Monday, 1 July 2013

[Contract] Collateral Contract

1.0 Collateral Contracts

1.1 Form and nature 

First form of collateral contract: Where a person enters into a contract (the main contract) with the other because of a promise by that person in relation to the subject matter of the main contract, or otherwise by way of inducement to enter into that contract

Second form of collateral contract: Where A enters into a contract with C after a statement by B which takes effect as a contract between A and B which is collateral to the main contract between A and C.

In both cases, the consideration for the promise in the collateral contract is entry into the main contract. 'It is collateral to the main contract ,but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract' (per Lord Moulton in Heilbut Symons & Co v Buckleton)

1.2 Elements

There elements must be established (J J Savage & Sons Pty Ltd v Blakney)

  1. That the statement was intended to be relied on;
  2. Reliance by the party alleging the existence of the contract; and 
  3. An intention, on the part of the maker of the statement, to guarantee its truth. (See Shepperd v Ryde Corp)
1.3 Requirement of consistency 

A statement will not be effective as a collateral contract if it is inconsistent with the main contract. (Hoyt's v Spencer)

1.4 Contract with third party

The requirement of consistency, however, does not apply where the contract is with a third person (Andrews v Hopkinson). 

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