BetterLawNotes-5 (2)

CONTRACT LAW

It may be difficult for one reason or another to treat a statement as having been incorporated into the contract made by the parties. Nevertheless the statement may be given contractual effect by means of being incorporated into an ancillary, or collateral, contract. Such a contract sits alongside the main contract. The parties to the collateral contract need not be the same as those to the main contract.

Heilbut Symons v Buckleton [1913] AC 30

B spoke to S’s agent and said ‘I understand that you are bringing out a rubber company’, to which the agent replied, ‘we are’. B then asked if it was ‘all right’, to which the reply came, ‘we are bringing it out’. B bought shares in the company which turned out to be worthless. The description of the company as a rubber company was inaccurate. The House of Lords held that there was no intention on the part of either party that the statement should have contractual effect.

On the whole, however, the case law suggests that the courts are, in practice, much more amenable to the existence of collateral contracts (see below under Parole evidence rule).

Mann v Nunn (1874) 30 LT 526

C orally agreed to take a tenancy of the defendant’s premises if D would agree to do certain repairs. The written tenancy agreement made no reference to the repairs. Held: C could enforce the promise to carry out the repairs. “The parol agreement neither alters nor adds to the written one, but is an independent agreement”.

A collateral contract may not be made by the parties to the main contract: it may be formed by one of the parties to the main contract and a third party:

Shanklin Pier v Detel Products [1951] 2 KB 854

The case concerned a pier on the Isle of Wight. C, the owner, engaged T to paint the pier. C had previously spoken to D who had told C that its paint would be suitable for C’s pier. Under the terms of its contract with T, C instructed T to use D’s paint. The paint turned out to be unsuitable. Held: C could sue D for breach of contract.

‘I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A.

McNair J (at 856).

Andrews v Hopkinson [1957] 1 QB 229

A was induced to buy a car on hire-purchase from T on the basis of a statement by the dealer H that ‘It’s a good little bus. I would stake my life on it’. The car was defective and A suffered injury as a result. Held: A could sue H for breach of a collateral contract.

Bowerman v ABTA [1995] 145 NLJR 1815

C had booked a holiday through a tour operator which belonged to ABTA. The operator became insolvent and C sued D claiming a full reimbursement of the cost of the holiday. Held: the terms of an ABTA notice displayed at the tour operator’s premises were capable of becoming legally binding terms, enforceable by C against D.

‘In my judgment this document is intended to be read and would reasonably be read by a member of the public as containing an offer of a promise which the customer is entitled to accept by choosing to do business with an ABTA member. A member of the public would not analyse his situation in legal terms but he would clearly understand that this notice would only apply to him if he should choose to do business with an ABTA member and he would also understand that if he did do so he would be entitled to hold ABTA to what he understood ABTA to be promising in this document. In my judgment it satisfies the criteria for a unilateral contract and contains promises which are sufficiently clear to be capable of legal enforcement. The principles established in the Carbolic Smoke Ball case apply.’ (Hobhouse LJ)

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