## Facts

- Kreglinger, the appellant, entered into a loan agreement with New Patagonia Meat and Cold Storage Co Ltd, the respondent, secured by a floating charge over the respondent's assets.
- As part of the broader arrangement, the respondent granted Kreglinger an option to buy sheepskins at a fixed price for five years.
- After the loan was repaid, Kreglinger sought to exercise the purchase option, treating it as a collateral agreement independent of the main loan contract.
- The respondent argued the option was an essential part of the loan agreement and therefore ceased with repayment.
- The dispute centered on whether the option was a truly independent collateral contract or merely an ancillary term of the main loan agreement.

## Issues

1. Whether the option to purchase sheepskins constituted a collateral agreement independent of the main loan contract.
2. Whether such a collateral agreement can remain enforceable after the discharge of the primary contract.
3. What conditions must be satisfied for a collateral agreement to be considered independent and enforceable.

## Decision

- The House of Lords held that the option agreement was an independent collateral contract, not extinguished by repayment of the loan.
- It was determined that the option was supported by separate consideration: Kreglinger’s forbearance from demanding immediate loan repayment.
- The ruling clarified that collateral agreements are enforceable if not contingent upon the main contract and supported by distinct consideration.

## Legal Principles

- A collateral agreement is only enforceable as independent if it is not contingent upon the performance or existence of the primary contract.
- Independent consideration distinct from that arising under the main contract is required to support a collateral agreement.
- Collateral agreements may remain binding after the discharge of the main contract when these conditions are fulfilled.
- The case established a precedent distinguishing ancillary contract terms from truly independent collateral agreements.

## Conclusion

The House of Lords affirmed that a collateral agreement with genuinely independent consideration can survive and be enforced after the primary contract has ended. Clarity in drafting and recognition of independent obligations are critical for contractual enforceability, with the principles established in this case remaining central to the law of collateral contracts.

Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 (HL)