Doctrine of Substantial Performance

Doctrine of substantial performance is a legal principle which says that if a good faith attempt is made to perform the requirements
of the agreement even if it does not precisely meet the terms of the agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished. However this is subject to claim of damages for shortfall. A defendant when sued for non performance cannot avoid paying damages by showing he substantially performed or came near to performing the requirements of the contract. Example of case law in California discussing substantial performance. The doctrine of substantial performance has been recognized in California since at least 1921, when the California Supreme Court decided the landmark case of Thomas Haverty Co. v. Jones (1921) in which the court stated: The general rule on the subject of *contractual+performance is that Where a person agrees to do a thing for another for a specified sum of money to be paid on full performance, he is not entitled to any part of the sum until he has himself done the thing he agreed to do, unless full performance has been excused, prevented or delayed by the act of the other party, or by operation of law, or by the act of God or the public enemy. It is settled, especially in the case of building contracts where the owner has taken possession of the building and is enjoying the fruits of the contractor's work in the performance of the contract, that if there has been a substantial performance thereof by the contractor in good faith, where the failure to make full performance can be compensated in damages to be deducted from the price or allowed as a counterclaim, and the omissions and deviations were not willful or fraudulent and do not substantially affect the usefulness of the building for the purposes for which it was intended, the contractor may, in an action upon the contract, recover the amount unpaid of his contract price, less the amount as damages for the failure in strict performance The doctrine of substantial performance/compliance applies only to bilateral contracts. Courts have held the substantial compliance doctrine is inapplicable when statutory notice requirements, including the time within which notice must be given, are not met. Substantial performance n. in the law of contracts, fulfillment of the obligations agreed to in a contract, with only slight variances from the exact terms and/or unimportant omissions or minor defects. A simple test is whether the omission, variance, or defect can be easily compensated for with money. Examples: a) the contract is for supplying 144 pumps for $14,400, and only 140 were delivered; b) the real property was supposed to be 80 acres and only contained 78 acres. This constitutes substantial performance unless the loss of two acres is crucial to the value of the property (e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5. This constitutes substantial performance unless the product was required for a Halloween sale. (See: contract, specific performance)
SUBSTANTIAL PERFORMANCE (COMPLIANCE) LEGAL DEFINITION Noun A doctrine in equity that if a good faith attempt was made to perform the requirements of a contract, but failed to exactly meet the specifics, and if the essential aim of the contract has been met, the agreement will still be considered as having been completed. Minimal damages for the impreciseness may be permitted by the court. See also performance. The doctrine of substantial performance will not be applied when the contract makes it clear that a literal and exact compliance is required. The doctrine of substantial performance does not apply to a condition precedent. Example: Say a lender is obligated to lend money if a specific number of leases are signed (like on a loan to build a building). The Bank will have no obligation if the specific number of leases are not signed. Dick contracted to build a house for Mike. When it was approximately 25 to 40 percent completed, Mike would not let Dick work any further because he was not following the building plans and specifications, and there were many defects. Mike hired another contractor to correct the defects and finish the building. Dick sued Mike for breach of contract, claiming that he had substantially performed the contract up to the point when he had been discharged. Was Dick correct? No. There was no substantial performance because the substantial performance of a building contract implies that the building be usable for the purpose for which it was intended. Because a performance that is only 25% to 40% complete would not produce a usable building, the substantial performance doctrine could not be applied. With regard to a contract requiring performance to the satisfaction of the other party, the courts are divided as to:

Whether the promisor must perform the contract to the satisfaction of the promisee; or Whether it is sufficient that the performance would satisfy a reasonable person under the circumstances.
When personal taste is an important element, the courts generally hold that the performance is not sufficient unless the promise is actually satisfied. Personal satisfaction is generally required when a person promises to make clothes or paint a portrait to the satisfaction of the other party. With respect to things mechanical, courts are more likely to hold that the performing party has performed satisfactorily if a reasonable person should be satisfied with what was done. In most instances, the courts require that the dissatisfaction be shown to be in good faith rather than the dissatisfied customer just trying to avoid paying for the work that has been done. It is common for a person to guarantee the performance of a contract. For example, a builder may guarantee for one year that certain work will be satisfactory. Such a guarantee may also be made by a third person. For example, a surety company may guarantee to the owner that a contractor will perform a contract. In such a case, the obligation of the surety is in addition to
the liability of the contractor, but the contractor is also still liable. However, a plaintiff cannot recover twice. He can recover only the amount of the liability. For example, a plaintiff can recover part from contractor and part from surety, or all from surety. However, the plaintiff cannot recover all from surety and all (again) from contractor. A contract may be discharged pursuant to a provision in the contract or by a subsequent agreement. For example, there may be a discharge by the terms of the original contract when it says it will end on a certain date. There may be a mutual cancellation when both parties agree to end their contract. There may be a mutual rescission when both parties agree to annul the contract and return to their original positions as if the contract had never been made. This would require returning any consideration (for example, money) that had changed hands.

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Doctrine of substantial performance is a legal principle which says that if a good faith attempt is made to perform the requirements

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