Also known as:collateral agreements · collateral contract
Written by attorneys — see sources 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.
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How its tested
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.
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)
Dallas Masterson and his wife Rebecca owned a ranch as tenants in common. On February 25, 1958, they conveyed it to Medora and Lu Sine by a grant deed. The deed reserved unto the grantors an option to purchase the property on or before February 25, 1968 for the same consideration as being paid heretofore plus the depreciation value of any improvements the grantees might add after two and a half years from the date. Medora is Dallas's sister and Lu's wife.
Since the conveyance Dallas has been adjudged bankrupt. His trustee in bankruptcy and Rebecca brought this declaratory relief action to establish their right to enforce the option. The case was tried without a jury.
Over defendants' objection the trial court admitted extrinsic evidence that by the same consideration as being paid heretofore both the grantors and the grantees meant the sum of $50,000 and by depreciation value of any improvements they meant the depreciation value of improvements to be computed by deducting from the total amount of any capital expenditures made by defendants grantees the amount of depreciation allowable to them under United States income tax regulations as of the time of the exercise of the option. The court also determined that the parol evidence rule precluded admission of extrinsic evidence offered by defendants to show that the parties wanted the property kept in the Masterson family and that the option was therefore personal to the grantors and could not be exercised by the trustee in bankruptcy.
The court entered judgment for plaintiffs, declaring their right to exercise the option, specifying in some detail how it could be exercised, and reserving jurisdiction to supervise the manner of its exercise and to determine the amount that plaintiffs will be required to pay defendants for their capital expenditures if plaintiffs decide to exercise the option. Defendants appeal.
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.
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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.
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
68 Cal. 2d 222, 436 P.2d 561 (1968)
…and thereby often defeat the true intent of the parties. (See McCormick, op. cit. supra, § 216, p. 441.) [6] Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. The rule must therefore be based on the credibility of the evidence. One such standard, adopted by section 240(1)(b) of…