EXPRESS TERMS

LAW OF CONTRACT II
DR. NURAISYAH CHUA ABDULLAH
Outline
A. Terms and representations
B. Classification of terms:
Conditions, warranties and innominate terms
C. Parol evidence rule
D. Collateral contracts
Parties often negotiated before entering into a contract. In
the process, statements are made either orally or in writing.

Some statements are made only to induce the other party to
enter into a contract while others are intended to form part
of the contract.

Statements which are made only to induce the other party
to enter into a contract are known as representations. They
are not contractually binding and do not form part of the
contract. However, they have legal effect and the party
who have been induced by the statements to enter into a
contract is entitled to relief for misrepresentation.

Statements which are intended to form part of the contract
are known as terms of contract. They are legally binding and
the other party can sue for breach of contract if the terms
have not been adhered to.
A. Terms and Representation
Whether a statement is a term or a representation
essentially rest on the intention of the parties,
objectively assessed based on their conduct and
words and from the surrounding circumstances of the
case.

The courts have established various tests and
guidelines to determine whether a statement is a term
or a representation:
a) When the statement was made;
b) Importance of the statement;
c) Existence of a written contract;
d) Knowledge and expertise of the maker of the
statement.
The relevant factor in this test is the length of time
that has passed from the moment the statement is
made until the time the contract is formed.

The longer the duration, the more likely the
statement is a mere representation.


(a). When statement made
Case: Routledge v. McKay
The plaintiff and the defendant negotiated the sale of
a motorcycle belonging to the defendant. On
October 23, the defendant notified the plaintiff
regarding the model of the motorcycle which was said
to be a 1942 model based on the registration book. On
October 30, that is, one week after the negotiations,
the contract was entered into. The contract was silent
on the model of the motorcycle in question.


The plaintiff later found out that it was a 1930 model
and argued that the defendants statement that it was
a 1942 model was a term and therefore, there had
been a breach of contract.

The plaintiffs argument was rejected by the Court on
the ground that the contract was only entered into one
week after the negotiations. The Court also
distinguished this case from Bannerman v. White where
the contract was entered into almost immediately after
negotiations. The Court held that the statement made
was a term of the contract.


(b). Importance of statement
The greater the importance a party places on a
statement, the more likely the statement will be
regarded as a term.

Case: Bannerman v. White
The buyer wished to purchase some hops, and he
asked the seller whether sulphur was used in the
process of growing the hops. He said that if sulphur
was used, he would not even bother to ask about
the price. The seller replied that sulphur was not
used. They then entered into a sales and purchase
agreement for the hops. Later, there was evidence
to show that sulphur had been used on a small
portion of the hops.


The buyer refused to pay the purchase price and
argued that there was a breach of contract as the
sellers statement amounted to a term of the contract.
The court agreed and held that the statement made by
the seller regarding the sulphur was a term of the
contract.

The buyer had placed great importance on the truth of
the statement. Further, the sale and purchase
agreement was entered into soon after the statement
was made.

In this case, Lord Denning also explained that if a
statement is not initiated by the speaker but merely
passed on by the speaker, it is more likely to be treated
as a representation than as a term.


The example was given of the sale of a second hand
motorcar in succession, where each seller passes on
information of the year of the car by relying on the
false entry in the registration book made by a former
seller.


(c). Existence of written contract
If there is a written contract and the statement in
question is not included in the contract, then there
is a higher likelihood that the statement is a
representation.

This is based on the assumption that if the
statement is important, it would have been
included in writing. Thus, in the case of Routledge
v. McKay discussed previously, the Court took into
consideration that it was a mere representation
because the statement was not reduced to
writing.

However, these tests are guideline only and are
not decisive.

Case: Oscar Chess Ltd v. Williams
Lord Diplock stated that the writing factor is by no means
conclusive:

If an oral representation is afterwards recorded in writing, it is
good evidence that it was intended as a warranty. If it is not
pun into writing, it s evidence against a warranty being
intended; but it is by no means decisive. There have been
many cases where the courts have found an oral warranty
collateral to a written contract. When, however, the purchase
is not recorded in writing at all, it must not be supposed that
every representation made in the course of the dealing is to be
treated as a warranty. The question then is still: Was it intended
as a warranty?
(d). Knowledge and expertise of maker of
statement
If the person making the statement has special
knowledge or skill or is in a better position to
ascertain the accuracy of the statement vis--vis
the person who is receiving the information, the
courts would more likely regard the statement
made as a term rather than a representation.

Therefore, in relation to statements made about
second hand cars, it was held that the statement
made by a car dealer was a term whereas a
statement made by a private seller was regarded
as a representation.
Case: Dick Bentley Productions Ltd & Anor v. Harold
Smith (Motors) Ltd
The second plaintiff told Smith (who was acting on behalf of the
defendant company) that he was looking for a well vetted
Bentley car. Smith informed the second plaintiff that he was in a
position to find out the history of cars.

The second plaintiff purchased a car from the defendant
following Smiths statement that the cars mileage since the
engine was replaced was 20,000 miles. In fact, the cars actual
mileage was 100,000 miles although the speedometer showed
20,000 miles.

Smith had, in fact, not ascertained what mileage the car had
done, although he had not made the statement fraudulently. The
car proved disappointing and it was taken back to Smith for
repairs from time to time. The plaintiffs brought an action for
breach of warranty. The issue was whether the representation
was an innocent misrepresentation (which does not give rise to
damages) or whether it was a warranty.
The Court of Appeal held that the representation amounted to a
warranty which entitled the plaintiff to damages. Lord Denning
MR stated:

it seems to me that if a representation is made in the course
of dealings for a contract for the very purpose of inducing the
other party to act on it, and it actually induces him to act n it by
entering into the contract, that is prima facie ground for inferring
that the representation was intended as a warranty

the maker of the representation can rebut this inference if he
can show that it really was an innocent misrepresentation, in that
he was in fact innocent of fault in making it, and that it would not
be reasonable in the circumstances for him to be bound by it
The inference is not rebutted. Here we have a dealer, Mr. Smith,
who was in a position to know, or at least to find out, the history of
he car. Indeed it was done later. When history of this car was
examined, his statement turned out to be quite wrong. He ought
to have known better.
Case: Oscar Chess Ltd. v. Williams
The defendant, a private seller sold to the plaintiffs, who were
motor dealers, a second-hand Morris motor car for 290. The
defendant honestly believed the car to be a 1948 model and
described it as such to the plaintiff's salesman, and also showed
him the registration book. The car was subsequently found to be
a 1939 model.

The plaintiffs brought an action for breach of warranty, claiming
the difference between sum paid and the actual worth of the car.
The Court of Appeal held by a majority that the defendant was
not liable to the plaintiffs in damages for breach of warranty.


In deciding whether the statement about the model of the car
was a representation or a term of the contract, Lord Denning
stated:

What is the proper inference from the known facts? It must have
been obvious to both that the seller had himself no personal
knowledge of the year when the car was made. He only became
owner after a great number of changes. He must have been
relying on the registration book.

It is unlikely that such a person would warrant the year of
manufacture. The most that he would do would be to state his
belief, and then produce the registration book in verification of it.
In these circumstances, the intelligent bystander would, I
suggest, say that the seller did not intend to bind himself so as to
warrant that the car was a 1948 model. If the seller was asked to
pledge himself to it, he would at once have said I cannot do
that. I have only the log-book to go by, the same as you.
In this case, Lord Denning also observed that the buyers who
were motor dealers had bought the car relying on the year
stated in the log book although they could have checked the
correctness of it.


Case: Esso Petroleum Co. Ltd. v. Mardon
The plaintiff negotiated with the defendant to grant the
defendant a tenancy for an Esso station. During the negotiations,
an Esso Representative who had had 40 years experience in the
petrol trade told the defendant in good faith that Esso had
estimated that the throughput of petrol would reach 200,000
gallons a year in the third year of operation of the station.

Based on the representation, the defendant entered into a
tenancy agreement for three years. The defendant incurred
losses to operate the station which was only capable of an
annual throughput of some 70,000 gallons.

Esso issued a writ against the defendant claiming possession of
the station when the defendant was unable to pay for petrol
supplied. The defendant counterclaimed for damages in respect
of the representation, alleging, inter alia, that it amounted to a
breach of warranty.
The court held that the plaintiffs were liable to the defendant for
breach of warranty. Lord Denning MR stated:

I would quite agree with counsel for Esso that it was not a
warranty that it did not guarantee hat the throughput would be
200,000 gallons. But, nevertheless, it was a forecast made by a
party, Esso, who had special knowledge and skill. It was the
yardstick by which they measured the worth of a filling station.
They knew the facts. They knew the traffic in the town. They knew
the throughput of comparable stations. They had much
experience and expertise at their disposal. They were in a much
better position than Mr. Mardon to make a forecast.

It seems to me that if such a person makes a forecast intending
that the other should act on it and he does act on it it can well
be interpreted as a warranty that the forecast is sound and
reliable in this sense that they made it with reasonable care and
skill.




Case: Ecay v. Godfrey
Where the maker of the statement suggest to the other party to
seek independent verification of the accuracy of the statement,
the statement is more likely to be held as a representation than a
terms.
B. Conditions, Warranties and Innominate
Terms

Traditionally, every contractual term is classified as a
condition or a warranty. It is important to determine whether
a term is a condition or a warranty as not all breaches have
the same effect. Remedy for a breach would depend on
they type of term that has been breached.

A condition is an essential and the more important term, a
breach of which gives an innocent party the right to rescind
the contract and claim damages.

A warranty is a non-essential term, a subsidiary term and
being the less important term, a breach of which only gives
rise to an action for damages.

This approach is based on the intention of the parties at the
time they form the contract as to the importance they
attach to the term.
It is not merely what the parties have labeled of the terms
but the court will determine what the parties have truly
intended. The courts are also vigilant against attempts by
stronger parties to take advantage of weaker parties by
arbitrarily classifying terms as conditions or warranties to suit
their purposes.

In contract to the traditional approach of classifying terms
as a condition or a warranty which looks at the intention of
the parties at the time the contract is formed, an approach
of classifying terms as innominate or intermediate terms has
emerged.

Following this approach, whether the innocent party has a
right to rescind the contract or only get a remedy in
damages depends on the consequences of the breach. If
the consequences are so severe and strike at the very
purpose of the contract, the innocent party may rescind the
contract and be discharged. If the effect of the breach is
only minor and is capable of being rectified, then it will only
afford a remedy in damages,


Difference between condition and warranty
Whether a term is a condition or a warranty depends on the
intention of the parties as to the importance they had
placed on the term concerned.

The court will look at the nature of the contract and the
surrounding circumstances.

Case: Bettini v. Gye
The plaintiff had agreed to sing for the defendant during the
London season for two consecutive weeks. The plaintiff also
agreed to be in London at least 6 days prior to the
commencement of his engagement for the purpose of
rehearsals. The plaintiff fell sick and only arrived in London two
days before the first show. The defendant refused to employ the
plaintiff. The court held that the term regarding rehearsals was not
a condition and did not go to the root of the contract. Thus, its
breach did not entitled the defendant to rescind the contract.
Case: Poussard v. Spiers
The plaintiff had a similar agreement with the defendants to sing
and play in the chief female part in a new opera for three
months. Although she attended several rehearsal, she was taken
ill subsequently and was unable to perform at the opening of the
opera season.

Her role was substituted by another person. When she recovered,
the defendant refused to accept her service. The plaintiff brought
an action for wrongful dismissal. The court held that the plaintiffs
inability to perform at the opening and early performances went
to the root of the matter and this, justified the defendants in
rescinding the contracts.
It can be seen that in Bettini, the absence from rehearsals
before the actual show was a less important term (thus, a
warranty) whereas in Poussard, the absence from the
opera performance was breach which went to the root of
the contract (thus, a condition).
Case: Tan Chong & Sons Motor Co Sdn. Bhd. v. Alan
McKnight
Salleh Abas FJ explained the difference between a condition
and a warranty as follows:

The word warranty in the law of contract tends to be
confusing as it may relate to a term of the contract or to a
separate enforceable promise which is collateral to a
contract.

In so far as the word is used to denote a term of a contract, its
employment is purely for the purpose of distinguishing the most
important terms (known as conditions) from the less important
ones (known as warranty), the breaches of which lead to
different result and give different remedies to the innocent
party.


If the term breached is a condition, the innocent party has the
right to repudiate the contract and consider himself
discharged therefore and claim damages for the breach.

If on the other hand, the term broken is only a warranty the
innocent party cannot repudiate the contract and his remedy
is confined to the claim for damages only. In the case of
breach of a condition it is of course open to the innocent party
to treat the matter as breach of warranty and sue for the
damages only without having to repudiate the contract.


Innominate or Intermediate term
The traditional classification of condition and warranty was
found to be difficult to apply in some contract. It was felt
that there were some contractual obligations which could
not be classified merely as a condition or a warranty. Thus,
a third category was created, which is known as the
innominate or intermediate term.

In this classification, what is looked at is not whether the term
is an essential or subsidiary term but the consequences of a
breach of the term. If the breach result in serious
consequences, and the innocent party is substantially
deprived of the benefits under the contract, the innocent
party has the right to rescind the contract and treat himself
as discharged. If the result is not serious, the innocent party is
only entitled to damages.
Case: Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen
Kaisha Ltd.
In this case, the issue is was whether there was a breach of an
undertaking that the ship chattered was seaworthy and was in
every way fitted for ordinary cargo service. The ship was
chartered for 24 months and had many breakdowns.

The engine trouble encountered was largely due to
incompetent staff and outdated machinery and the ship was
at sea only eight and a half weeks in the first seven months.
The court held that the seaworthiness clause was an
innominate term.
Lord Diplock laid out the test as follows:

Does the occurrence of the event deprive the party who has
further undertakings still to perform of substantially the whole
benefit which it was the intention of the parties so expressed in
the contract that he should obtain as the consideration for
performing those undertakings.

There are, however many contractual undertakings of a more
complex character which cannot be categorized as being
condition or warranties. Of such undertakings all that can
be predicated is that some breaches will and others will not
give rise to an event which will deprive the party not in default
of substantially the whole benefit which it was intended that he
should obtain form the contract; and the legal consequences
of a breach if such an undertaking, unless provided for
expressly in the contract, depend upon the nature of the event
to which the breach gives rise and do not follow automatically
from a prior classification of the undertaking as a condition or
a warranty.


Case: Datuk Abu Samah v. Shah Alam Properties Sdn.
Bhd & Anor Appeal
An alternative method of classification of the terms of a
contract is according to, not their relative importance, but the
consequences, of their breach. This approach is especially
useful in cases of synallagmatic contracts. Under the
alternative method, if the breach of a particular terms foes to
the root of the contract so as to affect its very substratum,
then, the remedy of the innocent party lies in repudiation and
damages. However, if its breach produces lesser
consequences, the remedy of the innocent party lies in
damages only.
C. Parol Evidence Rule
The parol evidence rule prohibits a person form
adducing oral evidence where the terms of the
contract have been put into writing. In other words,
where a written document purports to records the
parties agreement, the court will not allow the
parties to adduce extrinsic evidence to add to, vary,
or contradict the terms of the written document.

Essentially, the rule aims to protect the written
contracts original content which will contribute to
maintaining certainty and stability, particularly in
business dealings. The rationale for this rule can be
seen in the statement of Chang Min Tat FJ, in Tindok
Besar Estate Sdn. Bhd. v. Tinjar Co.
The parol evidnce rule is found under the common law and in
Malaysia, it is provided in ss91 and 92 of the Evidence Act 1950.

Section 91: When the terms of a contract have been reduced
by or by consent of the parties to the form of a document no
evidence shall be given in proof of the terms of the contract
except the document itself

Section 92: When the terms of any such contract have been
proved according to section 91, no evidence of any agreement
or statement shall be admitted as between the parties to any
such instrument or their representative in interest for the purpose
of contradicting, varying, adding to or subtracting from its terms.

There are, however, many exceptions to the parol evidence rule
which are provided in s92:


a) any fact may be proved which would invalidate any document
or which would entitle any person to any decree or order
relating thereto, such as fraud, intimidation, illegality, want of
due execution, want of capacity in any contracting party, the
fact that it is wrongly dated, want or failure of consideration, or
mistake in fact or law;
b) the existence of any separate oral agreement, as to any matter
on which a document is silent and which is not inconsistent with
its terms, may be proved, and in considering whether or not this
proviso applies, the court shall have regard to the degree of
formality of the document;
c) the existence of any separate oral agreement constituting a
condition precedent to the attaching of any obligation under
any such contract, grant or disposition of property, may be
proved;
d) the existence of any distinct subsequent oral agreement, to
rescind or modify any such contract, grant or disposition of
property, may be proved except in cases in which the contract,
grant or disposition of property is by law required to be in
writing, or has been registered according to the law in force for
the time being as to the registration of documents;
e) any usage or custom by which incidents not expressly
mentioned in any contract are usually annexed to contracts of
that description may be proved if the annexing of any such
incident would not be repugnant to or inconsistent with the
express terms of the contract; and
f) any fact may be proved which shows in what manner the
language of a document is related to existing facts.
Case: Tindok Besar Estate Sdn. Bhd. v. Tinjar Co
The appellant was a contractor for extraction of timber for a
company. He later decided not to carry in with the work. An
agreement was made between the appellant and the
respondent where the respondent undertook the work of
extracting timber.

There was a dispute as to this agreement. At the trial, the trial
judge in construing the agreement admitted parol evidence to
prove several implied undertakings on the ground that not all the
terms had been incorporated into the agreement.

The Federal Court disagreed with the trial judges approach and
held that unless the additional evidence sought to be adduce fell
within any of the exceptions in s92 of the Evidnece Act, it should
not be introduced as it would be to contradict, vary, add or
subtract to the terms of the agreement.
Chang Min Tat FJ:

I think and I say so with respect, the fundamental mistake made
by the learned judge is to conclude simply and without
qualification that s92 applies only to a case where all the terms of
the agreement have been reduced to writing. But that is not what
section 92 says. It merely says where the terms and by
referring back to section 91, it means where the terms of a
contract have been reduced to writing, as in this particular
agreement they had been, the contract could only be proved by
the document itself, and it is not open to the respondent to seek
to introduce and the judge to admit evidence that would add
new terms. The provisoes qualify but did not eliminate the main
provisions of the sections, so that unless the additional evidence
sought to be adduced falls within the scope of any of the
provisoes, it should not be allowed .
Case: Tan Chong & Sons Motor Co Sdn. Bhd. v. Alan
McKnight
The respondent was a member of the Royal Australian Air Force.
He agreed to buy a car from the appellants and signed a Buyers
Order which contained a condition that no guarantee or
warranty of any kind whatsoever was given by the company.

However, the respondent only bought the car on the
representation of the appellants salesman that the car
conformed to the Australian Design Regulations allowing him
import duty exemption on the car. The car supplied did not
comply with the Regulations and the respondent had to sell the
car at a loss.

The respondent claimed damages for breach of warranty. The
issue rose whether the representations of the appellants
salesman were admissible in view of s92 of the Evidence Act.
The court held that proviso (b) and (c) applied. Salleh Abas FJ
stated:

But the primary purpose rather the dominant purpose of
proving the pre-contract statements in the case under the
present appeal was not to contradict, vary, add or subtract the
terms of the Order, but to prove the existence of warranty, a
separate contractual promise, although such proof resulted in a
conflict between the warranty and the terms of the contract
subsequently entered into. Such proof is obviously allowed by the
provisions (b) and (c) and also illustrations (d), (g) and (h) of
section 92.

Perhaps, a short answer to the objection can be given in that the
prohibition against admissibility of evidence under section 92
only apply where all as opposed to some only of the terms of
the contract are written into the agreement . Thus where some
terms are given orally and some in writing, oral evidence could
be given to prove the terms agreed to orally.
The expression When the terms of any such contract at the
beginning of section 92 must be read to mean When all the
terms of any such contract.



Proviso (b) which allows the admission of parol
evidence of the existence of any separate oral
agreement as to any matter on which the document
is silent and which is not inconsistent to it, has been
applied by the Malaysian courts as akin to a collateral
warranty which is a common law exception to the rule
on parol evidence.
D. Collateral Contracts
A device which ahs been used to overcome the
parol evidence rule to admit pre-contractual
statement which had not been incorporated into
the written agreement is the collateral contract.

This device is particularly relevant where an oral
statement is made which induces the party to
enter into a contract. The oral promise is a
separate contract but is collateral to the main
transaction. As it exist side by side with the main
contract, it thus does not offend the parol
evidence rule.

Case: Kluang Wood Product Sdn. Bhd. & Anor v. Hong
Leong Finance Berhad and Anor
The trial judge in this case held that in order to establish the
presence of a collateral contract, the party must show the
following:

a) A representation which was intended by the defendants to
be relied upon;
b) The representation induced the signing of the contract;
c) The representation itself must amount to a warranty,
collateral to the main contract and existing side by side with
it.
In this case, the first appellant was a housing developer and the
registered proprietor of a piece of land. The second appellant
(Chew) was a director of the first appellant. Chew was
introduced to Pang, the southern regional manager of the first
respondent and they discussed banking facilities to enable the
first appellant to develop the land into a housing estate.
According to Chew, during the negotiations with Pang, Pang
had agreed that the first respondent would furnish the first
appellant with a bridging loan and syndicated end-finance, and
also represented that for a finance company of the first
respondents repute, the amount of the loans would not be a
problem.

The appellants formal application was approved by the first
respondent vide a letter of approval. However, the first
respondent failed to provide end-financed as promised. The first
appellant argued that Pangs representation amounted to a
collateral warranty. The issue also arose whether the pre-
contractual statements made by Pang were admissible pursuant
to s92 of the Evidence Act. The Federal Court held that they were
admissible as the statement fell within the scope of proviso (b) to
the section.
(a). Exist side by side yet independent
The appellant 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 quit the premises.

The respondent averred that under the agreement, they were
allowed to stay in the premises for as long as they paid the rent
regularly. The Federal Court upheld the respondents submission
and held that a collateral contract exists.
Case: Tan Swee Hoe Co. Ltd v. Ali Hussain Brothers
Raja Azlan Shah CJ ruled:

In our view, those cases are strong authority for the preposition
that an oral promise, given at the time of contracting which
induces a party to enter into the contract overrides any
inconsistent written agreement. This device of collateral contract
does not offend the extrinsic evidence rule because the oral
promise is not imported into the main agreement. Instead it
constitutes a separate contract which exists side by side with the
main agreement.

It seems to us that the contract was this: If we give you $14,000
tea money, you will ensure that we can stay for as long as we
wish and the appellants agreed that this would be so We do
not see how the appellants can escape from the bond of the
oral promise which was given and which seems to us to have
been given for perfectly good consideration.
(b). 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 it contradicts a written term in the main
contract, then the collateral contract overrides the
inconsistent written term.


Case: Tan Chong & Sons Motor Co Sdn. Bhd. v. Alan
McKnight
The representation made by the appellants salesman that the
car complied with the Australian Design Regulations was in
conflict with condition no. 5 printed on the reverse side of the
Buyers Order signed by the respondet. The condition stated
that no guarantee/warranty was given by the company. On
this issue, Salleh Abas FJ stated:

we hold that the representations must be given an
overriding effect and the printed condition must therefore be
rejected.
Case: Kandsami v. Mohamed Mustafa
The Privy Council held that if parties put their names to a
document, and one party represents and the other party
agrees that the document shall not, as between themselves,
have any legal effects so that it exists only to answer some
other purpose, the law will give effect to that collateral
agreement and deny the document whatever legal effect it
might otherwise have had. In this case, the Privy Council held
that a collateral contract existed under which the parties
agreed that the written agreement would have no effect.
(c). Cannot destroy the main contract
While a collateral contract exists side by side with the main
agreement and even overrides the inconsistent written terms, it
cannot, however, destroy the written contract entirely as a
collateral contract can only exist if there is a written contract.
Case: Industrial & Agricultural Distribution Sdn Bhd v.
Golden Sands Construction Sdn. Bhd.
The defendant purchased two excavators from the plaintiff.
After two months, the defendant wanted to return it, and
alleged that there was an oral collateral warranty by the
plaintiff that if the excavators were unsuitable, the defendant
could return it without any financial liability.

The plaintiff then brought a claim for damages for the
depreciation in value of the excavators during the two-month
period. The High Court granted only nominal damages and
held that the defendants had failed to establish the existence
of a collateral contract.
In any event, the oral assurance asserted by the defendant
could not amount to a collateral contract, as it would destroy
the main contract.

Visu Sinnadurai J stated:

A collateral contract, by its very nature, exist side by side
with the main contract. It does not have the effect of
substituting the main contract. A collateral contract merely
confer certain other rights which are not incorporated in the
main contract. But such rights must be related to the right and
obligations of the parties under the main contract.

In the present case, there is clearly an agreement between
the parties for the sale and purchase of the two excavators.
However, if the defendants contention is accepted, the effect
of the alleged collateral contract is to obliterate the main
contract of sale or to convert it into a conditional contract.
There cannot be a collateral contract without the main
contract being in existence.
If the defendant is allowed to return the excavators without
incurring any financial obligation to the plaintiff, the main
contract becomes meaningless as the defendant is no longer
under any obligation to buy the excavators under the main
contract.


Visu Sinnadurai J also emphasised that a cautious approach
is adopted by the court in recognising the existence of a
collateral contract, especially in cases where it contradicts
the term of a written contract.

Further the burden of proving the existence of a collateral
contract is on the party alleging its existence.
Thank you for your attention