Contract Performance and Breach: Key Rules You Need to Know

Contracts govern business and personal agreements, but contract performance and breach issues arise frequently. Understanding when you must perform, when you can withhold performance, and what happens if the other party breaches can help you protect your rights.

Who Said You Should Perform?

Don’t perform if you don’t want to — but be prepared to pay damages. The law does not require you to do something pointless or useless.

• If the other party has already repudiated the contract or refused performance, you are not required to perform your obligations.
• However, if you lack a legitimate belief that the other party cannot fulfill their obligations, you must still try to perform your own.

Rule: A party cannot sue for breach of contract unless they have performed their obligations, unless the other side refuses or fails to perform.

Case Example: In a construction loan agreement, the lender had the right to require flood insurance but was not obligated to obtain a certificate before funding draws. The court held the lender met its obligations when it funded the draws, despite borrower claims of construction defects.

They Didn’t Perform Either

If contract promises are independent, each party must perform regardless of the other’s failure.

• If one party breaches, the other may still sue for damages.
• A breach in one contract does not automatically allow cancellation of a separate independent contract.

Inspection or Approval of Performance: Be Clear

Contracts sometimes require third-party approval or inspection before payment. This is a condition precedent.

• Courts require these provisions to be clear and unambiguous, especially in construction contracts.
• Small subcontractors are not presumed to take on the risk of the owner’s failure to pay the contractor.

If both parties’ mistakes prevent full performance, the performing party may still recover partial payment—reduced by damages from their own errors.

Should I Give Notice?

Notice requirements depend on the contract:

• If a written contract requires notice before suing, you must give notice unless excused.
• Generally, you don’t need to give notice before performing unless the contract explicitly requires it.
• If contracts require simultaneous performance, neither party is in default until one performs and demands the other do so.

Performance or Breach of Contract?

Contract law balances performance with remedies for breach. Key principles:

• You must perform unless excused by repudiation or illegality.
• Breach entitles the non-breaching party to damages.
• Courts may reduce damages if both parties contributed to failure.

Common Contract Issues That Require Legal Help

• Breach of contract – failure to perform obligations.
• Unenforceable contracts – contracts invalid due to illegality or lack of authority.
• Contract modifications – ensuring changes are valid and enforceable.
• Termination of contract – properly ending contracts while protecting rights.

FAQs About Contract Performance and Breach

1. Do I have to perform a contract if the other party refuses?

No. If the other party repudiates or refuses performance, you are excused from performing your obligations.

2. Can I sue if I haven’t performed my part of the contract?

Generally no. You must perform or be excused before suing for breach.

3. What happens if both parties make mistakes in performance?

Courts may allow partial recovery but reduce payment by damages caused by your own errors.

4. Do I need to give notice before filing a contract lawsuit?

Only if the contract requires it, or if the nature of the agreement makes notice necessary.

5. Why should I hire a contract attorney?

A contract lawyer ensures contracts are enforceable, negotiates favorable terms, and represents you in disputes.

6. Can a condition precedent be waived?

Yes. Approval or inspection conditions may be waived by express agreement or implied conduct.

For more information on breach of contract and performance rules, visit the Legal Information Institute – Contract Law.