Continuing obligations: Overview, definition, and example
What are continuing obligations?
Continuing obligations refer to commitments or duties under a contract that remain in effect over time, even after the primary performance of the contract has been completed. These obligations do not end with the completion of the main transaction or event but instead continue to apply for a specified duration or until certain conditions are met. Continuing obligations often relate to ongoing responsibilities that one party has towards another, such as maintaining insurance, providing warranties, or adhering to non-compete agreements.
For example, continuing obligations might include:
- Confidentiality clauses: A party may be required to keep certain information confidential even after the contract is completed.
- Indemnification clauses: One party may agree to compensate the other for certain types of losses or damages that may arise in the future.
- Non-compete or non-solicitation clauses: A party may be prohibited from competing with or soliciting employees from the other party for a specified period after the agreement ends.
Why are continuing obligations important?
Continuing obligations are important because they help ensure that the parties involved in a contract maintain certain responsibilities even after the primary terms of the agreement have been fulfilled. These obligations help maintain the integrity of the agreement over time and ensure that both parties uphold their commitments, even when the initial transaction or performance has concluded.
For businesses, continuing obligations provide a way to protect intellectual property, secure long-term relationships, or ensure that certain conditions are met, even after the main contractual duties have been performed. They can also mitigate future risks by ensuring compliance with ongoing requirements, such as warranties or indemnifications.
Understanding continuing obligations through an example
Imagine a company enters into a contract to supply goods to a retailer. After delivering the goods, the company may still have continuing obligations under the contract, such as providing customer support or honoring a product warranty for a period of time. These ongoing obligations are separate from the delivery of the goods and continue even after the primary transaction is completed.
In another example, a business enters into an agreement to sell its assets to another company. The continuing obligations might include the seller maintaining confidentiality regarding sensitive business information for a specified period after the sale, or agreeing to indemnify the buyer for certain liabilities that may arise post-sale.
An example of a continuing obligations clause
Here’s how a continuing obligations clause might look in a contract:
“The Parties agree that the following obligations shall continue in effect after the termination or expiration of this Agreement: (i) the confidentiality provisions set forth in Section [X], (ii) the indemnification obligations under Section [Y], and (iii) any other obligations expressly stated to survive termination. These continuing obligations shall remain in force for a period of [insert time period] from the date of termination.”
Conclusion
Continuing obligations are essential components of many contracts, as they ensure that certain responsibilities are maintained even after the completion of the primary terms of the agreement. They help protect the interests of both parties by ensuring that key elements—such as confidentiality, indemnification, or warranties—are honored over time. For businesses, understanding and managing continuing obligations is crucial for long-term success and risk management.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.