Based on the information below, draft an analysis that would be found in a legal memo, answering the questions presented based on the laws provided.

Questions Presented

1. Under Georgia law, what are the elements of fraud concerning the sale of real property?
2. Whether, under Georgia law, a seller has a duty to disclose to a buyer that a property is "haunted?"
3. Under Georgia law, can the Browns successfully maintain a suit against the Shorts, based on the facts presented in this case?

Brief Answer

1. In Georgia, the elements of fraud concerning the sale of real property are:(1) a false representation or omission of a material fact; (2) scienter; (3) intention to induce the party claiming fraud to act or refrain from acting; (4) justifiable reliance; and (5) damages.
2. In Georgia, if a seller of real estate knows of a defect in the property of which the purchaser is ignorant, and which would likely influence the purchase decision, the seller has a duty to disclose his knowledge to the purchaser. While Georgia courts have not considered the duty to disclose that a property is "haunted," the New York Supreme Court has determined that a seller does not typically have a duty to disclose to a buyer that property is "haunted." However, it found that recission may still be granted with the rationale being that, unlike physical conditions concerning premises,there is no sound policy reason to deny plaintiff relief for failing to discover a state of affairs which the most prudent purchaser would not be expected to even contemplate.
3. Based on Georgia's laws regarding seller's duty to disclose and fraud, the Browns may be successful in their lawsuit against the Shorts. However, based on the facts of this case (as we know them to be), proving certain elements of fraud (scienter/intention) may be difficult. Although Georgia courts have not addressed the issue of a duty to disclose a property's reputation, the Brown's may still find relief based on principles of equity.

Statement of Facts

The Shorts purchased two adjoining lots located at 5455 Nice Street in Fort Valley, Georgia as an investment property, zoning one residential and the other commercial. The Shorts first rented out the residential property to a businesswoman who was later found dead in the house, apparently shot by an intruder. The subsequent tenants, a family, reported paranormal activities in the house, such as the television turning on and off, usually in the middle of the night. The tenants' children refused to sleep in their rooms, claiming they saw the ghost of a woman. The neighborhood children referred to the house as the "haunted house." The family moved out a few months after moving in, claiming that they did not want to live with a ghost. The Shorts attempted to rent the property with no success, so they listed the lots for sale with an asking price of $370,000, which is the amount they purchased it for ten years prior. A year late, the Browns contacted the Shorts expressing their interest in buying the property after hearing the asking price. The Shorts informed the Browns that the property had been on the market for some time, which was the only reason the price was so low. After sixty days, the sale was completed, and the Browns began construction on the commercial lot. The Browns moved into the residential lot six months later and opened a toy store next door. A week after moving in and opening the toy store, the Browns began experiencing paranormal activities, such as the television turning on in the middle of the night and seeing white, ghostly figures in their home and the store. A few days later, a clerk at the local grocery store informed Mr. Brown that everyone in town knew that the property was haunted, asking Mr. Brown why he thought he paid such a low price for it. The Browns called the Shorts, accusing them of deception and demanding a refund and reimbursement for the construction costs of the toy store, but the Shorts refused.

Discussion

A. Legal Standards

1. What is Fraud?

Fraud has been described as any misrepresentation of a material fact, whether it be due to gross negligence or intentional falsification, a promise of representation that is not made honestly and in good faith, or an intentional omission of a material fact. O.C.G.A. 13-8-32. Fraud can be actual or constructive. Actual fraud consists of any kind of dishonesty used to deceive someone else; whereas constructive fraud consists of any act of commission or omissionthat violates a duty imposed by law or equity, a justifiable trust, or confidence that operates against one's moral principles and harms another person is considered constructive fraud. O.C.G.A. 23-2-51. In Georgia, to prove fraud concerning the sale of real property, the following elements must be present: "a false representation or omission of a material fact; scienter; intention to induce the party claiming fraud to act or refrain from acting; justifiable reliance; and damages." Napier v. Kearney, 359 Ga. App. 196, 855 S.E.2d 78 (2021).

2. Remedies (although beyond the scope of this Memo).

According to Georgia law,there are two available remedies for fraud concerning the sale of real estate. Buyers can either promptly rescind the contract after learning of the fraud and file a tort suit to recover the contract's consideration as well as any additional damages that resulted from it, or they can affirm the contract and file a lawsuit for fraud-related damages.Lakeside Invs. Grp. v. Allen, 253 Ga. App. 448, 559 S.E.2d 491 (2002).

3. Case Law.

In Jegadeesh v. Ryan, the buyers of real property filed suit against the sellers for fraud, seeking rescission, punitive damages, and attorney's fees after discoveringleaks along the tunnel between the main house and the pool house and water damage in the interior subflooring above the basement. 293 Ga. App. 341, 667 S.E.2d 105 (2008). The Georgia Court of Appeals found that the buyers failed to prove the elements of fraud, specifically the elements of false representations made by the seller and justifiable reliance by the plaintiff.The court reasoned that the sellers had not experienced leaks for several years before selling the house, and they stated in the disclosure statement that they were not aware of any water or leakage issues. Jegadeesh v. Ryan, 293 Ga. App. 341, 667 S.E.2d 105 (2008).Furthermore, it reasoned that the buyers home inspector found significant water intrusion prior to the closing, which suggests that they were aware of the leaks prior to the closing and that they did not justifiably rely on the disclosure statement. Id.

Similarly,in Napier v. Kearney, the buyers filed a suit against the sellers seeking recission and damages for fraud, negligent misrepresentation, and breach of contract ten (10) months after discovering that the house had severe water intrusion and flooding.359 Ga. App. 196, 855 S.E.2d 78 (2021). The Georgia Court of Appeals found that the buyers waived their right to rescind by failing to act promptly. Napier v. Kearney, 359 Ga. App. 196, 855 S.E.2d 78 (2021). Furthermore, the Court of Appeals found thata seller is obligated to disclose any existing defects on their property that the buyer is not aware of, and which could impact their buying decision. Id.

Because Georgia courts have not considered a seller's duty to disclose "haunted" property, it is necessary to look at the decisions of other courts. In Stambovsky v. Ackley, a buyer in New York filed suit against the seller for failing to disclose the property's reputation of being "haunted," seeking recission of the contract. 169 A.D.2d 254, 572 N.Y.S.2d 672 (App. Div. 1991). The Supreme Court of New York ruled that New York follows the doctrine of caveat emptor, and typically, a seller does not have a duty to disclose the "haunted" state of their property unless there is a confidential or fiduciary relationship between the parties or some conduct by the seller which constitutes active concealment. Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672 (App. Div. 1991).In most cases, the seller must make some sort of affirmative misrepresentation or partial disclosure to impose a duty to disclose any undisclosed conditions affecting the premises. Id. However, it ruled that while caveat emptor prevented an action for damages, it did not prevent the equitable remedy of recission. Id.In this case, the Court allowed recission of the contract because the seller took unfair advantage of the buyer's regarding the house's reputation, which the seller had created and perpetuated herself. Id.