As a Matter of Law, the Opera is Haunted

Today’s post was inspired by this question from Sara, who writes:

In the Andrew Lloyd Webber Musical The Phantom of the Opera, it is made clear that the new owners of the Opera Company and building were unaware of a chandelier-dropping, money-demanding, havoc-wreaking, stage hand-killing “opera ghost” they were to encounter squatting in their basement when they purchased the building and the company.

Would this end up being a case of “buyer beware”, where they now have to deal with this murderous costumed freak on their own, or would there be a chance of them getting their money back, since no contract they signed would have mentioned a ghost?

I would have liked to save this question for Halloween, but it’s too good a question to wait six months.  I know next to nothing about French law, so I’m going to approach it from a US perspective.  Good thing, too, because it turn out that there’s a famous New York case almost exactly on point: Stambovsky v. Ackley, 169 A.D.2d 254 (1991).  The full text of the case is worth reading if only because it is full of terrible ghost puns.

In Stambovsky a resident of New York City bought a house in the village of Nyack, a small suburb of New York.  Unfortunately for the buyer the house had a long and storied history in the community of being haunted, which the out-of-town buyer did not discover until after the purchase.  Whether the buyer was superstitious or merely concerned with the diminished resale value of a haunted house, he sought to rescind the contract on the theory that the seller should have disclosed the house’s haunted status.

Ordinarily a court might balk at having to determine whether a house is haunted, but in this case the seller had previously made a point of claiming in both the national and local press that the house was indeed haunted.  As a result the court held that the seller was legally prevented (“estopped”) from claiming otherwise and thus “as a matter of law, the house is haunted.”

Having thus established that the house was haunted, the court held that the case called for an exception to the general rule of caveat emptor (“buyer beware”):

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.

In light of all this, what do we make of the case of the Opera Populaire?  The buyers were evidently ignorant of the haunting, whereas the sellers were aware, and we may assume that even in the 1880s one would be unlikely to inquire as to the haunted status of a property.  So far, so good.

(NB: Since at least some members of the opera company know that the Phantom is a flesh-and-blood squatter rather than a ghost, it may be that the question is whether a seller has a duty to disclose knowledge of a dangerous squatter on the premises.  Inasmuch as this is a rare thing (especially for an otherwise legitimately occupied and used building) that would be very difficult for a prospective buyer to ascertain on their own (not even the seller knew where the Phantom’s lair was) it seems that a seller would have the same duty to disclose a real Phantom as a spectral one.)

However, a key difference from Stambovsky is that the sellers did not create the condition.  It’s not as though the former owners invited the Phantom to take up residence or popularized the story of the building being haunted (as far as I know).  It could be argued that they perpetuated it by not taking adequate steps to rid the building of the Phantom, but on balance I’m not sure that’s enough.  In Stambovsky the seller “deliberately fostered the public belief that her home was possessed,” whereas at least originally the story of the Phantom was mostly a matter of whispered rumors.  The Stambovsky court repeatedly emphasized the seller’s prior actions, which are mostly lacking in this case.

Thus, the outcome in this case would probably turn on the extent to which the seller had traded on the opera house’s haunted state, but there would at least be an argument for the buyers undoing the sale.  The exception to caveat emptor created in Stambovsky might not reach quite that far, however.

16 responses to “As a Matter of Law, the Opera is Haunted

  1. The sellers did know enough to ensure that box number five was always to be held as reserved for the Phantom for the first night of any show. Surely they had a duty to disclose that? I mean that is a box that any prospective buy would not be able to sell tickets for on premiere nights. That is quite a chunk of change there.

    • @Skeffles: Actions like this aren’t necessarily uncommon in the theatrical world. Actors are perhaps the most superstitious profession in the world (with athletes and sailors coming close), and all sorts of odd traditions tend to linger around a theatre, just because a show did or didn’t go well one night. Even ghosts … in the trade, EVERY theatre is presumed to be haunted. Almost every company has a tradition of leaving one light on when the theatre is locked for the night; it’s commonly referred to as the “ghost light.” (As a more practical matter, it also keeps the first person to enter the theatre from falling into the orchestra pit or walking into the prop table.)

      Did they have a fiscal duty, rather than a mystical one, to mention that the box was being reserved? Maybe, but a simple review of the business records would have shown that. I call that a failure of due diligence on the part of the buyers.

  2. James Pollock

    We read this case in law school, with additional background. The problem with the haunted house wasn’t the fact that spirits may or may not have inhabited the place; the problem was that very real flesh-and-blood gawkers showed up at all hours expecting to be allowed access.

  3. Plus the salary paid to the Phantom. In buying the theatre, the buyers should have perused the books and the payments should have been in there. Would that, in itself, be adequate notification? Assuming the payment wasn’t hidden somehow.

    Also, in the US, the owner’s would have been required to issue the Phantom a 1099 declaring his income to him and to the IRS.

  4. That’s interesting, James. So in the case of the Phantom, it might be that the whispered rumors actually increased attendance at the opera. In other words, the Phantom might be a public relations asset rather than a liability, even with the loss of income from the reserved box. How would that affect any suit, if the new owners couldn’t prove damages? Of course, once the Phantom starts killing people, that would affect box office. But for the sake of argument, if he didn’t start murdering people, would there even be a case?

    • Even before the murders, the Phantom also caused several serious accidents to occur and frightened the lead singer into refusing to sing. Between that and the total lack of information provided to the buyers about his presence, I’d say that this is a definite negative.

    • If the buyer were seeking a remedy at law for monetary damages, then whether the value was being positively or negatively affected overall could very well make a difference.

      But in this hypothetical, and in Stambovsky, they are seeking the equitable remedy of recission. In other words, they wanted to undo the whole contract and return everyone as near as possible to the way they were without the contract. For that, whether or not there were monetary damages becomes less significant, it is more a question of if there is a valid reason for recission and if it is equitably proper to do so.

      As described in the post, in the Stambovsky this was met, but largely due to the sellers own actions. Without the sellers actions in creating the circumstances (or at least without them actively taking steps to conceal it) there is a good chance the court would say it is not enough.

  5. Oddly enough, walking around the French Quarter, one sees innumerable houses being sold with the tag ‘Haunted’ on a separate board hanging below the for sale sign. These are the same sign-boards that say ‘4 Bedroom 3 bath’ or ‘I’m beautiful inside’ in other neighborhoods. Houses marketed as haunted are common enough in the French Quarter they have a tag for it.

    Forget duty to disclose an actual haunting, what if you buy a house on the premise it’s haunted and find out it’s not? Whose duty is it to prove haunted/not haunted?

    • James Pollock

      “Forget duty to disclose an actual haunting, what if you buy a house on the premise it’s haunted and find out it’s not?”

      If I had to guess, I’d think that was part of the buyer’s inspection to verify the nature of the haunting, since presence or absence of spectral spirits is beyond the ability of the seller to guarantee. Even if the seller warrants that the property is haunted at the time title passes, that’s no guarantee that it will remain so after title passes.

  6. There’s always Scooby-Doo for Halloween.

  7. In the most recent episode of Arrow, “Deathstroke”, Oliver gives temporary control of his company to Isabel, who was secretly working for Deathstroke. She uses her temporary control of the company to get the company transferred to her permanently.

    Is this legal, especially given that she doies it in such a short time and there doesn’t seem to be a legal contract (and if there was, wouldn’t the lawyer helping write the contract have noticed anything which could be used to have her permanently take the company?) I’m reminded of Bane taking over Wayne Enterprises, which you address in lawandthemultiverse.com/2012/07/23/the-dark-knight-rises-i-corporate-shenanigans , although a lot of that doesn’t apply here.

    • James Pollock

      My personal guess is that it’s not only legal, it’s actually legally required, that the directors of Queen Consolidated take control away from Oliver. This is true because Queen Consolidated is a publicly-traded company, which means that the directors have a fiduciary duty to all the stockholders, and not just the major ones. Ollie can’t be bothered to show up to meetings… evidence that he’s not a very good chief executive. Therefore, the board is probably right to remove him and put in someone who’ll focus on the company.

      • Ken Arromdee

        I don’t buy that. By that reasoning, they could have done it at any time. The obvious intent of that scene was that the fact that Isabel had temporary control gave her the authority that she didn’t have before, and she was only able to take control because of that authority. And that I’m skeptical about. It’s not as if Oliver has to give her all authority or none, and I can’t imagine there’s no way that such an irregular move couldn’t be challenged by Oliver (I’ll leave it to the actual lawyers here to provide legal justifications) or that giving her temporary authority could just happen without a document scrutinized by lawyers.

        Also, even if Oliver’s failure to show up was a good reason to kick him out, I don’t recall that being invoked as the reason.

      • James Pollock

        Amongst the powers Oliver handed over was the ability to call an emergency board meeting, which she did. At that meeting, she provided information to the board that not only showed that Oliver was derelict, but the degree to which she’d been covering for him. They then voted to make the change in CEO permanent.

        Oliver can stage a proxy fight to retake control of the company. This involves convincing 50%+1 of the owners of Queen Consolidated stock that he should lead the company. If he does this, then those stockholder voters vote for Oliver’s slate of directors instead of the incumbents. Once he’s replaced the directors with his own choices, they can then direct that Oliver be selected as CEO again.

        Of course, many large corporations have defenses against this sort of thing, such as having bylaws that prevent more than half or more than a third of directors being replaced at the same election.

        Or, perhaps Oliver can prove malfeasance, since she’s dedicating Queen Consolidated’s R&D efforts to Slade’s goals rather than to the interests of the shareholders (in which case, she’d be removed but they’d probably hire a professional manager to run the company rather than re-install Oliver.)

        There’s no way to answer for sure, since it depends on A) the laws of incorporation in whatever state Queen Consolidated was incorporated under (possibly, but not necessarily, whatever state Starling City is located in) and B) what the bylaws in the articles of incorporation say.

      • Isabel also made some comment about the vote being required in a certain timeframe by the SEC because of some other action taken by the board (I don’t remember the exact words she used). But one would think that if there were such a requirement (I don’t know enough about corporate law to know), they would be able to get a waiver until after the situation with the CEO’s sister getting kidnapped was resolved. That seems like a compelling reason to grant a waiver. So even if Isabel tried to push for the vote to have her replace Oliver, someone on the board would argue that they should hold off. Even if they don’t do it out of loyalty to Oliver, or even the Queen family in general, the PR fallout of having the board vote to take control of the company away from Oliver while he was dealing with the kidnapping would be terrible.

  8. James Pollock

    “they would be able to get a waiver until after the situation with the CEO’s sister getting kidnapped was resolved. ”

    That’s logic. The SEC is a bureaucracy, and thus immune to logic.

    “if Isabel tried to push for the vote to have her replace Oliver, someone on the board would argue that they should hold off.”

    Sure, but if there aren’t enough votes to hold off, there aren’t enough votes to hold off.

    “the PR fallout of having the board vote to take control of the company away from Oliver while he was dealing with the kidnapping would be terrible.”

    Maybe, but Oliver isn’t really qualified to be a chief executive in the first place. He was shallow and uninterested before he went to the island, never weat to b-school, and is, well, distracted most of the time since he was put in place. Faced with the choice of “PR hit for dumping Oliver Queen as head of Queen Consolidated”, and “watch Queen Consolidated die of mismanagement”, well, I know which way I’d vote. I mean, it’s not like Queen Consolidated hasn’t been run by a caretaker for most of the past six years, anyway. It might be embarrassing to admit a mistake (elevating Oliver to executive management), but it’s expensive not to admit a mistake. (The directors have a fiduciary duty to shareholders, which is going to be in play once they’re presented with evidence of just how bad at the job Oliver is. You can have a policy of “hire good people to run the company, and stay out of their way… this is Warren Buffett’s strategy to becoming a billionaire…but if you need a public face for the company, you make them the company President, give them almost no power to do anything, and let the pros run the company.)

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