Substantial Performance in Contracts
What Is Substantial Performance?
Sometimes a party to a contract may still be paid under (or retain the benefit of) the contract even though they have not fully complied with the specific terms of the contract.
If a court finds that one party has performed enough of the contract, the other party will not be able to get out of the contract.
When Has a Party Substantially Performed?
- Failure to fully perform under the contract must not be intentional or a result of carelessness or negligence.
- The party must not have frustrated the purpose of the contract. For example, if you have contracted to have your house painted purple and the painter instead paints it black, since the purpose of the contract is a purple house, even though the house has been fully painted, the purpose of the contract has been frustrated.
Exceptions to the Doctrine of Substantial Performance
- If the contract explicitly states that specific and complete performance is required as a condition of the contract, then a party must completely fulfill their obligations.
- If performance can be completed by a minor alteration, or if the only obstacle to complete performance is a small defect, then the party may not use the doctrine of substantial performance and must correct their mistake.
What Can You Recover if a Party Has only Substantially Performed their Obligations under the Contract?
If the other party has substantially performed you must pay them for the real value of their service minus what it would cost you to fix their mistakes. Or, if this remedy isn’t appropriate, you must pay them the value of their service or benefit.
Although substantial performance usually applies to building and construction contracts, it can also apply to other types of contracts. For example, in an employment contract, an employee may substantially perform as a prerequisite to becoming entitled to a benefit.
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Last Modified: 10-24-2012 11:46 AM PDT