Specific Performance of contracts | Law of Contracts - CLAT PG PDF Download

Specific Performance of Contract

•  Specific performance is a legal remedy where the court orders a party to fulfill their contractual obligations. It is different from damages, which provide monetary compensation for breach of contract. 
•  Specific performance is considered a 'specific' remedy, while damages are a 'substitutive' remedy. 
•  This remedy is granted in exceptional cases where damages are inadequate, such as in contracts involving the transfer of immovable property. 
•  Even in cases where specific performance is typically granted, it is at the court's discretion. 
•  When seeking specific performance, the plaintiff must clearly claim this specific remedy. 
•  The limitation period for filing a suit for specific performance is three years from the date set for performance or from the date of refusal of performance if no date was set. 

 Defenses 

 Delay as a Ground of Defence under the Law of Contract 

•  In cases where a legal action is initiated within the allowed time frame (period of limitation), a delay in the process can lead to third parties gaining rights over the subject matter of the case. This delay can also result in a situation where a plea of waiver is applicable. 
•  When such circumstances arise, this delay can serve as a valid ground for defence in a lawsuit seeking specific performance of a contract related to the sale of immovable property. 
•  This principle is outlined in the Limitation Act of 1963, specifically under Article 34. 

 Specific Performance of Contracts under Section 10 of the Specific Relief Act, 1963 

•  According to  Section 10 of the Specific Relief Act, 1963  , specific performance of a contract may be enforced by the court under certain conditions. 
•  The court has the discretion to enforce specific performance when: 
•  There is no standard for measuring actual damages  caused by non-performance. 
•  Compensation in money would not be adequate  for the non-performance of the agreed act. 

 Explanation 

•  Breach of contract to transfer immovable property  is presumed to not be adequately relieved by monetary compensation. 
•  Breach of contract to transfer movable property  can be relieved by compensation, except in specific cases: 
•  Property is unique, of special value, or not easily obtainable. 
•  Property is held by the defendant as agent or trustee for the plaintiff. 

 There is a clear distinction between cases where specific performance is sought due to breach of contract terms and those where compensation would suffice. 

 When There Is No Standard for Determining Actual Damage 

•  This refers to situations where the plaintiff cannot accurately assess the extent of their loss. If the damage resulting from a breach of contract can be clearly measured, the remedy of specific performance is not an option for the plaintiff. 
•  For instance, if someone enters into a contract to buy a painting by a deceased artist, and this particular painting is unique in the market with an unmeasurable value, the buyer is entitled to receive that specific painting. 

 When Money Compensation Is Not Enough Relief 

•  Money compensation may not be sufficient in certain situations. 
•  Immovable Property:  When the contract involves immovable property (like land or buildings), money compensation might not be enough. 
•  Special Movable Property:  If the contract involves movable property that is not a common item in the market, such as unique or special goods, money compensation may fall short. 
•  Special Value to Plaintiff:  When the article holds special value or interest to the plaintiff, just giving money may not be adequate. 
•  Scarcity in Market:  If the article is rare or not easily available in the market, money compensation might not suffice. 
•  Agency or Trust:  When the defendant holds the property or goods as an agent or trustee for the plaintiff, money compensation may not be appropriate. 

 Example Case: 

•  In the case of  Ram Karan v Govind Lal  , a buyer agreed to buy agricultural land and paid the full price. However, the seller refused to complete the sale. The court decided that money compensation was not enough and ordered the seller to complete the sale. 

Agreement for Reconveyance or Repurchase 

•  An agreement to  repurchase property  that has been  sold  is commonly known as an  agreement for reconveyance  . 
•  Such agreements have been  held to be specifically enforceable  , meaning that the parties involved can be legally compelled to fulfill the terms of the agreement. 

 Delay 

 K.S. Vidyanandam v. Vairavan, Unreasonable delay by a plaintiff in performing his part of the contract operates as a bar to his obtaining specific performance, provided that- 

•  Time was originally the essential element of the contract; or 
•  It was made an essential element by a subsequent notice; or 
•  The delay has been so unreasonable and long that it amounts to abandonment of the contract. 

 The word "reasonable" has in law a prima facie meaning of reasonable in regard to those circumstances of which the person concerned is called upon to act reasonably knows or ought to know as to what was reasonable.

 Specific Performance of Contracts Connected with Trust Enforceable (Section 11) 

•  Specific performance of contracts related to trusts is enforceable under certain conditions. 
•  The court has the discretion to enforce specific performance when the agreed act involves the performance of a trust, either wholly or partially. 
•  However, contracts made by a trustee that exceed their powers or breach the terms of the trust cannot be specifically enforced. 

Specific Performance of Part of Contract (Section 12) 

 Section 12 of the contract law addresses the specific performance of part of a contract. Here are the key points:

•  General Rule:  The court typically does not direct the specific performance of part of a contract unless otherwise specified in this section. 
•  Small Unperformed Portion:  If a party cannot perform the entire contract, but the unperformed portion is minor in value and can be compensated with money, the court may order specific performance of the performed part and award compensation for the deficiency. 
•  Considerable Unperformed Portion:  If the unperformed part is significant and either can be compensated with money or cannot be compensated, the party cannot obtain a decree for specific performance. However, the court may direct the defaulting party to perform the part they can, provided the other party meets certain conditions. 
•  Conditions for Specific Performance:  The party seeking specific performance must pay the agreed consideration for the entire contract, minus the consideration for the unperformed part, or the full consideration without any deduction, and relinquish claims for the unperformed part and any compensation for the default. 
•  Independent Parts of Contract:  If a part of the contract can and should be specifically performed on its own, separate from another part that cannot be, the court may order specific performance of the former part. 
•  Unable to Perform:  A party is considered unable to perform their part if a portion of the contract's subject matter has ceased to exist by the time of performance. 
•  General Rule of Specific Performance:  A court generally will not compel specific performance of a contract unless the entire contract can be executed. This section deals with cases where specific performance may be granted with special conditions or restrictions. 
•  Capable of Performance:  The key issue is whether the contract can be executed in substance when part of it is not capable of performance. This provision can only be invoked when the contract terms allow for the segregation of interests and rights of the parties in the property. 
•  Illustration:  In a scenario where 'A' contracts to sell 'B' a piece of land measuring 100 acres, but 2 acres belong to a stranger who refuses to part with it, 'A' may be directed to convey 98 acres to 'B' and compensate for not conveying the 2 acres. 'B' may be compelled to pay the purchase money less the compensation for the deficiency. 

 Contracts Not Specifically Enforceable 

 According to  Section 14  of the Specific Relief Act, 1963, certain contracts cannot be specifically enforced. These include:

1.  Contracts with Adequate Money Compensation:  Contracts where monetary compensation is sufficient relief. 
2.  Contracts with Complex Details or Personal Factors:  Contracts with intricate details or dependent on personal qualities that make enforcement impractical. 
3.  Determinable Contracts:  Contracts that are inherently terminable. 
4.  Continuous Duty Contracts:  Contracts involving continuous duties that the court cannot supervise. 

 Additionally, contracts referring disputes to arbitration, except as per the Arbitration Act, 1940, cannot be specifically enforced. However, specific performance may be ordered in certain cases:

1.  Mortgage or Security Contracts:  Contracts for executing a mortgage or security for loan repayment under specific conditions. 
2.  Partnership Deed Execution:  Formal partnership deed execution when parties have started the business. 
3.  Share Purchase in a Firm:  Purchase of a partner's share in a firm. 
4.  Construction or Work Contracts:  Contracts for construction or work on land with specific conditions being met. 

 These conditions include precise contract description, substantial interest in performance, and possession of land by the defendant.

 Where Compensation in Money is an Adequate Relief: 

•  In situations where monetary compensation is deemed sufficient relief, the court typically refrains from ordering specific performance of the contract. This is because it is anticipated that the plaintiff will rely on the standard remedy for breach of contract, which is compensation. 
•  Examples of contracts where monetary compensation is considered adequate include: 
•  Contract of mortgage of immovable property:  In cases like  Rambai v. Khimji  , where the contract involves the mortgage of immovable property, the court may determine that monetary compensation is sufficient to address any breach. 
•  Contract of sale of goods:  Similarly, in contracts related to the sale of goods, as seen in cases like  Bharat v. Nisarali  , the court may find that monetary compensation adequately remedies any breach. 
•  Contract of repair of premises:  Contracts involving the repair of premises also fall into this category, where the court may not deem specific performance necessary and instead rely on monetary compensation to resolve the issue. 

 Contracts Involving Personal Skills or Detailed Terms 

•  Contracts that depend on personal qualifications or specific details can be problematic. Examples include: 
•  Contract for Performance in Concert:  In  Robinson Davison  case, the court ruled that a contract requiring the performance of a concert depended on the personal skill of the defendant's wife. Since she was ill, the court could not enforce specific performance of the contract. 
•  Construction Contracts:  Contracts involving construction work may face challenges if the detailed terms are not clearly explained. If the court cannot understand or enforce the specific terms, it may not be able to uphold the contract. 

 Contracts of Determinable Nature 

•  Definition:  A determinable contract is one that can be  revoked  or  terminated  by one party involved in the agreement. 
•  Example:  In a  partnership at will  , any partner has the right to  retire  by providing written notice to the other partners, thereby  dissolving  the firm. 

 Contracts Involving Continuous Duty Beyond Court Supervision 

•  Under the  Specific Relief Act of 1963  , there is no longer a three-year limit for continuous duties that courts cannot supervise. 
•  Examples of such contracts include  employee appointments for continuous service  and agreements to  execute a sale deed annually  . 
•  Central Bank v. Vyankatesh  case illustrates a contract where the defendant was required to execute a deed annually for 25 years, deemed  specifically unenforceable  . 

 Contract of Arbitration

 Definition:  A legal agreement where parties agree to resolve disputes through arbitration instead of court litigation.

 Specific Enforcement Exceptions: 

•  Mortgage or Security Contracts:  If a borrower is unwilling to repay a loan immediately, the court can enforce the contract to create a mortgage or provide other security. 
•  Debenture Purchase Contracts:  Contracts to purchase debentures issued by a company can be specifically enforced. 
•  Partnership Deed Contracts:  If a business is already operational, the court can enforce a contract to formalize a partnership deed at will. 
•  Construction and Work Contracts: Contracts for building construction or other work on land can be enforced if: 
  •  The contract terms are detailed, allowing the court to understand the specific building or work required. 
  •  The plaintiff has a significant interest in the contract's performance, and monetary compensation is inadequate. 
  •  The defendant has taken possession of part or all of the land as per the contract. 

 Exceptions to Specific Performance under Section 14(3) 

•  Specific performance may be enforced by the court in certain situations despite Section 14(1) of the Specific Relief Act. 
•  These exceptions are outlined in Section 14(3) and include: 

 Mortgages and Loans 

•  Enforcement of a contract to execute a mortgage or secure repayment of a loan is possible if the borrower is unwilling to repay the loan immediately. 
•  If only part of the loan has been advanced, the lender must be willing to provide the remaining amount as per the contract. 
•  This also applies to situations where the lender agrees to purchase and pay for debentures of a company. 

 Deeds of Partnership and Share Purchases 

•  Specific performance is allowed in cases involving the execution of a formal deed of partnership when the parties have already started conducting business together. 
•  This also applies to contracts for the purchase of a partner's share in a firm. 

 Construction Contracts and Land Work 

•  Contracts for the construction of buildings or other works on land can be enforced under specific conditions: 
  •  The contract must describe the building or work in precise terms that allow the court to determine the exact nature of the work. 
  •  The plaintiff must have a substantial interest in the performance of the contract, and monetary compensation for non-performance would not be adequate. 
  •  The defendant must have taken possession of the whole or part of the land for the construction or work as per the contract. 

 Case Reference: Executive Committee, State Warehousing Corporation v. Chandra Kiran Tyagi 

•  In this case, the Supreme Court ruled that contracts for personal services generally cannot be specifically enforced, with certain exceptions. 

 Person for or against whom contracts may be specifically enforced