CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (1990)

In a breach of express warranty claim, the buyer’s reliance is established if the express warranties were bargained-for terms of the contract, even if the buyer doubted the truth of the warranted facts before closing.

Summary

CBS sued Ziff-Davis for breach of express warranties concerning the profitability of magazines CBS purchased from Ziff-Davis. CBS, after signing the purchase agreement but before closing, discovered information suggesting the warranted financial statements were inaccurate. Despite these concerns, CBS closed the deal, reserving its rights. The New York Court of Appeals held that CBS could pursue its breach of warranty claim because the warranties were bargained-for terms of the contract. The court distinguished reliance in contract law from reliance in tort-based fraud claims, emphasizing that CBS relied on the warranty itself as part of the agreement, not necessarily on the truth of the underlying information.

Facts

1. Ziff-Davis, through Goldman Sachs, solicited bids for its consumer magazines, providing financial information.
2. CBS submitted a bid based on Ziff-Davis’s representations.
3. CBS and Ziff-Davis entered into a purchase agreement containing express warranties regarding the accuracy of the financial statements.
4. CBS performed due diligence and discovered potential inaccuracies in Ziff-Davis’s financial reports.
5. CBS notified Ziff-Davis of its concerns, but Ziff-Davis insisted on closing, threatening legal action if CBS failed to proceed.
6. The parties closed the deal with a mutual understanding that the closing did not waive any rights or defenses.
7. CBS then sued for breach of warranties.

Procedural History

1. The Supreme Court dismissed CBS’s breach of warranty claim, holding that CBS’s admission that it did not believe the representations were true was fatal to the claim.
2. The Appellate Division affirmed for the reasons stated by the Supreme Court.
3. The New York Court of Appeals granted leave to appeal.

Issue(s)

1. Whether a buyer must believe in the truth of warranted information to maintain a breach of express warranty claim, or whether it is sufficient that the warranty was a bargained-for term of the contract.

Holding

1. No, because the critical question is not whether the buyer believed in the truth of the warranted information, but whether it believed it was purchasing the seller’s promise as to its truth.

Court’s Reasoning

1. The court distinguished between reliance in tort (fraud) and reliance in contract (breach of warranty). In a contract for express warranty, reliance means that the warranty was a bargained-for term.
2. The court cited Ainger v. Michigan General Corp., stating the crucial question is whether the buyer believed it was purchasing the seller’s promise.
3. The court noted, “[Warranty] is intended precisely to relieve the promisee of any duty to ascertain the fact for himself; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue.”
4. The court emphasized that express warranties are integral to the contract, and the right to indemnification depends on proving the warranty was breached, not on proving the buyer believed in the truth of the warranted facts after the contract was formed.
5. The court rejected Ziff-Davis’s argument that CBS’s disbelief in the truth of the warranted information relieved Ziff-Davis of its obligations, stating that such a holding would deprive the express warranties of their value.
6. The court noted that the Uniform Commercial Code is instructive: Acceptance of goods doesn’t impair other remedies for nonconformity, including damages for breach of an express warranty.
7. The court viewed the warranty as a continuing promise to indemnify CBS if the warranted facts proved untrue, regardless of CBS’s doubts before closing.