In an important category of disputes over failure of performance, one party asserts the right to payment on the ground that he has completed his performance, while the other party refuses to pay on the ground that there is an uncured material failure of performance.…In such cases it is common to state the issue…in terms of whether there has been substantial performance.…If there has been substantial although not full performance, the building contractor has a claim for the unpaid balance and the owner has a claim only for damages. If there has not been substantial performance, the building contractor has no claim for the unpaid balance, although he may have a claim in restitution.
The contest here is between the one who claims discharge by the other’s material breach and the one who asserts there has been substantial performance. What constitutes substantial performance is a question of fact, as illustrated in Substantial Performance; Conditions Precedent , TA Operating Corp. v. Solar Applications Engineering, Inc. The doctrine has no applicability where the breaching party willfully failed to follow the contract, as where a plumber substitutes a different faucet for the one ordered; installation of the incorrect faucet is a breach, even if it is of equal or greater value than the one ordered.
Under the UCC, there is no such thing as substantial performance. Section 2-601 requires that the goods delivered according to the contract be the exact things ordered—that there be a perfect tender (unless the parties agree otherwise).