BUSINESS LAW

WRITTEN MEMORANDUM PROJECT

WRITTEN MEMORANDUM

You are a law clerk working for a lawyer in New York who wants an analysis performed on the case above (do not take sides - analyze it in the eyes of a neutral party - like a judge).You are expected to interpret and analyze the facts of the case below and draft a comprehensive memorandum which sets forth and analyzes the following: (1) the causes of action the parties in the case may have against each other based on the law learned in the text and class (e.g., breach of contract,fraudulent misrepresentation, etc.); and (2) who wins on each cause of action, why (not only should you cover a discussion of each cause of action but potential defenses as well) and in what amounts, if any.The paper should thoroughly analyze each cause of action (show the elements required for each cause of action, potential defenses and exceptions, and apply the facts thereto).The paper should contain a conclusion on each cause of action which is based on a logical application of facts to the law.There is no page requirement for this memorandum, however, you are expected to thoroughly determine and analyze all applicable causes of action.

Issues to Consider and Analyze:

1.Determine which facts are relevant to a lawsuit between the parties.You should state the relevant facts at the beginning of your memorandum.

2.What causes of action should Baron Obaka allege against John Pealin in the lawsuit?What is the basis for those causes of action?What are the elements required for each cause of action and do the facts or evidence listed above (assume the facts above to be evidence) support a favorable ruling on each of the elements?Be very specific.

2.What is the amount of damages Baron should seek from John on each cause of action?Why?

3.What defenses, if any, should John raise against each causes of action?Why?Will any potential defenses that are raised likely be successful?Be very specific.

4.Who should win on each cause of action?Why? Taking into consideration all causes of action and any defenses, what is the total amount of damages Baron should recover from John?Why?How are damages calculated? Be very specific and thorough in coverage.

ASSUMED FACTS

John Pealin is a full-time public speaker and part-time real estate agent. John and his wife own numerous houses across the country, including an old four story house in the city of Basilla.For a few years, John served as mayor of Basilla, before moving on to his public speaking job outside of Basilla.Before John bought the house in Basilla in 1988, the house was the site of a murder-suicide that occurred in the late 1970's, whereby a husband killed his wife and four children, then committed suicide. Basilla is a small farming and fishing town, which is not near any major metropolitan areas.Basilla is a bit more isolated than most communities since rivers and waterways surround the town, although, a bridge was built in Basilla to provide an access route to a highway as well as a small airport.All of the residents of Basilla know the story about the murder-suicide that occurred in the house.The house is known to be haunted in the community because of stories they have heard from John, prior owners, and guests who have stayed in the house.Also, the murder-suicide and haunting stories have been published in the Basilla newspaper over the years.While acting as mayor, John had asked the town librarian if the local newspapers could or would ever be destroyed.The librarian informed John that the newspaper articles would be placed on microfish and stay in the town library forever. Everyone in the town of Basilla was afraid to visit John at his house because of the hauntings. John occasionally rented the house to people overnight, largely in part due to the hauntings, as from time-to-time some people have been intrigued to stay the night in a "haunted house" and they were willing to pay John to witness "ghosts." Since John has a number of houses and is afraid to stay in the house in Basilla due to the increased intensity of paranormal activity, John decided to sell the house.

On January 1, 1989, John began advertising his home for sale in a national home registry on a weekly basis, as well made a listing of his house on E-bay along with his private jet.The price John listed his house for in the registry was $230,000.The advertisement in the registry also stated that the house was in a peaceful neighborhood and in perfect condition.A few people in Basilla inquired about the house, but decided not to buy it since they would not be willing to pay anything close to $230,000. A number of people outside of Basilla looked into buying the house, but became aware of the alleged haunting and decided not to pursue purchasing the house. In December 1989, a local real estate company told one prospective purchaser that he believed the fair market value of the house was $160,000 because of the negative effect of the hauntings, and without the hauntings, the house would likely sell for $240,000.

Baron Obaka is a youth group organizer and basketball coach who lives in Belleville, which is five hundred miles from Basilla.Baron puts on summer camps for teens aspiring to play collegiate and professional basketball.Each basketball camp lasts for 3 weeks and the students live with Baron in his house for the entire camp.Baron puts on 4 camps every summer and has 12 basketball students during every camp session.Each student pays $3,000 to attend the camp.The average cost of food, electricity, and essentials for each student, which is paid by Baron is $800.Baron typically has thousands of students on a waiting list to join the camp, as he is extremely well known across the country and has a superb reputation for teaching basketball and accelerating his basketball students' skills.Baron decided that he would move to Basilla to get away from the big city life of Belleville, so that he could better concentrate on coaching and teaching basketball players.Also, the seclusion would allow the basketball students to better focus and concentrate on basketball rather than certain outside activities that are available in a bigger city. Baron surveyed potential basketball students and their parents on whether the basketball students would likely attend a camp if Baron held it in Basilla, and the response was overwhelming.It was strongly projected that more basketball students would be willing to sign-up for a camp in Basilla, since it would allow for less distractions and more focus on basketball.On June 1, 1990, Baron contacted John regarding John's house and the two arranged a meeting for Baron to view the house on June 15, 1990.

On June 7, 1990, torrential rains hit Basilla and John's basement flooded with water.He immediately began sucking up the water with a vacuum so that anyone viewing the house would not know water flooded the basement.John had never had water leak in his basement before, so he believed that the odd occurrence was solely due to the torrential rains.

On June 15, 1990, Baron traveled to Basilla to look at John's house.John and Baron met at the house and according to John, "Baron was obnoxious, full of himself, and seemed to be under the influence of alcohol or some kind of drug".During Baron's visit, John showed Baron the entire house, however, John did not mention anything about the water that leaked a few days earlier, nor did he mention anything about the hauntings in the house or the murder-suicide that occurred decades earlier.While walking through the basement, Baron noticed a musty smell and that a small amount of mold was growing at the base of most of the walls.Baron did not ask John about the mold because he figured he would easily be able to clean the mold after he moved in.Baron loved the house and told John that he would call him to negotiate a potential purchase.While Baron was walking to his car after the visit, a neighbor of John asked Baron if he "saw any ghosts" while walking through the house.Baron laughed and said "of course I did...ghosts, elephants with lipstick, and blue diamonds ... must have been those two drinks I had with my back pain medication I took earlier."Baron then got in his car and left.

On July 1, 1990, Baron entered into a written agreement to purchase John's house for $190,000.00.The written agreement stated that seller does not make any representations or warranties concerning the condition of the house.On September 1, 1990, the parties closed the agreement and Baron moved into the house. Baron immediately began construction of a small basketball facility on his lot, which cost him approximately $28,000. On October 15, 1990, a rainstorm hit Basilla. After being awoken by the rain, Baron went to the kitchen to make a late night snack and noticed a ghost like figure in the kitchen.Baron thought the ghost was cool and decided to set up cameras in the house to capture it on film.Baron went down in the basement to get his camcorder and noticed that the basement was flooded with water.The next day Baron called a contractor to see what the problem was with the basement and the contractor said it had to be a cracked foundation.The contractor said it would likely cost around $15,000.00 to fix the foundation.Baron contacted another company about removing the water from the basement and was told the cost would be $500.00.Baron called John and told John that he would have to pay for the contractor to fix the foundation and pay someone to remove the water from the basement.John told Baron to get lost because he made no representation that the foundation was free from defects in the contract.

Baron decided that he was not going to clean up the water because he believed John should pay for the cleanup costs and he really could not afford to pay for such costs at the time.As a result of his anger towards John, over the next few months the basement walls and flooring became warped and covered in mold.Baron continued to experience hauntings, but they did not bother him at all.On February 10, 1991, Baron received his tax return and he hired the contractor to fix the foundation.Baron was charged $18,000.00 for the foundation because of a recent increase in the price of his work.Likewise, Baron was forced to hire another contractor to re-drywall the basement because the water ruined the walls since it was not cleaned up for weeks.The cost of replacing the basement walls and flooring was $5,000.00.

Baron had successful camps during the summer of 1991, except that numerous students complained of paranormal activity, which frightened them.Almost all of the basketball players told Baron they would not likely return to future camps because of hauntings and their fear for staying in the house.The alleged haunting became well known by many basketball students across the country, as stories from the students attending the camp were broadcast on news stations, newspapers, and via internet websites. On February 1, 1992, Baron decided he was going to sell the house and move back to Belleville because he had aspirations to become a state senator. Baron contacted a real estate agent to sell his house and was told that the fair market value of the house was $160,000.00 since the house was known to be haunted.Baron wanted to move quickly, however, only one prospective purchaser offered to buy the house for $130,000.00.Baron rejected the offer and did not exhaust much effort to see if there were other purchases who would be will to pay more.Baron figured he would make enough money that he would not need to sell the house and its value may appreciate, so he decided it may be better to wait to see if he recoup his losses as a result of the value increasing.

In July 1994, a few years after moving back to Belleville, Baron began experiencing financial difficulties, so he contacted a real estate agent to sell the house for him.A valuation was performed on the house, and Baron's real estate agent informed him that due to a nationwide financial crisis and lack of home buyers in the market, the value of the home dropped plummeted and that he would likely only get about $110,000 for the home if he tried to sell it.Baron knew he was wronged by John Pealin and believed he wasn't told the truth about the house he purchased, so he wanted to either give the house back to John or sue him for damages he incurred.Baron filed a lawsuit against John on October 1, 1994.

Legal Assumptions:

Assume the propositions of law provided below (Exhibits "A" thru "L") are the applicable laws.The case of Ackley v. Stambovsky (Exhibit "M") should be utilized as persuasive authority (from another jurisdiction) in your arguments.

Exhibit "A"

Statute of Limitations

A party cannot successfully pursue any cause of action for which a statute of limitations has run.

A party must bring a cause of action for breach of written within 4 years for an oral contract and 5 years for a written contract.The discovery principle does not apply to a cause of action for breach of contract.

A party must bring a cause of action for fraudulent misrepresentation within 4 years from the date upon which all elements of such cause of action are met, unless such party could not have discovered the facts giving rise to such cause of action under the discovery principle, and in such a case, the statute of limitation begins to run on the date of discovery.

"Discovery, as applied to the statute of limitations, occurs when one knows of the existence of an injury or damage and not when he or she has a legal right to seek redress in court." St. Paul Fire & Marine Ins. Co. v. Touche Ross & Co., 244 Neb. 408, 417, 507 N.W.2d 275, 281 (1993).

Under the discovery principle, discovery occurs when there has been discovery of facts constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead to the discovery. Id. It is not necessary that the plaintiff have knowledge of the exact nature or source of the problem, but only knowledge that the problem existed." Board of Regents v. Lueder Constr. Co., 230 Neb. 686, 696, 433 N.W.2d 485, 491 (1988)

Exhibit "B"

Fraudulent Misrepresentation

"A cause of action for fraud is based on an affirmative misrepresentation of a material fact . . . or a failure to disclose a material fact relating to a transaction which the parties had a duty to disclose." Harton v. Harton, 81 N.C. App. 295, 297, 344 S.E.2d 117, 119 (1986)

Fraud must be pleaded with specificity as to at least three elements: (1) intentional misrepresentation of a pre-existing material fact by the defendant or the omission or concealment of a material fact if there is a duty to disclose, (2) reliance on the misrepresentation or concealment which induces the plaintiff to act, and (3) injury to the plaintiff resulting from the misrepresentation or concealment.

The failure to disclose a fact constitutes a misrepresentation if the defendant has a duty to disclose that fact. If there is a duty to disclose a fact, failure to disclose that fact is treated in the law as equivalent to a representation of the nonexistence of the fact.

In cases of fraud by omission, the plaintiff must allege the following with reasonable particularity: (1) the relationship giving rise to the duty to speak; (2) the event or events triggering the duty to speak and/or the general time period over which the relationship arose and the fraudulent conduct occurred; (3) the general content of the information that was withheld and the reason for its materiality; (4) the identity of those under a duty who failed to make such disclosures; (5) what those defendants gained by withholding information; (6) why plaintiff's reliance on the omission was both reasonable and detrimental; and (7) the damages proximately flowing from such reliance. Chrysler Credit Corp. v. Whitney Nat'l Bank, 824 F. Supp. 587, 598 (E.D. La. 1993).

In order for silence or an omission by the defendants to be actionable fraud, it must relate to a material matter known by the defendants which they had a legal duty to communicate to plaintiff, "whether that duty arose from a relation of trust, from confidence, inequality of condition or knowledge, or other attendant circumstances.Setzer v. Old Republic Life Ins. Co., 257 N.C. 396, 399, 126 S.E.2d 135, 137 (1962)).

Even if a party otherwise has no duty to disclose a particular matter, should that party speak about it, then a full and fair disclosure may be required. Shaver v. N.C. Monroe Constr. Co., 63 N.C. App. 605, 614, 306 S.E.2d 519, 525 (1983), review denied, 310 N.C. 154, 311 S.E.2d 294 (1984).

Exhibit "C"

Contracts

In order to have a contract, which is a legally enforceable agreement, the following elements must be present:(1) agreement; (2) consideration; (3) capacity; and (4) legality.General Contract Principles

Each party to a contract has an obligation to perform his or her promises made in connection with such contract.General Contract Principles

Exhibit "D"

Duty to Disclose

A legal duty to disclose arises in three situations. The first instance is where a fiduciary relationship exists between the parties to the transaction.The second situation giving rise to a duty to disclose is where the parties are negotiating at arm's length and one party takes affirmative steps to conceal materials facts from the other. The final instance where a party negotiating at arm's length has a duty to disclose is where one party has knowledge of a latent defect in the subject matter of the negotiations of which the other party is ignorant and which it is unable to discover through reasonable diligence. Harton v. Harton, 81 N.C. App. 295, 344 S.E.2d 117 (1986).

Where a material defect is known to the seller, and he knows that the buyer is unaware of the defect and that it is not discoverable in the exercise of the buyer's diligent attention or observation, the seller has a duty to disclose the existence of the defect to the buyer.Harton v. Harton, 81 N.C. App. 295, 344 S.E.2d 117 (1986).

Exhibit "E"

Material Fact

A fact is "material" if the '"fact untruly asserted or wrongfully suppressed, if it had been knownto the party, would have influenced [its] judgment or decision in making the contract at all.'" Godfrey v. Res-Care, Inc., 165 N.C. App. 68, 75-76, 598 S.E.2d 396, 402 (2004).

Exhibit "F"

Latent Defect

A "latent defect" is an imperfection that is not discoverable by reasonable inspection. BLACK'S LAW DICTIONARY (8th Ed. 2004).

Exhibit "G"

Real Estate Law

Ever real estate broker is obligated to act with honesty and reasonable care when acting in his or her capacity as a broker for a customer or client.A real estate broker has a duty to disclose materially adverse facts actually known by the broker concerning the property subject to the transaction.Belle Rev. Stat. Section 70-5 (2008)

Exhibit "H"

Remedies

Damages - A party can recover damages only for those losses that he or she can prove with reasonable certainty.A breaching party is responsible for paying only those losses that were foreseeable to him at the time of contracting.Plaintiffs injured by a breach of contract have the duty to mitigate damages.

Rescission - Rescission is an equitable remedy granted by a court, which requires each contractual party to be placed in a position they were in prior to entering into the contract. A party can rescind a contract only if he or she cannot seek an adequate remedy at law, such party does not have "unclean hands", and in situations where there was a lack of capacity, undue influence, material breach.

Exhibit "I"

Mitigation of Damages

A party has an obligation to mitigate damages and a party cannot recover damages for which he or she could have reasonably mitigated.

Mitigation of damages is defined by Black's Law Dictionary 904 (5th ed. 1979), as follows:

[The] [d]octrine of "mitigation of damages," sometimes called [the] doctrine of avoidable consequences, imposes on [an] injured party [the] duty to exercise reasonable diligence and ordinary care in attempting to minimize his damages after injury has been inflicted and care and diligence required of him is the same as that which would be used by [a] man of ordinary prudence under like circumstances.

Exhibit "J"

Waiver of Representations and Warranties in Contracts

A party can expressly waive representations and warranties concerning the condition of property in a written contract. General Contract Principles

Exhibit "K"

Caveat Emptor

The doctrine of "caveat emptor" is an axiom or principle in commerce that a buyer alone is responsible for assessing the quality of a purchase before buying.General Contract Principles

Exhibit "L"

Intoxication

Intoxication can deprive a person of capacity to contract.Intoxication is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the business at hand.A person incapacitated by intoxication at the time of contracting will be bound by such contract if he or she fails to disaffirm in a timely manner.General Contract Principles

Exhibit "M"

169 A.D.2d 254

572 N.Y.S.2d 672

Jeffrey M. STAMBOVSKY, Plaintiff-Appellant,

v.

Helen V. ACKLEY and Ellis Realty, Defendants-Respondents.

Supreme Court, Appellate Division,

First Department.

July 18, 1991.

[**674] [*255]

William M. Stein, of counsel (Hood & Stein, attorneys), Haverstraw, for plaintiff-appellant.

Andrew C. Bisulca, of counsel (Mann, Mann & Lewis, P.C., attorneys), Nyack, for defendant-respondent Helen V. Ackley.

Jeffrey J. Ellis, of counsel (Quirk & Bakalor, P.C., attorneys), New York City, for defendant-respondent Ellis Realty.

Before MILONAS, J.P., and ROSS, KASSAL, SMITH and RUBIN, JJ.

RUBIN, Justice.

Plaintiff, to his horror, discovered that the house he had recently contracted to purchase was widely reputed to be [*256] possessed by poltergeists, reportedly seen by defendant seller and members of her family on numerous occasions over the last nine years. Plaintiff promptly commenced this action seeking rescission of the contract of sale. Supreme Court reluctantly dismissed the complaint, holding that plaintiff has no remedy at law in this jurisdiction.

The unusual facts of this case, as disclosed by the record, 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 (in 1977 and 1982, respectively), 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. The extent of this impairment may be presumed for the purpose of reviewing the disposition of this motion to dismiss the cause of action for rescission (Harris v. City of New York, 147 A.D.2d 186, 188-189, 542 N.Y.S.2d 550) and represents merely an issue of fact for resolution at trial.

While I agree with Supreme Court that the real estate broker, as agent for the seller, is under no duty to disclose [**675] 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 downpayment. 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.

[*257]

"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.

It has been suggested by a leading authority that the ancient rule which holds that mere non-disclosure does not constitute actionable misrepresentation "finds proper application in cases where the fact undisclosed is patent, or the plaintiff has equal opportunities for obtaining information which he may be expected to utilize, or the defendant has no reason to think that he is acting under any misapprehension" (Prosser, Law of Torts 106, at 696 [4th ed., 1971] ). However, with respect to transactions in real estate, New York adheres to the doctrine of caveat emptor and imposes no duty upon the vendor to disclose any information concerning the premises (London v. Courduff, 141 A.D.2d 803, 529 N.Y.S.2d 874) unless there is a confidential or fiduciary relationship between the parties (Moser v. Spizzirro, 31 A.D.2d 537, 295 N.Y.S.2d 188, affd., 25 N.Y.2d 941, 305 N.Y.S.2d 153, 252 N.E.2d 632; IBM Credit Fin. Corp. v. Mazda Motor Mfg. (USA) Corp., 152 A.D.2d 451, 542 N.Y.S.2d 649) or some conduct on the part of the seller which constitutes "active concealment" (see, 17 East 80th Realty Corp. v. 68th Associates, 173 A.D.2d 245, 569 N.Y.S.2d 647 [dummy ventilation system constructed by seller]; Haberman v. Greenspan, 82 Misc.2d 263, 368 N.Y.S.2d 717 [foundation cracks covered by seller] ). Normally, some affirmative misrepresentation (e.g., Tahini Invs., Ltd. v. Bobrowsky, 99 A.D.2d 489, 470 N.Y.S.2d 431 [industrial waste on land allegedly used only as farm]; Jansen v. Kelly, 11 A.D.2d 587, 200 N.Y.S.2d 561 [land containing valuable minerals allegedly acquired for use as campsite] ) or [*258] partial disclosure (Junius Constr. Corp. v. Cohen, 257 N.Y. 393, 178 N.E. 672 [existence of third unopened street concealed]; Noved Realty Corp. v. A.A.P. Co., 250 App.Div. 1, 293 N.Y.S. 336 [escrow agreements securing lien concealed] ) is required to impose upon the seller a duty to communicate undisclosed conditions affecting the premises (contra, Young v. Keith, 112 A.D.2d 625, 492 N.Y.S.2d 489 [defective water and sewer systems concealed] ).

Caveat emptor is not so all-encompassing a doctrine of common law as to render every act of non-disclosure immune from redress, whether legal or equitable. "In regard to the necessity of giving information which has not been asked, the rule differs somewhat at law and in equity, and while the law courts would permit no recovery of damages against a vendor, because of mere concealment of facts under certain circumstances, yet if the vendee refused [**676] to complete the contract because of the concealment of a material fact on the part of the other, equity would refuse to compel him so to do, because equity only compels the specific performance of a contract which is fair and open, and in regard to which all material matters known to each have been communicated to the other" (Rothmiller v. Stein, 143 N.Y. 581, 591-592, 38 N.E. 718 [emphasis added] ). Even as a principle of law, long before exceptions were embodied in statute law (see, e.g., UCC 2-312, 2-313, 2-314, 2-315; 3-417[2][e] ), the doctrine was held inapplicable to contagion among animals, adulteration of food, and insolvency of a maker of a promissory note and of a tenant substituted for another under a lease (see, Rothmiller v. Stein, supra, at 592-593, 38 N.E. 718 and cases cited therein). Common law is not moribund. Ex facto jus oritur (law arises out of facts). Where fairness and common sense dictate that an exception should be created, the evolution of the law should not be stifled by rigid application of a legal maxim.

The doctrine of caveat emptor requires that a buyer act prudently to assess the fitness and value of his purchase and operates to bar the purchaser who fails to exercise due care from seeking the equitable remedy of rescission (see, e.g., Rodas v. Manitaras, 159 A.D.2d 341, 552 N.Y.S.2d 618). For the purposes of the instant motion to dismiss the action pursuant to CPLR 3211(a)(7), plaintiff is entitled to every favorable inference which may reasonably be drawn from the pleadings (Arrington v. New York Times Co., 55 N.Y.2d 433, 442, 449 N.Y.S.2d 941, 434 N.E.2d 1319; Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 634, 389 N.Y.S.2d 314, 357 N.E.2d 970), specifically, in this instance, that he met his obligation to conduct an inspection of the premises and a search of available public records with respect [*259] to title. It should be apparent, however, that the most meticulous inspection and the search would not reveal the presence of poltergeists at the premises or unearth the property's ghoulish reputation in the community. Therefore, there is no sound policy reason to deny plaintiff relief for failing to discover a state of affairs which the most prudent purchaser would not be expected to even contemplate (see, Da Silva v. Musso, 53 N.Y.2d 543, 551, 444 N.Y.S.2d 50, 428 N.E.2d 382).

The case law in this jurisdiction dealing with the duty of a vendor of real property to disclose information to the buyer is distinguishable from the matter under review. The most salient distinction is that existing cases invariably deal with the physical condition of the premises (e.g., London v. Courduff, supra [use as a landfill]; Perin v. Mardine Realty Co., 5 A.D.2d 685, 168 N.Y.S.2d 647 affd. 6 N.Y.2d 920, 190 N.Y.S.2d 995, 161 N.E.2d 210 [sewer line crossing adjoining property without owner's consent] ), defects in title (e.g., Sands v. Kissane, 282 App.Div. 140, 121 N.Y.S.2d 634 [remainderman] ), liens against the property (e.g., Noved Realty Corp. v. A.A.P. Co., supra ), expenses or income (e.g., Rodas v. Manitaras, supra [gross receipts] ) and other factors affecting its operation. No case has been brought to this court's attention in which the property value was impaired as the result of the reputation created by information disseminated to the public by the seller (or, for that matter, as a result of possession by poltergeists).

Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity. Any other outcome places upon the buyer not merely the obligation to exercise care in his purchase but rather to be omniscient with respect to any fact which may affect the bargain. No practical purpose is served by imposing such a burden upon a purchaser. To the contrary, it encourages predatory business practice and offends the principle that equity will suffer no wrong to be without a remedy.

Defendant's contention that the contract of sale, particularly the merger or "as is" clause, bars recovery of the buyer's [**677] deposit is unavailing. Even an express disclaimer will not be given effect where the facts are peculiarly within the knowledge of the party invoking it (Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322, 184 N.Y.S.2d 599, 157 N.E.2d 597; Tahini Invs., Ltd. v. Bobrowsky, supra ). Moreover, a fair reading of the merger clause reveals that it expressly [*260] disclaims only representations made with respect to the physical condition of the premises and merely makes general reference to representations concerning "any other matter or things affecting or relating to the aforesaid premises". As broad as this language may be, a reasonable interpretation is that its effect is limited to tangible or physical matters and does not extend to paranormal phenomena. Finally, if the language of the contract is to be construed as broadly as defendant urges to encompass the presence of poltergeists in the house, it cannot be said that she has delivered the premises "vacant" in accordance with her obligation under the provisions of the contract rider.

To the extent New York law may be said to require something more than "mere concealment" to apply even the equitable remedy of rescission, the case of Junius Construction Corporation v. Cohen, 257 N.Y. 393, 178 N.E. 672, supra, while not precisely on point, provides some guidance. In that case, the seller disclosed that an official map indicated two as yet unopened streets which were planned for construction at the edges of the parcel. What was not disclosed was that the same map indicated a third street which, if opened, would divide the plot in half. The court held that, while the seller was under no duty to mention the planned streets at all, having undertaken to disclose two of them, he was obliged to reveal the third (see also, Rosenschein v. McNally, 17 A.D.2d 834, 233 N.Y.S.2d 254).

In the case at bar, defendant seller deliberately fostered the public belief that her home was possessed. Having undertaken to inform the public at large, to whom she has no legal relationship, about the supernatural occurrences on her property, she may be said to owe no less a duty to her contract vendee. It has been remarked that the occasional modern cases which permit a seller to take unfair advantage of a buyer's ignorance so long as he is not actively misled are "singularly unappetizing" (Prosser, Law of Torts 106, at 696 [4th ed. 1971] ). 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.

Accordingly, the judgment of the Supreme Court, New York [*261] County (Edward H. Lehner, J.), entered April 9, 1990, which dismissed the complaint pursuant to CPLR 3211(a)(7), should be modified, on the law and the facts and in the exercise of discretion, and the first cause of action seeking rescission of the contract reinstated, without costs.

Judgment, Supreme Court, New York County (Edward H. Lehner, J.), entered on April 9, 1990, modified, on the law and the facts and in the exercise of discretion, and the first cause of action seeking rescission of the contract reinstated, without costs.

All concur except MILONAS, J.P. and SMITH, J., who dissent in an opinion by SMITH, J.

SMITH, Justice (dissenting).

I would affirm the dismissal of the complaint by the motion court.

Plaintiff seeks to rescind his contract to purchase defendant Ackley's residential property and recover his down payment. Plaintiff alleges that Ackley and her real estate broker, defendant Ellis Realty, made material misrepresentations of the property in that they failed to disclose that Ackley believed that the house was haunted by poltergeists. Moreover, Ackley shared this belief with her community and the general [**678] public through articles published in Reader's Digest (1977) and the local newspaper (1982). In November 1989, approximately two months after the parties entered into the contract of sale but subsequent to the scheduled October 2, 1989 closing, the house was included in a five-house walking tour and again described in the local newspaper as being haunted.

Prior to closing, plaintiff learned of this reputation and unsuccessfully sought to rescind the $650,000 contract of sale and obtain return of his $32,500 down payment without resort to litigation. The plaintiff then commenced this action for that relief and alleged that he would not have entered into the contract had he been so advised and that as a result of the alleged poltergeist activity, the market value and resaleability of the property was greatly diminished. Defendant Ackley has counterclaimed for specific performance.

"It is settled law in New York that the seller of real property is under no duty to speak when the parties deal at arm's length. The mere silence of the seller, without some act or conduct which deceived the purchaser, does not amount to a concealment that is actionable as a fraud (see Perin v. Mardine Realty Co., Inc., 5 A.D.2d 685, 168 N.Y.S.2d 647, aff'd., 6 N.Y.2d 920, 190 N.Y.S.2d 995, 161 N.E.2d 210; Moser v. Spizzirro, 31 A.D.2d 537, 295 N.Y.S.2d 188, aff'd., 25 N.Y.2d 941, 305 N.Y.S.2d 153, 252 N.E.2d 632). The buyer has the duty to satisfy himself as to the quality of his bargain pursuant to the doctrine of caveat emptor, which in New York State still applies to real estate transactions." London v. Courduff, 141 A.D.2d 803, 804, 529 N.Y.S.2d 874, app. dism'd., 73 N.Y.2d 809, 537 N.Y.S.2d 494, 534 N.E.2d 332 (1988).

The parties herein were represented by counsel and dealt at arm's length. This is evidenced by the contract of sale which, inter alia, contained various riders and a specific provision [*262] that all prior understandings and agreements between the parties were merged into the contract, that the contract completely expressed their full agreement and that neither had relied upon any statement by anyone else not set forth in the contract. There is no allegation that defendants, by some specific act, other than the failure to speak, deceived the plaintiff. Nevertheless, a cause of action may be sufficiently stated where there is a confidential or fiduciary relationship creating a duty to disclose and there was a failure to disclose a material fact, calculated to induce a false belief. County of Westchester v. Welton Becket Assoc., 102 A.D.2d 34, 50-51, 478 N.Y.S.2d 305, aff'd., 66 N.Y.2d 642, 495 N.Y.S.2d 364, 485 N.E.2d 1029 (1985). However, plaintiff herein has not alleged and there is no basis for concluding that a confidential or fiduciary relationship existed between these parties to an arm's length transaction such as to give rise to a duty to disclose. In addition, there is no allegation that defendants thwarted plaintiff's efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor. See London v. Courduff, supra, 141 A.D.2d at 804, 529 N.Y.S.2d 874.

Finally, if the doctrine of caveat emptor is to be discarded, it should be for a reason more substantive than a poltergeist. The existence of a poltergeist is no more binding upon the defendants than it is upon this court.

Based upon the foregoing, the motion court properly dismissed the complaint.

RESEARCH PROJECT FORMAT

I.Brief Statement of Facts

A few paragraphs briefly discussing the case and identifying who is suing who for what.

II.Causes of Action

a.Fraudulent Misrepresentation by Affirmative Statements (Someone said something about the condition of the house/property)

i.Who is Suing Who & For What Amount

ii.Elements of Law (List out the Law)

iii.Apply Law to Facts

iv.Defenses (Apply Law to Facts)

v.Mini-Conclusion (Who Wins and Why)

b.Fraudulent Misrepresentation by Concealment (Someone hiding something to prevent another from learning?)

i.Who is Suing Who & For What Amount

ii.Elements of Law (List out the Law)

iii.Apply Law to Facts

iv.Defenses (Apply Law to Facts)

v.Mini-Conclusion (Who Wins and Why)

c.Fraudulent Misrepresentation by Silence (Duty to Disclose?)

i.Who is Suing Who & For What Amount

ii.Elements of Law (List out the Law)

iii.Apply Law to Facts

iv.Defenses (Apply Law to Facts)

v.Mini-Conclusion (Who Wins and Why)

III.Conclusion

Who wins in what amount on each cause of action. Sums up all the miniconclusions.