1. When a person makes an assertion which is relied upon by another as an inducement for him to enter upon a contract, the legal obligation to make up for any loss suffered will arise (collateral warranty).

2. This may take two forms:
a) The contract contemplated may be one between the warrantor himself and the other party:
Esso Petroleum Co. Ltd. v. Mardon 1976 - a misstatement about the potential of a petrol station. The representation was treated as though it were a term.
b) The contract contemplated may be between the other party and some other person:
Shanklin Pier Ltd. v. Detel Products Ltd. 1951 - a misstatement about the suitability of a product to be used in fulfillment of a contract with a third party.
Note that an agent without authority may be liable in a similar way under this doctrine.

3. Collateral warranty does not require negligence; thus it is preferable over reliance upon the MA 1967 in the MARDON case and over the Hedley Buryne doctrine in the SHANKLIN case.