If the court determines that no other remedy—such as money—will adequately compensate the injured party, it may require the defendant to fulfill the terms of the contract through the use of a specific performance clause, a specialized form of contractual equitable relief.
Contracting parties may include a specific performance clause to safeguard their interests in the event that one party breaches the other, particularly in situations where monetary damages might not be sufficient.
A specific performance order, for instance, might be issued in response to a contract for the sale of a particular piece of property, from which the owner withdraws, requiring the seller to complete the sale and place the buyer in the same position as they would have been in had the contract been upheld from the beginning.
The Operation of a Specific Performance Clause
In cases where money cannot fairly compensate the harmed party and where the contractual obligation is special or difficult to value, a court will usually enforce a specific performance clause.
For instance, in the state of New York, a court will only grant specific performance if the non-breaching party can demonstrate that:
The underlying agreement is enforceable and legitimate.
The plaintiff has fulfilled its contractual obligations, or the court has faith that it will continue to do so.
The defendant has the ability to fulfill its responsibilities, but it hasn’t.
A financial solution is insufficient.
Apart from real estate, which is regarded as exceptional, courts have determined that other commodities are suitable for particular performance clauses. Art pieces, bespoke goods, and limited-edition items are a few examples.
Prior to granting specific performance or any other type of equitable relief, the court might stipulate that there are no monetary damages available or, more likely, that it is challenging to determine the precise amount of damages.
In contrast, monetary compensation is a kind of legal remedy that can include punitive damages, reimbursement, or even damages for damages incurred. Specific performance is far less common as a form of remedy than monetary compensation.
Sample Performance Requirement
Each non-breaching Party shall be entitled to specific performance and injunctive or other equitable relief (including attorneys’ fees and costs) as a remedy of any such breach, without having to prove that money damages are an insufficient form of relief; this includes an order from the Bankruptcy Court compelling any Party to promptly comply with any of its obligations under this agreement. “It is understood and agreed by the Parties that money damages would not be a sufficient remedy for any breach of this Agreement by any Party.”
Specific Performance Clause Examples
Let’s say a famous van Gogh painting was purchased for $1 million by an art collector, but the seller abruptly changed their mind and failed to deliver the artwork. If this were a typical contract transaction, the buyer would be eligible for a refund. If there was a specific performance clause in the contract, the court would probably enforce it and force the seller to surrender the painting rather than give the buyer their money back in the event of a breach of contract lawsuit.
Specific performance disputes are usually more intricate than the preceding example. One such instance concerned the agreement Elon Musk had with Twitter, Inc. (now X Corp.) to pay $44 billion to acquire the social media network. When Musk attempted to withdraw from the deal, Twitter threatened to sue him in order to uphold the particular performance clause that the two parties had agreed to. Musk, however, argued that Twitter withheld information regarding the proportion of its users who are bots rather than real people. Musk’s decision to carry out the contract signified the end of the legal dispute.
A Specific Performance Clause: What Is It?
Certain contracts have a specific performance clause that, if accepted by both parties, mandates that the agreement be fulfilled even in the event that one party violates or neglects to fulfill its end of the bargain.
When Is a Specific Performance Clause Enforced by a Court?
Generally speaking, specific performance clauses are only upholdable in fair and equitable underlying contracts. Enforcing a specific performance clause is unlikely if the court finds the contract to be unfair or biased.
What is the process for a Party to refute a Specific Performance Clause?
A court is unlikely to enforce a contract’s specific performance clause if the injured party gave false information, violated other obligations, or delayed filing their lawsuit for an unreasonable amount of time.
The Final Word
When mere financial compensation would not be sufficient, the purpose of a specific performance clause is to protect both parties to a contract or agreement. This could entail buying or selling valuable items like real estate, artwork, or other types of unique property.
If a specific performance clause is fair to both parties and the aggrieved party can demonstrate that they fulfilled their obligations while the defendant did not, the clause will normally be enforceable. Additionally, the harmed party must prove that a monetary award is insufficient.
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