The Court of Appeal has found there was a collateral contract between a car dealership and a customer, under which the dealership committed to supply a limited-edition model of Porsche, if it was able to acquire one from the manufacturer, in return for the customer entering into the main contract to buy the vehicle. The collateral contract overrode a term in the dealership's terms and conditions that gave it a discretion to fulfil orders in any sequence. That meant the dealership was in breach when it supplied the vehicle to a different customer: Hughes v Pendragon Sabre Limited T/A Porsche Centre Bolton [2016] EWCA Civ 18.

The decision acts as a reminder that carefully drafted contract terms may, in some circumstances, be ineffective if contradicted by verbal assurances given to persuade the counterparty to enter into the main contract. A general term excluding verbal arrangements and requiring variations to be in writing and signed (as there was in this case) may not help. Commercial parties would be well advised to incorporate an appropriate entire agreement clause in their contracts, and to ensure those negotiating on their behalf do not give assurances that go beyond the contract terms. Chris Bushell and Maura McIntosh outline the decision below.

Background

The claimant contacted the defendant Porsche dealership on 15 March 2011 to say that he would like to place an order for a new limited-edition model, which was in great demand, subject to price and availability. On 18 March, the defendant telephoned the claimant and informed him that he needed to attend at the dealership that day to pay a £10,000 deposit if he wanted to be first on the list if the defendant received an allocation of the vehicles.

The claimant attended that afternoon and paid the deposit. He also signed a "Vehicle Order Form" stating that the claimant agreed to purchase the vehicle subject to the terms and conditions in the document. The words "Subject to Price + Spec" were written across the face of the box covering description and price. At the foot of the document was the statement: "This document contains the terms of a contract and includes the Terms and Conditions attached. Sign it only if you wish to be legally bound by them." Other relevant terms included:

  • Clause 2(b): "the Seller shall not be obliged to fulfil orders in the sequence in which they are placed."
  • Clause 18: "No verbal arrangements can be recognised by the Seller and no variation or modification of these terms and conditions shall be in any way effective unless in writing and signed on behalf of the Seller by a director or authorised signatory thereof."

On 23 March the defendant wrote to the claimant stating: "I can confirm that you have placed a £10,000 pounds deposit and placed an order for the next version of the GT3. I can also confirm that you will get the first one from Porsche Centre Bolton if we get one, which I am very confident that we will…"

The defendant was subsequently allocated a vehicle from Porsche, but sold it to a different customer. The claimant brought a claim for damages for breach of contract. The claim was dismissed by the County Court on the basis that there was no contract but simply an agreement to agree. Even if there was a contract, there was no breach because the defendant was not obliged to fulfil orders in the sequence in which they were placed. The claimant appealed.

Decision

The Court of Appeal allowed the appeal and awarded the claimant £35,000 for breach of contract.

The judge's conclusion that there was no contract was based, in part, on the fact that there was no vehicle, no price and no delivery date. However, none of these were fatal to the existence of a contract. The Sale of Goods Act 1979 provides that:

  • There can be an agreement for the sale of goods which are to be acquired by the seller in the future, even where that acquisition depends on a contingency which may or may not happen.
  • The price of goods can be left to be fixed in a manner agreed by the contract – here clause 5(d) of the terms and conditions provided that once a vehicle was available for delivery the purchaser must pay the balance of the purchase price, being the difference between "the importer's recommended retail price" and any deposits paid. 
  • Where no time for delivery is fixed, the goods are to be delivered within a reasonable time.

The judge's view that there was no contract but merely an expression of interest flew in the face of what happened. In the Court of Appeal's judgment, the document signed on 18 March 2011 was plainly a contract to purchase the vehicle, subject to the contingency of Porsche allocating a vehicle to the defendant. There was an express statement that the document contained the terms of a contract and included the terms and conditions attached, and those terms and conditions had "all the hallmarks of what one would expect with an agreement to sell a motor vehicle, including a proper law and a jurisdiction clause". It was not simply an agreement to agree, even though it was subject to price and specification.

The Court of Appeal also found that there was a collateral contract that, if Porsche supplied a vehicle to the defendant, it would be allocated to the claimant. The claimant had ordered the vehicle and paid the deposit on 18 March because of the defendant's assurance that he would be first in the queue if it received an allocation from Porsche. That statement was intended to have contractual effect, and the claimant provided consideration for it by entering into the main contract for the sale of the vehicle. The effect of the collateral contract was to vary clause 2(b) of the terms and conditions, which would otherwise have permitted the defendant not to fulfil orders in the sequence received.

The Court of Appeal referred to the decision in Wake v Renault (UK) Ltd [1996] Trading LR 514, in which a vehicle manufacturer attempted to terminate a dealership under a clause in its standard form agreement, but the dealer had been given an oral reassurance that termination was highly unlikely. The court held that this constituted a binding collateral contract which varied the main contract.

Clause 18 was not effective to prevent the collateral contract taking effect. Accordingly, the claimant was entitled to damages for breach, which the court calculated by the difference between what would have been the contract price and the cost the claimant would have to pay for the nearest equivalent vehicle.