Define Contractual Obligations: Everything You Need to Know
The best way to define contractual obligations is to say that they are the legal responsibilities of each party involved in a contractual agreement.3 min read
Contractual Obligations Overview
The best way to define contractual obligations is to say that they are the legal responsibilities of each party involved in a contractual agreement. In a contract, both parties will exchange an item or service of value, but certain expectations must be met in order for the exchange to be properly completed. Such expectations will be defined by the terms of the contract. Failure to meet these expectations by either party will in most cases mean a breach of contract, which may result in damages being awarded to the non-breaching party. Thus, one’s contractual obligations must be given great consideration.
Contract Obligation Examples
The kinds of contract obligations you will encounter will depend on the type of contract you are entering into. A contract of sales will be much different from a rental agreement contract. However, there are some obligations that you are likely to encounter in almost any contract. These are:
- Payment. Unless the contract is one-sided, or bilateral, you will have to exchange some item or service of value for the item or service of value you are receiving. This may be a one-time exchange or payment, or it may take place over a period of time to be stipulated in the contract.
- Delivery. Similarly, the other party will be bound to deliver what they are being paid for, unless the contract is one-sided.
- Quality. In most cases, the seller will be held to the expectation that the good or service they provide will meet certain quality standards to be stipulated in the contract.
In addition to these and other obligations, both parties will be expected to honor certain principles of contract law, such as to deal fairly and truthfully with one another and to refrain from using coercion or force to obtain the end they desire.
Breach of Contract Obligations
A breach of contract occurs when a party fails to meet their obligations stipulated in the contract. If this happens, and especially if loss or damages occurred because of that breach, a party may pursue the following options to receive compensation for the failure:
- Sue for damages. The breach of contract will give a party grounds to file a lawsuit against the breaching party for the damages incurred due to the breach. Such damages might have included the cost of finding a new party to do a deal with or any delay caused by the failure to perform.
- Request specific performance. As an alternative to suing, a party may also compel the other party to complete the work stipulated in the contract. For those who wish to avoid going to court, this may be the more appealing option, but if the breaching party provided a sub-par service or product, there may be little point in asking them to continue with their service.
- Request release from the contract. If one party was actively deceived by another, they may be able to have a court grant them release from the contract at hand.
In cases involving breach of contract, if legal action is pursued, it is important to note that the suing party may only win what are called Expectation Damages, which cover the value lost because of the breach of contract only. This means that the aggrieved party may only be made whole or indemnified for their loss. Punitive damages in excess of the lost value will not be awarded. Other possible remedies that may be made by the courts include:
- Administering Promissory Estoppel. This requires a party to fulfill their end of the contract by order of the court.
- Awarding Unjust Enrichment. If it is judged that one party unjustly benefited at the expense of the other party, restitution for the value of the unjust benefit may be ordered by the court.
Transferring Contract Obligations
In some instances, the obligations of a contract can be transferred to another party. For example, in a services contract, a party contracted to complete a task may be able to contract that service out to another party to do the work for them, a process known as contract delegation. However, if the contracted service involves certain skills that only the original party can perform, contract delegation will not be an option.
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