a. Facts-
Π entered a contract to buy a house from Δ. Δ told the community and various
magazines/newspapers that the house was haunted. Upon learning this, Π wanted
to rescind the contract and not buy the house, and sued for it.
b. Procedural
History- Sup Ct dismissed complaint, Π appealed, highest Ct reversed
c. Issue-
Whether an undisclosed condition that impairs the value of the property is a
basis for rescission of a contract
d. Holding-
Yes, a “known” undisclosed condition that impairs the value of the property is
a basis of rescission of a contract
i.
Dissent: Discarding caveat emptor is NOT
ridiculous, but doing so for “ghosts” IS ridiculous
e. Rule-
A condition, which the seller has knowledge of, that impairs the value of a
property can cause rescission of a contract if that condition is left
undisclosed
f. Rationale-
i.
Seller “knew” that house was
haunted…seller is the one who made up the haunting story
ii.
The fact that house was “haunted”
impaired house value and its potential for resale
iii.
The seller should’ve conveyed this
“impairment” to the buyer…and by failing to disclose, rescission is allowed by
buyer
iv.
There is no way a reasonable person
could find out whether a house is haunted…so an “inspection” would be futile in
this instance. Further, selling the house AS-IS is NOT a good argument because the
seller failed to give information that seller “knew” about
g. Notes-
i.
Usual cases involving caveat emptor deal
with physical defects such that a prudent buyer will find them. Case at bar
does not involve physical defects…which a prudent buyer would not expect to
find
ii.
Even if you tried “looking” for
ghosts…you would likely not find any
iii.
Not all defects are physical
iv.
“defect” must be MATERIAL…meaning the
defect will actually affect the value of the property…doesn’t matter who made
the defect
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