(d)  Model law

One would expect any model system claiming to place a high value upon promises to designate specific performance as a primary legal entitlement. Both PECL Article 9:102(2) and DCFR Articles III.-3:101 and 3:302 do so, the right to enforce performance being not a secondary but a primary legal entitlement in both model codes.

Of the two model codes, the DCFR takes perhaps the strongest properformance stance, as, unlike PECL, it does not exclude the remedy of specific performance just because the aggrieved party might reasonably obtain performance from another source.84 The other cases where specific performance is excluded in the DCFR broadly reflect exclusions already operative in the national systems examined.85 The DCFR’s statement that the creditor ‘is entitled’ to enforce specific performance of an obligation puts the matter as one of legal right and not discretion, and, in so doing, reflects a conception of the fundamental nature of promise as a pledge of performance and not merely as a pledge to pay damages if performance of an expected outcome is not achieved.

4.  Perfect or substantial performance of contractual promises

Ought a trivial defect in performance to preclude a party from claiming the price due under the contract for such performance? In jurisdictions with a so-called doctrine of ‘substantial performance’, so long as substantial, though not perfect, performance occurs, the price may still be claimed, but is subject to a deduction (either for the losses caused to the other party or for the difference in value between what was contracted for and actual performance). Whether such a doctrine of substantial performance is consistent with a high regard for promises is debatable. On the one hand, it has traditionally been said that promises ought to be enforced strictly, and that any rule which permits deviation by the promisor from the terms of the promise while preserving a right to claim for the value of what has been rendered undermines the sanctity of the promise and is tantamount to rewriting it. On the other hand, an alternative view is that to deny a promisor a claim for the value of what he has performed where

84Contrast PECL Art. 9:102(2) with DCFR Art. III.-3:302(3).

85DCFR Art. III.-3:302(3) excludes specific performance where it would be unlawful or impossible, unreasonably burdensome or expensive, or would be of such a personal character as to make it unreasonable to enforce it.

only trivial defects exist in relation to such performance allows promisees to ‘free ride’ off the back of substantial performance and may discourage promising in the first place. The concern embodied in this alternative point of view could be somewhat met by allowing defective performance to give rise not to a claim in contract but in unjustified enrichment, thus preserving the sanctity of promise while allowing for an equitable solution to the free-riding problem. At least two of the jurisdictions considered below choose to employ unjustified enrichment to solve some of the problems created by defective performance.

The approach taken by particular legal systems to the issue of perfect or substantial performance often depends on whether or not the contract in question is one for the provision of goods or services: typically perfect performance tends to be required in sale of goods contracts, whereas substantial performance may be sufficient in contracts for services.86 Even where perfect performance is required, if the promisee elects to keep the benefit of substantial performance, then he usually has to pay something for the performance that has been tendered.

(a)  Contracts for services

Consider this troubling factual example, based upon the facts of a reported case:

A builder undertakes building work under a lump sum contract87 which is entirely in conformity with the agreed contract, except that he uses a different type of mortar for the work than that agreed in the contract. The finished work therefore, though it is of a high quality and value, is nonetheless not in conformity with the terms of the contract. The customer refuses to pay anything for the work done.88

In Scotland, there is no doctrine of substantial performance such as prevails in English law. The approach taken by the courts has been to hold that material defects in performance deprive the contractor from suing for the price in contract: instead a claim may be made in unjustified enrichment

86For an analysis of the different approaches in sales of good contracts and services contracts, largely from a US perspective, see Rakoff, ‘The Implied Terms of Contracts’, pp. 203 ff.

87That is, one where the contract is for payment of a single sum in respect of all the work to be undertaken. If the contract provides for payment in stages for various portions of the work, then payment will be due for all stages of the work completed properly, even if work done under one or more of the other stages is defective.

88The facts are from the Scottish case Steel v. Young 1907 SC 360.

for the value of the work conferred,89 a somewhat controversial approach which some might argue undermines the sanctity of the contract.90 On the other hand, if the defect in performance is classified as immaterial, then an action for the price may be maintained, subject to a deduction (though how such deduction is to be calculated, has not been definitely settled91), which is in effect a substantial performance position though not referred to in Scots law as such. The decision of the Scottish court on the facts of the example above was that the deviation was material because it could only be remedied by demolishing the works and starting again, and the builder’s claim in contract for the price was therefore rejected. That seems a not entirely satisfactory way of assessing material deviation, as it does not compare disparity between the work done and the work contracted for (as one might expect) but rather the ease of correction of the defect. But many defects may be hard to cure even if different in only trivial respects from the contract specification: does that mean they must be material defects?

In German law, work is free of material defects if it is of the agreed quality.92 If the quality has not been agreed, then work is not materially defective so long as it is suitable for the use envisaged in the contract, or else it is suitable for the customary use to which such work is put and is of a quality that is customary in works of the same type,93 it being further stated in the BGB that it is ‘equivalent to a material defect if the contractor produces a work that is different from the work ordered or too small an amount of the work’.94 So, on the basis either of the BGB’s requirement that work done be of the ‘agreed quality’, or else that it not be ‘different from the work ordered’, the example given above would also likely result in the same determination as that made by the Scottish court, that being that the work done was materially defective, albeit for a different reason.

89Ramsay v. Brand (1898) 25 R 1212, (1898) 35 SLR 927. It was also said in the case that the customer may instead reject the substantially defective work done and ask the builder to remove it, though such an entitlement may be subject to equitable control by the courts (if, for instance, costs of removal would be inordinate). One must also consider the possible role of an architect in all of this: if an architect employed by the customer has approved work done as it is completed, this might very well negate any right of the customer to reject work later found to be defective.

90Evidently, such a claim in unjustified enrichment cannot be maintained if the party to whom performance is to be rendered is seeking to enforce perfect performance through an order of specific implement. If such an order were granted, the obligation to tender full payment of the price would have to be met by the customer.

91A debate exists as to whether the deduction should represent the difference in value of the work done from that contracted for, or the cost of cure of the defect.

92§633(2) BGB. 93 Ibid. 94 Ibid.

Various rights are given by German law to the customer in such a case of materially defective performance: it may demand cure; it may remedy the defect itself and demand reimbursement for the work done; it may withdraw from the contract or reduce the payment due; or it may demand damages.95 Note that it is not permitted simply to refuse to pay, leaving the contractor to seek some remedy in unjustified enrichment. The German approach to the case of the materially defective performance of a builder thus preserves a contractual solution to the problem: if the client wishes to keep the benefit of the defective work it must pay a reduced price for it, such reduction being computed on a difference in value basis.96

In English law, there is a reasonably established line of authority for the existence of a doctrine of substantial completion,97 but this has been criticised in leading commentaries on the law as unnecessary, given the existence of the concept of ‘entire’ obligations.98 Under English law, an obligation in a contract may be intended to be entire, that is, perfect performance of the obligation may be stipulated as a pre-requisite for payment being due in respect of it; on the other hand, if the obligation is not intended to be entire, then a claim may be allowed in respect of it even if it has not been performed exactly according to its terms. In other words, so the criticism goes, the proper way to approach such matters ought to be by way of judicial interpretation as to whether or not an obligation is entire, rather than by recognising a generally applicable doctrine of substantial performance. Despite this criticism, there is authority for the view that, while the builder who abandons a lump sum contract gets nothing,99 the builder who substantially performs (this being a matter of fact) is entitled to recover the price subject to a deduction for the cost of cure.100 This is a similar position to the Scottish one, save that in Scotland even the builder whose work is materially defective still gets something under unjustified enrichment, whereas the English builder does not. The English position on this latter point is more in keeping with the sanctity of the contractual promises undertaken by the parties, acts as a spur to proper performance

v.Tower Hamlets LBC [1989] ICR 493, 499; Williams v. Roffey [1991] 1 QB 1, 8–10, 17.

 98 See criticism in Peel, Treitel on Contract, para. 17–039; Beale, Chitty on Contracts, paras.

21–032–21–033.

  99 Sumpter v. Hedges [1898] 1 QB 673.

100Dakin v. Lee [1916] 1 KB 566; Hoenig v. Isaacs [1952] 2 All ER 176; Kiely & Sons v. Medcraft

(1965) 109 SJ 829; Bolton v. Mahadeva [1972] 1 WLR 1009.

by the builder, and discourages builders from simply throwing up ­contracts if they perceive that more profitable work can be undertaken elsewhere. But, in defence of the Scots position, it might be said to possess the merit of providing an equitable solution in cases where correcting defective performance might be prohibitively expensive, and ensures that a customer does not take the benefit of work conferred for nothing. An ideal solution might perhaps be the middle ground of providing a more limited right to unjustified enrichment, available only in some cases (for instance, where cost of cure would be prohibitive but where work undertaken by a builder acting in good faith has conferred more than trivial value on the customer).

The Louisiana Civil Code provides that contracts may be dissolved for non-performance,101 but adds a substantial performance caveat which stipulates that the right to dissolution does not apply where the debtor has rendered a substantial part of the performance and the part not rendered does not substantially impair the interest of the creditor.102 If, therefore, a performance had been substantially performed, the party tendering such performance would still be entitled to claim the price, although a counterclaim for damages would be maintainable by the other party in respect of the losses caused by the defective performance.

The South African courts have adopted a similar view to the Scottish courts: in BK Tooling (Edms) Bpk. v. Scope Precision Engineering (Edms) Bpk.103 the Appellate Division held that, where a contract cannot be cancelled on account of breach (because the breach does not go ‘to the root of the contract’),104 a contractual action for a reduced price lies; on the other hand, if the contract is terminated for breach, an action lies in unjustified enrichment for the value of any performance which cannot be restored to the innocent party.

The DCFR provides a simple and unitary solution to the problem of the value due for non-conforming performance in contracts in its general part. In Article III.-3:601, it is provided that a ‘creditor who accepts a performance not conforming to the terms regulating the obligation may reduce the price’, the reduction reflecting, as in German law, the difference of value between what was contracted for and what was received. There is a further provision, in the section on construction contracts, requiring

101 CC Art. 2013. 102 CC Art. 2014. 103 1979 (1) SA 391 (A).

104As to breaches going ‘to the root of the contract’, see Oatarian Properties (Pty) Ltd v.

Maroun 1973 (3) SA 779 (A), and Elgin Brown & Hamer (Pty) Ltd v. Industrial Machinery Suppliers (Pty) Ltd 1993 (3) SA 424 (A).