In the sale of a house, must the seller disclose it was the site of a multiple murder?

   Dorris Reed purchased a house from Robert King. Neither King nor his real estate agents (the other named defendants) told Reed that a woman and her four children were murdered there 10 years earlier. However, it seems ‘‘truth will come to light; murder cannot be hid long.’’ (Shakespeare, Merchant of Venice, act II, scene II.) Reed learned of the gruesome episode from a neighbor after the sale. She sues seeking rescission and damages. King and the real estate agent defendants successfully demurred to her first amended complaint for failure to state a cause of action. Reed appeals the ensuing judgment of dismissal. We will reverse the judgment.

   * * * King and his real estate agent knew about the murders and knew the event materially affected the market value of the house when they listed it for sale. They represented to Reed the premises were in good condition and fit for an ‘‘elderly lady’’ living alone. They did not disclose the fact of the murders. At some point King asked a neighbor not to inform Reed of that event. Nonetheless, after Reed moved in neighbors informed her no one was interested in purchasing the house because of the stigma. Reed paid $76,000, but the house is only worth $65,000 because of its past.

* * *

   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.’’ (Original italics.) [Citation.]

   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 non-disclosure when a party has a duty to disclose. [Citation.] Rest.2d Contracts, § 161; Rest.2d Torts, § 551; 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. [Citations.] 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.] This broad statement of duty has led one commentator to conclude: ‘‘The ancient maxim caveat emptor (‘let the buyer beware’) has little or no application to California real estate transactions.’’ [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. Reed alleges the fact of the murders has a quantifiable effect on the market value of the premises. We cannot say this allegation is inherently wrong and, in the pleading posture of the case, we assume it to be true. If information known or accessible only to the seller has a significant and measurable effect on market value and, as is alleged here, the seller is aware of this effect, we see no principled basis for making the duty to disclose turn upon the character of the information. Physical usefulness is not and never has been the sole criterion of valuation. * * *

   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. Ill repute or ‘‘bad will’’ conversely may depress the value of property. * * *

   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.

* * *

   The judgment is reversed.