Alejandre v. Bull
159 Wash. 2d 674, 153 P.3d 864 (2007)
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Rule of Law:
The economic loss rule bars recovery in tort for purely economic losses when the parties' relationship is governed by a contract, regardless of whether the contract explicitly allocates risk for the specific loss at issue. However, the rule does not bar claims for fraudulent concealment, though such claims require proof that the defect could not have been discovered through a reasonably diligent inspection.
Facts:
- Mary M. Bull owned a residence served by a septic system and, after noticing soggy ground, had the tank pumped and a broken pipe repaired.
- Bull applied to connect to the city sewer but abandoned the plan after learning of the $5,000 fee.
- Arturo and Norma Alejandre entered into an earnest money agreement to purchase Bull's home, which was contingent on a satisfactory septic system inspection.
- Bull provided a seller's disclosure statement indicating no known defects in the septic system's operation.
- A pre-sale inspection report received by the Alejandres noted that the septic system's back baffle could not be inspected but there was "no obvious malfunction."
- A separate inspection report for the Alejandres' lender stated that the septic system "Performs Intended Function."
- Shortly after moving in, the Alejandres experienced foul odors and backups, and a contractor discovered the septic system was failing because its outlet baffle was missing, allowing sludge to clog the drain field.
Procedural Posture:
- Arturo and Norma Alejandre sued Mary M. Bull in trial court for fraud and misrepresentation.
- At the close of the Alejandres' case, the trial court granted Bull's motion for judgment as a matter of law, dismissing all claims.
- The Alejandres, as appellants, appealed to the Washington Court of Appeals.
- The Court of Appeals reversed the trial court's judgment.
- Ms. Bull, as petitioner, sought and was granted discretionary review by the Supreme Court of Washington.
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Issue:
Does the economic loss rule bar a homebuyer's tort claims for negligent misrepresentation and fraudulent concealment against a seller when the claims arise from a defect in the property governed by a purchase and sale agreement?
Opinions:
Majority - Madsen, J.
Yes, as to the negligent misrepresentation claim; No, as to the fraudulent concealment claim. The economic loss rule precludes the buyers' negligent misrepresentation claim because their relationship is governed by a contract and the damages sought are purely economic. The purpose of the rule is to hold parties to their bargained-for remedies and maintain the boundary between tort and contract law. It applies even if the contract does not expressly allocate the specific risk of loss, as parties have the opportunity to negotiate such risks. The fraudulent concealment claim, while not barred by the economic loss rule, fails because the Alejandres did not present sufficient evidence to prove all its elements. Specifically, they failed to show that the defect could not have been discovered through a careful, reasonable inspection, particularly since they were on notice that the inspection was incomplete.
Concurring - Chambers, J.
Yes, as to the negligent misrepresentation claim; No, as to the fraudulent concealment claim. The author agrees with the majority's result but proposes a different analytical approach. Rather than viewing the economic loss rule as a bar to all 'economic losses' unless an exception applies, it should be seen as a tool to determine whether a dispute is fundamentally a commercial one sounding in contract or a non-commercial one sounding in tort. The loss here was a 'commercial loss'—disappointment in the value of the bargained-for product—and thus the negligent misrepresentation claim properly belongs in contract law, where it fails. The fraud claim is a distinct, non-commercial injury not barred by the rule, but it correctly fails for lack of evidence.
Analysis:
This decision solidifies the application of the economic loss rule in Washington to real estate transactions, preventing homebuyers from circumventing their contractual remedies by suing in tort for negligent misrepresentation. It reinforces that the opportunity to allocate risk in a contract is sufficient to bar such tort claims, even without specific contractual language addressing the particular defect. The ruling maintains a clear, though not absolute, line between contract and tort law, preserving fraud as an independent cause of action but affirming the high evidentiary burden required for such claims, especially concerning the buyer's duty to conduct a diligent inspection.
