CASE NOTES

Legislature intended, by exempting insurance contracts or other agreements issued by an insurer, to prevent insurance policies which name the buyer of construction services as an insured from being invalidated. Miller Brewing Co. v. Morgan Mechanical Contractors, 90 N.C. App. 310, 368 S.E.2d 438, cert. denied, 323 N.C. 174, 373 S.E.2d 110 (1988).

Terms "insurance contract . . . or any other agreement issued by an insurer" in this section refer to contracts of insurance and insurers as defined, authorized, and regulated by Chapter 58. Miller Brewing Co. v. Morgan Mechanical Contractors, 90 N.C. App. 310, 368 S.E.2d 438, cert. denied, 323 N.C. 174, 373 S.E.2d 110 (1988).

"Indemnity and Hold Harmless" Provision Held Void. - "Indemnity and hold harmless" provision printed on the back of a purchase order did not fall within the exception for contracts of insurance found in Chapter 58, and thus, the provision was void under this section. Miller Brewing Co. v. Morgan Mechanical Contractors, 90 N.C. App. 310, 368 S.E.2d 438, cert. denied, 323 N.C. 174, 373 S.E.2d 110 (1988).

"Wholly Responsible". - Subcontractor was granted summary judgment on an indemnity claim insofar as it related to damages caused by defective design as the contractor did not assert and could not establish that the subcontractor was wholly responsible for those damages. However, insofar as the indemnity claim related to defective installation, summary judgment was denied as the contractor asserted claims only against the subcontractor. New Bern Riverfront Dev., LLC v. Weaver Cooke Constr., LLC (In re New Bern Riverfront Dev., LLC), - Bankr. - (Bankr. E.D.N.C. Sept. 30, 2014).

Agreement Did Not Violate This Section. - Language in indemnity agreement that did not explicitly provide that plaintiff would be insulated from its own negligence, but provided only that defendant would hold plaintiff harmless for all damages resulting from defendant's operation of a gas system, was not prohibited by this section. City of Wilmington v. North Carolina Natural Gas Corp., 117 N.C. App. 244, 450 S.E.2d 573 (1994).

Construction indemnity provisions that the plaintiff plant owner had in its contracts with defendant maintenance company and security company were valid pursuant to G.S. 22B-1 as such provisions sought to allow plaintiff to be indemnified by defendants due to defendants' negligence and not because of plaintiff's own negligence. Bridgestone/Firestone, Inc. v. Ogden Plant Maint. Co., 144 N.C. App. 503, 548 S.E.2d 807 (2001), aff'd, 355 N.C. 274, 559 S.E.2d 786 (2002).

Applicability to Franchise Agreement. - This section applied to a franchise agreement whereby defendant could construct, operate and maintain a gas system in the city granting the franchise. City of Wilmington v. North Carolina Natural Gas Corp., 117 N.C. App. 244, 450 S.E.2d 573 (1994).

Where an agreement involved both the construction of a new appliance and the alteration of an existing appliance within the meaning of this section, any promise on the part of defendant to indemnify or hold plaintiff harmless made in or in connection with the agreement to perform was invalid unless the agreement fell under an exception stated in this section. Miller Brewing Co. v. Morgan Mechanical Contractors, 90 N.C. App. 310, 368 S.E.2d 438, cert. denied, 323 N.C. 174, 373 S.E.2d 110 (1988).

Installation of Machine. - A Pennsylvania court applying North Carolina contract law held that the work actually performed by the seller of a machine to "install" the machine did not constitute the construction, alteration, or repair required to void the indemnity provision in a purchase order under G.S. 22B-1. Albright v. Michael Weinig, Inc., (Aug. 16, 2010).

Illegal Provision Held Severable. - Although clause in contract violated provisions of this section, the illegal provision was severable from an otherwise valid indemnity provision. International Paper Co. v. Corporex Constructors, Inc., 96 N.C. App. 312, 385 S.E.2d 553 (1989).

Even assuming an indemnification clause violated G.S. 22B-1 because a portion of it served to indemnify a contractor against its own negligence, the problem could be solved by simply removing the offending phrase; the indemnification clause, on its face, was self-limiting as indemnification was restricted to damages: (1) that arose or resulted from performance of a subcontractor's work; and (2) that were "permitted by law." Vecellio & Grogan, Inc. v. Piedmont Drilling & Blasting, Inc., 183 N.C. App. 66, 644 S.E.2d 16 (2007), review dismissed, review denied, 361 N.C. 575, 651 S.E.2d 564 (2007).

Illegal Provision Held Not Severable. - Trial court correctly granted the subcontractor's motion for judgment on the pleadings because the indemnification provisions in its construction contract with the supplier violated G.S. 22B-1 and were not severable; therefore, the entire contract was void and there could be no breach of contract. Jackson v. Associated Scaffolders & Equip. Co., 152 N.C. App. 687, 568 S.E.2d 666 (2002).

No Liability When Several Contractors Contributed to the Defect. - Subcontractor that sold windows and doors to a general contractor and hired a third party to install its products in condominiums the contractor constructed was not liable for damages units sustained because water leaked through the windows and doors; even assuming that a provision in a construction contract the parties signed could be modified so it did not violate G.S. 22B-1, the subcontractor was subject to liability only if it was solely responsible for the damage, and evidence which showed, inter alia, that another company did not pour concrete balconies so they sloped away from the units showed that the subcontractor was not totally responsible for the damages. New Bern Riverfront Dev., LLC v. Weaver Cooke Constr., LLC (In re New Bern Riverfront Dev., LLC), 515 B.R. 230 (Bankr. E.D.N.C. 2014).

No Liability When Another Contractor Was Contributorily Negligent. - Subcontractor was entitled to summary judgment on prime contractor's indemnity claim as prime contractor's contributory negligence in connection with the sequencing that was necessary to achieve waterproofing of the exterior balcony doors precluded it from seeking indemnity from the subcontractor. New Bern Riverfront Dev., LLC v. Weaver Cooke Constr., LLC (In re New Bern Riverfront Dev., LLC), - Bankr. - (Bankr. E.D.N.C. Dec. 19, 2018).

Subcontractor Not Required to Indemnify General Contractor Because Others Shared Responsibility. - Subcontractor that was hired by a general contractor to apply building wrap during construction of condominiums the general contractor built was not liable for damages units sustained because water leaked through windows and doors; even assuming that a provision in a construction contract the parties signed could be modified so it did not violate G.S. 22B-1, the subcontractor was subject to liability only if it was solely responsible for the damage, and evidence that the general contractor was responsible for a sequencing error which allowed another subcontractor to install sliding glass doors before traffic coating was applied to balconies showed that the subcontractor was not solely responsible for the damages. New Bern Riverfront Dev., LLC v. Weaver Cooke Constr. (In re New Bern Riverfront Dev., LLC), - Bankr. - (Bankr. E.D.N.C. Sept. 26, 2014).

Indemnity Provision Ran Afoul of Statutory Law. - Indemnity provision ran afoul of North Carolina statutory law as it required a subcontractor to indemnify the contractor for the contractor's own negligent acts, which was against public policy. Even if the indemnity provision was blue-penciled by the court so that it did not violate the statute and provided that the subcontractor would only have to indemnify the contractor for damages caused "wholly" by the subcontractor, the subcontractor was entitled to summary judgment as no genuine issue of material fact existed as to whether it was solely responsible for the damages. New Bern Riverfront Dev., LLC v. Weaver Cooke Constr., LLC (In re New Bern Riverfront Dev., LLC), 516 B.R. 810 (Bankr. E.D.N.C. 2014).

Applied in Blaylock Grading Co., LLP v. Smith, 189 N.C. App. 508, 658 S.E.2d 680 (2008); One Beacon Ins. Co. v. United Mech. Corp., 207 N.C. App. 483, 700 S.E.2d 121 (2010).

Cited in St. Paul Fire & Marine Ins. Co. v. Hanover Ins. Co., 187 F. Supp. 2d 584 (E.D.N.C. 2000); Pa. Nat'l Mut. Cas. Ins. Co. v. Associated Scaffolders & Equip. Co., 157 N.C. App. 555, 579 S.E.2d 404 (2003).

CASE NOTES

Federal Arbitration Act Preempted G.S. 22B-2. - G.S. 22B-2 could not be used to void the arbitration agreements contained with the limited warranties provided by a roofing system company to a board of education even though the agreements required arbitration outside of North Carolina because, with regard to arbitration agreements, G.S. 22B-2 was preempted by 9 U.S.C.S. § 2. Wake County Bd. of Educ. v. Dow Roofing Sys., LLC, 792 F. Supp. 2d 897 (E.D.N.C. June 10, 2011).

Federal Arbitration Act preempted statute that provided that contract provisions in construction contracts requiring arbitration in another state were void as against public policy. United States ex rel. TGK Enters. v. Clayco, Inc., 978 F. Supp. 2d 540 (E.D.N.C. Sept. 23, 2013).

Choice of Law and Forum Selection Clauses Invalid. - Superior court erred in dismissing a subcontractor's breach of contract claim for improper venue since the contract pertained to the improvement of real property located in North Carolina and was for labor and materials, and thus, the contract's choice of law and forum selection clauses were invalid under G.S. 22B-2. Price & Price Mech. of N.C. Inc. v. Miken Corp., 191 N.C. App. 177, 661 S.E.2d 775 (2008).

Arbitration Agreements Were Not Voided. - G.S. 22B-2 was not clearly implicated in a case involving limited warranties given by a roofing system company after the roofing system had been incorporated into various school buildings, and therefore, G.S. 22B-2 did not void the arbitration agreements contained within the limited warranties. Wake County Bd. of Educ. v. Dow Roofing Sys., LLC, 792 F. Supp. 2d 897 (E.D.N.C. June 10, 2011).

Cited in T.M.C.S., Inc. v. Marco Contrs., Inc., 244 N.C. App. 330, 780 S.E.2d 588 (2012); Tetra Tech Tesoro, Inc. v. JAAAT Tech. Servs., LLC, 250 N.C. App. 791, 794 S.E.2d 535 (2016).

CASE NOTES

Non-consumer Loan Defined. - Under this section a "non-consumer" loan is one that is not extended to a natural person and not used for family, household, personal, or agricultural purposes. L.C. Williams Oil Co. v. NAFCO Capital Corp., 130 N.C. App. 286, 502 S.E.2d 415 (1998).

Contracts "Entered Into." - A contract which was negotiated in North Carolina for several weeks, but which was ultimately signed by defendants in their Connecticut office was properly considered to have been "entered into" outside the State and did not contravene the public policy enunciated in this section. Key Motorsports, Inc. v. Speedvision Network, 40 F. Supp. 2d 344 (M.D.N.C. 1999).

Federal district court held that a forum selection clause was not contrary to North Carolina public policy as set forth in G.S. 22B-3 because that section applied only to contracts entered into in North Carolina and the contract at issue was entered into in Massachusetts. Price v. Leasecomm Corp., (M.D.N.C. Mar. 31, 2004).

Since a franchise agreement between North Carolina franchisees and a Florida franchiser was not finalized until it was signed by the franchiser in its Florida offices, that signing was the last act done by either of the parties that was essential to a meeting of minds meaning that the contract legally was entered into in Florida; consequently, G.S. 22B-3 did not apply to the franchise agreement and a forum selection clause mandating arbitration in Florida was enforceable. Szymczyk v. Signs Now Corp., 168 N.C. App. 182, 606 S.E.2d 728 (2005).

General contractor's claim that letters evidencing alleged debt that the general contractor owed to the judgment creditor should have been excluded from the trial court's consideration as unenforceable under G.S. 22B-3 could not be considered on appeal; the state of the record, without any findings of fact or conclusions of law by the trial court, was such that the argument was not supported by evidence in the record. Quantum Corp. Funding, Ltd. v. B.H. Bryan Bldg. Co., 175 N.C. App. 483, 623 S.E.2d 793 (2006).

One Party in Dire Straits - Enforcement of a forum selection clause in agreement to procure and sell aircraft was unreasonable because the individual was in desperate financial condition and the owner of the aviation company insisted both on the agreement and ultimate control over the venture. Dove Air, Inc. v. Bennett, 226 F. Supp. 2d 771 (W.D.N.C. 2002).

Preemption by Federal Law. - Trial court committed error by not dismissing a civil action as to one defendant that had executed an agreement with plaintiff that included an arbitration and forum selection clause requiring out-of-state arbitration; since the agreement involved interstate commerce, the Federal Arbitration Act preempted the North Carolina Uniform Arbitration Act's provision that voided any provision, regarding contracts entered into in North Carolina, that required prosecution or arbitration of any dispute arising from the contract to be instituted or heard in another state. Boynton v. ESC Med. Sys., 152 N.C. App. 103, 566 S.E.2d 730 (2002).

Forum selection clause in an agreement that was the subject of a district court action was not voided by G.S. 22B-3 because forum and venue issues were governed by federal law. Rice v. BellSouth Adver. & Publ. Corp, 240 F. Supp. 2d 526 (W.D.N.C. 2002).

Contacts were sufficient to establish that the parties' franchise agreement was interstate commerce where Florida franchiser provided support to North Carolina franchisees in the form of manuals, training, advice via telephone, and the use of a specific name and trademark, and where the franchisees routinely transmitted payments from North Carolina to Florida and attended the franchiser's annual convention in Florida; therefore, the Federal Arbitration Act preempted G.S. 22B-3 and allowed enforcement of a forum selection clause that mandated arbitration in Florida. Szymczyk v. Signs Now Corp., 168 N.C. App. 182, 606 S.E.2d 728 (2005).

Although North Carolina statutory law and public policy appeared to bar the arbitration clause contained in the contract executed by the seller and buyer because the clause selected the out-of-state site of Fargo, North Dakota, as the place that arbitration was to take place, the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., applied, permitted the parties' arbitration, and preempted North Carolina provisions to the contrary. Goldstein v. Am. Steel Span, Inc., 181 N.C. App. 534, 640 S.E.2d 740 (2007).

Federal Arbitration Act preempted statute that provided that contract provisions requiring arbitration in another state were void as against public policy. United States ex rel. TGK Enters. v. Clayco, Inc., 978 F. Supp. 2d 540 (E.D.N.C. Sept. 23, 2013).

Forum Selection Clause Held Reasonable. - Forum selection clause in defendant's lease was upheld where (1) there was no fraud involved in including the forum selection clause, (2) plaintiff's travel to the selected forum, Massachusetts, may have been inconvenient, but not extraordinarily so, (3) Massachusetts law would have applied, even if the matter were not transferred, based on North Carolina's choice of law rules, and (4) the clause did not violate public policy; accordingly, the district court granted the motion to transfer. Price v. Leasecomm Corp., (M.D.N.C. Mar. 31, 2004).

In this usury action, the order finding that enforcing the forum selection clause would be unreasonable and unfair was reversed because neither the trial court's order nor plaintiff's arguments on appeal provided a basis for the determination that the amount to be litigated was too small an amount to litigate in Cook County, Illinois. Parson v. Oasis Legal Fin., LLC, 214 N.C. App. 125, 715 S.E.2d 240 (2011).

Forum Selection Clause Held Unreasonable and Unjust. - Defendants' motion to transfer venue to Texas was denied because application of the forum-selection clause would have been unreasonable and unjust; the case involved a contract between North Carolina corporations for the sale of an ongoing business in North Carolina, the contract was entered into in North Carolina and had been performed in North Carolina, almost all of the witnesses were located in North Carolina, and the State of North Carolina had expressed a strong interest in having local controversies settled at home. Curtis B. Pearson Music Co. v. McFadyen Music, Inc., - F. Supp. 2d - (M.D.N.C. June 3, 2005).

Texas forum selection clause that defendants sought to enforce was unenforceable in Texas; given this and plaintiff's showing of fraud in its verified complaint, the trial court abused its discretion by refusing to enforce the forum selection clause, and denying defendants' motion to dismiss. SED Holding, LLC v. 3 Star Props., LLC, 246 N.C. App. 632, 784 S.E.2d 627 (2016).

Forum Selection Clause Void. - Last act necessary to the formation of the employment agreement was plaintiff's signature and delivery in North Carolina rather than defendant's signature in Texas, which was the consummation of the employment relationship, given that defendant's manifestation of assent was found in its proposal of the agreement to plaintiff that became binding upon both parties upon acceptance; as the contract was entered into in North Carolina, the Minnesota forum-selection clause was void and unenforceable. Schwarz v. St. Jude Med., Inc., 254 N.C. App. 747, 802 S.E.2d 783 (2017).

Cited in Republic Mtg. Ins. Co. v. Brightware, Inc., 35 F. Supp. 2d 482 (M.D.N.C. 1999); Rice v. BellSouth Adver. & Publ. Corp., - F. Supp. 2d - (W.D.N.C. July 18, 2002); Hickox v. R&G Group Int'l, 161 N.C. App. 510, 588 S.E.2d 566 (2003); James C. Greene Co. v. Great Am. E&S Ins. Co., 321 F. Supp. 2d 717 (E.D.N.C. 2004); Simpson v. Snyder's of Hanover, Inc., - F. Supp. 2d - (W.D.N.C. June 12, 2006); Price & Price Mech. of N.C. Inc. v. Miken Corp., 191 N.C. App. 177, 661 S.E.2d 775 (2008).

CASE NOTES

Statute Permits Parties to Enter Into Arbitration Agreements. - Statute expressly permits parties to enter into arbitration agreements; the statute cannot be read as equating contracts with an arbitration clause to those contracts that do not contain an arbitration clause, and the language of this section could not be clearer: the proscription against contractual waivers of jury trials does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution. Wygand v. Deutsche Bank Trust Co. Ams., - N.C. App. - , 829 S.E.2d 681 (2019).

An agreement to arbitrate a dispute is not an unenforceable contract requiring waiver of a jury; thus, the trial court erred in concluding that because arbitration provision did not provide for trial of facts by a jury that it was unconscionable and unenforceable under this section, and in violation of N.C. Const., Art. I, § 18 and 25. Miller v. Two State Constr. Co., 118 N.C. App. 412, 455 S.E.2d 678 (1995).

Arbitration Agreement Not Unconscionable. - Trial court erred when it concluded that an arbitration rider was unconscionable because the notice provision simply explained that by agreeing to arbitration, any disputes would be settled without a jury, and such contractual provisions that defined or explained arbitration did not run afoul of the statute; including an explanation of what a party forfeited when it agreed to arbitrate any disputes in an arbitration agreement does not render the arbitration agreement unenforceable. Wygand v. Deutsche Bank Trust Co. Ams., - N.C. App. - , 829 S.E.2d 681 (2019).

Because the Federal Arbitration Act (FAA) preempted state statutes that rendered arbitration agreements unenforceable, the statute could not be interpreted or used to set aside an arbitration rider, and the trial court erred when it purported to interpret the statute to render the arbitration rider unconscionable; the contract dictated that FAA governed review of the arbitration rider. Wygand v. Deutsche Bank Trust Co. Ams., - N.C. App. - , 829 S.E.2d 681 (2019).

Severability of Provision. - Federal district court held that a forum selection clause was not contrary to North Carolina public policy as set forth in G.S. 22B-10 where, although the agreement purported to waive plaintiff's right to a jury trial, even if this provision were unconscionable, the court would not have had to strike the entire forum selection clause in order to strike the jury waiver provision. Price v. Leasecomm Corp., (M.D.N.C. Mar. 31, 2004).

Bylaw Requirement Requiring Vote Before Bringing Suit. - Trial court properly dismissed a property owners association's suit against its developer, which asserted claims of constructive fraud and unfair and deceptive trade practices, for lack of standing on the part of the association, because the association failed to obtain a two-thirds vote of its membership authorizing the suit, as was required by its bylaws; as a result, the trial court lacked subject matter jurisdiction and properly granted the developer's motion to dismiss and motion for summary judgment. Peninsula Prop. Owners Ass'n v. Crescent Res., LLC, 171 N.C. App. 89, 614 S.E.2d 351 (2005), cert. denied, 360 N.C. 177, 626 S.E.2d 648 (2005).

§§ 22B-11 through 22B-19: Reserved for future codification purposes.

CASE NOTES

Trial court properly granted summary judgment to an HOA in its action against the owners for violation of a deed restriction because, while the subdivision declaration did not expressly address solar panels, they were an "improvement" within the meaning of the declaration, the declaration had the effect of statutorily prohibiting the installation of solar panels, and owners failed to apply and receive written approval from the architectural review committee before installing them. Belmont Ass'n v. Farwig, - N.C. App. - , - S.E.2d - (May 18, 2021).