Substantial Performance in Contracts

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What Is Substantial Performance?

Sometimes a party to a contract may still be paid under (or retain the benefit of) the contract even though they have not fully complied with the specific terms of the contract.

If a court finds that one party has performed enough of the contract, the other party will not be able to get out of the contract unless certain exceptions apply.

The rule of substantial performance does not usually apply to the sale of goods. It is most commonly used in building and construction contracts. However, it can also apply to other types of contracts. For example, in an employment contract, an employee may be required to substantially perform as a prerequisite to becoming entitled to a benefit. Generally negotiating an employment contract requires the skills and expertise of a qualified employment attorney.

When Has a Party Substantially Performed?

A party has substantial performed when there is no material breach. Material breach means that the failure to perform was so central to the contract, it substantially impairs its value.

For example, you have contracted to have your house painted purple and the painter instead paints it black. Although the house has been fully painted, the purpose of the contract is a painted purple house. Therefore, the painter is in material breach and has not substantially performed

Note that failure to fully perform under the contract must not be intentional or a result of carelessness or negligence.

Exceptions to the Doctrine of Substantial Performance

If the contract explicitly states that specific and complete performance is required as a condition of the contract, then a party must completely fulfill their obligations.

If performance can be completed by a minor alteration, or if the only obstacle to complete performance is a small defect, then the party may not use the doctrine of substantial performance and must correct their mistake.

What Damages Can I Recover?

If the other party has substantially performed and is not in material breach, you must pay them for the real value of their service minus what it would cost you to fix their mistakes (i.e. their minor breach.) Or, if this remedy isn’t appropriate, you must pay them the value of their service or benefit you received.

Should I Seek Legal Advice?

If you are in a contract dispute, an experienced contracts attorney will evaluate your case and help you recover the maximum amount due to you.

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Last Modified: 10-03-2014 02:40 PM PDT

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