Specific Performance: Everything You Need to Know
Specific performance is the legal concept that anyone who signs a contract is bound to the terms of the contract. 8 min read
2. Specific Performance is Situational
3. The Valid Contract Requirement
4. The Concept of Equity
5. What Constitutes an Equitable Remedy?
7. Liquidated Damage Provisions
8. Injunction vs. Specific Performance
9. When Specific Performance Isn't Honored
10. Awarding Damages
11. Examples of Specific Performance
12. Consequences for Refusal to Abide by Rulings
What Is Specific Performance?
Specific performance is the legal concept that anyone who signs a contract is bound to the terms of the contract. It encompasses the idea that all parties to a contract are bound by the exact terms stated in that contract and that there are remedies that a wronged party can pursue when someone is in breach of those terms. These remedies include filing a lawsuit to collect damages or seeking a court order requiring the infringing party to live up to their obligations. The latter remedy is specific performance.
Specific performance remedies require taking a hard stance as to the language in the contract. It is important because it carries the weight of the courts behind it to hold contractors to their agreements. If a party fails to uphold their end of the bargain, they can be fined, held in contempt of court, or even arrested.
Specific performance, very simply, is a court order that mandates everyone comply with the language of the written contract. If one or more parties in a contract fail to live up to the agreement, the wronged party or parties can ask that the courts issue a mandate requiring those in breach to comply with the terms of the agreement.
This sort of relief is sought instead of demanding financial compensation for the breach of contract. Do this if you would be harmed by not acquiring what you originally bargained to get.
Specific Performance is Situational
It's important to engage in a degree of strategic thinking before requesting specific performance remedies. It is costly to take a case to court, whether that's to get an injunction or to seek financial recompense. What if the other party didn't fulfill their obligations because they truly weren't able to?
There may have been a fire at their production facility, for example, which reduced or eliminated their capacity. In such cases, going to court will likely cost you money without delivering an acceptable result. Courts tend to take a strict stance on specific performance. It's based on a concept of equity, meaning they only grant it if monetary compensation won't take care of the problem.
Consider a situation where you sign a contract to buy a car, but when you arrive to pick it up, the other party won't deliver. Unless the car is very specific and can't be bought elsewhere, it's likely you would only be able to seek financial damages and not specific performance requiring delivery of the auto.
The Valid Contract Requirement
In order to seek this sort of relief, you must also have in existence a valid legal contract. The contract must be very specific with clear and enforceable terms laid out. These terms must be for something truly unique and not a common or easily replaceable item. You must have executed the contract in good faith; if a plaintiff in these kinds of cases has behaved fraudulently, unfairly, or taken advantage of the defendant, relief cannot be awarded.
The Concept of Equity
An equitable remedy is based on what's fair and right in a given situation. This is the core concept behind specific performance. What's important about equity is that it isn't bound by case or common law precedent. They are explicitly designed to be situational and flexible. Because of this, equitable remedies like specific performance are rare in court. It's far more common for courts to issue legal remedies like monetary compensation.
What Constitutes an Equitable Remedy?
Real estate transactions are the most common source of specific performance, as every piece of land is unique, and financial compensation is not always equitable in a situation where someone needs a place to live. When someone commits a breach of contract on the sale of a property, they may be held to specific performance as a result.
Generally speaking, personal property, service, or employment contracts cannot be held to performance-based remedies. The only exception is if the property or service has no easy value on the open market. It is essentially one-of-a-kind.
When it comes to service and employment contracts, in most cases it is unconstitutional to seek this form of remedy, as the 13th Amendment bars involuntary servitude. In such cases, however, it is sometimes possible to sue for monetary compensation for lost services. However, in these cases, the courts may issue an injunction prohibiting the offending party or parties from providing services to anyone else for the duration of the original contract.
To receive an equitable remedy, the plaintiff needs to have entered the contract with 'clean hands'. This means that they acted fairly and justly during the contract signing process.
One of the most famous examples of the clean hands doctrine involves football player Charles Flowers. Flowers was drafted by two teams, the New York Giants and Los Angeles Chargers, in 1959. He signed a contract with the Giants. Under college rules at the time, this meant he could no longer play college football. However, because Flowers wished to play in the 1960 Sugar Bowl on January 1, both he and the Giants decided to keep his contract a secret.
Football contracts were not valid until approved by the league commissioner. When Flowers tried to withdraw from the contract, the Giants submitted it to the commissioner who approved it on December 15.
The contract was not to be announced until January 1. Three days before that, on December 29, Flowers agreed to a contract with the Chargers and signed it after the Super Bowl. He informed the Giants of his new contract on the 29th and returned the bonus checks he had received from the team.
Understandably, the Giants requested specific performance due to the broken contract. However, because they had intended to delay announcing the contract to avoid league rules, their request was denied because they did not have clean hands when acquiring their equity.
If a plaintiff in a specific performance case has acted in bad faith or unfairly, they will not receive relief, regardless of the actions of the defendant. The bad actions of the plaintiff do not have to be criminal for relief to be denied. Any violation of standards of fairness can derail a specific performance case. Because the Giants attempted to deceive the league and the public, they violated these standards and were denied relief.
On occasion, plaintiffs in a specific performance case must agree to 'do equity'. This means the court has imposed equitable obligations that the plaintiff must complete to treat the defendant fairly. Specific performance will only be granted after the equitable obligations have been performed, meaning whatever they would have done to fulfill the original contract.
There is a term related to specific performance called 'replevin'. Replevin is also called 'claim and delivery'. This term is used when physical property is awarded to a plaintiff in a lawsuit. With replevin, the property must be transferred and cannot be substituted for its monetary value. Most states use replevin and specific performance interchangeably.
What this means, in simple terms, is that a court may mandate specific performance as replevin to resolve a dispute when the defendant cannot pay adequate cash damages.
Liquidated Damage Provisions
Some contracts have what are known as liquid damage provisions. These specify the exact monetary compensation in the case of breach of contract. In the case of one or more parties breaching the contract, the wronged party can recover these specified damages. For example, consider a situation where a homeowner has a contract for renovations with a home improvement company. The contract may state that for every day the contract falls behind schedule, the contractor pays $1,000 in damages.
Liquidated damage provisions are not always honored by courts. The two situations where they are:
- It's hard to determine the exact value of damages suffered.
- Liquidated damages are not excessive when compared to actual damages.
Injunction vs. Specific Performance
While specific performance requires all parties to act within the terms of a contract, an injunction is the opposite. It's a court order that prevents someone from acting in a certain way. Injunctions are also sometimes based on breach of contract, and they come in three varieties: preliminary, temporary, and permanent.
Preliminary injunctions take effect right away and they buy time for a court to hear the complete arguments on either side. They mean, "you can't engage in this action now, but after the case is heard, you may be allowed to do so."
Temporary injunctions are placed for a short time. They're used to halt an action while someone makes arrangements for other needs, such as preparing for a trial or working out a proper licensing deal. These usually last up to 10 days and are followed by preliminary injunctions if a trial results.
Permanent injunctions result after hearing arguments and are part of the court's final judgment. They are unlimited and require the adjudicated party to immediately cease any infringing actions and not do them again.
When Specific Performance Isn't Honored
There are some situations where specific performance is expressly not honored. These involve situations where it won't compensate the plaintiff adequately for the loss they've suffered. Specific performance is avoided in situations such as:
- It's not possible to require strict adherence to the contract.
- Strict contractual adherence would harm the defendant.
- The contract was created in bad faith, is defective or otherwise unconscionable or unenforceable.
- The plaintiff is also in breach of contract.
- The contract requires services rendered against the will of one or more parties.
- The contract has "termination at will" provisos.
- Enforcement of strict adherence would require constant and regular supervision.
In many cases, specific performance is regulated by the Uniform Commercial Code, which is a set of laws adopted by the states which govern all commercial transactions.
Because of the principle of equity, courts generally prefer to award damages rather than enforce contractual provisos. This renders a judgment generally viewed as more friendly to the plaintiff and easier to enforce overall. It also allows some flexibility by the courts in the damages awarded. The courts, for example, can set the value of the injury and award a proper amount of compensation.
In addition, in most civil cases, the plaintiff is quite happy with monetary damages, which allow them to recoup the losses they have suffered and move on to start over with a new partner.
Examples of Specific Performance
Again, specific performance is based on the uniqueness of the goods provided. Real estate transactions are almost always granted this relief. Other examples would be original paintings from a famous artist like da Vinci, Picasso, or Van Gogh; a unique, one-of-a-kind custom vehicle; a piece of jewelry with a unique and specialized design, unlike any other; a rare stamp collection; heirlooms; or antiques.
What all these have in common is that they can't be replaced. Considering the vehicle, for example, even the sale of a car like a 69 GTO wouldn't necessarily benefit from this form of relief, as there are a number of these on the market so it's possible to get one elsewhere. If, however, the vehicle is custom-built to exact design specifications and there aren't any others like it, it is considered unique for purposes of specific performance.
Consequences for Refusal to Abide by Rulings
When the courts issue a ruling of specific performance, parties who refuse or fail to abide by the ruling can face consequences including contempt of court, fines, and monetary penalties, among other forms of censure.
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