Trusts

Exculpatory Clause

 

Warning: Reversed by Texas Commerce Bank, 96 S.W.3d 240 (Tex. 2002).

 

Grizzle v. Texas Commerce Bank, N.A., 38 S.W.3d 265 (Tex. App.—Dallas 2001), rev'd, 96 S.W.3d 240 (Tex. 2002).

 

Beneficiaries sued Trustee for breach of duty with respect to damages which allegedly arose when Trustee, who had just taken over the trust, merged and liquidated the trust funds for their own business reasons and then reinvested those funds improperly. Trustee defended on the basis of an exculpatory clause which read, “This instrument shall always be construed in favor of the validity of any act or omission of any Trustee, and a Trustee shall not be liable for any act or omission except in the case of gross negligence, bad faith, or fraud.” The trial court granted summary judgment in favor of Trustee.

The appellate court reversed. The court reviewed the evidence and determined that Trustee’s failure to promptly reinvest trust funds is evidence of mishandling of trust funds and may constitute self-dealing. The exculpatory clause does not relieve Trustee from liability for self-dealing. Because a fact issue exists whether Trustee engaged in self-dealing, the exculpatory clause does not support a summary judgment in favor of Trustee.

Moral: Exculpatory clauses are strictly construed and relieve a trustee of liability only to the extent that it is clearly provided for in the trust instrument.

 

Warning: Reversed by Texas Commerce Bank, 96 S.W.3d 240 (Tex. 2002).



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