The Economic Loss Doctrine

By on June 17th, 2013

Posted in New Jersey

Although firmly established within New Jersey Jurisprudence, the “Economic Loss Doctrine” is often overlooked by overzealous Plaintiffs who attempt to file Tort Claims in simple Breach of Contract cases.  The “Economic Loss Doctrine” provides that if the factual foundation for the Cause of Action is contractual in nature, than in that event, the Parties are foreclosed from pursuing Tort Claims which are based upon the same facts.  The reason the “Economic Loss Doctrine” was enacted was to prevent creative pleading which only prolongs simple Breach of Contract cases where Parties have attempted to plead claims founded in Tort.  Pursuant to the “Economic Loss Doctrine” doctrine, the Courts have held that a Party cannot pursue a claim for Fraud in the performance of a Contract.  Instead, when the damages which are sought arise from a Breach of Contract and do not involve personal injury suffered aside from contractual damages, a Parties claims are limited to Contractual ones.

In certain circumstances, a Party may be able to bring Claims for both a Breach of Contract and Tort Claims provided, however, the Claims are against an individual who owes both a fiduciary duty as well as Contractual duty.  Such Claims are typically limited to claims against professionals such as Attorneys, Accountants, or other learned professionals who are retained by a Party pursuant to a Contract.  The “Economic Loss Doctrine” provides that unless there is an independent duty owed at Law outside of the express terms of the Contract, the Party’s remedy lies in a Breach of Contract claim only.  As to professionals such as Lawyers and Accountants, however, if an independent fiduciary duty lies outside of a Contract, Tort Claims may be prosecuted against these individuals as well.

When filing a Pleading for a Breach of Contract it is always important that a Party consider the application of the “Economic Loss Doctrine”.  Should a party overzealously plead Tort causes of Action even though the underlying basis is Contractual in nature, the Party may subject itself to counsel fees and sanctions should a defendant obtain a Dismissal of the improperly plead Tort claims.   As a defendant, it is always important to consider the “Economic Loss Doctrine” in order to prevent frivolous Claims from being plead which will only increase the cost of Litigation for all Parties.  As such, it is important for all Parties to remember the application of the “Economic Loss Doctrine”.

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