Oral Collateral Agreements: What You Need to Know
In business transactions, parties may come to an agreement that is not explicitly stated in the written contract. These agreements are known as collateral agreements. Collateral agreements can either be written or oral. As a professional, this article will focus on the meaning of oral collateral agreements, their advantages, and disadvantages, as well as how they can affect you as a party to the agreement.
Defining Oral Collateral Agreements
An oral collateral agreement is an agreement that is not included in the written contract but is made independently by the parties involved. Such an agreement is reached orally, and it is not documented formally. This means that the agreement may be verbal, such as in a phone conversation or an email thread.
Advantages of Oral Collateral Agreements
One of the benefits of oral collateral agreements is that they can be reached quickly. They allow the parties involved in the transaction to communicate freely without the need for legal representation, which can be time-consuming and expensive. Additionally, oral collateral agreements are flexible and can be adapted easily to changing circumstances.
Disadvantages of Oral Collateral Agreements
One major disadvantage of oral collateral agreements is that they are not legally binding. This means that if one party fails to fulfill their oral agreement, the other party may not have legal recourse. As such, it is essential to ensure that any collateral agreement is put in writing and incorporated into the contract. Without a written agreement, parties may also disagree on the terms of the oral agreement, leading to conflicts that may be costly and time-consuming to resolve.
How Oral Collateral Agreements Can Affect You
As a party to an oral collateral agreement, it is important to understand the risks involved. It is always best to have any agreements committed to writing and integrated into the main contract. This helps to avoid misunderstandings and disputes that may arise in the future. If an oral collateral agreement is made, parties should ensure that they have a clear understanding of the terms and that they agree with them before proceeding.
Conclusion
Oral collateral agreements are an effective way to address issues that are not covered in the main contract. They are flexible and can be reached quickly, but they also come with risks. To ensure that they are legally binding, they should be put in writing and integrated into the main contract. Otherwise, they may not be enforceable, leading to potential conflicts in the future. As a party to a transaction, it is always best to seek legal advice to avoid any unintended consequences.
