Collateral contracts and collateral warranties - Indian Laws - General

Collateral contracts and collateral warranties as discerned from various legal treatises and commentaries: (i) A contract between two persons may be accompanied by a collateral contract between one of them and a third person relating to the same subject matter. When a person buys goods from a dealer, he is given a guarantee in the name of the manufacturer. Here the main contract of sale is between the customer and the dealer but it seems that the guarantee could also be regarded as a collateral contract between the manufacturer and customer. Special legislation applies to certain guarantees given to consumers in respect of goods sold or supplied to them. Where the requirements specified in the legislation are satisfied, such guarantees take effect as contractual obligations whether or not the requirements of a collateral contract are satisfied; and these requirements continue to apply to manufacturers guarantees not covered by any legislation. [Source: Chitty on contracts, Thirty-First Edition]. (ii) A collateral contract between a third party and one of the parties to a main contract may be associated with the main contract. Such a contract may enable a third party to enforce the main contract. A manufacturer guarantee is an example of such contract collateral to the main contract of purchase of goods. When such collateral contract is expressed, it may not be an exception to the third-party rule, because the third party is a party to the collateral contract. It is a devise used or implied to impose obligations on persons not parties to the main contract. [ Source: Pollock and Mulla - The Indian Contract Act]. (iii) Where a preliminary statement or assurance is not a term of the principal agreement, the Courts may deem it as a contract or warranty, collateral to the principal agreement. Where a necessary contractual intention is present, the Courts would treat or would construe an assurance as a collateral contract or warranty conferring a right to damages. The device of a collateral warranty has been employed where the principal contract is one to which either the person giving or the person receiving the assurance is not a party vide Shanklin Pier Ltd. vs. Detel Products Ltd., (1951) 2 KV 854. [ Source: Anson s law of contract]. (iv) Thus, a contract between two persons may be accompanied by a collateral contract between one of them and a third person relating to the same subject matter. When a person buys goods from a dealer and is given a guarantee issued by the manufacturer, the main contract of sale is between dealer and the purchaser or customer but the guarantee from the manufacturer is a collateral contract between the manufacturer and the customer. To be enforceable as a collateral contract, a promise must be supported by consideration. (i) In the case of purchase of goods by the customer from the dealer for consideration, the guarantee from the manufacturer is collateral contract between the manufacturer and the customer. (ii) When a customer buys goods from a shop and the payment involves use of cheque, cards or credit cards issued by the bank, the main contract is between the customer and the shopkeeper but there is also a contract between the shop keeper and the issuer of the credit card, by which the latter undertakes that the shop keeper will be paid. (iii) In the case of a hire-purchase agreement, the primary contract is the customer entering into a hire-purchase agreement with the finance company. In such a case , the main contract is between the customer and the finance company. A representation by the dealer as to the quality of the goods used does not bind the finance company but it would be enforced against the dealer as a collateral contract by a customer. [Source: Benjamin s Sale of Goods, Eighth Edition] [M/S. TATA MOTORS LTD.- 2023 (5) TMI 744 - SUPREME COURT]​​​​​​​