Suit For Specific Performance of Contract in India

Source : http://articlesonlaw.wordpress.com
Author : YSRAO JUDGE
Published on : November 13, 2013


  
YSRAO JUDGE's Profile and details
Y.SRINIVASA RAO, M.A(English).,B.Ed.,LL.M.; Judicial Magistrate of I Class; Topper in LL.M

Suit For Specific Performance of Contract- Practical Problems

Specific performance is a remedy developed by principle of equity. A party to a contract who is damaged because the contract is breached by another party has the option to file a suit for specific performance compelling to perform his part of contract. Before an equity court will compel specific performance, however, the contract must be one which can be specifically performed. Section 16 (c) of the Act envisages that plaintiff must plead and prove that he had performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than those terms the performance of which has been prevented or waived by the defendant. In our country, most of the specific performance suits relate to sales of immoveable properties and to some extent, transfer of shares. As the law of specific performance is basically founded on equity, considerations such as conduct of the plaintiff, the element of hardship that may be caused to one of the parties, the availability of adequate alternative relief and such other matters are taken into consideration. It is a discretionary relief.

Suit For Specific Performance:
Illustration
A is owner of land. He executed an unregistered agreement of sale in favour of B and received Rs. 50,000/- as an advance out of sale price of Rs.1,00,000/-. A has to execute a Regd. Sale deed within three months from date of execution of agreement of sale. But, A refused to execute Regd. Sale deed and sold the said property to C for higher price. B can sue against A for specific performance.

From the above illustration, no doubt, B can file a suit for specific performance. This case involve several aspects such as, whether plaintiff is ready and willing to perform his part of contract or not; when would time is essence of contract?; Can C be impleaded in the suit as party? Is escalation of price is a ground in such a suit? Question of Lis Pendens; whether B is entitled for damages and compensation or not; whether an unregistered agreement of sale is admissible or not etc. All these aspects are dealt in the following paragraphs with relevant illustrations.

Elements That Are Involved In A Suit For Specific Performance Of Suit:-
Valid Contract :-
Normally, suit for specific performance of contract based on agreement of sale. Vague and uncertain agreement could not be given effect to.( Vimlesh Kumari Kulshrestha vs Sambhajirao, 2008 (2) Supreme 127). It was observed in Ambica Prasad vs Naziran Bibi, AIR 1939 All 64], [Balram v Natku, AIR 1928 PC 75 that there should be a valid contract for suit for specific performance of contract.

Unregistered agreement of sale :-
Un registered agreement of sale is admissible in evidence under Section 49(c) of the Registration Act in a suit for specific performance of contract. Unregistered sale deed is admissible in evidence in a suit for specific performance.( S.Kaladevi vs V.R.Somasundaram, AIR 2010 SC 1654).

Conduct of the parties:-
Any person seeking benefit of specific performance of contract must manifest that his conduct has been blemishless (H.P.Pyarejan vs Dasappa, AIR 2006 SC 1144). Similarly, conduct of defendant cannot be ignored (Silvey vs Arun Varghese, AIR 2008 SC 1568). The relief of specific performance is discretionary ( V.R.Sudhakara Rao vs T.V.Kameswari, (2007) 6 SCC 650). It was held in Aniglase Yohannan v. Ramlatha, 2005 (7) SCC 534 that if the pleadings manifest that the conduct of the plaintiff entitles him to get the relief on perusal of the plaint he should not be denied the relief.

Readiness and Willingness:-
Section 16(c) of the Act mandates the plaintiff to aver in the plaint and establish the fact by evidence aliunde that he has always been ready and willing to perform his part of the contract. Distinction between “readiness” and “willingness” is that the former refers to financial capacity and the latter to the conduct of the Plaintiff wanting performance ((2011)1SCC429). The plaintiff’s readiness and willingness, which is a condition precedent, must be in accordance with the terms of the agreement (Bala Krishna vs Bhgawan Das, AIR 2008 SC 1786), however, the plaintiff need not carry money in his hand
( M.K.Watts vs Usha Sharma, AIR 2004 P&H 295). In a suit for specific performance, plaintiff is to approach Court with clean hands.( G.Jayashree vs Bhagawan Das, AIR 2009 SC 1749). Right from the date of the execution till date of the decree he must prove that he is ready and has always been willing to perform his part of the contract.( N.P. Thirugnanam v. Dr. R. Jagan Mohan Rao and Ors, (1995) 5 SCC 115 at para 5). Even subsequent purchaser is entitled to raise objection as to readiness and willingness. (AIR 2009 SC 2157). To know the consequences in the case of absence of plea of readiness and willingness in the plaint, see ruling J.P. Builders and Anr.Vs. A. Ramadas Rao and Anr, (2011)1SCC429).

Time is essence of contract:-
From the decision of a Constitution Bench of the Hon’ble Supreme Court in Chand Rani v.Kamal Rani MANU/SC/0285/1993 : 1993 (1) SCC 519, it is clearly known that in the case of sale of immovable property, time is never regarded as the essence of the contract. An intention to make time the essence of the contract must be expressed in unequivocal language. As to the point of limitation is concerned, the suit for specific performance has to be filed within reasonable time which depends upon facts and circumstances of each case. (AIR 2009 SC 2157, Azhar Sultana’s case). 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.( Smt. Chand Rani (dead) by LRs. Vs. Smt. Kamal Rani (dead) by LRs, 1993 (1) SCC 519)

Adding parties in specific performance suit:-
Order 1 Rule 10 CPC is wider than the scope of Order 22 Rule 10 CPC as to person whose presence before the court is necessary or proper for effective adjudication of the issue involved in the suit. . Order 22 Rule 10 CPC is an enabling provision and that it has certain parameters to continue the suit where right to sue is survival. Order 22, Rule 10, C.P.C. speaks of cases of an assignment, creation or devolution of any interest during the pendency of a suit and the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved. (See the ruling Lingaraja Mohanty vs Binodini Mohanty & Ors. on 20 April, 2011; Thomson Press (India) Ltd. Vs. Nanak Builders and Investors P. Ltd. and Ors, 2013(3)SCALE26).

Essential elements to constitute ‘Lis Pendens’:-
Answer:- Section 52 of T.P.Act delas with ‘Lis Pendens’. In order to constitute a lis pendens the following elements must be present :-
(I) There must be a suit or proceeding pending in a Court of competent jurisdiction;
(II) The suit or proceeding must not be collusive;
(III) The litigation must be one in which right to immovable property is directly and specifically in question;
(IV) There must be a transfer of or otherwise dealing with the property in dispute by any party to the litigation;
(V) Such transfer must affect the rights of the other party that may ultimately accrue under the terms of the decree or order.

Practical Problems In A Suit For Specific Performance
Problem No.1:- What will the Court consider to adjudge the readiness and willingness of plaintiff in a suit for specific performance?

Answer:- To adjudge whether the Plaintiff is ready and willing to perform his part of the contract, the Court must take into consideration the conduct of the Plaintiff prior and subsequent to the filing of the suit along with other attending circumstances and to prove willingness to perform plaintiff must enter witness box. Right from the date of the execution till date of the decree, he must prove that he is ready and has always been willing to perform his part of the contract. (Man Kaur (dead) by LRS. Vs. Hartar Singh Sangha, (2010)10SCC512)

Problem No.2:- Vendor executed an agreement of sale with a condition that in the event of his failure to execute a sale deed, the purchaser will not be entitled for specific performance but will only be entitled for return of the earnest money and/or payment of a sum named as liquidated damages. In such a case, whether suit for specific performance can be decreed?

Answer:- Liquidated damages means an amount contractually stipulated as a reasonable estimation of actual damage to be recovered by one party if the other party breaches. As the intention of the parties to bar specific performance of the contract and provide only for damages in the event of breach, is clearly expressed, the court may not grant specific performance, but can award liquidated damages and refund of earnest money.

Problem No.3:- The agreement of sale provides that in the event of breach by either party the purchaser will be entitled to specific performance, but the party in breach will have the option, instead of performing the contract, to pay a named amount as liquidated damages to the aggrieved party and on such payment, the aggrieved party shall not be entitled to specific performance. If that is so, whether the plaintiff is entitled for specific performance?

Answer:- In such a case, the purchaser will not be entitled to specific performance, as the terms of the contract give the party in default an option of paying money in lieu of specific performance.

Problem No.4:- If the purchaser failed to pay Rs. 4,00,000 within one month and thereby prevented the vendor from purchasing another property and shifting to such premises, the vendor will not be able to perform his obligation to deliver vacant possession. If so, whether such contract is valid?

Answer:- Section 53 of Indian Contract Act,1872 provides answer to this problem. Further, the following illustration succinctly explains solution for the problem.

Illustration:-
‘’ ‘A’ executed an agreement of sale in favour of B. advance of Rs 4,00,000/- was paid to A out of sale price of Rs.10,00,000/-. Rs.4,00,000/- is to be paid to paid within one month to A to enable him to purchase an alternative property and to shift his residence from the property agreed to be sold, and sale deed has to be executed within three months from the date of agreement of sale and vacant possession of the premises should be given, against payment of balance price. If ‘B’ failed to pay Rs. 4,00,000 within one month and thereby prevented A from purchasing another property and shifting to such premises, ‘A’ will not be able to perform his obligation to deliver vacant possession. Thus the contract becomes voidable at the option of ‘A’ ‘’.

If the purchaser failed to pay Rs. 4,00,000 within one month and thereby prevented the vendor from purchasing another property and shifting to such premises, the vendor will not be able to perform his obligation to deliver vacant possession. Thus the contract becomes voidable at the option of the vendor. (Mrs. Saradamani Kandappan’s case, (2011)12SCC18)

Problem No.5 :- Vendor did not sign on agreement of sale but vendee signed. this is contention of vendor. Irrespective of written contract, the vendor and vendee both have same understanding of the terms of agreement.  In such a case, suit for specific performance is maintainable?

The answer is affirmative. Suit for specific performance is maintainable in such a case. See the following illustration.

Illustration:-
A is owner of land. A agreed to sell the land orally and receives Rs.80,000/- from B as an advance out of sale consideration of Rs.2,00,000/-. A and B both have same understanding of the terms of agreement. B vendee also signed on the agreement of sale. A vendor contends that he did not sign on it and so there is no contract at all.  A cannot contend that such agreement is invalid for want of his signature. Specific performance is maintainable. (Note:- Problem no.5 and its illstruction published in LAW SUMMARY -2013, Vol-3,Dt. 15-11-2013, at 21  is to be read as edited herein.)

The case of similar instance was decided in the case of Adbul Hakkem vs Naiyaz Ahmed, AIR 2004 AP 299, where the defendant contended that the plaintiff vendee alone signed the sale agreement but not the defendant vendor, as such there can be no contract, cannot be accepted. The Court held that specific performance is maintainable.(Also see A.P.Civil Court Manual, Vol-2, at page 1358). In my view, irrespective execution of written contract, when the vendor and vendee both have same understanding of the terms of agreement, Vendor cannot conted that there is no contract between them because even oral contract is valid. if vendor contends that such agreement is invalid for want of his signature on agreement of sale, such contention cannot be acceptable on the ground of 'Consensu ad idem'.

Problem No.6 :- Can a purchaser from a co-parcener enforce specific performance?

Answer to this question is that a purchaser from a co-parcener can enforce specific performance of his contract against the other co-parceners.

Illustration:-
"A and B are joint tenants of land, his undivided moiety of which either may be alien in his lifetime, but which, subject to that right, devolves on the survivor. A contracts to sell his moiety to C, and dies. C may enforce specific performance of the contract against B."

The above illustration, which is undoubtedly covered by the terms of the section 15 of the Act, is substantially the present case and shows that a purchaser from a co-parcener can enforce specific performance of his contract against the other co-parceners. (See 40 Ind Cas 429, T. Rangayya Reddy vs V.S. Subramanya Aiyar And Ors)

Problem No.7 :- If the plaintiff suffers losses in consequence of a contract. If that be so, whether specific performance of contract is maintainable?

Answer:- Yes. The following illustration succinctly explains about maintainability of the suit for specific performance.

Illustration.
A Sells land to a railway-company who contracts t execute certain works for his convenience. The company takes the land and use it for their railway. Specific performance of the contract to execute the work should be decreed in favour of A.

This illustration is useful to understand section 20 (3) of the Act. The Court can properly exercise discretion to decree a suit for specific performance in any case where the plaintiff has suffered losses in consequences of a contract.

Section 20 and illustration therein of Specific Relief Act, 1977(1920 A.D.) of Jammu & Kashmir which is applicable to the parties makes it explicitly clear thus:

A contract, otherwise proper to be specifically enforced, may be enforced, though a sum be named in it as the amount to be paid in case of its breach, and the party in default is willing to pay the same. (Manzoor Ahmed Margray Vs. Gulam Hassan Aram & Ors, 2003(6)ALT15(SC), 1999(6)SCALE350)

Illustration
A contracts to grant B an under-lease of property held by A under C, and that he will apply to C for a licence necessary to the validity of the under-lease, and that, if the licence is not procured, A will pay B Rs. 10,000. A refuses to apply for the licence and offers to pay B Rs. 10,000. B is nevertheless entitled to have the contract specifically enforced if C consents to give the licence.

Problem No.8 :- A party to a contract is unable to perform the whole of his part of it, and the part which must be left unperformed forms a considerable portion of the whole, or does not admit of compensation in money. If so, whether he is entitled to obtain a decree for specific performance?

Answer: - Where a party to a contract is unable to perform the whole of his part of it, and the part which must be left unperformed forms a considerable portion of the whole, or does not admit of compensation in money, he is not entitled to obtain a decree for specific performance. But the Court may, at the suit of the other party, direct the party in default to perform specifically so much of his part of the contract as he can perform: provided that the plaintiff relinquishes all claim to farther performance, and all right to compensation either for the deficiency, or for the loss or damage sustained by him through the default of the defendant. (Manzoor Ahmed Margray Vs. Gulam Hassan Aram & Ors, 2003(6)ALT15(SC), 1999(6)SCALE350). The following illustration also gives answer to the problem.

Illustration:-

A contracts to sell to B a piece of land consisting of 100 bighas. It turns out that 50 bighas of the land belong to A, and the other 50 bighas to a stranger, who refuses to part with them. A cannot obtain a decree against B for the specific performance of the contract; but if B is willing to pay the price agreed upon, and to take the 50 bighas which belong to A, waiving all right to compensation either for the deficiency or for loss sustained by him through A's neglect or default, B is entitled to a decree directing A to convey those 50 bighas to him on payment of the purchase-money.

Problem No.9 :- The agreement of sale provides that in the event of breach by the vendor, the purchaser shall be entitled to an amount equivalent to the earnest money as damages. The agreement is silent as to specific performance. In such a case, whether the court can direct specific performance by the vendor?

Answer:- Even if there is no provision in the contract for specific performance, the court can direct specific performance by the vendor, if breach is established. But the court has the option, as per Section 21 of the Act, to award damages, if it comes to the conclusion that it is not a fit case for granting specific performance. (Man Kaur (dead) by LRS. Vs. Hartar Singh Sangha, (2010)10SCC512)

Conclusion:-
Inasmuch as the conduct of parties is very much important in a suit for specific performance, the party who seek for relief of specific performance must approach the Court of law with clean hands. Further, while preparing plaint and written statement of the parties, proper care and caution must be taken and the relief must be clear and specific. I may conclude with observations of Lord Chancellor Cottenham in Tasker v. Small 1834 (40) English Report 848 that "It is not disputed that, generally, to a bill for a specific performance of a contract for sale, the parties to the contract only are the proper parties; and, when the ground of the jurisdiction of Courts of Equity in suits of that kind is considered it could not properly be otherwise. The Court assumes jurisdiction in such cases, because a Court of law, giving damages only for the non- performance of the contract, in many cases does not afford an adequate remedy. But, in equity, as well as in law, the contract constitutes the right and regulates the liabilities of the parties; and the object of both proceedings is to place the party complaining as nearly as possible in the same situation as the defendant had agreed that he should be placed in. It is obvious that persons, strangers to the contract, and, therefore, neither entitled to the right, nor subject to the liabilities which arise out of it, are as much strangers to a proceeding to enforce the execution of it as they are to a proceeding to recover damages for the breach of it."