B. Specific Performance

Author:John D. McCamus
Profession:Professor of Law. Osgoode Hall Law School, York University

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1) Introduction

The basic principle concerning the awarding of decrees of specific performance requiring the party in breach personally to perform the obligation that has been breached is that such relief is available only on an exceptional basis. In the normal case, then, the innocent party must be content with a claim for damages for breach of contract. The central limitation on the availability of such relief is a general rule that specific relief is available only where the remedy of damages at common law is, in some sense, inadequate. We will examine later the general nature of that test as it is applied in the context of certain standard types of transactions. There are, however, other limiting principles. Thus, it is commonly said that equity will not grant such a decree where it potentially involves the court in the supervision of complex tasks or obligations to be performed over a long period of time. Further, and less defensibly, specific relief will not be available, or so it is said, when the remedy is not one that is potentially available to both parties. This so-called doctrine of mutuality has been a source of considerable confusion in the law relating to specific performance. Specific relief is denied where the

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order operates unfairly by privileging an unworthy plaintiff or imposing undue hardship on a party. In some contexts, relief is denied on grounds of public policy that is relevant to the particular transaction type. Further, other equitable principles of more general application may have the effect of confining the availability of the decree. Each of these limitations on the availability of specific relief will be further considered later. Finally, the manner in which awards of specific performance can be coupled with or replaced by monetary awards will be considered.

Although the exceptional nature of specific relief may seem to follow logically or naturally from the curative role historically performed by the courts of equity, it is less than obvious that the restricted availability of this form of relief can be otherwise defended on policy grounds. Specific relief is generally more widely available in civilian systems. Before turning to consider the doctrines constraining the availability of such relief in the common law system, it may be useful to speculate on the basis on which the more restrictive approach can be defended if, indeed, such a defence is possible. Identification of the possible rationale for severely limiting specific relief has been of particular interest to law and economics scholars. Two of the leading contributors to the literature reach opposite conclusions.

Kronman,4on the one hand, defends the existing rule on the basis that most contracting parties, if they had considered the matter at the time of contracting, probably would have agreed that specific relief should be available only where the subject matter of the contract is unique in such a way as to render damages at common law an inadequate form of relief. Kronman begins with the proposition that where goods are unique, damages at common law run the risk of under-compensation. Where, for example, goods are readily available in the marketplace, courts are more likely to have an information base upon which to calculate more or less accurately the value of the goods to the purchaser. As the subject matter of the contract becomes increasingly unique, however, the court’s ability to calculate the value of the particular goods to the plaintiff becomes more difficult with consequent risk of undercompensation. Further, although damages generally do not compensate for the purchaser’s search costs, the search costs related to goods that are readily available in the market is likely to have produced information of continuing use to the purchaser. Where the goods

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are unique, this is less likely to be the case. Accordingly, a rational promisee would be willing to pay more for a right to compel specific performance in cases where the risks of undercompensation are at their highest, that is, in the context of an agreement to purchase a unique commodity. While promisors would, of course, be generally reluctant to agree to specific relief, a promisor is likely to be most concerned about yielding such a right in cases where better offers for the purchase of the subject matter of the contract are a distinct possibility. In general, the likelihood of such offers should diminish as the goods become more and more unique. Accordingly, a promisor who fully intends to perform is less likely to resist a contractual stipulation of specific relief in circumstances where the goods are unique. In the context of unique chattels, then, the promisee may be especially willing to pay a premium for a right to specific relief and the promisor may be especially willing to sweeten the price in return for granting the promisee an entitlement of this kind. On this view, then, the existing rule replicates the bargain that rational parties would construct and, by doing so, promotes efficient conduct by reducing the cost of negotiating agreements.

Schwartz,5on the other hand, favours the civilian approach of making specific performance routinely available. Schwartz offers three reasons for this. First, contract damages are likely to be undercompensatory or inadequate as they fail to compensate for certain incidental losses - such as the costs of finding a substitute performance - upon which it is difficult to place and prove a financial value. Second, promisees are likely to prefer money damages at law in cases where substitute performance is obtained with relative ease and money damages are therefore an adequate remedy. A rational promisee would prefer a substitute supplier rather than to continue dealings with a reluctant promisor or, indeed, to endure the delays inherent in the pursuit of equitable relief. Where damages are adequate, the rational promisee will prefer to arrange a substitute supplier promptly and, if necessary, sue for damages in due course rather than await the outcome of a claim for specific relief. Third, promisees are likely to be better than courts in making a judgment as to whether damages constitute an adequate remedy for the promisee and, further, the nature of the difficulties involved in coercing the promisor to perform. Promisees are thus more likely than the courts to be able to accurately predict whether a decree of specific performance would induce satisfactory performance from the promisor. As promisees are more likely than courts to be able to determine whether specific performance is an appropriate remedy, courts

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ought to defer to their judgment on this point. This is essentially the civilian approach.

There are additional considerations that may be thought to support the existing common law rule. The current rule may be defended on the basis of the policies that underlie the doctrine of mitigation.6To the extent that an innocent party may reasonably pursue specific relief, the need to engage in mitigation is, temporarily at least, suspended. If the duty of mitigation is defensible on the basis of efficiency concerns, such arguments thus run in favour of a restrictive approach to specific performance. An additional concern with a more expansive approach to specific performance rests on the capacity of such decrees to result in an overcompensation of the innocent party. One who seeks specific performance of a contract for the purchase of land, for example, can avoid the duty to mitigate at the time of breach and, if the subject matter of the contract inflates in value by the time of the trial, enjoy what may be considered to be an unearned windfall. The purchaser may be in a better position than if the contract had been performed in a timely fashion. Where, in the typical case of the purchase of a residential property, the purchaser owns an existing home that he or she will sell upon completion of the transaction in question, the purchaser may have enjoyed a substantial increase in the value of the existing property by the time of trial and will add to this profit the increase in the value of the subject matter of the sale. Moreover, the purchaser may have avoided the carrying costs associated with the subject property during the period from the date of breach until the time of trial. If specific performance of the transaction enjoys success, the purchaser will enjoy the increased value of the subject matter of the sale without being required to offset saved expenses of this kind and may enjoy, as well, the increase in value of the property retained by the purchaser during this period. The ultimate test of this proposition arises in the context of the calculation of damages in lieu of specific performance. In that context, the Supreme Court of Canada has recently held that neither the saved expenses nor the profit from the increase in value of the purchaser’s existing property can be deducted from the claim.7On that occasion, the Court conceded that damages unaffected by these calculations constituted a windfall for the plaintiff purchaser8but felt that such a wind-fall was necessary in order to replicate the inherent characteristics of a specific performance decree. Interestingly, the Court further asserted,

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in light of this analysis, that a restrictive view should be taken of the availability of specific performance in cases of this kind. In short, the capacity of specific performance to overcompensate the plaintiff suggests that the current approach of restricted availability can draw support from the policies underlying the common law’s general approach to calculating...

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