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Simple English definitions for legal terms
collateral contract
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A quick definition of collateral contract:
A collateral contract is a type of agreement between two or more parties that creates obligations that can be enforced by law. It is a written document that sets forth the terms of the agreement. The term "contract" can refer to the series of actions taken by the parties, the physical document itself, or the legal relations resulting from the agreement. A contract is essentially a promise or set of promises that the law recognizes as a duty, and if broken, can be remedied. It is important to note that the term "contract" usually refers to the agreement, not the physical document.
A more thorough explanation:
A collateral contract is a type of contract that is related to another contract. It is a separate agreement between two parties that is made in addition to the main contract. The collateral contract is usually made to induce one of the parties to enter into the main contract.
For example, if a person is buying a car from a dealer, the dealer may make a collateral contract with the buyer to provide a warranty for the car. This is a separate agreement from the main contract of buying the car, but it is related to it because it provides additional protection for the buyer.
Another example of a collateral contract is when a contractor agrees to complete a construction project by a certain date. The contractor may make a collateral contract with the owner of the property to pay a penalty if the project is not completed on time. This is a separate agreement from the main contract of building the project, but it is related to it because it provides an incentive for the contractor to complete the project on time.
In both examples, the collateral contract is a separate agreement that is related to the main contract. It is made to provide additional protection or incentives for one of the parties involved in the main contract.