business law

Essay by riverac19University, Bachelor'sC, September 2014

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Collateral contract

A collateral contract is a given promise within a particular contract which is "collateral" to the main contract. A collateral contract exists when A's entry into a contract (main) only because the other party promised something else for A. typically this two persons will both be parties to the main contract. But this cannot be the only case. The situation may be one where A's promise to enter into contract with B is A's consideration for a contract entered into C, with C making some other promise.[1: P. Gillies and N. Selvadurai, Law of Contract 2009 p 78]

In the words of Lord Moulton in Halibut, Symons Co v Bulckleton [1913] IC 30 at 47:

"If you make such a contract I will give you 100 pounds" is in every sense of the word a complete legal contract[2: R.B. Vermeesch and K.E Lindgren, Business Law of Australia Edition 11 p 153 ]

The collateral contract must be made before or simultaneously with, but not after, the formation of the main contract.

If it is made after the main contract, the promise of one party that she or he will enter into this main contract is ineffective, it being past consideration.

It is not necessary, for the enforcement of the collateral contract that the principal contract is entered into between the parties to the collateral contract. ' I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A': per McNair in Shanklin Pier Ltd v Detel Products Ltd [1951]. In this situation two contract have been made. One, the main contract, is usually in writing.