- To overcome the injustice that may result from the Parole Evidence Rule - A device to overcome the parole evidence rule to admit pre-contractual statements which had not been incorporated into the written agreement. - To enable oral statements made to be admitted as a separate oral contract and collateral to the principle agreement. - Confers certain rights not in the main contract. Kluang Wod Products & Anor v Hong Leong Finance Berhad & Anor -To establish the presence of a collateral contract, the party must show: (i) A rep which was intended by the (D) to be relied upon) (ii) The rep induced the signing of the contract (iii) The rep itself must amount to a (w), collateral to the main contract and existing side by side with it
Elements of a CC: 1) Exist side by side yet independent of main contract.
- The statement must be promissory in nature and has
induced the party to enter into the contract. a. A mere representational statement is an insufficient basis upon which a collateral contract is to be found. b. Parties must have intended for the collateral contract to be incorporated.
- The parties must have intended or must be taken to
have intended that the oral promise was to form part of the basis of the contractual relations between them. 2) Override any inconsistent written term. - Where the collateral contract contradicts a written term in the main contract, then it is said to override the inconsistent written term.
Tan Swee Hoe Co Ltd v Ali Hussain Brothers
The appellants orally agreed to allow the respondents to
occupy their premises for as long as they wished on payment of $14,000 as tea money. Two written tenancy agreements were executed, but these did not refer to the oral agreement. Later, a dispute on rent arose between the parties and the appellants issued the respondent with a notice to vacate the premises. The respondents argued that under the agreement, they were allowed to stay in the premises for as long as they wished so long as they paid the rent regularly.
Held: A collateral contract exists. An oral promise, given
at the time of contracting, which induces a party to enter into the contract, overrides any inconsistent written agreement. The collateral contract device does not offend the parole evidence rule because the oral promise is not imported into the main agreement.
3) Cannot destroy the main contract.
- The collateral contract cannot destroy the written contract entirely, as it can only exist if there is a written contract. Tan Chong & Sons Motor Company Sdn Bhd v Alan McKnight
The representations made by the appellants salesman that
the car complied with the Australian Design Regulations were in conflict with condition No.5 printed on the reverse side of the Buyers Order signed by the respondent. The condition stated that no warranty was given by the company. Held: The representations made must be given an overriding effect and the printed condition must therefore, be rejected. Kandasami v Mohamed Mustafa
Held: A collateral contract existed under which the parties
agreed that the written agreement would have no legal effect. It exists only to answer some other purpose and one party represents while the other agrees that it shall not have such effect between themselves. - A collateral contract does not have the effect of substituting the main contract. - It merely confers certain other rights which are not incorporated in the main contract.
NOTE: The burden of proving the existence of a collateral
contract Industrial & Agricultural Distribution Sdn BHd v is upon Golden Sands Construction Sdn BHd. the party (D) purchased two excavators from (P). Post 2 months, (D) wanted to return it claiming a collateral contract if the excavator was unsuitable, (D) could return without any financial liability. Held: Visu Sinnadurai J: If such collateral exist, there there is no purpose for the main contract to exist as the cpntract of sale would have been a conditional contract. A collateral contract cannot exist without the main contract. alleging its existence.