Business Law

Business Law

The concept of a collateral contract has basically been subject to evolution since introduction. However, in comparison to the other jurisdiction, the collateral contract has been in application in a restricted manner in Australia. This paper will discuss the concept maintained in the collateral contract, the argument of the contract and the limitations that might be placed upon its likelihood in Australia.

Collateral Contract

In the business law, the term collateral contract is a significant contract that takes place between the two parties. It refers to a type of contract in which the entering into another contract is the fundamental consideration which co-exists simultaneously along with the primary contract. For instance, when one party pays the other party a particular amount of money for entering into another contract, then a collateral contract is formed. A collateral contract can possibly be formed between the third party and one of the two parties. The existence of collateral contract may be showed by the part to an existing contract in such situation when they fail in their claim for the violation of contract due to the fact that they depended on some statement which was not considered as one of the terms for the main contract (J J Savage & Sons Pty Ltd v. Blakney (1970) 119 CLR 435).

The basic definition of the collateral contract mentions it as a contract in which the major consideration is to enter into another contract in order to co-exist with the main contract simultaneously. A collateral contract may include a promise that was not made to include as a part of the main contract. It is definite, both in authority and principle, that there is likelihood for the occurrence of a contract, which is forming some other contract through its considerations. It, then, becomes collateral to the primary contract, however, each of them has ther own presence and existence and there is no difference in terms of their ownership to the full status and character of a contract.

Collateral refers to the meaning "by the side of". It was an innovation introduced to evade the parole evidence rule, the past restricted remedies fir misrepresentation and the privities of contract. The collateral contract can be understood through this example: a person is made to enter into the main contract through a subsidiary contract. Y made goods to Z and X is willing to purchase them. He does so on the basis of assurance provided by Z regarding the good quality of goods. In this case, Z and X may be acknowledged to be a part of the collateral contract which encompasses the promise given by Z with regards to the good quality of commodity inconsideration of the promise of X for entering in the main contract with Y. Thus, a collateral (or “preliminary” or “ancillary”) contract pertains to a type of contract, considering which results into the formulation of some other another contract. It is not essential that, in order to enforce the collateral contract, the main ...