Ancillary agreement: Overview, definition and example
What is an ancillary agreement?
An ancillary agreement is a supporting agreement that is related to a primary contract but addresses specific details not covered in the main document. These agreements are typically used to complement or elaborate on the terms of the main contract. Ancillary agreements can include side agreements, amendments, or addendums that provide additional terms, clarifications, or obligations.
Why is an ancillary agreement important?
Ancillary agreements are important because they allow parties to address specific issues or obligations that might not be suitable for the main contract. These agreements can help ensure that all necessary aspects of a deal are covered without cluttering the main document. By having separate but related agreements, businesses can create a more organized and clear contractual framework.
Understanding an ancillary agreement through an example
Imagine a company enters into a contract with a supplier for the delivery of raw materials. The main contract covers the price, quantity, and delivery terms, but the parties also enter into an ancillary agreement to address confidentiality regarding proprietary manufacturing processes. This ancillary agreement ensures that the supplier understands the confidentiality requirements without overcomplicating the primary contract.
In a merger or acquisition scenario, the main contract might cover the sale of the business, while an ancillary agreement might address non-compete clauses for key employees or outline the handling of intellectual property after the deal closes.
Example of an ancillary agreement clause
Here’s how an ancillary agreement might be referenced in a contract:
“This agreement is supplemented by the ancillary agreement attached hereto, which outlines the specific conditions for the transfer of intellectual property rights following the sale.”
Conclusion
Ancillary agreements are supporting documents that help to clarify or expand on the terms of the primary contract. They ensure that important aspects of a deal are addressed separately and in greater detail. Understanding and using ancillary agreements properly can help businesses manage complex contracts more effectively, reducing the risk of misunderstandings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.