Contract Obligations

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 What Are Contract Obligations?

A contract is a legal instrument used to form a binding agreement between interested parties. Before signing a contract, the parties will negotiate and determine what terms they want to include in the contract. Among many other factors, a contract must be based on a form of consideration in order for it to be deemed valid and legally enforceable.

For instance, a cell phone carrier periodically bills a cell phone user. The cell phone user continues to pay those bills in exchange for being able to use their cell phone carrier’s services. The money and services in the above example both serve as forms of consideration (e.g., something of value), which are used to bind the parties’ agreement. Accordingly, consideration is closely tied to the concept of contract obligations.

Contract obligations refer to those duties contained in a contract that each contracting party agreed to when they signed and are now legally responsible for carrying out. Returning to the cell phone bill example, the cell phone user has an obligation to pay the cell phone carrier each time they receive a new bill. The cell phone carrier, on the other hand, has an obligation to provide cell phone services to the user, so long as they continue accepting payments.

Now, if either of these parties fail to perform their contractual obligations in the manner that was agreed to in the terms of the contract, then their actions (or lack of actions) will likely constitute what is known as a “breach” or violation of the contract.

A breach of contract is a type of legal claim that can result in the breaching party having to pay the non-breaching party a large sum of damages to make up for any losses they suffered due to the breach. Thus, it is very important that contracting parties refrain from breaking their promises and try their best to fulfill their contract obligations. Otherwise, the legal ramifications could be extremely costly.

Finally, if you need help with drafting a contract agreement or if you do not understand your legal obligations under a particular contract, then it may be in your best interest to contact a contract attorney who practices in your area for further assistance.

What Are Some Examples of Contract Obligations?

As previously discussed, contract obligations are the tasks that a contracting party is legally bound to complete or else they will likely need to pay monetary damages for breaching the contract. In general, the types of contract obligations that a party may be required to perform will depend on both the subject matter and the agreed upon terms of the contract.

So, for instance, a contract to purchase or sell a house will probably have very different contract obligations than the contract obligations that are required under a landlord-tenant agreement. Also, the contract obligations to purchase or sell a house can even vary from contract to contract.

However, the majority of contract documents usually share a few similar types of contract obligations. Some common examples of contract obligations that contracting parties may incorporate into their agreement include the following:

  • Provisions on quality of goods: A contract may contain provisions that describe the quality of goods as well as any warranties that the seller guarantees regarding the quality of them.
    • For instance, if the contract says the seller will deliver a brand new laptop, but the purchaser receives a laptop that has clearly been used, then this would breach the seller’s contractual obligation to provide the agreed upon quality of the goods (i.e., brand new).
  • Delivery terms: A merchant seller is typically bound to provide the terms of delivery, including the location of where the goods or services are to be delivered, the method being used to transport those good or services (e.g., by hand, mail, etc.), and the date on which the purchased items will be delivered.
  • Payment clauses: A payment clause obligates a person to pay for the goods or services they are retaining by entering into the agreement. A payment clause will normally state the cost of the goods or services promised and the date that payments for such items are due.
    • The parties may also agree to include terms, such as acceptable forms of payment (e.g., cash, check, etc.) and what happens in the event that the buyer does not pay.

Again, the specific terms included in a contract will vary by agreement. Additionally, each party will be bound by general contract requirements and principles. For instance, all contracting parties are prohibited from using force or coercion to convince another interested party to agree to their terms or to sign a contract.

Can Contract Obligations Be Transferred to Another Party?

There are some situations wherein a party’s contract obligations may be able to be transferred to a third party. For example, if a contractor agreed to paint a property owner’s house in exchange for payment, the contractor may be able to hire a subcontractor (i.e., a third party) to finish the paint job for them. However, this will all depend on what the parties agreed to and whether the property owner consents to the arrangement.

The phrase used for when a party successfully transfers the obligations they have under a contract is known as, “delegating the contract.” This means that the original party can find someone else to take over their legal responsibilities as if they were the ones performing the contract.

Contract delegation can happen for a number of reasons, but not every situation may allow for it. For instance, some contract obligations can never be delegated to a third party. An example of this is when a party hires a person based on their skills, reputation, or special talents. Imagine if a person hired a famous musician to perform at a private party and the famous musician delegated their obligation to perform to an unknown musician.

Not only would the famous musician be prohibited from delegating their contract obligations to a third party, but they also could be sued for breach of contract. Additionally, parties who delegate their contract obligations in violation of state contract laws may also be prohibited from delegating their duties as well as sued for breaching the terms of their contract.

Finally, there is one other form of contract delegation and it is called, “assigning the contract.” The main difference between assigning a contract versus delegating a contract is that a contract assignment involves the transfer of a party’s rights under the contract, whereas a contract delegation refers to a transfer of a party’s duties.

A common scenario that is often used to demonstrate the difference between the two concepts is a lease agreement. If a lease agreement contains a clause that permits a business to sell off a commercial property, then this may qualify as a contract assignment. In other words, the new entity that purchases the commercial property will be given all of the original business owner’s rights to use and sell off that property again in the future.

In contrast, a tenant who sublets their apartment to a new renter is delegating their duty to pay rent to a third party. Although the subletting tenant will need to pay either the original tenant or the landlord the rent, the landlord can still hold the original tenant liable for payments if the subletting tenant fails to pay rent.

It is important to note that the above scenarios are generalized examples intended to separate the concept of duties and rights under a contract.

The laws of a jurisdiction, the terms of an individual contract, and the specific modifications that the contracting parties did or did not agree to, can all have an impact on whether contract obligations can be transferred to another party and what type of contract transfer it is—a delegation of duties or an assignment of rights?

Do I Need a Lawyer?

As discussed above, contract obligations will vary in accordance with state law and by the terms of each individual contract. Thus, you may want to consider hiring a local contract attorney if you do not understand your contract obligations or if you are involved in a dispute over contract obligations.

An experienced contract attorney can explain the duties that you are legally obligated to perform to comply with your contract and can inform you of the legal rights you have under both state and local contract laws.

Your attorney can also conduct legal research to provide proper answers to any questions you have about contract-related issues and can use the findings from that research to determine whether your issue would be better resolved through a lawsuit.

In addition, your attorney can help you prepare and file a lawsuit for breach of contract, as well as can provide legal representation on the matter in court.

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