Collateral Agreement
A separate side agreement made alongside the main contract, dealing with related but ancillary matters; courts scrutinize whether it contradicts the main contract's integration clause.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Collateral Agreement?
A collateral agreement is a separate, secondary agreement made alongside the main contract. It may cover matters related to the primary contract but not fully addressed in it, or it may modify specific terms of the main contract. Examples include: a side letter outlining special pricing for a customer, a confidentiality agreement separate from an acquisition, or a service level agreement attached as an exhibit.
Collateral agreements create a risk: if the main contract contains an "entire agreement" or "integration" clause stating that the written contract is the complete agreement, a collateral agreement might be seen as contradicting that clause. Courts must decide whether the collateral agreement modifies the main contract (violating the integration clause) or is a separate, non-contradictory side agreement.
The enforceability of collateral agreements depends on whether they are consistent with the main contract. If they are truly collateral (addressing separate matters), they are usually enforceable. If they contradict the main contract, courts may refuse to enforce them under the integration clause.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Separate Document or Exhibit
A collateral agreement is typically a separate document or is included as an exhibit or schedule to the main contract. This physical separation indicates it is not part of the main agreement body.Consistent with Main Contract
For a collateral agreement to be enforceable alongside an entire agreement clause, it should address different matters or supplement the main contract without directly contradicting core terms.Written and Signed
Like the main contract, a collateral agreement should be in writing and signed by authorized representatives to avoid disputes about existence or terms.Court Scrutiny
Courts apply strict scrutiny to collateral agreements. If there is ambiguity about whether the collateral agreement was intended to be binding or modifies the main contract, courts may construe it against the drafting party.Carve-Out in Integration Clause
The best way to protect a collateral agreement is to include a carve-out in the main contract's integration clause: "except for the Confidentiality Agreement dated [date]."Real-World Example
A software company, DataSoft, and a customer, RetailCo, sign a SaaS agreement that includes a broad entire agreement clause. Separately, they sign a side letter specifying that DataSoft will provide dedicated technical support for six months at no additional cost. The entire agreement clause says all terms are in the main agreement. A month later, DataSoft bills RetailCo for support services, claiming the side letter does not override the main contract.
This is a close case. The side letter is a collateral agreement addressing support services, which are ancillary to the main SaaS terms. Many courts would enforce the side letter as a separate, non-contradictory agreement. However, courts in some jurisdictions might find that a clear entire agreement clause bars the side letter. The best approach would have been to carve out the side letter in the main contract's integration clause: "This Agreement constitutes the entire agreement except as may be set forth in the Support Services Side Letter dated [date]."
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Integration Clause with Collateral Agreement Carve-OutWatch Out For
Contradictory Terms in Main and Collateral Agreements
If the main contract and a collateral agreement directly contradict each other (e.g., main contract says price is $100/unit, side letter says $50/unit), courts will likely find one or both unenforceable or will apply rules of construction to decide which prevails.Collateral Agreement Not Signed by Authorized Parties
If a collateral agreement is signed by someone without authority (e.g., a sales rep without the authority to negotiate terms), it may not be binding. Ensure all parties to the side agreement have actual authority.Oral Collateral Agreements
Courts are very skeptical of oral side agreements, especially when the main contract includes an entire agreement clause. If you make an oral collateral agreement (like a promise of special pricing), document it immediately in writing and have both parties confirm it.Entire Agreement Clauses Destroy Side Agreements
A strict entire agreement clause without a carve-out can invalidate side agreements. The clause says the main contract is "the complete agreement." A collateral agreement implies there are other agreements, which contradicts the integration clause.Don't let collateral agreement deadlines catch you off guard
Key dates tied to collateral agreements - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Incorporate Collateral Terms into the Main Contract
The safest approach is to avoid separate collateral agreements. Instead, add sections to the main contract covering all terms. This avoids integration clause conflicts.List Carve-Outs Explicitly in the Integration Clause
If you must have separate collateral agreements (NDAs, SLAs, side letters), list them explicitly in the main contract's integration clause: "This Agreement, together with the NDA dated [date] and the SLA dated [date], constitutes the entire agreement."Create a Schedule of Collateral Agreements
Add a Schedule listing all related agreements (their dates, parties, and general subject matter) to the main contract. Reference this schedule in the integration clause.Confirm Collateral Agreements in Writing Immediately
If a collateral agreement is negotiated separately or verbally, confirm it immediately in a written follow-up email or memo signed by both parties. Do not rely on memory or assumption that it is binding.Related Terms
Frequently Asked Questions
Can a side agreement override the main contract?
It depends on the language of the entire agreement clause and the nature of the side agreement. If the side agreement is truly collateral (addressing a separate matter) and is properly signed, it may be enforceable even alongside an entire agreement clause. However, if it contradicts the main contract's core terms, courts are unlikely to enforce it.
Does a collateral agreement have to be attached to the main contract?
No. A collateral agreement can be a completely separate document, signed at a different time by different signatories. However, from an enforcement standpoint, it is safer to attach it to the main contract or at least reference it there.
What is the difference between a collateral agreement and an amendment?
An amendment modifies the main contract; it changes existing terms or adds new terms to replace old ones. A collateral agreement is separate and typically addresses matters not covered by the main contract. However, if a collateral agreement substantially modifies the main contract, courts may treat it as an amendment.