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

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Generally, the economic-loss rule holds parties to their contract remedy when a loss could involve both tort- and contract-based relief. The Supreme Court noted that “tort law is not intended to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement.” Tort law protects society’s interest in protecting against harm, with the goal of restoring plaintiffs to their prior position, whereas contract law seeks to place plaintiffs where they would be had the contract been performed.

Here, the Alejandres sued for a failed septic system and “purely economic damages” that resulted. The Court held that because the parties’ relationship was governed by contract, plaintiffs “are limited to their contract remedies.” This contract did not provide for the damages the Alejandres claimed.

The Court held that the economic-loss rule did not defeat the Alejandres’ claim for fraud, but that claim lacked adequate proof. Fraud requires proof that the plaintiff justifiably relied on the misrepresentation, and the plaintiff must exercise due diligence as to the representations. The Alejandres had bought contingent on an inspection of the septic system, but they failed to inspect the system fully. Because the Alejandres had a full opportunity to inspect, and a reasonable inspection would have found the defects, the Alejandres failed to exercise reasonable diligence, and their reliance was not justified.