A Comparative Study on Collateral Contract in English & Iranian Law

Document Type : Research Paper

Authors

1 Assistant Professor, Deptartment of Islamic and Private Law of Shiraz University, Shiraz, Iran

2 Ph.D Student of Private Law of Shiraz University Shiraz, Iran

Abstract

A collateral contract is contract which co-exists side by side with the main contract, connected with it and at the same time independent. For example, a collateral contract is formed when one party pays the other party a certain sum for entry into another contract. Thus, the two contracts are connected and it may be enforced even though it forms no constructive part of the main contract. A collateral contract may be between one of the main contract’s parties or a third party, it can usually be epitomized as follows: a collateral contract is one that induces a person to enter into a separate "primary" contract. It can thus provide a remedy for pre-contractual statements.  For example, if A agrees to buy goods from B that will, accordingly, be manufactured by C, and does so on the strength of C's assurance as to the high quality of the goods, A and C may be held to have made a collateral contract consisting of C's promise of quality given in consideration of C's promise to enter into the main contract with B. Collateral contracts here is a way of evading the privacy of contract doctrine, which provides that a contract cannot impose obligations or confer rights on a non-contracting party. The promisor must have expressly or impliedly requested about the main contract and his promissory statement must have intended to induce the entry of the other party into the main contract. Collateral contracts are also Known as an exception to the “Parol Evidence Rule” The rule also prevents parties who have reduced their agreement to a final written document from later introducing other evidence, such as the content of oral discussions from earlier in the negotiation process, as evidence of a different intent as to the terms of the contract. This type of contract is usually made before or simultaneously with the main contract.
A collateral contract is often made because 1)Its terms conflict with those of the main contract and the evidence rules take precedence and thereby allow oral statements to be enforced as collateral contracts, 2)The main contract is wrongly drawn and has been written incorrectly .or 3)There is a difference in the contracting parties, needing to involve a third party. In order to recognize an agreement to be collateral, the Restatement requires a different subject matter. An essential ingredient required to establish the collateral contract is that the statement made by the promisor must be of a promissory nature, not a mere representation, and there must be reliance by the party alleging the existence of the contract.
 Consideration in Collateral contract is mostly entering into main contract and the act of entering into the main contract provides consideration for the Collateral contract. A collateral agreement will not be found if the court considers that the written contract was intended to embody the entire agreement between the parties. It is controversial whether courts should enforce a collateral agreement inconsistent with the terms of the main agreement and of which the effect would be to contradict the terms of a principal written agreement or not.
In Iranian law the concept of Collateral contract is not known but there is no obstacle to accept it. By it contractual compensation is provided for plaintiff and the courts may at any time determine the independence of terms or representation based on the parties' intent and identify the collateral contract.

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Comparative Law Review
Volume 10, Issue 2
Autumn & Winter
October 2019
Pages 547-567

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