County Trust Co. v. Cobb, 24 A.D.2d 619 (N.Y. App. Div. 1965)

A dealer’s warranty in a retail installment sales contract regarding the truthfulness of facts contained therein should be interpreted in the context of the transaction’s substance and the parties’ reasonable expectations, considering customary business practices and the presence of separate credit information.

Summary

County Trust Co. sued Cobb, a car dealer, alleging breach of warranty in a retail installment sales contract. Cobb assigned the contract to the bank, warranting the truthfulness of facts within. The purchaser defaulted and provided a false address. The bank argued the dealer warranted the purchaser’s address. The court held that the warranty covered the substance of the sale, not credit representations, and the bank didn’t prove reliance on the dealer’s warranty because it conducted its own credit investigation.

Facts

Cobb, an automobile dealer, assigned a retail installment sales contract to County Trust Co. The contract included a warranty by Cobb regarding the truthfulness of the facts contained within. Cobb also obtained a separate credit application from the purchaser, containing credit information. The bank conducted its own credit investigation, utilizing the Credit Bureau of Greater New York. The bank approved the assignment contingent on an increased down payment. The purchaser defaulted on the first payment and was unlocatable due to a false address provided. The bank sought to recover from Cobb based on the warranty in the sales contract.

Procedural History

The County Trust Company brought suit against Cobb in the trial court, alleging breach of warranty. The trial court found in favor of the County Trust Company. Cobb appealed to the New York Supreme Court, Appellate Division.

Issue(s)

1. Whether Cobb’s warranty in the retail installment sales contract extended to the accuracy of the purchaser’s name and address as a credit representation.
2. Whether County Trust Co. proved the necessary reliance on Cobb’s warranty to sustain a warranty action.

Holding

1. No, because the dealer’s warranty was intended to cover only the substance of the transaction and it is straining the forms of language and the custom of business to make the presence of the purchaser’s name and address in the sales contract mean that the dealer warranted the accuracy of such information as a credit representation.
2. No, because the bank conducted its own independent credit investigation and therefore did not rely on the dealer’s warranty.

Court’s Reasoning

The court reasoned that the dealer’s warranty should be interpreted in the context of the transaction’s substance, focusing on facts within the dealer’s knowledge that bear upon whether the contract represents a bona fide sale. The court noted the existence of a separate credit application, not part of the contract and containing no dealer warranty, which contained all the information intended to be used as the basis of the credit investigation. “It is simply straining the forms of language and the custom of business to make the presence of the purchaser’s name and address in the sales contract mean that the dealer ‘warranted the accuracy of such information as a credit representation.”
Further, the bank did not prove the reliance necessary for a warranty action. The bank conducted its own inquiry and employed a credit bureau, indicating that it did not rely on the purchaser’s credit representations. According to the dissenting judge, “Both known practice and the evidence uncontradicted in this record establish that the bank did not trust in the purchaser’s credit representations. It made its own inquiry and employed a credit bureau to which it supplied, in the words of plaintiff’s loan officer, ‘the names of the individuals concerned; the home addresses; the employment and the type of employment’. Only when the bank satisfied itself on the basis of its own independent investigation as to the reliability of the purchaser did it notify the dealer to complete the sale. If the bank or its credit bureau bungled the investigation that should be their risk, the taking of which is their business, not the dealer’s.”