[188] A promise was to pay a sum of money, on condition that, if a certain quantity of oil should arrive at certain ports, within two fixed days, both inclusive, the promise should be void: in an action upon this promise it was holden that the burden was on the defendants to prove the arrival of the oil; and that to constitute such arrival, the vessel must be moored within the time stipulated.

ASSUMPSIT on a written promise to pay the plaintiff 5198 dollars, 87 cents, with the following condition annexed, viz.,“on the condition that if a greater quantity of sperm oil should arrive in whaling vessels at Nantucket and New Bedford, on or between the first day of April and the first day of October of the present year, both inclusive, than arrived at said places, in whaling vessels, on or within the same term of time the last year, then this obligation to be void.” Dated April 14, 1819.

The consideration of the promise was a quantity of oil, sold by the plaintiff to the defendants. On the same day another note unconditional had been given by the defendants, for the value of the oil, estimated at sixty cents per gallon; and the note in suit was given to secure the residue of the price, estimated at eighty-five cents, to depend on the contingency mentioned in the said condition.

At the trial before the chief justice, the case depended upon the question whether a certain vessel, called the Lady Adams, with a cargo of oil, arrived at Nantucket on the first day of October, 1819, about which fact the evidence was contradictory. The judge ruled that the burden of proving the arrival within the time was on the defendants; and further that, although the vessel might have, within the time, gotten within the space which might be called Nantucket Roads, yet it was necessary that she should have come to anchor, or have been moored, somewhere within that space before the hour of twelve following the first day of October, in order to have arrived, within the meaning of the contract.

The opinion of the chief justice on both these points was objected to by the defendants, and the questions were saved. If it was wrong on either point, a new trial was to be had; otherwise judgment was to be rendered on the verdict, which was found for the plaintiff.

[189] Whitman, for the defendants. As the evidence at the trial was contradictory, the question on whom the burden of proof rested, became important. We hold that it was on the plaintiff. This was a condition precedent. Until it should happen, the promise did not take effect. On the occurrence of a certain contingent event, the promise was to be binding, and not otherwise. To entitle himself to enforce the promise, the plaintiff must show that the contingent event has actually occurred.

On the other point saved at the trial, the defendants insist that it was not required by the terms of this contract that the vessel should be moored. It is not denied that such would be the construction of a policy of insurance containing the same expression. But every contract is to be taken according to the intention of the parties to it, if such intention be legal, and capable of execution. The contemplation of parties to a policy of insurance is, that the vessel shall be safe before she shall be said to have arrived. So it is in some other maritime contracts. But in that now in question, nothing was in the minds of the parties, but that the fact of the arrival of so much oil should be known within the time limited. The subject matter in one case is safety, in the other it is information only. In this case the vessel would be said to have arrived, in common understanding, and according to the meaning of the parties^[1].

F. C. Gray, for the plaintiff.

PARKER, C. J.

The very words of the contract show that there was a promise to pay, which was to be defeated by the happening of an event, viz., the arrival of a certain quantity of oil, at the specified places, in a given time. It is like a bond with a condition; if the obligor would avoid the bond, he must show performance of the condition. The defendants, in this case, promise to pay a certain sum of money, on condition that the promise shall be void on the happening of an event. It is plain that the burden of proof is upon them; and if they fail to show that the event has happened, the promise remains good.

The other point is equally clear for the plaintiff. Oil [190] is to arrive at a given place before twelve o'clock at night. A vessel with oil heaves in sight, but she does not come to anchor before the hour is gone. In no sense can the oil be said to have arrived. The vessel is coming until she drops anchor, or is moored. She may sink, or take fire, and never arrive, however near she may be to her port. It is so in contracts of insurance; and the same reason applies to a case of this sort. Both parties put themselves upon a nice point in this contract; it was a kind of wager as to the quantity of oil which should arrive at the ports mentioned, before a certain period. They must be held strictly to their contract, there being no equity to interfere with the terms of it.

Judgment on the verdict.

[1] Vide 6 Mass. Rep. 313, Bill & Al. vs. Mason.

Floyd H. Norris as Amicus Curiae on behalf of Plaintiff and Appellant.

Felix H. McGinnis for Plaintiff and Appellant.

Launer, Chaffee & Hanna, Daniel L. Stack, Miller, Nisson, Kogler & Wenke and Clark Miller for Defendants and Respondents.

C. Douglas Wikle, Walter Atkinson, W. Alan Thody, Dell L. Falls, Cooper & Boller, Rowland, Paras & Clowdus and Gloyd T. Clowdus as Amici Curiae on behalf of Defendants and Respondents.

TRAYNOR, C. J.

In December 1960 defendant Bristol Development Company entered into a written contract with plaintiff engaging him as an architect to design an office building for a lot in Santa Ana and to assist in supervising construction.plaintiff's services were to be performed in two phases. He completed phase one, drafting preliminary plans and specifications, on January 20, 1961, and Bristol paid him $600.

The dispute concerns Bristol's obligation to pay plaintiff under phase two of the contract. The contract provided that "a condition precedent to any duty or obligation on the part [864] of the Owner [Bristol] to commence, continue or complete Phase 2 or to pay Architect any fee therefor, shall be the obtaining of economically satisfactory financing arrangements which will enable Owner, in its sole judgment, to construct the project at a cost which in the absolute decision of the Owner shall be economically feasible." It further provided that when Bristol notified plaintiff to proceed with phase two it should pay him an estimated 25 per cent of his fee, and that it would be obligated to pay the remaining 75 per cent "only from construction loan funds."

Using plaintiff's preliminary plans and specifications, Bristol obtained from a contractor an estimate of $1,020,850 as the cost of construction, including the architect's fee of 6 per cent. On the basis of this estimate, it received an offer from a savings and loan company for a construction loan upon condition that it show clear title to the Santa Ana lot and execute a first trust deed in favor of the loan company.

Shortly after obtaining this offer from the loan company, Bristol wrote plaintiff on March 14, 1961, to proceed under phase two of the contract. In accordance with the contract, Bristol paid plaintiff $12,000, an estimated 25 per cent of his total fee. Thereafter, plaintiff began to draft final plans and specifications for the building.

Bristol, however, was compelled to abandon the project because it was unable to show clear title to the Santa Ana lot and thus meet the requirements for obtaining a construction loan. Bristol's title became subject to dispute on May 23, 1961, when defendant James Freeman filed an action against Bristol claiming an adverse title. ^[684] On August 15, 1961, Bristol notified plaintiff to stop work on the project.

Plaintiff brought an action against Bristol and Freeman to recover for services performed under the contract and to foreclose a mechanic's lien on the Santa Ana lot. The trial court, sitting without a jury, found that Bristol's obligation to make further payment under the contract was conditioned upon the existence of construction loan funds. On the ground that this condition to plaintiff's right to further payment was not satisfied, the court entered judgment for defendants.plaintiff appeals.

The trial court properly admitted evidence extrinsic to the written instrument to determine the circumstances under [865] which the parties contracted and the purpose of the contract. (Code Civ. Proc., 1860; Civ. Code, 1647; see Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 Cornell L.Q. 161.) There is no conflict in that evidence. Bristol contends, however, that an appellate court is compelled to accept any reasonable interpretation of a written instrument adopted by a trial court whether or not extrinsic evidence has been introduced to interpret the instrument and whether or not that evidence, if any, is in conflict. We do not agree with this contention.

Since there has been confusion concerning the rules for appellate review of the interpretation of written instruments (see Estate of Platt, 21 Cal.2d 343, 352 [131 P.2d 825] [concurring opinion]; Estate of Shannon, 231 Cal.App.2d 886, 889-890 [42 Cal.Rptr. 278]), it is appropriate here to define the scope of such review.

[1] The interpretation of a written instrument, even though it involves what might properly be called questions of fact (see Thayer, Preliminary Treatise on Evidence, pp. 202-204), is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. (See Civ. Code, 1635-1661; Code Civ. Proc., 1856-1866.) [2] Extrinsic evidence is "admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible" (Coast Bank v. Minderhout, 61 Cal.2d 311, 315 [38 Cal.Rptr. 505, 392 P.2d 265]; Nofziger v. Holman, 61 Cal.2d 526, 528 [39 Cal.Rptr. 384, 393 P.2d 696]; Imbach v. Schultz, 58 Cal.2d 858, 860 [27 Cal.Rptr. 160, 377 P.2d 272]), and it is the instrument itself that must be given effect. (Civ. Code, 1638, 1639; Code Civ. Proc., 1856.) [3] It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence. [4] Accordingly, "An appellate court is not bound by a construction of the contract based solely upon the terms of the written instrument without the aid of evidence [citations], where there is no conflict in the evidence [citations], or a determination has been made upon incompetent evidence [citation]." (Estate of Platt, 21 Cal.2d 343, 352 [131 P.2d 825]. Accord, Moore v. Wood, 26 Cal.2d 621, 629-630 [160 P.2d 772]; Western Coal & Mining Co. v. Jones, 27 Cal.2d 819, 826-827 [167 P.2d 719, 164 A.L.R. 685]; Estate of [866] Wunderle, 30 Cal.2d 274, 280 [181 P.2d 874]; Estate of Fleming, 31 Cal.2d 514, 523 [190 P.2d 611]; Meyer v. State Board of Equalization, 42 Cal.2d 376, 381 [267 P.2d 257].) ^[685]

[5] It is true that cases have said that even in the absence of extrinsic evidence the trial court's interpretation of a written instrument must be accepted "if such interpretation is reasonable, or if [it] is one of two or more reasonable constructions of the instrument" (Prickett v. Royal Ins. Co., 56 Cal.2d 234, 237 [14 Cal.Rptr. 675, 363 P.2d 907, 86 A.L.R.2d 711]; Lundin v. Hallmark Productions, Inc. 161 Cal.App.2d 698, 701 [327 P.2d 166]), or if it is "equally tenable" with the appellate court's interpretation (Estate of Northcutt, 16 Cal.2d 683, 690 [107 P.2d 607]; accord, Estate of Cuneo, 60 Cal.2d 196, 201 [32 Cal.Rptr. 409, 384 P.2d 1]). Such statements are not in conflict with Estate of Platt, supra, 21 Cal.2d 343, if they are interpreted, as they should be, to mean only that an appellate court must determine that the trial court's interpretation is erroneous before it may properly reverse a judgment. (See Estate of Shannon, 231 Cal.App.2d 886, 893 [42 Cal.Rptr. 278].) They do not mean that the appellate court is absolved of its duty to interpret the instrument.

Since there is no conflict in the extrinsic evidence in the present case we must make an independent determination of the meaning of the contract. After providing for payment of an estimated 25 per cent of plaintiff's fee upon written notice to proceed with phase two, paragraph 4 of the contract makes the following provisions for payment: [867]

"4. ..."

"(a) ..."

"(b) Upon completion of final working plans, specifications and engineering, or authorized commencement of construction, whichever is later, a sum equal to Seventy-Five (75%) Per Cent of the fee for services in Phase 2, less all previous payments made on account of fee; provided, however, that this payment shall be made only from construction loan funds."

"(c) The balance of the fee shall be paid in equal monthly payments commencing with the first day of the month following payments as set forth in Paragraph 4(b); provided, however, that Ten (10%) Per Cent of the fee based upon the reasonable estimated cost of construction shall be withheld until thirty (30) days after the Notice of Completion of the project has been filed."

"(d) If any work designed or specified by the Architect is abandoned of [sic] suspended in whole or in part, the Architect is to be paid forthwith to the extent that his services have been rendered under the preceding terms of this paragraph. Should such abandonment or suspension occur before the Architect has completed any particular phase of the work which entitles him to a partial payment as aforesaid, the Architect's fee shall be prorated based upon the percentage of the work completed under that particular phase and shall be payable forthwith."

[6] Invoking the provision that "payment shall be made only from construction loan funds," Bristol contends that since such funds were not obtained it is obligated to pay plaintiff no more than he has already received under the contract.

Plaintiff, on the other hand, contends that he performed 95 per cent of his work on phase two and is entitled to that portion of his fee under subdivision (d) of paragraph 4 less the previous payment he received. He contends that subdivision (d) is a "savings clause" designed to secure partial payment if, for any reason, including the lack of funds, the project was abandoned or suspended.plaintiff would limit the construction loan condition to subdivision (b), for it provides "that this payment shall be made only from construction loan funds" (emphasis added), whereas the other subdivisions are not expressly so conditioned.

The construction loan condition, however, cannot reasonably be limited to subdivision (b), for subdivisions (c) and [868] (d) both refer to the terms of subdivision (b) and must therefore be interpreted with reference to those terms. Thus, the "balance of the fee" payable "in equal monthly payments" under subdivision (c) necessarily refers to the preceding subdivisions of paragraph 4. ^[686] In the absence of evidence to the contrary, subdivision (d), upon which plaintiff relies, must likewise be interpreted to incorporate the construction loan condition (Civ. Code, 1641), for it makes explicit reference to payment under preceding subdivisions by language such as "under the preceding terms" and "partial payment as aforesaid." Subdivision (d) merely provides for accelerated payment upon the happening of a contingency. It contemplates, however, that construction shall have begun, for it provides for prorated payment upon the abandonment or suspension in whole or in part of "any work designed or specified by the Architect." Implicit in the scheme is the purpose to provide, after initial payments, for a series of payments from construction loan funds, with accelerated payment from such funds in the event that construction was abandoned or suspended. Although plaintiff was guaranteed an estimated 25 per cent of his fee if the project was frustrated before construction, further payment was contemplated only upon the commencement of construction. This interpretation is supported by evidence that plaintiff knew that Bristol's ability to undertake construction turned upon the availability of loan funds. Accordingly, the trial court properly determined that payments beyond an estimated 25 per cent of plaintiff's fee for phase two were to be made only from construction loan funds.

[7] When "payment of money is to be made from a specific fund, and not otherwise, the failure of such fund will defeat the right of recovery." (Rains v. Arnett, 189 Cal.App.2d 337, 347 [11 Cal.Rptr. 299].) Although there are exceptions to this rule, plaintiff has neither alleged nor proved facts that entitle him to recover on the ground of any exception.

[8] Each party to a contract has a duty to do what the contract presupposes he will do to accomplish its purpose. (Bewick v. Mecham, 26 Cal.2d 92, 99 [156 P.2d 757, 157 A.L.R. 1277].) [9] Thus, "A party who prevents fulfillment of a condition of his own obligation ... cannot rely [869] on such condition to defeat his liability." (Bewick v. Mecham, supra, 26 Cal.2d at p. 99; Pacific Venture Corp. v. Huey, 15 Cal.2d 711, 717 [104 P.2d 641].)plaintiff, however, has not shown that Bristol failed to make the proper and reasonable efforts that were contemplated to secure the loan from which he was to be paid. (Cf. Rosenheim v. Howze, 179 Cal. 309 [176 P. 456].) The risk that a loan might not be obtained even though Bristol acted properly and in good faith was a risk clearly anticipated even though the reason the loan failed may not have been foreseen.

[10] Nor has plaintiff established grounds for applying the doctrine of equitable estoppel to deny Bristol the right to invoke the construction loan condition. (See Code Civ. Proc., 1962, subd. 3.) If, by its letter of March 14, asking plaintiff to proceed with his work under phase two of the contract, Bristol had induced plaintiff to believe that funds had been obtained, and if plaintiff had reasonably relied upon such representation, Bristol could not invoke the condition to defeat its contractual liability. Reasonable reliance resulting in a foreseeable prejudicial change in position is the essence of equitable estoppel, and therefore a compelling basis for preventing a party from invoking a condition that he represented as being satisfied. (See Crestline Mobile Homes Mfg. Co. v. Pacific Finance Corp., 54 Cal.2d 773, 778-781 [8 Cal.Rptr. 448, 356 P.2d 192]; cf. Drennan v. Star Paving Co., 51 Cal.2d 409, 414-415 [333 P.2d 757].) Bristol, however, did not represent that funds had been obtained, and plaintiff did not reasonably rely upon the existence of construction loan funds when he undertook work under phase two of the contract. A representative of Bristol told plaintiff before he began phase two of his work that although Bristol would be able to pay plaintiff $12,000, an estimated 25 per cent of his fee, "they would not be able to proceed unless actual construction funds were obtained."plaintiff, knowing that funds had not been obtained, nevertheless chose to proceed with his work on the project.

[11] Finally, plaintiff has not shown that Bristol breached the duty to give him notice when it became clear that construction funds could not be obtained. Without such funds the purpose of the contract would have been frustrated and plaintiff could not have been paid the balance of his fee.plaintiff therefore would have been excused from performing so long as there was a reasonable doubt as to his compensation. Whether or not such funds were obtained was a matter [870] peculiarly within Bristol's knowledge. Accordingly, Bristol had a duty to notify plaintiff that the project was imperiled when Freeman filed his action against Bristol on May 23, for Bristol then knew or should have known that it would be unable to obtain a loan.plaintiff, however, has not shown that he failed to receive such notice, and even if it is assumed that he had no notice, he did not prove the extent to which he suffered damages by continuing to work after he should have received notice.

The judgment is affirmed.

McComb, J., Peters, J., Tobriner, J., Peek, J., Mosk, J., and Burke, J., concurred.

[684] 1. Freeman had previously conveyed the Santa Ana lot to Bristol on October 1, 1960, with the understanding that Bristol would construct an office building upon the lot and pay Freeman an annuity.

[685] 2. We disapprove language in Estate of Rule, 25 Cal.2d 1, 11 [152 P.2d 1003, 155 A.L.R. 1319], to the effect that an appellate court must accept a trial court's interpretation of a written instrument when "conflicting inferences may be drawn" from extrinsic evidence. The rule of Estate of Platt, 21 Cal.2d 343, 352 [131 P.2d 825], and the cases applying it make it clear that it is only when conflicting inferences arise from conflicting evidence, not from uncontroverted evidence, that the trial court's resolution is binding. "The very possibility of ... conflicting inferences, actually conflicting interpretations, far from relieving the appellate court of the responsibility of interpretation, signalizes the necessity of its assuming that responsibility." (Estate of Rule, supra, 25 Cal.2d at p. 17 [dissenting opinion].) Language in E. K. Wood Lumber Co. v. Higgins, 54 Cal.2d 91, 94 [4 Cal.Rptr. 523, 351 P.2d 795]; Faus v. Pacific Electric Ry. Co., 146 Cal.App.2d 370, 375 [303 P.2d 814]; Overton v. Vita-Food Corp., 94 Cal.App.2d 367, 370 [210 P.2d 757], invoking Estate of Rule, is likewise disapproved. A similar statement concerning conflicting inferences from uncontroverted evidence in Estate of Jones, 55 Cal.2d 531, 538 [11 Cal.Rptr. 574, 360 P.2d 70], is also disapproved. The cases cited in support of such a rule by the Jones case did not involve the interpretation of written instruments.

[686] 3. Although neither the amount of each monthly payment nor the number of payments was specified, the amount and number could be determined from the time estimated to construct the building.

Action by Jacob & Youngs, Incorporated, against George E. Kent. From an order of the Appellate Division (187 App. Div. 100,175 N. Y. Supp. 281), reversing judgment for defendant entered on verdict directed by the court and granting new trial, defendant appeals.

Order affirmed and judgment absolute directed in favor of plaintiff.

McLaughlin, Pound, and Andrews, JJ., dissenting. [890]
[230 N.Y. 239]Appeal from Supreme Court, Appellate Division, First department.
[230 N.Y. 240]Henry W. Hardon, of New York City, for appellant.

Frederick Hulse and Cornelius J. Sullivan, Jr., both of New York City, for respondent.

CARDOZO, J.

The plaintiff built a country residence for the defendant at a cost of upwards of $77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of construction ceased in June, 1914, and the defendant then began to occupy the dwelling. There was no complaint of defective performance until March, 1915. One of the specifications for the plumbing work provides that--

‘All wrought-iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.'

The defendant learned in March, 1915, that some of the pipe, instead of being made in Reading, was the product of other factories. The plaintiff was accordingly directed by the architect to do the work anew. The plumbing was then encased within the walls except in a few places where it had to be exposed. Obedience to the order meant more than the substitution of other pipe. It meant the demolition at great expense of substantial parts of [230 N.Y. 241]the completed structure. The plaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit.

The evidence sustains a finding that the omission of the prescribed brand of pipe was neither fraudulent nor willful. It was the result of the oversight and inattention of the plaintiff's subcontractor. Reading pipe is distinguished from Cohoes pipe and other brands only by the name of the manufacturer stamped upon it at intervals of between six and seven feet. Even the defendant's architect, though he inspected the pipe upon arrival, failed to notice the discrepancy. The plaintiff tried to show that the brands installed, though made by other manufacturers, were the same in quality, in appearance, in market value, and in cost as the brand stated in the contract-that they were, indeed, the same thing, though manufactured in another place. The evidence was excluded, and a verdict directed for the defendant. The Appellate Division reversed, and granted a new trial.

[1] We think the evidence, if admitted, would have supplied some basis for the inference that the defect was insignificant in its relation to the project. The courts never say that one who makes a contract fills the measure of his duty by less than full performance. They do say, however, that an omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture. Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238; Woodward v. Fuller, 80 N. Y. 312; Glacius v. Black, 67 N. Y. 563, 566;Bowen v. Kimbell, 203 Mass. 364, 370, 89 N. E. 542,133 Am. St. Rep. 302. The distinction is akin to that between dependent and independent promises, or between promises and conditions. Anson on Contracts (Corbin's Ed.) § 367; 2 Williston on Contracts, § 842. Some promises are so plainly independent that they can never [230 N.Y. 242]by fair construction be conditions of one another. Rosenthal Paper Co. v. Nat. Folding Box & Paper Co., 226 N. Y. 313, 123 N. E. 766;Bogardus v. N. Y. Life Ins. Co., 101 N. Y. 328, 4 N. E. 522. Others are so plainly dependent that they must always be conditions. Others, though dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant. 2 Williston on Contracts, §§ 841, 842; Eastern Forge Co. v. Corbin, 182 Mass. 590, 592, 66 N. E. 419; Robinson v. Mollett, L. R., 7 Eng. & Ir. App. 802, 814; Miller v. Benjamin, 142 N. Y. 613, 37 N. E. 631. Considerations partly of justice and partly of presumable intention are to tell us whether this or that promise shall be placed in one class or in another. The simple and the uniform will call for different remedies from the multifarious and the intricate. The margin of departure within the range of normal expectation upon a sale of common chattels will vary from the margin to be expected upon a contract for the construction of a mansion or a ‘skyscraper.’ There will be harshness sometimes and oppression in the implication of a condition when the thing upon which labor has been expended is incapable of surrender because united to the land, and equity and reason in the implication of a like condition when the subject-matter, if defective, is in shape to be returned. From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication. There will be no assumption of a purpose to visit venial faults with oppressive retribution.

Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification[230 N.Y. 243]where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this state commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it. Dakin & Co. v. Lee, 1916, 1 K. B. 566, 579. Where the line is to be drawn between the important and the trivial cannot be settled by a formula. ‘In the nature of the case precise boundaries are impossible.’ 2 Williston on Contracts, § 841. The same omission may take on one aspect or another according to its setting. Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other. Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract. Crouch v. Gutmann, 134 N. Y. 45, 51,31 N. E. 271,30 Am. St. Rep. 608. There is no general license to install whatever, in the builder's judgment, may be regarded as ‘just as good.’ Easthampton L. & C. Co., Ltd., v. Worthington, 186 N. Y. 407, 412,79 N. E. 323. The question is one of degree, to be answered, if there is doubt, by the triers of the facts (Crouch v. Gutmann; Woodward v. Fuller, supra), and, if the inferences are certain, by the judges of the law (Easthampton L. & C. Co., Ltd., v. Worthington, supra). We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be implied by law as a condition. This is not to say that the parties are not free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery. That question is not here. This is merely to say that the law will be slow to impute the purpose, in the silence of the parties, where the significance [230 N.Y. 244]of the default is grievously out of proportion to the oppression of the forfeiture. The willful transgressor must accept the penalty of his transgression. Schultze v. Goodstein, 180 N. Y. 248, 251,73 N. E. 21;Desmond-Dunne Co. v. Friedman-Doscher Co., 162 N. Y. 486, 490,56 N. E. 995. For him there is no occasion to mitigate the rigor of implied conditions. The transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong. Spence v. Ham, supra.

[2] In the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. Some of the exposed sections might perhaps have been replaced at moderate expense. The defendant did not limit his demand to them, but treated the plumbing as a unit to be corrected from cellar to roof. In point of fact, the plaintiff never reached the stage at which evidence of the extent of the allowance became necessary. The trial court had excluded evidence that the defect was unsubstantial, and in view of that ruling there was no occasion for the plaintiff to go farther with an offer of proof. We think, however, that the offer, if it had been made, would not of necessity have been defective because directed to difference in value. It is true that in most cases the cost of replacement is the measure. Spence v. Ham, supra. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value. Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction. ‘There may be [230 N.Y. 245]omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations, and at the same time the omission may not affect the value of the building for use or otherwise, except so slightly as to be hardly appreciable.’ Handy v. Bliss, 204 Mass. 513, 519, 90 N. E. 864,134 Am. St. Rep. 673. Cf. Foeller v. Heintz, 137 Wis. 169, 178, 118 N. W. 543,24 L. R. A. (N. S.) 321; [892] Oberlies v. Bullinger, 132 N. Y. 598, 601,30 N. E. 999; 2 Williston on Contracts, § 805, p. 1541. The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end.

The order should be affirmed, and judgment absolute directed in favor of the plaintiff upon the stipulation, with costs in all courts.

McLAUGHLIN, J.

I dissent. The plaintiff did not perform its contract. Its failure to do so was either intentional or due to gross neglect which, under the uncontradicted facts, amounted to the same thing, nor did it make any proof of the cost of compliance, where compliance was possible.

Under its contract it obligated itself to use in the plumbing only pipe (between 2,000 and 2,500 feet) made by the Reading Manufacturing Company. The first pipe delivered was about 1,000 feet and the plaintiff's superintendent then called the attention of the foreman of the subcontractor, who was doing the plumbing, to the fact that the specifications annexed to the contract required all pipe used in the plumbing to be of the Reading Manufacturing Company. They then examined it for the purpose of ascertaining whether this delivery was of that manufacture and found it was. Thereafter, as pipe was required in the progress of the work, the foreman of the subcontractor would leave word at its [230 N.Y. 246]shop that he wanted a specified number of feet of pipe, without in any way indicating of what manufacture. Pipe would thereafter be delivered and installed in the building, without any examination whatever. Indeed, no examination, so far as appears, was made by the plaintiff, the subcontractor, defendant's architect, or any one else, of any of the pipe except the first delivery, until after the building had been completed. Plaintiff's architect then refused to give the certificate of completion, upon which the final payment depended, because all of the pipe used in the plumbing was not of the kind called for by the contract. After such refusal, the subcontractor removed the covering or insulation from about 900 feet of pipe which was exposed in the basement, cellar, and attic, and all but 70 feet was found to have been manufactured, not by the Reading Company, but by other manufacturers, some by the Cohoes Rolling Mill Company, some by the National Steel Works, some by the South Chester Tubing Company, and some which bore no manufacturer's mark at all. The balance of the pipe had been so installed in the building that an inspection of it could not be had without demolishing, in part at least, the building itself.

I am of the opinion the trial court was right in directing a verdict for the defendant. The plaintiff agreed that all the pipe used should be of the Reading Manufacturing Company. Only about two-fifths of it, so far as appears, was of that kind. If more were used, then the burden of proving that fact was upon the plaintiff, which it could easily have done, since it knew where the pipe was obtained. The question of substantial performance of a contract of the character of the one under consideration depends in no small degree upon the good faith of the contractor. If the plaintiff had intended to, and had, complied with the terms of the contract except as to minor omissions, due to inadvertence, then he might be allowed to recover the contract price, less the amount [230 N.Y. 247]necessary to fully compensate the defendant for damages caused by such omissions. Woodward v. Fuller, 80 N. Y. 312; Nolan v. Whitney, 88 N. Y. 648. But that is not this case. It installed between 2,000 and 2,500 feet of pipe, of which only 1,000 feet at most complied with the contract. No explanation was given why pipe called for by the contract was not used, nor that any effort made to show what it would cost to remove the pipe of other manufacturers and install that of the Reading Manufacturing Company. The defendant had a right to contract for what he wanted. He had a right before making payment to get what the contract called for. It is no answer to this suggestion to say that the pipe put in was just as good as that made by the Reading Manufacturing Company, or that the difference in value between such pipe and the pipe made by the Reading Manufacturing Company would be either ‘nominal or nothing.’ Defendant contracted for pipe made by the Reading Manufacturing Company. What his reason was for requiring this kind of pipe is of no importance. He wanted that and was entitled to it. It may have been a mere whim on his part, but even so, he had a right to this kind of pipe, regardless of whether some other kind, according to the opinion of the contractor or experts, would have been ‘just as good, better, or done just as well.’ He agreed to pay only upon condition that the pipe installed were made by that company and he ought not to be compelled to pay unless that condition be performed. Schultze v. Goodstein, 180 N. Y. 248, 73 N. E. 21; Spence v. Ham, supra; Steel S. & E. C. Co. v. Stock, 225 N. Y. 173, 121 N. E. 786;Van Clief v. Van Vechten, 130 N. Y. 571, 29 N. E. 1017;Glacius v. Black, 50 N. Y. 145, 10 Am. Rep. 449;Smith v. Brady, 17 N. Y. 173, and authorities cited on [893] page 185, 72 Am. Dec. 442. The rule, therefore, of substantial performance, with damages for unsubstantial omissions, has no application. Crouch v. Gutmann, 134 N. Y. 45, 31 N. E. 271,30 Am. St. Rep. 608;Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238.

[230 N.Y. 248]What was said by this court in Smith v. Brady, supra, is quite applicable here:

‘I suppose it will be conceded that every one has a right to build his house, his cottage or his store after such a model and in such style as shall best accord with his notions of utility or be most agreeable to his fancy. The specifications of the contract become the law between the parties until voluntarily changed. If the owner prefers a plain and simple Doric column, and has so provided in the agreement, the contractor has no right to put in its place the more costly and elegant Corinthian. If the owner, having regard to strength and durability, has contracted for walls of specified materials to be laid in a particular manner, or for a given number of joists and beams, the builder has no right to substitute his own judgment or that of others. Having departed from the agreement, if performance has not been waived by the other party, the law will not allow him to allege that he has made as good a building as the one he engaged to erect. He can demand payment only upon and according to the terms of his contract, and if the conditions on which payment is due have not been performed, then the right to demand it does not exist. To hold a different doctrine would be simply to make another contract, and would be giving to parties an encouragement to violate their engagements, which the just policy of the law does not permit.’ (17 N. Y. 186, 72 Am. Dec. 422).

I am of the opinion the trial court did not err in ruling on the admission of evidence or in directing a verdict for the defendant.

For the foregoing reasons I think the judgment of the Appellate Division should be reversed and the judgment of the Trial Term affirmed.

HISCOCK, C. J., and HOGAN and CRANE, JJ., concur with CARDOZO, J.

POUND and ANDREWS, JJ., concur with McLAUGHLIN, J.

Order affirmed, etc.

Edgar R. Bain, Lellington, N. C., and Holt Felmet, Angier, N. C., for appellants.

Jack Crawley, Asst. U. S. Atty., Raleigh, N. C. (Thomas P. McNamara, U. S. Atty., and Joseph W. Dean, Asst. U. S. Atty., Raleigh, N. C., on brief), for appellee.

Before RUSSELL, FIELD and WIDENER, Circuit Judges.

WIDENER, Circuit Judge:

Plaintiff-appellants sued to recover for losses to their 1973 tobacco crop due to alleged rain damage. The crops were insured by defendant-appellee, Federal Crop [696] Insurance Corporation (FCIC). Suits were brought in a state court in North Carolina and removed to the United States District Court. The three suits are not distinguishable factually so far as we are concerned here and involve identical questions of law. They were combined for disposition in the district court and for appeal. The district court granted summary judgment for the defendant and dismissed all three actions. We remand for further proceedings. Since we find for the plaintiffs as to the construction of the policy, we express no opinion on the procedural questions.

Federal Crop Insurance Corporation, an agency of the United States, in 1973, issued three policies to the Howards, insuring their tobacco crops, to be grown on six farms, against weather damage and other hazards.

The Howards (plaintiffs) established production of tobacco on their acreage, and have alleged that their 1973 crop was extensively damaged by heavy rains, resulting in a gross loss to the three plaintiffs in excess of $35,000. The plaintiffs harvested and sold the depleted crop and timely filed notice and proof of loss with FCIC, but, prior to inspection by the adjuster for FCIC, the Howards had either plowed or disked under the tobacco fields in question to prepare the same for sowing a cover crop of rye to preserve the soil. When the FCIC adjuster later inspected the fields, he found the stalks had been largely obscured or obliterated by plowing or disking and denied the claims, apparently on the ground that the plaintiffs had violated a portion of the policy which provides that the stalks on any acreage with respect to which a loss is claimed shall not be destroyed until the corporation makes an inspection.

The holding of the district court is best capsuled in its own words:

"The inquiry here is whether compliance by the insureds with this provision of the policy was a condition precedent to the recovery. The court concludes that it was and that the failure of the insureds to comply worked a forfeiture of benefits for the alleged loss."^[1]

There is no question but that apparently after notice of loss was given to defendant, but before inspection by the adjuster, plaintiffs plowed under the tobacco stalks and sowed some of the land with a cover crop, rye. The question is whether, under paragraph 5(f) of the tobacco endorsement to the policy of insurance, the act of plowing under the tobacco stalks forfeits the coverage of the policy. Paragraph 5 of the tobacco endorsement is entitled Claims. Pertinent to this case are subparagraphs 5(b) and 5(f), which are as follows:

"5(b) It shall be a condition precedent to the payment of any loss that the insured establish the production of the insured crop on a unit and that such loss has been directly caused by one or more of the hazards insured against during the insurance period for the crop year for which the loss is claimed, and furnish any other information regarding the manner and extent of loss as may be required by the Corporation. (Emphasis added)"

"5(f) The tobacco stalks on any acreage of tobacco of types 11a, 11b, 12, 13, or 14 with respect to which a loss is claimed shall not be destroyed until the Corporation makes an inspection. (Emphasis added)"

The arguments of both parties are predicated upon the same two assumptions. First, if subparagraph 5(f) creates a condition precedent, its violation caused a forfeiture of plaintiffs' coverage. Second, if subparagraph 5(f) creates an obligation (variously called a promise or covenant) upon plaintiffs not to plow under the tobacco stalks, defendant may recover from plaintiffs (either in an original action, or, in this case, by a counterclaim, or as a matter of defense) for whatever damage it sustained [697] because of the elimination of the stalks. However, a violation of subparagraph 5(f) would not, under the second premise, standing alone, cause a forfeiture of the policy.

Generally accepted law provides us with guidelines here. There is a general legal policy opposed to forfeitures. United States v. One Ford Coach, 307 U.S. 219, 226, 59 S.Ct. 861, 83 L.Ed. 1249 (1939); Baca v. Commissioner of Internal Revenue, 326 F.2d 189, 191 (5th Cir. 1963). Insurance policies are generally construed most strongly against the insurer. Henderson v. Hartford Accident & Indemnity Co., 268 N.C. 129, 150 S.E.2d 17, 19 (1966). When it is doubtful whether words create a promise or a condition precedent, they will be construed as creating a promise. Harris and Harris Const. Co. v. Crain and Denbo, Inc., 256 N.C. 110, 123 S.E.2d 590, 595 (1962). The provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction. Harris, 123 S.E.2d at 596. And Harris, at 123 S.E.2d 590, 595, cites Jones v. Palace Realty Co., 226 N.C. 303, 37 S.E.2d 906 (1946), and Restatement of the Law, Contracts, § 261.

Plaintiffs rely most strongly upon the fact that the term "condition precedent" is included in subparagraph 5(b) but not in subparagraph 5(f). It is true that whether a contract provision is construed as a condition or an obligation does not depend entirely upon whether the word "condition" is expressly used. Appleman, Insurance Law and Practice (1972), vol. 6A, § 4144. However, the persuasive force of plaintiffs' argument in this case is found in the use of the term "condition precedent" in subparagraph 5(b) but not in subparagraph 5(f). Thus, it is argued that the ancient maxim to be applied is that the expression of one thing is the exclusion of another.

The defendant places principal reliance upon the decision of this court in Fidelity-Phenix Fire Insurance Company v. Pilot Freight Carriers, 193 F.2d 812, 31 A.L.R.2d 839 (4th Cir. 1952). Suit there was predicated upon a loss resulting from theft out of a truck covered by defendant's policy protecting plaintiff from such a loss. The insurance company defended upon the grounds that the plaintiff had left the truck unattended without the alarm system being on. The policy contained six paragraphs limiting coverage. Two of those imposed what was called a "condition precedent." They largely related to the installation of specified safety equipment. Several others, including paragraph 5, pertinent in that case, started with the phrase, "It is further warranted." In paragraph 5, the insured warranted that the alarm system would be on whenever the vehicle was left unattended. Paragraph 6 starts with the language: "The assured agrees, by acceptance of this policy, that the foregoing conditions precedent relate to matters material to the acceptance of the risk by the insurer." Plaintiff recovered in the district court, but judgment on its behalf was reversed because of a breach of warranty of paragraph 5, the truck had been left unattended with the alarm off. In that case, plaintiff relied upon the fact that the words "condition precedent" were used in some of the paragraphs but the word "warranted" was used in the paragraph in issue. In rejecting that contention, this court said that "warranty" and "condition precedent" are often used interchangeably to create a condition of the insured's promise, and "[m]anifestly the terms `condition precedent' and `warranty' were intended to have the same meaning and effect." 193 F.2d at 816.

Fidelity-Phenix thus does not support defendant's contention here. Although there is some resemblance between the two cases, analysis shows that the issues are actually entirely different. Unlike the case at bar, each paragraph in Fidelity-Phenix contained either the term "condition precedent" or the term "warranted." We held that, in that situation, the two terms had the same effect in that they both involved forfeiture. That is well established law. See Appleman, Insurance Law and Practice (1972), vol. 6A, § 4144. In the case at bar, the term "warranty" or "warranted" is in no way involved, either in terms or by way of like language, as it was in Fidelity-Phenix. The issue upon which this case [698] turns, then, was not involved in Fidelity-Phenix.

The Restatement of the Law of Contracts states:

"§ 261. INTERPRETATION OF DOUBTFUL WORDS AS PROMISE OR CONDITION.

Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other party's promise is conditional on that performance."

Two illustrations (one involving a promise, the other a condition) are used in the Restatement:

"2. A, an insurance company, issues to B a policy of insurance containing promises by A that are in terms conditional on the happening of certain events. The policy contains this clause: `provided, in case differences shall arise touching any loss, the matter shall be submitted to impartial arbitrators, whose award shall be binding on the parties.' This is a promise to arbitrate and does not make an award a condition precedent of the insurer's duty to pay.

3. A, an insurance company, issues to B an insurance policy in usual form containing this clause: `In the event of disagreement as to the amount of loss it shall be ascertained by two appraisers and an umpire. The loss shall not be payable until 60 days after the award of the appraisers when such an appraisal is required.' This provision is not merely a promise to arbitrate differences but makes an award a condition of the insurer's duty to pay in case of disagreement." (Emphasis added)

We believe that subparagraph 5(f) in the policy here under consideration fits illustration 2 rather than illustration 3. Illustration 2 specifies something to be done, whereas subparagraph 5(f) specifies something not to be done. Unlike illustration 3, subparagraph 5(f) does not state any conditions under which the insurance shall "not be payable," or use any words of like import. We hold that the district court erroneously held, on the motion for summary judgment, that subparagraph 5(f) established a condition precedent to plaintiffs' recovery which forfeited the coverage.^[2]

From our holding that defendant's motion for summary judgment was improperly allowed, it does not follow the plaintiffs' motion for summary judgment should have been granted, for if subparagraph 5(f) be not construed as a condition precedent, there are other questions of fact to be determined.^[3] At this point, we merely hold that the district court erred in holding, on the motion for summary judgment, that subparagraph 5(f) constituted a condition precedent with resulting forfeiture.

The explanation defendant makes for including subparagraph 5(f) in the tobacco endorsement is that it is necessary that the stalks remain standing in order for the Corporation to evaluate the extent of loss and [699] to determine whether loss resulted from some cause not covered by the policy. However, was subparagraph 5(f) inserted because without it the Corporation's opportunities for proof would be more difficult, or because they would be impossible? Plaintiffs point out that the Tobacco Endorsement, with subparagraph 5(f), was adopted in 1970, and crop insurance goes back long before that date. Nothing is shown as to the Corporation's prior 1970 practice of evaluating losses. Such a showing might have a bearing upon establishing defendant's intention in including 5(f). Plaintiffs state, and defendant does not deny, that another division of the Department of Agriculture, or the North Carolina Department, urged that tobacco stalks be cut as soon as possible after harvesting as a means of pest control. Such an explanation might refute the idea that plaintiffs plowed under the stalks for any fraudulent purpose. Could these conflicting directives affect the reasonableness of plaintiffs' interpretation of defendant's prohibition upon plowing under the stalks prior to adjustment?

We express no opinion on these questions because they were not before the district court and are mentioned to us largely by way of argument rather than from the record. No question of ambiguity was raised in the court below or here and no question of the applicability of paragraph 5(c) to this case was alluded to other than in the defendant's pleadings, so we also do not reach those questions. Nothing we say here should preclude FCIC from asserting as a defense that the plowing or disking under of the stalks caused damage to FCIC if, for example, the amount of the loss was thereby made more difficult or impossible to ascertain whether the plowing or disking under was done with bad purpose or innocently. To repeat, our narrow holding is that merely plowing or disking under the stalks does not of itself operate to forfeit coverage under the policy.

The case is remanded for further proceedings not inconsistent with this opinion.

VACATED AND REMANDED.

[1] The district court also relied upon language in subparagraph 5(b), infra, which required as a condition precedent to payment that the insured, in addition to establishing his production and loss from an insured case, "furnish any other information regarding the manner and extent of loss as may be required by the Corporation." The court construed the preservation of the stalks as such "information." We see no language in the policy or connection in the record to indicate this is the case.

[2] The district court also referred to subparagraph 5(f) as a condition subsequent. The difference in terminology is of no consequence here.

[3] Even apart from our interpretation of paragraph 5(f), plaintiffs' motion for summary judgment should not have been allowed. Plaintiffs' notice is predicated upon the assumption that defendant's entire defense was based upon its interpretation of paragraph 5(f). Actually, defendant denied paragraph VII of plaintiffs' complaint, which constituted a denial that plaintiffs suffered loss in the amount claimed; also it alluded to paragraph 5(c) which under certain circumstances may require a total production figure equal to the insurance provided. Plaintiffs' affidavit, which was not denied by a counteraffidavit, does state the amount of loss. Said affidavit does not, however, state facts sufficient to absolutely establish that said loss occurred as a result of a risk covered by the policy or to exclude all other possible defenses. Plaintiffs' assumption that liability was denied solely because of their acts of plowing under the tobacco stalks is apparently based upon the discovery deposition of adjuster Burr. Such a conclusion does not conclusively appear from Burr's deposition. But, even if it does so appear, the defendant would not be bound absolutely by Burr's testimony. Although Burr was an agent of the Corporation, his admission would be no more than evidence and not necessarily conclusive.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by Alexander Stewart against Herbert A. Newbury and others, doing business under the firm name and style of the Newbury Manufacturing Company. From a judgment of the Appellate Division (163 App. Div. 868,147 N. Y. Supp. 1144) affirming a judgment for plaintiff, defendants appeal. Reversed, and new trial ordered.

[220 N.Y. 380]Philip A. Rorty, of Goshen, for appellants.

Percy V. D. Gott, of Goshen, for respondent.

CRANE, J.

The defendants are partners in the pipe fitting business under the name of Newbury Manufacturing Company. The plaintiff is a contractor and builder residing at Tuxedo, N. Y.

The parties had the following correspondence about the erection for the defendants of a concrete mill building at Monroe, N. Y.:

[220 N.Y. 381]‘Alexander Stewart,

‘Contractor and Builder,

‘Tuxedo, N. Y., July 18, 1911.

‘Newbury Mfg. Company, Monroe, N. Y.-Gentlemen: With reference to the proposed work on the new foundry building I had hoped to be able to get up and see you this afternoon, but find that impossible and am, in consequence, sending you these prices, which I trust you will find satisfactory.

‘I will agree to do all excavation work required at sixty-five ($.65) cents per cubic yard.

‘I will put in the concrete work, furnishing labor and forms only, at two and 05-100 ($2.05) dollars per cubic yard.

‘I will furnish labor to put in reenforcing at four ($4.00) dollars per ton.

‘I will furnish labor only to set all window and door frames, window sash and doors, including the setting of hardware for one hundred twelve ($112) dollars. As alternative I would be willing to do any or all of the above work for cost plus 10 per cent., furnishing you with first class mechanics and giving the work considerable of my personal time.

‘Hoping to hear favorably from you in this regard, I am,

‘Respectfully yours,

‘[Signed] Alexander Stewart.’

‘The Newbury Mfg. Co.,

‘Steam Fittings, Grey Iron Castings,

‘Skylight Opening Apparatus,

‘Monroe, N. Y.

‘Telephone Connection.

‘Monroe, N. Y., July 22, 1911.

‘Alexander Stewart, Tuxedo Park, N. Y.-Dear Sir: Confirming the telephone conversation of this morning we accept your bid of July the 18th to do [220 N.Y. 382]the concrete work on our new building. We trust that you will be able to get at this the early part of next week.

‘Yours truly,

The Newbury Mfg. Co.,

‘H. A. Newbury.’

Nothing was said in writing about the time or manner of payment. The plaintiff, however, claims that after sending his letter, and before receiving that of the defendant, he had a telephone communication with Mr. Newbury and said: ‘I will expect my payments in the usual manner,’ and Newbury said, ‘All right, we have got the money to pay for the building.’ This conversation over the telephone was denied by the defendants. The custom, the plaintiff testified, was to pay 85 per cent. every 30 days or at the end of each month, 15 per cent. being retained till the work was completed.

In July the plaintiff commenced work and continued until September 29th, at which time he had progressed with the construction as far as the first floor. He then sent a bill for the work done up to that date for $896.35. The defendants refused to pay the bill and work was discontinued. The plaintiff claims that the defendants refused to permit him to perform the rest of his contract, they insisting that the work already done was not in accordance with the specifications. The defendants claimed upon the trial that the plaintiff voluntarily abandoned the work after their refusal to pay his bill.

On October 5, 1911, the defendants wrote the plaintiff a letter containing the following:

‘Notwithstanding you promised to let us know on Monday whether you would complete the job or throw up the contract, you have not up to this time advised us of your intention. * * * Under the circumstances, we are compelled to accept your action as being an abandonment of your contract and of [220 N.Y. 383]every effort upon your part to complete your work on our building. As you know, the bill which you sent us and which we declined to pay is not correct, either in items or amount, nor is there anything due you under our contract as we understand it until you have completed your work on our building.’

[985] To this letter the plaintiff replied the following day. In it he makes no reference to the telephone communication agreeing, as he testified, to make ‘the usual payments,’ but does say this:

‘There is nothing in our agreement which says that I shall wait until the job is completed before any payment is due, nor can this be reasonably implied. * * * As to having given you positive date as to when I should let you know what I proposed doing, I did not do so; on the contrary, I told you that I would not tell you positively what I would do until I had visited the job, and I promised that I would do this at my earliest convenience and up to the present time I have been unable to get up there.’

The defendant Herbert Newbury testified that the plaintiff ‘ran away and left the whole thing.’ And the defendant F. A. Newbury testified that he was told by Mr. Stewart's man that Stewart was going to abandon the job; that he thereupon telephoned Mr. Stewart, who replied that he would let him know about it the next day, but did not.

In this action, which is brought to recover the amount of the bill presented, as the agreed price and $95.68 damages for breach of contract, the plaintiff had a verdict for the amount stated in the bill, but not for the other damages claimed, and the judgment entered thereon has been affirmed by the Appellate Division.

The appeal to us is upon exceptions to the judge's charge. The court charged the jury as follows:

‘Plaintiff says that he was excused from completely performing the contract by the defendants' unreasonable failure to pay him for the work he had done during the months [220 N.Y. 384]of August and September. * * * Was it understood that the payments were to be made monthly? If it was not so understood, the defendants only obligation was to make payments at reasonable periods, in view of the character of the work, the amount of work being done, and the value of it. In other words, if there was no agreement between the parties respecting the payments, the defendants' obligation was to make payments at reasonable times. * * * But whether there was such an agreement or not, you may consider whether it was reasonable or unreasonable for him to exact a payment at that time and in that amount.’

The court further said, in reply to a request to charge:

‘I will say in that connection, if there was no agreement respecting the time of payment, and if there was no custom that was understood by both parties, and with respect to which they made the contract, then the plaintiff was entitled to payments at reasonable times.’

The defendants' counsel thereupon made the following request, which was refused:

‘I ask your honor to instruct the jury that, if the circumstances existed as your honor stated in your last instruction, then the plaintiff was not entitled to any payment until the contract was completed.’

The jury was plainly told that if there were no agreement as to payments, yet the plaintiff would be entitled to part payment at reasonable times as the work progressed, and if such payments were refused he could abandon the work and recover the amount due for the work performed.

[1] This is not the law. Counsel for the plaintiff omits to call our attention to any authority sustaining such a proposition and our search reveals none. In fact, the law is very well settled to the contrary. This was an entire contract. Ming v. Corbin, 142 N. Y. 334, 340, 341,37 N. E. 105. Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially[220 N.Y. 385]performed before payment can be demanded. Gurski v. Doscher, 112 App. Div. 345,98 N. Y. Supp. 588; affirmed 190 N. Y. 536, 83 N. E. 1125;Cunningham v. Jones, 20 N. Y. 486;People ex rel. Cossey v. Grout, 179 N. Y. 417, 426,72 N. E. 464,1 Ann. Cas. 39;Delehanty v. Dunn, 151 App. Div. 695,136 N. Y. Supp. 193;Smith v. Brady, 17 N. Y. 173, 187, 188,72 Am. Dec. 442;Catlin v. Tobias, 26 N. Y. 217, 84 Am. Dec. 183;Cronin v. Tebo, 71 Hun, 59, 61, 24 N. Y. Supp. 644, affirmed 144 N. Y. 660, 39 N. E. 344; Coburn v. Hartford, 38 Conn. 290; Poland v. Thomaston Co., 100 Me. 133, 60 Atl. 795;Thompson v. Phelan, 22 N. H. 339;Friedman v. Schleuter, 105 Ark. 580, 151 S. W. 696.

[2] This case was also submitted to the jury upon the ground that there may have been a breach of contract by the defendants in their refusal to permit the plaintiff to continue with his work, claiming that he had departed from the specifications, and there was some evidence justifying this view of the case; but it is impossible to say upon which of these two theories the jury arrived at its conclusion. The above errors, therefore, cannot be considered as harmless and immaterial. Stokes v. Barber Asphalt Paving Co., 207 N. Y. 252, 257,100 N. E. 597;Condran v. Park & Tilford, 213 N. Y. 341, 107 N. E. 565;Clarke v. Schmidt, 210 N. Y. 211, 215,104 N. E. 613. As the verdict was for the amount of the bill presented and did not include the damages for a breach of contract, which would be the loss of profits, it may well be presumed that the jury adopted the first ground of recovery charged by the court as above quoted and decided that the plaintiff was justified in abandoning work for nonpayment of the installment.

The judgment should be reversed, and a new trial ordered; costs to abide the event.

HISCOCK, C. J., and COLLIN, CARDOZO, POUND, and ANDREWS, JJ., concur. CUDDEBACK, J., absent.

Judgment reversed, etc.

173 Cal. App. 3d 13

BRIAN KEITH, Plaintiff and Appellant, v. JAMES BUCHANAN et al., Defendants and Respondents.

No. B004734

Court of Appeals of California, Second Appellate District, Division Six

October 9, 1985

Charles C. McCarthy, McCarthy, Bullis & Post and McCarthy & Bullis for Plaintiff and Appellant.

Jessup & Beecher, Keith D. Beecher, William R. Alvin, Fairfield, McDonald, Sullard & Lane and William M. Slaughter for Defendants and Respondents.

OCHOA, J.

This breach of warranty case is before this court after the trial court granted defendants' motion for judgment at the close of plaintiff's [173 Cal. App. 3d 18] case during the trial proceedings. We hold that an express warranty under section 2313 of the California Uniform Commercial Code was created in this matter, and that actual reliance on the seller's factual representation need not be shown by the buyer. The representation is presumed to be part of the basis of the bargain, and the burden is on the seller to prove that the representation was not a consideration inducing the bargain. We affirm all other aspects of the trial court's judgment but reverse in regard to its finding that no express warranty was created and remand for further proceedings consistent with this opinion.

Statement of Facts

Plaintiff, Brian Keith, purchased a sailboat from defendants in November 1978 for a total purchase price of $75,610. Even though plaintiff belonged to the Waikiki Yacht Club, had attended a sailing school, had joined the Coast Guard Auxiliary, and had sailed on many yachts in order to ascertain his preferences, he had not previously owned a yacht. He attended a boat show in Long Beach during October 1978 and looked at a number of boats, speaking to sales representatives and obtaining advertising literature. In the literature, the sailboat which is the subject of this action, called an "Island Trader 41," was described as a seaworthy vessel. In one sales brochure, this vessel is described as "a picture of sure-footed seaworthiness." In another, it is called "a carefully well-equipped, and very seaworthy live-aboard vessel." Plaintiff testified he relied on representations in the sales brochures in regard to the purchase. Plaintiff and a sales representative also discussed plaintiff's desire for a boat which was ocean-going and would cruise long distances.

Plaintiff asked his friend, Buddy Ebsen, who was involved in a boat building enterprise, to inspect the boat. Mr. Ebsen and one of his associates, both of whom had extensive experience with sailboats, observed the boat and advised plaintiff that the vessel would suit his stated needs. A deposit was paid on the boat, a purchase contract was entered into, and optional accessories for the boat were ordered. After delivery of the vessel, a dispute arose in regard to its seaworthiness.

Plaintiff filed the instant lawsuit alleging causes of action in breach of express warranty and breach of implied warranty. The trial court granted defendants' Code of Civil Procedure section 631.8 motion for judgment at the close of plaintiff's case. The court found that no express warranty was established by the evidence because none of the defendants had undertaken in writing to preserve or maintain the utility or performance of the vessel, nor to provide compensation for any failure in utility or performance. It found that the written statements produced at trial were opinions or commendations [173 Cal. App. 3d 19] of the vessel. The court further found that no implied warranty of fitness was created because the plaintiff did not rely on the skill and judgment of defendants to select and furnish a suitable vessel, but had rather relied on his own experts in selecting the vessel.

Discussion

I. Express Warranty

[1] California Uniform Commercial Code section 2313 fn. 1 provides, inter alia, that express warranties are created by (1) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain, and (2) any description of the goods which is made part of the basis of the bargain. Formal words such as "warranty" or "guarantee" are not required to make a warranty, but the seller's affirmation of the value of the goods or an expression of opinion or commendation of the goods does not create an express warranty.

[2] In addition, the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.) establishes broad statutory control over warranties in consumer sales where consumer goods are used or bought for use primarily for personal, family, or household purposes. Provisions of the Civil Code relating to warranties do not affect the rights and obligations of parties under the Commercial Code, except that where conflicts exist between the code provisions, the rights guaranteed to buyers of consumer goods under the provisions of the Consumer Warranty Act prevail. (Civ. Code, § 1790.3.)

The act defines an express warranty, in pertinent part, as "[a] written statement arising out of a sale to the consumer of a consumer good pursuant to which the manufacturer, distributor, or retailer undertakes to preserve or maintain the utility or performance of the consumer good or provide compensation if there is a failure in utility or performance ...." (Civ. Code, § 1791.2, subd. (a)(1).) Again, formal words are not required in order to [173 Cal. App. 3d 20] create an express warranty, but statements of value, opinion, or commendation do not create a warranty.

The trial court appropriately found that there was no written undertaking to preserve or maintain the utility or performance of a consumer good or to provide compensation if there was a failure in utility or performance at the time the purchase contract for the sailboat was made. No claim, therefore, is cognizable that an express warranty existed in this action pursuant to the provisions of the Song-Beverly Consumer Warranty Act. However, at the time of argument on the motion for judgment, plaintiff's counsel had argued claims based on express warranty under the provisions of both the Civil Code and the Commercial Code, and no analysis was undertaken in regard to express warranty under the provisions of the California Uniform Commercial Code.

California Uniform Commercial Code section 2313, regarding express warranties, was enacted in 1963 and consists of the official text of Uniform Commercial Code section 2-313 without change. [3] In deciding whether a statement made by a seller constitutes an express warranty under this provision, the court must deal with three fundamental issues. First, the court must determine whether the seller's statement constitutes an "affirmation of fact or promise" or "description of the goods" under California Uniform Commercial Code section 2313, subdivision (1)(a) or (b), or whether it is rather "merely the seller's opinion or commendation of the goods" under section 2313, subdivision (2). Second, assuming the court finds the language used susceptible to creation of a warranty, it must then be determined whether the statement was "part of the basis of the bargain." Third, the court must determine whether the warranty was breached. (See Sessa v. Riegle (E.D.Pa. 1977) 427 F. Supp. 760, 765.)

[4] A warranty relates to the title, character, quality, identity, or condition of the goods. The purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell. (A. A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal. App. 3d 144, 153 [88 Cal. Rptr. 842].) "Express warranties are chisels in the hands of buyers and sellers. With these tools, the parties to a sale sculpt a monument representing the goods. Having selected a stone, the buyer and seller may leave it almost bare, allowing considerable play in the qualities that fit its contours. Or the parties may chisel away inexactitudes until a well-defined shape emerges. The seller is bound to deliver, and the buyer to accept, goods that match the sculpted form. [Fn. omitted] (Special Project: Article Two Warranties in Commercial Transactions, Express Warranties--Section 2-313 (1978-79) 64 Cornell L.Rev. 30 (hereafter cited as Warranties in Commercial Transactions) at pp. 43-44.) [173 Cal. App. 3d 21]

A. Affirmation of fact, promise or description versus statement of opinion, commendation or value.

[5] "The determination as to whether a particular statement is an expression of opinion or an affirmation of a fact is often difficult, and frequently is dependent upon the facts and circumstances existing at the time the statement is made." (Willson v. Municipal Bond Co. (1936) 7 Cal. 2d 144, 150 [59 P.2d 974].) Recent decisions have evidenced a trend toward narrowing the scope of representations which are considered opinion, sometimes referred to as "puffing" or "sales talk," resulting in an expansion of the liability that flows from broad statements of manufacturers or retailers as to the quality of their products. Courts have liberally construed affirmations of quality made by sellers in favor of injured consumers. (Hauter v. Zogarts (1975) 14 Cal. 3d 104, 112 [120 Cal. Rptr. 681, 534 P.2d 377, 7 A.L.R.3d 1282]; see also 55 Cal.Jur.3d, Sales, § 74, p. 580.) It has even been suggested "that in an age of consumerism all seller's statements, except the most blatant sales pitch, may give rise to an express warranty." (1 Alderman and Dole, A Transactional Guide to the Uniform Commercial Code (2d ed. 1983) p. 89.)

Courts in other states have struggled in efforts to create a formula for distinguishing between affirmations of fact, promises, or descriptions of goods on the one hand, and value, opinion, or commendation statements on the other. fn. 2 The code comment indicates that the basic question is: "What statements of the seller have in the circumstances and in objective judgment become part of the basis of the bargain?" The commentators indicated that the language of subsection (2) of the code section was included because "common experience discloses that some statements or predictions cannot fairly be viewed as entering into the bargain." (See U. Com. Code com. 8 to Cal. U. Com. Code, § 2313, West's Ann. Com. Code (1964) p. 250, Deering's Cal. Codes Ann. p. 143.)

Statements made by a seller during the course of negotiation over a contract are presumptively affirmations of fact unless it can be demonstrated that the buyer could only have reasonably considered the statement as a statement of the seller's opinion. Commentators have noted several factors which tend to indicate an opinion statement. These are (1) a lack of specificity in the statement made, (2) a statement that is made in an equivocal manner, or (3) a statement which reveals that the goods are experimental in nature. (See Warranties in Commercial Transactions, supra, at pp. 61-65.) [173 Cal. App. 3d 22]

[6] It is clear that statements made by a manufacturer or retailer in an advertising brochure which is disseminated to the consuming public in order to induce sales can create express warranties. (Fundin v. Chicago Pneumatic Tool Co. (1984) 152 Cal. App. 3d 951, 957 [199 Cal. Rptr. 789]; see also Community Television Services v. Dresser Industries (8th Cir. 1978) 586 F.2d 637, 640, cert. den. 1979; Fargo Mach. & Tool Co. v. Kearney & Trecker Corp. (E.D.Mich. 1977) 428 F. Supp. 364, 370-371; Colorado-Ute Elec. Ass'n, Inc. v. Envirotech Corp. (D.Colo. 1981) 524 F. Supp. 1152, 1156; Neville Const. Co. v. Cook Paint and Varnish Co. (8th Cir. 1982) 671 F.2d 1107, 1110.) In the instant case, the vessel purchased was described in sales brochures as "a picture of sure-footed seaworthiness" and "a carefully well-equipped and very seaworthy vessel." The seller's representative was aware that appellant was looking for a vessel sufficient for long distance ocean-going cruises. The statements in the brochure are specific and unequivocal in asserting that the vessel is seaworthy. Nothing in the negotiation indicates that the vessel is experimental in nature. In fact, one sales brochure assures prospective buyers that production of the vessel was commenced "after years of careful testing." The representations regarding seaworthiness made in sales brochures regarding the Island Trader 41 were affirmations of fact relating to the quality or condition of the vessel.

B. "Part of the basis of the bargain" test.

[7] Under former provisions of law, a purchaser was required to prove that he or she acted in reliance upon representations made by the seller. (Grinnell v. Charles Pfizer & Co. (1969) 274 Cal. App. 2d 424, 440 [79 Cal. Rptr. 369].) California Uniform Commercial Code section 2313 indicates only that the seller's statements must become "part of the basis of the bargain." According to official comment 3 to this Uniform Commercial Code provision, "no particular reliance ... need be shown in order to weave [the seller's affirmations of fact] into the fabric of the agreement. Rather, any fact which is to take such affirmations, once made, out of the agreement requires clear affirmative proof." (See U. Com. Code com. 3 to Cal. U. Com. Code, § 2313, 23A West's Ann. Com. Code (1964 ed.) p. 249, Deering's Ann. Cal. U. Com. Code (1970 ed.) p. 142.)

The California Supreme Court, in discussing the continued viability of the reliance factor, noted that commentators have disagreed in regard to the impact of this development. Some have indicated that it shifts the burden of proving nonreliance to the seller, and others have indicated that the code eliminates the concept of reliance altogether. (Hauter v. Zogarts, supra, 14 Cal.3d at pp. 115-116.) The court did not resolve this issue, but noted that decisions of other states prior to that time had "ignored the significance of the new standard and have held that consumer reliance still is a vital ingredient [173 Cal. App. 3d 23] for recovery based on express warranty." (Id, at p. 116, fn. 13; see also Fogo v. Cutter Laboratories, Inc. (1977) 68 Cal. App. 3d 744, 760 [137 Cal. Rptr. 417].)

The shift in language clearly changes the degree to which it must be shown that the seller's representation affected the buyer's decision to enter into the agreement. A buyer need not show that he would not have entered into the agreement absent the warranty or even that it was a dominant factor inducing the agreement. A warranty statement is deemed to be part of the basis of the bargain and to have been relied upon as one of the inducements for the purchase of the product. In other words, the buyer's demonstration of reliance on an express warranty is "not a prerequisite for breach of warranty, as long as the express warranty involved became part of the bargain. See White & Summers, Uniform Commercial Code (2d ed. 1980) § 9-4. If, however, the resulting bargain does not rest at all on the representations of the seller, those representations cannot be considered as becoming any part of the 'basis of the bargain.' ..." (Allied Fidelity Ins. Co. v. Pico (1983) 99 Nev. 15 [656 P.2d 849, 850].)

The official Uniform Commercial Code comment in regard to section 2-313 "indicates that in actual practice affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement." (Young & Cooper, Inc. v. Vestring (1974) 214 Kan. 311 [521 P.2d 281, 291]; Brunner v. Jensen (1974) 215 Kan. 416 [524 P.2d 1175, 1185].) It is clear from the new language of this code section that the concept of reliance has been purposefully abandoned. (Interco Inc. v. Randustrial Corp. (Mo.App. 1976) 533 S.W.2d 257, 261; see also Winston Industries, Inc. v. Stuyvesant Insurance Co., Inc. (1975) 55 Ala.App. 525 [317 So. 2d 493, 497].)

The change of the language in section 2313 of the California Uniform Commercial Code modifies both the degree of reliance and the burden of proof in express warranties under the code. The representation need only be part of the basis of the bargain, or merely a factor or consideration inducing the buyer to enter into the bargain. A warranty statement made by a seller is presumptively part of the basis of the bargain, and the burden is on the seller to prove that the resulting bargain does not rest at all on the representation.

[8] The buyer's actual knowledge of the true condition of the goods prior to the making of the contract may make it plain that the seller's statement was not relied upon as one of the inducements for the purchase, but the burden is on the seller to demonstrate such knowledge on the part of the [173 Cal. App. 3d 24] buyer. Where the buyer inspects the goods before purchase, he may be deemed to have waived the seller's express warranties. But, an examination or inspection by the buyer of the goods does not necessarily discharge the seller from an express warranty if the defect was not actually discovered and waived. (Doak Gas Engine Co. v. Fraser (1914) 168 Cal. 624, 627 [143 P. 1024]; Munn v. Earle C. Anthony, Inc. (1918) 36 Cal. App. 312, 315 [171 P. 1082]; Capital Equipment Enter., Inc. v. North Pier Terminal Co. (1969) 117 Ill.App.2d 264 [254 N.E.2d 542, 545].)

[9] Appellant's inspection of the boat by his own experts does not constitute a waiver of the express warranty of seaworthiness. Prior to the making of the contract, appellant had experienced boat builders observe the boat, but there was no testing of the vessel in the water. fn. 3 Such a warranty (seaworthiness) necessarily relates to the time when the vessel has been put to sea (Werner v. Montana (1977) 117 N.H. 721 [378 A.2d 1130, 1134-1135]) and has been shown to be reasonably fit and adequate in materials, construction, and equipment for its intended purposes (Daly v. General Motors Corp. (1978) 20 Cal. 3d 725, 739 [144 Cal. Rptr. 380, 575 P.2d 1162]; Vittone v. American President Lines (1964) 228 Cal. App. 2d 689, 693-694 [39 Cal.Rptr. 758]).

In this case, appellant was aware of the representations regarding seaworthiness by the seller prior to contracting. He also had expressed to the seller's representative his desire for a long distance ocean-going vessel. Although he had other experts inspect the vessel, the inspection was limited and would not have indicated whether or not the vessel was seaworthy. It is clear that the seller has not overcome the presumption that the representations regarding seaworthiness were part of the basis of this bargain.

II. Implied Warranty

Appellant also claimed breach of the implied warranty of fitness for a particular purpose fn. 4 in regard to the sale of the subject vessel. An implied [173 Cal. App. 3d 25] warranty of fitness for a particular purpose arises when a "seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods," which are fit for such purpose. (Cal. U. Com. Code, § 2315.) The Consumer Warranty Act makes such an implied warranty applicable to retailers, distributors, and manufacturers. (Civ. Code, §§ 1791.1, 1792.1, 1792.2, subd. (a).) [10] An implied warranty of fitness for a particular purpose arises only where (1) the purchaser at the time of contracting intends to use the goods for a particular purpose, (2) the seller at the time of contracting has reason to know of this particular purpose, (3) the buyer relies on the seller's skill or judgment to select or furnish goods suitable for the particular purpose, and (4) the seller at the time of contracting has reason to know that the buyer is relying on such skill and judgment. (Metowski v. Traid Corp. (1972) 28 Cal. App. 3d 332, 341 [104 Cal. Rptr. 599].)

The reliance elements are important to the consideration of whether an implied warranty of fitness for a particular purpose exists. "If the seller had no reason to know that he was being relied upon, his conduct in providing goods cannot fairly be deemed a tacit representation of their suitability for a particular purpose. And if the buyer did not in fact rely, then the principal justification for imposing a fitness warranty disappears." (See Warranties in Commercial Transactions, supra, at p. 89.) The major question in determining the existence of an implied warranty of fitness for a particular purpose is the reliance by the buyer upon the skill and judgment of the seller to select an article suitable for his needs. (Bagley v. International Harvester Co. (1949) 91 Cal. App. 2d 922, 925 [206 P.2d 43]; Drumar M. Co. v. Morris Ravine M. Co. (1939) 33 Cal. App. 2d 492, 495-496 [92 P.2d 424].)

[11a] The trial court found that the plaintiff did not rely on the skill and judgment of the defendants to select a suitable vessel, but that he rather relied on his own experts. [12] "Our sole task is to determine 'whether the evidence, viewed in the light most favorable to [respondent], sustains [these] findings.' [Citations.] Moreover, 'in examining the sufficiency of the evidence to support a questioned finding an appellate court must accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the trial court to lead to the same conclusion.' [Citations.] If appellate scrutiny reveals that substantial evidence supports the trial court's findings and conclusions, the judgment must be affirmed." (Board of Education v. Jack M. (1977) 19 Cal. 3d 691, 697 [139 Cal. Rptr. 700, 566 P.2d 602].)

[11b] A review of the record reveals ample evidence to support the trial court's finding. Appellant had extensive experience with sailboats at the [173 Cal. App. 3d 26] time of the subject purchase, even though he had not previously owned such a vessel. He had developed precise specifications in regard to the type of boat he wanted to purchase. He looked at a number of different vessels, reviewed their advertising literature, and focused on the Island Trader 41 as the object of his intended purchase. He also had friends look at the boat before making the final decision to purchase. The trial court's finding that the buyer did not rely on the skill or judgment of the seller in the selection of the vessel in question is supported by substantial evidence.

The trial court's judgment that no express warranty existed in this matter is reversed. The trial court's judgment is affirmed in all other respects. Since considerable contradictory evidence was elicited at trial relating to the asserted breach of warranty of seaworthiness of the subject vessel, and since the trial court made no finding in regard to that issue, the matter is remanded to the trial court for further proceedings consistent with this opinion. Each party is to bear his own costs on appeal.

Stone, P. J., and Gilbert, J., concurred.

FN 1. Section 2313: "(1) Express warranties by the seller are created as follows:

"(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

"(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

"(c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

"(2) It is not necessary to the creation of an express warranty that the seller use formal words such as 'warrant' or 'guarantee' or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty."

FN 2. See Wedding v. Duncan (1949) 310 Ky. 374 [220 S.W.2d 564, 567]; Boehm v. Fox (Kan.App.1973) 12 U.Com.Code Rep.Ser. 32, 40; Pake v. Byrd (1982) 55 N.C.App. 551 [286 S.E.2d 588, 589-590].

FN 3. Evidence was presented of examination or inspection of the boat after the making of the contract of sale and prior to delivery and acceptance of the vessel. Such an inspection would be irrelevant to any issue of express warranty. Although it deals with implied warranties as opposed to express warranties, the Uniform Commercial Code comment 8 to section 2-316 (Cal.U. Com. Code, § 2316) is instructive: "Under paragraph (b) of subsection (3) warranties may be excluded or modified by the circumstances where the buyer examines the goods or a sample or model of them before entering into the contract. 'Examination' as used in this paragraph is not synonymous with inspection before acceptance or at any other time after the contract has been made. It goes rather to the nature of the responsibility assumed by the seller at the time of the making of the contract." (See U. Com. Code com. 8 to Cal. U. Com. Code, § 2316, 23A West's Ann. Com. Code (1964 ed.) p. 308, Deering's Ann. Cal. U. Com. Code (1970 ed.) p. 193, italics added.)

FN 4. No claim of breach of implied warranty of merchantability has been presented in this action.

Philip B. Kurland, Chicago, Ill., for Royal Business Machines and Litton Business Systems.

Morris L. Klapper, Indianapolis, Ind., for Lorraine Corp. and Michael L. Booher.

Before PELL and WOOD, Circuit Judges, and BAKER, District Judge.^[*]

BAKER, District Judge.

This is an appeal from a judgment of the district court entered after a bench trial awarding Michael L. Booher and Lorraine Corp. (Booher) $1,171,216.16 in compensatory and punitive damages against Litton Business Systems, Inc. and Royal Business Machines, Inc. (Royal). The judgment further awarded Booher attorneys' fees of $156,800.00. It denied, for want of consideration, the recovery by Royal of a $596,921.33 indebtedness assessed against Booher earlier in the proceedings in a summary judgment. The judgment also granted Royal a set-off of $12,020.00 for an unpaid balance due on computer typewriters.

The case arose from commercial transactions extending over a period of 18 months between Royal and Booher in which Royal sold and Booher purchased 114 RBC I and 14 RBC II plain paper copying machines. In mid-August 1976, Booher filed suit against Royal in the Indiana courts claiming breach of warranties and fraud. On September 1, 1976, Royal sued Booher on his financing agreements in the district court and also removed the state litigation to the district court where the cases were consolidated.

The issues in the cases arise under Indiana common law and under the U.C.C. as adopted in Indiana, Ind.Code § 26-1-2-102 et seq. (1976). The contentions urged by Royal on appeal are that:

(1) substantial evidence does not support the findings that Royal made certain express warranties or that it breached any express warranty and, as a matter of law, no warranties were made; and

(2) substantial evidence does not support the findings that Royal breached the implied warranties of merchantability and fitness for a particular purpose; and

(3) substantial evidence does not support the finding that Booher made a timely revocation of acceptance of the goods sold; and

(4) substantial evidence does not support the findings upon which the awards of compensatory damages were made and that certain awards constituted a double recovery; and

(5) substantial evidence does not support the findings upon which the awards of punitive damages were made.

We reverse and remand for a new trial on the grounds set forth in this opinion.

EXPRESS WARRANTIES

We first address the question whether substantial evidence on the record supports the district court's findings that Royal made and breached express warranties to Booher. The trial judge found that Royal Business Machines made and breached the following express warranties:

(1) that the RBC Model I and II machines and their component parts were of high quality;

(2) that experience and testing had shown that frequency of repairs was very low on such machines and would remain so;

(3) that replacement parts were readily available;

(4) that the cost of maintenance for each RBC machine and cost of supplies was and would remain low, no more than ½ cent per copy;

(5) that the RBC machines had been extensively tested and were ready to be marketed;

(6) that experience and reasonable projections had shown that the purchase of the RBC machines by Mr. Booher and Lorraine Corporation and the leasing of the same to customers would return substantial profits to Booher and Lorraine;

(7) that the machines were safe and could not cause fires; and

(8) that service calls were and would be required for the RBC Model II machine on the average of every 7,000 to 9,000 copies, including preventive maintenance calls.

Substantial evidence supports the court's findings as to Numbers 5, 7, 8, and the maintenance aspect of Number 4, but, as a matter of law, Numbers 1, 2, 3, 6, and the cost of supplies portion of Number 4 cannot be considered express warranties.

Paraphrasing U.C.C. § 2-313 as adopted in Indiana,^[1] an express warranty is made up of the following elements: (a) an affirmation of fact or promise, (b) that relates to the goods, and (c) becomes a part of the basis of the bargain between the parties. When each of these three elements is present, a warranty is created that the goods shall conform to the affirmation of fact or to the promise.

The decisive test for whether a given representation is a warranty or merely an expression of the seller's opinion is whether the seller asserts a fact of which the buyer is ignorant or merely states an opinion or judgment on a matter of which the seller has no special knowledge and on which the buyer may be expected also to have an opinion and to exercise his judgment. Weiss v. Rockwell Mfg. Co., 9 Ill. App.3d 906, 293 N.E.2d 375 (1977), citing Keller v. Flynn, 346 Ill.App. 499, 105 N.E.2d 532, 536 (1952); General Supply & Equipment Co. v. Phillips, 490 S.W.2d 913 (Tex. Civ.App. 1972). General statements to the effect that goods are "the best," Thompson Farms, Inc. v. Corno Feed Products, ___ Ind. App. ___, 366 N.E.2d 3 (1977), or are "of good quality," Olin-Mathieson Chemical Corp. v. Moushon, 93 Ill.App.2d 280, 235 N.E.2d 263 (1968), or will "last a lifetime" and be "in perfect condition," Performance Motors, Inc. v. Allen, 280 N.C. 385, 186 S.E.2d 161 (1972), are generally regarded as expressions of the seller's opinion or "the puffing of his wares" and do not create an express warranty.

No express warranty was created by Royal's affirmation that both RBC machine models and their component parts were of high quality. This was a statement of the seller's opinion, the kind of "puffing" to be expected in any sales transaction, rather than a positive averment of fact describing a product's capabilities to which an express warranty could attach. Thompson Farms, Inc. v. Corno Feed Products, supra; Keller v. Flynn, supra.

Similarly, the representations by Royal that experience and testing had shown that the frequency of repair was "very low" and would remain so lack the specificity of an affirmation of fact upon which a warranty could be predicated. These representations were statements of the seller's opinion.

The statement that replacement parts were readily available is an assertion of fact, but it is not a fact that relates to the goods sold as required by Ind.Code § 26-1-2-313(1)(a) and is not an express warranty to which the goods were to conform. Neither is the statement about the future costs of supplies being ½ cent per copy an assertion of fact that relates to the goods sold, so the statement cannot constitute the basis of an express warranty.

It was also erroneous to find that an express warranty was created by Royal's assurances to Booher that purchase of the RBC machines would bring him substantial profits. Such a representation does not describe the goods within the meaning of U.C.C. § 2-313(1)(b), nor is the representation an affirmation of fact relating to the goods under U.C.C. § 2-313(1)(a). It is merely sales talk and the expression of the seller's opinion. See Regal Motor Products v. Bender, 102 Ohio App. 447, 139 N.E.2d 463, 465 (1956) (representation that goods were "readily saleable" and that the demand for them would create a market was not a warranty). See also Conant v. Terre Haute National State Bank, 121 Ind. 323, 22 N.E. 250, 251 (1889); Harness v. Horne, 20 Ind.App. 134, 50 N.E. 395, 397 (1898).

On the other hand, the assertion that the machines could not cause fires is an assertion of fact relating to the goods, and substantial evidence in the record supports the trial judge's findings that the assertion was made by Royal to Booher.^[2] The same may be said for the assertion that the machines were tested and ready to be marketed. See Bemidji Sales Barn v. Chatfield, 312 Minn. 11, 250 N.W.2d 185 (1977) (seller's representation that cattle "had been vaccinated for shipping fever and were ready for the farm" constituted an express warranty). See generally R. Anderson, Uniform Commercial Code § 2-313:36 (2d ed. 1970) (author asserts that seller who sells with seal of approval of a third person, e. g., a testing laboratory, makes an express warranty that the product has been tested and approved and is liable if the product was in fact not approved). The record supports the district court's finding that Royal represented that the machines had been tested.^[3]

As for findings 8 and the maintenance portion of Number 4, Royal's argument that those statements relate to predictions for the future and cannot qualify as warranties is unpersuasive.^[4] An expression of future capacity or performance can constitute an express warranty. In Teter v. Schultz, 110 Ind.App. 541, 39 N.E.2d 802, 804 (1942), the Indiana courts held that a seller's statement that dairy cows would give six gallons of milk per day was an affirmation of fact by the seller relating to the goods. It was not a statement of value nor was it merely a statement of the seller's opinion. The Indiana courts have also found that an express warranty was created by a seller's representation that a windmill was capable of furnishing power to grind 20 to 30 bushels of grain per hour in a moderate wind and with a very light wind would pump an abundance of water. Smith v. Borden,160 Ind. 233, 66 N.E. 681 (1903). Further, in General Supply and Equipment Co. v. Phillips, supra, the Texas courts upheld the following express warranties made by a seller of roof panels: (1) that tests show no deterioration in 5 years of normal use; (2) that the roofing panels won't turn black or discolor ... even after years of exposure; and (3) that the panels will not burn, rot, rust, or mildew. Snow's Laundry and Dry Cleaning v. Georgia Power Co., 61 Ga.App. 402, 6 S.E.2d 159 (1959),impliedly recognized that a warranty as to future gas consumption following installation of gas equipment was possible. In holding that no warranty was created in that particular case, the Georgia court noted: "The statements made by Spencer were denominated by him as estimates, nowhere did he warrant or guarantee that the gas consumption would not exceed $230.50 per month." 61 Ga.App. at 405, 6 S.E.2d at 162. See Matlack, Inc. v. Butler Mfg. Co., 253 F.Supp. 972 (E.D.Pa.1966).

Whether a seller affirmed a fact or made a promise amounting to a warranty is a question of fact reserved for the trier of fact. General Supply and Equip. Co. v. Phillips, supra. Substantial evidence in the record supports the finding that Royal made the assertion to Booher that maintenance cost for the machine would run ½ cent per copy and that this assertion was not an estimate but an assertion of a fact of performance capability.^[5]

Finding Number 8, that service calls on the RBC II would be required every 7,000 to 9,000 copies, relates to performance capability and could constitute the basis of an express warranty. There is substantial evidence in the record to support the finding that this assertion was also made.^[6]

While substantial evidence supports the trial court's findings as to the making of those four affirmations of fact or promises, the district court failed to make the further finding that they became part of the basis of the bargain. Ind.Code § 26-1-2-313(1) (1976). While Royal may have made such affirmations to Booher, the question of his knowledge or reliance is another matter.^[7]

This case is complicated by the fact that it involved a series of sales transactions between the same parties over approximately an 18-month period and concerned two different machines. The situations of the parties, their knowledge and reliance, may be expected to change in light of their experience during that time. An affirmation of fact which the buyer from his experience knows to be untrue cannot form a part of the basis of the bargain. City Machine & Mfg. Co. v. A. & A. Machinery Corp., 4 UCCRS 461 (E.D.N.Y.1967). See generally R. Anderson, Uniform Commercial Code, § 22-313:18 (2d ed. 1970). Therefore, as to each purchase, Booher's expanding knowledge of the capacities of the copying machines would have to be considered in deciding whether Royal's representations were part of the basis of the bargain. The same representations that could have constituted an express warranty early in the series of transactions might not have qualified as an express warranty in a later transaction if the buyer had acquired independent knowledge as to the fact asserted.

The trial court did not indicate that it considered whether the warranties could exist and apply to each transaction in the series. Such an analysis is crucial to a just determination. Its absence renders the district court's findings insufficient on the issue of the breach of express warranties.

Since a retrial on the questions of the breach of express warranties and the extent of damages is necessary, we offer the following observations. The court must consider whether the machines were defective upon delivery. Breach occurs only if the goods are defective upon delivery and not if the goods later become defective through abuse or neglect. Chisholm v. J. R. Simplot Co., 94 Idaho 628, 495 P.2d 1113 (1972).

In considering the promise relating to the cost of maintenance, the district court should determine at what stage Booher's own knowledge and experience prevented him from blindly relying on the representations of Royal. A similar analysis is needed in examining the representation concerning fire hazard in the RBC I machines. The court also should determine when that representation was made. If not made until February 1975, the representation could not have been the basis for sales made prior to that date.

FRAUD AND MISREPRESENTATION

The district court found that beginning in April or May of 1974 and continuing throughout most of 1975, Royal, by and through its agents and employees acting in the course and scope of their employment, persuaded Booher to buy RBC I and RBC II copiers by knowingly making material oral misrepresentations^[8] which were relied upon by Booher to his injury.

Under Indiana law, the essential elements of actionable fraud are representations, falsity, scienter, deception, and injury. Middelkamp v. Hanewich, 147 Ind.App. 561, 263 N.E.2d 189 (1970). A fraud action must be predicated upon statements of existing facts, not promises to perform in the future. Conant v. Terre Haute Nat'l State Bank, 121 Ind. 323, 22 N.E. 250, 251 (1889). Nor do expressions of opinion qualify as fraudulent misrepresentations. The district court made no specific findings as to which of the alleged representations it relied upon in finding fraud. If the court held all eight to be fraudulent misrepresentations, the court erred as to Numbers 1, 2, and 6 because, as discussed above, these were merely expressions of the seller's opinion rather than statements of material fact upon which a fraud action could be based. Numbers 3, 4, 5, 7, and 8, on the other hand, readily qualify as material factual representations.^[9]

The specific findings of the district court with regard to scienter connected to findings 3, 4, 5 (as it applied to the RBC II), 7, and 8 are upheld by the record.^[10]State of mind is a question to be determined, if at all possible, by the trier of fact.

The trial court, however, is silent on the remaining question, that of deception or reasonable reliance by Booher on the representations in the various transactions. Gonderman v. State Exchange Bank, Roann, 166 Ind.App. 181, 189-90, 334 N.E.2d 724 (1975). This issue is virtually identical to the basis of the bargain question remanded under the express warranty theory.

The district court's finding of fraud, therefore, must be set aside, and the cause remanded for retrial on the questions of the specific misrepresentations relied upon by Booher in each transaction and the reasonableness of that reliance.

With regard to rescission as a remedy for fraud, rescission would be available only for those specific sales to which fraud attached. Wolfeld v. Hanika, 95 Ind.App. 44, 179 N.E. 178 (1932).

IMPLIED WARRANTIES

The district court found that Royal breached the implied warranties of merchantability and of fitness for a particular purpose. We cannot agree that the record supports the court's findings.

A warranty of merchantability is implied by law in any sale where the seller is a merchant of the goods. To be merchantable, goods must, inter alia, pass without objection in the trade under the contract description, be of fair average quality, and be fit for the ordinary purposes for which such goods are used. Ind.Code § 26-1-2-314 (1976). They must "conform to ordinary standards, and ... be of the same average grade, quality and value as similar goods sold under similar circumstances." Jones v. Abriani, ___ Ind.App. ___, 350 N.E.2d 635, 645 (1976),citing Woodruff v. Clark County Farm Bureau Coop. Ass'n, 153 Ind.App. 31, 286 N.E.2d 188 (1972). It was Booher's burden to prove that the copying machines were not merchantable. Mullet v. Emme, 144 Ind.App. 638, 248 N.E.2d 178 (1969); McMeekin v. Gimble Bros. Inc., 223 F.Supp. 896 (W.D.Pa.1963). Booher failed to satisfy his burden of proof as to standards in the trade for either the RBC I or RBC II machine. No evidence supports the trial court's findings of a breach of the implied warranty of merchantability.

An implied warranty of fitness for a particular purpose arises where a seller has reason to know a particular purpose for which the goods are required and the buyer relies on the seller's skill or judgment to select or furnish suitable goods. Ind.Code § 26-1-2-315 (1976). The court found that Royal knew the particular purpose for which all the RBC machines were to be used and, in fact, that Royal had taken affirmative steps to persuade Booher to become its dealer and that occasionally its employees even accompanied Booher on calls to customers. See Thompson Farms, Inc. v. Corno Feed Products, supra.

The district court, however, failed to distinguish between implied warranties on the RBC I and on the RBC II machines. Nor did the court differentiate among the different transactions involving the two machines. On remand the district court should make further findings on Booher's actual reliance on Royal's skill or judgment in each purchase of the RBC I and RBC II machines. We view it as most unlikely that a dealer who now concedes himself to be an expert in the field of plain paper copiers did not at some point, as his experience with the machines increased, rely on his own judgment in making purchases.

We are troubled by one further aspect of the district court's rulings. It is the law that a plaintiff may not recover for breach of express or implied warranty "where the facts proven show that there are several possible causes of an injury, for one or more of which the defendant was not responsible and it is just as reasonable and probable that the injury was the result of one cause or the other ...." Republic Corp. v. Procedyne Corp., 401 F.Supp. 1061, 1070 (S.D.N.Y.1975). Accord, Chisholm v. J. R. Simplot Co., supra. Royal argues that the evidence demonstrates that Booher's modifications of the machines and lack of maintenance were the cause of the damages claimed. The district court found as to both machines that "certain modifications were made which were necessitated by machine defects or by parts shortages all of which were suggested by representatives of Royal-Litton." On remand, the district court should clarify its holding. Is the district court holding that Royal is estopped from arguing modification as a defense? Or, in the alternative, has the court found breach of warranties to be the sole cause of damages?

We reject Royal's argument that the implied warranties have been limited or disclaimed. Such a disclaimer must be clear, conspicuous, conscionable, and consciously bargained for, and, in the case of an implied warranty of fitness for a particular purpose, the disclaimer must be in writing. Ind.Code § 26-1-2-316(2) (1976); See also Ind.Code § 26-1-2-317(c) (1976); Woodruff v. Clark County Farm Bureau Coop. Ass'n, 153 Ind.App. 31, 286 N.E.2d 188 (1972).

REVOCATION OF ACCEPTANCE

The district court found that Booher made a timely revocation of acceptance of both the RBC I and the RBC II machines. We disagree.

The U.C.C. provides that a buyer who has accepted goods may revoke his acceptance when the goods are non-conforming and their value is impaired and "the goods were accepted without knowledge of the non-conformity or acceptance occurred with the reasonable assumption that the defect would be cured," Ind.Code § 26-1-2-608(1) (1976), and "the revocation occurred within a reasonable time and before any substantial change in the condition of the goods," Ind.Code § 26-1-2-608(2) (1976).

Regarding the RBC I machines, the district court found that Booher accepted the machines without discovering the latent defects, including the fire hazard defect, which did not become apparent until the machines were in use. The district court further found (1) that Royal assured Booher that the machines were not defective and/or would not catch fire, (2) that Booher revoked acceptance of the RBC I machines within a reasonable time after discovery was made that fires were indeed possible, and (3) that revocation took place before any substantial change had occurred to the machines except such changes as were caused or necessitated by defects in the equipment itself and by the shortages of Royal replacement parts.^[11]

Booher purchased his first RBC I in June 1974. He purchased additional machines through December of 1975. The district court found that it was not until the fall of 1976 that Booher received first-hand confirmation of "open flame" fires in the machines and that in February 1975, Booher had asked Royal about fire hazard and had been assured that there was no danger of fire. The revocation of acceptance of the goods occurred on December 3, 1976, three months after the commencement of this litigation.

The evidence is uncontradicted that Booher had complaints from customers as early as February 4, 1975 that "burn jams" occurred in the RBC I. Those complaints recurred during the two-year period Booher was operating the Royal franchise and must have put him on notice of a problem inherent in the RBC I. The other "defects" in function claimed by Booher-copy quality, electrical defects, and gross jamming problems-were also well-known from his experience with the RBC I and, as shown by the evidence, became apparent soon after Booher became the franchise operator.

Rule 52(a) of the Federal Rules of Civil Procedure provides that upon appellate review a district court's "findings of fact shall not be set aside unless clearly erroneous." In United States v. United States Gypsum Co., 33 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948), the Supreme Court said: "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." See generally 5A Moore's Federal Practice ¶ 52.03(1) (1980). Where, as here, the decisions of the trial court do not appear to be based upon the credibility of the witnesses,^[12] and the underlying facts are uncontroverted, and no reason appears for not believing them, the scope of review becomes even broader. Apolskis v. Concord Life Ins. Co., 445 F.2d 31, 34 (7th Cir. 1971). Considering all the evidence in the case bearing on timeliness of revocation, we are "left with the definite and firm conviction that a mistake has been committed." The district court's finding that Booher's revocation of acceptance of the RBC I machines was reasonable in time is clearly erroneous. The finding is contrary to the clear weight of the evidence which reveals that, for some two and one-half years prior to revocation, Booher had been purchasing RBC I machines with full knowledge of their operating deficiencies. Added to that, the revocation did not occur until three and one-half months after the inception of this litigation.

The same may be said for the RBC II copiers. What is a reasonable time within which to revoke acceptance of goods depends upon the nature, purpose, and circumstances of the particular case. "Reasonable time" does not necessarily mean immediately. Trailmobile Div. of Pullman, Inc. v. Jones, 118 Ga.App. 472, 164 S.E.2d 346 (1968). Booher had known of the defects in the RBC II machines since approximately August of 1974. The evidence reveals, however, that Royal continually made promises to cure the RBC II defects and in April of 1976 replaced nine of Booher's oldest RBC II machines with nine new RBC II machines. On June 30, 1976, Royal modified the remaining five RBC II machines that had not been replaced. A seller's repeated assurances to cure can extend the time within which revocation is reasonable. Jones v. Abriani, supra. However, it was some seven months after the replacement of the nine RBC II machines that Booher finally revoked acceptance. If the defects had not been cured, that must have been known to Booher long before December 3, 1976. The trial court's finding that revocation of acceptance of the RBC II machines was timely was in error. Heibel v. United States Air Conditioning Corp., 206 Minn. 288, 288 N.W. 393 (1939).

Since the remedy of revocation is not available to Booher, on rehearing the district court may reinstitute the summary judgment, which was previously vacated, awarding Royal the $596,921.33 unpaid balance on the purchase price of the copying machines.

PUNITIVE DAMAGES

The district court awarded punitive damages in the sum of $83,512.80 to Booher and $376,492.32 to Lorraine Corp., for a total of $460,005.12. Royal argues strongly that no valid ground exists in law or in fact for the imposition of punitive damages.

Generally, Indiana follows the rule that punitive damages ordinarily are not awarded in cases involving a breach of contract. Monte Carlo, Inc. v. Wilcox, ___ Ind.App. ___, 390 N.E.2d 673 (1979). However, in Vernon Fire & Casualty Ins. Co. v. Sharp, 264 Ind. 599, 349 N.E.2d 173 (1976), the Indiana Supreme Court held that punitive damages may be awarded "where the conduct of the breaching party not only amounts to a breach of the contract, but also independently establishes the elements of a common-law tort such as fraud." Id. at 180. Alternatively, the court continued, punitive damages may be awarded in the absence of an independent tort if "it appears from the evidence as a whole that a serious wrong, tortious in nature, has been committed, but the wrong does not conveniently fit the confines of a pre-determined tort ... [and] that the public interest will be served by the deterrent effect punitive damages will have upon future conduct of the wrongdoer and parties similarly situated." Id. This policy has been applied in a series of cases following Vernon Fire. Photovest Corp. v. Fotomat Corp., 606 F.2d 704 (7th Cir. 1979); First Fed. Sav. & Loan Ass'n of Indianapolis v. Mudgett, ___ Ind.App. ___, 397 N.E.2d 1002 (1979); Sandock v. F. D. Borkholder Co., ___ Ind.App. ___, 396 N.E.2d 955 (1979); United Farm Bureau Family Life Ins. v. Fultz,___ Ind.App. ___, 375 N.E.2d 601 (1978); State Farm Mut. Auto. Ins. Co. v. Shuman, ___ Ind.App. ___, 370 N.E.2d 941 (1977); Hibschman Pontiac, Inc. v. Batchelor, 266 Ind. 310, 362 N.E.2d 845 (1977); Joseph Schlitz Co. v. Central Beverage Co., ___ Ind.App. ___, 359 N.E.2d 566 (1977).

The district court does not specify which aspect of the Vernon Fire test the court relied upon in awarding punitive damages. The court awarded punitive damages against Royal "for the found willful tortious misconduct." If the award of punitive damages was based on fraud, then the award must be reconsidered along with the issue of fraud as discussed earlier in this opinion. Under a fraud theory, punitive damages can be awarded only for those specific transactions which constitute actionable fraud.

Vernon Fire, however, makes it clear that, as an alternative, an award of punitive damages can be supported by tortious conduct other than actionable fraud. State Farm Mut. Auto. Ins. Co. v. Shuman, supra. Absent fraud, there are two prerequisites to recovery: (1) the commission of a serious wrong, tortious in nature; and (2) the public interest must be served by the award. The Indiana courts have interpreted conduct "tortious in nature" to include an act committed with a fraudulent state of mind, First Fed. Sav. & Loan Ass'n of Indianapolis v. Mudgett, supra, or in bad faith, Jones v. Abriani, supra, even though all the elements of actionable fraud are not proved.

In this case, conduct which could constitute a breach of contract might also be tortious in nature, Monte Carlo, Inc. v. Wilcox, supra, and an award of exemplary damages might serve the public interest by deterring others from like conduct. But see Owen Co. Farm Bureau Coop. v. Waeger, 73 Ind.Dec. 482 (Ind.Ct.App.1980) (breach did not rise to level of oppression, fraud, or malice). If the district court's award of punitive damages is based on the second aspect of Vernon Fire, the award must be reconsidered together with the issues of breach of express and implied warranties as discussed earlier in this opinion. Punitive damages could only be awarded for those transactions constituting a breach of contract.

Royal argues that a statutory authorization of attorneys' fees, Ind.Code § 26-1-2-721 (1976)^[13] precludes an award of punitive damages. Johnson v. Tyler, 277 N.W.2d 617 (Iowa 1979), and Stoner v. Houston, 265 Ark. 928, 582 S.W.2d 28 (1979), cited by Royal to support its argument, are inapposite. They deal with situations providing for statutory treble damages where an additional allowance of punitive damages would work a double punishment. Treble damages are punitive in nature. Attorneys' fees are compensatory. The comments accompanying Ind.Code § 26-1-2-721 state: "The purpose of this section is to add the statutory remedies to the ordinary remedies." It seems evident that Ind.Code § 26-1-2-721 does not extinguish the common law right to recover punitive damages in a fraud action.

ATTORNEYS' FEES

Booher has asked for reasonable attorneys' fees in defending this appeal. Attorneys' fees on appeal may be awarded to an appellee where the judgment is affirmed on appeal. Marshall v. Reeves, 262 Ind. 403, 316 N.E.2d 828 (1974); Willsey v. Hartman, 150 Ind.App. 485, 276 N.E.2d 577 (1971); Michael-Regan Co. v. Lindell, 527 F.2d 653 (9th Cir. 1975); American Crystal Sugar Co. v. Mandeville Island Farms, Inc., 195 F.2d 622 (9th Cir. 1952); North Texas Producers Ass'n v. Metzger Dairies, Inc., 348 F.2d 189 (5th Cir. 1965); American Can Co. v. Ladoga Canning Co., 44 F.2d 763 (7th Cir. 1930); Maddrix v. Dize, 153 F.2d 274 (4th Cir. 1946). This is not an appropriate case in which to award attorneys' fees. The appellees' petition is therefore denied. Moreover, the district court's grant to Booher of $156,800.00 in attorneys' fees is nullified by this reversal. A reversal of an entire judgment negates the judgment and any orders based upon it. Doughty v. State Dep't. of Public Welfare, 233 Ind. 475, 477, 121 N.E.2d 645, 646 (1954); Hunter v. Hunter, 156 Ind.App. 187, 188, 295 N.E.2d 834, 835 (1973).

For the foregoing reasons the judgment of the district court is reversed, and the cause is remanded for a new trial on the remaining issues outlined herein. Each party is to bear its own costs.

[*] The Honorable Harold A. Baker, United States District Judge for the Central District of Illinois, is sitting by designation.

[1] Ind. Code § 26-1-2-313 (1976) provides:

(1) Express warranties by the seller are created as follows:

(a) any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

(c) any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he had a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

[2] Michael Booher testified at trial that in February or March of 1975 he called the service department at Royal Typewriter Company and spoke with either Bruce Lewis, national service manager, or with Joe Miller. Booher testified that he told the Royal representative that he had received a report of a fire in an RBC I machine at a customer's office. Booher then testified, "They told me that that couldn't happen." (Tr. Vol. IV, pp. 457-59). For a discussion of whether the assertions about fires, maintenance, and service calls became part of the basis of the bargain, see infra, pp. 44-45.

[3] The trial court's findings speak of "RBC machines" with reference to the testing warranty. The court's specific findings, however, refer only to the RBC II machine. On retrial, it would clarify matters if the specific machine intended were named.

Michael Booher testified at trial that Tom Gavel had assured Booher the Royal Bond Copier machine had been tested: "He [Gavel] said, `They have been well tested,' and said, `They are great machines.'" (Tr. Vol. III, p. 292).

Booher also testified that Jack Airey, a Royal representative, had stated at a promotional meeting that the RBC II had been extensively tested and was ready to market: "They [Royal] were now ready to market it [RBC II]; that it had been extensively tested." (Tr. Vol. III, p. 317).

[4] In Number 4, the trial court found that the appellant warranted that the cost of maintenance for each RBC machine and cost of supplies was and would remain low, no more than ½ cent per copy, and in Number 8 that service calls were and would be required for the RBC Model II machine approximately every 7,000 to 9,000 copies.

[5] Michael Booher testified at trial that Mr. Gavel, a Royal representative, told Booher in April 1974, at a meeting in Booher's Indianapolis office, that cost for service on the RBC I machine would be a half cent. (Tr. Vol. III, pp. 294-98). Booher further testified that in July 1974, at a meeting in Chicago sponsored by Royal, he was told by Jack Airey, a Royal representative, that maintenance costs for the RBC II machine would be the same as on the RBC I, except that service costs should actually be a little less due to the reliability of the machine. (Tr. Vol. III, pp. 320-21).

Gavel testified by deposition taken on May 27, 1977, which was admitted into evidence at trial, that he told Booher that service costs for the RBC I machine would be half a cent (Gavel Dep., p. 28). He further testified in reference to the costs quoted to dealers on the RBC II machines that "[n]obody ever implied they were estimates," (Gavel Dep., p. 110).

[6] Michael Booher testified at trial that at the Chicago meeting Royal representatives, Jack Airey and Roland Schultz, told him that the RBC II machines would require "a service call, a customer-related call about every nine thousand copies, and that we would have preventative maintenance calls about every twenty to twenty-one thousand copies ...." (Tr. Vol. III, p. 325).

[7] The requirement that a statement be part of the basis of the bargain in order to constitute an express warranty "is essentially a reliance requirement and is inextricably intertwined with the initial determination as to whether given language may constitute an express warranty since affirmations, promises and descriptions tend to become a part of the basis of the bargain. It was the intention of the drafters of the U.C.C. not to require a strong showing of reliance. In fact, they envisioned that all statements of the seller become part of the basis of the bargain unless clear affirmative proof is shown to the contrary. See Official Comments 3 and 8 to U.C.C. § 2-313." Sessa v. Riegle, 427 F.Supp. 760, 766 (E.D.Pa.1977), aff'd without op. 568 F.2d 770 (3d Cir. 1978).

Cf. Woodruff v. Clark County Farm Bureau Coop. Ass'n, 153 Ind.App. 31, 286 N.E.2d 188 (1972) where the court stated: "Whether such assertions [statements by the seller] constituted express warranties and whether [the buyer] relied upon these assertions are material issues of fact to be determined by the trier of fact." 286 N.E.2d at 199 (emphasis added); Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d 382 (1976) (reliance necessary in order to give rise to an express warranty).

"[F]or all practical purposes it is suggested that no great change was wrought by the Code. Whether one speaks of reliance or basis of the bargain, little difference exists between the two. In neither case should the statement be required to have been the sole factor leading the buyer to purchase. In either case, the statement should, at least, be one of such factors. What is really crucial is whether the statement was made as an affirmation of fact, the goods did not live up to the statement, and the defect was not so apparent that the buyer could not be held to have discovered it for himself." Bender's U.C.C. Service, Dusenberg & King, Sales and Bulk Transfers § 6.01, n. 2. (Matthew Bender & Co. 1980).

[8] The false representations which form the basis of the appellees' fraud theory are the same as those alleged to be express warranties.

[9] Findings Number 3 and the cost of supplies aspect of Number 4 qualify as representations of fact while they do not qualify as express warranties because in a fraud action, unlike a breach of warranty action, there is no requirement that the representations relate to the goods.

[10] The district court found scienter regarding the following misrepresentations during the specified time periods:

RBC I machine—

(1) From 1971 on, that potential for fire did not exist;

(2) In April, May, 1974, that replacement parts were readily available;

(3) In April, May, 1974, that dealer cost per copy for both service and supplies would not exceed 1 ¢

RBC II machine—

(1) As of July, 1974, that the average number of copies run between service calls would be 7,000-9,000;

(2) In July, 1974, that the machine had been extensively tested;

(3) In July, 1974, that the cost of servicing and supplying the machine was less than 1 ¢ per copy;

(4) In July, 1974, that replacement parts were readily available.

[11] The district court failed to make specific findings on the effect of the claimed lack of maintenance on the functional failures of the RBC I machines. We are unable to tell, therefore, whether Booher's maintenance was a contributing factor in the breakdown of the machines. If it was, revocation would not be an available remedy even had the revocation been timely.

[12] The findings of fact and conclusions of law make no reference to credibility.

[13] Ind.Code § 26-1-2-721 provides:

Remedies for fraud-Right to attorney fees.-Remedies for material misrepresentation or fraud include all remedies available [under Article 2] for nonfraudulent breach. In all suits based on fraud or material misrepresentation, if the plaintiff recovers judgment in any amount, he shall also be entitled to recover reasonable attorneys fees which shall be entered by the court trying the suit as part of the judgment in that suit. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy.

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

Leon P. Gold, Robert J. Ward and John P. Stigi III for respondents.

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.

498HANCOCK, 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. 49Thereafter, 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).^[1] 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^[2] 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 N.Y. 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 F.2d 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 F.2d 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 F.2d 1286, 1291 [6th Cir 1982]; Pritchard v Liggett & Myers Tobacco Co., 350 F.2d 479, 483 [3d Cir 1965], cert denied382 US 987, opn amended 370 F.2d 95 [3d Cir 1966], cert denied 386 US 1009; CPC Intl. 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 N.Y.2d 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 N.Y. 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 N.Y.2d 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 N.Y.2d 731); and some involve implied rather than express warranties (see, e.g., Millens & Sons v Vladich, 28 AD2d 1045, affd without opn 23 N.Y.2d 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).^[3]

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).^[4] 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.^[5]

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 Ziff-Davis 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 Ziff-Davis 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 long-standing 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." (Crocker-Wheeler Elec. Co. v Johns-Pratt Co., 29 App Div 300, 302, affd 164 N.Y. 593.) This plain language proposition has been recognized by this court and by the Appellate Division (see, Randy Knitwear v American Cyanamid Co., 11 N.Y.2d 5, 9, 11, 15-16; see also, County Trust Co. v Pilmer Edsel, Inc., 14 N.Y.2d 617, 621 [Burke, J., dissenting]; see, Butler v Caldwell & Cook, 122 AD2d 559, 560, lv denied 73 N.Y.2d 709, appeal dismissed 73 N.Y.2d 849; Scaringe v Holstein, 103 AD2d 880; Zucker v Siegel, 54 AD2d 979; Friedman v Medtronic, Inc., 42 AD2d 185, 190; see also, Hellman 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 F.2d 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 N.Y.2d 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.

Order modified, etc.

[1] 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.

[2] 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.

[3] 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.

[4] 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 N.Y. 496, 501-502).

[5] 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.

824 S.W.2d 538 (1992)

Darrell W. MORRIS, Plaintiff-Appellant, v. MACK'S USED CARS, Defendant-Appellee.

Supreme Court of Tennessee, at Knoxville.

January 27, 1992.

Richard R. Vance, Sevierville, for plaintiff-appellant.

Wayne Christeson, William Allen, Nashville, for Tennessee Ass'n of Legal Services, amicus curiae.

Carl P. McDonald with Goddard & Gamble, Maryville, for defendant-appellee.

Charles W. Burson, Atty. Gen. and Reporter, John Knox Walkup, Sol. Gen., Steven A. Hart, Glen L. Krause, Asst. Attys. Gen., Nashville, for State of Tenn., amicus curiae.

REID, Chief Justice.

The purchaser, Darrell Morris, sued the seller, Mack's Used Cars & Parts, Inc., for compensatory, treble, and punitive damages, alleging fraudulent concealment, breach of express warranty of title under T.C.A. § 47-2-312, breach of express warranty of description under T.C.A. § 47-2-313, breach of implied warranty of merchantability under T.C.A. § 47-2-314, and violation of the Tennessee Consumer Protection Act forbidding unfair or deceptive acts under T.C.A. § 47-18-104(b)(6), (7).

The facts were not disputed. In September 1985 the defendant sold to Morris a vehicle described on the bill of sale as a 1979 Ford pickup truck. An older truck was traded in as a down payment, and the balance of the purchase price was financed over a term of three years with a retail installment contract and security agreement, pursuant to which the certificate of title was delivered by the defendant-seller directly to the lender. The bill of sale contained the following statement immediately above the purchaser's signature, "This unit sold as is. No warranties have been expressed or implied." At the time of sale, the truck had been wrecked or dismantled and was a "reconstructed" vehicle within the meaning of Title 55, Chapter 3, Part 2 of Tennessee Code Annotated. The seller knew but did not disclose to the purchaser that the pickup was a reconstructed vehicle. The purchaser obtained this information three years later when he received the certificate of title after paying the final installment on the sales contract. Being reconstructed reduced the vehicle's fair market value 30 to 50 percent.

The seller's defense was that the disclaimer contained in the bill of sale avoided any liability for its not disclosing to the purchaser the condition of the vehicle as revealed by the certificate of title.

The trial court agreed with the seller and dismissed the suit. On appeal of the count charging violation of the Consumer Protection Act, the Court of Appeals affirmed, stating,

To hold the Defendant liable under the Tennessee Consumer Protection Act would, in effect, be creating liability under an as is sale which is waived under T.C.A. § 47-2-316(3)(a).

The Court of Appeals held, in the words of Judge Franks, dissenting, "[T]here can be no claim for unfair or deceptive trade practices whenever a seller disclaims warranties under the Uniform Commercial Code ... with an `as is' clause."

The trial court and the Court of Appeals misconstrued these statutes as they relate to the Consumer Protection Act. Disclaimers permitted by § 47-2-316 of the Uniform Commercial Code (UCC) may limit or modify liability otherwise imposed by the code, but such disclaimers do not defeat separate causes of action for unfair or deceptive acts or practices under the Consumer Protection Act, T.C.A. §§ 47-18-101 to -5002.

The UCC contemplates the applicability of supplemental bodies of law to commercial transactions. Section 47-1-103, T.C.A., provides the following:

Unless displaced by the particular provisions of chapters 1 through 9 of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

Also, the supplementary nature of the Consumer Protection Act is made clear by T.C.A. § 47-18-112, which states,

The powers and remedies provided in this part shall be cumulative and supplementary to all other powers and remedies otherwise provided by law. The invocation of one power or remedy herein shall not be construed as excluding or prohibiting the use of any other available remedy.

A seller may disclaim all implied warranties pursuant to T.C.A. § 47-2-316, which provides in pertinent part,

Exclusion or modification of warranties ... (3)(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty.

The Consumer Protection Act recognizes this right of exclusion or modification of warranties under the UCC. Section 47-18-113, T.C.A., provides,

Waiver of Rights. (a) No provision of this part may be limited or waived by contract, agreement, or otherwise, notwithstanding any other provision of law to the contrary; provided, however, the provisions of this part shall not alter, amend, or repeal the provisions of the Uniform Commercial Code relative to express or implied warranties or the exclusion or modification of such warranties.

The above provision, however, also specifically precludes disclaimer of liability under the Consumer Protection Act. Furthermore, the UCC, pursuant to T.C.A. § 47-1-203, imposes an obligation of good faith in the performance or enforcement of every contract. Under T.C.A. § 47-1-102(3), this obligation may not be disclaimed.

Claims under the UCC and the Consumer Protection Act are distinct causes of action, with different components and defenses. The Consumer Protection Act is applicable to commercial transactions, also regulated by the UCC. The Court of Appeals in Skinner v. Steele, 730 S.W.2d 335 (Tenn. Ct. App. 1987), reached a similar conclusion with regard to the regulation of the insurance industry. The court held that the mere existence of a separate statute regulating the insurance industry does not create exemption from the Consumer Protection Act. 730 S.W.2d at 338.

Other states have recognized that the disclaimer of warranty liabilities under the UCC does not preclude the advancement of non-warranty claims based on unfair trade practices. In V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d 411 (1st Cir.1985), the buyer of an oil storage facility under an "as is" contract sued the seller alleging misrepresentation, non-disclosure, and violation of the Massachusetts statute prohibiting unfair or deceptive practices. The district court dismissed the statutory claim on the basis of the "as is" disclaimer. The First Circuit Court of Appeals reversed, stating:

We believe the district court's view of the law regarding as is clauses is incorrect. Although the Uniform Commercial Code does expressly permit disclaimers in the sale of goods between merchants, § 2-316 refers specifically to disclaimers of implied warranties, suggesting to us that it was intended only to permit a seller to limit or modify the contractual bases of liability which the Code would otherwise impose on the transaction. The section does not appear to preclude claims based on fraud or other deceptive conduct.

Automobile sales cases from other jurisdictions have held that an "as is" disclaimer of warranties does not bar an action for deceptive trade practices. In Metro Ford Sales, Inc. v. Davis, 709 S.W.2d 785(Tex. Ct. App. — Fort Worth 1986), the buyer of a used truck brought an action against the seller under the Texas Deceptive Trade Practices Consumer Protection Act (DTPA). The buyer alleged that the salesman falsely represented that the truck was in "top" condition and had not been wrecked. The seller contended that the warranty disclaimer signed by the buyer was admissible to counter the DTPA cause of action. The court concluded,

We hold that the waiver of warranty did not waive [the buyer's] cause of action for misrepresentation under the DTPA and that the waiver was properly excluded.

709 S.W.2d at 790. In Attaway v. Tom's Auto Sales, Inc., 144 Ga.App. 813, 242 S.E.2d 740 (1978), the buyer of a used car brought suit against the seller, alleging breach of warranty and violation of the Georgia Fair Business Practices Act (Act). The sales contract provided "all cars sold as is ... no guarantee." The court stated that "the language in the contract would appear to prevent [the buyer] from recovering on the grounds of express or implied warranty" and concluded that "although [the buyer] might not be able to rescind the contract or otherwise set it aside, the Act itself is in no way tied to contractual rights and is wholly self-sustaining." 242 S.E.2d at 742. The court concluded,

From an overview of [the Act], we find that there is thereby created a separate and distinct cause of action under its provisions. A consumer who is damaged thereby has an independent right to recover under the Act, regardless of any other theory of recovery.

The Tennessee Consumer Protection Act is to be liberally construed to protect consumers and others from those who engage in deceptive acts or practices. Haverlah v. Memphis Aviation, Inc., 674 S.W.2d 297, 305 (Tenn. Ct. App. 1984). In a case similar to the one before the Court, the seller's failure to disclose to the buyer that the vehicle had been in an accident and had been repaired constituted a violation of the Consumer Protection Act. See Paty v. Herb Adcox Chevrolet Co., 756 S.W.2d 697(Tenn. Ct. App. 1988). To allow the seller here to avoid liability for unfair or deceptive acts or practices by disclaiming contractual warranties under the UCC would contravene the broad remedial intent of the Consumer Protection Act.

In summary, disclaimers permitted by T.C.A. § 47-2-316 do not prevent application of the Consumer Protection Act. The Consumer Protection Act creates a separate and distinct cause of action for unfair or deceptive acts or practices. The judgments of the trial court and Court of Appeals dismissing the alleged violation of the Consumer Protection Act, therefore, are reversed and the case is remanded. The costs are taxed to the appellee.

DROWOTA, O'BRIEN, DAUGHTREY, and ANDERSON, JJ., concur.