If a contractor substantially performs, under what condition can the buyer withhold payment?

When a contractor substantially performs their obligations under a contract, they are entitled to payment, but the buyer retains some rights to withhold payment under certain circumstances. The correct answer reflects that the buyer can withhold payment to cover damages arising from an immaterial breach.

In contract law, a substantial performance means that the contractor has fulfilled enough of their contractual duties that they are entitled to payment, despite having made minor mistakes or omissions. An immaterial breach refers to a situation where the breach does not significantly affect the overall purpose or outcome of the contract. If the contractor's performance is substantially complete, the buyer cannot withhold payment simply due to minor issues.

Withholding payment to address damages resulting from an immaterial breach is justified because it ensures that the buyer only pays for the value received. For example, if the contractor used slightly different materials or made small errors that do not greatly alter the project's overall quality or purpose, the buyer is justified in seeking a reduction in payment to account for these minor issues.

This approach balances the contractor's right to compensation for their substantial efforts with the buyer's right to receive what they contracted for, ensuring that any minor deficiencies do not lead to a complete loss of payment.