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CBS, Inc. v. Ziff-Davis Pub. Co. - 75 N.Y.2d 496, 554 N.Y.S.2d 449, 553 N.E.2d 997 (1990)

Rule:

The critical question in an action for breach of express warranties 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. This view of "reliance" i.e., as requiring no more than reliance on the express warranty as being a part of the bargain between the parties, reflects the prevailing perception of an action for breach of express warranty as one that is no longer grounded in tort, but essentially in contract. The express warranty is as much a part of the contract as any other term. Once the express warranty is shown to have been relied on as part of the contract, the right to be indemnified in damages for its breach does not depend on proof that the buyer thereafter believed that the assurances of fact made in the warranty would be fulfilled. The right to indemnification depends only on establishing that the warranty was breached.

Facts:

CBS contracted to buy the consumer magazine businesses in consideration, among other things, of the reciprocal promises made by Ziff-Davis concerning the magazines' profitability. These reciprocal promises included the express warranties that the audited reports for the year ending July 31, 1984 made by Touche Ross, an a counting firm, had been prepared according to Generally Accepted Accounting Principles (GAAP) and that the items contained therein were fairly presented, that there had been no adverse material change in the business after July 31, 1984, and that all representations and warranties would "be true and correct as of the time of the closing" and would "survive the closing, notwithstanding any investigation" by CBS.

Issue:

Was plaintiff CBS’s failure to plead reliance fatal to its claim for breach of express warranties?

Answer:

No

Conclusion:

The financial information pertaining to the income and expenses of the consumer magazines was relied on by CBS in forming its opinion as to the value of the businesses and in arriving at the amount of its bid; the warranties pertaining to the validity of this financial information were express terms of the bargain and part of what CBS contracted to purchase. CBS was not merely buying identified consumer magazine businesses. It was buying businesses which it believed to be of a certain value based on information furnished by the seller that the seller warranted to be true. The determinative question is this: should Ziff-Davis be relieved from any contractual obligation under these warranties, as it contends that it should, because, prior to the closing, CBS and its accountants questioned the accuracy of the financial information and because CBS, when it closed, did so without believing in or relying on the truth of the information? The court opined that there was no reason why Ziff-Davis should be absolved from its warranty obligations under the circumstances. A holding that it should because CBS questioned the truth of the facts warranted would have the effect of depriving the express warranties of their only value to CBS -- i.e., as continuing promises by Ziff-Davis to indemnify CBS if the facts warranted proved to be untrue.

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