In legally binding contracts, each party is entitled to expect the performance of the contact which has been agreed. That is the purpose of legally binding agreements.
Legal principles apply to performance of contracts, irrespective of the content or nature of the contract. It's that way because the law has a policy that business law should be predictable and increase certainty of the application of the law.
If legal obligations under a contract aren’t performed as agreed, the party is in breach of contract. A right to damages arises against the defaulting party. Other remedies may be available, such as an injunction or specific performance.
What is Performance of a Contract?
Performance of a contract is:
- the doing of the acts, or
- refraining from doing the acts
- which are required by the express or implied terms of the contract
- in accordance with those terms.
The standard, quality and timing of performance of contacts is able to agreed between the parties the parties.
This is in keeping with principles of freedom of contract.
Courts don't have power to reshape contracts into a form the court thinks more reasonable or fair where subsequent events have rendered one side’s situation more favourable... or unfavourable. It makes sense to get business to business contracts and business to consumer contracts rights the first time.
When a contract expressly states what you are meant to do, and how you're meant to do it, it's usually pretty straightforward.
But then the way the contract is to be performed may not be specifically mentioned in the contract. In those cases established rules of contractual interpretation allow the court to decide the missing terms: to fill in the gaps.
Here are some of the main ones...
Standard and Quality of Performance
- Performance must be:
- complete; and
- precisely in accordance with the terms of the contract in order to be paid.
- Where two or more ways are available to supply goods or services, the supplier may elect which way the goods or services will be supplied.
Compliance with a Contractual Specification
- In a business to business contract for the sale of goods, the seller is under a strict duty to deliver exactly the quantity he has agreed to sell, neither more nor less
- A supplier under a contract is not entitled to substitute performance of a contract which is different to, or better or worse than that specified in the contract.
It has been said:
Equivalent products or services is unsustainable to resist a claim for breach of contract and irrelevant as a matter of law
- Commercial performance does not necessarily amount to performance at law. When a contract specifies how a promise is to be performed, it must be performed in that manner.
For example, in a contract for production of staves (ie long sticks) to a specified width, only 15% of the staves delivered were of the specified width mentioned in the contract.
All of the staves supplied were saleable by the buyer. They were fit for the purpose the buyer intended. The buyers were entitled to reject all staves which were not of the specified width.
In that case, the Court said this:
"if the seller wants a margin he must, and in my experience does, stipulate for it".
- A promisor need not perform an obligation which is solely for its own benefit.
Notice that Performance is Required
- When a contract specifies that notice is required for the performance of an obligation, there is no requirement to perform until notice has been supplied.
- If only one party has the knowledge that conditions have been met to perform a contract, then that party is required to give notice to the other to perform.
Time for Performance
- When the time to perform a contract is not agreed, performance must commence within a reasonable time.
A "reasonable time" is decided after taking into account all the circumstances of the case at hand. There are always arguments whether the time should be shorter or longer.
- When times are specified in a contract, not performing by the at time will be a breach of contract.
It will not be a repudiatory breach of contract unless:
- an express term of the contract says that time is of the essence, or
- a term is implied that time is of the essence,
- the contract is of the sort that time is expected to be of the essence, such as leases, sales of shares where prices are likely to change.
- Performance by a supplier gives rise to the right to be paid, subject to the terms of the contract
- Time is not of the essence for payment of a contractual debt, unless it forms part of the contract
- If a time is not specified for payment, a reasonable time is permitted for the debtor to pay, having regard for all of the circumstances of the case.
Completion of Performance
When performance is complete by both parties, the parties are discharged from further performance of the contract. Technically, it's known as termination of contract.
Contracts may also be terminated in these ways:
- by agreement, that is:
- a new contract between the parties discharging one another from further performance under the contract
- where the contract itself contains a provision to terminate the contract, such as:
- force majeure, or
- termination for convenience,
- satisfaction of a condition subsequent
- by repudiatory breach of contract, which is accepted by the innocent party
Non-performance or defective performance which deprives the innocent party of substantially the whole benefit of the contract or is a breach of a condition is a repudiatory breach, which entitles the innocent party to:
- sue for damages for the breach of contract, and
- terminate the contract for that repudiatory breach or affirming the contract, regardless of that choice.
- by frustration, where intervening events prevent the contract being performed at all, or fundamentally change the nature of the performance of what was agreed.
- for force majeure, where the parties have agreed that named intervening events will permit non-performance and/or termination
Many commercial contract contains express provisions which continue after termination of a contract. These continue to be effective after termination.
Those secondary obligations would likely include obligations of confidentiality, and post termination restrictive covenants. Some clauses don't make sense in the contract unless they are to apply after termination. In business to business contracts, post termination contractual obligations can appear in consequences of termination clauses, and create express rights which apply after the contract ends.
Need Help on a Business Contract?
We're contract law experts. We give legal advise on contract business law and business to business contracts.
We advise businesses on:
- how to get out of contracts
- when their contracting partners are in breach of contract, and
- what they can do about it, and
- remedies for breach of contract in business law
- discharge of contract in business law
- misrepresentation in business law
- the damages they're likely to be exposed to or recover for a breach of contract.
Have an enquiry about a business to business contract? Call us to speak to a business law lawyer on +44 20 7036 9282 for a preliminary chat, or email us at email@example.com.