Opinion ID: 2354364
Heading Depth: 1
Heading Rank: 4

Heading: The trial court erred in upholding the waiver of all defenses provisions in the personal guaranties.

Text: In their next point on appeal, appellants argue that the trial court erred by granting ADFA's motion to strike all defenses pleaded by appellants based on the waiver of defenses provision, Section 2.3 of the personal guaranties. Specifically, appellants argue that this provision of the guaranty agreement was too broad and against public policy. Section 2.3 of the guaranty agreement provides: No setoff, counterclaim, reduction, diminution of an obligation, or any defense of any kind or nature which the guarantor [appellants] has or may have against the authority [ADFA] or the trustee shall be available hereunder to the guarantor against the authority. Section 2.3 is an exculpatory contract. An exculpatory contract is one in which a party seeks to absolve himself in advance for the consequences of his own negligence. National Union Fire Ins. Co. v. Guardtronic, Inc., 76 Ark.App. 313, 64 S.W.3d 779 (2002). Such contracts are not invalid per se and have been upheld in several cases. See Plant v. Wilbur, 345 Ark. 487, 47 S.W.3d 889 (2001); Edgin v. Entergy Operations, Inc., 331 Ark. 162, 961 S.W.2d 724 (1998). When reviewing exculpatory contracts we apply two rules of construction. National Union, supra . First, they are to be strictly construed against the party relying on them. Farmers Bank v. Perry, 301 Ark. 547, 787 S.W.2d 645 (1990). Second, to be enforceable, the contract must clearly set out what negligent liability is to be avoided. Plant, supra . Additionally, we have held that when we are reviewing such a contract we are not restricted to the literal language of the contract, and will also consider the facts and circumstances surrounding the execution of the release in order to determine the intent of the parties. Miller v. Pro-Transportation, 78 Ark.App. 52, 77 S.W.3d 551 (2002) (citing Plant, supra ). In our review of the facts surrounding the execution of the contract for the purpose of determining whether the waiver provision is enforceable we are guided by similar cases. In Plant, supra , we were asked to determine whether an agreement, releasing an owner of a racetrack from any liability from injuries sustained at the track, was valid. After reviewing the release, we considered the facts surrounding the execution of the release and affirmed the trial court's finding that the release was valid. We wrote: Plant was a regular participant in auto races and admitted to having frequented the Speedway. He also stated that he had signed the exact same release form on at least twelve prior occasions. Plant has made no allegations that he was forced to sign the release, and he admitted that he never asked any questions regarding the contents of the document he was signing. Moreover, Plant was familiar with the pit area and its proximity to the racetrack. He stated that he was only in the pit area when his team's car was racing, and that when he was there as a mere spectator, he stayed in the grandstand area. More importantly, as a participant, Plant was certainly familiar with the dangers inherent in the sport of auto racing. In fact, he admitted to having witnessed numerous wrecks that occurred during racing events. With this knowledge, Plant continued to voluntarily participate in this activity.    Considering the facts and circumstances surrounding the execution of the release by Plant, we agree with the trial court that this release was valid, and therefore, summary judgment was appropriate. Plant, supra . Our court of appeals has also reviewed cases which are useful to our consideration of the validity of Section 2.3 of the guaranty agreements. In National Union, supra , the court of appeals was asked to review exculpatory clauses contained in various contracts. After concluding that the contract clauses were valid and enforceable, the court of appeals held: there is nothing in the circumstances surrounding the execution of the contracts that would merit invalidating the exculpatory clauses. The parties herein were businesses dealing at arms' length. The clauses were not hidden from Crain, nor was Crain misled or prevented from reading the clauses. Further, Crain paid a relatively meager amount for appellees' services, and appellees sought accordingly to either absolve themselves from liability for their own negligence or limit their liability to a small dollar amount. Id. In Miller, supra ., the court of appeals was again asked to review a contractual release of liability. The facts from the case are as follows: Carl Miller was employed by Pro-Transportation as a truck driver. Appellant is Mr. Miller's wife. Appellant wanted to ride as a passenger with her husband as he drove for Pro-Transportation. To obtain Pro-Transportation's permission to do so, appellant executed a passenger authorization application on May 23, 1998. In it appellant agreed that, in consideration for her being permitted to ride as a passenger, she would hold Pro-Transportation harmless from any liability for any damage or injury she might receive while riding in Pro-Transportation's truck. The passenger authorization application also required appellant's husband to authorize a payroll deduction of $24.00 per month to cover the cost of accident insurance for appellant. Appellant accompanied her husband and was injured in a single-vehicle traffic accident. Her medical expenses were covered by the insurance procured pursuant to the passenger authorization request. She filed suit against Pro-Transportation, alleging that it was responsible for the negligence of its employee (her husband), that the accident was caused by her husband's negligent operation of the truck, and that she was entitled to compensatory and punitive damages. Pro-Transportation moved for summary judgment on the basis of the exculpatory provision of the passenger authorization application. The trial court granted the motion and entered an order granting summary judgment to Pro-Transportation. Id. On appeal, Mrs. Miller argued that the release should not be enforced because it did not clearly describe the negligent liability to be avoided. Id. The court rejected this argument and held: In the present case, we think it significant that appellant had accompanied her husband as a passenger in trucks owned by three different trucking companies, and was consequently aware of the nature of trucking operations and the dangers inherent in them. That the parties realized that personal injury could result from these dangers is shown by the provision for medical insurance to cover appellant in the event of an accident. Finally, we think that the public policy of encouraging careful behavior that underlies the disfavor for such exculpatory clauses has little application in the present case, where the allegedly negligent party, appellant's husband, was the driver of the vehicle and, therefore had far more compelling reasons to drive carefully than the avoidance of possible tort liability. Id. We endorse the reasoning of the court of appeals in deciding these cases, and we note that those cases establish the principle that an exculpatory clause may be enforced: (1) when the party is knowledgeable of the potential liability that is released; (2) when the party is benefiting from the activity which may lead to the potential liability that is released; and (3) when the contract that contains the clause was fairly entered into. In the case now before us, we conclude that enforcement of Section 2.3 of the guaranty agreement, and thereby the striking of appellants' defenses was not clearly erroneous. Appellants, who were shareholders in Red River, entered into the guaranty agreements with ADFA in exchange for funding for Red River. Appellants each signed discrete, personal agreements. We must assume that each appellant read and approved the terms articulated in the relevant guaranty agreement. See Carmichael v. Nationwide Life Ins. Co., 305 Ark. 549, 810 S.W.2d 39 (1991) (holding that a party is bound under the law to know the contents of the documents that he signs, and that he cannot excuse himself from its contents by alleging that he did not know its contents). There is no evidence in the record to suggest that appellants are unsophisticated business people or that the agreements were entered into unfairly. Moreover, the agreements were entered into in the course of businesses dealing at arms' length. Based on these facts, we conclude that appellants knew that they were waiving potential defenses when they signed the guaranty agreements but chose to agree to the terms of the contract, thereby benefiting by securing financing for Red River. Accordingly, we cannot say that the trial court's actions in enforcing the waiver of defenses provision of the guaranty agreements were clearly erroneous.