Alejandre v. Bull, 76274-1.

CourtUnited States State Supreme Court of Washington
Citation153 P.3d 864,159 Wn.2d 674
Decision Date01 March 2007
Docket NumberNo. 76274-1.,76274-1.
PartiesArturo ALEJANDRE and Norma Alejandre, husband and wife, Respondents, v. Mary M. BULL, a single person, Petitioner.
153 P.3d 864
159 Wn.2d 674
Arturo ALEJANDRE and Norma Alejandre, husband and wife, Respondents,
Mary M. BULL, a single person, Petitioner.
No. 76274-1.
Supreme Court of Washington, En Banc.
Argued September 29, 2005.
Decided March 1, 2007.

[153 P.3d 865]

Albert Joseph Golden, Attorney at Law, Walla Walla, WA, for Petitioner.

Ronald Kurt McAdams, McAdams Ponti & Wernette, Walla Walla, WA, for Respondents.

Diana M Kirchheim, Groen Stephens & Klinge LLP, Bellevue, for Amicus Curiae Wash. Ass'n of Relations.

Daniel Joseph Gunter, Riddell Williams PS, Shilpa Bhatia, Wilson Smith Cochran Dickerson, Seattle, for Amucis Curiae Wash. Defense Trial Lawyers.


¶ 1 Petitioner Mary M. Bull sold a house to the respondents, Arturo and Norma Alejandre. The Alejandres subsequently learned the septic system was defective and sued Ms. Bull for fraudulently or negligently misrepresenting its condition. The trial court dismissed the Alejandres' claims after they rested their case, determining as a matter of law that the Alejandres had failed to prove their claims and that the claims are barred by the economic loss rule. The Court of Appeals reversed, concluding that sufficient evidence was presented in support of the claims and that the economic loss rule did not apply because the parties did not contractually allocate risk for fraudulent or misrepresentation claims.

153 P.3d 866

¶ 2 We reverse the Court of Appeals. Under Washington law, the defective septic system at the heart of plaintiffs' claims is an economic loss within the scope of the parties' contract, and the economic loss rule precludes any recovery under a negligent misrepresentation theory. There is no requirement that a risk of loss must be expressly allocated in a contract before a tort claim based on that loss will be precluded under the economic loss rule. Further, although under existing case law the plaintiffs' fraudulent concealment claim based on Obde v. Schlemeyer, 56 Wash.2d 449, 353 P.2d 672 (1960) is not barred by the economic loss rule, that claim fails here because the Alejandres cannot meet their burden to show the defect in the septic system could not have been discovered through a reasonable inspection. Finally, insofar as the Alejandres assert common law fraud, they have failed to present sufficient evidence to survive a motion under CR 50.


¶ 3 Ms. Bull owned a single family residence that was served by a septic system. The year before she put the house up for sale, Ms. Bull noticed soggy ground over the septic system. She hired William Duncan of Gary's Septic Tank Service to pump the tank. She also contacted Walt Johnson Septic Service, which emptied the tank and patched a broken pipe leading from the tank to the drain field. In April 2000, Ms. Bull applied for a connection to the city sewer, but when she learned there was a $5,000 hook-up fee she abandoned the idea.

¶ 4 Ms. Bull placed her home on the market in June 2000. In September 2001, Ms. Bull and the Alejandres entered into an earnest money agreement for the sale of Ms. Bull's home to the Alejandres. This agreement contained Ms. Bull's representation that the property was served by a septic system and her promise to have the septic tank pumped prior to closing. The earnest money agreement contained an addendum providing, among other things, that the sale was contingent on an inspection of the septic system. It stated that "[a]ll inspection(s) must be satisfactory to the Buyer, in the Buyer's sole discretion." Ex. 4. The addendum also provided that if the buyer disapproved of any inspection report, the buyer had to notify the seller and state the objection. Ex. 4. If the seller did not receive such notice, the inspection contingency would be deemed satisfied. Ex. 4.

¶ 5 As provided in the earnest money agreement, a septic tank service (Walt's Septic Tank Service) pumped the tank, and the Alejandres received a copy of the bill. The bill stated on it that the septic system's back baffle could not be inspected but there was "[n]o obvious malfunction of the system at time of work done." Ex. 6. In addition, prior to closing Ms. Bull provided the Alejandres with a seller's disclosure statement as required by RCW She disclosed that the house had a septic tank system which was last pumped and last inspected in the fall 2000 and that "Walt Johnson Jr. replaced broken line between house and septic tank," and she answered "no" to the inquiry whether there were any defects in operation of the septic system. Ex. 5.2 Ms. Bull also disclosed that she was aware of changes or repairs to the system. The Alejandres reviewed the disclosure statement with their

153 P.3d 867

agent and then signed the section of the disclosure statement headed "BUYER'S WAIVER OF RIGHT TO REVOKE OFFER." Ex. 5. See RCW 64.06.030. The Alejandres thus acknowledged, as expressly explained in the disclosure statement, their duty to "pay diligent attention to any material defects which are known to Buyer or can be known to Buyer by utilizing diligent attention and observation." Ex. 5.

¶ 6 Also prior to closing, the Alejandres lending bank required an inspection of the property. The resulting inspection report stated that its purpose was to notify the client of all defects or potential problems. The report indicated that the septic system "Performs Intended Function" and stated that "everything drains OK." Ex. 7.

¶ 7 On December 10, 2001, the sale closed. The Alejandres moved into the house a week later. In January 2002, the Alejandres smelled an odor inside their home. They also heard "water gurgling like it was coming back up." Verbatim Report of Proceedings at 15. They noticed a foul odor outside the home as well, which they believed came from the ground around the septic tank, which they said was soggy. In February, they hired William Duncan of Gary's Septic Tank Service. Mr. Duncan told the Alejandres that he could pump the tank but could not fix the problem because the drain fields were not working. He also told the Alejandres that he had told Ms. Bull that the drain fields were not working and that she needed to connect to the city's sewer system.

¶ 8 The Alejandres subsequently hired another company to connect to the city sewer system. During this work, the company discovered that the baffle to the outlet side of the septic system was gone, thus allowing sludge from the septic tank to enter the drain field and plug it.

¶ 9 The Alejandres sued Ms. Bull for fraud and misrepresentation, claiming costs and damages totaling nearly $30,000. After the plaintiffs rested their case, Ms. Bull moved for judgment as a matter of law. The court granted the motion, ruling that the economic loss rule bars the Alejandres' claims and that they failed to present sufficient evidence in support of their claims. The court entered judgment in favor of Ms. Bull and awarded her attorney fees as provided for in the parties' purchase and sale agreement.

¶ 10 The Alejandres appealed. The Court of Appeals reversed, holding that the Alejandres presented sufficient evidence to take their claims to the jury and that the economic loss rule does not apply because the parties' contract did not allocate risk for fraudulent or negligent misrepresentation claims. Alejandre v. Bull, 123 Wash.App. 611, 626, 98 P.3d 844 (2004).


¶ 11 When reviewing a trial court's decision on a motion for judgment as a matter of law, the appellate court applies the same standard as the trial court and reviews the grant or denial of the motion de novo. Davis v. Microsoft Corp., 149 Wash.2d 521, 531, 70 P.3d 126 (2003). "A motion for judgment as a matter of law must be granted `when, viewing the evidence most favorable to the nonmoving party, the court can say, as a matter of law, there is no substantial evidence or reasonable inference to sustain a verdict for the nonmoving party.'" Id. (quoting Sing v. John L. Scott, Inc., 134 Wash.2d 24, 29, 948 P.2d 816 (1997)). "Substantial evidence" is evidence that is sufficient "`to persuade a fair-minded, rational person of the truth of a declared premise.'" Davis, 149 Wash.2d at 531, 70 P.3d 126 (quoting Helman v. Sacred Heart Hosp., 62 Wash.2d 136, 147, 381 P.2d 605 (1963)).

¶ 12 Ms. Bull maintains that the Alejandres' tort claims are precluded by the economic loss rule, as the trial court ruled.

¶ 13 The economic loss rule applies to hold parties to their contract remedies when a loss potentially implicates both tort and contract relief. It is a "device used to classify damages for which a remedy in tort or contract is deemed permissible, but are more properly remediable only in contract.... `[E]conomic loss describes those damages falling on the contract side of "the line between tort and contract".'" Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wash.2d 816, 822, 881 P.2d 986 (1994) (citation omitted) (quoting Wash.

153 P.3d 868

Water Power Co. v. Graybar Elec. Co., 112 Wash.2d 847, 861 n. 10, 774 P.2d 1199, 779 P.2d 697 (1989) (quoting Pa. Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1173 (3d Cir.1981))). The rule "`prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from contract'" because "`tort law is not intended to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement.'" Factory Mkt., Inc. v. Schuller Int'l, Inc., 987 F.Supp. 387, 395 (E.D.Pa.1997) (quoting Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir.1995) and Palco Linings, Inc. v. Pavex, Inc., 755 F.Supp. 1269, 1271 (M.D.Pa.1990)).

¶ 14 "Tort law has traditionally redressed injuries properly classified as physical harm." Stuart v. Coldwell Banker Commercial Group, Inc., 109 Wash.2d 406, 420, 745 P.2d 1284 (1987). It "is concerned with the obligations imposed by law, rather than by bargain," and carries out a "safety-insurance policy" that requires that...

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