Legal Definitions - Stambovsky v. Ackley

Definition: A legal case in which the buyer of a house was allowed to rescind the contract and recover their down payment because the seller had created a reputation that the house was haunted by ghosts, which impacted the value and resale potential of the property.

Example: Mr. Stambovsky bought a house from Ms. Ackley, but later found out that the house was reputed to be haunted by ghosts. Ms. Ackley had promoted the ghostly reputation of the house in the media. Mr. Stambovsky was not aware of this reputation and had no way of discovering it through a reasonable inspection of the property. The court allowed Mr. Stambovsky to rescind the contract and recover his down payment because the ghostly reputation of the house impacted the value and resale potential of the property, and was created by the seller.

Explanation: The case illustrates the principle that a seller cannot create a reputational condition about a property that materially impairs its value and resale potential, and then fail to disclose it to the buyer. If the reputational condition is peculiarly within the knowledge of the seller and unlikely to be discovered by a prudent purchaser exercising due care, then nondisclosure of such information constitutes a basis for rescission as a matter of equity. The case also shows that the caveat emptor doctrine, which requires the buyer to exercise due care in assessing the fitness and value of the purchased property, does not apply when the seller has created a reputational condition that is unlikely to be discovered through a reasonable inspection of the property.