B. New York
*1. Crocker-Wheeler Elec. Co. v Johns-Pratt Co.*
One of the earliest cases to deal with the subject of reliance upon a representation, Crocker-Wheeler presents an instance in which a manufacturer of wiring insulation was sued over the product claims.[1]The court quickly dismissed the claim noting the lack of evidence by either party.[2]Before doing so however, the court called it elementary that a plaintiff must establish reliance in an express warranty in order to maintain a breach of action.[3]Although it is not considered as elementary, the court extended this logic to implied warranties as well.[4]
While much of the holding of this case would be narrowed and overturned, it marks the start of New York’s journey to its current law.
2. Ainger v. Michigan Gen. Corp
Almost one hundred years after Crocker, the New York courts started to reevaluate the reliance standard. In Ainger v. Michigan Gen. Corp., a dispute arose between the seller and buyer of a book publishing company.[5]The seller instigated the action against the buyer in order to get access to the remainder of a fund that reserved for taxes.[6]As a result, the buyer counterclaimed, asserting that the funds should go to cover damages resulting from a breach of warranty.[7]The breach of warranty centered on whether the seller owned the copyrights to all of the titles it had been publishing.[8]Ownership of one title in particular was disputed, but it was the title that the company had been founded upon.[9]
During the due diligence, the buyer had uncovered other titles that were not owned by the publisher and raised the issue.[10]However, despite the seller’s efforts, it was not able to secure ownership rights to the main title.[11]Shortly after closing, the author left for another publishing company and litigation ensued.[12]This litigation would lead to the breach of warranty claim by the buyer.[13]The seller denied this claim by stating that the warranty was not breached and even if it was, the buyer did not rely on it.[14]
After reviewing the language of the contract and the facts of the case, the court ruled that the seller did indeed breach the warranty, and turned to whether the buyer relied on the warranty.[15]First, the court looked to the language of the Crocker court, which required reliance for an action for breach of an express warranty.[16]Similarly, the seller argued that reliance in a contract scenario should be equivalent to reliance in a tort scenario, which would result in any independent investigation preventing a finding of reliance.[17]The court acknowledged that several decisions had blurred the lines between torts and contracts, but rejected the idea of completely demolishing the line.[18]Instead, the court looked to relevant law involving sales of goods.[19]This exact analysis was rejected by the California courts. The New York court, however, found that if the buyer can establish the warrant was part of the basis of the bargain, then that would satisfy any reliance requirement.[20]
3. CPC Int’l
After Ainger, the New York court revisited the issue again in CPC International.[21]CPC represents another case in which the buyer claims the seller breached a warranty, specifically warranties concerning future projections.[22]While the issue of if the warranty was made did not seem to be at issue, whether it had been breached, and whether CPC relied on it were.[23]Looking first to whether CPC had to establish reliance, the court called the issue “not well settled.”[24]The court reviewed relevant case law including the Crocker decision and the Aingerdecision, and held that if both parties agreed that to the existence of the express warranty, then the presence or absence of reliance would no longer be a decisive factor.[25]
4. CBS Inc. v. Ziff-Davis Publishing
In what would become the landmark New York case on the subject of reliance and express warranties, the case of CBS arose from a dispute concerning the purchase of a consumer magazine business.[26]This dispute concerned the financial statements provided by the seller during the due diligence period.[27]Before closing, and based on the buyer’s research, the buyer objected to the information contained in these statements, claiming that they contained material misstatements.[28]The seller disagreed, and both parties agreed to proceed to closing, but neither party waived any rights or defenses.[29]Immediately after closing, the buyer brought an action stating a breach of the warranty in regards to the magazines’ profitability.[30]Again, the court faced with the question of whether an action for breach of warranty required reliance by the buyer.
Despite the history of the New York courts moving away from the tort theory, the seller argued for reliance as a required element.[31]The buyer argued that the express warranty was purchased as part of the bargained-for terms of the agreement.[32]The court reframed the question from one of whether the buyer “believed in the truth of the warranted information” to “‘whether it believed it was purchasing the seller’s promise as to its truth.’”[33]It noted that the prevailing view of reliance was no longer tied to the theory of torts, but one that had evolved to become as much a part of the contract as any other term.[34]The court went on to explicitly state that the fact the buyer had questioned the seller’s performance does not excuse the seller from its obligations to actually perform.[35]
This holding would become the standard for New York making an express warranty a bargain for contract term.[36]
[1] Crocker Wheeler Elec. Co. v. Johns-Pratt Co., 51 N.Y.S. 793, 793 (N.Y. App. Div. 1898).
[2] *Id.*
[3] *Id.*at 794.
[4] *Id.*at 795.
[5] Ainger v. Michigan General Corp., 476 F.Supp. 1209, 1210 (S.D.N.Y 1979).
[6] *Id.*
[7] *Id.*
[8] *Id.*
[9] *Id.*at 1211.
[10] *Id.*at 1216.
[11] Ainger, 476 F.Supp. at. 1216.
[12] *Id.*at 1217–18.
[13] *Id.*at 1220.
[14] *Id.*
[15] *Id.*at 1220–27.
[16] *Id.*at 1227.
[17] Ainger, 476 F.Supp. at 1227.
[18] *Id.*at 1227.
[19] *Id.*at 1228.
[20] *Id.*
[21] CPC Int’l. Inc. v. McKesson Corp., 513 N.Y.S. 2d 319 (N.Y. Sup. Ct. 1987).
[22] *Id.*at 836.
[23] *Id.*
[24] *Id.*at 839.
[25] *Id.*at 840.
[26] CBS Inc. v. Ziff-Davis Pub. Co., 553 N.E.2d 997, 998 (N.Y. 1990).
[27] *Id.*
[28] Id. at 999.
[29] *Id.*
[30] *Id.*
[31] *Id.*at 1000.
[32] CBS, 553 N.E.2d at 1000.
[33] *Id.*at 1001.
[34] *Id.*
[35] Id.
[36] Rogath v. Siebenmann, 129 F.3d 261 (1997).