Stambovsky v Ackley

Fact Pattern

The case involves two parties, a buyer and a seller, who entered into a contract for the purchase of real property. Prior to the sale, the seller had been made aware that the property had a reputation in the community as a haunted house, and took steps to encourage this belief. The buyer, who was out of state, was unaware and was not notified. Thereafter, the buyer sued for rescission of the contract and recovery of his deposit, claiming the hauntedness of the property was adversely affected its value and should have been disclosed. The seller sued for specific performance, and the lower court held in favor of the seller.

 

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Question of Law

The question before the court was whether the seller, having actual knowledge of an adverse condition associated with the property, voids the contract by failing to disclose the same to the unsuspecting buyer. The law within that jurisdiction generally held caveat emptor, placing the responsibility on the buyer to find any defects in the property, and so the court needed to determine whether caveat emptor relieved seller of responsibility.

Finding
The majority opinion held that because the actual or potential hauntedness of the property could not be reasonably determined by inspection on the part of the buyer, caveat emptor did not apply. Moreover, as the seller was clearly aware of the property’s status and had taken steps to promote it, the seller was aware that it could affect the value of the property and had failed to disclose it. The lower court’s decision was reversed.
Defendant seller deliberately fostered the public belief that her home was possessed. Having undertaken to inform the public-at-large, to whom she has no legal relationship, about the supernatural occurrences on her property, she may be said to owe no less a duty to her contract vendee. It has been remarked that the occasional modern cases which permit a seller to take unfair advantage of a buyer’s ignorance so long as he is not actively misled are “singularly unappetizing” . . . Where, as here, the seller not only takes unfair advantage of the buyer’s ignorance but has created and perpetuated a condition about which he is unlikely to even inquire, enforcement of the contract (in whole or in part) is offensive to the court’s sense of equity.
Additional Notes
The dissenting opinion held that because the sale had taken place at arm’s length, the seller did not have an obligation to disclosure and thus the contract was not void.

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