Understanding Specific Performance In Contract Law

Content

• What is specific performance?
• When do you need specific performance?
• What are the legal requirements for specific performance?
• What are the alternatives to a specific performance?
• What is the importance of specific performance in contract law?
• Conclusion

Contracts ensure that parties uphold their promises and obligations. However, there are instances where one party fails to fulfill their end of the bargain, leading to breaches of contract. What do you do then? Terminating the contractual relationship does not compensate for the breached parties' losses.

In such cases, the non-breaching party may seek legal remedies, which include damages, restitution, and rescission. However, when monetary damages are insufficient, parties or courts may seek special performance. It is a novel and potent legal idea that can substantially influence the outcome of a legal dispute. Keep reading to learn more about the concept, how it works, and its exceptions.

What is specific performance?

Special performance is a legal remedy that requires the breaching party to carry out their contractual obligations as agreed. Instead of monetary damages, the court may compel the breaching party to perform the specific act or service outlined in the contract. When the subject matter of the contract is uncommon and monetary compensation is insufficient, the parties seek this remedy.

It is considered a unique remedy in contract law for several reasons. To begin, courts rarely grant this remedy because it requires specific circumstances. Additionally, special performance is a remedy tailored to the distinct contract terms. It ensures that the non-breaching party receives the benefit of their bargain.

When do you need specific performance?

In the realm of legal disputes and contractual agreements, there are several instances where parties may seek specific performance as a remedy. Specific performance is a court order that requires a party to fulfill their obligations as outlined in a contract or agreement. This remedy is suitable when monetary compensation alone would not resolve the situation.

1. Breach of contract

When one party fails to uphold their end of a contract, it is considered a breach of contract. In such situations, the non-breaching party may seek specific performance to compel the other party to fulfill their obligations. For example, if you have a contract to sell your house to a buyer and they back out at the last minute, you may seek specific performance to force them to go through with the purchase as agreed upon.

2. Unique goods or services

One common scenario where specific performance may be necessary is when dealing with unique goods or services. The products or services on the market must be challenging for parties to substitute. For example, if you have a contract to purchase a rare artwork or a one-of-a-kind antique, monetary compensation may not be sufficient for the loss if the other party fails to deliver as promised. In such cases, seeking specific performance can ensure you receive the promised item or service.

Special performance examples

Real estate

The real estate industry often requires specific performance legal remedies due to the unique nature of real property. When a buyer fails to complete a real estate transaction as agreed upon, the seller may seek specific performance to force the buyer to fulfill their end of the deal. It is typical in cases where the property is one-of-a-kind or has sentimental value.

Entertainment and media

Contracts in the media and entertainment sectors are very particular to the parties involved. In such cases, one party may seek specific performance to guarantee project completion if one party breaches a contract rather than pursuing monetary damages. 

What are the legal requirements for specific performance?

The first and foremost requirement for specific performance is the existence of a valid and enforceable contract between the parties involved. It implies that the contract must include every necessary component—offer, acceptance, consideration, and consent from both parties— to be enforceable.

The terms of the contract must be clear, definite, and specific. Vague or ambiguous terms can lead to confusion and disputes, making it difficult for a court to enforce the legal remedy.

Usually, when the subject matter of the contract is unique and irreplaceable, specific performance is allowed. For example, real estate properties, rare collectibles, or one-of-a-kind assets fall under this category. In cases where the subject matter can be easily substituted or replaced, specific performance may not be possible. Other legal exceptions to specific performance include:

1. Impossibility or Impracticability

One key exception to the remedy is when performance becomes impossible or impracticable. It can occur due to unforeseen circumstances such as natural disasters, governmental regulations, or other events that make it impossible for a party to fulfill their obligations as specified in the contract. 

2. Personal services contracts

Another exception arises in personal service contracts. These contracts often require unique skills or talents for performance. If the party is unable or unwilling to perform, a court may not compel them to do so through a special performance.

3. Inadequacy of special performance

In some cases, special performance may be deemed inadequate as a remedy. It can happen when a specific performance is too challenging or unfair for one party to complete. 

4. Unconscionability

If enforcing special performance would result in unfair or oppressive terms for the breaching party, the court may not grant this remedy. It frequently applies when a contract's terms are unduly one-sided or burdensome. 

What are the alternatives to a specific performance?

Specific performance is a legal remedy to absolve the consequences of a breach of contract. While it can be a powerful tool in certain situations, there are also alternative legal remedies available that parties can consider depending on their specific circumstances.

1. Monetary damages

One of the most common alternatives to specific performance is seeking monetary damages. It involves the breaching party compensating the non-breaching party for any financial losses incurred due to the breach. Parties and the court calculate damages using various factors, such as lost profits, expenses incurred, and other foreseeable costs.

2. Rescission

Another alternative to specific performance is rescission, which involves the cancellation of the contract. It results in the release of both parties from their contractual obligations and the return of any consideration. Rescission is an option when the contract is deemed voidable due to fraud, misrepresentation, or undue influence.

3. Reformation

In cases where a contract contains errors or ambiguities that have led to a breach, parties may seek reformation as an alternative to specific performance. Reformation involves the court modifying the terms of the contract to reflect the parties' original intentions. It can help rectify any misunderstandings or mistakes that may have led to the breach.

What is the importance of specific performance in contract law?

One of the primary reasons why specific performance is crucial in contract law is that it helps fulfill contractual obligations. In some cases, the subject matter of the contract may be unique or valuable in a way that monetary compensation alone would not be enough to make the non-breaching party whole. By requiring the breaching party to perform their obligations as agreed upon, specific performance helps uphold the integrity of contracts and the principle of keeping promises.

It also helps to prevent unjust enrichment. If a party breaches a contract and is allowed to pay monetary damages, they may benefit from their breach by avoiding the performance of their obligations. Specific performance helps prevent this by requiring the breaching party to fulfill their end of the bargain, thereby preventing them from unfairly benefiting from their breach.

In some cases, the performance of a specific act as promised in a contract may be essential for maintaining a business relationship or partnership. By enforcing specific performance, parties can uphold the terms of their agreement, helping to preserve trust and goodwill. It can be critical in industries where reputation and trust are paramount.

Conclusion

Specific performance is a valuable legal remedy when monetary compensation alone would not be enough to rectify a breach of contract or failure to deliver unique goods or services. Understanding the circumstances where specific performance is appropriate helps parties protect their rights and interests. 

Although helpful, this remedy is subject to several legal exceptions, such as lack of consideration, ambiguous terms, illegal contracts, delayed reclamation, etc. Hence, businesses must do their best to draft competent contracts and track performance throughout.

Dock 365, built on Microsoft 365, offers tools to automate the entire contract lifecycle. Organizations don’t have to compromise quality and performance even when dealing with expanding contract portfolios. They can use pre-approved templates and clause libraries to generate valid contracts in no time. The automated workflows ensure the legal agreements get to the reviewers and approvers without fail. Companies can also use obligation tracking to ensure everyone is doing their part. Thus, if there’s a breach of contract or performance issues, they’ll get a timely alert and can take action. Advanced analytics and reporting features empower relevant stakeholders to track contract performance throughout the lifecycle.

Schedule a live demo to learn more about how Dock benefits your business.