Mormons talk a lot about obedience. The result is that we are often misunderstood by those of other faiths. It may sound like we believe that we can work our way into salvation through our obedience. It may sound like grace is irrelevant or merely supplemental. Perhaps some of us believe those things. But I hope it is not, ultimately, what most of us intend by what we say.
As I understand it, Mormon talk about obedience stems from our understanding that, with Israel, we are a covenant people. That requires obedience, but obedience doesn't obviate or even lessen the importance of grace.
To some degree the difference between the words covenant and contract is a matter of stipulation. We can use them interchangeably in many contexts, which makes sense because each has similar etymological origins. Covenant originally meant "agreement," and contract originally meant "a coming together." In Mormon religious language, however, the two are usually distinguishable. (Other religions make similar distinctions.)
As a rough-and-ready distinction, I would say that contracts are agreements that we enter into to protect ourselves from the possibility that the other person may harm us, even if unintentionally. In contrast, covenants are agreements with people whom we trust. Covenants are a sign of our trust, whereas contracts are a sign of our mistrust. Being a sign of trust, covenants make it possible for us to do something that we cannot do by ourselves.
Using that language, marriage is—or ought to be—a covenant rather than a contract. Being married opens up a future that is unavailable to me alone. The idea that marriage is a covenant rather than contractual relationship is particularly true of Mormonism, where marriage is for eternity and the highest degree of heaven is available only to those who are married. At a more mundane level, I'm not sure whether the syllabus I created for my class this semester is a covenant or a contract, but I'd like to think that it is more of a covenant. Hopefully we find covenants in many areas of our lives.
God's covenant with Israel says a good deal about divine covenant relation: "If ye will obey my voice indeed, and keep my covenant, then ye shall be a peculiar treasure unto me above all people: for all the earth is mine" (Ex. 19:5).
Being God's treasured possession requires obeying his voice and keeping his covenant. Notice that "obey" and "keep covenant" are probably used in this verse in parallel, in other words to define each other: those who keep the covenant obey, and vice versa. So paraphrased we could understand God to say "If you will obey me, in other words if you will keep my covenant, then you will be my treasured possession."
The English word obey comes from ob, "toward," and audire, "to hear." When we obey, we turn our hearing toward someone rather than away. That reflects well the Hebrew of this verse, "hear my voice." Those in covenant with God hear him. They turn a hearing rather than a deaf ear toward him. To paraphrase Paul, faith comes by hearing, and hearing means hearing the word of God (Rom. 10:17).
God created the world by speaking, and the chaotic elements of Genesis 1:2 listened, forming themselves as he commanded. The creation of the world is a model of covenant relation: In sin, we are in chaos. God calls us, inviting us to return to him, offering to recreate us if we will allow him to do so. If we turn our hearing toward him, then like the elements we will be formed as he commands. We will become who we really are, formed in the image of God in listening to him, in our obedient re-creation.
That re-creation is not a matter merely of now following a rule given by God rather than some other rule or no rule at all. If that were what obedience to God meant, then salvation would be nothing more than a matter of my own will, of me choosing between one law and another. But I, the one who chooses, would still remain the same. I would be changing myself to the degree that is possible, which turns out not to be possible (Rom. 7:15-16). To be re-created is to be a genuinely new person (Eph. 2:15), not just to be a variation of the old one.
If I am recreated in listening to God, then I must continue to listen, continue to be created. I must always be questioning whether I am hearing rightly, not trusting my judgment and, so, not done listening: never done obeying, never done rethinking what my obedience now requires.