Specific performance

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Specific performance is an equitable remedy in the law of contract, in which a court issues an order requiring a party to perform a specific act, such as to complete performance of a contract. [1] It is typically available in the sale of land law, but otherwise is not generally available if damages are an appropriate alternative. Specific performance is almost never available for contracts of personal service, although performance may also be ensured through the threat of proceedings for contempt of court.

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An injunction, often concerning confidential information or real property, is a type or subset of specific performance and is one of the more commonly-used forms of specific performance. While specific performance can be in the form of any type of forced action, it is usually to complete a previously established transaction, thus being the most effective remedy in protecting the expectation interest of the innocent party to a contract. It is usually the opposite of a prohibitory injunction, but there are mandatory injunctions that have a similar effect to specific performance and these kinds of distinctions are often difficult to apply in practice or even illusory.

At common law, a claimant's rights were limited to an award of damages. Later, the court of equity developed the remedy of specific performance instead, should damages prove inadequate. Specific performance is often guaranteed through the remedy of a right of possession, giving the plaintiff the right to take possession of the property in dispute.[ citation needed ]

As with all equitable remedies, orders of specific performance are discretionary, so their availability depends on their appropriateness in the circumstances. Such orders are granted when damages are not an adequate remedy and in some specific cases such as land (which is regarded as unique).

Exceptional circumstances

An order of specific performance is generally not granted if any of the following is true:

Additionally, in England and Wales, under s. 50 of the Senior Courts Act 1981, the High Court has discretion to award a claimant damages in lieu of specific performance (or an injunction). Such damages will normally be assessed on the same basis as damages for breach of contract, namely to place the claimant in the position he would have been had the contract been carried out.

Summary of the Law in Australia

In summary of the law of specific performance in Australia: [9]

When a Court Will Order Specific Performance:

  1. Valid and Enforceable Contract: There must be a legally binding agreement between the parties.
  2. Breach or Threatened Breach: There must be a breach or threatened breach of the agreement by the defendant.
  3. Uniqueness of the Property: The subject of the contract, especially in real estate transactions, must be unique to such an extent that monetary damages would not be a sufficient remedy.
  4. Irreparable Harm: The aggrieved party would suffer irreparable harm if specific performance were not granted, such as in cases where real property’s unique value cannot be compensated with money alone.
  5. Inadequacy of Common Law Damages: Common law damages must be an inadequate remedy for the breach.
  6. Party is Ready, Willing, and Able to Perform: The party seeking specific performance must demonstrate their willingness and ability to fulfill their own obligations under the contract.

When a Court Will Not Order Specific Performance:

  1. Monetary Damages are Adequate: If the harm caused by the breach can be adequately compensated with money, specific performance is unlikely to be ordered.
  2. Contract is Not Clear or Enforceable: If the contract terms are ambiguous, not agreed upon by all parties, or the contract is otherwise unenforceable, specific performance will not be granted.
  3. Speculative Purposes: If the purpose of enforcing the contract is speculative in nature, such as for anticipated profits from development or resale, courts may be hesitant to order specific performance.
  4. Requires Continuous Supervision: If fulfilling the contract would require ongoing supervision by the court, specific performance may be deemed inappropriate.
  5. Lack of Uniqueness: In cases not involving unique assets like real estate, where substitute performance or goods are readily available, specific performance may not be ordered.

Examples

In practice, specific performance is most often used as a remedy in transactions regarding land, such as in the sale of land where the vendor refuses to convey title. One traditional justification for this position is that land is unique and that there is not another legal remedy available to put the non-breaching party in the same position had the contract been performed. [10] However, modern decisions in at least one common law jurisdiction (Ontario) have argued that "uniqueness" is only a proxy for the real conceptual justification of specific performance, which is that it is fundamentally an open-ended rule of justice and will be awarded wherever the plaintiff shows that the land in question, rather than damages, better serves justice between the parties in all the circumstances. [11]

However, the limits of specific performance in other contexts are narrow. Moreover, performance based on the personal judgment or abilities of the party on which the demand is made is rarely ordered by the court. The reason behind it is that the forced party will often perform below the party's regular standard, when it is in the party's ability to do so. Monetary damages are usually given instead.

Traditionally, equity would only grant specific performance with respect to contracts involving chattels where the goods were unique in character, such as art, heirlooms, and the like. The rationale behind this was that with goods being fungible, the aggrieved party had an adequate remedy in damages for the other party's non-performance.

In the United States, Article 2 of the Uniform Commercial Code displaces the traditional rule in an attempt to adjust the law of sales of goods to the realities of the modern commercial marketplace. If the goods are identified to the contract for sale and in the possession of the seller, a court may order that the goods be delivered over to the buyer upon payment of the price. This is termed replevin . In addition, the Code allows a court to order specific performance where "the goods are unique or in other proper circumstances", leaving the question of what circumstances are proper to be developed by case law. The relief of Specific Performance is an equitable relief which is usually remedial or protective in nature. In civil law (the law of continental Europe and much of the non English speaking world), specific performance is considered to be the basic right. Money damages are a kind of "substitute specific performance." Indeed, it has been proposed that substitute specific performance better explains the common law rules of contract as well, see (Steven Smith, Contract Law, Clarenden Law ).

In English law, in principle reparation must be done in specie unless another remedy is more appropriate. [12]

There is an ongoing debate in the legal literature regarding the desirability of specific performance. Economists, generally, take the view that specific performance should be reserved to exceptional settings, because it is costly to administer and may deter promisors from engaging in efficient breach. Professor Steven Shavell, for example, famously argued that specific performance should only be reserved to contracts to convey property and that in all other cases, money damages would be superior. [13] In contrast, many lawyers from other philosophical traditions take the view that specific performance should be preferred as it is closest to what was promised in the contract. [14] There is also uncertainty arising from empirical research whether specific performance provides greater value to promisees than money damages, given the difficulties of enforcement. [15]

Law and economics

In contract theory, economists have compared specific performance to at-will contracts. [16] Suppose that a seller and a buyer have agreed to trade a good in the future. In the case of specific performance, delivery of the good can be mandated by the court, while in the case of at-will contracting, the seller always has the right to walk away from the contract. Hart and Moore (1988) have shown that if only at-will contracts are enforceable, then the parties have insufficient incentives to make relationship-specific investments. [17] Subsequently, several authors such as Aghion et al. (1994) have shown that the underinvestment problem (sometimes called the hold-up problem) can be solved if specific performance contracts are feasible. [18] However, these conclusions rely on the assumption that there are no information asymmetries. Schmitz (2022) has pointed out that if the seller may gain an informational advantage over the buyer after the contract has been signed, then at-will contracts may sometimes be preferable from an economic efficiency point-of-view. [19]

See also

Related Research Articles

At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognized at law, the loss must involve damage to property, or mental or physical injury; pure economic loss is rarely recognized for the award of damages.

Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will receive all or some of the punitive damages in award.

<span class="mw-page-title-main">Breach of contract</span> Type of civil wrong in contract law

Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. Breach occurs when a party to a contract fails to fulfill its obligation(s), whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract. Where there is breach of contract, the resulting damages have to be paid to the aggrieved party by the party breaching the contract.

<span class="mw-page-title-main">Privity of contract</span> Legal principle

The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon anyone who is not a party to that contract. It is related to, but distinct from, the doctrine of consideration, according to which a promise is legally enforceable only if valid consideration has been provided for it, and a plaintiff is legally entitled to enforce such a promise only if they are a promisee from whom the consideration has moved.

Restitution and unjust enrichment is the field of law relating to gains-based recovery. In contrast with damages, restitution is a claim or remedy requiring a defendant to give up benefits wrongfully obtained. Liability for restitution is primarily governed by the "principle of unjust enrichment": A person who has been unjustly enriched at the expense of another is required to make restitution.

A legal remedy, also referred to as judicial relief or a judicial remedy, is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes another court order to impose its will in order to compensate for the harm of a wrongful act inflicted upon an individual.

<span class="mw-page-title-main">Unconscionability</span> Doctrine in contract law

Unconscionability is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining power, that they are contrary to good conscience. Typically, an unconscionable contract is held to be unenforceable because no reasonable or informed person would otherwise agree to it. The perpetrator of the conduct is not allowed to benefit, because the consideration offered is lacking, or is so obviously inadequate, that to enforce the contract would be unfair to the party seeking to escape the contract.

<span class="mw-page-title-main">Anticipatory repudiation</span> Concept in the law of contracts

Anticipatory repudiation or anticipatory breach is a concept in the law of contracts which describes words or conduct by a contracting party that evinces an intention not to perform or not to be bound by provisions of the agreement that require performance in the future.

<span class="mw-page-title-main">Cover (law)</span>

Cover is a term used in the law of contracts to describe a remedy available to a buyer who has received an anticipatory repudiation of a contract for the receipt of goods. Under the Uniform Commercial Code, the buyer is permitted to find another source of the same type of goods. The buyer may then file a lawsuit against the breaching seller to recover the difference, if any, between the cost of the goods offered and the cost of the goods actually purchased.

<span class="mw-page-title-main">Liquidated damages</span> Damages agreed for a delay in a contract

Liquidated damages, also referred to as liquidated and ascertained damages (LADs), are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach. This is most applicable where the damages are intangible.

<span class="mw-page-title-main">Misrepresentation</span> Untrue statement in contract negotiations

In common law jurisdictions, a misrepresentation is a false or misleading statement of fact made during negotiations by one party to another, the statement then inducing that other party to enter into a contract. The misled party may normally rescind the contract, and sometimes may be awarded damages as well.

Equitable remedies are judicial remedies developed by courts of equity from about the time of Henry VIII to provide more flexible responses to changing social conditions than was possible in precedent-based common law.

An adequate remedy or adequate remedy at law is part of a legal remedy which the court deems satisfactory, without recourse to an equitable remedy. This consideration expresses to the court whether money should be awarded or a court order should be decreed. "Adequate remedy at law" refers to the sufficient compensation for the loss or damages caused by the defendant with a proper monetary award. The court must grant the adequacy of remedy that will lead to a "meaningful hearing". Whether legal damages or equitable relief are requested depends largely on,whether or not the remedy can be valued. Both two elements, compensation and the meaningfulness of hearing, provide a proper way to have an adequate remedy. The word "meaningfulness" of hearing in the law process is the assumption that the defendant compensated must be meaningful for the injured party where the defendant made a fully covered compensation for all the losses. Hence, the hearing in which cannot give any right amount of compensation award or settlement is not "meaningful", and the unavailability of the compensation will lead to an inadequate remedy. The adequate remedy at law is the legal remedies by meaning it is satisfactory compensation by way of monetary damages without granting equitable remedies.

In English law, loss of chance refers to a particular problem of causation, which arises in tort and contract. The law is invited to assess hypothetical outcomes, either affecting the claimant or a third party, where the defendant's breach of contract or of the duty of care for the purposes of negligence deprived the claimant of the opportunity to obtain a benefit and/or avoid a loss. For these purposes, the remedy of damages is normally intended to compensate for the claimant's loss of expectation. The general rule is that while a loss of chance is compensable when the chance was something promised on a contract it is not generally so in the law of tort, where most cases thus far have been concerned with medical negligence in the public health system.

<span class="mw-page-title-main">Australian contract law</span>

The law of contract in Australia is similar to the contract law of other Anglo-American common law jurisdictions, but differences from other jurisdictions have arisen over time because of statute law and divergent development of common law in the High Court, particularly since the 1980s.

<span class="mw-page-title-main">Expectation damages</span>

Expectation damages are damages recoverable from a breach of contract by the non-breaching party. An award of expectation damages protects the injured party's interest in realising the value of the expectancy that was created by the promise of the other party. Thus, the impact of the breach on the promisee is to be effectively "undone" with the award of expectation damages.

<span class="mw-page-title-main">Canadian contract law</span> Overview of contract law in Canada

Canadian contract law is composed of two parallel systems: a common law framework outside Québec and a civil law framework within Québec. Outside Québec, Canadian contract law is derived from English contract law, though it has developed distinctly since Canadian Confederation in 1867. While Québecois contract law was originally derived from that which existed in France at the time of Québec's annexation into the British Empire, it was overhauled and codified first in the Civil Code of Lower Canada and later in the current Civil Code of Quebec, which codifies most elements of contract law as part of its provisions on the broader law of obligations. Individual common law provinces have codified certain contractual rules in a Sale of Goods Act, resembling equivalent statutes elsewhere in the Commonwealth. As most aspects of contract law in Canada are the subject of provincial jurisdiction under the Canadian Constitution, contract law may differ even between the country's common law provinces and territories. Conversely; as the law regarding bills of exchange and promissory notes, trade and commerce, maritime law, and banking among other related areas is governed by federal law under Section 91 of the Constitution Act, 1867; aspects of contract law pertaining to these topics are harmonised between Québec and the common law provinces.

<span class="mw-page-title-main">Contractual term</span> Any provision forming part of a contract

A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, the breach of which may give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.

<span class="mw-page-title-main">Contract</span> Legally binding document establishing rights and duties between parties

A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of those at a future date. The activities and intentions of the parties entering into a contract may be referred to as contracting. In the event of a breach of contract, the injured party may seek judicial remedies such as damages or equitable remedies such as specific performance or rescission. A binding agreement between actors in international law is known as a treaty.

<i>Attorney General v Blake</i> English contract law case on damages for breach of contract

Attorney General v Blake[2000] UKHL 45, [2001] 1 AC 268 is a leading English contract law case on damages for breach of contract. It established that in some circumstances, where ordinary remedies are inadequate, restitutionary damages may be awarded.

References

  1. ↑ "specific performance". LII / Legal Information Institute. Retrieved 2023-07-30.
  2. ↑ Dougan v Ley [1946] HCA 3 , (1946) 71 CLR 142 , High Court (Australia).
  3. ↑ Loan Investment Corporation of Australasia v Bonner [1969] UKPC 33 [1969] NZPC 1 , [1970] NZLR 724, Privy Council (on appeal from New Zealand)..
  4. ↑ Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 32 , (1998) 195 CLR 1(4 May 1998), High Court (Australia).
  5. ↑ (c)making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone, http://www.legislation.gov.uk/uksi/1999/2083/schedule/2/made
  6. ↑ Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17 , [1998] AC 1, House of Lords (UK).
  7. ↑ Goldsbrough, Mort and Co Ltd v Quinn [1910] HCA 20 , (1910) 10 CLR 674 , High Court (Australia).
  8. ↑ Lumley v Wagner [1852] EWHC J96(Ch) , (1852) 64 ER 1209, High Court of Chancery (England and Wales).
  9. ↑ Davis, Wayne (4 February 2024). "Contract Law 101 – Specific Performance".
  10. ↑ "Real Estate Specific Performance Dispute Attorney | Schorr Law". Schorr Law, A Professional Corporation. Retrieved 2022-02-03.
  11. ↑ "John E. Dodge Holdings Inc. v. 805062 Ontario Ltd., 2001 CanLII 28012 (Ontario Superior Court of Justice)". CanLII, Canadian Legal Information Institute. 2001.
  12. ↑ Beswick v Beswick [1967] UKHL 2 , [1968] AC 58, House of Lords (UK) per Lord Pearce.
  13. ↑ Shavell, Steven (2005-11-01). "Specific Performance versus Damages for Breach of Contract". Rochester, NY. doi:10.2139/ssrn.868593. SSRN   868593.{{cite journal}}: Cite journal requires |journal= (help)
  14. ↑ Shiffrin, Seana (2007-01-24). "The Divergence of Contract and Promise". Rochester, NY. SSRN   959211.{{cite journal}}: Cite journal requires |journal= (help)
  15. ↑ Arbel, Yonathan A. (2015-01-16). "Contract Remedies in Action: Specific Performance". West Virginia Law Review. doi:10.2139/ssrn.1641438. S2CID   156489028. SSRN   1641438.{{cite journal}}: Cite journal requires |journal= (help)
  16. ↑ Fares, M'hand (2006). "Renegotiation Design and Contract Solutions to the Hold-Up Problem". Journal of Economic Surveys. 20 (5): 731–756. doi:10.1111/j.1467-6419.2006.00266.x. ISSN   0950-0804. S2CID   155061589.
  17. ↑ Hart, Oliver; Moore, John (1988). "Incomplete Contracts and Renegotiation". Econometrica. 56 (4): 755–785. doi:10.2307/1912698. hdl: 1721.1/63746 . ISSN   0012-9682. JSTOR   1912698.
  18. ↑ Aghion, Philippe; Dewatripont, Mathias; Rey, Patrick (1994). "Renegotiation Design with Unverifiable Information". Econometrica. 62 (2): 257–282. doi:10.2307/2951613. ISSN   0012-9682. JSTOR   2951613.
  19. ↑ Schmitz, Patrick W. (2022). "How (Not) to Purchase Novel Goods and Services: Specific Performance versus At-Will Contracts". Economic Journal. 132 (647): 2563–2577. doi: 10.1093/ej/ueac024 .

Sources


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