Contractual obligations are the responsibilities that each party in a contract is required to fulfill.

What Are Contractual Obligations?

When two parties enter into a contract, something of value must be exchanged. This something of value can be almost anything the parties wish, including:

  • Money.
  • Services.
  • Products.

Each party in a contract will have their own responsibilities related to the exchange. These responsibilities are referred to as contractual obligations. An easy way to understand contractual obligations is by examining the sale of an automobile. During an automobile sale, one party is responsible for transferring the car's ownership, and the other party is responsible for paying for the automobile.

In the contract, there will be very strict terms that outline how the obligations will be fulfilled. Staying with the automobile example, the contract may describe how the payments will be made, the amount required, and where and when the vehicle will be delivered. A breach of contract occurs when one or both of the parties fail to fulfill their contractual obligations.

When a contract is breached by one party, the party that did not commit the breach may be able to receive damages in compensation for their loss. Contracts are extremely important for making an agreement between two parties legally binding. It is also possible to use contracts to define actions required by the parties or to restrict certain actions.

Most contracts will contain a wide variety of information, including:

  • Dates.
  • Currencies.
  • Legal clauses.
  • Terms.
  • Obligations.
  • Conditions.

Depending on the nature of the agreement, contractual obligations may be enforced by federal, state, or local laws. The contractual obligations of one of the parties may be related to the rights of the other party. The subject matter of a contract will have the biggest impact on contractual obligations. Rental agreement contracts and sales contracts, for example, will likely have very different contractual obligations.

In general, however, most contracts will contain some of the same obligations, including:

  • Payment.
  • Delivery.
  • Quality of goods.

These contractual obligations can differ based on the specific details of the contract. Parties in a contract will also need to fulfill certain obligations created when the contract was formed. All parties in a contract, for instance, are required to interact with each other in a truthful and fair manner. In addition, parties cannot use force to make the other party agree to the contract.

Fulfilling Your Obligations

Companies employ a variety of methods to manage their contractual obligations. Using basic tools such as spreadsheets or emails to keep track of contractual obligations can pose a variety of problems, particularly as the number of contracts entered into by the company grows.

If a company doesn't have a strong strategy for tracking and fulfilling contractual obligations, breaches of contract may occur with frequency. Obviously, this can result in legal disputes, hefty penalties, and possibly terminated contracts. Not instituting a tracking method for tracking contractual obligations can also make it difficult for managers to react when a problem occurs.

Fulfilling contractual obligations can cost organizations a great deal of money, so it's important for companies to fully examine these costs so that they can determine if entering into the contract is worth the effort.

Stay Proactive with Contractual Obligations

If you want to make sure you've correctly identified your contractual obligations, you could hire a contract manager or work with an experienced attorney. The responsibility for fulfilling your obligations, however, will be all your own. A contract management system can help companies and individuals better track and control their contractual obligations.

The best way to track contractual obligations is to make sure you understand their different parts. For example, you need to know exactly what type of obligation is included in the contract, as well as the due date. Although contracts can be stored in physical form, many companies can also benefit from storing contracts in a central electronic database. This will make it much easier to reference the contracts, which will also simplify the process of fulfilling contractual obligations.

Transferring Contract Obligations

In some cases, you can transfer contractual obligations to another person. If, for instance, you've been hired to paint someone else's house, you can hire another person to complete this task, which would fulfill the terms of the contract. Transferring contractual obligations is called contract delegation. Not all contractual obligations can be delegated. Some contracts specifically forbid delegation, and in certain states, laws restrict the transfer of contractual obligations.

If you need help with contractual obligations, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.