In this article, Sanjana Tripathy discusses the specific performance of a contract and what contracts can be specifically enforced.

WHAT IS A CONTRACT?

A contract is a written or oral agreement which is legally enforceable entered into for a particular purpose by two or more parties where each party assumes a legal obligation that must be fulfilled. (See Here)

Section 10 of Indian Contract Act, 1872 states that an agreement becomes a contract if it is entered into with the free consent of parties, for a lawful consideration, for a lawful object and is not void.

The elements of a valid contract are as follows:-(See Here)

  1. Offer

The very first element of a contract is offer. Without an offer, there can be no contract. It is important for a party to make an offer to another party so that it would legally capable to enter into a contract. When an offer is made, the party would know what is being offered and what the other party wants in return.

2. Acceptance

After an offer is made, there must be acceptance of that offer from the other party. The acceptance would mean that the other party is well versed with the rules and regulations of the offer. Acceptance can be made in writing or orally.

3. Consideration

This is also a very important element in a contract. Consideration means that the other party would want something in exchange for doing something or abstaining from doing something at the promisor’s desire. It simply means an exchange of one valuable thing for another.

4. Legal Object

The fourth element of a contract is its objective. The purpose for which a contract is entered into must be legal otherwise the contract would be void.

5. Capacity to Contract  

This is one of the most important elements of a contract. The parties must be legally capable of entering into a contract. According to Section 11 of Indian Contract Act, 1872, parties must-

  1. Be of a sound mind;
  2. Have attained the age of majority;
  3. Have not been disqualified from entering into a contract by any law to enter into a contract.

6. Mutuality of obligations

This element specifies that all parties to the contract have to perform all their obligations. A contract having one-sided arrangements are declared null and void due to lack of mutuality of obligations. (See Here)

WHAT IS SPECIFIC PERFORMANCE OF A CONTRACT?

Parties to a contract must perform their contractual obligations otherwise they can be sued for non-performance. Specific performance is a discretionary order made by a court wherein a party to a contract must perform a specific action as outlined in an existent contract. Specific performance can refer to any kind of forced action, though it is usually enforced so as to complete a transaction that had been previously agreed to. (See Here)

One of the reasons the court orders specific performance is because in some contracts damages cannot be remedied by money or where the true amount of damages is not clear. The most common example of such contract is a contract for a sale of property, for instance, mere monetary damages may not remedy the purchaser’s situation. (See Here)

Specific Performance and Replevin

Replevin means ‘claim and delivery’. It refers to an action taken by a court in which an actual property is transferred to the plaintiff in a dispute. Replevin and Specific Performance are similar and are used interchangeably. The court may in some cases order specific performance in the form of replevin. (See Here)

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Specific Performance v Injunction

In an order of injunction, a person is prohibited from doing something whereas, in an order for specific performance, a person is ordered to perform his contractual obligations. Both are remedies for breach of contract but their purposes are different.

Specific Performance v Liquidated Damages (See Here)

Specific Performance

Liquidated Damages

Legal action brought into a court compelling a party to carry out the terms of a contract. Amount predetermined as total compensation by the parties to an agreement which an injured party should get if other party breaches a part of the contract.
The court’s jurisdiction can only be attracted if the breach in a real estate contract is such that it cannot be compensated by money. In some building contracts, parties foresee a breach and point out the amount of damages that is to be paid for such breach.
Contracts cannot be specifically enforced for personal services nor can it be enforced on an illegal contract, an ambiguous contract or a contract where there is an inadequate consideration. For a liquidated damage clause to be enforceable, an amount must be set forth having a relationship with the actual damages as estimated by the parties otherwise the court will treat the amount as a penalty for failure to perform the contract.

WHO CAN OBTAIN SPECIFIC PERFORMANCE?

Section 15 of the Specific Relief Act, 1963 provides for those persons who can obtain specific performance of a contract. Those are as follows:-

  1. Any party to a suit;
  2. Representative in interest or principal of any party;
  3. If a contract is a settlement of marriage or a compromise of doubtful rights between members of the same family, any beneficiary entitled thereunder;
  4. If a tenant enters into a contract for life in due exercise of a power, the remainderman;
  5. A reversioner in possession, if an agreement is a covenant entered into with his predecessor in title and the reversioner is entitled to the benefit of such covenant;
  6. A reversioner in remainder, if an agreement is a covenant and the reversioner is entitled to the benefit and will sustain material injury if there is a breach of contract;
  7. If a company has entered into an amalgamation with another company through a contract, the new company which arises out of such amalgamation;
  8. If the promoters of a company entered into a contract before its incorporation for purposes of the company and such contract is warranted by the terms of the incorporation, the company provided that the company accepted the contract and communicated such acceptance to the other party of the contract.  

AGAINST WHOM CAN SPECIFIC PERFORMANCE BE ENFORCED?

Section 19 of the Specific Relief Act, 1963, provides for those persons against whom specific performance can be enforced. Those are as follows:-

  1. Either party to a suit;
  2. Any other person claiming under him by a title arising subsequently to the contract except a transferee for value who has paid his money in good faith and without notice of original contract;
  3. If a company has entered into an amalgamation with another company through a contract, the new company which arises out of such amalgamation;
  4. If the promoters of a company entered into a contract before its incorporation for purposes of the company and such contract is warranted by the terms of the incorporation, the company provided that the company accepted the contract and communicated such acceptance to the other party of the contract;
  5. Any person claiming under a title which, though prior to the contract and known to the plaintiff might have been displaced by the defendant.

WHEN CAN A COURT ENFORCE SPECIFIC PERFORMANCE AND WHAT CONTRACTS ARE SPECIFICALLY ENFORCED?

Section 10 of the Specific Relief Act, 1963 states that a court may order specific performance of a contract under the following circumstances:-

  1. When there is no standard for ascertaining the actual damages for non-performance of an obligation given in the contract;
  2. Non-performance of an obligation of a contract cannot be compensated with money.

Section 14(3) of Specific Relief Act, 1963 provides for those contracts which can be specifically enforced by a court:-

  1. Execution of a mortgage or furnishing any other security for securing repayment of any loan which the borrower is not willing to repay provided that if only part of a loan is advanced;
  2. Taking up and paying for any debentures of a company;
  3. Execution of formal deed of partnership, if the parties have entered into a partnership;
  4. Purchasing a share of a partner of a firm;
  5. If a suit is for enforcement of a contract for construction of a building or any other work on a land provided:-
  1. The building or other work is sufficiently described in the contract so that the court is able to determine the nature of the building;
  2. Plaintiff has a substantial interest in the performance of a contract. The interest must be such that compensation in terms of money for non-performance of the contract is not an adequate relief;
  3. Defendant has the possession of the land in which the building is to be constructed or other work is to be executed.

CASE LAWS

In 2016, the Supreme Court in Robin Ramjibhai Patel v. Anandibai Rama @ Rajaram Pawar & Ors. [SLP (C) No. 31087 of 2014] reiterated that when a plaintiff wants to implead certain persons as defendants in a suit for specific performance on the ground that they may be adversely affected by the outcome of the suit, then interest of justice also requires allowing such a prayer for impleadment so that the persons likely to be affected are aware of the proceedings and may take appropriate defence as suited to their vendors.

The court also observed that the necessary parties in a suit for specific performance of a contract for sale are not only parties to the contract or their legal representatives, but also a person who had purchased the contracted property from the vendor. (See Here)

In 2017, the Kerala High Court held that a plaintiff is entitled to specific performance of a contract only if he sticks to the original terms of the contract. If there is any variation in the terms of the contract even if it for the benefit of the defendant, the plaintiff will not be entitled to seek specific performance. (See Here)

IN 2018, the Supreme Court in Sucha Singh Sodhi v. Baldev Raj Walia (Civil Appeal No.  3777 of 2018) held that specific performance and permanent/temporary injunction cannot be claimed in one suit. This was held for the following reasons:-

  1. Specific performance and temporary/permanent injunction cannot be claimed in one suit as they are independent of each other.
  2. The cause of action to claim temporary/permanent injunction against the defendants from interfering in plaintiff’s possession over the suit premises accrues when defendant No.1 threatens the plaintiff to dispossess him from the suit premises or otherwise cause injury to the plaintiff in relation to the suit premises. It is governed by Order 39 Rule 1 (c) of the Code which deals with the grant of an injunction. The limitation to file such suit is three years from the date of obstruction caused by the defendant to the plaintiff.

On the other hand, the cause of action to file a suit for claiming specific performance arises from the date fixed for the performance or when the plaintiff has noticed the non-performance of the defendant. The limitation to file such suit is three years from such date.

  1. When both the reliefs/claims are not:-
  1. similar when the causes of action to sue are separate;
  2. when the necessary constituents to the respective causes of action for both the reliefs/claims are different;
  3. when both the reliefs/claims are governed by separate sections of the Limitation Act;

then it is impossible to claim both the reliefs together on one cause of action in the same suit.

Another issue arose whether, in absence of permission granted by the trial court at the time of withdrawing the previous suit in which permanent injunction was claimed, the plaintiff can file a fresh suit where specific performance will be claimed. The court held that it would consider the statement made by the plaintiff regarding withdrawal of suit and filing of a fresh suit and this statement would serve as a part of the order for the same. (See Here)

SPECIFIC RELIEF (AMENDMENT) BILL, 2017

Lok Sabha has passed a draft bill amending Specific Relief Act, 1963 known as Specific Relief (Amendment) Bill, 2017. One of the main features of this bill is that specific performance will be ordered compulsorily by the court instead of its discretionary power. Due to wide discretionary powers, a court often awards damages generally and award specific performance as an exception. The other features of this Bill are as follows:- (See Here)

  1. The concept of “Substituted Performance” is introduced. A party affected by the breach of contract has a choice to get the contract performed by an outsider, or by its own particular organization, at the cost of the contracting default party. The affected party must issue an earlier notice of thirty days to the other party communicating the same. This idea will be introduced in the Act by substituting Section 20. Another clarification is to be made is that a party by acquiring substituted execution relinquishes his entitlement to get specific performance through court.
  2. No need to plead readiness and willingness to perform contractual obligations.
  3. A new Schedule is sought to be introduced which will contain a list of activities named “Infrastructure Projects”. Such activities are in the sectors of transportation, energy, water & sanitation, communication and social & commercial infrastructure.
  4. No injunction to be granted against infrastructure projects.
  5. Special courts for infrastructure projects.
  6. Time limit of 12 months for disposal of a case.
  7. Power of court to engage experts.

Let’s see what benefits will this Bill bring.

REFERENCES

  1. The Specific Relief Act, 1963
  2. www.livelaw.in
  3. What is Specific Performance as ‘legal remedy’? https://smallbusiness.findlaw.com/business-contracts-forms/what-is-specific-performance-as-a-legal-remedy.html
  4. Specific Performance https://legaldictionary.net/specific-performance/
  5. Mutuality of Obligation https://contracts.uslegal.com/elements-of-a-contract/mutuality-of-obligation/
  6. Main Elements constituting a Valid Contract https://www.lawteacher.net/free-law-essays/contract-law/main-elements-constituting-a-valid-contract-contract-law-essay.php
  7. What is Contracts Law? https://hirealawyer.findlaw.com/choosing-the-right-lawyer/contracts-law.html

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