## Facts

- A seller owned a Victorian home in Nyack, New York, and for years publicly described it as being haunted by poltergeists.
- The seller’s accounts appeared in widely distributed media and local publicity, contributing to a well-known community reputation that the home was haunted.
- A buyer from outside the area, unfamiliar with local folklore, contracted to purchase the home without being told of its haunted reputation.
- After learning of the reputation, the buyer sought rescission of the contract and return of the down payment.
- The contract included an “as is”/merger-type disclaimer addressing reliance on representations about the property’s condition.

## Issues

1. Whether equity permits rescission when a seller, who created and publicized a stigmatizing reputation about the property, fails to disclose it to a buyer unlikely to discover it through reasonable diligence.
2. Whether caveat emptor and a disclaimer/merger clause bar rescission where the undisclosed condition materially affects value and resale and is peculiarly within the seller’s knowledge.
3. Whether a seller’s agent/broker has a duty to disclose the property’s stigmatizing reputation to a prospective purchaser.

## Decision

- The appellate court modified the dismissal and reinstated the buyer’s cause of action for rescission against the seller.
- The court held the seller was estopped from denying the property’s haunted condition because she had repeatedly publicized it; for purposes of the dispute, the house was treated as haunted “as a matter of law.”
- The court concluded the alleged reputation could materially impair the value and marketability of the property and could not be expected to be discovered by a prudent purchaser through inspection or ordinary due diligence.
- The court limited relief to equitable rescission and return of the down payment, rejecting tort damages theories on these facts.
- The court affirmed dismissal as to the broker, finding no duty to disclose the property’s “phantasmal” reputation.

## Legal Principles

- In a caveat-emptor jurisdiction, equitable relief may be available where nondisclosure concerns a condition created or amplified by the seller that materially impairs the bargain and is unlikely to be discovered by a prudent purchaser.
- A party who has affirmatively publicized a material condition may be estopped from later denying it in litigation when the condition’s existence (or reputation) is central to the transaction.
- A contractual disclaimer/merger clause will not necessarily bar rescission when the relevant facts are peculiarly within the knowledge of the party invoking the clause, and the nondisclosure defeats the transaction’s contemplated condition.
- A seller’s broker, acting as the seller’s agent, does not necessarily have an independent duty to disclose a nonphysical stigmatizing reputation of the premises absent an applicable legal disclosure obligation.

## Conclusion

The court permitted the buyer to pursue rescission because the seller’s extensive publicity created a stigmatizing reputation materially affecting value and resale, a matter not reasonably discoverable by ordinary diligence, and neither caveat emptor nor the contract disclaimer barred equitable relief; the broker was not liable for nondisclosure.


Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672 (N.Y. App. Div. 1991)