BLAYLOCK GRADING COMPANY, LLP, Plaintiff, v. NEAL EVERETT
SMITH and NEAL SMITH ENGINEERING, INC., Defendants.
COURT OF APPEALS OF NORTH CAROLINA
2008 N.C. App. LEXIS 653
January 14, 2008, Heard in the Court of Appeals
April 1, 2008, Filed
PURSUANT TO RULE 32(b), NORTH CAROLINA RULES OF APPELLATE PROCEDURE, THIS
DECISION IS NOT FINAL UNTIL EXPIRATION OF THE TWENTY-ONE DAY REHEARING PERIOD.
Harnett County. No. 06 CVS 70.
COUNSEL: Bain, Buzzard & McRae, LLP, by L. Stacy Weaver, III, Edgar R. Bain, and
Robert A. Buzzard, for plaintiff-appellee.
Hamilton, Moon, Stephens, Steele & Martin, PLLC, by David B. Hamilton, David G.
Redding, Adrianne Huffman, and Erik R. Rosenwood, for defendants-appellants.
JUDGES: MARTIN, Chief Judge. Judges STEELMAN and STEPHENS concur.
OPINION BY: MARTIN
Appeal by defendants from orders entered 12 September 2006, 27 November 2006,
and 11 December 2006, and judgment entered 27 November 2006 by Judge James F.
Ammons, Jr. in Harnett County Superior Court. Heard in the Court of Appeals 14
MARTIN, Chief Judge.
On 20 September 2004 Blaylock Grading Company, LLP ("plaintiff") and Neal
Smith and Neal Smith Engineering, Inc. ("defendants") entered into a contract
pursuant to which defendants would provide land surveying services for
plaintiff. The contract contained a "Risk Allocation" provision which stated:
[Defendants' liability to plaintiff] for any and all injuries,
claims, losses, expenses, damages or claim expenses arising out of
this agreement, from any cause or causes, shall not exceed the total
amount of $ 50,000, the amount of [defendants'] fee (whichever is
greater) or other amount agreed upon when added under Special
Conditions. Such causes include, but are not limited to, [defendants']
negligence, errors, omissions, strict liability, breach of contract or
breach of warranty.
Pursuant to this contract, defendants performed land surveying for plaintiff
on a military housing site for which plaintiff was providing grading services.
Defendants mistakenly set the benchmarks for the complex 1.66 to 1.7 feet higher
than specified in the design plan, requiring plaintiff to import fill to raise
the elevation of the site.
On 13 January 2006 plaintiff filed a complaint against defendants alleging
breach of contract and negligence. Defendants moved for partial summary
judgment, claiming that the Risk Allocation provision limited damages to $
50,000. The trial court denied the motion. Plaintiff made an oral motion to
bifurcate the trial into two phases: one dealing with the issues of negligence,
breach of contract, and damages, and the other dealing with the validity of the
Risk Allocation provision. The trial court granted the motion and ruled that the
Risk Allocation provision could not be introduced into evidence in the first
phase of the trial and that the Risk Allocation provision would be redacted from
the contract before it was shown to the jury.
At the close of the first phase of the trial, the jury found that defendants
breached the contract with plaintiff and were negligent in their performance of
the surveying duties, and the jury returned a verdict for plaintiff in the
amount of $ 574,714. Defendants moved for judgment notwithstanding the verdict.
The trial court denied this motion. Plaintiff stipulated that there were no
formation irregularities in the contract and asked the trial court to determine
the validity of the Risk Allocation provision as a matter of law. On 27 November
2006 the trial court held that the Risk Allocation provision was void as against
public policy and entered judgment on the jury verdict, eliminating the need for
the second phase of the trial. Defendants appeal.
Defendants argue that the trial court erred in finding the Risk Allocation
provision to be void and unenforceable. Therefore, defendants argue, the trial
court should have granted their motion for judgment notwithstanding the verdict
and should have limited damages to $ 50,000. We agree. Reviewing these
assignments of error requires us to examine two issues: 1) whether North
Carolina law allows a professional engineer/land surveyor to limit its liability
when contracting with another party; and 2) whether the Risk Allocation
provision violated N.C.G.S. Â§ 22B-1 (2007).
Our Supreme Court has addressed the validity of limited liability clauses. In
Gas House, Inc. v. Southern Bell Telephone & Telegraph Company, 289 N.C. 175,
176-77, 221 S.E.2d 499, 500-01 (1976), overruled on other grounds by State ex
rel. Utils. Comm'n. v. Southern Bell Tel. & Tel. Co., 307 N.C. 541, 299 S.E.2d
763 (1983), the plaintiff gas company filed a breach of contract and negligence
action against the defendant telephone company for mistakenly classifying its
advertisement in the telephone company's Yellow Pages under the classification
"Gas -- Industrial & Medical -- Cylinder & Bulk" instead of under "Gas --
Liquefied Petroleum -- Bottled & Bulk." Id. The plaintiff did not sell any
industrial and medical gases, and as a result of the mistake it suffered
approximately $ 100,000 in lost profits. Id. at 176, 221 S.E.2d at 500. The
defendant claimed that its liability was limited by a clause in the contract
signed by plaintiff, which stated:
The Telephone Company's liability on account of errors in or
omissions of such advertising shall in no event exceed the amount of
charges for the advertising which was omitted or in which the error
occurred in the then current directory issue and such liability shall
be discharged by an abatement of the charges for the particular
listing or advertising in which the omission occurred.
Id. at 177, 221 S.E.2d at 501.
This Court held that the limited liability clause was void as against public
policy. Id. at 178, 221 S.E.2d at 501-02. The Supreme Court reversed, holding
that the limitation on liability was not contrary to public policy and stating:
People should be entitled to contract on their own terms without
the indulgence of paternalism by courts in the alleviation of one side
or another from the effects of a bad bargain. Also, they should be
permitted to enter into contracts that actually may be unreasonable or
which may lead to hardship on one side. It is only where it turns out
that one side or the other is to be penalized by the enforcement of
the terms of a contract so unconscionable that no decent, fairminded
person would view the ensuing result without being possessed of a
profound sense of injustice, that equity will deny the use of its good
offices in the enforcement of such unconscionability.
Id. at 182, 221 S.E.2d at 504 (quoting 14 Samuel Williston, A Treatise on the
Law of Contracts Â§ 1632 (Walter H.E. Jaeger ed., 3d ed. 1961). The Court also
distinguished the facts in Gas House from a situation where a common carrier or
public utility attempts to limit its liability, holding that:
[A] limitation upon the right of the common carrier, or other
public utility, to contract applies, however, only to its undertakings
to render services which fall within its public service business. For
example, a telephone company leasing office space to a tenant, or an
electric power company selling an electric stove, is as free to
contract with reference to those matters as is any other owner of a
building or dealer in electric stoves. The business of carrying
advertisements in the yellow pages of its directory is not part of a
telephone company's public utility business.
Id. at 184, 221 S.E.2d at 505.
In the present case, plaintiff stipulated that there were no formation
irregularities in the contract; thus, it acknowledged that the contract was not
unconscionable and that there was no inequality in bargaining position between
the two parties. Plaintiff and defendants are sophisticated, professional
parties who conducted business at arms' length, and the "result" of the contract
does not elicit a "profound sense of injustice." Id. at 182, 221 S.E.2d at 504.
In addition, defendants are not common carriers or providers of a public
utility. The parties here are similar to "a telephone company leasing space to a
tenant or an electric power company selling an electric stove[.]" Id. at 184,
221 S.E.2d at 505; see also Reed's Jewelers, Inc. v. ADT Co., 43 N.C. App. 744,
747, 260 S.E.2d 107, 109-10 (1979) (holding that a limitation on liability for
stolen property in a contract between a jeweler and a burglar alarm company was
valid and did not invoke the public service exception where "[t]he contractual
provision in question was set out in the contract in bold print" and "[n]either
party contend[ed that] the contract in question was not signed by it nor does
the plaintiff deny its contents"). Therefore, the Risk Allocation provision was
not void as against public policy.
The trial court held, and plaintiff argues, that land surveying services fall
within the public service exception because they are "extensively regulated"
industries. We disagree. While it is true that surveying is regulated by statute
in North Carolina and that engineers and land surveyors in our State must be
licensed, see N.C.G.S. Â§ 89C-23 (2007), these facts alone do not automatically
convert a profession into a public service. Further, when a breach of contract
between two parties involves only economic loss, as in the present case, the
health and safety of the public are not implicated. A third party who might be
affected by negligence of an engineer or surveyor can still bring a negligence
suit against the engineer or surveyor. See Davidson & Jones, Inc. v. County of
New Hanover, 41 N.C. App. 661, 666-67, 255 S.E.2d 580, 584 (1979) (holding that
"the law imposes on every person who enters upon an active course of conduct the
positive duty to exercise ordinary care to protect others from harm and calls a
violation of that duty negligence[,]" that "a complete binding contract between
the parties is not a prerequisite to a duty to use due care in one's actions . .
. [,]" and that architects may be held liable for a breach of the duty of care
and breach of contract that "results in foreseeable injury, economic or
otherwise"). Thus, the limitation on liability in the contract at issue does not
implicate the public health or safety.
Turning to the second issue, N.C.G.S Â§ 22B-1 (2007), titled "Construction
indemnity agreements invalid[,]" states:
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, purporting 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 and is void and unenforceable.
N.C. Gen. Stat. Â§ 22B-1 (2007) (emphasis added).
This statute is not applicable in the present case. The contract at issue
involves a clause that limits a party's liability, not an indemnity clause
whereby one party agrees to be liable for the negligence of the other party. See
Int'l Paper Co. v. Corporex Constructors, Inc., 96 N.C. App. 312, 315, 385
S.E.2d 553, 555 (1989) (holding that "[t]he indemnity provisions to which G.S. Â§
22B-1 apply are those construction indemnity provisions which attempt to hold
one party responsible for the negligence of another"). Further, the language of
the statute only limits a promisee from recouping damages paid to a third party
as a result of personal injury or property damages when the damages were caused
by the promisee. See id.; N.C. Gen. Stat. Â§ 22B-1 (2007). The statute does not
apply to contracts between a promisor and promisee limiting the amount of
damages recoverable by one from the other, as does the contract in the present
case. Thus, the Risk Allocation provision did not violate N.C.G.S Â§ 22B-1
For the reasons stated above, the trial court erred in holding that the Risk
Allocation provision was void and in denying defendants' motion for judgment
notwithstanding the verdict. We thus reverse and remand to the trial court for
entry of judgment consistent with the limitation on liability in the Risk
Allocation provision. In light of this disposition we need not consider
defendants' remaining assignments of error.
Judges STEELMAN and STEPHENS concur.
BLAYLOCK GRADING COMPANY, LLP, Plaintiff, v. NEAL EVERETT, SMITH and NEAL SMITH ENGINEERING, INC., Defendants
BLAYLOCK GRADING COMPANY, LLP, Plaintiff, v. NEAL EVERETT