Collateral Contract CASES
In English law, a collateral contract is a secondary agreement which exists alongside the main contract, providing assurances or promises that induce one party to enter into the principal agreement.
Definition and principles
A collateral contract arises when one party makes a promise or assurance separate from the main contract, intended to encourage the other party to commit to that principal agreement. It must be supported by consideration distinct from the main contract.
Formation requirements
- Clear and distinct promise or representation.
- Intention by the parties that the promise be legally binding.
- Separate consideration from the principal contract.
- Reliance by one party on the promise, prompting them to enter the main agreement.
Case example: Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council (1990)
In this case, the Court of Appeal held that the council’s invitation to tender implicitly created a collateral contract obligating it to consider timely submitted tenders fairly. Breaching this collateral promise resulted in liability, even though no primary contract was formed.
Enforceability and remedies
Collateral contracts can be enforced independently, providing remedies such as damages or specific performance if breached, even if no primary contractual relationship materialises.
Limitations and challenges
Courts closely scrutinise claims of collateral contracts, requiring clear evidence of separate intent and consideration, to prevent undermining the certainty of written contracts.
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Pier owners specified contractors use a particular paint based on the manufacturer's direct assurances of its quality. When the paint failed, the owners successfully sued the manufacturer for breach of warranty, despite not buying the paint themselves, establishing a collateral contract. Facts The plaintiffs, Shanklin Pier Ltd., engaged contractors, George Tate & Son Ltd., to repaint their pier. The contract allowed the plaintiffs to specify the paint to be used. The defendants, Detel Products Ltd., were paint manufacturers who represented to the plaintiffs that their paint, D.M.U., was suitable for repainting the pier and would last for seven to ten
An agent stated his firm was 'bringing out a rubber company.' The claimant bought shares, but the company wasn't solely for rubber. The House of Lords held this was an innocent misrepresentation, not a contractual warranty, establishing a high threshold for such claims. Facts The respondent, Mr Buckleton, contacted the appellants, Heilbut Symons & Co., a firm of rubber merchants, to inquire about shares in a new rubber and produce company. Mr Buckleton telephoned Mr Johnston, the appellants’ manager, and asked if they were ‘bringing out a rubber company’. Mr Johnston replied that they were. On the basis of this
Esso offered 'World Cup Coins' with petrol purchases. Customs and Excise sought purchase tax, arguing a sale occurred. The House of Lords held there was an intention to create legal relations, but no 'sale' of the coins, which were merely part of a single contract for petrol. Facts Esso Petroleum devised a sales promotion scheme to increase sales of its petrol. For every four gallons of Esso petrol purchased by a motorist, Esso would provide one ‘World Cup Coin’, part of a collectible set. The coins themselves had little to no intrinsic value. The Commissioners of Customs and Excise contended
A property seller offered to exchange contracts if the buyer attended with a signed contract and deposit cheque. The buyer complied, but the seller refused to proceed. The court held a binding unilateral contract existed, which the seller breached by revoking their offer. Facts The plaintiffs, Dahlia Ltd, negotiated to purchase properties from the first defendants, Four Millbank Nominees Ltd. The essential terms were agreed. The defendants’ solicitors wrote to the plaintiffs’ solicitors stating they were instructed to proceed. Crucially, the defendants’ representative orally informed the plaintiffs that if they attended the defendants’ office with a counterpart contract signed by
Facts The defendant, Blackpool Borough Council, owned and managed Blackpool Airport. They invited the claimant, Blackpool and Fylde Aero Club, and six other parties to submit tenders for a concession to operate pleasure flights from the airport. The Aero Club had held the concession since 1975. The Council’s invitation to tender stated that tenders must be submitted in a provided envelope and that any tender received after the deadline of 12 noon on 17th March 1983 would not be considered. The invitation also included a clause stating, ‘The Council do not bind themselves to accept all or any part of
