A Colorado case concerning a real estate property built upon expansive soils illustrates the dynamics of economic loss in tort law.
In November of 2013 the Colorado Court of Appeals handed down a decision in case 2013 COA 145. Nos. 12CA1269 & 13CA0116. In re the Estate of Gattis: Gattis v. McNutt. This case involves an appeal by real estate sellers of a private property that suffered structural damage because it had been built on expansive soils. This fact was known to the sellers at the time of sale, but was not expressly revealed to the buyers.
Some Definitions: Tort Law and Economic Loss
Firstly, tort law deals with legal liabilities that arise from civil wrongs. The harm must have been due to some form of negligence – this may even include criminal negligence – in order for the victim to successfully recover financial damages by filing a lawsuit.
Generally, pure economic losses are not recoverable under tort law. This can be seen in the language of economic loss illustrated by a precedent-setting case, in which
a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law. -Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000).
The Case and Its Appeal: Gattis v. McNutt
John E. McNutt, Timothy A. McNutt, and Christopher L. Boortz ("Sellers") were the defendants of the original case (number 12CA1269), in which judgment was awarded in favor of Carol S. Gattis, the plaintiff. Gattis sought damages from Sellers, who sold her a house that had suffered ongoing structural damage to its foundation because it had been built on expansive soils.
In their appeal, Sellers argued that this decision should be reversed by asserting that Gattis’s claim was only for economic loss, and thus precluded. They also pointed out that their purchase and sales agreement had included a Seller’s Property Disclosure (SPD) form that mentioned the issue of expansive soils, and that Gattis’s case did not include a breach of contract claim.
The Appeals Court rejected Seller’s application of the economic loss rule on two grounds.
First, … home sellers owe home buyers an independent duty to disclose latent defects of which they are aware. Second, … the standard-form residential real estate contract at issue [does] not so subsume this independent duty as to trigger the economic loss rule.
The Court thus affirmed the original trial court decision in favor of Gattis and rejected Seller’s appeal.
While cases such as this one illustrate some of the at times perplexing legal terminology that may be involved in civil disagreements, its final significance is quite clear. Sellers have the responsibility of fully disclosing all information they possess regarding the product or property being sold. A failure to do so, coupled with an attempt to hide behind Byzantine legalese, will not change this fact.