Decision defeats real estate buyers' claim for seller's false representations

By Philip B. Grennen

Real estate buyers will have difficulty winning misrepresentation claims against sellers as a result of a new Washington Supreme Court decision. The Court held that the “economic-loss rule” curtails most damages in such claims, and that if the buyers’ pre-closing inspection was incomplete, they may not recover at all.

In Alejandre v. Bull, No. 76274-1 (Mar. 1, 2007), the Alejandres bought a house from Mary Bull that was served by a septic system. A year before Bull put the house on the market, the septic system had been pumped, and a broken pipe between the septic tank and the drain field had been repaired. The evidence conflicted as to whether Bull knew that the repairs were unsuccessful. When marketing the property, Bull completed a seller’s disclosure statement that said that the septic system had no defects.

The purchase and sale agreement between the Alejandres and Bull contained an inspection contingency. The contingency entitled the Alejandres to inspect the property, including the septic system, and to rescind the purchase if the property’s condition was unsatisfactory to them. The Alejandres hired a septic inspector, who found “no obvious malfunction of the system.” The Alejandres waived their inspection contingency and closed on their purchase of the property.

Almost immediately after the Alejandres moved in, they began experiencing septic problems. They incurred $30,000 fixing the defects. They sued Bull for fraud and misrepresentation. At trial, Bull moved to dismiss at the close of the Alejandres’ case. She argued that the economic-loss rule precluded the Alejandres’ damages. The trial court agreed and dismissed the action. The Court of Appeals reversed, and Bull successfully petitioned the Washington Supreme Court for review.