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Kaloti Enterprises7/8/2005
logg had a duty to disclose its change in marketing, I conclude that fraud in the inducement does not fall within the economic loss doctrine. I would adopt a rule that the tort action of fraud is outside the reach of the economic loss doctrine. A rule that actionable fraud precludes application of the economic loss doctrine makes it easy for defendants to foresee that they will be liable for material representations.
I depart from the majority opinion because it adopts a "narrow fraud rule," which, as I view it, defies consistent and principled application. After all, how can parties allocate, insure against, or otherwise assess risk attendant to a contract, all goals the economic loss doctrine strives to foster, when one party is intentionally misled by affirmative misrepresentations or by a breach of a duty to disclose material facts by another party? Everyone knows the common sense answer: they can't.
A tort remedy should be available when the tortious conduct harms commerce. A fraud action advances the public interest in deterring misrepresentations. Not only do the parties want a transaction free of fraud, but the State has an interest in ensuring a fraud- and deceit-free business atmosphere. If fraud claims are enforced, parties will be more confident in the terms of the contracts into which they enter. In a valid fraud action for intentional misrepresentation, we have less concern about the cost and uniformity of contractual relationships and extended liability for the manufacturer.
As I stated in my dissent in Tietsworth:
Allowing a fraud in the inducement exception to the economic loss rule for intentional false statements made prior to a contract in a consumer purchase preserves a distinction between tort law and contract law and fosters the values of each. It maintains the value of contract by ensuring that consumers are in a position to make intelligent decisions in allocating the risk of loss, thereby increasing the likelihood that losses can be resolved in contract. It furthers the purposes of tort law by sustaining a financial deterrent for those who intentionally misrepresent their goods.
A fraud in the inducement exception to the economic loss rule for intentional false statements made to consumers is founded on the tort of intentional misrepresentation, a tort action protecting intangible economic interests. This tort action is separate and distinct from the duty created solely by contract. " he interest protected by fraud is a plaintiff's right to justifiably rely on the truth of a defendant's factual representation in a situation where an intentional lie would result in loss to the plaintiff." An overextension of the economic loss rule drowns fraudulent misrepresentation claims in a sea of contract.
What kind of "freedom of contract" and "ability to assess and insure against the risk" is being fostered or protected when a party to a contract commits an intentional tort in inducing a contract that causes monetary loss to another party? On what basis can we say that an individual consumer does not need the tort remedy of intentional misrepresentation against a manufacturer?
The California Supreme Court recently acknowledged that it is impossible for parties to allocate risk when fraud is involved:
A breach of contract remedy assumes that the parties to a contract can negotiate the risk of loss occasioned by a breach. " hen two parties make a contract, they agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a mini-universe for themselves, in which eac
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