Stambovsky v. Ackley

Appellate Division of the Supreme Court of New York, First Department · 1991 · Property

PropertyContractsdisclosurecaveat emptormisrepresentationrescissioncaveat emptorrescission

Facts

After contracting to buy defendant's house in Nyack, plaintiff discovered that the house was widely reputed in the community to be haunted by poltergeists reportedly seen by defendant seller and her family over a period of years. Defendant had publicized these alleged supernatural occurrences in national and local publications and helped create the home's reputation in the community. Plaintiff, a New York City resident and not a local, could not readily have learned of the house's reputation. He sought rescission of the contract and return of his down payment.

Issue

May a purchaser of real property obtain equitable rescission, notwithstanding New York's general rule of caveat emptor, when the seller has created and publicized a condition affecting the property's value that is peculiarly within the seller's knowledge and unlikely to be discovered by a prudent buyer? Does the contract's merger or "as is" clause bar that relief?

Rule

Although New York generally follows caveat emptor and imposes no duty on a seller to disclose information about real property absent a fiduciary relationship, active concealment, affirmative misrepresentation, or partial disclosure, equity permits rescission where a condition created by the seller materially impairs the value of the contract and is peculiarly within the seller's knowledge or unlikely to be discovered by a prudent purchaser exercising due care. An express disclaimer or merger clause will not bar relief where the relevant facts are peculiarly within the seller's knowledge, and a general disclaimer directed to physical conditions does not necessarily extend to nonphysical conditions of this kind.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Savannah, Georgia, Lena Ortiz spent years giving neighborhood tours in which she described her townhouse as the site of repeated demonic visitations. Local newspapers and a regional travel magazine repeated the story, and the house became known in the area as "the cursed house on Mercer Street." After signing a purchase contract and paying a deposit, Omar Bennett, who lives in Philadelphia, learned of the reputation and sought rescission.

If Omar sues for rescission, what is the strongest argument that his complaint should survive a motion to dismiss?

Explanation. The majority recognized a narrow equitable exception to caveat emptor where the seller created and fostered a reputational condition that materially impairs value and is peculiarly within the seller's knowledge or unlikely to be discovered by a prudent purchaser using due care. It did not adopt a broad duty to disclose all stigmas, did not eliminate caveat emptor for nonphysical conditions generally, and specifically indicated that mere silence would not support a damages claim for fraudulent misrepresentation on those facts.