Esso Petroleum Co Ltd v Mardon
Court of Appeal
Citations:  QB 801;  2 WLR 583;  2 All ER 5;  2 Lloyd’s Rep 305; (1976) 120 SJ 131;  CLY 341.
The claimants were an oil company who bought a site for a filling station. One of their employees estimated that potential throughput at the site would likely be around 200,000 gallons by the third year. However, once the claimants bought the property, the local authority refused planning permission for pumps to be installed on the front of the property.
The defendant approached the claimant about potentially letting the site. The same employee gave him the same estimate of 200,000 gallons. This was no longer realistic given how the site was built. The defendant was doubtful, but decided to trust the employee since he had more extensive experience and expertise than the defendant. On this basis, the parties entered a tenancy agreement.
The throughput at the site turned out to be abysmal, and the defendant’s business started failing. The claimant later agreed to dramatically reduce the rent, entering into a second tenancy agreement to this effect. Eventually, however, the defendant could not pay rent at all. The claimant repossessed the site and sued for the money owed under the contract. The defendant counterclaimed for breach of warranty and negligent misrepresentation.
- Was the throughput estimate a contractual warranty?
- Was claimant liable for negligent misrepresentation?
- If the claimant was liable for misrepresentation, did it continue to have effect after the parties entered into the second tenancy agreement?
- What is the measure of damages for the tort of negligent misstatement?
The Court of Appeal held that:
- The throughput estimate was a contractual warranty. This was because it was a statement of fact on a matter critical to the contract made by a person with greater experience and expertise than the defendant. The claimant was in breach of this warranty.
- The statement was also a negligent misrepresentation in tort. The defendant owed the claimant a duty of care, because the employee held himself out as having special knowledge and expertise.
- The misrepresentation continued to be operative after the parties entered into the second tenancy agreement. The defendant was engaging in reasonable mitigation by entering into the second agreement, so any losses sustained after that date were still attributable to the original misstatement.
- The measure of damages for negligent misstatement in this case was essentially the same as the measure of damages for breach of warranty. In both cases, the innocent party could recover anything lost as a result of being induced to enter the contract. This included loss of profit and earnings.
This Case is Authority For…
When determining whether a precontractual representation has become a contractual warranty, relevant factors include:
- The importance of the statement to the contract;
- The relative knowledge and expertise of the parties;
- Whether the statement was intended to induce the contract.
Loss of earnings and profit are potentially recoverable in the tort of negligent misstatement.