Joseph G. Ballstaedt
Under Utah law, must parties to a contract perform their contract duties strictly, literally, exactly, and completely? If they do not, are they in breach and liable for damages? No, not always. Sometimes all that is required is “substantial performance.” This article discusses what substantial performance is and what it is not, and it also explains an exception to substantial performance: the perfect tender rule, which pertains to the sale of goods and completely bars the application of substantial performance.
Definition of Substantial Performance
Stated simply, substantial performance is what you might expect it to be: substantially performing a contract without performing it perfectly. Utah courts have explained that, generally, when two parties agree to perform a contract, the required performance is not strict, literal, or exact compliance with the agreed-upon terms of the contract but rather only substantial compliance or substantial performance. A party substantially performs when it does not purposefully stray from the contract terms or omit essential contract duties but instead honestly and faithfully performs the most substantial parts of the contract, straying from perfect performance in insignificant ways. Stated simply, unimportant omissions or defects that do not address the heart of the contract probably do not amount to a breach.
Substantial performance does not mean, however, that a contract does not have to be performed pursuant to the agreed-upon terms. Utah courts have explained that substantial performance is a doctrine that should only be used sparingly. It should not be interpreted as permission to stray from the strict terms of a contract.
Yes, this standard is a little squishy, so a party is certainly wise to strictly comply with every contract and thereby avoid a claim of a technical breach. But if there is a technical breach, a party can often find shelter under the substantial performance standard.
Examples of Substantial Performance
The doctrine of substantial performance may sound unfair. Shouldn’t parties be held to the terms they agree to? Maybe. Maybe not. If I ask the neighborhood boy to mow my lawn at 3:00 p.m., does it really matter if he comes at 4:00 p.m.? If I have scheduled a party in my backyard to begin at 5:00 p.m., it certainly does matter, but if I have no party or other immediate use for my lawn that night, it probably doesn’t matter that the lawn is finished an hour later. Indeed, I might not even know it is finished an hour later. Under those circumstances, wouldn’t it be improper to deduct part of the payment just because the neighborhood boy arrived a little later than expected?
Utah courts have provided examples of what does and does not constitute substantial performance. Here are a few examples of what meets the substantial performance threshold:
- A tenant breaching but then curing violations of various provisions of a lease where those breaches did not substantially affect the rights of the owner.
- A marketing company breaching provisions of a contract due in part to the other party’s failure to provide timely feedback.
- A homeowner paying a roofer $8,775.00, with only a disputed amount of $675.00 unpaid, which required the roofer to honor its warranty.
In contrast, here are a few examples of conduct that does not meet the substantial performance threshold:
- A contractor failing to finish a construction project when the contract was clear about the completion date being important.
- A water district not beginning construction of the bargained-for diversion.
- A tenant exercising an option to renew a real estate lease after the deadline stated in the contract.
An Exception to Substantial Performance
In Utah, the doctrine of substantial performance, which has been developed by court through what is called common law, does not apply to contracts for the sale of goods. These types of sales are governed by statutes, specifically the Uniform Commercial Code—referred to as the “UCC.” The UCC is a set of laws that every state, including Utah, has adopted in whole or part. Under the UCC, goods are any tangible items that are movable at the time of sale—items like cars, lumber, nails, computers, paint, etc. that are not connected to real property.
Under the UCC, goods that fail to conform to the parties’ contract “in any respect” can be rejected. This rule is known as the “perfect tender” rule, and it generally allows a buyer to reject goods from the seller if those goods do not perfectly follow the parties’ contract in any way, shape, or form. As long as the seller’s time to perform has arrived, any non-conformity whatsoever—large or small—is usually proper grounds for rejecting the goods entirely and claiming a breach, requiring perfect performance, and claiming damages resulting from obtaining perfect performance. It does not matter whether the basis for rejection is a trivial defect, a minor problem with the quality of the goods, or a delivery that is just a tad bit late. Under the perfect tender rule, the doctrine of substantial performance does not come into play because the degree of non-conformity alone is irrelevant. In short, performing a contract under the perfect tender rule almost always does not mean substantial performance; rather, it almost always means complete and perfect performance.
Therefore, if a contractor enters an agreement to buy from a supplier 100 two-by-fours that are 10 feet long each, and the supplier instead provides 100 two-by-fours that are 12 feet long at the designated time, the contractor can probably reject that lumber, even though the delivered goods are more than the contractor bargained for in terms of length. The delivery must be perfect. (But yes, most buyers would accept the extra lumber without complaint.)
Assistance with Contract Issues
If you are involved in a contract where substantial performance or the perfect tender rule is an issue, I can help you navigate to the best solution possible. I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at firstname.lastname@example.org.