Incidental Contract: Definition and Significance
An incidental contract refers to a contract that arises from an underlying principle contract. In other words, it is a secondary agreement that comes into effect due to the main contract already being established between two parties. An incidental contract is often referred to as a collateral contract or a subsidiary contract.
For instance, if a company signs a lease agreement with a landlord, they may enter into an incidental contract with a third-party vendor to provide maintenance and cleaning services for the building. The obligation to provide these services may not have been specifically stated in the main lease agreement, but it was understood by both parties that these services are necessary for the proper functioning of the premises.
In some cases, an incidental contract can even exist between the parties involved in the primary contract. This type of subsidiary agreement is known as a collateral contract. The purpose of a collateral contract is to provide additional terms and conditions that are not included in the principal agreement but are necessary to carry out the obligations of the main contract.
Importance of Incidental Contracts
Incidental contracts play a critical role in many business transactions. They provide clarity and specificity to the terms and conditions of the primary agreement, thus reducing the risk of misunderstandings and future disputes. Additionally, they provide an avenue for parties to establish additional obligations and rights that may not be specifically covered in the primary agreement.
Furthermore, incidental contracts can be used to create a stronger legal framework to protect parties from losses and liabilities. For example, if a company signs a contract to purchase raw materials from a supplier, they may also enter into an incidental contract to guarantee a specific quality level and delivery timeline. This additional agreement can help mitigate risks associated with delays or substandard quality, protecting both parties from losses and legal disputes.
An incidental contract is essential to establish additional terms and conditions that are not included in the primary agreement but are necessary to carry out its obligations fully. Collateral contracts can even exist between the parties involved in the primary contract, and they help to provide additional clarity and specificity to the terms of the agreement. They play a critical role in ensuring that parties are protected from losses and liabilities and that disputes are minimized. It is, therefore, crucial for businesses to pay close attention to incidental contracts and ensure that all necessary terms are included in their agreements.