Duhaime's Law Dictionary


Substantial Performance Definition:

The fulfillment of essential obligations, but not necessarily strictly all obligations, as required under a contract.

Related Terms: Performance Bond, Breach of Contract

Something short of full, complete or strict performance of duties set out in a contract, excluding work which is affected by significant deficiencies, but performance as to essential terms.

But, as Justice Ian Binnie of the Supreme Court of Canada noted in Sail Labrador: "Substantial performance is less than full performance."

In contracts or even in statute, where applicable, substantial performance is often stated to be that the object of contract, the work or service (e.g. a building subject to construction or renovation) is ready for its intended use.

In building contracts, the problem of a mostly-completed contract has given rise to much judicial writing back to the late 1700s, at least. In one English decision, that of Craven v Tickell, these words:

"Small deviations from the plan would not affect it much; but if there is any obstinate or corrupt deviation, that would materially."

substantial performanceFor another older case on the development of the concept of substantial performance, see the short reasons of Justice Ellenborough in Farnworth v Garrard, circa 1807.

In building contracts, the fact of substantial performance is now often a matter of certification with or without identified deficiencies, so as to remove the opportunity of litigation if the words were open to judicial discretion, and to allow the payment of financial compensation. A Certificate of Substantial Performance or a Notice of Substantial Performance is issued by the building owner or the contractor to, for examplel the architect or a service provider.

In Epstein, the Court deferred to these words, which were contractual as between the litigants:

"Substantial performance of the work shall have been reached when the Work is ready for use or is being used for the purpose intended and is so certified by the Consultant."

A Doctrine of Substantial Performance

The courts have developed a doctrine to process these types of disputes, known as the doctrine of substantial performance of which there are several articulations such as this by Canadian law professor G. Fridman:

"... a party is not relieved from payment for what has actually been done unless (1) he has obtained no benefits at all; (2) the work done is totally different from the work contracted to be done; or (3) the contractor abandoned the work before completion (unless, of course, there were some subsequent waiver or express agreement to the contrary, or, in modern law, performance or completion of performance were frustrated)....

"Abandonment of the contract will ... deprive the party obliged to perform of any right to payment. But it will also entitle the party for whom performance was to be provided of the right to complete the work himself and charge the cost of doing so to the non-performer."

"Substantial Performance" Sometimes Defined in Statute

Anything known in law as a doctrine is usually an area which is subject to considerable interpretation by individual judges, if not judicial discretion, as the facts of individual cases are considered on their merits. This creates commercial uncertainty, an unwanted element in an economy. To minimize that, many jurisdictions, either in general statutes or more often in specific, discreet areas of the law, define substantial performance in statute. For example this, statutory definition, an excellent, understandable and workable codification of substantial performance taken from the 2014 version of the Canadian province of Manitoba's Builders' Lien Act:

"... a contract ... shall be conclusively deemed to be substantially performed when (a) the structure to be constructed under the contract ... or a substantial part thereof is ready for use or is being used for the purpose intended or, where the contract ... relates solely to improving land, the improved land or a substantial part thereof is ready for use or is being used for the purpose intended; and (b) the work to be done under the contract ... is capable of completion or correction at a cost of not more than 3% of the first $250,000. of the contract price, 2% of the next $250,000. of the contract price, and 1% of the balance of the contract price.

"... where a structure or a substantial part thereof or the improved land or a substantial part thereof is ready for use or is being used for the purpose intended, and the work to be done under the contract ... relating to the construction or the improvement of the land cannot be completed expeditiously for reasons beyond the control of the contractor ..., the value of the work to be completed shall be deducted from the contract price in determining substantial performance."1

Another example, British Columbia, Canada, as of 2014:

"For the purposes of this Act, a head contract, contract or subcontract is substantially performed if the work to be done under that contract is capable of completion or correction at a cost of not more than 3% of the first $500 000 of the contract price, 2% of the next $500 000 of the contract price, and 1% of the balance of the contract price."2

Consider the similar wording of the Alberta Builders' Lien Act of 2013:

"Completion of the contract means substantial performance, not necessarily total performance of the contract.... For the purposes of this Act, a contract shall be deemed to be substantially performed when the work or a substantial part of it is ready for use or is being used for the purpose intended, and when the work to be done under the contract is capable of completion or correction at a cost of not more than 3% of the first $250,000 of the contract price, 2% of the next $250,000 of the contract price, and 1% of the balance of the contract price."3

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