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Contract Law Cases - Esso Petroleum Co Ltd v Mardon (1976)

Updated on September 9, 2013

Eh?-So What!

A company that was sued in an important contract case that is still existent today! Rare!
A company that was sued in an important contract case that is still existent today! Rare! | Source

What Happened

  • Mr Mardon bought a petrol station from Esso Petroleum Co Ltd., a gas station franchise.
  • Esso Petroleum made an estimate for a throughput (maximum upper boundary of sales) of 200,000 gallons a year. This estimate would have meant Mardon would turned a profit from his investment.
  • It later turned out that the local council made a change to planning permissions and that this mean the gas station would no longer receive customers from the main street entrance.
  • Esso Petroleum knew this but didn't account for this change in their estimate for the throughput.
  • In reality, the throughput was much lower and Mardon didn't turn a profit.

Court Ruling on Esso

  • At first Mardon's claim for Esso's breach of warranty was rejected by Judge Lawson but Mardon appealed.
  • Lord Denning MR however disagreed with Lawson J for the following reasons:
  • Esso had specialist knowledge and due to this any statement it made about the station should be considered as facts.
  • Esso had decided the rent for the petrol station by using the 200,000 gallon estimate. Knowing that this was too high meant that they were charging too much since the rent was proportional to the throughput estimate.
  • People who have specialist knowledge and use that knowledge in an attempt to convince others to purchase or part with property have a duty to make sure their forecasts are reasonably accurate.

What Lord Denning MR said on the Case

  • Now I would quite agree… it was not a warranty - in this sense - that it did not guarantee that the throughout would be 200,000 gallons. But, nevertheless, it was a forecast made by a party - Esso - who had special knowledge and skill. It was the yardstick… by which they measured the worth of a filling station... They knew the traffic in the town... the throughput of comparable stations... They were in a much better position than Mr Mardon to make a forecast.
  • If the forecast turned out to be an unsound forecast such as no person of skill or experience should have made, there is a breach of warranty.
  • "If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another… with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable."

Lessons to Take Away from Esso v Mardon

  • When you don't have all the information that another party does, you should ask them for any details you think are important and expect a reasonably accurate response back.
  • Specialist knowledge holders have an obligation to make the effort of giving you reasonable estimates. If these estimates were important and you feel they were not even closely met, you may have a right to sue.
  • To be completely safe and make court proceedings easier, include any vital conditions in a written contract so that it is clear what is expected or not. This warranty will provide you with concrete legal evidence if something goes wrong later.

Final Comment

This recent case (1976 is recent for cases of such importance!) shows how the courts put a legal obligation on those with specialist knowledge to provide accurate information when negotiating a contract.

One can look at this case as an exemplar of how the legal system punishes those with knowledge, putting extra strain on their already busy lives, but also of how uninformed people are looked after by the law.

What do you think?

Do you think the court's decision was the right one?

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