Contracts Which may be Specifically Enforced

The Researcher has followed the doctrinal method of research. The researcher referred to several websites available in the NALSAR University Library computers. Several databases were also browsed through for obtaining valuable information pertaining to the political relation under study.

1.1 RESEARCH PLAN

1.1.1 Aims & Objectives

The researcher endeavours to understand contracts which may be specifically enforced under specific relief act (sec 10).“The researcher thereby analyses the various relevant provisions of the Specific Relief Act to understand critically the provision of law with regard to specific relief. The researcher seeks to make an attempt in analyzing whether specific performance is a better and more effective solution than enforcing the contract.

1.1.2 Scope & Limitations

The researcher endeavours to understand the The researcher thereby analyses the various way of succession and subsequently comments on the same.

1.1.3 Methodology and plan

The researcher has strictly restricted herself to the Doctrinal Method of Research and used the sources available in the Nalsar library and the internet centre. The Empirical Method of Research did not suit the needs of the researcher as also the topic dealt with required the use of secondary sources.

1.1.4 Mode of Citation

A uniform method of citation has been used in the project.

2. Introduction

Specific Relief Act was enacted in 1877. The Act was originally drafted upon the lines of the Draft, New York Civil Code, 1862, and its main provisions embodied the doctrines evolved by the English Equity Courts. The Specific Relief Act, 1963 is the outcome of the acceptance by the Central Government on the recommendations made by the Law Commission of India. A bill to repeal the Act of 1877 was introduced in Lok Sabha and was passed by the both the houses of Parliament and on 13th December, 1963 the President assented to the same.

The Specific Relief Act provides for specific reliefs. Specific relief means relief of certain species, i.e. an exact or particular, a named, fixed or determined relief. The term is generally understood and providing relief of a specific kind rather than a general relief or damages or compensation. It is a remedy which aims at the exact fulfillment of an obligation or specific performance of the contract. For instance if some body unlawfully dispossesses someone of his property, the general relief may be requiring the defendant to pay the other party compensation equivalent to the loss suffered by him due to dispossession. Specific relief may enable to have the possession of the same property over again by requiring the defendant to restore possession of the property. Specific performance is generally granted when there exist no standard for ascertaining actual damages, for instance the object of the sale is picture by the dead painter, or where compensation in money will not provide adequate relief to the plaintiff.

Section 10 of the Act privides the conditions where the specific performance of contract is enforceable. According to the section the specific performance of any contract may, in the discretion of the court, be enforced when there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done or when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief. The explanation to the section states that the court in case of immovable property shall presume that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money; and that the breach of a contract to transfer movable property can be so relieved except in the following cases:-

(a) Where the property is not an ordinary article of commerce, or is of special value or interest to the plaintiff, or consists of goods which are not easily obtainable in the market;

(b) Where the property is held by the defendant as the agent or trustee of the plaintiff.

The Constitution Bench in the case of Chand Rani v. Kamal Rani, [1] held that that in the case of sale of immovable properly there is no presumption as to time being the essence of the contract. The Explanation 1 to Section 10 which states that unless and until the contrary is proved, the Court shall presume that the breach of a contract to transfer immovable property cannot be adequately relieved by compensated in money, and that the breach of a contract to transfer movable property can be thus relieved. Even if it is not of the essence of the contract, the Court may infer that it is to be performed in a reasonable time if the conditions are : (1) from the express terms of the contract; (2) from the nature of the property; and (3) from the surrounding circumstances, for example, the object of making the contract”. In other words the Court should look at all the relevant circumstances including the time-limit(s) specified in the agreement and determine whether its discretion to grant specific performance should be exercised. It is therefore evident that there is legal presumption, although rebuttable, that breach of a contract to transfer immovable property cannot be adequately compensated in money. Consequently once a contract to transfer immovable property is proved, the rule should be grant of specific performance and denial of the same may be an exception. It must also be said that it would be burden of defendants to demonstrate that the breach can be adequately compensated.

3. Scope and object of the section

The contract is an agreement upon consideration to do or not to do particular thing, if the person on whom this contractual obligation rests, fails to discharge it, other party has right to either to insist on the literal and actual performance of the contract or to obtain compensation for the non-performance of it. The former is called the ‘Specific Performance.’

According to Halsbury Specific performance is “an equitable relief given by the Courts in cases of breach of contract, in the form of a judgement that the defendant do actually perform the contract according to its terms and stipulation.”

According to Pomeroy defines it as consisting in the contracting party’s exact fulfillment of obligation which he has assumed- in his doing or omitting the very act which he has undertaken to do or omit.

The subject of Specific performance is dealt in Part III, Chapter IX of the Specific Relief Act, 1963 which may be classified under the following heads:-

A. Contracts which my be specifically enforced;

B. Contracts which cannot be specifically enforced;

C. Parties to an action for specific performance

4. Contracts which may be specifically enforced

The remedy of Specific performance being an equitable remedy is at the discretion of the Court. But in the exercise of this discretion, the Court is governed by certain principles. The circumstances in which specific performance may be granted are enumerated in Section 10 of the very Act.

Section 10 providers for specific performance of contract in those cases where there is no standard for ascertaining damages or where the money cannot form adequate relief for the non-performance. Further enforcement of the specific performance is at discretion of the court and no one claim it as a matter of right. In

Banwari Lal Agarwala v. Ram Swarup Agarwala [2] it was held that the plaintiff tenant was entitled to a decree of specific performance contract under Section 10 of Specific Relief Act. Where from some special or practical features or incidents of the contract either in its subject-matter, or in its terms or in the relations of the parties, it is impossible to arrive at a legal measure of damages at all, or at least with any sufficient degree of certainty so that not real compensation can be obtained by means of action at law, the contract will be enforced in specie.

4.1 Pecuniary compensation not adequate relief

The specific performance will also be granted when compensation in money is not adequate relief in facts and circumstances of case. Damages may be considered to be an inadequate remedy if it is difficult to quantify them. In Jainarain v. Surajmal it was held that where shares are limited in number and are not ordinarily available in the market, it is quite proper to grant decree for specific performance of contract of sale of such shares. In Ram Karan V. Govind Lal [3] there was an agreement for the sale of agricultural land. The buyer had paid full sale consideration to the seller, but the seller even then avoided executing the sale deed as per the agreement. The buyer brought an action for the specific performance of the contract. It was held that the case is covered under Section 10(b) of the act.

4.2 Conditions for applicability of Section 10

The suit must relate to the specific performance of contract; The case must fall within any of the Clauses (a) and (b);The case must in the discretion of the court, be fit one to warrant specific performance; and The case must not fall within any of the Section of Chapter II which prohibits specific performance.Explanation to Section 10 carries presumption in favour of plaintiff and declares that it should be presumed that compensation does not afford adequate relief in following cases:

In all cases where the contract is for the transfer of immovable property.

In case of movable property where:

a) The property is not an ordinary article but an article of special value or of special interest to plaintiff.

b) The article is not easily obtainable in the market.

c) The property is held by the defendant as an agent or trustee of the plaintiff.

However these presumptions canbe rebutted by the defendant by proving the contrary.

5. Doctrine of Mutuality

No person can sue for specific performance if he cannot be sued for it, whether because he is minor or for any other reason. The contract to be specifically enforced must be mutual. The doctrine of mutuality means the contract must be mutually enforceable by each party against the other. It does not however mean that for every right there must be corresponding clause. A contract may contain series of clauses and covenants which form the total bargain between the parties and each of them is the consideration for the other. Mutuality in this context does not mean equality and exact arithmetical correspondence. It means each party to the contract must have the freedom to enforce his right under the contract against each other.[22] The doctrine of mutuality though a technical on is founded on common sense and amounts to this that the party to the contract should not be bound to that contract ,when he could not enforce it against the other. In India the contract by a minor himself is absolutely void.

6. ROLE OF EQUITY IN SPECIFIC PERFORMANCE OF CONTRACTS

Two most important cases which have laid down the position of promissory estoppel in English Law were those of Hughes v. Metropolitan Railway Co [4] . and that of Central London Property Trust Ltd. v. High Trees House Ltd [5] . The basic ingredients of the doctrine of promissory estoppel [6] :

It generally does not deal with those promises that are strictly enforceable by law, rather it would in its ambit comply those promises, which would be unconscionable, if it were disregarded. But, the promises made must be out of free consent and not of duress or coercion.

There must have been some action done by the promisee relying on that particular promise by which he changed his earlier position.

The established theory in common law is that of the ‘doctrine of consideration’ which was thoroughly followed in all the earlier cases. If we look in the case of Foakes v. Beer [7] the action of Mrs. Beer succeeded against Mr. Foakes on the grounds that the promise was not supported by any consideration from Mr. Foakes. In the case of Currie v. Misa Justice Lush established that, “A valuable consideration in the sense of law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given or undertaken by the other.”

The reason for the development of this principle can traced if we look into the case of Hughes v. Metropolitan Railway Co [8] . In this case, the plaintiff had leased to the defendant a piece of land for carrying out its business. In between this period the plaintiff to carry out repairs within a period of six months or pay the plaintiff certain compensation. But after this he also entered into negotiations with the railway company for the sale of the land to them. This resulted in the railway company in not undertaking the repairs as it was in the impression that the plaintiff was sure of selling the land to them. But the negotiations did not give any fruitful result and by then the stipulated time was also over. Now the plaintiff claims for damages from the railway company. Lord Cairns in his judgment said that:

“…it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results-certain penalties of legal forfeiture-afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising out of the contract would not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it could be inequitable having regard to the dealings which have thus taken place between the parties.” [9]

The actual definition of the Doctrine of Promissory Estoppel was provided by Lord Denning

“This principle should not be stressed too far, lest it should be endangered. That principle does not create new causes of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having in regard to the dealings that have taken place between the parties…It is also implicit that all modern cases which have applied this principle leading to its development. Sometimes it is the plaintiff who is not allowed to insist on his strict legal rights…. A landlord who has said to his tenant that he can live free of rent for rest of his life, is not allowed to go back on it. But sometimes even the conduct of the defendant can debar him from insisting on his strict legal rights. A government department, who has accepted a disease as due to war service, was not allowed afterwards to say it was not, seeing that the soldier, in reliance on the assurance, had abstained from getting further evidence for it…. Seeing that the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration when it is an essential part of the cause of action.” [10]

Thus one can conclude that the action of the other party on the promise is the cause of action from which the damages can be claimed because the promisor is not allowed to revert on his assurance based on which the promisee has changed his legal position. The new relationship had been introduced by the promisor and in no point of law can there be question of any consideration as it is too rigid to be applied in order to restitute somebody for the action upon mere promises. But even it can never be said that the doctrine of consideration does not play any part, as many a times it forms a part of the cause of action itself.

7. USING PROMISSORY ESTOPPEL IN SPECIFIC PERFORMANCE

In regard to understand the concept of Specific performance let us look in to the case of Hadley v. Baxendale [11] where ‘specific performance’ was defined as,

“An order of specific performance is a judicial order requiring the promisor to do exactly what he promised in the contract. It is obvious that the actual performance of the promise, whether completed voluntarily or in pursuance of an order of specific performance.”

Thus it can be noticed that the remedy that is provided by the court is against a promissory estoppel. Specific Performance was initially a remedy that was provided by the courts where the damage provided under Contract law was not sufficient. Sir John Leach said in 1824, “A court of Equity decrees performance for a contract of land, not because of the real nature of the land but because damages at law….may not be a complete remedy to the purchaser…”

But it now brings a question in front of us that does the Court apply its discretion always in giving this relief or is there certain set standards based upon which the court gives the remedy. In the case of Beswick v. Beswick [12] the court held that,

“The broad discretion given to the courts to consider all the circumstances of the case (whether it is appropriate to make such an order) allows them to have regard to factors which would not be relevant to common law damages claim. Thus, certain losses which are ‘special’ to the plaintiff may not be included in the damages award because they are too ‘remote’, but the existence of such a loss might be highly influential in the court’s equitable jurisdiction, to order specific performance.”

In the famous case of Co-operative Insurance v. Argyll Stores Ltd [13] . Lord Hoffman held, “Specific Performance is traditionally regarded in English Law as an exceptional remedy, as opposed to common law damages to which a successful plaintiff entitled as of right. It was orthodox doctrine that the power to decree specific performance was part of the discretionary jurisdiction of the Court of Chancery to do ‘justice’ in cases in which the remedies available at common law were inadequate. This is a general principle that specific performance would not be provided if the court thinks that the remedy is adequate. The principles upon which the courts decide these cases mainly are based on the principles such as the practical nature of the remedy.”

Thus one can easily say that specific performance being just an alternate remedy would not serve the larger cause of equity and justice, but one has always to remember that this must not be treated as a complementary but rather as a supplementary remedy. While granting a Specific Performance order, the court takes into account the equities of a given relationship in order to achieve what is perceived to be fair result and to control relationships of dependence.

Summarizing, specific performance is a remedy based on the principle of equity and fairness and thus giving the aggrieved his damages going out of the orthodox remedies, so that justice is rendered.

Aequum et bonum est lex legum. That which is equitable and right is the law of laws equitable relief comes in many forms. It may be a Restraining Order or an Injunction, which are court orders directing a party to do or not do something. An accounting may be requested by a plaintiff who seeks to know how his or her money is being handled. A trust or Constructive Trust can be ordered by a judge to place the care and management of property with one person for the benefit of another. A partition is an order dividing property held between two or more persons. Declaratory relief is granted when a judge declares the rights of certain parties. The effect of a Declaratory Judgment is to set future obligations between the parties.

Under the remedy of Specific Performance, a judge may order one party to perform a specific act. This type of relief is often used to resolve contractual disputes involving unique property. For example, the purchaser of a house may not wish to obtain money damages if the seller breaks a contract for sale of the house. This may be so because a house is considered unique and thus the damage is irreparable—that is, it cannot be fully redressed by mere money damages. If the court agrees that money damages would be inadequate redress for the buyer, the judge may order a completion of the sale to the buyer, instead of money damages, for the seller’s breach of contract.

Equitable contract remedies offer a judge an array of choices. Rescission discharges all parties to a contract from the obligations of the contract. The remedy of rescission restores the parties to the positions they held before the formation of the contract. Restitution is an order directing one party to give back something she or he should not be allowed to keep. These two remedies may be sought together. For example, if a buyer purchases an antique piano on credit and later discovers it is a fake, the buyer may sue for rescission and restitution. Under such a dual remedy, the buyer would return the piano to the seller, and the seller would return any payments made by the buyer.

Reformation is an equitable way to remedy a contractual mistake. Suppose, for example, that a buyer agrees to order 5,000 units of a product but mistakenly signs a contract ordering the shipment of 50,000 units. If the seller refuses to provide fewer than 50,000 units and demands payment for 50,000, the buyer may sue the seller for reformation of the contract. In such a case, the court may change the terms of the contract to reflect the amount of product actually agreed upon.

Equitable relief has long been considered an extraordinary remedy, an exception to the general rule of money damages. Modern courts still invoke the rule that equitable relief is available only where money damages are inappropriate; in practice, however, courts rarely insist on monetary relief when equitable relief is requested by a plaintiff [14] .

8. OTHER RELEVANT PROVISIONS

Section 11 of the Specific Relief Act provides for the cases in which specific performance of contracts connected with trusts are enforceable. specific performance of a contract may, in the discretion of the court, be enforced when the act agreed to be done is in the performance wholly or partly of a trust. According to Section 11(1) when the act agreed to be done is in the performance, wholly or partly, of a trust, specific performance of the same may be granted at the discretion of the court. For instance A holds certain stock in trust for B. A wrongfully disposes of the stock. The law creates an obligation on A to restore the same quantity of stock to B, and B may enforce specific performance of this obligation.

8.1 Specific performance of part of contract

Section 12.of the Act provides for Specific performance of part of contract.The general rule of equity is that the court will not compel specific performance of a contract unless it can enforce the whole contract. In Merchants Trading Co. v. Banner [15] Lord Romilly observed that: “this court cannot specifically perform the contract piecemeal, but it must be performed in it’s entirely if performed at all.” A court of equity is not concerned to make the new contract for the parties.

The rule laid in above case is contained in Section 12(1) of the Specific Relief Act which lays court shall not direct the specific performance of a part of contract, except in cases coming under on or other of the three proceeding sections.

To this general rules there are certain exceptions which proceed upon the principle of that ‘equity looks to the substance of contract and requires substantial compliance with its conditions rather than its literal fulfillment’ and these are embodied in Section 12 (2), (3) and (4).

Section 12(2) becomes applicable when the part of contract which cannot be performed is the conveyance of an item which is only a small portion of the whole in value and admits of compensation in money. The inability to perform the contract may be by reason of deficiency in quantity of the subject-matter, variance in quality, defect in title or of some other legal prohibition or lapse of time. For the applicability of these provisions of this sub-section two conditions must co-exist, namely:

a) That the part which must be left unperformed bears only a small proportion to the whole value, and

b) The part which must be left unperformed admits of compensation in money.

Section 12(3) lays down the second exception the general rule under Section 12(1). The equitable principle underlying this section is that specific performance of contract will not be enforced for the benefit of the purchaser and cannot operate to his detriment. Following are the important points in this sub-section:

a) The part unperformed must be a considerable portion of the whole; or

b) It does not admit of compensation in money;

c) Not either of the parties, but party who is not in default may sue for part performance.

d) Provided the plaintiff relinquishes,

(i) claims to further performance and also,

(ii) all rights to compensation on account of default of the defendant.

Section 12(3) of the specific relief Act can be invoked only where terms of contract permit segregation of rights and interest of parties in the property. The provision cannot be availed of when the terms of the contract specifically even an intention contrary to segregating interest of the vendor having the interest and spes successionis of revesioners. Neither law nor equity is in favour of the vendee to grant specific performance of the contract. [16]

Section 12(4) is the third exception to the general law provided in sub-section 12(1). The ordinary presumption is that a contract is intended to be dealt with as a whole and not piecemeal. But this section permits the Court in certain cases where this presumption is rebutted to afford relief by way of partial performance. The basic principle of Section 12(4) is that when a contract consists of several parts which are separate from and independent of on another, and some of which cannot or ought not to be performed, such part or parts as can and ought to be performed may alone be specifically enforced. The court must not make a new contract for the parties, nor proceed merely on surmises that the requirements of the section would be satisfied, if further enquiry were allowed. [17]

9. Conclusion

Looking back at this project the researcher has reached to the conclusion that the principles of equity plays a very significant role in rendering justice where the Contract Law does not provide for any such provision. In the principle of promissory estoppel which arises out of the need to render justice, one can easily see the causal relationship between the principles of equity and the contracts,

“When a man by his words of conduct, has led another to believe that he may safely act on the faith of them- and the other does act on them- he will not be allowed to go back on what he ahs said or done when it be unjust or inequitable for him to do so.” [18]

There are certain basic differences in the ways in which Equity and Civil Law remedies function.

Equitable liability is almost entirely based in fault. Restitution is not interested in the quality of the defendant’s conduct’. Running this kind of statement with ‘common law’ substituted for ‘equity’ immediately exposes the error. However a subject-matter is defined, whether by causative event, by response, or by context, in our kind of legal system, unless that matter is first artificially restricted to one or other side of the old duality, the substance of the law relating to that matter will come from both common law and equity.

The researcher thus concludes that the principles of equity have to be applied to the area of Contract Law otherwise there would be many cases whereby the aggrieved party would not get any justice, thus nullifying the whole rationale behind having any law or even the judiciary. Thus the hypothesis provided by the researcher is successfully proved.