In terms of substantial performance contract law, the obligations stipulated in a contract need to be fulfilled. Only slight variations, minor defects, and unimportant omissions are permissible.

A defect, omission, or variation can be tested by whether it can easily be compensated for in monetary terms. For example, if a contractor was tasked with supplying 144 pumps at a cost of $14,400, but only 140 pumps were delivered, a monetary loss can easily be seen. 

Further Examples of Monetary Loss

Another example would be a property that was meant to be 90 acres in size, but was in fact only 88 acres. This would be considered substantial performance under normal circumstances. However, if the loss of those 2 acres proved critical to the land's value, or meant the property could not be subdivided into as many lots as had been planned, then substantial performance could be compromised.

A third example would be a delivery that was supposed to take place on December 18, but did not happen until December 28. Under normal circumstances, this would be considered substantial performance. However, if the shipment contained goods which were meant to be sold on a pre-Christmas sale, then delivery on December 28 would not constitute substantial performance.

Where Substantial Performance Does Not Apply

It is important to note that the substantial performance or compliance doctrine is only applicable to bilateral contracts. In cases where the requirements of statutory notice, including the time period to give notice, have not been met, courts have ruled that substantial compliance doctrine does not apply.

Where Substantial Performance Does Apply

Bill was contracted to build Jane's new home. When the house was approximately 30 percent complete, Jane decided that Bill was not adhering to the specifications of the building plan, and that there were a number of defects. At that point, she would not allow Bill to do any further work on the structure. She then hired a different contractor to complete the work. Bill then sued Jane for breach of contract. He claimed he had provided substantial performance on the project up until he was dismissed.

In this case, Bill's claim had no substance. Substantial performance within a building contract requires that the structure needs to be able to be used for its original purpose. Since the building was only 30 percent complete, this structure could not have been a viable house, and the substantial performance doctrine would not apply.

Contracts require that the other party (e.g., Jane) needs to be satisfied with the work completed. In this regard, the courts have varying opinions with regards to:

  • Whether the promisee's standards must be met
  • Whether performance needs to meet the expectations of a reasonable person.

In cases where personal taste is involved, the courts will generally find that the promise needs to be satisfied in order for performance to be sufficient. Examples of cases in which personal satisfaction would be required would include:

  • Making clothes for somebody 
  • Painting a portrait for them.

When it comes to items of a mechanical nature, the court is likely to take a reasonable person's view of satisfactory performance.

In most cases, any dissatisfaction on the part of a client has to be shown to have been in good faith. They will not accept cases in which a customer is pretending to be dissatisfied to avoid paying for work once it is completed.

Commonly, a contractor will provide a guarantee of performance with regards to a contract. For example, a builder is likely to provide a guarantee that certain work will be of a satisfactory standard for one year. This guarantee can also be provided by a third party, such as a surety company. In cases like this, the surety company's obligation is over and above the contractor's liability, although he or she is still liable. It is important to note that a plaintiff cannot recover twice — he or she cannot recover the entire value from the contractor and from the surety company.

A contract can be voided by a provision within the actual contract or by later agreement. For example, the original contract may specify a date of termination. If both parties involved agree to terminate the contract, then mutual cancellation applies.

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