Reed v. King
145 Cal.App.3d 261 (1983)
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Rule of Law:
A seller of real property has a duty to disclose facts that materially affect the value or desirability of the property, including a property's infamous reputation as the site of a multiple murder, when such facts are known or accessible only to the seller and are not discoverable by the buyer through diligent attention.
Facts:
- Robert King sold a house to Dorris Reed for $76,000.
- Ten years before the sale, a woman and her four children had been murdered in the house.
- King and his real estate agents were aware of the murders.
- They also knew that this history materially affected the market value of the house, reducing its worth to approximately $65,000.
- King and his agents did not disclose the murders to Reed.
- King specifically asked a neighbor not to inform Reed of the house's history.
- After the sale was complete and Reed moved in, neighbors informed her of the murders.
Procedural Posture:
- Dorris Reed sued Robert King and his real estate agents in a California trial court, seeking rescission and damages.
- The defendants filed a demurrer to Reed's first amended complaint, arguing it failed to state a cause of action.
- The trial court sustained the demurrer, concluding a cause of action required that the property be the subject of present community notoriety.
- Reed declined to amend her complaint, and the trial court entered a judgment of dismissal in favor of King.
- Reed appealed the judgment of dismissal to the California Court of Appeal.
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Issue:
Does a seller of real property have a duty to disclose to a buyer that the property was the site of a multiple murder ten years prior to the sale, if that fact materially affects the property's market value?
Opinions:
Majority - Blease, J.
Yes. A seller has a duty to disclose the fact that a property was the site of a multiple murder if that fact is material to the property's value. The court reasoned that nondisclosure constitutes fraudulent concealment when a seller is aware of facts that materially affect the value or desirability of the property, which are known only to the seller and are not within the diligent observation of the buyer. The court rejected the argument that only physical defects are material, stating that a property's history and reputation can have a significant and quantifiable effect on its market value. The murders were deemed a material fact because they are highly unusual, could foreseeably disturb a buyer's ability to reside in the home, and are not something a buyer could reasonably be expected to discover on their own. Because Reed alleged a specific, quantifiable reduction in market value due to the murders, her complaint stated a valid cause of action for rescission and damages.
Analysis:
This case significantly expanded the concept of a 'material fact' in real estate transactions, moving beyond purely physical defects to include psychological or reputational stigma. By rejecting a strict application of 'caveat emptor' (let the buyer beware), the court imposed a higher duty of good faith and fair dealing on sellers. This decision established the precedent that a property's infamous past can constitute a material defect requiring disclosure if it has a quantifiable, negative impact on the property's market value. It opened the door for future claims based on non-physical defects that affect a property's desirability, influencing disclosure laws in many states.
