Article 1234: Substantial Performance in Good Faith

Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

The Article is grounded on evident fairness. The substantial performance in good faith by the obligor, both he and the obligee must be benefited. Since, however, there was still breach in the performance of the obligation by the obligor, the amount of damage suffered by the obligee must deducted from the benefit that the obligor seeks to recover.

It must be noted that there must first be "substantial performance in good faith." Substantial performance alone is not enought. It must have been under good faith. Good faith, on the other hand, is not enough, just the same. It must be along side with substantial performance.
Just a question: Is the deduction from the benefit to be recovered by the obligor based on the damages suffered by the obligee because of the breach considered "penalty" or may the obligee still demand damages aside from the deduction?

It is submitted that the obligee can demand damages no more because of the following reasons:

(1) This Article presupposes the acceptance of the obligee of the thing or the service despite its lack of completeness. Hence, the obligation is deemed to be complied with, as set forth by Article 1235.
(2) The compliance here is substantial and attended by good faith. One must not be penalized if he acted in good faith. Good faith is always a defense, as a general rule.

How do we define "substantial performance"?

The law did not define the meaning of the term and so, it is up to the Supreme Court to decide whether or not there is substantial compliance on a case-to-case basis. Nevertheless, the Court in one case held for the record that "substantial compliance" is a performance according to the fair intent of the contract.

Thus, if I have the obligation to deliver 100 apples and without my fault, I am only able to deliver 99 apples, there is substantial compliance.