Alejandre v. Bull , 159 Wash. 2d 674 ( 2007 )

¶ 1 — Petitioner Mary M. Bull sold a house to the respondents, Arturo and Norma Alejandre. The Ale-jandres 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.

Madsen, J.

¶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 Wn.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.

FACTS

¶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 64.06.020.¹ She disclosed that the house had a septic tank system which was last pumped and last inspected in 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 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 Alejan-dres 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.

f 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 Wn. App. 611, 626, 98 P.3d 844 (2004).

ANALYSIS

¶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 Wn.2d 521, 531, 70 P.3d 126 (2003). “Amotion 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 Wn.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 Wn.2d at 531 (quoting Hetman v. Sacred Heart Hosp., 62 Wn.2d 136, 147, 381 P.2d 605 (1963)).

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

f 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 Wn.2d 816, 822, 881 P.2d 986 (1994) (citation omitted) (quoting Wash. Water Power Co. v. Graybar Elec. Co., 112 Wn.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 a 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); 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 Wn.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 products and property that are sold do not “unreasonably endanger the safety and health of the public.” Id. at 420, 421. Contract law, in contrast, carries out an “expectation-bargain protection policy” that “protects expectation interests, and provides an appropriate set of rules when an individual bargains for a product of particular quality or for a particular use.” Id. at 420-21. In general, whereas tort law protects society’s interests in freedom from harm, with the goal of restoring the plaintiff to the position he or she was in prior to the defendant’s harmful conduct, contract law is concerned with society’s interest in performance of promises, with the goal of placing the plaintiff where he or she would be if the defendant had performed as promised. Detroit Edison Co. v. NABCO, Inc., 35 F.3d 236, 239 (6th Cir. 1994); see also Casa Clara Condo. Ass’n v. Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1246-47 (Fla. 1993).

¶15 The economic loss rule maintains the “fundamental boundaries of tort and contract law.” Berschauer/Phillips, 124 Wn.2d at 826. Where economic losses occur, recovery is confined to contract “to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract. ... If tort and contract remedies were allowed to overlap, certainty and predictability in allocating risk would decrease and impede future business activity.” Id. A manufacturer or seller sets prices in contemplation of, among other things, potential contractual liability. See id. at 827. If tort liability is expanded to include economic damages, parties would be exposed to “ ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class.’ ” Id. (quoting Justice Cardozo in Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170, 179, 174 N.E. 441 (1931)). “Abright line distinction between the remedies offered in contract and tort with respect to economic damages also encourages parties to negotiate toward the risk distribution that is desired or customary.” Id. In addition, the economic loss rule prevents a party to a contract from obtaining through a tort claim benefits that were not part of the bargain. See, e.g., Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 408, 573 N.W.2d 842 (1998).

¶16 In short, the purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists and the losses are economic losses. If the economic loss rule applies, the party will be held to contract remedies, regardless of how the plaintiff characterizes the claims. See Snyder v. Lovercheck, 992 P.2d 1079, 1088 (Wyo. 1999) (“ ‘when parties’ difficulties arise directly from a contractual relationship, the resulting litigation concerning those difficulties is one in contract no matter what words the plaintiff may wish to use in describing it’ ” (quoting Beeson v. Erickson, 22 Kan. App. 2d 452, 461, 917 P.2d 901 (1996))). Washington law consistently follows these principles. See Stuart, 109 Wn.2d at 420-22; Atherton Condo. Apartment-Owners Ass’n Bd. of Dirs. v. Blume Dev. Co., 115 Wn.2d 506, 799 P.2d 250 (1990); Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. Constr., Inc., 119 Wn.2d 334, 350-51, 831 P.2d 724 (1992); Berschauer/Phillips, 124 Wn.2d at 825-26; Staton Hills Winery Co. v. Collons, 96 Wn. App. 590, 595-96, 980 P.2d 784 (1999); Carlson v. Sharp, 99 Wn. App. 324, 994 P.2d 851 (1999); Griffith v. Centex Real Estate Corp., 93 Wn. App. 202, 211-13, 969 P.2d 486 (1998). The key inquiry is the nature of the loss and the manner in which it occurs, i.e., are the losses economic losses, with economic losses distinguished from personal injury or injury to other property. If the claimed loss is an economic loss and no exception applies to the economic loss rule, then the parties will be limited to contractual remedies.

¶17 The same fundamental approach applies to products liability claims governed by the Washington product liability actions act, chapter 7.72 RCW (WPLA). The WPLA does not allow recovery for direct or consequential economic losses under the Uniform Commercial Code, Title 62A RCW. RCW 7.72.010(6). Rather, the WPLA “confines recovery to physical harm of persons and property and leaves economic loss, standing alone, to the Uniform Commercial Code.” Touchet Valley Grain Growers, 119 Wn.2d at 351. The court therefore applies a risk of harm analysis in the product liability setting under the WPLA to determine the nature of the damages and whether an economic loss has occurred, id., but, as in other cases, the focus is on the harm or injury and whether it constitutes an economic loss.

¶18 In Berschauer/Phillips, a general contractor sought to recover economic damages in tort from an architect, an engineer, and an inspector. We first noted that the case was not governed by the WPLA and therefore turned to the common law to determine whether the economic loss rule precludes recovery in tort. We held that the economic loss rule applies to bar recovery of economic loss due to construction delays. Berschauer/Phillips, 124 Wn.2d at 825-27. We expressly did so in order to “align the common law rule on ‘economic loss’ with the Legislature’s” application of the rule under the WPLA to limit purely economic damages to contract claims under the Uniform Commercial Code. Id. at 827.

¶19 The Alejandres maintain that the economic loss rule does not apply in the context here, i.e., the sale of a residence. However, as Ms. Bull contends, in this state the economic loss rule applies to tort claims brought by homebuyers. Stuart, 109 Wn.2d at 417-22; Griffith, 93 Wn. App. at 212-13.³ And, as in other circumstances, where defects in construction of residences and other buildings are concerned, economic losses are generally distinguished from physical harm or property damage to property other than the defective product or property. The distinction is drawn based on the nature of the defect and the manner in which damage occurred. In Stuart, 109 Wn.2d at 420-22, and in Atherton, 115 Wn.2d 506, we declined to recognize any tort cause of action for negligent construction because the plaintiffs in each of these cases presented no evidence of personal or physical injury resulting from the manner in which the condominium complexes in each case were constructed and instead sought only economic damages.

¶20 Here, the injury complained of is a failed septic system. Purely economic damages are at issue. See Stuart, 109 Wn.2d at 420 (defects evidenced by internal deterioration are characterized as economic losses); Griffith, 93 Wn. App. at 213 (same). There is no question that the parties’ relationship is governed by contract. Thus, unless there is some recognized exception to the economic loss rule that applies, the plaintiffs’ claim of negligence cannot stand because they are limited to their contract remedies. No exception to the economic loss rule has been established.

¶21 The plaintiffs allege that Ms. Bull made negligent misrepresentations about the condition of the septic system contrary to the duty of due care under the Restatement (Second) of Torts § 552 (1977).⁴ Both Berschauer/Phillips and Griffith hold that although Washington recognizes a tort claim for negligent misrepresentation under the Restatement (Second) of Torts § 552, this claim is not available when the parties have contracted against potential economic liability. Berschauer/Phillips, 124 Wn.2d at 827-28; Griffith, 93 Wn. App. at 212.

f 22 Accordingly, the Alejandres’ reliance on section 552 and what must be proven under it is foreclosed by our precedent. Because the parties’ relationship is governed by contract and the loss claimed is an economic loss, the trial court correctly concluded that plaintiffs’ negligent misrepresentation claim must be dismissed. See, e.g., Atherton, 115 Wn.2d at 526-27 (negligent construction claim precluded where plaintiff sought only economic damages).

¶23 The Court of Appeals held, however, that if the parties fail to specifically allocate a risk of loss in their contract, the economic loss rule does not apply as to that risk. Alejandre, 123 Wn. App. at 626. This holding is inconsistent with the weight of authority and with Berschauer/Phillips.

¶24 In Berschauer/Phillips, we stated that our holding limiting the recovery of economic loss due to construction delays ensures “that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract. We hold parties to their contracts.” Berschauer/Phillips, 124 Wn.2d at 826. We did not say, however, that the parties will be held to their bargained-for remedies only if they explicitly addressed any or all potential economic losses and allocated the risks associated with them.

¶25 Other courts have also rejected this premise. Courts reason, instead, that the economic loss rule applies where the parties could or should have allocated the risk of loss, or had the opportunity to do so. In Nextel Argentina, S.R.L. v. Elemar International Forwarding, Inc., 44 F. Supp. 2d 1306, 1309 (S.D. Fla. 1999), the court saw “ ‘no reason to burden society as a whole with the losses of one who has failed to bargain for adequate contractual remedies’ ” (quoting Airport Rent-A-Car, Inc. v. Prevost Car, Inc., 660 So. 2d 628, 630 (Fla. 1995)). The court held that the “economic loss rule prevents recovery in tort for risks that should have been allocated in a contract.” Nextel, 44 F. Supp. 2d at 1309 (emphasis added). If the party could have allocated its risk, the rule applies; all that is required is that the party had an opportunity to allocate the risk of loss. Mt. Lebanon Pers. Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 852 (6th Cir. 2002); Lexington Ins. Co. v. W. Roofing Co., 316 F. Supp. 2d 1142, 1148 (D. Kan. 2004); Nat’l Steel Erection, Inc. v. J.A. Jones Constr. Co., 899 F. Supp. 268, 274 (N.D. W. Va. 1995); Nigrelli Sys., Inc. v. E.I. DuPont de Nemours & Co., 31 F. Supp. 2d 1134, 1138 (E.D. Wis. 1999); BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 73 (Colo. 2004); Nw. Ark. Masonry, Inc. v. Summit Specialty Prods., Inc., 29 Kan. App. 2d 735, 744-45, 31 P.3d 982 (2001); Neibarger v. Universal Coops., Inc., 439 Mich. 512, 521, 486 N.W.2d 612 (1992) (quoting Spring Motors Distribs., Inc. v. Ford Motor Co., 98 N.J. 555, 579-80, 489 A.2d 660 (1985)).

¶26 Further, where allocation of risk occurs, it can occur directly or indirectly. For example, parties might allocate risk through express contract terms, such as the inclusion of warranties, or through the procuring of insurance, or risk might be reflected in a lower price obtained by the buyer in exchange for the risk falling on the buyer. Maersk Line Ltd. v. CARE & ADM, Inc., 271 F. Supp. 2d 818, 822 (E.D. Va. 2003). As one court stated: “ ‘Courts should assume that parties factor risk allocation into their agreements and that the absence of comprehensive warranties is reflected in the price paid. Permitting parties to sue in tort when the deal goes awry rewrites the agreement by allowing a party to recoup a benefit that was not part of the bargain.’ ” Daanen & Janssen, 216 Wis. 2d at 408 (quoting Stoughton Trailers, Inc. v. Henkel Corp., 965 F. Supp. 1227, 1230 (W.D. Wis. 1997)); see Nigrelli Sys., 31 F. Supp. 2d at 1138.

f 27 In fact, if a court permits a tort claim on the ground that the parties have not expressly allocated a particular risk, it interferes with the parties’ freedom to contract. Rich Prods. Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 968-69 (E.D. Wis. 1999), aff’d, 241 F.3d 915 (7th Cir. 2001); see also Maersk Line, 271 F. Supp. 2d at 822 (“ ‘to permit a party to a broken contract to proceed in tort where only economic losses are alleged would eviscerate the most cherished virtue of contract law, the power of the parties to allocate the risks of their own transactions’ ” (quoting Princess Cruises, Inc. v. Gen. Elec. Co., 950 F. Supp. 151, 155 (E.D. Va. 1996), rev’d on other grounds, 143 F.3d 828 (4th Cir. 1998) )); Snyder, 992 P.2d at 1087 (“ ‘[t]he effect of confusing the concept of contractual duties, which are voluntarily bargained for, with the concept of tort duties, which are largely imposed by law, would be to nullify a substantial part of what the parties expressly bargained for — limited liability’ ” (quoting Isler v. Tex. Oil & Gas Corp., 749 F.2d 22, 23 (10th Cir. 1984))).

¶28 In accord with the overwhelming weight of authority from other jurisdictions and under our decision in Berschauer/Phillips, the economic loss rule applies regardless of whether the specific risk of loss at issue was expressly allocated in the parties’ contract.

¶29 Finally, on this issue, a cautionary note is added. There is some suggestion that the economic loss rule applies only if the contract is between two sophisticated parties. However, we observed in Berschauer/Phillips, 124 Wn.2d at 827, that the “unsophisticated consumer” is deprived of economic damages under the WPLA. Just as the economic loss rule applies under the WPLA to “unsophisticated” parties, the same “bright line distinction between the remedies offered in contract and tort with respect to economic damages,” Berschauer/Phillips, 124 Wn.2d at 827, may apply to “unsophisticated” parties who enter a contract on essentially equal footing.⁵ If there is significant disparity in bargaining power, likely accompanied by some other contractual infirmity, then there may be an issue as to enforceability of the contract — a different question from whether tort remedies should be available.

¶30 The Alejandres’ negligent misrepresentation tort claim is precluded under the economic loss rule for the reasons explained above.

¶31 The plaintiffs also assert a claim of fraudulent concealment. In Atherton, we rejected the plaintiff’s claim of negligent construction as barred by the economic loss rule but, in the same opinion, held that there was an issue of fact as to whether the defendant had fraudulently concealed construction practices violating the building code and, therefore, the trial court had erred in dismissing the plaintiff’s claim for fraudulent concealment on a motion for summary judgment. Atherton, 115 Wn.2d at 523-27. Thus, under Atherton, the Alejandres’ fraudulent concealment claim is not precluded by the economic loss rule.

f32 However, the fraudulent concealment claim fails because, as the trial court ruled, the Alejandres failed to present sufficient evidence to support the claim. Under Obde, 56 Wn.2d 449, and similar cases, the vendor’s duty to speak arises where (1) the residential dwelling has a concealed defect; (2) the vendor has knowledge of the defect; (3) the defect presents a danger to the property, health, or life of the purchaser; (4) the defect is unknown to the purchaser; and (5) the defect would not be disclosed by a careful, reasonable inspection by the purchaser. Atherton, 115 Wn.2d at 524. The Alejandres failed to meet their burden of showing that the defect in the septic system would not have been discovered through a reasonably diligent inspection. In fact, the Alejandres accepted the septic system even though the inspection report from Walt’s Septic Tank Service disclosed, on its face, that the inspection was incomplete because the back baffle had not been inspected. The testimony at trial showed that this part of the septic system was relatively shallow and easily accessible for inspection. A careful examination would have led to discovery of the defective baffle and to further investigation.

¶33 Next, insofar as the Alejandres have asserted common law fraud theories, they have failed to present sufficient evidence of the nine elements of fraud. See Williams v. Joslin, 65 Wn.2d 696, 697, 399 P.2d 308 (1965). In particular, they have failed to present sufficient evidence as to the right to rely on the allegedly fraudulent representations about the condition of the septic service. The “right to rely” element of fraud is intrinsically linked to the duty of the one to whom the representations are made to exercise diligence with regard to those representations. Id. at 698; Puget Sound Nat’l Bank v. McMahon, 53 Wn.2d 51, 54, 330 P.2d 559 (1958). As explained, the Alejandres were on notice that the septic system had not been completely inspected but failed to conduct any further investigation and, indeed, accepted the findings of an incomplete inspection report. Having failed to exercise the diligence required, they were unable to present sufficient evidence of a right to rely on the allegedly fraudulent representations.⁶

¶34 Accordingly, the trial court correctly determined, as to the Alejandres’ fraudulent conveyance and fraudulent representation theories, that Ms. Bull was entitled to judgment as a matter of law under CR 50 because the Alejan-dres failed to present sufficient evidence in support of these theories.

¶35 Finally, we turn to Ms. Bull’s request for attorney fees. The parties’ purchase and sale agreement provides that attorney fees and costs shall be awarded to the prevailing party in any dispute relating to the transaction. Ex. 4; see RCW 4.84.300. Accordingly, Ms. Bull is entitled to attorney fees as the prevailing party, at trial, as the trial court ruled, and on appeal and discretionary review, to be awarded pursuant to RAP 18.1.

CONCLUSION

¶36 In this case involving the sale of a residence with a defective septic system, we hold that the economic loss rule applies and forecloses the buyers’ claim that the seller negligently misrepresented the condition of the septic system. The buyers’ claim of fraudulent conveyance is not subject to the economic loss rule. However, the buyers failed to present sufficient evidence on this claim and on their claims of fraudulent misrepresentation to take these issues to the jury. The trial court properly dismissed all of the claims under CR 50 at the close of the plaintiffs-buyers’ case.

137 We reverse the Court of Appeals and reinstate the trial court’s judgment, including the award of attorney fees and costs, and we award attorney fees and costs to Ms. Bull for the appeal and this discretionary review, as provided for in the parties’ contract.

Alexander, C.J., and C. Johnson, Bridge, Owens, Fairhurst, and J.M. Johnson, JJ., concur.

1 Chapter 64.06 RCW contains requirements for sellers of residential real property to make certain disclosures unless the buyer has expressly waived the right to receive the disclosure statement or the sale is exempt from the disclosure requirements under RCW 64.06.010. RCW 64.06.020(1). If the buyer does not waive the right, the buyer can, in the buyer’s sole discretion, rescind the earnest money agreement within three business days after receipt of the disclosure statement. RCW 64.06.030.

2 The Alejandres maintain that Ms. Bull knew that the disclosure statement was wrong in stating that the tank was last pumped in the fall, rather than in May 2000, and that a broken pipe was replaced between the house and the tank, rather than between the tank and the drain field. At trial, Ms. Bull was unsure why she said “fall” rather than “May” and she testified that the line was not broken between the house and the tank. The Alejandres also maintain that Ms. Bull failed to disclose that she had to do her laundry outside the home because of the failed system. Ms. Bull says she did not disclose that she did her laundry outside the home for one month because the problem with the system was taken care of by the time she filled out the disclosure form.

3 Other courts have applied the economic loss rule to homeowners alleging construction defects. In Casa Clara, 620 So. 2d at 1247, the court stated:

If a house causes economic disappointment by not meeting a purchaser’s expectations, the resulting failure to receive the benefit of the bargain is a core concern of contract, not tort, law. There are protections for homebuyers, however, such as statutory warranties, the general warranty of habitability, and the duty of sellers to disclose defects, as well as the ability of purchasers to inspect houses for defects. Coupled with homebuyers’ power to bargain over price, these protections must be viewed as sufficient when compared with the mischief that could be caused by allowing tort recovery for purely economic losses. Therefore, we again “hold contract principles more appropriate than tort principles for recovering economic loss without an accompanying physical injury or property damage.” Florida Power & Light [Co. v. Westinghouse Elec. Corp.], 510 So. 2d [899,] 902 [(Fla. 1987)]. If we held otherwise, “contract law would drown in a sea of tort.” East River [S.S. Corp. v. Transamerica Delaval, Inc.], 476 U.S. [858,] 866[, 106 S. Ct. 2295, 90 L. Ed. 2d 865 (1986)].

(Footnotes omitted) (citation omitted).

4 The Alejandres’ briefing to the Court of Appeals also relies on section 552 for their argument that, alternatively, Ms. Bull made “innocent misrepresentations.” Just as reliance on this tort provision is foreclosed insofar as alleged negligent misrepresentation is concerned, it is also foreclosed for alleged innocent misrepresentation.

5 Exact parity in bargaining power is not required. Mt. Lebanon, 276 F.3d at 852.

6 The Alejandres urge the court to hold that the economic loss rule does not apply to claims of fraud in the inducement, and they argue their fraud claims are claims of fraud in the inducement. We are aware that some courts recognize a broad exception to the economic loss rule that applies to intentional fraud. E.g., First Midwest Bank, NA v. Stewart Title Guar. Co., 218 Ill. 2d 326, 337, 843 N.E.2d 327, 300 Ill. Dec. 69 (2006) (citing Moorman Mfg. Co. v. Nat’l Tank Co., 91 Ill. 2d 69, 88-89, 435 N.E.2d 443, 61 Ill. Dec. 746 (1982)). Other courts recognize a limited exception to the economic loss rule for fraudulent misrepresentation claims that are independent of the underlying contract (sometimes referred to as fraud in the inducement) but only where the misrepresentations are extraneous to the contract itself and do not concern the quality or characteristics of the subject matter of the contract or relate to the offending party’s expected performance of the contract. See, e.g., Huron Tool & Eng’g Co. v. Precision Consulting Servs., Inc., 209 Mich. App. 365, 532 N.W.2d 541 (1995) (leading case); Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 884-87 (8th Cir. 2000); Rich Prods., 66 F. Supp. 2d at 977; Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 537 (Fla. 2004). We need not address the question whether any or all fraudulent representation claims should be foreclosed by the economic loss rule because we resolve the Alejandres’ fraudulent representation claims on other grounds.