Stambovsky v. Ackley

Brief Fact Summary. The Plaintiff, Stambovsky (Plaintiff), brought suit to rescind a contract to buy a house after he discovered the house was purported to be haunted, thus lowering its value.

Synopsis of Rule of Law. A condition that impairs the value of property, known to the seller and left undisclosed to the buyer can constitute a basis for rescission of the contract.

Facts. The Plaintiff moved to a new neighborhood where he contracted to buy a house. The Defendants, Ackley and a real estate agency (Defendants), knew the house they had just sold to the Plaintiff was haunted. This was a widely known fact in the area and the house had even received national press attention. After Plaintiff discovered this, he sued for rescission. The trial court dismissed his complaint.

Issue. Whether an undisclosed condition that impairs the value of the property is a basis for rescission of the contract.

Held. Reversed. A house purported to be haunted, which impairs the value of the property and is left undisclosed to the buyer can constitute a basis for rescission of the purchase agreement.
Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the sale, nondisclosure constitutes a basis for rescission as a matter of equity.
Even an express disclaimer e.g. “as is” will not be given effect where the facts are peculiarly within the knowledge of the party invoking it.

Dissent. The dissent focused on the majority’s discard of the traditional doctrine of caveat emptor. The dissent believed that to discard this doctrine for the reasons cited in the majority opinion (haunted house) was a ridiculous reason to discard the doctrine.

Discussion. The court discussed that New York courts had traditionally followed the rule of caveat emptor, which did not vest a duty of disclosure on the seller for patent defects. The reason the court noted that the doctrine of caveat emptor was being discarded was that in most cases applying caveat emptor, the defect was physical and thus a prudent buyer would most likely discover it. In the case at bar, the condition was created by the seller and was a condition that could not be discovered even under the most rigorous examination of the house.