Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 22

FACTS Dorris Reed bought a house from Robert King for $76,000. King and his real estate agent knew that a woman and her four children had been murdered in the house ten years earlier and allegedly knew that the event had materially affected the market value of the house. They said nothing about the murders to Reed, and King asked a neighbor not to inform her of them. After the sale, neighbors told Reed about the murders and informed her that the house was consequently worth only $65,000. Reed brought an action against King and the real estate agent, alleging fraud and seeking rescission and damages. The complaint was dismissed, and Reed appealed.
DECISION Judgment reversed.
OPINION Blease, J. Does Reed's pleading state a cause of action? 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. [Citation.] ''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 is a term of art which includes mere nondisclosure when a party has a duty to disclose. [Citation.] Rest.2d Contracts, § 161; Rest.2d Torts, § 551*** Accordingly, the critical question is: does the seller have a 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 diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.'' [Citation.] Whether information ''is of sufficient materiality to affect the value or desirability of the property *** depends on the facts of the particular case.'' [Citation.] Materiality ''is a question of law, and is part of the concept of right to rely or justifiable reliance.'' [Citation.] *** Three considerations bear on this legal conclusion: the gravity of the harm inflicted by nondisclosure; the fairness of imposing a duty of discovery on the buyer as an alternative to compelling disclosure, and the impact on the stability of contracts if rescission is permitted.
Numerous cases have found nondisclosure of physical defects and legal impediments to use of real property are material. [Citation.] However, to our knowledge, no prior real estate sale case has faced an issue of nondisclosure of the kind presented here.
***
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.
***
Whether Reed will be able to prove her allegation that 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.
INTERPRETATION A representation is material if it is likely to influence or affect a reasonable person.
ETHICAL QUESTION Should King have revealed the information to Reed? Explain.
CRITICAL THINKING QUESTION What is material information, and how should it be determined?