Business 8th Edition by Marianne Jennings

Exercise 2

Buying Property from the Addams Family: How Scary Must It Be?
Facts
Dorris Reed (plaintiff) purchased a home from Robert King for S76.000. Mr. King and his real estate agents did not disclose to Mrs. Reed that 10 years before, the house had been the site of the murders of a mother and her four children. After Mrs. Reed moved into the home, neighbors disclosed to her the story of the murders and the fact that the house carried a stigma. Because of its history, appraisers evaluated the true worm of the house to be S65.000. Mrs. Reed filed suit on the basis of misrepresentation and sought rescission and damages. Her complaint was dismissed by the trial court, and she appealed.
Judicial Opinion
BLEASE, Associate Justice
In the sale of a house, must the seller disclose it was the site of a multiple murder?
Concealed within this question is the nettlesome problem of the duty of disclosure of blemishes on real property which are not physical defects or legal impairments to use.
Reed seeks to state a cause of action sounding in contract, i.e., rescission, or in tort, i.e., deceit. In either event her allegations must reveal a fraud. "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 (or, in some cases, an opinion) susceptible of knowledge, (2) made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation, (3) with the intent to induce the person to whom it is made to act upon it; and such person must (4) act in reliance upon the representation (5) to his damage."
The trial court perceived the defect in Reed's complaint to be a failure to allege concealment of a material fact. "Concealment" and "material" are legal conclusions concerning the effect of the issuable facts pled-As appears, the analytic pathways to these conclusions are intertwined.
Reed's complaint reveals only nondisclosure despite the allegation King asked a neighbor to hold his peace. There is no allegation the attempt at suppression was a cause in fact of Reed's ignorance. Accordingly, the critical question is: does the seller have duty to disclose here? Resolution of this question depends on the materiality of the fact of the murders.
In general, a seller of real property has a duty to disclose: "where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of... the buyer."
Materiality "is a question of law, and is part of the concept of right to rely or justifiable reliance." Accordingly, the term is essentially a label affixed to a normative conclusion.
Numerous cases have found nondisclosure of physical defects and legal impediments to use of real property are material. However, to our knowledge, no prior real estate sale case has faced an issue of nondisclosure of the kind presented here. Should this variety of ill-repute be required to be disclosed?
The paramount argument against an affirmative conclusion is it permits the camel's nose of unrestrained irrationality admission to the tent. If such an "irrational" consideration is permitted as a basis of rescission the stability of all conveyances will be seriously undermined. Any fact that might disquiet the enjoyment of some segment of the buying public may be seized upon by a disgruntled purchaser to void a bargain. In our view, keeping this genie in the bottle is not as difficult a task as these arguments assume. We do not view a decision allowing Reed to survive a demurrer in these unusual circumstances as endorsing the materiality of facts predicating peripheral, insubstantial, or fancied harms.
The murder of innocents is highly unusual in its potential for so disturbing buyers they may be unable to reside in a home where it has occurred. This fact may foreseeably deprive a buyer of the intended use of the purchase. Murder is not such a common occurrence that buyers should be charged with anticipating and discovering this disquieting possibility. Accordingly, the fact is not one for which a duty of inquiry and discovery can sensibly be imposed upon the buyer.
Reed alleges the fact of the murders has a quantifiable effect on the market value of the premises. Reputation and history can have a significant effect on the value of realty. "George Washington slept here" is worth something, however physically inconsequential that consideration may be. Hi-repute or "bad will" conversely may depress the value of property. Failure to disclose such a negative fact where it will have a foreseeably depressing effect on income expected to be generated by a business is tortious. Some cases have held that unreasonable fears of the potential buying public that a gas or oil pipeline may rupture may depress the market value of land and entitle the owner to incremental compensation in eminent domain.
Whether Reed will be able to prove her allegation, the decade-old multiple murder has a significant effect on market value we cannot determine. If she is able to do so by competent evidence she is entitled to a favorable ruling on the issues of materiality and duty to disclose. Her demonstration of objective tangible harm would still the concern that permitting her to go forward will open the floodgates to rescission on subjective and idiosyncratic grounds.
What does Mrs. Reed need to establish to be entitled to rescission and damages?