Substantial Performance: Everything You Need to Know
Substantial performance is a doctrine, whereby party under a contract can still recover for damages if he substantially performed his duties under the contract.3 min read
2. When Has a Party Substantially Performed?
4. What Damages Can Be Recovered?
Substantial performance is a doctrine, whereby one party under a contract can still recover for damages if he substantially performed his duties under the contract even though that individual failed to comply with the contract in some way. Keep in mind that this doctrine doesn’t usually apply to the sale of goods. Rather, it is applied to building, property, and construction contracts. With that said, it could also apply to employment contracts, particularly if an employee might have to substantially perform in order to receive a certain benefit, i.e., working at a company for 5 years before his 401(k) is vested.
Substantial Performance: An Overview
This doctrine is used to evaluate the performance in a contract. In order for a party to use this as an argument in a legal dispute, he must prove that he met the standard of substantial performance. If there is a material breach by either party, then substantial performance is not met. The fulfillment of one’s obligations can be met if there is only a slight difference in the exact terms and provisions that are identified in the contract. The test that is used to determine substantial performance is whether the difference or omission in the performance can be compensated for.
Some examples of substantial performance include the following:
- A contract wherein one party must supply 100 pumps but only 95 were delivered
- The property being purchased was supposed to be 50 acres, but was only 48 acres
Both of these examples constitute substantial performance unless the pumps weren’t delivered on the date indicated in the contract. Additionally, so long as the 2 missing acres in the property contract weren’t crucial, then selling 48 acres as opposed to 50 acres would still be considered substantial performance under the contract.
When Has a Party Substantially Performed?
As previously noted, a party has substantially performed if there is no material breach in the contract. A material breach simply means that the party either failed to perform under the contract or altered his performance in such a way that the material terms of the contract were not met. For example, if you paid someone to paint your walls blue but instead the painter used red paint, then the painter cannot make an argument for substantial performance since the contract clearly specifies that you wanted the walls to be painted blue. Therefore, the painter must fix it by repainting the walls blue; he cannot be paid twice since he materially breached the contract the first time around when he painted the walls red.
Even if the painter inadvertently painted the walls red with no intent, he still acted negligently by not remembering or paying attention to what his customer wanted. Another example would be if someone enters into a contract to buy a piece of property that has a 3-car garage and guest house. Thereafter, if the seller gives only the house to the buyer and not the 3-car garage or guest house, then that is a clear material breach of the contract since the purchaser price is for the home, 3-car garage, and guest house as noted in the contract.
The below are some exceptions to the doctrine of substantial performance:
- If the contract states that specific and complete perforce is required as a condition, then the party must completely fulfill their obligations. Therefore, if the contract specifies that 150 barrels of oil be delivered, and only 145 barrels are delivered, then the seller must continue his obligation of providing the additional 5 barrels of oil.
- If the performance can be completed by slightly altering the conduct, then the party cannot use the doctrine of substantial performance and must correct the mistake.
What Damages Can Be Recovered?
Generally, damages that are awarded are for the work that is complete, which is the actual value of the service minus what it will cost to fix the mistake. If this isn’t the appropriate remedy, then the party receiving the service or benefit must pay for the value of the service received. However, when it comes to determining the actual amount to be recovered, the court will have to look at the facts and circumstances regarding the issue.
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