Collateral contract

A collateral contract can be between one of the two parties to the original contract and a third party.

A contract between two people can be accompanied by a collateral contract between one of those two people and a third party.

Should that third party make a collateral warranty and the formation of the contract depends on that warranty, then a party to the contract is able to sue on the promise despite the fact that it was not made by a party to the contract.

Shanklin Pier Ltd v Detel Products Ltd (1951) provides an example of this.  Shanklin Pier Ltd hired a contractor to paint the pier.  They discussed with Detel Products ltd the suitability of a certain type of paint and were assured that the paint in question would last for seven years. With this advice in mind Shanklin Pier Ltd went ahead and instructed the contractors to use the recommended paint.  The paint was unsatisfactory and started to peel in the first few months after painting. Shanklin Pier claimed for compensation from Detel Products.

There was the added complication that there was no direct contract between the two companies only between the contractor and Shanklin Pier and the contractors and Detel Products.

Judge McNair said:

'This case raises an interesting and comparatively novel question whether or not an enforceable warranty can arise as between parties other than parties to the main contract or the sale of the article in respect of which the warranty is alleged to have been given.... I am satisfied that, if a direct contract of purchase and sale of [the paint] had then been made between the plaintiffs and the defendants, the correct conclusion on the facts would have been that the defendants gave to the plaintiffs the warranties substantially in the form alleged in the statement of claim. In reaching this conclusion, I adopt the principles stated by Holt CJ in Crosse v Gardner and Medina v Staughton that an affirmation at the time of sale is a warranty provided it appear on evidence to have been so intended.

If, as is elementary, the consideration for the warranty in the usual case is the entering into of the main contract in relation to which the warranty is given, 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.'

He ruled that the plaintiffs were entitled to recover against the defendants damages for breach of the express warranties alleged.





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