Contractual Obligations in Business: All You Need to Know
Contractual obligations in business refer to the duties or obligations that each party to a contract agreement is legally responsible for.3 min read
Contractual obligations in business refer to the duties or obligations that each party to a contract agreement is legally responsible for. The obligations and rights of the contracting parties can be enforced by a law court. The court usually compels the defaulting party to perform the required obligations or award damages if there is a breach of contract.
The formation of a contract requires four basic elements:
- The presentation of an offer
- Acceptance of the proffered offer
- A valid consideration (legal and valuable)
- Intention to form legal relations
Usually, both parties engage in protracted negotiations before the contract is formed and the agreement becomes binding. Therefore, it is essential that individuals note the moment that marks the formation of a contract since this is where parties become subject to contractual obligations and liability in the event of a breach of contract.
Terms of a Contract
A contract typically requires each party to exchange value, in terms of money, services, products, etc. All parties to a contract agreement have obligations that are connected with the exchange. Let's take, for instance, a contract that deals with the sale of a tangible product, an automobile. One party is obliged to transfer the ownership of the vehicle to the other party while the receiving party is obliged to offer some form of payment in exchange.
The contract will contain the terms that regulate both parties' obligations such as the amount to be paid, delivery terms, and the method of payment. Any party that fails to carry out contractual obligations in line with the terms of the contract is in breach of contract. In some cases, this may result in damages being awarded to the other party to satisfy losses, economic or otherwise.
Contract Obligations: Common Law
Common law refers to the law (together with the protections and rights that are formed under them) which was created by the decisions of a judge in court. Common law is based on precedence. This means that when faced with a new case, a judge can follow a decision that was made in the past (which involved similar cases) in order to create a fair, just, and consistent system.
In situations where the facts or circumstances surrounding a case are different, or when the case doesn't reflect current society in the opinion of a senior judge, then a decision must be made to amend or create the law. In legal systems involving common law, the law is refined and/or created by judges. The decision in a current case will depend on the decisions of previous cases and will affect the application of the law in future cases.
If an authoritative statement of a law is nonexistent, judges who deal with common law have the duty and authority to “make” law by creating a precedent. This precedent will then be referred to as common law and is binding on future decisions.
Types of Business Agreement
There are three types of business agreement, and they are exemption clauses, implied term, and express term.
These are terms that are specifically and explicitly stated and agreed upon by contracting parties during the drawing up of the contract. They can either be in written or oral form. For instance, each time a service or product is discussed with a potential customer, the individual providing the information is responsible for the provision and validity of such specific information. It may also include the cost and availability of the product. In the case of services, express terms can include the price to be paid for the completed service as well as when and where the service should take place.
Exemption clauses are types of express terms, and they come in two forms
- Exclusion clause — These exclude the liability of a party for any breach of a term or set of terms in the contract, thus negating the obligation to execute those terms.
- Limitation clauses — These clauses do not affect the performance of obligations but limit remedies that are available to the affected party in the event of a breach of contract.
These refer to the basic, unquestionable qualities of the service or product. The law allows that certain terms are implied in all transactions involving the sales of goods.
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