CPA Exam — REG (Regulation)Business LawMedium
A client, 'Green Leaf Nurseries', contracts with 'AquaFlow Irrigation' to install a new irrigation system. The contract specifies a payment of $15,000 upon completion. AquaFlow completes the installation, but due to a minor, easily fixable calibration error, the system initially waters 5% more than intended. Green Leaf Nurseries refuses to pay, claiming a complete breach. AquaFlow sues for payment. What is the most likely outcome regarding AquaFlow's right to payment?
- AAquaFlow is entitled to no payment due to the breach of contract.
- BAquaFlow must completely re-install the system before demanding payment.
- CAquaFlow is entitled to the contract price less damages for the minor defect.
- DAquaFlow is entitled to full payment as the breach was minor.
Show answer & explanationAnswer & explanation
Correct answer: C. AquaFlow is entitled to the contract price less damages for the minor defect.
This scenario describes substantial performance, where a party has performed most of the contract obligations but with minor defects. The performing party is entitled to the contract price minus the cost to remedy the defects.
Why the other options are wrong
- A. No payment would only be appropriate for a material breach, which this is not.
- B. Re-installation is usually required only for a material breach or non-performance, not a minor defect.
- D. Full payment is not typically awarded if there are any defects, even minor ones, requiring remedy.
Substantial Performance (Contracts)
Occurs when a party performs nearly all of their contractual obligations, but with minor defects. The performing party is entitled to the contract price minus damages for the defects.
- Applies when the breach is not material.
- Allows the non-breaching party to recover damages for the minor defect.
- Prevents forfeiture of payment for significant work completed.
Memory trick: Performance is like baking: mostly done, just missing a sprinkle.