For all you law fans out there, here's some of my notes for yesterday's class (Contracts)
CBS, Inc. v. Ziff-Davis Publishing, Co.:
Court of Appeals of New York
75 N.Y.2d 496 (1990)
Issue: Was the express warranty violated?
Rule: Express Warranty
Application: CBS claimed that Ziff had breached the warranties made as to the magazines' profitability.
-Ziff argued that because CBS did not believe the claims to be true, no warranty existed.
-Under Ziff's theory, the reliance which is a necessary element for a claim of breach of express warranty is essentially that required for a tort action based on fraud or misrepresentation
-Belief in the truth of the representations made and a change of position in reliance of that belief
-Cites Croker-Wheeler Elec. v. Johns-Pratt
-CBS maintains that the decisive question is whether it purchased the express warranties as bargained-for contractual terms that were part of the purchase agreement.
-Cites Ainger v. Michigan Gen. Corp., and Judge Learned Hand's definition
-The analysis of the reliance requirement in actions for breach of express warranties urged by CBS are correct.
-Crucial question is not whether the buyer believed in the truth of the warranted information, but rather if it believed it was purchasing the seller's promise as to its truth
-The express warranty is as much a part of the contract as any other term, and that an action for breach of express warranty is not grounded in tort, but in contract
-Ziff and the dissent rely upon Croker, which says that for an action for breach of express warranty to survive, it must be established that the warranty was relied upon
-The financial information pertaining to the income and expenses of the consumer magazines was relied on by CBS in forming its opinion as to whether the value of the businesses and in arriving at the amount of its bid.
-CBS was not merely buying the business, it was buying the business, to which it believed to be profitable to a certain extent.
-Determinative Question: Should Ziff be relieved from any contractual obligation under these warranties, because, prior to closing, CBS 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?
-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
Conclusion: Yes, even though CBS doubted the validity of the claim.
History: Sale of Ziff magazines to CBS.
-Ziff's accountant, Touche Ross & Co., prepared a financial statement, for the fiscal year ending July 31, 1984.
-CBS made a bid to purchase Ziff $362,500,000
-This bid was the highest bid.
-Nov 19, 1984: CBS and Ziff enter into a binding bilateral purchase agreement for the sale of the consumer magazine business.
-Section 3.5: Ziff warranted that the audited income and expense report of the business for the 1984 fiscal year, had "been prepared in accordance with generally accepted accounting principles (GAAP)," and that the report presented fairly the items set forth
-Ziff agreed to furnish an interim income and expense report of the business under section 3.5 from July 31, 1984 until the closing, there had not been any material adverse change in Seller's business and publishing and distributing of publications, taken as a whole (STUB REPORT)
-Section 6.1: Provided that "all representations and warranties of seller to buyer shall be true and correct as of the time of the closing."
-Section 8.1: Parties agreed that all "representations and warranties… shall survive the closing notwithstanding any investigation made by or on behalf of the other party.
-Section 5.1: Ziff gave CBS permission to "make such investigation" of the magazine business being sold "as it might desire"
-Jan 30, 1985: Ziff delivered the required Stub Report to CBS
-CBS, acting under section 5.1, had performed its own "due diligence" examination of Ziff's financial condition, and found that their report may not be entirely accurate.
-Jan 31, 1985: CBS writes letter stating their beliefs of misrepresentation
-Feb 4, 1985: Ziff responds, argues that there is no merit in the position, and if CBS doesn't go through, it will take legal action.
-Feb 4: CBS acknowledges that there is a clear dispute, but decides to go forward with the deal, because of the time, effort, and money put into it thus far.
-CBS brings current action, alleging that Ziff breached the warranties made as to the magazines profitability
-Based on that breach, CBS alleges that "the price bid and the price paid by CBS were in excess of that which would have been bid and paid had Ziff not breached its representation and warranties