This article has been written by Albinita Pradhan, pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
Introduction
Performance of contract means where both parties are legally bound to fulfil their obligation/duties created under the contract terms. The parties are bound to fulfil their reciprocal promises in the contract. When either of the parties does not fulfil its obligations as per the terms of the contract then the party to whom the breach is so caused shall sue for specific performance of a contract. It is an equitable relief given by the court in the form of an award for the completion of the performance of a contract. This article discusses specific performance under contract law thereby focusing on other related aspects of the same.
Contracts that are specifically enforced
Cases of any contract at the discretion of the court
When an act is agreed to be performed between the parties and it is not performed, then the actual damage caused to the party purchasing cannot be ascertained. The party purchasing can compel specifically to perform the act. When compensation is paid in damages for non-performance of the act agreed to be done then the decree for specific performance cannot be made. But compensation paid in damages cannot be compensated for contracts relating to the transfer of immovable property and in the case of transfer of movable property can be sought before the court for specific performance of a contract, provided that the goods are of unusual beauty, rarity and distinction and of special value to the party suing by reason of personal, family association or the like.
For example, D agrees to purchase and E agrees to sell a patent. D may compel E specifically to perform this said contract as there exists no standard for ascertaining the actual damages which would be caused by E’s non-performance.
Let’s take into consideration that Y contracts to sell 100 shares of a Company to Z. Y refuses to sell a part of it. Z may compel Y to specifically perform this contract as it would not always be available in the market.
Contracts connected with trusts
The Court may order for specific performance of contract only when the contracts agreed to be performed is for performance of a trust provided the trustee does not perform a breach of contract and does not go beyond the powers conferred in the contract.
Let’s take for example that M entered into a contract with N for distributing the assets of the trust to M’s son and grandson. N misappropriated the assets of the trust and transferred all the assets to his only son. Here the law creates an obligation on N to retransfer the assets of the trust to M’s son and grandson and M may enforce specific performance of the contract.
Part of the contracts left unperformed is small or large
No specific performance of the contract shall be directed by the court except under the following cases:
- When part of the contract left unperformed is small:
Section 12(2) of the Specific Relief Act,1963 explains that when the whole part of a contract is left unperformed by the party to an agreement and bears only a small proportion of the whole value, can be estimated in compensation in money and the court may direct specific performance of contract at the suit of either of the parties and award compensation in money to the party to whom damage is so caused.
- When part of the contract left unperformed is large:
Section 12(3) of the Specific Relief Act, 1963 explains that when a party to a contract is unable to perform the whole or part of it and where compensation in money can be estimated or not, the party filing the suit is not entitled to obtain the decree for specific performance of contract provided that:
- The party in default agrees to perform his part of the contract left unperformed by paying compensation in money for the whole of the contract reduced by the consideration amount for the part left unperformed; or
- Has agreed to pay the compensation in money without any abatement; or
- Through the default, the defendant relinquishes all the claims of performance of part of the contract and compensation in money for the loss/damages sustained by him, in either of the cases.
- When a contract consists of separate and independent parts:
Section 12(4) of the Specific Relief Act, 1963 states that when a contract consists of a separate and independent part from another part of the same contract which cannot be specifically performed, then the specific performance of the former contract can be enforced by the court.
- The contract having imperfect title:
Section 13 of the Specific Relief Act, 1963 explains the rights of purchasers who have imperfect titles in immovable property. The following are the rights of the purchaser:
- When the landlord acquires any interest in the property.
- When concurrence or conveyance by another person(s) is necessary to validate the title.
- When mortgaged property is sold to a vendor or is left with encumbrances or charges whatsoever.
- When a suit is filed by a vendor for specific performance of the contract and is dismissed on grounds of imperfect title to the property.
By whom the specific performance can be obtained
The specific performance of a contract can be obtained by any party to suit its representative-in-interest or the principal.
Against whom contracts can be specifically enforced
Specific performance of a contract can be enforced against:
- Either of the parties to a contract.
- When the contract is made by fraud, mistake of fact or misrepresentation and the terms that were agreed between the parties have not been mentioned in the contract.
- When the seller knows that he has no title to the property contracted to sell.
- When a time is given to the seller to clear the doubts of the purchaser with respect to the title to the property he contracted to sell.
- Any person who has no notice of the original contract and pays money in good faith.
- Prior to entering into a contract any person known to the plaintiff claims under a title, might have been displaced by the defendant.
- The new company arises after the amalgamation of two companies.
- To the company, when the promoters enter into a contract warranted by the terms of its incorporation.
Discretion and powers of the court
Provisions regarding the discretion and powers of the court in granting or rejecting the specific performance of contract have been explained in sections 20 to 25 of the Specific Relief Act, 1963 as under:
1. Jurisdiction to decree specific performance:
The power of the court is discretionary and not arbitrary but sound and reasonably guided by judicial principles and capable of correction by a court of appeal. Below cases are the circumstances under which the court may exercise discretion not to decree specific performance:
1. Circumstances under which the defendant was misrepresented by the plaintiff or a fraud was committed on his part.
2. When a defendant enters into a contract with the plaintiff and the contract is silent which he did not foresee and where specific performance is refused by the plaintiff for its non-performance.
c. Circumstances under which the defendant refuses to enforce specific performances.
Below cases are the circumstances under which the court may exercise to decree specific performance:
a. When a substantial act has been performed by the plaintiff or he has suffered losses in consequences of a contract capable of specific performance.
b. When the specific performance of the contract shall not be refused by the court at the instance of either of the parties merely on the ground that the contract is not enforceable.
2. Award compensation:
The amount of compensation shall be awarded by the court by following the principles specified in Section 73 of the Indian Contract Act, 1872 and the compensation will not be awarded unless the plaintiff claims for its breach. Provided that the court may at any stage of the proceedings allow the plaintiff to add a claim for breach if the plaintiff has not claimed for it.
3. Specific performance of a contract for the transfer of immovable property:
The court has the power to grant relief to which the plaintiff may be entitled unless it has been specifically claimed by the plaintiff.
4. Liquidation of damages:
When the amount to be paid for the breach has been mentioned in the terms of the contract, then it does bar the court to decree specific performance.
In the case of Mukesh Singh and Ors. vs. Saurabh Chaudhary and Ors (2012), it was stated that there was an agreement to sell the property by the plaintiff to the defendant and the agreement to sell was also registered for consideration of Rs. 35 lakhs. Rs. 10,00,000/- was paid to the plaintiff by the defendant as an advance amount for the property which shall be adjusted in the total agreed consideration. After the cross-examination of both the plaintiff and the defendant and their witnesses it was observed by the court that the defendant is ready to return the advance amount with interest to the plaintiff and plaintiff’s willingness to perform their part of the contract was proved by documentary evidence. Once it is proved by the court that the registered agreement was executed lawfully by the defendant and signed by the defendant’s witness, the plaintiff cannot be barred from filing a suit against the defendant for the specific performance of the contract and the court has not committed any error of law from decreeing the suit for specific performance of a contract.
5. Compensation for breach after the dismissal of suit:
The plaintiff’s right to sue for compensation for a breach shall be barred after the dismissal of the suit and not for any other relief. To invoke the clauses of specific performance of a contract, the injured party must prove before the court that the agreement he entered into was executed lawfully and compensation in money is not sufficient. The clauses of the specific performance of the contract are a relief for either of the injured party when compensation in money is not sufficient.
Conclusion
When monetary compensation alone would not be sufficient, a specific performance clause is meant to safeguard both parties to a contract or agreement. This could entail the purchase or sale of distinctive goods like real estate, works of art, or other priceless items. Generally speaking, a specific performance clause is enforceable if it is fair to both parties and the injured party can demonstrate that the defendant breached their obligations while upholding their own. Additionally, the injured party must show that monetary compensation is insufficient.
References
- https://www.investopedia.com/specific-performance-clause-5536830.
- https://districts.ecourts.gov.in/sites/default/files/the%20contours%20of%20specific%20performance%202.pdf.
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