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Contracts/Collateral contract
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).
A collateral contract, if forged between the same parties as the main contract, must not contradict the main contract (Hoyt's Pty Ltd v. Spencer (1919) 27 CLR 133).
Collaterial contracts are created by spoken or written promises that induce a party to enter a contract missing that promise.
