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An obligor is someone who is obligated to do something under the terms of a contract. The contract is written in favor of the obligee, the person who will benefit from the obligor's action, or inaction, depending on the terms of the contract. It is possible for several people to be joint obligors or obligees, and companies can also become obligors under a contract. Because contracts are structured in favor of the obligee, obligors would do well to carefully examine the terms of any contracts they sign, and to ask a lawyer for assistance if they have trouble understanding the language or specifics of a contract.
People often use the term “obligor” interchangeably with “borrower” or “debtor,” because contracts involving debts are extremely common. However, obligors can be required to do something other than repaying a debt. A contract may specify that an obligor is expected to perform a particular task, or to refrain from engaging in a particular activity. For example, when someone signs a no-compete clause upon leaving a company, he or she is contractually obligated to refrain from setting up a competing business.
In contract law, if an obligor fails to fulfill the terms of a contract, there will be legal penalties, and the obligee may be entitled to sue to recover damages or to force the obligator to comply with a contract. Obligees are not entirely off the hook; the contract may include clauses specifying particular activities on their part, and they can be penalized for failing. In a child custody agreement, for example, one parent may become the obligor who must pay child support, but the obligee may also be required to share custody or provide visitation to the obligor.
When a contract is created, it may include terms which specifically address the circumstances of the obligor. Someone with a poor credit rating, for example, may be charged a higher rate of interest, or required to keep funds in an escrow account to cover a debt. Conversely, a contract may include caveats which are intended to cover unexpected circumstances, like sudden unemployment which would make it difficult for someone to repay a debt.
Many people find themselves in unpleasant legal situations because they fail to read through contracts, or because they read through contracts but do not understand them. In many nations, people are entitled by law to take time to read through a contract, and to ask a lawyer to review it and explain it. People may also request changes to contracts which they feel are unreasonable. Obligors should take advantage of these rights to ensure that they do not sign themselves into awkward circumstances.
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