193 Cal. Rptr. 130 (Cal. Ct. App. 1983)
Dorris Reed purchased a house from Robert King.1 Neither King nor his real estate agents told Reed that a woman and her four children were murdered there 10 years earlier.2 However, King and his real estate agent knew about the murders and knew the event materially affected the market value of the house when they listed it for sale.3 They represented to Reed the premises were in good condition and fit for an “elderly lady” living alone but did not disclose the fact of the murders.4
At some point King asked a neighbor not to inform Reed of that event.5 Nonetheless, after Reed moved in neighbors informed her no one was interested in purchasing the house because of the stigma.6 Reed paid $76,000, but the house is only worth $65,000 because of its past.7
Reed sues seeking rescission and damages.8 King and the real estate agent defendants successfully demurred to her first amended complaint for failure to state a cause of action.9 Reed appeals the ensuing judgment of dismissal.10
Whether in the sale of a house the seller must disclose that it was the site of a multiple murder?11
A seller of real property has a duty to disclose facts materially affecting the value or desirability of the property. The seller must know that such facts are known or accessible only to him and that such facts are not known to, or within the reach of the diligent attention and observation of, the buyer.12
Yes. Dorris Reed purchased a house from Robert King. Neither King nor his real estate agents told Reed that a woman and her four children were murdered there 10 years earlier. King and his real estate agent knew about the murders and knew the event materially affected the market value of the house when they listed it for sale. They represented to Reed the premises were in good condition and fit for an “elderly lady” living alone but did not disclose the fact of the murders.
At some point King asked a neighbor not to inform Reed of that event. Nonetheless, after Reed moved in neighbors informed her no one was interested in purchasing the house because of the stigma. Reed paid $76,000, but the house is only worth $65,000 because of its past. The murders are highly unusual in their potential for disturbing buyers and may foreseeably deprive a buyer of the intended use of the purchase.13 Murder is not such a common occurrence that buyers should be charged with anticipating and discovering this disquieting possibility.14
The fact of the murders has a quantifiable effect on the market value of the premises. The seller is aware of this effect.15 There is no principled basis for making the duty to disclose turn upon the character of the information. Physical usefulness is not and never has been the sole criterion of valuation.16 Reed has alleged objective tangible harm which stills the concern that permitting her to go forward will open the floodgates to rescission on subjective and idiosyncratic grounds.17
The seller must disclose that the house was the site of a multiple murder.18
Whether Reed's pleading states a cause of action sounding in contract or tort based on the nondisclosure?19
The elements of actual fraud, whether as the basis of the remedy in contract or tort, may be stated as follows. There must be (1) a false representation or concealment of a material fact susceptible of knowledge. It must be made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation. It must be made with the intent to induce the person to whom it is made to act upon it. Such person must act in reliance upon the representation to his damage.20
Yes. Reed's complaint reveals only nondisclosure despite the allegation King asked a neighbor to hold his peace.21 Resolution of the duty to disclose depends on the materiality of the fact of the murders.22 The concealment is a term of art which includes mere nondisclosure when a party has a duty to disclose.23
The trial court perceived the defect to be a failure to allege concealment of a material fact but the fact of the murders is material.24 Reed's allegations reveal a fraud. The complaint states a cause of action for rescission or deceit.25
Reed's pleading states a cause of action.26