The Law Dictionary

Your Free Online Legal Dictionary • Featuring Black’s Law Dictionary, 2nd Ed.

COLLATERAL CONTRACT Definition & Legal Meaning

Definition & Citations:

Written or oral agreement associated as a second, or side contract made between the original parties, or between a third party and an original party. This typically occurs before or at the same time of the first or main contract is made. This collateral contract is independent and separate from the primary contract. A collateral contract is often done because (1). Its terms conflict with those of the main contract, (2). Its rules of evidence supersede its incorporation in the main contract, (3). The main contract is wrongly drawn or (4). There is a difference in the contracting parties, needing to involve a third party. It may also be used to avoid overstepping the privity of the main contract. A collateral contract is active along with the main contract and it may override or replace one or more of the main contract’s provisions, if triggered. For example, if ‘A’ enters into a construction contract with ‘B’ giving reason for ‘B’ to enter into a contract with ‘C’ for a material used in the construction, ‘A’ may have the right to sue ‘C’ for compensation if the material turns out to be defective. A collateral contract with three or more parties obligates each of the contracting parties to meet their individual accountability to each other party. Called also collateral warranty.

TLD Example: After signing the contract to purchase the home from the seller, the buyer immediately entered into a collateral contract to sell it to someone else for a profit.


This article contains general legal information but does not constitute professional legal advice for your particular situation. The Law Dictionary is not a law firm, and this page does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.