What are Contract Obligations?
As the name suggests, contract obligations are the business responsibilities arising from a binding legal agreement. In truly understanding the foundations of this, we’ve previously written about the basics of a contract, including its elements, common terms, and drafting process.
As a rule of thumb, all contracts involve an exchange of something valuable in the form of a product, money, service, or any other asset. In this exchange, each contracting party is expected to fulfill some responsibilities known as contract obligations. Notably, these responsibilities vary in gravity and consequences.
For instance, entering into a contract to sell a house will oblige you to transfer the property ownership to the buyer. On the other hand, the buyer is obliged to pay the agreed-upon price for the house. There are also other obligations such as the amount and mode of payment, time and place of delivery, among other stipulations specified in the contract's terms. To understand more about contract terms, read our article here.
That being said, if any of the contracting parties fail to comply with their legal obligations, a breach of contract occurs and one may file suit in order to claim compensation or damages for this.
In the corporate world, key contract obligations are often high stakes depending on the financials and entities involved in the agreement. This is why it is essential to ensure that contract duties are fulfilled by the other and are properly complied with.
What are the types of Contract Obligations?
Generally, contract obligations vary based on the type of contract that parties are entering into. For instance, a sale contract will require a transfer of ownership upon payment of consideration. In contrast, a lease contract will only require the transfer of temporary possession of property upon payment of rent. However, this does not preclude the contracting properties from stipulating additional conditions in similar contract types.
Now that you have a basic understanding of contract obligations, let’s go through the two types of contract terms giving rise to obligations and what they legally entail:
Expressed terms of a contract impose obligations that have been specifically mentioned and agreed upon by the contracting parties in the contract. They may either be written or orally agreed upon. However, note that some types of contracts may require that obligations be written and outlined in order to be legally enforceable in court.
Some examples of an express obligation are the amount payable for a product or service, conditions for refunds, and payment or delivery due dates, among others.
In addition to express obligations that are outlined in the document itself, the contracting parties are also legally bound to follow general contract principles within the law known as implied obligations. These are a set of default or unwritten contract rules that need not be mentioned explicitly in order to be enforceable.
For instance, there is an implicit understanding that all contracting parties are legally obliged to deal fairly within the confines of the country’s laws and regulations. Contracts must not be made through force, threat, or coercion; otherwise, they are void from the beginning.
What are common forms of Contract Obligations within businesses?
Among businesses and organizations, a majority of contracts typically share a few similar types of contract obligations. We’ve outlined some of the common forms of contract obligation that contracting businesses may infuse into their agreement:
- Payment Obligations: A payment clause gives rise to a buyer’s obligation to pay for a product or service that they are purchasing in the contract. This will expressly outline the cost or price of the product or service promised and the mode, date, or form of payment required.
- Delivery Obligations: Consequent to a buyer’s obligation to pay is a merchant’s obligation to deliver the product or service outlined in a contract’s delivery terms. This includes the specific location where the product or service is to be delivered, the method of transportation, and the delivery date of the purchased or paid items.
- Quality of Goods Obligations: It is common for sale contracts to contain provisions that describe and state the quality of goods that meet a certain standard, including warranties for the product or service. For instance, a contract of sale with a brand new smartphone as its object will warrant a claim for breach of contract if the item delivered is a used smartphone.
After laying a solid groundwork on contract obligations and their importance, we now move to how these legal responsibilities may be monitored within your business operations.
How do you keep track of multiple contracts?
The natural trajectory of businesses is towards expansion to achieve higher profitability. Along the way, the volume of contracts likewise increases as business operations scale up and relations are diversified.
One of the challenges among exponentially growing businesses is staying on top of multiple contract obligations and ensuring that concerned parties are properly complying with their responsibilities.
In dealing with business documents, contract management is a long-standing industry practice. There are two types to contract management:
- Traditional Repositories
Also known as hard-copy storage, traditional contract management involves a manual process of printing, signing, and scanning the contracts as the standard practice.
Maintaining traditional repositories is often tedious and tiresome when contracts begin to pile up, multiple contract obligations demand to be tracked, and older documents need to be retrieved. This is why numerous businesses have realized the inefficiency of the manual process as contract volume and financial value rise — making contract management have little to no leeway for human error or delay.
- Digital Repositories
This is the modern take on contract management that adopts an online, cloud-based approach to contract repositories for a more efficient approach. This utilizes an automated system of contract drafting, signing, tracking, and archiving. Read more about digital repositories in this article.
What can a good contract management system do?
As previously mentioned, contract management practices have evolved through the changing times to cope with business growth. Without an effective contract management system, business risks such as delays resulting in contract breaches, financial losses, friction among teams, and deal negotiations may arise and place your company in a great dilemma.
In finding a good contract management system specific to dealing with multiple high-end agreements and contract variations, there are three things to look out for that Lexagle directly addresses:
- Contract Retrieval
- Clause and Obligations Tracker - Lexagle natively tracks key words and terms that your team needs to find on demand, so you always have quick access to all outstanding renewals and obligations due to your partners.
- Audit Trail and Log - Changes in the details, both major and minor, make or break a business contract. Lexagle allows you to backtrack on changes, edits, and revisions made to the contract through a detailed audit trail and log. This alleviates the worry of human error and mistakes as unintentional contract changes may be undone on demand.
- Document Management - Digital repository experience varies from one contract management platform to another. Lexagle uniquely provides a tailor-fit digital approach to business document management practice and customs. A good online contract management system need not be foreign; it ought to be familiar, easy to learn, and convenient to navigate.
- Lexagle Vault - The Vault helps you easily store, find, and retrieve documents you need through proper access controls and privacy setups exclusive only to the permitted users. This solves the concern of online security which remains a challenge for many.
- Task and Workflow Management - A good contract management platform will provide even the most demanding workflows requested by enterprises. Lexagle makes this approach even easier to build with a no-code workflow designer tailor-fit to the needs of its users. Contract approval is one of the key stages of contracting as it is crucial that parties do their due diligence in the negotiation process, research, and profiling of their partners before a legal bind. An effective task and workflow management allows and encourages compliance on sufficient supporting documents among parties which will back the contract before the signing is done.
How can Lexagle help with tracking multiple Contract Obligations?
In navigating high-end contracts and contract variations, contract management software like Lexagle arms businesses with a full suite of tools to help them stay on top of their contractual obligations and solidify contract compliance among their stakeholders.
By alleviating the manual processes of approving, retrieving, and tracking, Lexagle eases business partners of inconveniences and significant financial losses when dealing with a pile of high-stakes agreements.