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Published:June 30, 2022 Modified:February 6, 2023

What is an Obligation?

Simply, obligation refers to the responsibility of a party to fulfill the contractual terms and conditions. In case, the obligation is not met, the legal system often provides recourse for the injured party.

The backbone of our economy is obligations. The ability to trust that a contract will be kept contributes to the development of a stable and healthy society. Individuals, corporations, governments, banks, and institutions—any organization that works inside a society—must meet their commitments on a regular basis or face repercussions.

Obligation definition

The responsibilities of parties to a contract for the sale of a car are an example of contractual obligations. The transfer of ownership of the car is the responsibility of one party, while the payment is the responsibility of the other. The contract explains the governing provisions that each party has to follow, such as:

  • Amount of payment to be made
  • Method of payment
  • Time of delivery
  • Place of delivery

In case, one of the parties fails to perform his or her contractual responsibilities, it is deemed a breach of contract. In the event of a contract violation, damages may be granted as compensation for the financial losses suffered by the innocent party. Contractual duties are usually determined by the subject matter of the contract. A sales contract’s requirements may differ significantly from those of a rental agreement or other types of contract.

Note One party, the buyer, is usually legally compelled to make a particular amount of payment in exchange for a given amount of products or services in a sales contract. The contract may include financial responsibilities, such as the amount of payment and the deadline for payment.


Types Of Obligations

There are generally three types of obligations including:

Imperfect Obligation- If the responsibility imposed by the obligation functions solely on a moral level, without being enforced by any positive law, it is referred to as an imperfect obligation, as it generates no right of action and has no legal effect. This type of obligation includes the responsibilities of gratitude, generosity, and other purely moral obligations.
Natural Obligation- A natural obligation is one that cannot be imposed through action but is enforceable on the party who creates it in good conscience and in accordance with natural justice.
Civil Obligation- A civil obligation is a legal contract that allows the person with whom it is made the right to enforce its fulfillment through the courts.


Obligations For Working Capital Loans?

All obligations, liabilities, and indebtedness outstanding at any time under the Working Capital Loan Agreement or any other Working Capital Loan Documents, including, but not limited to, all Letter of Credit Obligations, all Hedging Obligations, and all Bank Product Obligations, are referred to as Working Capital Loan Obligations. “Working Capital Loan Obligations” shall include, without limitation, all interest, charges, and fees (including reasonable attorneys’ fees and expenses) accrued or accruing (or which would otherwise accrue) in accordance with the Working Capital Loan Documents after the commencement of an Insolvency or Liquidation Proceeding, whether or not the claim for such interest, charges, or fees is allowable, recoverable, or enfeebled.

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