The enforcement of an oral promise or assurance as a collateral contract or warranty to a main contract in writing was developed as a response to the parol evidence rule and the Statute of Frauds. A collateral contract was originally conceived as an oral promise in consideration of the promisee entering into the main written agreement. It bound the promisor to honour his promise if the promisee performed the designated act (that is, entered into the main contract). Evidence could be given of its existence because it was distinct from the principal contract contained in the written document. Hospital Products confirmed that a representation made in the course of negotiations may result in an agreement collateral to the main agreement if it can be concluded that the parties intended that the representation be contractually binding.[1]
The difficulty in distinguishing between what amounts to a collateral contract or warranty, and what does not, does not yield to or profit from detailed analysis, as discussed in Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305:
[96] So, in JJ Savage & Sons Pty Ltd v Blakney [[1970] HCA 6; (1970) 119 CLR 435] a statement made by the expert boat builder who built a vessel, as to its estimated top speed if powered by a nominated engine, was held to constitute an estimate that was merely representational and not promissory.
[97] Yet, in Shepperd v Council of the Municipality of Ryde [(1952) 85 CLR 1] statements made by the vendor and developer of a subdivision of land, as to the plans for the land use of the area surrounding the lot to be sold, including the location of two adjoining areas of parkland designated on the plans, were held to constitute a promise that the buyer would be able to enjoy the amenity to be provided by the adjoining areas of park.
The distinction between a statement that is promissory and a statement that is merely representational can therefore be a fine one, made by reference to the particular facts and the evidence adduced. Vague statements, like a promise that a tenant will be ‘looked after’, are incapable of forming collateral contracts as the requisite essential terms, the breach of which will sound in damages, are missing.[2]
[1] Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 per Gibbs CJ at 61-62.
[2] Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26.