In this Halloween-themed case, the plaintiff bought a house, only to learn that it had a reputation in the Village of Nyack, NY, for being possessed by poltergeists, a reputation built in large part on the seller’s previous efforts to promote the house as haunted, which were unknown to plaintiff. On learning of the alleged haunting, plaintiff sued for rescission of the sale contract.

The New York Supreme Court, Appellate Division, over one dissent, ruled for the plaintiff, going against the usual rule in New York of strict caveat emptor (let the buyer beware), which imposed no duty on house sellers to disclose even known defects. Based on the seller’s previous assertions that the house was haunted, the court said the seller was estopped from claiming otherwise and that the house was haunted “as a matter of law.”

So New York property owners take note: there is no duty to report collapsing roofs, faulty foundations, or termite infestations, but, after this opinion, suspected poltergeist infestations must be disclosed. (The case was decided in 1991; New York may have modified its caveat emptor rule since then.)

We’ll let the court–per Judge Rubin–unravel this hair-raiser. Turn the lights low, cuddle up, and prepare for the one and only judicial ghost story, a classic tale of a stranger arriving in a town where things aren’t quite what they seem. [Cue spooky music]:

The unusual facts of this case … clearly warrant a grant of equitable relief to the buyer who, as a resident of New York City, cannot be expected to have any familiarity with the folklore of the Village of Nyack. Not being a “local,” plaintiff could not readily learn that the home he had contracted to purchase is haunted.

Whether the source of the spectral apparitions seen by defendant seller are parapsychic or psychogenic, having reported their presence in both a national publication (“Readers’ Digest”) and the local press …, defendant is estopped to deny their existence and, as a matter of law, the house is haunted.

More to the point, however, no divination is required to conclude that it is defendant’s promotional efforts in publicizing her close encounters with these spirits which fostered the home’s reputation in the community.  In 1989, the house was included in a five-home walking tour of Nyack and described in a November 27th newspaper article as “a riverfront Victorian (with ghost).”  The impact of the reputation thus created goes to the very essence of the bargain between the parties, greatly impairing both the value of the property and its potential for resale. ….

While I agree… that the real estate broker, as agent for the seller, is under no duty to disclose to a potential buyer the phantasmal reputation of the premises and that, in his pursuit of a legal remedy for fraudulent misrepresentation against the seller, plaintiff hasn’t a ghost of a chance, I am nevertheless moved by the spirit of equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment.

New York law fails to recognize any remedy for damages incurred as a result of the seller’s mere silence, applying instead the strict rule of caveat emptor.   Therefore, the theoretical basis for granting relief, even under the extraordinary facts of this case, is elusive if not ephemeral.

“Pity me not but lend thy serious hearing to what I shall unfold” (William Shakespeare, Hamlet, Act I, Scene V [Ghost] ).

From the perspective of a person in the position of plaintiff herein, a very practical problem arises with respect to the discovery of a paranormal phenomenon:  “Who you gonna’ call?” as the title song to the movie “Ghostbusters” asks.  Applying the strict rule of caveat emptor to a contract involving a house possessed by poltergeists conjures up visions of a psychic or medium routinely accompanying the structural engineer and Terminix man on an inspection of every home subject to a contract of sale.

It portends that the prudent attorney will establish an escrow account lest the subject of the transaction come back to haunt him and his client–or pray that his malpractice insurance coverage extends to supernatural disasters.

In the interest of avoiding such untenable consequences, the notion that a haunting is a condition which can and should be ascertained upon reasonable inspection of the premises is a hobgoblin which should be exorcised from the body of legal precedent and laid quietly to rest.

The court detailed New York’s strict caveat emptor rule, but ultimately couldn’t stomach the fact that it was the defendant who, in effect, created the defect by broadcasting the house’s haunted status, thereby impairing its value:

In the case at bar, defendant seller deliberately fostered the public belief that her home was possessed. … 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. Application of the remedy of rescission, within the bounds of the narrow exception to the doctrine of caveat emptor set forth herein, is entirely appropriate to relieve the unwitting purchaser from the consequences of a most unnatural bargain.

The dissenting judge wanted to stick with the caveat emptor rule, stating that “if the doctrine of caveat emptor is to be discarded, it should be for a reason more substantive than a poltergeist.”

–Stambovsky v. Ackley,169 A.D.2d 254 (N.Y. Sup. Ct. 1991)