Collateral contract PDF

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Collateral contract  It is a device use to overcome the parol evidence rule, to admit pre-contractual statements which had not been incorporated into the written agreement is the collateral agreement.  It is particularly relevant where an oral statement is made which induces the party to enter into a contract.  Such oral statement/oral promise is a separate contract but is collateral to the main transaction. This means that such oral statement/oral promise which meant to induce the other party to enter into the contract exists side by side with the main contract . As such, it does not offend the parol evidence.  Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd In order to establish the presence of collateral contract, the party must shows the following: 1. A representation which the defendant intended to rely upon 2. The representation induced the signing of contracts 3. The representation must amount to a warranty collateral to the main contract and existing side by side with it. Exists side by side ye2t independent  Tan Swee Hoe Co Ltd v Ali Hussain Brother A orally allowed R to occupy their premises as long as they wish on a rental payment of 14000 as tea money (An oral agreement made). Subsequently, 2 written agreement was executed, but these agreement did not refer to the oral agreement (these 2 written agreements exited side-by-side yet independent to the oral agreement because these 2 written agreement did not refer to the oral agreement). Later, a dispute arose between A and R pertaining rent and A issued R a notice to quit the premises. R argued that under the agreement, they were allowed to stay for as long as they wished so long as they paid the rent regularly. Federal court then held that there exists a collateral contract and upheld R’ submission. Overrides inconsistent written term A collateral contract exists side by side with the main written contract, but it is an independent contract. In addition, if a collateral contract contradicts a written term in the main contract, then the collateral contract overrides the inconsistent written term.  Kandasami v Mohamed Mustafa Court held that a collateral agreement existed under which the parties agreed that the written agreement would not have effect. Cannot destroy main contract CC CANNOT destroy the written contract entirely as a CC can only exist if there is a written contract. Industrial & Agricultural Distribution Sdn Bhd v Golden Sands, Construction Sdn Bhd

D purchased 2 excavators from P. 2 months later, D wanted to return it to P and alleged that there was an oral collateral warranty by P that if the excavator is not suitable, D could return without financial liability. In response, P brought a claim for damages for the depreciation in value of the excavators during the 2 months period. High Court granted only nominal damages and held that D failed to establish the existence of a collateral contract. Oral assurance of which D asserted is not a collateral contract as it would destroy the main contract....