In the preceding section, we distinguished between terms and representations. A further possibility is that a precontractual statement may not be a term of the main contract, but may itself be a collateral contract (that is, collateral to the main contract). In the event that such a collateral is a breached, the plaintiff could sue for damages. In the wake of statutory reforms to the law of misrepresentation it has become unusual for a plaintiff to try to establish that the oral statement was a collateral contract because it is easier to prove that the statement constitutes misleading or deceptive conduct.
For a statement to constitute a collateral contract, the following three preconditions must be met:
1. The statement must have been promissory. The parties must have intended the statement to be a contractual promise, rather than a mere representation or statement of opinion.
2. The statement must not contradict the main contract. The courts will not characterise a pre – contractual statement as a collateral contract if its terms contradict what is provided for in the main contract.
3. As with any contract, consideration must be provided by the promisee in exchange for the promise. Usually, the promisee provides consideration for the collateral promise by entering into the main contract.