author: Hancock, Jr., J. Bellacosa, J.

text:
    CBS Inc., Appellant, v Ziff-Davis Publishing Co. et al., Respondents.
    Argued February 8, 1990;
    decided April 3, 1990

      POINTS OF COUNSEL

      Douglas P. Jacobs, Anthony M. Bongiorno and David Boies for appellant.

      Leon P. Gold, Robert J. Ward and John P. Stigi III for respondents.
   OPINION OF THE COURT

Hancock, Jr., J.

A corporate buyer made a bid to purchase certain businesses based on financial information as to their profitability supplied by the seller. The bid was accepted and the parties entered into a binding bilateral contract for the sale which included, specifically, the seller’s express warranties as to the truthfulness of the previously supplied financial information. Thereafter, pursuant to the purchase agreement, the buyer conducted its own investigation which led it to believe that the warranted information was untrue. The seller dismissed as meritless the buyer’s expressions of disbelief in the validity of the financial information and insisted that the sale go through as agreed. The closing took place with the mutual understanding that it would not in any way affect the previously asserted position of either party. Did the buyer’s manifested lack of belief in and reliance on the» truth of the warranted information prior to the closing relieve the seller of its obligations under the warranties? This is the central question presented in the breach of express warranty claim brought by CBS Inc. (CBS) against Ziff-Davis Publishing Co. (Ziff-Davis). The courts below concluded that CBS’s lack of reliance on the warranted information was fatal to its breach of warranty claim and, accordingly, dismissed that cause of action on motion under CPLR 3211 (a) (7). We granted leave to appeal and, for reasons stated hereinafter, disagree with this conclusion and hold that the warranty claim should be reinstated.

I

The essential facts pleaded — assumed to be true for the purpose of the dismissal motion — are these. In September 1984, Goldman Sachs & Co., acting as Ziff-Davis’s investment banker and agent, solicited bids for the sale of the assets and businesses of 12 consumer magazines and 12 business publications. The offering circular, prepared by Goldman Sachs and Ziff-Davis, described Ziff-Davis’s financial condition and included operating income statements for the fiscal year ending July 31, 1984 prepared by Ziff-Davis’s accountant, Touche Ross & Co. Based on Ziff-Davis’s representations in the offering circular, CBS, on November 9, 1984 submitted a bid limited to the purchase of the 12 consumer magazines in the amount of $362,500,000. This was the highest bid.

On November 19, 1984 CBS and Ziff-Davis entered into a binding bilateral purchase agreement for the sale of the consumer magazine businesses for the price of $362,500,000. Under section 3.5 of the purchase agreement, Ziff-Davis warranted that the audited income and expense report of the businesses for the 1984 fiscal year, which had been previously provided to CBS in the offering circular, had "been prepared in accordance with generally accepted accounting principles” (GAAP) and that the report "present[ed] fairly the items set forth”. Ziff-Davis agreed to furnish an interim income and expense report (Stub Report) of the businesses covering the period after the end of the 1984 fiscal year, and it warranted under section 3.6 that from July 31, 1984 until the closing, there had "not been any material adverse change in Seller’s business of publishing and distributing the Publications, taken as a whole”. Section 6.1 (a) provided that "all representations and warranties of Seller to Buyer shall be true and correct as of the time of the closing”, and in section 8.1, the parties agreed that all "representations and warranties * * * shall survive the closing, notwithstanding any investigation made by or on behalf of the other party.” In section 5.1 Ziff-Davis gave CBS permission to "make such investigation” of the magazine businesses being sold "as [it might] desire” and agreed to give CBS and its accountants reasonable access to the books and records pertaining thereto and to furnish such documents and information as might reasonably be requested.

Thereafter, on January 30, 1985 Ziff-Davis delivered the required Stub Report. In the interim, CBS, acting under section 5.1 of the purchase agreement, had performed its own "due diligence” examination of Ziff-Davis’s financial condition. Based on this examination and on reports by its accountant, Coopers & Lybrand, CBS discovered information causing it to believe that Ziff-Davis’s certified financial statements and other financial reports were not prepared according to GAAP and did not fairly depict Ziff-Davis’s financial condition.

In a January 31, 1985 letter, CBS wrote Ziff-Davis that, "[b]ased on the information and analysis provided [to it, CBS was] of the view that there [were] material misrepresentations in the financial statements provided [to CBS] by Touche Ross & Co., Goldman, Sachs & Co. and Ziff-Davis”. In response to this letter, Ziff-Davis advised CBS by letter dated February 4, 1985 that it "believe[d] that all conditions to the closing * * * were fulfilled”, that "there [was] no merit to the position taken by CBS in its [Jan. 31, 1985] letter” and that the financial statements were properly prepared and fairly presented Ziff-Davis’s financial condition. It also warned CBS that, since all conditions to closing were satisfied, closing was required to be held that day, February 4, 1985, and that, if it "should fail to consummate the transactions as provided * * * Ziff-Davis intend[ed] to pursue all of its rights and remedies as provided by law. ” (Emphasis added.)

CBS responded to Ziff-Davis’s February 4, 1985 letter with its own February 4 letter, which Ziff-Davis accepted and agreed to. In its February 4 letter, CBS acknowledged that "a clear dispute” existed between the parties. It stated that it had decided to proceed with the deal because it had "spent considerable time, effort and money in complying with [its] obligations * * * and recogniz[ed] that [Ziff-Davis had] considerably more information available”. Accordingly, the parties agreed "to close [that day] on a mutual understanding that the decision to close, and the closing, [would] not constitute a waiver of any rights or defenses either of us may have” (emphasis added) under the purchase agreement. The deal was consummated on February 4.

CBS then brought this action claiming in its third cause of action that Ziff-Davis had breached the warranties made as to the magazines’ profitability. Based on that breach, CBS alleged that "the price bid and the price paid by CBS were in excess of that which would have been bid and paid by CBS had Ziff-Davis not breached its representation and warranties.” Supreme Court granted Ziff-Davis’s motion to dismiss the breach of warranty cause of action because CBS alleged "it did not believe that the representations set forth in Paragraphs 3.5 and 3.6 of the contract of sale were true” and thus CBS did not satisfy "the law in New York [which] clearly requires that this reliance be alleged in a breach of warranty action.” Supreme Court also dismissed CBS’s fourth cause of action relating to an alleged breach of condition. The Appellate Division, First Department, unanimously affirmed for reasons stated by Supreme Court. There should be a modification so as to deny the dismissal motion with respect to the third cause of action for breach of warranties.

II

In addressing the central question whether the failure to plead reliance is fatal to CBS’s claim for breach of express warranties, it is necessary to examine the exact nature of the missing element of reliance which Ziff-Davis contends is essential. This critical lack of reliance, according to Ziff-Davis, relates to CBS’s disbelief in the truth of the warranted financial information which resulted from its investigation after the signing of the agreement and prior to the date of closing. The reliance in question, it must be emphasized, does not relate to whether CBS relied on the submitted financial information in making its bid or relied on Ziff-Davis’s express warranties as to the validity of this information when CBS committed itself to buy the businesses by signing the purchase agreement containing the warranties.

Under Ziff-Davis’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 — i.e., a belief in the truth of the representations made in the express warranty and a change of position in reliance on that belief. Thus, because, prior to the closing of the contract on February 4, 1985, CBS demonstrated its lack of belief in the truth of the warranted financial information, it cannot have closed in reliance on it and its breach of warranty claim must fail. This is so, Ziff-Davis maintains, despite its unequivocal rejection of CBS’s expressions of its concern that the submitted financial reports contained errors, despite its insistence that the information it had submitted complied with the warranties and that there was "no merit” to CBS’s position, and despite its warnings of legal action if CBS did not go ahead with the closing. Ziff-Davis’s primary source for the proposition it urges — that a change of position in reliance on the truth of the warranted information is essential for a cause of action for breach of express warranty — is language found in older New York cases such as Crocker-Wheeler Elec. Co. v Johns-Pratt Co. (29 App Div 300, affd 164 NY 593).

CBS, on the other hand, maintains that the decisive question is whether it purchased the express warranties as bargained-for contractual terms that were part of the purchase agreement (see, e.g., Ainger v Michigan Gen. Corp., 476 F Supp 1209, 1225 [SD NY 1979], affd 632 F2d 1025 [2d Cir 1980]). It alleges that it did so and that, under these circumstances, the warranty provisions amounted to assurances of the existence of facts upon which CBS relied in committing itself to buy the consumer magazines. Ziff-Davis’s assurances of these facts, CBS contends, were the equivalent of promises by Ziff-Davis to indemnify CBS if the assurances proved unfounded. Thus, as continuing promises to indemnify, the express contractual warranties did not lose their operative force when, prior to the closing, CBS formed a belief that the warranted financial information was in error. Indeed, CBS claims that it is precisely because of these warranties that it proceeded with the closing, despite its misgivings.

As authority for its position, CBS cites, inter alia, Ainger v Michigan Gen. Corp. (supra) and Judge Learned Hand’s definition of warranty as "an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It 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, for obviously the promisor cannot control what is already in the past. ” (Metropolitan Coal Co. v Howard, 155 F2d 780, 784 [2d Cir 1946] [emphasis added]; see also, Groen v Tri-O-Inc., 667 P2d 598, 604 [Sup Ct Utah 1983]; Au v Au, 63 Haw 210, 263, 626 P2d 173, 179-180 [Sup Ct Haw 1981]; 1 Corbin on Contracts § 14; 17A CJS Contracts § 342, at 325.)

We believe that the analysis of the reliance requirement in actions for breach of express warranties adopted in Ainger v Michigan Gen. Corp. (supra) and urged by CBS here is correct. The critical question is not whether the buyer believed in the truth of the warranted information, as Ziff-Davis would have it, but "whether [it] believed [it] was purchasing the [seller’s] promise [as to its truth].” (Ainger v Michigan Gen. Corp., supra, at 1225; see, e.g., Overstreet v Norden Labs., 669 F2d 1286, 1291 [6th Cir 1982]; Pritchard v Liggett & Myers Tobacco Co., 350 F2d 479, 483 [3d Cir 1965], cert denied 382 US 987, opn amended 370 F2d 95 [3d Cir 1966], cert denied 386 US 1009; CPC Inti, v McKesson Corp., 134 Misc 2d 834 [Sup Ct, NY County].) 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. (See, Ainger v Michigan Gen. Corp., supra, at 1225; Randy Knitwear v American Cyanamid Co., 11 NY2d 5, 10-11, n 2; see, 8 Williston, Contracts § 970, at 485-488 [3d ed].) 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 (see, Glacier Gen. Assur. Co. v Casualty Indem. Exch., 435 F Supp 855, 860 [D Mont 1977] [citing Metropolitan Coal Co. v Howard, supra]; 1 Corbin, Contracts § 14).

If, as is allegedly the case here, the buyer has purchased the seller’s promise as to the existence of the warranted facts, the seller should not be relieved of responsibility because the buyer, after agreeing to make the purchase, forms doubts as to the existence of those facts (see, Ainger v Metropolitan Gen. Corp., supra, at 1234; see also, Metropolitan Coal Co. v Howard, supra, at 781; Glacier Gen. Assur. Co. v Casualty Indem. Exch., 435 F Supp 855, 860-861, supra; 8 Williston, Contracts § 973 [3d ed]). Stated otherwise, the fact that the buyer has questioned the seller’s ability to perform as promised should not relieve the seller of his obligations under the express warranties when he thereafter undertakes to render the promised performance.

The cases which Ziff-Davis cites as authority for the application of its tort-action type of reliance requirement do not support the proposition it urges. None are similar to the case at bar where the warranties sued on are bargained-for terms in a binding bilateral purchase contract. In most, the basis for the decision was a factor other than the buyer’s lack of reliance such as, for example, insufficient proof of the existence of the alleged express warranty (see, e.g., Scaringe v Holstein, 103 AD2d 880, 881; Friedman v Medtronic, 42 AD2d 185, 190; Crocker-Wheeler Elec. Co. v Johns-Pratt Co., 29 App Div 300, affd 164 NY 593, supra; Ellen v Heacock, 247 App Div 476, 477) or that the warranty sued upon was expressly excluded by terms of the contract (see, e.g., Caribbean Atl. Airlines v Rolls-Royce Ltd., 39 AD2d 673, affd without opn 31 NY2d 798) or that there was insufficient proof that the express warranty had been breached (see, e.g., 200 E. End Ave. Corp. v General Elec. Co., 5 AD2d 415, affd without opn 6 NY2d 731); and some involve implied rather than express warranties (see, e.g., Mittens & Sons v Vladich, 28 AD2d 1045, affd without opn 23 NY2d 998).

Ziff-Davis repeatedly cites and the dissent relies upon language contained in the Appellate Division’s opinion in Crocker-Wheeler Elec. Co. v Johns-Pratt Co. (supra) which dealt with a claimed breach of an express warranty pertaining to the fitness of insulating material for a certain use. The court held that there was no actionable express warranty claim because the seller made no warranty with respect to use of the material. The language which Ziff-Davis quotes as a categorical proposition that should control the case before us — i.e., "[i]t is elementary that, in order to entitle the plaintiff to maintain an action for breach of an express warranty, it must be established that the warranty was relied on” (emphasis added) — is contained in dictum (29 App Div, at 302).

Viewed as a contract action involving the claimed breach of certain bargained-for express warranties contained in the purchase agreement, the case may be summarized this way. 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 had been prepared according to 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.

Unquestionably, 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 which 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?

We see no reason why Ziff-Davis should be absolved from its warranty obligations under these 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 (see, Metropolitan Coal Co. v Howard, supra, at 784). Ironically, if Ziff-Davis’s position were adopted, it would have succeeded in pressing CBS to close despite CBS’s misgivings and, at the same time, would have succeeded in defeating CBS’s breach of warranties action because CBS harbored these identical misgivings.

We agree with the lower courts that CBS’s fourth cause of action, for breach of section 6.1 (f) of the purchase agreement, was properly dismissed inasmuch as section 6.1 (f) was a condition to closing, not a representation or warranty, and was waived by CBS.

The order of the Appellate Division should be modified, with costs to the appellant, by denying the motion to dismiss the third cause of action for breach of warranty and the order should be otherwise affirmed.

Bellacosa, J.

(dissenting). The issue is whether a buyer may sue a seller, after consummating a business transaction, for breach of an express warranty on which the buyer chose not to rely. The holding discards reliance as a necessary element to maintain an action for breach of an express warranty. Predictability and reliability with respect to commercial transactions, fostered by 90 years of precedent, are thus sacrificed. I respectfully dissent and would affirm the order of the Appellate Division unanimously affirming Supreme Court’s application of the sound and well-settled rule.

Plaintiff CBS contracted to purchase defendant Ziff-Davis’s consumer magazine group pursuant to an Asset Purchase Agreement (APA). CBS specifically negotiated the right to rely on its own accountant’s representations in assessing the validity of the financial information which had been, and would be, provided to CBS by Ziff-Davis (§ 5.1 of the APA). Given the factual and fiscal complexity of this $362,500,000 acquisition, CBS chose to rely on its own investigation. What the CBS inspectors found in the Ziff-Davis books differed significantly from the financial picture the seller had painted. CBS notified Ziff-Davis of the discrepancies by letter on January 31, 1985, four days before the closing date. Despite its protest to the contrary, it had a contractual right under section 6.1 (a) of the APA to avert the closing if "all representations and warranties of Seller to Buyer” were not true on the closing date. Clearly then, CBS chose to rely on the results of its own investigation and made a business judgment to consummate the purchase rather than cancel the deal. It took the business risk of a big deal and tried by this subsequent litigation to mitigate whatever risk, if any, inured from that choice; in other words, CBS wanted to have its cake and eat it, too.

Supreme Court determined CBS did not rely on the ZiffDavis warranties. The Appellate Division made the same determination and the nonreliance is acknowledged by the majority (majority opn, at 499). The reliance element is thus unnecessarily excised as a matter of law from the legal proposition governing and defining the cause of action. If I am "missing the point” (majority opn, at 506, n 5), I believe it is because that is where the appellant’s argument and the state of the law have led me.

Part of CBS’s argument is that it should prevail because the closing day letter purports to reserve its rights as to the ZiffDavis warranties and section 8.1 of the APA purports to be a kind of nonmerger survival clause. On a sui generis contract basis therefore, without affecting the traditional reliance element of the cause of action, this argument is enticing. Nevertheless, I conclude — and the majority apparently agrees in this respect — that the argument is not dispositive. The warranties given to CBS created a right to rely on the financial data as part of the sales agreement, not a right not to rely on them, then consummate the deal and then sue on them besides. These aspects of the agreement, therefore, merely manifested the parties’ intent not to allow the closing to operate as a waiver of CBS’s right to rely — a right which was surrendered before the closing. If this issue were dispositive, it would render the case and the contract entirely sui generis and there would be no need to address or alter the longstanding test with its reliance element. However, the court confronts and decides the broader issue, and on that we see and understand the case all too well in a fundamentally different way.

"It is elementary that, in order to entitle the plaintiff to maintain an action for breach of an express warranty, it must be established that the warranty was relied on.” (CrockerWheeler Elec. Co. v Johns-Pratt Co., 29 App Div 300, 302, affd 164 NY 593.) This plain language proposition has been recognized by this court and by the Appellate Division (see, Randy Knitwear v American Cyanamid Co., 11 NY2d 5, 9, 11, 15-16; see also, County Trust Co. v Pilmer Edsel, Inc., 14 NY2d 617, 621 [Burke, J., dissenting]; see, Butler v Caldwell & Cook, 122 AD2d 559, 560, lv denied 73 NY2d 709, appeal dismissed 73 NY2d 849; Scaringe v Holstein, 103 AD2d 880; Zucker v Siegel, 54 AD2d 979; Friedman v Medtronic, Inc., 42 AD2d 185, 190; see also, Heilman v Kirschner, 191 NYS 202 [App Term, Lehman, J.]). The majority declares the oft-quoted principle of Crocker-Wheeler "is not to be followed” (majority opn, at 505, n 3), based in part on a dormant tort/contract categorical bifurcation drawn largely from Ainger v Michigan Gen. Corp. (476 F Supp 1209). Also, part of the justification for this departure from stare decisis in the field of common-law commercial transactions — where the burden for change is very high — is Professor Williston’s "criticism” of Crocker-Wheeler. Examination of the complete section of the quoted text, however, discloses a significant qualification: "[I]t is generally and rightly held that inspection by the buyer does not excuse the seller from liability for * * * an express warranty, if the difference between the goods and the description was not detected” (8 Williston, Contracts § 973, at 501 [3d ed] [nn omitted; emphasis added]). "The difference” was definitively detected here by CBS pursuant to its express contractual right to personally assess the financial data.

In exchange for the long-standing, well-regarded and well-founded rule, New York law is subordinated to a theory advanced in Ainger v Michigan Gen. Corp. (476 F Supp, supra, at 1226). Among the problems of this approach, however, is that in affirming Ainger the Court of Appeals for the Second Circuit emphasized the limited impact of the District Court’s categorical discussion of the precise issue before us. After stating that the District Court Judge’s "finding of reliance made a discussion of New York law unnecessary,” the Second Circuit said "[b]ecause there was reliance in this case, we will not speculate how the New York courts would decide a case in which there was none.” (Ainger v Michigan Gen. Corp., 632 F2d 1025, 1026, n 1.) The reliance on CPC Intl. v McKesson Corp. (134 Misc 2d 834) also seems misplaced. Again, the trial court in that case extensively discussed the reliance question. However, the appellate courts in an entirely different procedural review significantly minimized the discussion of the pertinent subject matter (see, CPC Intl. v McKesson Corp., 70 NY2d 268, 285 ["plaintiff, in contracting to purchase (defendant’s corporation), relied solely on the warranties”], 120 AD2d 221, 229 ["plaintiff relied solely upon the express warranties”]). Lack of reliance, therefore, was not part of the holdings in Ainger or CPC, even at their trial level citations by the majority. Yet those cases are accorded significant deference on the critical issue and they override superior longer-standing sources.

Finally, while I agree that analogy to the Uniform Commercial Code is "instructive” (majority opn, at 506, n 4), I believe the directly on-point express warranty section, UCC 2-313, emphasizes the need to stand by our precedents and thus affirm. Official comment 3 of that section indicates that were this a transaction governed by the Uniform Commercial Code, CBS’s nonreliance would take the seller’s warranties out of the agreement, especially after a buyer consummates the deal with full knowledge and with open disagreement concerning key financial data (UCC 2-313, comment 3; 1 White and Summers, Uniform Commercial Code § 9-5, at 450-451 [Practitioner’s 3d ed]).

Thus, we are presented with no binding or persuasive authorities sufficient to warrant overturning a venerable rule of the kind used especially in the commercial world to reliably order affairs in such a way as to reasonably avoid litigation (see, Cardozo, Selected Writings of Benjamin Nathan Cardozo, The Growth of the Law, at 236 ["In this department of activity (commercial law), the current axiology still places stability and certainty in the forefront of the virtues.”]). Allowing CBS to consummate the deal, and then sue on warranted financial data it personally investigated and verified as wrong beforehand, unsettles the finality, "stability and certainty” of commercial transactions and business relationships.

CBS chose — for business reasons it knows best — to complete its significant acquisition at the impressively high agreed price with its cyclopean eye wide open. That tips the scales in favor of retaining and applying the traditional rule requiring a reliance element to sue for breach of warranty.

I would affirm the order in its entirety and leave the law where it was and the parties where they put themselves.

Judges Simons, Alexander and Titone concur with Judge Hancock, Jr.; Judge Bellacosa dissents in part and votes to affirm in a separate opinion; Chief Judge Wachtler and Judge Kaye taking no part.

Order modified, etc.

      . Ziff-Davis is a privately held corporation and is a wholly owned subsidiary of defendant Ziff Corporation. Ziff Corp. is the guarantor of the purchase agreement at issue. For ease of reference, when addressing arguments raised by these defendants, I will refer to the defendants collectively as Ziff-Davis.

      . CBS’s remaining claims, other than cause of action four (discussed infra, at 499) were also dismissed in prior orders by the lower courts. No issues have been raised as to these dismissed claims.

      . We note that this dictum has been criticized (see, 8 Williston, Contracts § 973, at 501 [3d ed]) and to the extent Crocker-Wheeler can be broadly read to require the rule of "reliance” urged by Ziff-Davis in this case it is not to be followed.

      . In this regard, analogy to the Uniform Commercial Code is "instructive”. While acceptance of goods by the buyer precludes rejection of the goods accepted (see, UCC 2-607 [2]), the acceptance of nonconforming goods does not itself impair any other remedy for nonconformity (see, UCC 2-607 [2]), including damages for breach of an express warranty (see, UCC 2-714; see generally, 1 White and Summers, Uniform Commercial Code § 10-1, at 501-502 [Practitioner’s 3d ed]; see also, Atwater & Co. v Panama R. R. Co., 255 NY 496, 501-502).

      . We make but one comment on the dissent: in its statement that our "holding discards reliance as a necessary element to maintain an action for breach of an express warranty” (dissenting opn, at 506), the dissent obviously misses the point of our decision. We do not hold that no reliance is required, but that the required reliance is established if, as here, the express warranties are bargained-for terms of the seller.


source: Caselaw Access Project

author: Bellacosa, J.

license: Public Domain

text:
    In the Matter of Alan Kane, Petitioner. Harold Freedman et al., Respondents; Irving Tenenbaum, Appellant.
    Argued February 14, 1990;
    decided April 5, 1990

      POINTS OF COUNSEL
    A. Thomas Levin for appellant.

      William H. Pauley III, Charles D. Cunningham and Lyle D. Brooks for Harold Freedman and another, respondents.
   OPINION OF THE COURT

Bellacosa, J.

The issue is whether a court-appointed receiver, as part of an over-all settlement between two litigating shareholders of a close corporation, can privately negotiate a fee without court approval in an amount exceeding the scheduled máximums fixed by section 1217 of the Business Corporation Law. Our answer is no.

Alan Kane and Harold Freedman were each 50% shareholders of S.A.E. Motor Parts Co., Inc., a successful wholesale business with sales in excess of $1 million annually. Differences between the shareholders led to Kane’s action in January 1984 to dissolve the corporation pursuant to Business Corporation Law § 1104. Supreme Court promptly made an order which included the appointment of appellant Tenenbaum as receiver of the corporation’s assets and property, "with all the usual powers and duties,” requiring him also to "take and subscribe an oath to faithfully, honestly and impartially discharge the trust committed to him” (record on appeal, at 48).

By August 1984, the shareholders settled their differences on their own to the extent that Kane agreed to sell his shares to the corporation. They advised the receiver of their settlement. Kane, Freedman and Tenenbaum then entered into two agreements on August 22, 1984. The first was a stipulation, "so ordered” by Supreme Court, terminating the receivership. The second agreement — the one at issue before us now and never submitted to or approved by the court — waived a judicial settlement of an accounting by the receiver and allowed receiver Tenenbaum to pay himself the "settled” sum of $40,000 from the corporation’s funds for his commissions and expenses. It also provided for additional payments to the attorney and accountant selected by the receiver to provide professional services to him during the seven-month receivership, a period of which was stayed by the Appellate Division.

Freedman and the corporation in which he became sole shareholder subsequently moved in Supreme Court to rescind the fee agreement and sought leave to sue Tenenbaum to recover excessive commissions and damages. Supreme Court denied the relevant relief. In reversing, the Appellate Division held that "[d]espite a stipulation of the parties, the court was without the authority to allow the receiver compensation in excess of the maximum receivership commission provided for by Business Corporation Law § 1217.” (132 AD2d 610, 611 [citations omitted].) That court added: "The Legislature has seen fit to set ceilings on the amounts that receivers, as court-appointed officers, may be awarded for their services and it is not within the province of parties to stipulate, nor within the discretion of the court to accept stipulations to a greater amount.”

The matter was remitted to Supreme Court, which then determined that the negotiated fee of $40,000 exceeded the statutory maximum ($11,285) by $28,715. Judgment for that excess sum plus interest was entered against Tenenbaum in favor of Freedman and the corporation. The Appellate Division affirmed the full judgment amount but modified to provide that it was payable only to the corporation. We granted the receiver’s motion for leave to appeal from the Appellate Division order insofar as it affirms the money judgment against him, and we review the prior nonfinal order holding that the Business Corporation Law § 1217 máximums exclusively control. We now affirm.

Business Corporation Law § 1217 provides:

"(a) A receiver shall be entitled, in addition to his necessary expenses, to such commissions upon the sums received and disbursed as may be allowed by the court, as follows:
"(1) On the first twenty thousand dollars, not exceeding five percent;
"(2) On the next eighty thousand dollars, not exceeding two and one-half percent; and
"(3) On the remainder, not exceeding one percent.
"(b) If the commissions of the receiver so computed do not amount to one hundred dollars, the court in its discretion may allow such sum not exceeding one hundred dollars as shall be reasonable” (emphasis added).

Appellant — a representative of the court itself — asserts that Business Corporation Law § 1217 does not apply and does not prohibit fixing his receivership commissions by private agreement. His argument pivots on the premise that Business Corporation Law § 1217 provides for limited maximum receiver’s commissions only "as may be allowed by the court”, but that private extrajudicial commission agreements, reached at "arm’s length,” are free of any statutory limitation or judicial oversight. The premise is untenable, because this would allow a circumvention of the statute, and is self-contradictory, because as a court-appointed receiver he is the court’s direct agent and therefore legally incapable of being released and compensated without the court’s involvement.

A receivership is a creature of the court (see generally, Business Corporation Law art 12; CPLR art 64), "subject to the control of the court at all times” (Business Corporation Law § 1202 [b]), and functions in the place of and as the instrumentality of the court itself. As a special "officer of the court” (see, Copeland v Salomon, 56 NY2d 222, 228) with "fiduciary responsibilities” (see, Insurance Co. v City of New York, 71 NY2d 983, 985), the receiver acts solely on the court’s behalf (see, Matter of Schwartzberg v Whalen, 96 AD2d 974, 975) and is otherwise a stranger to the parties and their dispute. The corporation is the court’s ward and its property— the corpus of the receivership itself — cannot be diminished to the benefit of the receiver without the court’s approval. Appellant acknowledges that he is the court’s agent, not the parties’, and we therefore conclude he cannot punctuate the completion of his receivership duties with a private compensation arrangement beyond the statute and the glimpse and grasp of the indispensable ultimate principal — the appointing court.

Business Corporation Law § 1216 (a) provides "the receiver shall apply to the court for a final settlement of his accounts and for an order for distribution” and for prescribed fees. Appellant challenges the exclusivity of the governing fee schedule by urging that only proven fraud, duress or unconscionability can undo this privately negotiated deal. This argument fails. Parties resorting to the aid of the courts for the resolution of their privately intractable disputes and getting a receiver appointed to help them should not be limited by such high hurdles when challenging the receiver’s actions. The parties instead should be entitled to hold the receiver in such circumstances to the strict standards that the governing statute imposes (see, Meinhard v Salmon, 249 NY 458, 464). As this court noted more than a century ago: "It is a matter of public notoriety that the act of 1883 [predecessor of Business Corporation Law § 1217] was passed, in view of the scandals which had been set afloat, in respect to the administration of the affairs of insolvent corporations through receivers. * * * [I]t is, we think, reasonably clear that the object of the act was to supplement the existing legislation, in respect to the winding up of the affairs of insolvent corporations, and to provide further restrictions and safe-guards against the misuse or depletion of corporate funds in the hands of the receivers.” (United States Trust Co. v New York, W. Shore & Buffalo Ry. Co., 101 NY 478, 486.) The passage of time and the solvency of the instant corporation have not diluted the potency or pertinency of this observation.

To allow the receiver to receive a commission higher than that allowed by the statute is contrary to its plain meaning and destroys the historic spirit and transcendent policy permeating that legislation (Business Corporation Law § 1217; see, e.g., La Vin v La Vin, 281 App Div 888, 889 [interpreting predecessor statute]; Salmon v Schenectady Mason Supply Corp., 278 App Div 609, 610; see also, Hirsch v Peekskill Ranch, 100 AD2d 863 [interpreting CPLR 8004]; Caso v Edgecombe Realty Corp., 25 AD2d 637 [same]; Rinaud v Home Shares Corp., 115 NYS2d 425 [Sup Ct, Bronx County, Matthew M. Levy, J.]).

Finally, our holding does not conflict with or diminish, as appellant argues, the policy favoring private settlements of disputes. For the reasons stated, that policy is not apt here and even if it were, it would be subordinated to the paramount policy reflected in the governing statute (see, Meinhard v Salmon, 249 NY, supra, at 464; see also, Birnbaum v Birnbaum, 73 NY2d 461, 466; Hudson v Yonkers Fruit Co., 258 NY 168, 173).

We have examined appellant’s other arguments and conclude they are without merit.

The order of the Appellate Division should be affirmed, with costs.

Judges Simons, Kaye, Alexander, Titone and Hancock, Jr., concur; Chief Judge Wachtler taking no part.

Order affirmed, with costs.


author: Simons, J.

text:
    The People of the State of New York, Appellant, v Brenda L. Davis, Respondent.
    Argued February 15, 1990;
    decided April 5, 1990

      POINTS OF COUNSEL

      Gary W. Miles, District Attorney (Cindy F. Intschert of counsel), for appellant.

      Robert J. Hanrahan for respondent.
   OPINION OF THE COURT

Simons, J.

Defendant, Brenda Davis, was indicted for two counts of aggravated sexual assault and two counts of murder, second degree, for events occurring between August 23 and August 25, 1985 when she and codefendant James Davis inflicted injuries on Elizabeth Schlitt which eventually caused her death. Defendant pleaded guilty to felony murder in full satisfaction of the charges, but before doing so she moved to suppress inculpatory statements made to Sheriff’s Deputies (1) at her farm during the evening of August 25, 1985, after she had requested counsel, and (2) while in custody at the Sheriff’s office the next day, after she had been advised of her Miranda rights and waived them.

County Court suppressed the statements made after the request for counsel on August 25 but denied the motion to suppress those made the next day. It held that although defendant had invoked her right to counsel on August 25 she could, and on the facts presented did, effectively waive it on August 26. The court inferred that defendant had withdrawn her August 25 request for counsel because she failed to secure counsel during the intervening 15 hours, when she was free of police influence and had a reasonable opportunity to do so.

The Appellate Division reversed and suppressed the statements made August 26 holding that defendant had invoked her right to counsel the night before and that she could not effectively waive it thereafter in the absence of an attorney. A Judge of this court granted the People leave to appeal.

The People concede that the statements on August 25 must be suppressed. They contend, however, that a suspect, who has requested counsel when not in custody, may subsequently waive that right before an attorney enters the case if proceedings have not begun. We agree and therefore reverse the order of the Appellate Division and remit the matter to it for a consideration of the facts.

In August 1985, defendant lived on a farm outside of Water-town with her two-year-old daughter, codefendant James Davis, her husband’s cousin, and Jessie White, an 85-year-old woman who was infirm and senile. On August 25, Jefferson County Sheriff’s Deputies were called to the farm to investigate the death of Elizabeth Schlitt, the girlfriend of James Davis. They found the victim’s body in the barn face-down and fully clothed, except for her shoes. Defendant and codefendant Davis explained that Elizabeth had gone to the barn to stack wood and had been killed when she fell from the top of the woodpile. The deputies later learned from an autopsy, however, that death resulted from multiple injuries, including penetration of the vagina by a foreign object causing it to rupture. That afternoon they questioned James Davis again at the Sheriff’s office and he admitted that he and defendant had assaulted Elizabeth to punish her. The abuse occurred over a two-day period while the victim’s arms and legs were tied in a spread eagle manner to a stanchion in the cow barn, was both physical and sexual, and included inserting a broom handle into the victim’s vagina.

About 9:00 p.m. that evening, deputies returned to the farm and questioned defendant. Although she was not in custody at the time, they advised her of her Miranda rights before questioning her. She acknowledged that she understood them and agreed to answer their questions. When the deputies confronted defendant with Davis’ confession, however, she became hysterical and told them that "[she] want[ed] a lawyer here to talk to you guys.” The deputies calmed her and then continued the questioning until they had obtained several inculpatory answers. Before leaving the farmhouse that evening, they told defendant that they would contact her the following day and she answered: "I hope you guys both come back * * * to talk to me tomorrow.” On this evidence, County Court ruled that defendant had invoked her right to counsel during the August 25 interview and it suppressed all statements she made after doing so.

As promised, the deputies returned to the farm the following afternoon. They found a note written to them by defendant explaining that she had left to do her laundry and telling where they could find her. They met her at her sister’s house and asked her to come to the Sheriff's office for further questioning. Although she accompanied them voluntarily, the People concede she was in custody from then on. The deputies advised defendant of her constitutional rights several times before and during the interrogation which followed. She waived them orally and in writing before giving audiotaped, videotaped and written confessions detailing her complicity in the attacks. County Court denied defendant’s motion to suppress this evidence finding that she understood the rights read to her that afternoon and knowingly, intelligently and voluntarily waived them before talking to the officers. The question presented is whether defendant was legally capable of waiving her rights under the circumstances.

The right to counsel in criminal proceedings is guaranteed by the Federal and State Constitutions (US Const 6th, 14th Amends; NY Const, art I, §6). It is personal and may, as a general principle, be waived by the client without notice to or consultation with counsel (see, 1 LaFave & Israel, Criminal Procedure § 6.4, at 471; Brewer v Williams, 430 US 387, 405-406; id., at 413 [Powell, J. concurring]). In New York, the right to counsel is grounded on this State’s constitutional and statutory guarantees of the privilege against self-incrimination, the right to the assistance of counsel and due process of law (see, People v Skinner, 52 NY2d 24, 28; People v Hobson, 39 NY2d 479, 483). It extends well beyond the right to counsel afforded by the Sixth Amendment of the United States Constitution and other State Constitutions (see, People v Velasquez, 68 NY2d 533, 536; compare, Escobedo v Illinois, 378 US 478; Massiah v United States, 377 US 201; see also, 1 LaFave & Israel, Criminal Procedure § 6.4, at 468-469 [collecting cases]).

There are two well-defined situations in which the right is said to attach indelibly and a waiver, notwithstanding the client’s right to waive generally, will not be recognized unless expressed in the presence of counsel. The first deals with waivers after formal proceedings have commenced. A suspect, once indicted, arraigned or charged in a felony complaint may not waive the right to counsel or to remain silent in the absence of counsel and this is so even though the defendant has neither retained nor requested an attorney (People v Samuels, 49 NY2d 218; and see, People v Cunningham, 49 NY2d 203, 208; People v Settles, 46 NY2d 154). The second line of cases relates to uncharged individuals in custody who have retained or requested an attorney. Police authorities may not question them in the absence of counsel (People v Hobson, 39 NY2d 479, supra; People v Arthur, 22 NY2d 325). Moreover, in order to be entitled to the rule neither a represented defendant nor counsel is required to advise the police of that fact (see, People v Ellis, 58 NY2d 748; People v Arthur, supra, at 329). If the police know of the representation, or are chargeable with knowledge of it, they may not question in the absence of counsel (see, People v Bertolo, 65 NY2d 111; People v Pinzon, 44 NY2d 458).

These rules are necessary, we have said, not only as a matter of decency, to protect those in custody from the coercive power of the State and to enforce the ethical rules protecting represented clients, but also to insure that if those held by the police waive their rights they do so competently, intelligently and voluntarily (see, People v Settles, supra; People v Hobson, supra; see also, People v Bell, 73 NY2d 153, 160, 162).

As originally formulated the second, or Hobson, line of cases applied only to custodial interrogation of a represented suspect but in People v Cunningham (49 NY2d 203, supra), we applied the rule to protect an unrepresented defendant, in custody, who had requested the assistance of counsel during interrogation. We reasoned that under the circumstance of custody the existence of counsel is little more than a fortuity and that an unrepresented defendant requesting legal assistance is subject to the coercive power of the State, and expresses the inability to deal with it when requesting counsel, no less than one who has already secured counsel. Finally, the rule has been extended to protect represented individuals from noncustodial questioning because questioning a defendant under such circumstances can interfere with the lawyer-client relationship no less than custodial questioning (see, People v Ellis, supra; People v Skinner, 52 NY2d, supra, at 29-30; cf., People v Hauswirth, 89 AD2d 357, affd 60 NY2d 904; and People v Mann, 60 NY2d 792).

The Appellate Division relied on the Cunningham decision in reversing defendant’s conviction. It held that defendant could not effectively waive her right to counsel when held in custody because she had invoked it the night before. We have never held, however, that an individual who has requested counsel in a noncustodial setting could not subsequently waive or withdraw that request and the reasons underlying the New York rule do not warrant doing so now.

The rule is intended to provide "a buffer, in the form of an attorney, between [citizens] and the coercive power of the State” at the times when "legal advice is most critically needed” (People v Settles, 46 NY2d 154, 164, supra). In a noncustodial interview, however, a witness or suspect is not constrained by police influence and does not suffer "the disadvantage” of being "directly confronted with the awesome law enforcement machinery possessed by the State” (see, People v Cunningham, supra, at 207). Coercive power is absent and police influence limited because the witness can simply refuse to respond to questions or walk away. Moreover, in noncustodial questioning the need for an attorney is substantially diminished. The police are not required to advise individuals of their rights and, therefore, there is no corresponding need for counsel to interpret the police recitation or insure that it is accurate and understood by the client before waiver. At that early stage of the investigation the value of legal assistance relates principally to protecting the witness from self-incrimination. As important as that may be, there is no legal requirement that an attorney be present before the witness changes an earlier decision to remain silent and talks to the authorities. The right may be invoked or waived at will before proceedings have commenced (People v Gary, 31 NY2d 68; see also, People v Buxton, 44 NY2d 33, 37). Finally, there is no ethical prohibition against questioning an unrepresented defendant because such questioning does not interfere with an established lawyer-client relationship or undermine a planned defense.

Having decided that the defendant could forego her right to counsel without the presence of counsel on August 26, the question remains whether she indeed did so. The People were charged with the burden of proving a knowing, intelligent and voluntary waiver (see, Edwards v Arizona, 451 US 477, 486, n 9; see also, Oregon v Bradshaw, 462 US 1039, 1045). In deciding whether they met that burden, the courts must indulge every reasonable presumption against waiver (Brewer v Williams, 430 US 387, 404, supra). Moreover, to satisfy the burden in cases such as this, it is always desirable — and may be necessary — for the authorities to remind defendant of the earlier request for counsel and obtain an express withdrawal and a present waiver of the request for legal assistance. Nevertheless, there will be cases in which the conduct of the defendant is so unambiguous that a hearing court would be warranted in inferring from the circumstances that the earlier request for counsel has been withdrawn (cf., North Carolina v Butler, 441 US 369). Some factors which could support such an inference include whether defendant was fully advised of his or her constitutional rights before invoking the right to counsel and subsequently waiving it, whether the defendant who has requested assistance earlier has initiated the further communication or conversation with the police (see, Edwards v Arizona, supra, at 484-485; see also, Oregon v Bradshaw, supra, at 1043), and whether there has been a break in the interrogation after the defendant has asserted the need for counsel with a reasonable opportunity during the break for the suspect to contact an attorney (see, Dunkins v Thigpen, 854 F2d 394, and cases cited, at 397, and compare, People v Buxton, 44 NY2d 33, supra). Undoubtedly, there are others which may help to establish that rights invoked have subsequently been relinquished.

In this case, County Court found that defendant’s waiver on the afternoon of August 26 was valid because she had, in effect, changed her mind and withdrawn her earlier request for counsel. It found the inference supported by the lapse of time between the request on August 25 and the waiver on August 26 and the fact that during that time defendant made no effort to secure legal assistance although she was free to do so. The court also noted defendant’s willingness to talk further to the deputies, manifested by remarks to the deputies the night of August 25, her note to them on the morning of August 26 and by her actions in voluntarily accompanying them to the Sheriff’s office that day. In view of this evidence, the court held that defendant’s request for counsel had lost its legal significance and that the subsequent waiver was valid. The Appellate Division, because it did not believe defendant was capable of waiving her right to counsel on August 26, did not consider whether she intended to do so and we, therefore, remit the matter to them for consideration of unreviewed factual questions (see, CPL 470.25 [2] [d]; CPL 470.40 [2] [b]).

Accordingly, the order should be reversed and the case remitted to the Appellate Division, Fourth Department, for further proceedings in accordance with this opinion.

Chief Judge Wachtler and Judges Kaye, Alexander, Ti-tone, Hancock, Jr., and Bellacosa concur.

Order reversed, etc.


author: Per Curiam.

text:
    In the Matter of Josephine D. Tyler, a Justice of the Caneadea Town Court, Petitioner. State Commission on Judicial Conduct, Respondent.
    Argued February 13, 1990;
    decided March 27, 1990
    POINTS OF COUNSEL

      Barbara M. Sims for petitioner.

      Gerald Stern and Jean M. Savanyu for respondent.
   OPINION OF THE COURT

Per Curiam.

Petitioner, a Justice of the Caneadea Town Court, brings this proceeding to review a determination of respondent finding her guilty of 5 of 7 charges of misconduct and determining that the sanction of removal is appropriate. In its decision sustaining charge I, the Commission found that petitioner issued a warrant of arrest pertaining to a dishonored check given to petitioner’s husband, the complainant, by defendant. Despite her relationship to the complainant, petitioner presided over the defendant’s arraignment, committed the defendant to jail in lieu of $5,000 bail, failed to appoint counsel for defendant at arraignment and refused the advice of the District Attorney and a County Court Judge that she disqualify herself.

In sustaining charge III, the Commission found that petitioner improperly issued an order directing a defendant charged with harassment to pay child support in the amount of $25 per week. As to charge V, the Commission found that petitioner sent a written communication on court stationery to a private contractor contesting the balance allegedly owed for the installation of a septic tank system of property owned by petitioner’s father.

As to charge VI, the Commission found that petitioner requested a young man, whom she had sentenced one day earlier, to return to court, accused the youth of writing obscenities on the court’s table and, upon his denial, struck him across the face with a telephone directory.

In its determination on supplemental charge I, the Commission found that petitioner sent a personal letter in a Town Court envelope to tenants of an apartment building owned by petitioner’s father about their use of well water and sent an attorney a letter in a Town Court envelope concerning the quality of well water in the same apartment building.

Respondent did not sustain charges II and IV, which alleged that petitioner threatened the Caneadea Town Supervisor with contempt and incarceration for refusing to make a photocopier available to her during unscheduled night arraignments and that petitioner acted improperly during two traffic violation actions.

Based on the findings, the Commission unanimously determined that petitioner violated the following sections of the Rules of the Chief Administrator of the Courts Governing Judicial Conduct (22 NYCRR): section 100.1 (upholding the independence and integrity of the judiciary), section 100.2 (avoiding impropriety or the, appearance of impropriety), section 100.3 (a) (1) (being faithful to the law and unswayed by partisan interests), section 100.3 (a) (3) (requiring a Judge to be patient, dignified and courteous to litigants, and others with whom she deals in an official capacity), section 100.3 (a) (4) (avoiding ex parte communications), section 100.3 (c) (1) (requiring a Judge to disqualify herself in a proceeding in which her impartiality may be questioned), and Canons 1, 2, 3A (1); 3A (3); 3A (4) and 3C (1) of the Code of Judicial Conduct.

While due deference must be accorded to the Commission’s determination, we are obliged to make an independent review of the record and to determine the appropriate sanction. The evidence substantiates respondent’s findings that charges I, V, VI and supplemental charge I were proven and that charges II and IV were not proven.

As to charge III, petitioner argues that respondent has found her guilty for conduct which, in essence, amounts to an error of a legal nature in misperceiving the jurisdiction of the Justice Court and in failing to recognize her lack of authority to order temporary child support. We agree with petitioner that the proof is insufficient to sustain a finding of misconduct under charge III. Petitioner’s remaining contentions regarding her guilt are without merit.

Finally, we reject petitioner’s contention that the sanction imposed is too severe. Reviewing the confirmed charges, we agree with the Commission that petitioner’s continuance in office would pose a threat to the proper administration of justice (see, Matter of VonderHeide, 72 NY2d 658, 661). We find petitioner’s handling of the matter of the dishonored check given to her husband to have been particularly egregious. By any measure, her conduct displayed a lack of the basic qualities of fairness, impartiality and self-restraint which are essential for judicial office. Petitioner clearly displayed favoritism to her husband. She persisted in her course of conduct, notwithstanding the admonitions of the District Attorney and County Court that she should avoid even the semblance of impropriety.

Accordingly, the determined sanction should be accepted, without costs.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur in Per Curiam opinion.

Determined sanction accepted, without costs, and Josephine D. Tyler removed from the office of Justice of the Caneadea Town Court.