B. Pre-contractual Representation as Warranty

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 690-695

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If a representation can be properly characterized as a contractual warranty, the falsity of the statement constitutes a breach of a contractual term. Accordingly, the misrepresentee will be entitled to bring a claim for damages calculated in the expectancy measure. Thus, even a victim of a false or negligent misstatement, who may be entitled to pursue a claim in tort, may prefer to be able to characterize the misrepresentation as a contractual warranty that brings the advantage of the contractual measure of relief.

For the victim of a wholly innocent or non-careless misrepresentation, however, the contract damages claim may be the only available remedy. There would be no claim for tort damages because of the absence of negligence. The equitable claim for rescission of the agreement would be potentially available but it may vanish rather quickly as a result of the operation of various applicable bars to rescission, especially that of execution.²In such circumstances, it will be especially attractive to a representee to be able to characterize the representation in question as not merely a representation but as an enforceable contractual term. Indeed, courts have adopted this view on the basis of a finding that the particular representation, though, in form, a statement of fact, is implicitly an undertaking or guarantee that the fact is true and that this undertaking forms part of a collateral enforceable contract entered into by the representor and representee.

Under this collateral contract analysis, then, the representation made prior to the formation of the contract is transformed into a term of a unilateral contract that is collateral to that "main" contract. A uni-

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lateral contract is a contract consisting of a promise exchanged for an act.³The offer of a unilateral contract can be expressed in the formula "if you do x, I promise y." In the unilateral collateral contract, the "if x" is "if you enter into the main contract with me" and the "I promise y" is "I promise or guarantee that the representation I am making is true."⁴

The device is neatly illustrated by the facts of the leading traditional English authority, Heilbut, Symons & Co. v. Buckleton.⁵ The defendants were rubber merchants who had underwritten a large number of shares in the Filisola Company, with a view to selling the shares to the public. The plaintiffs purchased a substantial number of the shares from the defendants having been assured by them that the company in question was a "rubber company." The statement was not made fraudulently. The availability of rescission for innocent misrepresentation was barred by execution of the main contract. The jury held that the Filisola Company could not be accurately described as a "rubber company." Accordingly, the issue on appeal was whether the statement that the shares on offer were shares in a rubber company was a mere misrepresentation inducing the contract (in which case, no relief would be available) or, rather, could be considered to be a collateral warranty that created a binding contractual obligation guaranteeing that the Filisola Company was properly so described. To establish such a claim, Lord Moulton explained, the claimant must show that the representation made by the defendants was actually intended as a "warranty," that is, a contract collateral to the main contract to take the shares, whereby the defendants, in consideration of the plaintiff entering into a contract to take the shares, promised that the company in question was a rubber company. Parenthetically, we may note that the term "warranty" is being used here in a generic sense as equivalent to "contractually binding undertaking," rather than in its more modern and technical sense as referring to a contractual term, breach of which sounds only in damages.⁶In Lord Moulton’s view, such a collateral contract was conceivable and would possess in full "the character and status of a contract."⁷He went on to suggest, however, that such agreements, which have the ef-

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fect of altering the terms of the main contract - an effect that might be achieved more naturally by actually amending the main contract rather than executing a collateral contract, are "viewed with suspicion...