Contracts/Collateral contract: Difference between revisions
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A '''collateral contract''' is a [[contract]] where the [[consideration]] is the entry into another contract, and co-exists side by side with the main contract. ''For example, a collateral contract is formed when one party pays the other party a certain sum for entry into another contract. A collateral contract may be between one of the parties and a third party.'' | |||
A party to an existing contract may attempt to show that a collateral contract exists if their claim for a breach of contract fails because the statement they relied upon was not held to be a [[Contractual term|term]] of the main contract. It has been held that for this to be successful, the statement must have been promissory in nature (''J J Savage & Sons Pty Ltd v. Blakney'' (1970) 119 CLR 435). | A party to an existing contract may attempt to show that a collateral contract exists if their claim for a breach of contract fails because the statement they relied upon was not held to be a [[Contractual term|term]] of the main contract. It has been held that for this to be successful, the statement must have been promissory in nature (''J J Savage & Sons Pty Ltd v. Blakney'' (1970) 119 CLR 435). | ||
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Revision as of 03:21, September 17, 2012
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A collateral contract is a contract where the consideration is the entry into another contract, and co-exists side by side with the main contract. For example, a collateral contract is formed when one party pays the other party a certain sum for entry into another contract. A collateral contract may be between one of the parties and a third party. A party to an existing contract may attempt to show that a collateral contract exists if their claim for a breach of contract fails because the statement they relied upon was not held to be a term of the main contract. It has been held that for this to be successful, the statement must have been promissory in nature (J J Savage & Sons Pty Ltd v. Blakney (1970) 119 CLR 435).
It can also be explained as : a subsidiary contract that induces a person to enter into a main contract. For example: if X agrees to buy goods from Y made to Z, and does so on the strength of Z’s assurance as to the high quality of the goods, X and Z may be held to have made a collateral contract consisting of Z’s promise to quality given in consideration of X’s promise to enter into the main contract with Y.
In the case of Barry v Davies, it was held that an Auctioneer and A buyer had formed a collateral contract. (Barry v Davies t/as Heathcote Ball & Co [2001] 1 All ER 944; [2000] 1 WLR 1962).
A collateral contract, if forged between the same parties as the main contract, must not contradict the main contract i.e. If the term was agreed upon prior to the completion of the formal contract (but was still included as a term, and could not be executed until completion of the second term), the first term will still be allowed (Hoyt's Pty Ltd v. Spencer (1919) 27 CLR 133).
Collateral contracts are an exception to the Doctrine of Privity of Contract (Shanklin Pier Ltd v Detel Products Ltd (1951) 2 KB 854).
