On March 22, 2022, Justice Emerson of the Suffolk County Commercial Division issued a decision in JP Pizza Eastport LLC v Luigi’s Main St. Pizza Inc., 2022 NY Slip Op. 22088, holding that a party making a best knowledge warranty was not required to investigate the facts relating to the warranty, explaining:
The third cause of action is for breach of warranty. The plaintiffs contend that Luigi’s Inc. and Luigi Mondi (the “Selling Parties”) breached the following warranty in the bill of sale:
“Each Selling Party, jointly and severally, hereby represents and warrants to JP Pizza the following:
“2.08 Compliance with Applicable Law. To the best of the Selling Parties’ knowledge, the Selling Parties have all permits, consents and licenses of every kind required by the jurisdictions in which each Transferred Restaurant and the Property is located which are necessary to carry on its business as presently conducted, or to own or lease and operate the Assets. To the best of the Selling Parties’ knowledge, the Selling Parties are, and all times have been, in compliance with all laws, regulations and orders applicable to the business conducted at the Transferred Restaurant, the Property and the Assets. No Selling Party has received any notice that the present operation of any Transferred Restaurant, or the Property violates any applicable laws, regulations or orders.”
The defendants contend that, since they believed they had all of the required approvals for the pizza restaurant and the three rental apartments when they entered into the bill of sale, there was no breach of warranty. The plaintiffs contend that, at a minimum, the defendants had a duty to perform due diligence to ensure that their representations were true.
The warranty in question is a best knowledge warranty. There does not appear to be a wealth of recent authority on the issue. The cases on which the defendants rely are from the late nineteenth and early twentieth centuries, and involve best knowledge warranties in the insurance context. The cases on which the plaintiffs rely are general warranty cases that do not interpret or deal with best knowledge warranties. The only recent case that the court was able to find that analyzes best knowledge warranties is from the Superior Court of Delaware.
In Price Automotive Group v Dannemann (2002 WL 31260007 [Superior Court of Delaware, Sept. 25, 2002, No. Civ.A.01C-06-165JRS]), a commercial landlord-tenant case, the Delaware Superior Court analyzed best knowledge warranty cases both inside and outside of Delaware. In the context of insurance coverage, the Superior Court found that all of the courts reached the same conclusion: When an applicant for insurance makes certain representations “to the best of [his] information and belief,” the focus shifts from an inquiry into whether the facts asserted were true to whether the applicant believed them to be true. Thus, the applicant’s answer is assessed in light of his actual knowledge and belief at the time of the application, and no duty of investigation is imposed on the applicant. The Superior Court found that the result was the same outside of the insurance context. In three cases from three different jurisdictions, courts interpreted best knowledge warranties as warranties based on actual knowledge without a duty of inquiry.
The language of the best knowledge warranty in Price Automotive Group was similar to the language of the warranty in the bill of sale. The landlord represented and warranted, inter alia, that to the best of its knowledge the demised premises were in compliance with all applicable federal, state and local laws, rules, regulations, orders and rulings. The tenant alleged a wide range of defects to the property, including code violations, water and sewer deficiencies, and inadequate fire protection. The Delaware Superior Court granted summary judgment to the landlord and dismissed the tenant’s breach of warranty claims, finding that the landlord had no actual knowledge of the alleged defects at the time it entered into the lease.
Price Automotive Group is consistent with the cases upon which the defendants rely. Applying the principles enunciated therein, the court finds that the defendants have established, prima facie, that they believed they had all of the required permits, consents, and licenses for the pizza restaurant and the three rental apartments when they executed the bill of sale in July 2018. The plaintiffs have failed to raise a triable issue of fact in opposition thereto. Contrary to the plaintiffs’ contentions, Luigi Mondi was not required to perform due diligence to ensure that the representations in § 2.08 of the bill of sale were true (Id.). Accordingly, the third cause of action is dismissed.
(Internal quotations omitted).