Substantial performance: Overview, definition and example
What is substantial performance?
Substantial performance refers to a situation where a party to a contract has completed enough of their responsibilities to fulfill the purpose of the agreement, even if there are minor deviations or incomplete details. Essentially, it means the core requirements of the contract have been met, and the other party can still benefit from the deal, even though some small elements may not have been fully carried out.
Why is substantial performance important?
Substantial performance is important because it allows the party who has largely met the terms of the contract to avoid being penalized for small mistakes or incomplete work. It recognizes that minor breaches should not prevent the party from claiming payment or completing the agreement, as long as the overall objectives have been fulfilled. This concept can prevent unfair outcomes, where a party might otherwise be unable to receive compensation due to minor flaws.
Understanding substantial performance through an example
Let’s say a contractor is hired to build a house and the contract specifies the completion of a fully functional kitchen with specific appliances. The contractor installs the kitchen and all major appliances, but forgets to install one small fixture, like a cabinet handle. While the work isn't completely perfect, the kitchen is still usable and serves the intended purpose. In this case, the contractor may be considered to have substantially performed, and the homeowner may still be required to pay the agreed price, minus the cost of fixing the minor issue.
Example of a substantial performance clause
Here’s how a substantial performance clause might appear in a contract:
“The party responsible for the performance of work under this Agreement shall be deemed to have substantially performed its obligations if the essential elements of the contract have been completed, even if minor details remain unfinished or incomplete. Full payment will be due upon substantial performance, subject to any necessary adjustments for incomplete work.”
Conclusion
Substantial performance acknowledges that a contract’s main objectives have been met, even if there are minor flaws. It ensures fairness by preventing a party from being penalized for small errors or omissions that don’t impact the core value of the agreement. By understanding substantial performance, businesses can better manage expectations and avoid unnecessary disputes over minor issues.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.