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Obligation: Definition, Example and Related Terms

What is an Obligation ?

In simple terms, an obligation is a duty or responsibility. It's something that you have to do because of a rule, law, or because you've agreed to it. In the world of business, obligations are often part of a contract. When two parties make a contract, they are agreeing to certain obligations. For example, a company might have an obligation to provide a certain product or service, and in return, another company has an obligation to pay them. These obligations are very important because they are legally binding, which means if you don't do what you've agreed to, there could be serious consequences. For example, you could be sued, or you might have to pay a fine. In some cases, not fulfilling an obligation can even result in criminal charges. It's also important to know that obligations can be 'conditional' or 'unconditional'. A conditional obligation is something you only have to do if a certain event happens. For example, a company might be obligated to pay a bonus to an employee if they reach a certain sales target. An unconditional obligation, on the other hand, is something you have to do no matter what. For instance, a company might be obligated to pay rent for their office space every month, regardless of how well they are doing financially.


  • Scenario Description
    A software development company signs a contract with a client to deliver a software application within six months. In this scenario, the software development company has an obligation to deliver the completed software application within the agreed time frame. The client, in return, has an obligation to pay the software company the agreed sum once the software is delivered.
    A business enters into a contract with a supplier for the regular delivery of office supplies. Here, the supplier has an obligation to deliver the agreed-upon office supplies at the designated times. The business, on the other hand, has an obligation to pay the supplier for the delivered goods.

Related terms