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.