The economic loss rule is a
judge-made limitation on damages that courts use to preclude plaintiffs from
recovering in tort for purely economic losses arising from sales of goods
governed by UCC Article 2. Parties therefore may be limited to the remedies
provided in the UCC itself, without regard to tort remedies. Implications of
the economic loss rule are examined by Professor Jennifer Martin.
Uniform Commercial Code Section
1-103(b) embraces liberal supplementation of the Code by directing that
"[u]nless displaced by the particular provisions of this Act, the
principles of law and equity, including the law merchant and the law relative
to capacity to contract, principal and agent, estoppel, fraud, misrepresentation,
duress, coercion, mistake, Bankruptcy, or other validating or invalidating
cause shall supplement its provisions." When it comes to remedies for
breaches of sales of goods under UCC Article 2, this premise of liberal
supplementation must be read alongside Article 2's remedy provisions and the
common law's economic loss rule, which precludes a plaintiff from recovering in
tort for purely economic losses. Even Section 2-721's directive regarding fraud
in the sales of goods that provides that remedies for fraud or
misrepresentation under Article 2 include remedies for sales of goods that do
not involve fraud is read to constrain non-breaching parties to contract
remedies under Article 2 in most cases.
While the doctrine has many adherents, courts seem to apply the doctrine with
different limitations on its scope. For instance, in Lott v. Swift
Transportation Company, Inc., 694 F. Supp. 2d 923, 930 (W.D. Tenn. 2010) [an enhanced version of this opinion is available to lexis.com
subscribers], the district court predicted that the Tennessee Supreme Court
would not extend the economic loss rule to cases involving contracts for services,
"[t]he Economic Loss Rule is a judicially created principle that requires
parties to live by their contract rather than to pursue tort actions for purely
economic losses arising out of the contract. The rule comes into play when the
purchaser of a product sustains economic loss without personal injury or
damage to property other than the product itself. In that circumstance,
the purchaser must seek a remedy in contract, not in tort. Thus, when a
purchaser's expectations in a sale are frustrated because a product does
not work properly, the purchaser's remedies are limited to those prescribed by
the law of contracts."
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