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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Kavita buys a second-hand car from Rohan for ₹4,00,000. Rohan states that the car has had only one previous owner; this is a minor point which Kavita says does not matter to her. In fact there were three owners, but the car is mechanically sound and worth ₹3,90,000 as it stands. Kavita wants to return the car. The parties had expressly agreed in the contract that statements about ownership history are warranties only. What is the best analysis?

Kavita cannot terminate but can claim damages of roughly ₹10,000. The parties expressly classed the ownership statement as a warranty, so its breach gives damages only, measured by the loss in value, not a right to return the car and recover the whole price.

  1. AKavita cannot terminate and may claim damages of about ₹10,000, the difference in value, because the parties classified the term as a warrantyCorrect
  2. BKavita may terminate because the false statement is automatically a condition
  3. CKavita may terminate because any misdescription of history is fraud
  4. DKavita may recover ₹4,00,000 and keep the car
  5. Kavita has no remedy because the term is a warranty

Explanation

The parties' express classification as a warranty is given effect, so termination is unavailable. Damages put the claimant in the position as if the statement were true: value as warranted less actual value. Using the facts, that is a loss of about ₹10,000. The last option is wrong because a warranty breach still gives damages.

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