Compliance occurs when the parties comply with the conditions (or terms) of the contract. Failure to comply with the material terms of the contract may lead to a claim of breach of contract by the opposing party. Sometimes, it is clear that compliance is lacking. For example, consider a party who sells goods and agrees to deliver them by a certain date. The date comes and goes, with no delivery. The seller clearly is not in compliance.
State laws can vary on the level of compliance that is required with various types of contracts to avoid a finding of breach. Thus, it is always important to check the law of the particular state in which the contract is drafted. In some instances, the law will require “strict compliance,” which means that the parties must comply with all of the formal terms of the contract and almost any failure will demonstrate a lack of compliance.
In other instances, the law requires only “substantial compliance.” Substantial compliance occurs when the broader objectives of the contract have been met, but technically, not all of the formal requirements have been met. Consider our example above concerning the delivery of goods. Assume that the delivery came one day late, but when it arrived, all other requirements of the contract were met. Because most state laws prefer to uphold contracts when possible, it is likely that the seller would be determined to have substantially complied with the contract and a breach of contract claim would not prevail.