Also known as:collateral agreements · collateral contract
Written by attorneys · grounded in primary & secondary sources — see below
An agreement between parties that addresses a subject matter independent of or separate from the principal written contract or deed. The agreement survives merger into a deed or escapes the parol evidence rule when the parties did not intend it to be integrated into the main writing. Courts determine independence by examining the parties' intent and whether the promise relates to a distinct undertaking.
Sources & Authorities
How it applies
Common Examples
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Fiber Network Promise After Deed
Central Software sold its server building to Gate Digital. During negotiations the seller's CEO orally promised to install a high-speed fiber network after closing. The purchase contract and deed contained no mention of the network. Gate Digital later sued to enforce the oral promise. The court treated the promise as a collateral agreement because it addressed a distinct post-closing operational improvement rather than title or the physical condition of the conveyed property.
Joint Receivership Agreement
Creek Power held the senior mortgage and National Oil held the junior mortgage on Alpha Oil's wind farm. The two lenders executed a separate writing that designated a single receiver and allocated collected rents between them. When Alpha defaulted, the court enforced the writing because the lenders had reached consensus on the receivership terms. The agreement controlled the disposition of rental income despite the absence of rents clauses in the senior mortgage.
Select any source to read its text and confirm it supports the definition.
Common Law
Restatements
Casebooks
Sham Marriage Side Contract
Trevor and Isaiah signed a handwritten contract immediately before their wedding ceremony. The writing stated that the marriage existed only to allow Isaiah to remain for farm work, that the parties would never share a residence or finances, and that either could terminate after thirty days' notice. A court later examined the writing to decide whether the marriage satisfied the requirements for a valid marital relationship. The contract was treated as a collateral agreement that contradicted core marital obligations.
Retaining Wall Repair Obligation
Horizon Builders contracted to sell land to Carla Development and promised in the written contract to complete a retaining wall before closing. The deed delivered at closing contained no reference to the wall. Carla sued after closing for breach of the repair promise. The court held that the promise was not a collateral agreement because it directly concerned the physical condition of the land conveyed and therefore merged into the deed.
Ranch Access Promise Outside Deed
Olivia Lane sold a hilltop parcel to North Ridge Wireless for a cell tower. Before signing the integrated purchase contract Lane's agent texted that he would arrange a permanent access road across neighboring land. The deed conveyed only the hilltop and said nothing about an easement. North Ridge sought to enforce the access promise after closing. The court examined whether the promise constituted a collateral agreement that the parties intended to keep separate from the integrated contract and deed.
Masterson v. Sine68 Cal. 2d 222, 436 P.2d 561 (1968)
Common questions
Frequently Asked
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How does a court decide whether a promise is a collateral agreement that survives merger?+
A court examines the parties' intent and the nature of the promise. Promises that address matters independent of the conveyance, such as an obligation to build a fence on adjacent land or to refrain from certain uses, may survive. Promises that relate directly to title or the physical condition of the conveyed property are discharged upon acceptance of the deed.
Supporting sources
Does a merger clause in the purchase contract prevent enforcement of a collateral agreement?+
No. A merger clause bars enforcement of prior negotiations that fall within the scope of the integrated writing. A true collateral agreement lies outside that scope by its independent subject matter, so the clause does not discharge it.
Supporting sources
When may parol evidence be admitted to prove a collateral agreement?+
Parol evidence is admissible when the collateral agreement concerns a subject distinct from the writing or when the parties would naturally make the agreement separately. The evidence must not contradict or vary the terms of the integrated writing.
Supporting sources
What is the effect of a collateral agreement in a sham marriage case?+
A collateral agreement that disclaims core marital obligations, such as support or cohabitation, is invalid as contrary to public policy even if the marriage ceremony itself satisfies formal requirements.
Supporting sources
232 A.2d 405 (N.J. 1967)Contracts
…a note refers to or is accompanied by a collateral, contemporaneous agreement, or the purchaser has actual knowledge of the collateral agreement, he takes subject to its contents and conditions. Moreover, although as we have already noted, the Uniform Commercial Code is not applicable because its effective date was subsequent to…