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a collateral contract is usually a single term contract made in consideration of the party for whose benefit the contract operates agreeing to enter into the principal or main contract which sets out additional terms relating to the same subject matter as the main contract the collateral contract coexist side by side with the main contract for example a collateral contract is formed when one party pays the other party a certain sum for entry into another contract a collateral contract may be between one of the parties and a third party it can also be explained as a collateral contract is one that induces a person to enter into the main contract for example if ex agrees to buy goods from Y that will accordingly be manufactured by Z and does so on the strength of Z's assurances to the high quality of the goods X and C may be held to have made a collateral contract consisting of Z's promise of quality given and consideration of X's promise to enter into the main contract with y a party to an existing contract may attempt to show that a collateral contract exists if they're claimed for a breach of contract fails because the statement they relied upon was not held to be a term of the main contract it has been held that for this to be successful the statement must have been promissory in nature remedies may be awarded for breach of a collateral contract a collateral contract is one where the parties to one contract enter into or promised to enter into another contract thus the two contracts are connected and it may be enforced even though it forms no constructive part of the original contract in JJ's savage & sons' tie Limited v black Nia mere expression of opinion was held insufficient to be satisfied as a promise in crown Melbourne Limited V cosmopolitan Hotel Vik Thai limited a statement by a landlord made to intending tenants when negotiating a lease that they would be looked after at renewal time would not bind the landlord to offer a further five-year lease the permissive must have expressly or impliedly requests at about the main contract and his promissory statement must have intended to induce the entry of the other party into the main contract according to Lord Denning mr. a collateral contract is held binding when a person gives a promise or an assurance to another intending that he should act on it by entering into a contract a collateral contract if forged between the same parties as the main contract must not contradict the main contract that is if the term was agreed upon prior to the completion of the formal contract but was still included as a term and could not be executed until completion of the second term the first term will still be allowed essentially the collateral contracts cannot contradict any element of the main contract nor the rights created by it a theory sustains that is feasible to typify letter of credit as a collateral contract for a third party beneficiary because letters of credit are prompted by the buyer's necessity and an application of the theory of gene to met the cause of a letter of credit is that a bank issue a credit in favor of a seller to release the buyer of his obligation to pay directly to the seller with legal tender there are in fact three different entities participating in the letter of credit transaction the seller the buyer and the banker therefore a letter of credit theoretically fits as a collateral contract accepted by conduct or in other words and implied in fact contract [Music]