Esso Petroleum Co. Ltd. v. Mardon

Esso Petroleum Co. Ltd. v. Mardon

[1976] QB 801

(Collateral Warranty and Misrepresentation)

FACTS:

A much experienced employee of Esso estimated throughput of petrol from particular station (to be built) to reach 200,000 gallons in 3^rd year of operation. But, owing to refusal by planning authority, filling station was now built “back to front”. Ignoring this major change, they re-estimated throughput to be same as 200,000 gallons. Mardon, relying on this forecast, became leasee of the station. Despite his best efforts, the site proved incapable of generated forecast through0ut. In an action by Esso for possession of the station and monies due for petrol supplied, Mardon counterclaimed inter alia for breach of collateral warranty.

ISSUES:

Whether the estimation made by Esso, relying upon which Mardon took lease of the site, was collateral warranty to the contract of lease?

HELD:

Statement as to potential throughput amounted to collateral warranty not in the sense that it guaranteed the throughput to reach 200,000 gallons but a warranty that the forecast had been prepared with reasonable care and skill. Esso had much experience and expertise at their disposal as they were in a better position to ascertain the much likely throughput with all the data available; and it is no doubt that in present case, estimate made by Esso reasonably had a great influence over Mardon who had negligible experience as compared to Esso. Thereafter, if in preparing the forecast, they negligently commit ‘fatal error’, relying upon which Mardon entered into contract, they were liable for breach of collateral warranty.

Mardon wasn’t held to be compensated for “loss of bargain” as he was given no bargain that the throughput would be 200,000 gallons. Rather he was to be compensated for losses he had suffered as a result of relying to his detriment on the projection made by Esso.

RATIO: Where a party makes a statement based on the experience and expertise that it has as its disposal and intends that the other party should act on it and he DOES act on it, it can be interpreted as a warranty.

Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata)