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    The Lawletter Blog

    TORTS: Negligent Misrepresentation—Economic Loss Rule

    Posted by Gale Burns on Mon, Feb 6, 2012 @ 13:02 PM

    The Lawletter Vol 36 No 7

    Fred Shackelford, Senior Attorney, National Legal Research Group

    Does the economic loss rule preclude a claim for negligent misrepresentation by one contracting party against another party to the contract?  The New Hampshire Supreme Court decided this issue of first impression in Wyle v. Lees, 162 N.H. 406, ___ A.3d ___, 2011 WL 4390732 (2011) (not yet released for publication).  In Wyle, the defendants hired a contractor to expand their apartment building. Although the defendants were aware that the expansion work had proceeded without the benefit of certain required permits, inspectors for the town in which the building was located ultimately informed the defendants that, except for some field changes, the site plan requirements had been satisfied.

    The defendants then listed the property for sale and completed a property disclosure statement that responded "no" to the question of whether they were aware of any modifications or repairs made without the necessary permits.  Prior to selling the property, one of the defendants told the plaintiff that he had done "everything the Town asked me to do." 2011 WL 4390732, at *1. Soon after the closing, the town's building inspector and fire chief inspected the property and found numerous safety code violations, which the plaintiff had to correct before occupying the site.

    The plaintiff sued the defendants for negligent misrepresentation, based on the oral representation that the sellers had done "everything the Town asked" and on the written disclosure that all building modifications had been done with the necessary permits.  The defendants argued that the claim was barred by the economic loss rule, which generally precludes contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contractual relationship.  The rule is based on the notion that contract and warranty law is better suited than tort law to deal with purely economic loss in the commercial arena.

    The Wyle court noted that the rule is one of the most confusing doctrines in tort law and that it had never addressed the issue at hand in the context of contracting parties.  The court observed that there is an inherent "tension between negligent misrepresentation, which allows for the recovery of pecuniary loss, and the economic loss rule, which forbids recovery of economic loss in tort." Id. at *3.  The court noted that other courts have sometimes distinguished negligent misrepresentation claims that involve inducement to enter a contract from cases that focus on performance of the contract.  Although the court did not expressly adopt this distinction, it did find that the defendants' misrepresentations had induced the plaintiff to sign the contract and that he could recover economic loss damages.

    Topics: legal research, Fred Shackelford, The Lawletter Vol 36 No 7, tort law, recovery for negligent representation by a contrac, negligent misrepresentation v. contract or warrant, economic loss rule

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