Business law obligation and contract refers to what is legally required of each of the parties involved in a contractual agreement. The law requires individuals who enter into legal agreements to uphold their end of the contract. In business contracts and other types of contracts, one party has the right to pursue legal action against the other if he or she breaches the agreement.

What Are Contract Obligations?

When contractors enter into a legal agreement, they must fulfill the promises they make in the agreement. Anyone unable to perform the duties required of them in a contract should not sign or enter into an agreement.

All contracts have a few basic elements, including:

  • Offer
  • Acceptance
  • Consideration
  • Capacity.

One party must first offer something to another. Then, the other party has to accept that offer. The consideration of a contract refers to what is exchanged, and this is where obligation comes into play. Contract capacity is the ability of either side of the contract to understand the seriousness of the agreement and to carry out his or her obligations.

The consideration, or exchange of value, in a contract is basically the reason for the agreement. For instance, take the sale of a car. The car and the money paid for the car are the consideration of the contract. Each party has an obligation to follow through with the sale covered in the contract. The seller is obligated to transfer the title of the car to the buyer, and the buyer is obligated to give the seller a certain amount of money for it.

Contracts should not only cover the basics of what is being exchanged but also the where and the how. The terms and conditions of a contract are an important part of the legal agreement that shouldn't be overlooked. Contract terms control how the obligations will be fulfilled, such as:

  • Where and when the transfer will take place
  • How much money is owed in exchange for the car.

When a party doesn't follow through on his or her obligations in the contract, this is called breach of contract. If a breach of contract takes place, the injured party (or the party that didn't breach) has a right to pursue suit and may have a right to collect damages.

Contract Obligation Examples

The obligations of a contract depend on the type of contract formed and what is being exchanged. Contracts such as lease agreements are going to have very different obligations from sales contracts. Although, almost all agreement types have these basic contractual obligations:

  • Payment
  • Delivery
  • Quality.

Usually, one side of the consideration in a contract is money. Whether leasing an apartment, buying a car, or hiring an employee, one of the parties involved in the contract is agreeing to an obligation to pay money. In sales contracts, the buyer is agreeing to pay a certain amount for goods. As a part of the payment obligation, the contract should specify the amount and the payment schedule or deadline.

When a good is being exchanged for payment in a contract, that good must be delivered to the buyer. This can be as simple as a delivery to the buyer's home address or a specified place to meet. Such information should also be included in the contract in detail, along with a delivery date or deadline. The delivery method should also be spelled out.

If a buyer is making a purchase of a product or service, it is wise to make sure the contract covers the quality of the goods or the service being purchased. This can prevent the seller from making an unfair profit for something less valuable than what was originally promised.

There are several obligations that are assumed for all contracts under general contract law. These include:

  • The obligation to be fair and honest
  • The obligation to avoid using coercion or force.

Is It Possible to Transfer Contract Obligations?

In certain situations, the obligations of a party under contract may be transferred to another. When one party outsources its contract obligations, this is called contract delegation.

For example, if a homeowner enters into a contract with a construction company to have an addition put on his or her house, the construction company may bring in other companies to handle certain pieces of the project, such as plumbing or painting. The construction company is still keeping its obligations according to the original agreement, but it is not performing every action itself.

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