Specific Performance of Contracts

Abhinav Gaur, Research Associate

Every contract broaches an obligation upon each party to such contract, to either do or not to do something. Upon breach of such obligation created by a promise to an act/omission under the agreed terms of contract, is raised a right upon the Promisee to get compensated for losses incurred due to such breach by the Promisor and simultaneously is raised another obligation upon the Promisor to compensate for such losses.

Here comes the role of the Specific Performance of Contract, where a question arise, what if a Promisee would want Promisor to compensate not monetarily but, by doing what he was supposed to do as per the contract, in other words, what if performance of contract is more significant and money for breach totally insignificant to compensate the Promisee? What if there is no ‘strait-jacket formulae’ to quantify the damage incurred by any such breach by the Promisor. The Specific Relief Act comes to the rescue and answers all such questions by providing for Specific Performance of Contracts.

A decree of Specific Performance, is through which a court directs the defendant to perform the contract according to its terms, in other words, it is an order of court taken by a plaintiff directing the defendant to perform the contract according to its terms.

Specific Performance: The Indian Outlook

The Indian Law follows the trails of common law, wherein the right to specific performance is not out rightly available to promisee on breach by promisor, but is an exceptional right and is exercised by courts on their discretion.

Under the following circumstances, the specific performance is granted:

  1. Where non-performance of such contracts, of which compensation is not an adequate remedy ((Section 10, The Specific Relief Act));
  2. where enforcement of the terms of the contract is not difficult, expensive or ineffective ((Section 14, The Specific Relief Act));
  3. where the plaintiff’s conduct does not disentitle from seeking the equitable relief ((Section 16, The Specific Relief Act));
  4. where the court on its discretion, considers it fit to grant specific performance ((Section 20, The Specific Relief Act)).

In common law system, specific performance is an order directed against the defendant. The order requires him to perform the contract, else suffer consequences in the nature of contempt. In civil law systems, the remedy is wider. It is the process by which them promisee receives the performance of the promise given to him. Thus the promisees can have the defect cured or the substitute at the expense of the promisor. The order therefore aims at the result, rather than a direction to the debtor.

Section 14 of The Specific Relief Act, 1963, puts certain limitations on the grant of specific performance, which are as follows:

  1. a contract, non-performance of which can be justified by an adequate relief in form of money, however an agreement to execute mortgage deed can be enforced;
  2. a contract which runs into a minute details or extensive details;
  3. a contract which involves performance of a continuous duty, which court cannot supervise ((Nathu Lal v Munni Lal AIR 1927 Lah 898; Vipin Bhimani v Sunanda Das AIR 2006 Cal 209; Karri Venkatareddy v Kollu Narasayya (1908) 1 IC 384 (Mad); Ramchandra Ganesh Purandhare v Ramchandra Kondaji Kate (1898) 22 Bom 46; K M Jaina Beevi v M K Govindaswami AIR 1967 Mad 369));
  4. a contract dependent on personal qualifications or volition of the promisor ((Makharia Brothers v State of Nagaland AIR 1999 SC 3466; Najibulla Sardar v Harimohan Mitra AIR 1932Cal 481; In the matter of Gunput Narain Singh (1875) 1 Cal 74; Vidha Ram Misra v Managing Committee Shri Jai Narain College AIR 1972 SC 1450; Nandganj SihoriSugar Co Ltd v Badri Nath Dixit AIR 1991 SC 1525));
  5. a contract which can be terminated by any party as per the terms of the contract ((Pratibha Singh v Shanthi Devi Prasad AIR 2003 SC 643));
  6. Contract is such that otherwise from its nature, the court cannot enforce specific performance of its material terms ((Mohunta Bhagwan Das v Surendra Narain Singh (1917) 42 IC 521; Naresh Chandra Roy v Union of India AIR 1987 Cal 147)).

Inadequacy Test

Inadequacy test is a test on which Plaintiff has to stand to the satisfaction of the court in a way to show and justify that the compensation as a relief would not give him adequate relief. Only because of this test, the remedy of specific performance becomes exceptional. Specific performance of a contract can be claimed in two cases: firstly when compensation cannot be ascertained; and when compensation would be inadequate ((Section 10, Specific Relief Act)).

As per the explanation to Section 10 of the Act, two rebuttable presumptions operate upon the question of inadequacy:

1. in cases of contracts to transfer immovable property, there is a presumption that compensation will not be adequate;

2. in cases of contract to transfer movable property there is a presumption that compensation is an adequate remedy.

The court has to consider not his personal disability or inability, but whether obtaining substitutein the market is objectively possible. The word “adequately” implies adequate in the opinion of the court based on the facts proved on record, though the plaintiff may consider it to be inadequate ((Brij Ballabh Das v Mahabir Prasad AIR 1924 All 529.)).

Furthermore, the goal of compensation requires that an effort be made to determine the value the promisee places on the promisor’s performance, as distinct from what the promisee, or anyone else, has offered to pay for it. The court may reply on the evidence that goods are not available in India, and can be procured only from abroad ((Hemraj Kapoor v Seventeen Textile Traders (India) AIR 1961 Pat 318 (temporary injunction refused on the principles of specific performance).)).

The need to prove that no substitute is available is primary to exercise the remedy of specific performance but any substitute must correspond to the promisee’s need. It must serve the purpose of the promisee. Arguendo, if exactly same goods are available from alternative sources, these might not substitute where the reputation or brand of the promisor is important or the goods are not available on comparable or convenient terms or warranties, or their supply will be incompatible with other commitments. These may be difficult to locate, their availability may involve such delay as to disrupt the promisee’s business, their price may be substantially higher than the contract price, or alternative manufacturers may not have comparable reputations for quality.

Thus, what has to be seen is that the promisee must not suffer due to promisor’s non-performance and the essence of every contract must be kept.

Conclusion and Critique

In light of various judgments and judicial pronouncements it has been time and again observed that the ‘inadequacy test’ has done more of harm than the relief, and the reason is its exceptional nature.

It is indeed not readily available to the promisee but on the contrary promisee who is already suffering because of promisor’s non-performance, is made to further suffer because it has to satisfy court by standing the inadequacy test.

I propose that inadequacy test must be ruled out, since without it plaintiff will have to show the existence of a valid contract, its terms and subsequent breach by the defendant, and also, he will be able to seek the relief of his choice. If plaintiff chooses the remedy by way of specific relief, the onus would be on the defendant to show that substitutes or alternatives are available, if any. The reason to it being more just would be that the burden of proof would shift to the ‘contract breaker’.

Certainly, such a change would bring a paradigm shift in the volition of contract makers and would also encourage performance of contracts.

Leave a Reply

Your email address will not be published. Required fields are marked *