Economic-loss rule no defense to real estate claim
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Bull asserted several defenses, including the economic-loss rule. Under that rule, one who sues in tort may not recover purely economic damages. An award of those kinds of damage depends on a breach of contract. At trial, Bull moved to dismiss the action on this basis and because the Alejandres failed to prove the elements of fraudulent or negligent misrepresentation. The trial court agreed and dismissed the action. The Alejandres appealed.

The Court of Appeals agreed with Bull as to the Alejandres’ negligent-misrepresentation claim. Under Washington case law, the parties ordinarily spell out in the contract between them the allocation of risk and future liability, and a tort claim should not disturb that agreed result. That allocation of risk is what the parties bargained for at arm’s length.

Here, however, the court concluded that in an earnest-money agreement, “the parties normally do not bargain for and provide for the allocation of risk and future liability.” Moreover, a property buyer “cannot reasonably be held to a standard of negotiating for the possibility that the other party will deliberately misrepresent terms critical to the contract.” Thus the Alejandre court followed courts of other states that permit recovery of economic losses in fraud claims.

Bull also argued that she did not intentionally or negligently misstate the septic system’s condition, because its true condition was discovered only after the Alejandres’ repair person had torn into it. The Court of Appeals disagreed, noting that a jury could conclude that Bull’s knowledge of the septic system’s history of repeated failures was enough to show that she knew she was selling a home with a failed septic system.

Bull contended that the Alejandres had no right to rely on her alleged misrepresentation. The Court of Appeals disagreed. Not even a septic inspector hired by the Alejandres’ bank while the transaction was pending had found the defects in the septic system. There was evidence from which a jury could find that Bull hid the true condition of the septic system from the Alejandres.