The Essentials of a Contract – Part 5: Mutual Obligations

Does a contract mean we are BOTH obligated to do something?

Yes! In most contracts, someone provides a service or product, while someone else pays for it. That payment can be in the form of money or goods and services of equal and acceptable value. A mutual obligations clause is essential to the development of a strong, legally enforceable contract. This clause indicates that all parties involved have some measure of action that is required as part of that contract.

In some cases, such as in Non-Disclosure, Non-Solicit or Non-Compete Agreements, that exchange may be intangible. These types of contracts protect information, human resources, and clients/business market share (respectively). The valid considerations of this form of agreement place appropriate value on the actions and promises being made to safeguard the resources in question.

What we are talking about here is the concept of Mutual Obligations: “The legal principle that provides that unless both parties to a contract are bound to perform, neither party is bound.” [1]

If you’ve been following our blog series, you may be wondering how this concept differs from the Meeting of the Minds. [Quick Reminder: The meeting is actually the point in time during which contracted parties agree to and accept contract terms.] For that matter, couldn’t this be the same as most of the contract essentials we have already discussed? Let’s look at this question from a slightly different angle.

Each of the contract essentials is a vital piece of the puzzle. Individually, they have incremental value. Together, they form an enforceable contract.

When you enter into a contract, it is often to address a particular need and ensure there is clarity amongst those who will be involved in the transaction. One party to a contract provides something of value to the other, in exchange for something of equally discerned value. The “What by When” is just one part of the overall agreement. Equally important is the “How” and the “Who”. Clearly identifying the shared responsibilities and expectations upfront will spare everyone from a painful misunderstanding down the road.

• Sellers aren’t the only obligated parties.
• Buyers are equally bound to satisfy a term or requirement.

Always be sure to know your role and obligations in any contract before signing.

Do you have concerns or questions about whether your document is a legally binding contract? Be sure that you speak to an experienced legal professional. The team at the Law Office of Adriana E. Baudry LLC is available to guide you through the process and make sure your agreement is clear, effective, and enforceable.

[1] https://legal-dictionary.thefreedictionary.com/Mutuality+of+Obligation#:~:text=The%20legal%20principle%20that%20provides,perform%2C%20neither%20party%20is%20bound.