Stambovsky v. Ackley

Facts

Stambovsky, who lived in New York City, contracted to buy a house in Nyack from Helen Ackley. The price was $650,000, and he paid a down payment of $32,500. Before closing, he learned that the house was widely reputed to be haunted by poltergeists. Ackley and members of her family had reportedly seen the poltergeists many times over nine years. Ackley had publicized this in a national magazine, Reader's Digest, in 1977 and in the local press in 1982. In 1989 the house was included in a walking tour of five homes, and a newspaper article described it as haunted. Stambovsky was not a local and could not readily learn of this reputation. He alleged that he would not have entered the contract had he been told, and that the reputation greatly reduced the property's value and resale potential. Ackley did not tell him. He tried to cancel the contract and recover his down payment without suing, but did not succeed. The contract had a merger or "as is" clause (a clause saying the written contract is the parties' whole agreement), and a rider requiring Ackley to deliver the premises vacant. Ackley counterclaimed for specific performance (a court order making the buyer complete the purchase).

Issues

1. Does New York's doctrine of caveat emptor (let the buyer beware) bar a buyer from seeking rescission when the seller did not disclose a haunting that she herself had publicized and that the buyer could not have found by inspection?
2. Does the contract's merger or "as is" clause bar the buyer from recovering his deposit on this ground?

Holding

On a motion to dismiss, Stambovsky stated a claim for rescission in equity. Ackley had publicized the haunting that hurt the house's value, and a prudent buyer would not have found it. Caveat emptor did not bar rescission, and the merger clause did not defeat it. No damages or fraud remedy was recognized.