Honesty Required in Performing Contractual Obligations

November 20th, 2014 by Shawna Sosnovich

The Supreme Court of Canada was recently faced with the question: Does Canadian common law impose a duty on parties to perform their contractual obligations honestly?  On November 13, 2014, the Court unanimously answered that question in the affirmative.

In considering the question, the Supreme Court ruled that finding there is a duty to perform contracts honestly will make the law more certain, more just and more in tune with reasonable commercial expectations.

What does that mean for parties to a contract?  It means that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. That being said, the Court also cautioned that the duty of honest performance should not be confused with a duty of disclosure or of fiduciary loyalty.  A party to a contract has no general duty to subordinate his or her interest to that of the other party.  However, contracting parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests.

This common law duty applies to all contracts.  Don’t hesitate to seek the advice of a lawyer if you have questions on the duty to act honestly in performing contractual obligations.


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