Doris 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 The requisite elements of fraud are “(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 determined that Reed failed to allege concealment of a material fact. Concealment, however, may include mere silence when a party has a duty to disclose. This duty falls upon the seller of real property where he (1) knows of facts that have a material effect upon the value or desirability of the property and (2) knows that these facts are unknown to the buyer and inaccessible to the buyer through the exercise of ordinary diligence. The second of these conditions clearly applies. King knew that Reed was unaware of the murders, and Reed cannot reasonably be expected to anticipate and discover such an unlikely possibility. The issue therefore turns upon the question of materiality. Material nondisclosures in real property cases generally pertain to physical defects of the property or to legal impediments to its use. Murder, however, is a particularly disturbing event that may cause a buyer to be unable to live in a house where it has occurred and may thus deprive the buyer of the intended use of the property. Moreover, the content of the information not disclosed by the seller need not be the crucial factor. If Reed can prove that the murders significantly and measurably affected the market value of the premises, she should receive a favorable judgment on the issue 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?