Oscar Chess Ltd v Williams [1957] 1 WLR 370 (CA)

Facts

• The defendant, Mr. Williams, sold a used car to Oscar Chess Ltd, a motor vehicle dealership.
• Mr. Williams represented the car as a 1948 model, relying on the vehicle’s registration book which stated that year.
• After purchase, Oscar Chess Ltd discovered the car was actually a 1939 model, resulting in a significant reduction in the car's value.
• Oscar Chess Ltd sued, alleging that the statement about the model year was a contractual warranty, and that its inaccuracy breached the sale agreement.
• Mr. Williams maintained he merely conveyed information from the registration book, without claiming personal specialist knowledge about the car's manufacturing year.

Issues

1. Whether Mr. Williams’ statement that the car was a 1948 model constituted a binding contractual warranty or merely an innocent misrepresentation.
2. Whether the relative knowledge of the parties affects whether statements made during negotiations become contract terms.
3. What legal test applies to differentiate between a binding contractual warranty and a representation in the context of contract formation.

Decision

• The Court of Appeal held that Mr. Williams’ statement was not a contractual warranty but an innocent misrepresentation.
• The court applied an objective test, focusing on how a reasonable observer would interpret the parties’ actions and statements in context.
• The seller’s reliance on the registration book and lack of personal specialist knowledge, coupled with the buyer’s status as a car dealer, were key factors.
• The claim for damages by Oscar Chess Ltd was rejected, as the statement was not found to be a binding term of the contract.

Legal Principles

• The objective "intelligent bystander" test determines whether a statement forms part of a contract, asking how a reasonable person would understand the parties' conduct and assurances.
• The distinction between a contractual warranty and a representation depends on the parties’ level of knowledge, the circumstances of the statement, and whether the representor frames the statement as a promise or a belief.
• Statements made by parties with superior knowledge (e.g., dealers) are more likely to constitute warranties compared to statements by laypersons without personal knowledge.
• Not all pre-contractual statements made in negotiations automatically become binding contractual terms.

Conclusion

The case established that whether a statement is a contractual term or a representation depends on the objective assessment by a reasonable observer, with particular attention to the parties’ respective knowledge and the context of communications, reaffirming the necessity of careful analysis in contract formation.