Substantial Performance in Contracts

When two parties enter into a contract, each makes a promise to the other to perform. For example, say a property owner hires a contractor to perform construction on their property, like building an addition on the back of the house. The contractor will make a promise to perform the construction as agreed upon in the contract and the property owner will promise to pay for the services rendered.

Generally, there needs to be full performance under the contract to satisfy the terms of the contract. However, in some instances one party under the contract may still get the promised benefit (like payment) even if they did not fully comply with the contract’s specific terms. This is where the contract doctrine of substantial performance can apply.

A party can assert substantial performance when there is only slight deficiency under the contract terms, a good faith effort was made to reach full performance, and there was no material breach. Basically, the outcome will be sufficient enough to warrant payment for services rendered.

If you are faced with a contract issue involving incomplete performance then it is important to understand how to fulfill all the elements of substantial performance to be successful, what constitutes a material breach, exceptions to the doctrine substantial performance, and other important legal implications. If you get sued for breach of contract, then you may be able to raise substantial performance with the court and get a ruling that the contract is satisfied.

How Can Someone Successfully Assert Substantial Performance and What Constitutes a Material Breach?

As noted above, if someone sues a party for breach of contract and substantial performance is asserted as a defense then a court may allow the contract to be carried out in limited situations. Here is a recap of what it takes to meet all the elements for substantial performance:

• Most of the contract was performed as promised. For example, say there was a contract to buy property consisting of 100 acres, but there only ended up being 97 acres when the prior landowner transferred the property over to the buyer. If all the other elements are met, a court may find substantial performance.
• The party facing a breach of contract claim made a good faith effort to complete the contract perfectly but feel slightly short.
• The deviation from the contract was only slight and did not constitute a material breach. Only a minor breach is allowed under the doctrine of substantial performance. A material breach is central to the purpose of the contract and will impair the value that the parties bargained for when negotiating and executing the agreement.
• • In the property example above, as long as the three missing acres were not crucial to the contract then a court may find substantial performance. However, if those three missing acres contained a barn that the buyers negotiated specifically for under the agreement and intended to use, then this would be considered a material breach.
• • Another example of material versus minor breaches is when you hire a painter to paint your living room a shade of green. The painter is unable to locate that shade from the brand noted in the contract, but finds a matching color from another brand. This is a non-material breach, also referred to as a minor breach. However, if the painter paints your living room blue instead then this breach would be considered to be material.
• The reason the contract was not performed fully and specifically must not be based on intent, negligence, or carelessness. These are all grounds for breach of contract and will not excuse minor breaches.
• An exception does not apply that would defeat substantial performance. There are some instances where a court cannot legally authorize a contract to be carried out under the doctrine of substantial performance, even where other elements are met. This will be discussed further below.

Substantial performance generally only applies to contracts involving construction, building, and property. In an employment context, if there is a time limit placed on receiving a benefit then someone also may be able to assert substantial performance. Lastly, this doctrine is usually considered unacceptable when the contract applies to the sale of goods.

What are Some Exceptions to the Doctrine of Substantial Performance?

There are some exceptions where a party will be unable to assert substantial performance and the court will not allow this as a means to avoid a breach of contract claim. This include the following situations:

• If the contract explicitly states that there needs to be specific and complete performance for the contract to be considered satisfied, then a party must completely fulfill their obligations as noted in the contract. This is why the language of a contract is crucial and it is important to prepare for potential legal implications when drafting the contract.
• If full performance can be achieved by making a minor alteration or easily correcting a mistake, then a substantial performance argument will generally be unavailable. This is because the party can just remedy the small defect and get rid of the need for court intervention. This will save both parties time and money while still carrying out the intent agreed upon under the contract.
• • For example, say a construction contract called for installation of knobs on all of the cabinets in the new home, but the cabinet installer put different shades of knobs on two of the twenty cabinets. If the cabinet installer can easily switch out these two knobs, then substantial performance would not be available.

When you face a breach of contract claim, it is important to consider these exceptions before asking the court that the contract be considered satisfied under the doctrine of substantial performance.

What Damages are Available for Substantial Performance?

Say you sue someone for breach of contract, they assert the doctrine of substantial performance, and the court finds no material breach. No exceptions apply to your contract issue. In this matter, the party that substantially performed will be entitled to payment for their services. However, you would be entitled to damages as well and can deduct a reasonable amount of money that reflects the minor breach.

What this means is the party committing the minor breach would only be able to get paid the real value of their service less the amount that it costs the other party to remedy the mistake. In the alternative, you would just pay them the actual value of the services they performed. 

To determine the actual amount, the court will look at your specific situation to decide the appropriate amount owed. Some things that would be relevant to this decision are market value, time spent, how many people worked on the specific job, and other relevant costs or labor expenses.

Should I Contact a Lawyer to Help With a Contract Issue Involving Substantial Performance?

If you are in a contract dispute involving a breach and the doctrine of substantial performance, an experienced contract lawyer can help. A lawyer can evaluate your case, determine if substantial performance applies, consider all relevant exceptions, attempt settlement, represent you in court, and help you recover the maximum amount for the services you rendered.

If you are the party suing for breach of contract, a lawyer can advise you on whether a court would find substantial performance and if so, help you figure out what you would owe the other party based on the services that they performed. A lawyer can also attempt settlement and represent you in any court proceedings regarding your contract issue.