SPECIFIC PERFORMANCE OF CONTRACTS

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This article is written by Ishita Jain of 2^nd year of B.A LLB (Hons.) of University Institute of Legal Studies, Panjab University, an intern under Legal Vidhiya

ABSTRACT

Contracts are agreements enforceable by law. The parties to a contract enter into an agreement to either do or forbear from doing anything as per the terms and conditions of the contractual agreement. Therefore, parties are under an obligation to fulfil their part of the promise. However, in certain cases the parties breach their contractual obligations and do not perform their part of the promise. In such cases, the other party can also claim relief under the Specific Relief Act, 1963 which provides remedies in cases where a person’s civil or contractual rights have been violated against.

The relief provided in such cases where the contract is breached, is called specific performance of the contract. In this article we will discuss as to how, when and under what circumstances can this relief be provided to the innocent parties in a contract.

KEYWORDS: Specific Relief Act, Specific Performance, Readiness and Willingness, Substituted performance, Other Reliefs

INTRODUCTION

Specific Performance of a contract is a relief which is provided by law, when one party to a contract breaches his contractual obligations, whereby the court renders that party to fulfil his part of the promise as per the stated terms and conditions of the contractual agreement. In every contract, the parties are endowed with their respective obligations towards the other which they have to perform as per the terms and conditions of the contract. If one party fails to perform their obligation, then other party can either approach the court to enforce the performance of the contract or can be satisfied with the non-performance of the contract. Therefore, it is on the parties to decide whether to enforce the specific performance or not.

In order to enforce the specific performance of a contract it is important that the essentials of a valid contract are fulfilled, it is enforceable by law, not influenced by factors like fraud, mistake, coercion etc. and government contracts fulfil the criteria of Article 299 of the Constitution. However, if any of these are flouted against then the defendant can avoid the claim of specific performance through section 9 of the Specific Relief Act. Also, specific performance can be enforced against the parties to a contract and not a third party, therefore privity of contract is of vital importance. A suit for specific performance can be brought within three years from the date fixed for performance of contract or when the other party refuses the performance of their part.

SPECIFIC PERFORMANCE OF CONTRACT

Section 10 of the Specific Relief Act states that the court may order the relief of specific performance subject to the provisions contained in section 11(2), section 14 and section 16. Prior to the amendment act, it was within the court’s discretion whether to enforce specific performance of contract or to award compensation to the party. However, with the Amendment Act of 2018, the courts discretion was reduced and granting of specific performance became the general rule, except in cases falling in the limited grounds of:

Section 11(2) – It states that if a trustee enters into a contractual agreement in excess of his powers or in breach of trust, then such contracts cannot be specifically enforced.
Section 14 – It states the types of contracts in which specific performance is not granted. These include-
Contracts in which substituted performance is obtained
Contracts involving performance of a continuous duty which the courts cannot supervise.

For instance, paying someone in instalments or performing a task in a particular way, or anything which requires constant supervision of the court are not granted the decree of specific performance.

Contracts based on personal qualifications of the parties.

Instances where the contract involves the skills of the parties cannot be specifically enforced. For example, a contract with a musician to be part of a concert or an artist to paint something involve their personal skills and therefore they cannot be specifically enforced.

Contract which is determinable in nature.

Such contracts include terms and conditions under which either of the parties can terminate the contract wilfully or due to the happening or non-happening of an uncertain future event on which the contract depends.

Section 16- This section states those persons who cannot claim the relief of specific performance in instances where the person:
Has obtained substituted performance of contract
Is incapable to perform, violates any essential term of the contract, acts in fraud or in variance with the relation bound to be established as part of contract.

For instance, an insolvent, bankrupt or someone who enters in a contract through phishing etc, cannot obtain the decree of specific performance.

Fails to prove his readiness and willingness to perform his part of the contract.

READINESS AND WILLINGNESS

In order to get a decree of specific performance the plaintiff has to prove his readiness and willingness to perform his part of the contract. Readiness refers to the party’s financial capacity to perform and willingness means their wish and desire to perform their part of the promise or their conduct.

In the case of Vijay Kumar vs Om Prakash[1], the court stated that the readiness and willingness should be continuous throughout the performance of the contract. The court while granting specific performance takes into account the conduct of the parties and then determines whether they were ready and willing to perform their part or not. Also, in cases where time is an essential element of the contract, then if the plaintiff does not fulfil his part on time or is not endowed with the proper means to accomplish his part of the contract, the court would question his readiness and willingness to perform the contract and may refuse the decree of specific performance of contract.

SUBSTITUTED PERFORMANCE

Section 20 states that when parties enter into a contract, they are endowed with an obligation to perform their part of the promise, however when one party fails to perform their part the other party has the option of substituting the performance of the contract from a third party and subsequently recover the cost from the part that commits the breach.

In order to get substituted performance, the innocent party has to give a notice of minimum thirty days to the defaulting party, asking for the performance of the contract. If the party still fails in the performance of their part, then the other party can take substituted performance from a third party. Also, when a party has taken substituted performance from a third party then they cannot sue the defaulting party for specific performance but can claim compensation for the breach of the contract.

SPECIFIC PERFORMANCE OF PART OF CONTRACT

It is stated under Section 12(1), that as a general rule the court shall not grant the specific performance of a part of contract. However, sometimes the circumstances are such that the contract cannot be performed in its totality, in such cases the court may grant the relief of specific performance of a part of contract depending upon the proportion of the unperformed part and the compensation in terms of money. These exceptions have been stated as under:

Section 12(2)- It states that in cases where the party is unable to perform a small proportion of the contract and the unperformed part can be compensated for, then the court may grant the specific performance of the part which can be performed and compensation for the rest. Also, the inability of the parties should be a result of something unforeseen like a natural calamity etc and not their own neglect.
Section 12(3)- It deals with situations where the part left unperformed forms a major part of the contract. The court grants specific performance based on the fact whether compensation for the unperformed part can be made or not.
If the unperformed part can be compensated for in terms of money, then the court may order specific performance of the rest and the party seeking relief must pay their due consideration reduced by the compensation for the unperformed part.
If the unperformed part cannot be compensated in terms money, then the party claiming for specific performance is to pay his whole consideration without any type of reduction.

In the case of Sardar Singh vs. Krishna Devi,[2]there were two brothers, who were co-owners of the same property. One of the brothers sold off their joint property to a third person. The court held that in this case the third party would get only half of the share of the house i.e., of the brother who sold the property.

Section 12(4)– If the part for which the specific performance is sought after is aloof from another part of the same contract which cannot be specifically performed, then also, the court can grant specific performance of a part of the contract which can be performed.

SPECIFIC PERFORMANCE IN REALTION WITH PURCHASER OR LESSEE

Section 13 of the Specific Relief Act states that when a person indulges in a contract to sell or let property but has no title or an imperfect title to it, then the person who purchases such property is endowed with certain rights which he can enforce against the former. However, if the purchaser or lessee is well aware of the disputed title of the vendor or lessor, then they cannot claim for the specific performance of the contract. Section 13 deals with such types of contracts in which, the parties while entering into a contract are devoid of the resources to fulfil their obligation but subsequently are endowed with the resources, therefore, they are bound to perform their part.

The purchaser or lessee can compel the vendor or lessor to make good an interest, that they acquire subsequent to the formation of contract.
If some third-party validation is required for any concurrence or conveyance and they are bound to concur or convey at the request of the vendor/lessor, then the purchaser/lessee can compel the vendor/lessor to get such validation.
Instances where the vender purports to sell an unencumbered property but the same is under a mortgage, however, the vendor can redeem it, then the purchaser can compel him to recover the property from the mortgage.
If the vendor sues the purchaser for specific performance, but his case is dismissed on the grounds of an imperfect title, then the purchaser can recover his deposit and interest if any from the vendor.

PERSONS ENTITLED TO CLAIM SPECIFIC PERFORMANCE

As a general rule, only the parties to a contract can claim for the specific performance of the contract. However, Section 15, states that there are certain persons entitled to claim specific performance along with the parties to a contract. These include principal or representative-in-interest i.e., assignee of a right, remainderman i.e., the person entitled to inherit the property of the owner, reversioner, newly amalgamated company etc.

In the case of T.M Balakrishna Mudaliar vs. M. Satyanarayan Rao[3], the court held that an assignee’s title is in line with the meaning of representative-in-interest as stated under section 15(b), thereby his claim of specific performance is valid.

AGAINST WHOM SPECIFIC PERFORMANCE CAN BE ENFORCED

A contract can be specifically enforced against either party, any person claiming under him by title, the limited liability partnership which results out of an amalgamation, a new amalgamated company etc.

OTHER RELIEFS

There are certain reliefs that the parties can claim along with the specific performance of the contract. They include the following:

Compensation– Section 21 states that, along with a claim for specific performance of contract, the plaintiff can also claim for compensation for the breach of performance by the other party. So, if the contract is breached, but specific performance cannot be granted, the court may award compensation to the plaintiff. Also, there are instances where on the breach of a contract specific performance is granted but the circumstances of the case are such that it is not a sufficient relief, then the court may award compensation in addition to specific performance of the contract.
Relief for possession, partition and refund of money– Section 22 states that a plaintiff should include any relief which he may be entitled to such as possession, refund of money etc. in his plaint, along with his claim for specific performance. It helps to avoid multiplicity of proceedings in case the claim for specific performance is not granted.
Liquidated damages– As mentioned in Section 23, in some contracts, the parties state a stipulated sum of money to be paid on the breach of the contract and the defaulting party is ready to pay the same, then the court has to decide whether the amount mentioned is for the purpose of attaining performance or as an option of paying money in exchange of specific performance. Such some is mentioned in the contracts as security to ensure that the parties perform their respective obligations created by the contract. Therefore, the contract would be specifically enforced, if the court is satisfied that the sum named was only for securing the specific performance of the contract.
Bar of suit for compensation– Section 24 states that if a suit claiming for specific performance is dismissed by the court, then an alternative suit for compensation for the breach cannot be filed. However, the party can claim any other relief to which they are entitled. The parties are advised to seek all the alternative reliefs such as compensation for the breach etc, in the same suit in which compensation is sought after, so as to reduce the multiplicity of proceedings.

CONCLUSION

Contracts are agreements enforceable by law, therefore, if the parties do not fulfil their promise against the other party, then the later can file a suit for claiming specific performance of the contract. The decree of specific performance indulges the defendant to fulfil their part of the promise and to compensate the other party for the breach of the contract. It is an equitable relief granted by the court on the satisfaction of certain essentials.

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