If you’ve ever signed a contract in the past, you might have heard of the term “contract obligation” or “contractual obligation.” The reason why many lawyers recommend that people read contracts before signing is because the moment you sign the contract, whatever is stated there becomes a contractual obligation you’re obligated to fulfill.
Here’s what you need to know about entering a contractual obligation.
What Are Contract Obligations?
An obligation is something you are legally bound to do, give, or not do, depending on what’s agreed on. A contractual obligation is something you owe to another person or party (or another person or party owes you) in exchange for something in return.
This can be in the form of something tangible (money, products, objects), a service, a promise to perform an action or to not do an action. A contract can legally be upheld if it is done in writing (i.e. both parties sign a contract) or done verbally.
The best example of a verbal contractual obligation is when you go to a shop to purchase something. Let’s say that you want to buy a bottle of water for a dollar. You give the seller a dollar, they give you water. There was an exchange done, both parties consented to the exchange.
In a more complex situation, however, verbal contracts can become more difficult. Let’s say that you ask your brother-in-law, a mechanic, to do car maintenance on your car in exchange for cash payment after the work is done because he promised to do it cheaper than other car repair shops. However, he fails to do the work, and as a result you’re unable to work because your car cannot function. To make things worse, your car takes on more damage which could have been avoided had he performed the maintenance he promised to do. Should you decide to go after him for failure of fulfilling the contract, it can be difficult to prove that a contract existed because it wasn’t in writing.
If either party fails to perform their contractual obligations based on the contract terms, then the party at fault has committed a breach of contract. This can result in the other party refusing to uphold their end of the contract. Or, the other party may choose to take the other to court with a trial lawyer and sue for damages to reimburse them for their economic losses because of the other party’s failure to uphold the contract.
A contract states a party’s obligation, but they cannot be forced to act on the contract against their will. Instead, the other party can sue for additional expenses due to the other party’s failure to uphold the contract. For example, you form a contract with a construction company to build you a house. Both parties agree to the terms, which are put into writing. Halfway through the construction, the company demands more money to complete the job and refuse to finish unless you pay them. You cannot force them against their will to finish the job. But you can pay a second company to finish the work and then sue the company for the additional money you paid the second company to finish the work they should have done.
What Are Some Examples of Contract Obligations?
Contract obligations depend on what’s stated in a contract, making it a case-to-case basis. For example, contractual obligations for a sales contract (money in exchange for a product) may be much different than labor contracts (labor in exchange for money), rental contracts (right to stay in a property in exchange for money). The most common parts of a contract should include:
- Payment: A buyer is legally bound to provide payment for goods or services, usually in the form of money. For large goods and services like a car or a building where most people cannot financially do a one-time payment, a contract states matters like deadline for payment, interest, and payment amounts, and failure to meet payment deadlines during that time of payment.
- Delivery: The seller must deliver goods or services. The contract states specific obligations such as delivery dates, method of delivery, and anything else the seller is required to provide.
- Quality of Goods: The seller must provide a certain level of quality expected from them.
These obligations can vary according to contracts. In addition to these specific obligations, each party must also perform their side of the contract in good faith. A contract can be voided if it can be proven that the contract was signed under coercion.
Breach of Contract
When one party fails to uphold their part of the contract, they are in a breach of contract. Let’s say that A and B formed a contract. A did not uphold their end of the contract, so B can choose to either stop performing their part of the contract or, if A’s failure to uphold the contract caused B loss or damages to his own property, B can sue for compensation. How long a trial lasts depends on the facts of the case and what B is suing for, which can include:
- Sue for damages. A promised to build B a house in exchange for money. A promised that the house will be completed in a year, but due to circumstances that were A’s fault, the house was not yet completed, forcing B to extend their rent contract because B cannot move into their new home. B can sue A for the cost of the rent because of A’s failure to uphold the deadline.
- Request specific performance. A promised to build B a home in exchange for money. Halfway through the project, A refused to continue until B gave more money than that was stated in the contract. B can choose to compel A to perform the work stipulated in the contract, but A cannot be forced against their will. However, B is concerned that if they compel A to perform, the work may be sub-par. Therefore, B has another option to have a second company finish the project and sue A for damages.
- Request release from the contract. A promises to sell B a good-condition second-hand car in exchange for $5,000. Before B can hand over the money, he discovers that the car is badly damaged, requires many expensive repairs, and is barely worth $1,000. B can go to court to be released from the contract.
Unlike personal injury cases where a claimant can win non-economic losses like emotional pain, in cases of breach of contract, this is not possible. If you go to court against someone who did not fulfill their contract, you are only entitled to damages incurred and losses that came from breach of contract.
Can Contractual Obligations Be Transferred?
Earlier, I mentioned that if one party refuses to uphold their end of the contract, you can get another party to do their work and then sue for damages. In some cases, if one party recognizes that they cannot fulfill their end of the contract, it can be transferred to a third party.
Either it must be stated in the contract that contract delegation may be allowed, or both parties agree to remedy the situation through delegation. However, in some cases, a contractual obligation cannot be delegated.
For example, A is a painter who is commissioned by B to do a portrait of B’s wife. A, however, realizes he has a full schedule after making his contract with B. A instead offers to let C, another painter, do the work instead at no additional cost to B. B, however, refuses, because C has a different painting style and he specifically paid for A’s work. So, either A can perform the work or return the money to B.
Contract obligations are different depending on the circumstances, what the contract states, and what both parties involved are getting. If someone you have a contract with fails to uphold their end of the contract, contact a contract attorney to see what your available remedies are.