When entering into a business agreement, it is important to have a solid contract in place to protect both parties involved. A collateral contract can be a useful tool to further clarify the terms and obligations of the agreement. In this article, we will provide a sample collateral contract and explain its purpose in more detail.
What is a Collateral Contract?
A collateral contract is a secondary agreement made between two parties in addition to the primary contract. It is used to clarify or supplement the terms of the initial contract and is typically made after the primary contract has been signed. A collateral contract can also be made prior to the primary agreement as long as it does not contradict any terms of the primary contract.
Collateral contracts are often used to provide additional assurances or guarantees to one of the parties. For example, if the primary contract is between a buyer and a seller, a collateral contract may be added to guarantee that the buyer will receive a certain level of customer support or that the product will meet certain quality standards.
Sample Collateral Contract
Below is a sample collateral contract that can be used as a starting point for your own agreements. This contract is between a software development company (the “Provider”) and a client (the “Client”) who has contracted the Provider to develop a custom software application.
This collateral contract (“Agreement”) is entered into on [DATE], between [PROVIDER NAME], a [STATE] corporation with its principal place of business at [ADDRESS] (the “Provider”), and [CLIENT NAME], a [STATE] corporation with its principal place of business at [ADDRESS] (the “Client”).
Whereas, the Provider has agreed to develop a custom software application (the “Application”) for the Client under a separate contractual agreement (the “Primary Contract”);
Whereas, the Client desires additional assurances that the Provider will complete the project within the agreed-upon timeline and budget and that the Application will meet the specified requirements;
Now, therefore, in consideration of the mutual promises and covenants set forth in this Agreement, the parties agree as follows:
1. Timelines and Budget. The Provider agrees to use commercially reasonable efforts to complete the Application in accordance with the timeline and budget set forth in the Primary Contract.
2. Quality Assurance. The Provider warrants that the Application will meet the specifications set forth in the Primary Contract and that it will function in accordance with industry standards.
3. Communication. The Provider agrees to maintain regular communication with the Client throughout the development process and to provide frequent updates on the status of the project.
4. Confidentiality. The Provider agrees to maintain the confidentiality of all information provided by the Client and to only use such information for the purpose of completing the project.
5. Governing Law. This Agreement shall be governed by the laws of the State of [STATE] and any disputes arising from this Agreement shall be resolved in accordance with the arbitration provisions of the Primary Contract.
6. Entire Agreement. This Agreement, together with the Primary Contract, constitutes the entire agreement between the parties and supersedes all prior understandings, agreements, or representations, whether oral or written.
In Witness Whereof, the parties have executed this Agreement as of the date first above written.[PROVIDER NAME]
Title: __________________________[CLIENT NAME]
A well-drafted collateral contract can provide additional assurances and protections for both parties in a business agreement. It is important to ensure that any collateral contract does not contradict or undermine the terms of the primary contract and that all parties are in agreement with its contents before signing. Use the above sample as a starting point and work with legal counsel to tailor it to your specific needs.