Summary of Stambovsky v. Ackley, NY Supreme Ct., App. Div. (1991)
Parties: PL – Appellant – Purchaser – Entered into a contract to purchase a house
DF – Appellee – seller – didn’t tell buyer the house was haunted
Cause of action/remedy sought: PL seeks equitable action of rescission.
Procedural History: PL appealing Supreme Court judgment dismissing his complaint, which sought recession of the contract (action in equity).
Facts: DF had publicized the fact that the house was haunted over the nine years she lived there. DF failed to disclose this fact to PL upon entering into the contract for sale of the home. DF claims the contract merger and as-is clause bars return of the deposit, and Caveat Emptor (Let the buyer beware).
Issue(s): Under NY property law, did the seller’s actions in causing the house’s reputation severely impair the value of the contract, such that DF had a duty to inform the PL?
Holding: Yes, DF informed the public at large and owed at least as much to DF. Court modified judgment, reinstating the first cause of the action for PL rescission.
Court’s Rationale/Reasoning: Moved by the spirit of equity…
New York adheres to Caveat Emptor and imposes no duty upon the vendor to disclose, unless there is a fiduciary relationship, or some conduct on the part of the seller which constitutes active concealment.
The home’s reputation could not be ascertained upon reasonable inspection of the premises.
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, nondisclosure constitutes a basis for rescission as a matter of equity.
They entered into a K “as is.” This means that there are no warranties and no representations. Purchaser is obligated to buy once he signs in an “as-is” K so he has a duty to inspect it before he buys it.
Rule: There were 2 requirements for disclosure: 1) a fiduciary duty arising from a confidential relationship and 2) active concealment. The court makes its own requirement and says there is a defect which the buyer could not have known of ( a latent defect). A latent defect known to the seller (particularly one the seller created) must be disclosed to the buyer if the buyer could not discover it with due diligence.
Did court avoid issues?: N/A
Dicta: Why is there no fiduciary duty here? What was this about the merger clause? The seller said the K was fully integrated. They got out of this claim that the K was fully integrated by because the merger clause covered only physical misrepresentations, not intangible ones like this.
Dissents: Smith. If the doctrine of Caveat Emptor is to be discarded, it should be for a reason more substantive than a poltergeist.