Will a North Carolina court enforce this clause excluding our liability for our own negligence?
Usually, between private parties, subject to limits the courts have not exhaustively listed. In Hall the Supreme Court of North Carolina held that contracts exempting persons from liability for negligence are not favoured by the law and are strictly construed against those relying on them, but that 'the majority rule, to which we adhere, is that, subject to certain limitations hereinafter discussed, a person may effectively bargain against liability for harm caused by his ordinary negligence in the performance of a legal duty arising out of a contractual relation'. The Court grounded that in freedom of contract ('the general rule rests on the broad policy of the law which accords to contracting parties freedom to bind themselves as they see fit') qualified by the rule that contractual provisions violative of the law or contrary to some rule of public policy are void. The plaintiff in Hall lost because he made no claim of mistake, fraud or oppression and his allegations raised no question of unequal bargaining power, and the clause covered in clear, unambiguous language the very leakage he complained of. Note how that loss happened, because it is the practical point: the case reached the Supreme Court on the defendant's demurrer to a complaint the plaintiff had himself amended to include the rental agreement, and the Court held the contracts had 'neutralized the allegations of the original complaint and put to naught the cause of action asserted therein', that such a defect may be raised by demurrer, and that the judgment dismissing the action would be upheld. It affirmed. A clause of this kind can therefore end the case on the pleadings in North Carolina, not only reduce what is recoverable at trial.
The trap
Hall names the limitations without closing the list, and two of them decide most North Carolina fights, but read them as Hall states them, because the public-utility, master-and-servant and public-duty limitations are not sentences Hall wrote for itself. They are passages it quotes from its own earlier decision in Insurance Asso. v. Parker, 234 N.C. 20, and Parker itself was not examined for this answer. Hall quotes Parker for the proposition that the courts are in complete accord that a public service corporation or a public utility cannot contract against its negligence in the regular course of its business or in performing one of its duties of public service, and that the limitation is likewise uniformly applied to certain relationships such as that of master and servant; and, introducing it 'by the weight of authority', for the principle that a party cannot protect himself by contract against liability for negligence in the performance of a duty of public service, or where a public duty is owed, or public interest is involved. On bargaining power, Hall says the test of relative bargaining power as a relevant factor 'is recognized in our recent decision in Insurance Asso. v. Parker' and then quotes Parker's first paragraph: whether such a provision is enforceable 'depends upon the nature and the subject matter of the contract, the relation of the parties, the presence or absence of equality of bargaining power and the attendant circumstances'. What unequal bargaining power is taken to mean: having to accept what is offered or forego the advantages of the contractual relation where the thing sought is for all practical purposes not obtainable elsewhere: Hall draws from 12 Am. Jur., Contracts, Sec. 183, an annotation at 175 A.L.R. 1 and Williston, and introduces as a factor 'applied in some decisions', not as a North Carolina holding. The much-quoted observation that 'the trend of modern decision is toward placing further limitations on the general rule' sits in the same register: Hall is reporting what a comprehensive monograph at 175 A.L.R. 1 discloses, not announcing a change in North Carolina law. Two North Carolina statutes hit clauses that sit next to a liability cap. § 22B-1 voids a construction or design professional indemnity for the promisee's own negligence, though the same subsection (a) saves an indemnity 'against liability for damages resulting from the sole negligence of the promisor, its agents or employees', and the section reaches only a 'construction agreement' or a 'design professional agreement' as G.S. 22B-1(f) defines them. And § 22B-10 makes a contractual jury-trial waiver unconscionable as a matter of law and unenforceable, but that section carves out the route most commercial drafters take instead: “This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.”, so an arbitration or other alternative-dispute-resolution agreement is not caught by § 22B-10 even though it ends the jury trial. NOT ESTABLISHED HERE: whether a clause excluding liability for gross negligence or wilful conduct is enforceable in North Carolina. Treat that as unread, not as unsettled: the phrase 'gross negligence' appears in 124 published North Carolina statute sections and in none of Chapter 22B, and in 784 published North Carolina opinions, none of which was read for this answer. Also NOT ESTABLISHED HERE: whether the unconscionability test in North Carolina's version of UCC 2-719 governs a cap in a mixed goods-and-services deal. On that second reservation, mind the numbering: North Carolina puts the consequential-damages and unconscionability sentence at § 25-2-719(c), not in a subsection (3), because its Article 2 sections are lettered. § 22B-1 also stops short of two things worth knowing before a clause is redrafted around it: “This section shall not affect an insurance contract, workers' compensation, or any other agreement issued by an insurer.” and “This section shall not apply to lien or bond claims asserted under Chapter 44A of the General Statutes.” So the section does not disturb an additional-insured or other insurer-issued agreement, and it does not reach a lien or payment-bond claim, which is where a construction dispute usually ends up.
15 authorities
The words that state the rule
the majority rule, to which we adhere, is that, subject to certain limitations hereinafter discussed, a person may effectively bargain against liability for harm caused by his ordinary negligence in the performance of a legal duty arising out of a contractual relation.
- statuteN.C.G.S. § 22B-10enactment date not established
The words that state the rule
Any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.
- statuteN.C.G.S. § 22B-1enactment date not established
The words that state the rule
Provisions in, or in connection with, a construction agreement or design professional agreement purporting to require a promisor to indemnify or hold harmless the promisee, the promisee's independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy, void and unenforceable. Nothing contained in this subsection shall prevent or prohibit a contract, promise or agreement whereby a promisor shall indemnify or hold harmless any promisee or the promisee's independent contractors, agents, employees or indemnitees against liability for damages resulting from the sole negligence of the promisor, its agents or employees.
- statuteN.C.G.S. § 22B-1enactment date not established
The words that state the rule
This section shall not affect an insurance contract, workers' compensation, or any other agreement issued by an insurer. This section shall not apply to lien or bond claims asserted under Chapter 44A of the General Statutes.
- statuteN.C.G.S. § 22B-1enactment date not established
The words that state the rule
(f) For purposes of this section, the following definitions shall apply: (1) Construction agreement. - Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair, or maintenance of a building, structure, highway, road, appurtenance, or appliance, including moving, demolition, and excavating connected therewith.
The words that state the rule
The plaintiff’s appeal presents this question for decision: Do the agreements signed by the plaintiff exempt the defendant from liability for the negligence alleged in the complaint? While contracts exempting persons from liability for negligence are not favored by the law, and are strictly construed against those relying thereon (Hill v. Freight Carriers Corp., 235 N.C. 705 , 71 S.E. 2d 133 )
The words that state the rule
The general rule rests on the broad policy of the law which accords to contracting parties freedom to bind themselves as they see fit, subject, however, to the qualification that contractual provisions violative *710 of the law or contrary to some rule of public policy are void and unenforceable.
The words that state the rule
Under application of the foregoing qualification, “the courts are in complete accord in holding that a public service corporation or a public utility cannot contract against its negligence in the regular course of its business or in performing one of its duties of public service. The limitation is likewise uniformly applied to certain relationships such as that of master and servant.” Insurance Asso. v. Parker, 234 N.C. 20, 22 , 65 S.E. 2d 341, 342 .
The words that state the rule
Also, by the weight of authority the general limitation on the contractual right to bargain against liability for negligence embraces the principle “that a party cannot protect himself by contract against liability for negligence in the performance of a duty of public service, or where a public duty is owed, or public interest is involved, or where public interest requires the performance of a private duty.” Insurance Asso. v. Parker, supra.
The words that state the rule
The test of relative bargaining power as a relevant factor in determining exemption is recognized in our recent decision in Insurance Asso. v. Parker, supra ( 234 N.C. 20 ). It is there said in the first paragraph of the opinion: “A provision in a contract seeking to relieve a party to the contract from liability for his own negligence may or may not be enforceable. It depends upon the nature and the subject matter of the contract, the relation of the parties, the presence or absence of equality of bargaining power and the attendant circumstances.”
The words that state the rule
A comprehensive monograph on the subject at hand appears in 175 A.L.R., p. 1 et seq. This treatise, based on a collation of numerous decided cases from many jurisdictions, discloses that the trend of modern decision is toward placing further limitations on the general rule which allows contractual exemption from liability for negligence. This trend of decision derives from a liberalization of the judicial concept of what constitutes sound public policy.
The words that state the rule
Also, closely related to the public policy test of determining the validity of these exemption clauses is the factor, applied in some decisions, of giving consideration to the comparable positions which the contracting parties occupy in regard to their bargaining strength, i.e., whether one of the parties has unequal bargaining power so that he must either accept what is offered or forego the advantages of the contractual relation in a situation where it is necessary for him to enter into the contract to obtain something of importance to him which for all practical purposes is not obtainable elsewhere. 12 Am. Jur., Contracts, Sec. 183; Annotation: 175 A.L.R. 1, at p. 16 . See also Williston on Contracts (Revised Edition), Sec. 1751C.
The words that state the rule
The plaintiff makes no claim that the contract was executed by mistake or induced by fraud or oppression, nor do the plaintiff’s allegations raise the question of unequal bargaining power between the parties. He has failed to bring himself within any of the récognized limitations upon the rule which permits exemption from liability for negligence.
The words that state the rule
In the case at hand we have contractual provisions by which the plaintiff in clear, unambiguous language contracted to (1) maintain the *711 tank and pumping equipment in good condition and repair, and (2) “indemnify and save harmless” the defendant from any loss or damage caused by any “leakage” resulting from the installation or use of the same, whether due to negligence or otherwise.
The words that state the rule
On the contrary, it is manifest that the plaintiff has effectively bargained against liability for all the elements of damage which he alleges in his original complaint were caused by the defendant. The contracts, incorporated in the complaint by amendment, have neutralized the allegations of the original complaint and put to naught the cause of action asserted therein. See Lindley v. Yeatman, 242 N.C. 145 , 87 S.E. 2d 5 . Such variance or defect may be raised by demurrer. Sabine v. Gill, Comr. of Revenue, 229 N.C. 599 , top p. 603, 51 S.E. 2d 1 , top p. 3; Laurel Cliffs Mfg. cfc Distributing Co. v. Pritchard, 255 Ky. 762 , 75 S.W. 2d 491 . The judgment below dismissing the action will be upheld. It is so ordered. See Lindley v. Yeatman, supra; Dillingham v. Kligerman, 235 N.C. 298 , 69 S.E. 2d 500 ; Lassiter v. Adams, 196 N.C. 711 , 146 S.E. 808 ; McIntosh, North Carolina Practice and Procedure, p. 447. Affirmed.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.