CC&RS: exculpatory contract & “inconspicuous nature”

The Indiana appellate court in McAdams v. Foxcliff  Estates[1] is another sad decision against plaintiff homeowners. The Court relied on the generally accepted public policy view that HOAs are good for America.  And any problems are totally the homowner’s fault.  Ignoring other questionable views by the Court, I will focus on the “inconspicuous nature” placement  of these clauses in the CC&Rs.

As a background, the question in the case was the use of an “exculpatory clause” placed in an alleged inconspicuous location in the CC&Rs.   Such a clause holds the HOA and its agents harmless from any wrongdoing – the HOA can do no wrong. In general, exculpatory clauses have been found to be against public policy:  it invalidates the agreement by making the agreement a one-sided agreement.

It’s hard to believe that the Indiana courts accept exculpatory clauses on the basis that “the contracts represent the freely bargained agreement of the parties.”  Unless the “the parties have unequal bargaining power, [or] the contract is unconscionable.”  And in further hard belief,  the Court argued that CC&Rs “are sensible to a person not under any delusion or distress”, and “one that [an] honest and fair person would accept.”

In regard to “inconspicuous nature,” which addresses the placement of very important and meaningful covenants favoring the homeowner.  They are placed in CC&Rs covenants where a knowledgeable person would not expect to find such words.  In other words, an effort by the HOA attorneys writing the CC&Rs to make these covenants almost hidden and secret from the homeowner.

The Court rationalized that inconspicuous nature did not apply to a knowing and willing contract, but relative bargaining power prevailed.  (You just can’t win against the Court’s rational in defense of the HOA.)

He court concluded, arguing the that there is no public policy to prevent HOAs from agreeing not to sue the HOA:

there is no public policy impediment to the parties agreeing that the not-for profit HOA, a volunteer entity comprised of other Foxcliff Estates residents, cannot be sued for damages ‘for failure either to abide by, enforce or carry out any of the Restrictions.’

For more information see Deborah Goonan’s post[2]


[1] McAdams v. Foxcliff Estates,  No. 55A04-1707-PL-1707 (Ind. App. ), 2018.

[2] HOA Issue #5: Is your HOA legally obligated to maintain the common areas?


Published in: on December 31, 2018 at 4:54 pm  Leave a Comment  

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