When a contractor is in default by having failed to complete the contract, he can recover in spite of his breach if his performance was sufficiently substantial. If omissions or deviations from the contract are inadvertent or unintentional; are not due to bad faith; do not impair the structure as a whole; and are remediable without doing material damage, substantial performance permits the contractor to be compensated, with deductions from the contract price. The doctrine of substantial performance is intended to protect the right to compensation of those who have performed in all material and substantive particulars, so that their right to compensation may not be forfeited by reason of mere technical, inadvertent, or unimportant omissions or defects. This question is characterized as whether a failure of performance was "material." A material breach is a failure to perform an essential term or condition that substantially defeats the purpose of the contract for the other party.
The case involved a sewer system that was not fully completed. The company sued the public facility board for breach of contract and the board filed a counterclaim for damages caused by the company's failure to complete and repair the system. The circuit court denied the company's claim on the ground that it had not substantially performed, and awarded liquidated damages for the delay to the board. Both parties appealed to the Court of Appeals of Arkansas.
Was the company entitled to compensation from the board?
The Court held that although the company did not substantially perform, it was entitled to appropriate compensation from the board. The trial court also did not err in its award to the board of liquidated damages. Without question, the company's work on the sewer system was considerable; however, the appellate court was not left with the definite and firm conviction that the trial court erred in finding no substantial performance. While the board fell short in cooperating on permanent power, the company walked out rather than continuing to push to resolve that important issue.