An obligor is an individual who owes a benefit or payment to another person, such as child support, alimony, or a payment on a loan. The individual receiving the benefit is known as the obligee, and they benefit from the terms of the contract. An obligor can also be an entity, too, such as a business that is contractually obligated to meet specific performance requirements.
If the expectations laid out in the contract or agreement aren’t met, the obligor can face legal consequences. This scenario can take place in both commercial and personal settings. If you’re an obligor, knowing your legal responsibilities can help you avoid problems down the road.
Definition and Examples of an Obligor
In a personal setting, an obligor is an individual who is legally bound to another person, known as the obligee. They are required to fulfill the agreements outlined in a contract or legal agreement. If the agreement isn’t met, the obligor could face legal consequences.
- Alternate name: Debtor
How an Obligor Works
You could find yourself acting as an obligor in either a commercial or personal setting. For instance, if you’ve ever taken out a loan, then you’ve acted as an obligor to your lender. You’re legally bound to make all principal and interest payments on the loan.
If you miss payments or default on the loan, your lender can file a debt collection lawsuit in order to collect the money you owe. In this instance, the obligor is also sometimes referred to as the debtor.
In a personal setting, this often plays out when a spouse either pays alimony or child support payments to another spouse. For instance, a working spouse can be required to make monthly alimony payments to a non-working spouse, or the court may order a non-custodial to pay child support to the custodial parent. The obligor will have to petition the court if they wish to change the payment obligation. Otherwise, the obligee can take them to court for non-payment.
A good example of this takes place in family law when the court awards a custodial parent child support payments. That means the non-custodial parent is the “child support obligor” and is responsible for making child support payments to the custodial parent. If they fall behind or stop making payments altogether, the obligor could be found to be in contempt of court and could face fines or even jail time.
In a corporate setting, an obligor refers not only to payment agreements but also to affirmative covenants. An affirmative covenant is a contract that requires the obligor to repay debt or meet certain terms, including specific performance benchmarks.
In a corporate setting, a surety bond is a contract outlining the conditions that must be met by an obligor—often a company—to complete a job or pay down debt.
Obligor vs. Obligee
Two common legal terms you’ll hear associated with this term are obligor and obligee. Though the words are similar, the definitions are very different in a legal context.
|Has a legal obligation to the obligee||Benefits from the obligation outlined in the agreement|
|Can face legal repercussions if the obligation isn’t met||Can seek legal help if the obligor doesn’t meet their requirements|
While the obligor is legally bound to meet the terms of a contract or agreement, the obligee benefits from those terms. And if the obligor fails to meet their obligation, the obligee can pursue legal action. For example, if an obligee is receiving child support and the obligor’s payment is late or doesn’t come, they can take legal action.
If a financial contract is breached, the obligor may be required to pay the unpaid debt immediately and lose certain obligor benefits.
- An obligor is legally bound to provide a payment or benefit to another person.
- The obligor/obligee relationship can take place in both commercial and personal settings.
- A common example of this term occurs in child support agreements. In this case, the obligor owes a fixed child support payment and the obligee benefits from the payment.
- In a corporate setting, the obligor may be held to an affirmative covenant, which requires them to perform certain actions or meet specific benchmarks.
- If the obligor falls behind or stops making payments, they can face legal consequences.