Read the information below. Based on the information, in paragraph format, draft a conclusion for a legal memo bringing everything together and answering the questions presented based on the law provided.

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 activity in the house, such as the television turning on and off, usually in the middle of the night. Furthermore, the tenants' children refused to sleep in their rooms, claiming they saw the ghost of a woman. The children in the neighborhood referred to the house as the "haunted house." This 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 later, the Browns contacted the Shorts expressing their interest in buying the property after hearing the low 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 and asked 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.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). The Court of Appeals did find, however, 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, the Court 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 regarding the house's reputation, which the seller had created and perpetuated herself. Id.

Analysis

Whether a seller of real estate has a duty to disclose that a property is "haunted" has not yet been considered by Georgia courts. However, the New York Supreme Court ruled that a duty to disclose that a property is "haunted" may arise if the seller makes affirmative misrepresentations or partial disclosures, and buyers may have the right to recission based on principles of equity.

In this case, the Browns may have a claim for fraud against the Shorts, but they must prove all five (5) elements, which may require additional information. Assuming the Shorts are aware of the paranormal activity, the first element of fraud, a false misrepresentation or omission of a material fact, is present. See Napier v. Kearney.The Shorts failed to disclose the property's reputation as being "haunted," which is a material fact that would likely affect a buyer's decision. However, the second element, scienter, may be more difficult to prove. See Napier v. Kearney.The Shorts could argue that they did not believe ghosts existed and, therefore, did not find it necessary to disclose. However, the fact that they had difficulty renting the property and that they sold it for the same amount they paid when they bought it ten years ago may suggest that they were aware that the property's reputation would affect a buyer's decision. The Browns must prove the Shorts' intention to deceive them. The third element, intention to induce the party claiming fraud to act or refrain from acting, is also present. See Napier v. Kearney.Here, the Shorts intended to sell the property and therefore intended to induce the Browns to buy it. The fourth element, justifiable reliance, is also present. See Napier v. Kearney. The Browns relied on the Shorts' representation regarding the condition of the property, and the defect could not have been discovered by the Browns' due diligence. The fifth and final element, damages, is also present. See Napier v. Kearney.The Browns have suffered damages in the form of the cost of the property and the cost of construction on the commercial lot. However, if the evidence shows that the Shorts were unaware of the paranormal activity on the property, the Browns will not have a claim for fraud against the Shorts.

Under Georgia law, a seller of real estate has a duty to disclose any known defects in the property that the buyer is unaware of and that would likely affect the buyer's decision. If a buyer seeks to recover damages from a seller who has passively concealed a defect, they must show that the vendor's concealment of the defect constituted an act of fraud and deceit, including evidence that the seller or agent knew about the defect but chose not to disclose it, and that the defect could not have been discovered by the buyer through the exercise of due diligence. Here, the Shorts' concealment of the property's reputation would likely be considered a passive concealment rather than an active concealment. Based on the law, if the Shorts were aware of the paranormal activities and the Browns can prove the elements of fraud and deceit, they may have had a duty to disclose the defect to the Browns. Georgia courts, however, have never considered a seller's duty to disclose the property's reputation as being "haunted," but the New York Supreme Court has. The New York Supreme Court allowed a buyer to rescind a contract because the seller took unfair advantage of the buyer's ignorance regarding the house's reputation, which the seller had created and perpetuated herself. It further ruled, however, that the caveat emptor doctrine barred an action for damages. Similarly, in this case, if the Shorts were aware of the paranormal activity, then they could be seen as taking unfair advantage of the Browns' ignorance regarding the property's reputation, as the Browns are not local to the area. Therefore, the Browns may be able to rescind the contract. However, it is unclear whether the courts will allow the Browns to recover for the cost of the property and the cost of construction on the commercial lot.

Although beyond the scope of this memo, if the Browns can prove that the Shorts were aware of the property's reputation of being "haunted," they may be successful in their lawsuit against the Shorts. However, it is unclear whether they will be allowed to recover damages, or if the courts will simply rescind the contract.