

A contract shifting the risk of liability for negligence may benefit a tenant as well as a landlord. . . Such an agreement transfers the risk of a possible financial burden and so lessens the impact of the sanctions that induce adherence to the required standard of care. But this consideration is applicable as well to contracts for insurance that indemnify against liability for one's own negligence. Such contracts are accepted, and even encouraged. . .

The plaintiff contends that due to a shortage of housing there is a disparity of bargaining power between lessors of residential property and their lessees that gives landlords an unconscionable advantage over tenants. And upon this ground it is said that exculpatory clauses in residential leases must be held to be contrary to public policy. No attempt was made upon the trial to show that Mrs. O'Callaghan was at all concerned about the exculpatory clause, that she tried to negotiate with the defendant about its modification or elimination, or that she made any effort to rent an apartment elsewhere. To establish the existence of a widespread housing shortage the plaintiff points to numerous statutes designed to alleviate the shortage, . . . and to the existence of rent control during the period of the lease. . . .

Unquestionably there has been a housing shortage. That shortage has produced an active and varied legislative response. Since legislative attention has been so sharply focused upon housing problems in recent years, it might be assumed that the legislature has taken all of the remedial action that it though necessary or desirable. One of the major legislative responses was the adoption of rent controls which placed ceilings upon the amount of rent that landlords could charge. But the very existence of that control made it impossible for a lessor to negotiate for an increased rental in exchange for the elimination of an exculpatory clause. We are asked to assume, however, that the legislative response to the housing shortage has been inadequate and incomplete, and to augment it judicially.

The relationship of landlord and tenant does not have the monopolistic characteristics that have characterized some other relations with respect to which exculpatory clauses have been held invalid. There are literally thousands of landlords who are in competition with one another. The rental market affords a variety of competing types of housing accommodations, from simple farm house to luxurious apartment. The use of a form contract does not of itself establish disparity of bargaining power. That there is a shortage of housing at one particular time or place does not indicate that such shortages have always and everywhere existed, or that there will be shortages in the future. Judicial determinations of public policy cannot readily take account of sporadic and transitory circumstances. They should rather, we think, rest upon a durable moral basis. Other jurisdictions have dealt with this problem by legislation. . . In our opinion the subject is one that is appropriate for legislative rather than judicial action.

The judgment of the Appellate Court is affirmed.


Bristow, Justice, and Daily, Chief Justice (dissenting).

We cannot accept the conclusions and analysis of the majority opinion, which in our judgment not only arbitrarily eliminates the concept of negligence in the landlord and tenant relationship, but creates anomalies in the law, and will produce grievous social consequences for hundreds of thousands of persons in this State.

According to the undisputed facts in the instant case, this form lease with its exculpatory clause, was executed in a metropolitan area in 1947, when housing shortages were so acute that "waiting lists" were the order of the day, and gratuities to landlords to procure shelter were common . . . While plaintiff admittedly did not negotiate about the exculpatory clause, as the majority opinion notes, the record shows unequivocally that the apartment would not have been rented to her if she had quibbled about any clause in the form lease. According to the uncontroverted testimony, "If a person refused to sign a [form] lease in the form it was in, the apartment would not be rented to him."

Apparently, the majority opinion has chosen to ignore those facts and prevailing circumstances, and finds instead that there were thousands of landlords competing with each other with a variety of rental units. Not only was the element of competition purely theoretical -- and judges need not be more naive than other men -- but there wasn't even theoretical competition, as far as the exculpatory clauses were concerned, since these clauses were included in all form leases used by practically all landlords in urban areas . . . even if a prospective tenant were to "take his business elsewhere," he would still be confronted by the same exculpatory clause in a form lease offered by another landlord.

Thus, we are not construing merely an isolated provision of a contract specifically bargained for by one landlord and one tenant, "a matter of private concern," as the majority opinion myoptically views the issue in order to sustain its conclusion. We are construing, instead, a provision affecting thousands of tenants now bound by such provisions, which were foisted upon them at a time when it would be pure fiction to state that they had anything but a Hobson's choice in the matter. Can landlords, by that technique, immunize themselves from liability for negligence, and have the blessings of this court as they destroy the concept of negligence and standards of law painstakingly evolved in the case law? . . .

In resolving this issue, it is evident that despite the assertion in the majority opinion, there is no such thing as absolute "freedom of contract" in the law. . .

In the instant case we must determine whether the exculpatory clause in the lease offends the public policy of this State . . . None would dispute . . . that there is a recognized policy of discouraging negligence and protecting those in need of goods or services from being overreached by those with power to drive unconscionable bargains.

. . . When landlords are no longer liable for failure to observe standards of care, or for conduct amounting to negligence by virtue of an exculpatory clause in a lease, then such standards cease to exist. They are not merely "diluted." Negligence cannot exist in abstraction. The exculpatory clause destroys the concept of negligence in the landlord-tenant relationship, and the majority opinion, in sustaining the validity of that clause, has given the concept of negligence in this relationship a "judicial burial."

The majority opinion apparently dismisses whatever misgivings it has for the resulting social consequences of its decision with the observation that the problem is "appropriate for legislative rather than judicial action," and refers to the New York and Massachusetts statutes. . . .

Future legislation on this subject will be of small comfort to the hundreds of persons with cases pending in our courts for injuries sustained through conduct of landlords tantamount to common-law negligence. What help can the legislature give to such persons? Their only protection lies in the inherent power of the courts to adjudicate common-law rights and their duty to strike down contracts in derogation of the public policy of the State. . . .

. . . In our judgment, authorizing landlords to immunize themselves from liability for negligence, as the majority opinion has done, at a time of critical housing shortages, recognized by Congress and the courts, is not only inconsistent with much law and the public policy of this State, but it is in derogation of our duty "to keep the rules of law in harmony with the enlightened common sense of the nation." Therefore, we believe it our obligation to dissent from that opinion, and to protest against the destruction of the common-law rights of a significant proportion of the population of this State.