Appropriate Performance of Contracts
Parties often enter into contracts for goods and services, with the intention to perform those obligations to a standard considered by the parties to be appropriate for the purpose of the goods or services agreed upon. Modern contract law requires that parties will perform their contracts to the ‘highest standards of good faith and fair dealing’ and that this ‘requires honesty in performance as well as in contract formation’.
The parties must, under the law, perform their obligations for mutual benefit, as within a normal contractual environment, neither party should seek to overstep the boundaries of the contract. The concept of appropriate performance applies in many areas of law. In particular, it applies in the context of contracts, where parties must perform the obligations set out in their agreement to the expected standard.
The ‘appropriate performance’ of a contract means that contracts must be performed with due diligence, due care and attention, and in accordance with the expressed or implied purposes of the contract. It is therefore incumbent upon the parties to carefully consider what is express and/or implied in the relevant contracting documents, in order to ensure that they do not breach the terms of the agreement.
In terms of good faith and fair dealing, the parties are required to act with respect for one another’s position. This requires them to have regard for the interests of both parties, and to act in a way that encourages a mutual benefit for both of them. Furthermore, the parties must not act in a way that allows one party to the agreement to benefit at the expense of the other.
Where specific duties and obligations are imposed on a party by a contract, appropriate performance requires the party to satisfy those obligations to the fullest extent, and within the time-frame prescribed in the agreement. To satisfy the implications of appropriate performance of a contract, parties must also honour any undertakings, promises, or warranties they have given in it.
It is important that parties understand and abide by the obligations they have entered into in a contract. If they do not, they open themselves up to potential legal consequences. It is therefore important that parties seek appropriate professional advice before entering into a contract, to ensure that all parties understand the relevant obligations imposed upon them, and that the contract is satisfied to a satisfactory level.
In summary, appropriate performance of a contract requires:
• Good faith and fair dealing;
• Satisfaction of specific duties and obligations imposed by the agreement; and
• Honour of undertakings, promises and warranties given in the contract.
The courts may construe how strictly and to what extent the parties must comply with their obligations depending on the facts of the case. Therefore, parties should ensure they are familiar with their obligations and responsibilities imposed by their contract and comply with them to as close as expected standard as possible.
