What is a collateral contract?


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A collateral contract is one in which the consideration for a promise is the making of another contract.

 

Three elements must be established:

 

  • A statement must be made to induce entry into the contract
  • The statement must be relied upon
  • The statement relied upon must be promissory in nature.

 

 

Where the main contract precedes the collateral contract there can be no contract as past consideration is not good consideration.


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