## Facts

- A homebuyer purchased a residence from the seller through the seller’s real estate agents.
- About ten years earlier, a woman and her four children were murdered in the house.
- The seller and agents allegedly knew of the murders and knew the event materially affected the property’s market value when they listed it for sale.
- The seller and agents did not disclose the murders and allegedly asked a neighbor not to tell the buyer.
- The buyer alleged she was told the home was in good condition and fit for an elderly woman living alone.
- After moving in, the buyer learned from neighbors about the killings and that the home had been difficult to sell due to its stigma.
- The buyer alleged she paid $76,000 but the home was worth only $65,000 because of its history.
- The trial court sustained demurrers to the buyer’s first amended complaint for failure to state a cause of action and entered a dismissal after the buyer declined further amendment.

## Issues

1. Whether a seller of residential real property has a duty to disclose that the house was the site of a prior multiple murder when the fact materially affects market value or desirability and is not known or readily discoverable by the buyer.
2. Whether nondisclosure of such a non-physical stigma can constitute actionable fraud supporting rescission and damages.

## Decision

- The Court of Appeal reversed the judgment of dismissal and remanded.
- The court held the complaint adequately alleged fraud based on concealment of a material fact and therefore stated a cause of action for rescission and damages.
- The court rejected the trial court’s requirement that the property be “presently the object of community notoriety” as a prerequisite to materiality at the pleading stage.

## Legal Principles

- Fraud may be based on concealment or nondisclosure when the defendant has a duty to disclose a material fact.
- A duty to disclose may arise where the seller has superior knowledge of a material fact affecting the value or desirability of the property, the buyer lacks that knowledge, and the fact is not reasonably discoverable by ordinary inspection or inquiry.
- Materiality turns on whether a reasonable person would consider the fact important in deciding to purchase or in setting the price; market value may be affected by non-physical conditions if they have real economic consequences.
- Allegations of intentional steps to prevent disclosure can support an inference of concealment and intent to induce reliance.
- At the demurrer stage, well-pleaded allegations of knowledge, concealment, material impact on value, reliance, and damages are sufficient to proceed.

## Conclusion

The court held that a buyer stated a fraud claim where the seller allegedly concealed a prior multiple murder in the home that significantly reduced market value and was not reasonably discoverable, and it allowed the buyer to pursue rescission and damages on remand.


Reed v. King, 145 Cal. App. 3d 261 (Cal. Ct. App. 1983)