Substituted Performance of Contract

Broken down

The conditions, in order

A problem question on section 20 is answered by walking down this list.

1. A contract broken by non performance of a promise. The section is triggered by non performance, not by defective performance as such.
2. The parties have not agreed otherwise. The words "except as otherwise agreed upon by the parties" make the remedy contractually excludable. A well drafted contract may take it away.
3. Written notice of not less than thirty days, calling on the party in breach to perform within the time the notice specifies. Sub-section (2) makes this mandatory: no substituted performance may be undertaken without it.
4. Refusal or failure to perform within that time.
5. The work is then actually done, by a third party or by the aggrieved party's own agency.
6. He recovers the expenses and other costs actually incurred, spent or suffered.

The proviso: performance must actually happen

The party in breach is not liable for the expenses unless the aggrieved party has got the contract performed. So a party who serves notice and then does nothing recovers nothing under this section. The remedy is for money actually spent, not for an estimate.

Sub-section (3): the election

Having gone down this road, he cannot claim specific performance. The reason is obvious once stated: the contract has been performed, by somebody, so there is nothing left to perform.

The same point appears twice more in the Act, and the three should be cited together:

• section 14(a): such a contract cannot be specifically enforced;
• section 16(a): specific performance cannot be enforced in favour of a person who has obtained substituted performance.

Sub-section (4): compensation survives

Nothing prevents him claiming compensation from the party in breach. So substituted performance and damages are cumulative, not alternative.

Do not double count. The expenses of getting the work done are recovered under sub-section (1). Compensation under sub-section (4) is for other loss the breach caused, for example the profit lost during the delay, assessed on the principles in section 73 of the Contract Act.

Substituted performance compared with the other remedies

The great practical advantage is speed. The aggrieved party does not have to wait for a decree. He gives thirty days, gets the work done, and litigates afterwards about the bill.

A worked example

Rashi engages Suhas to install a cold storage unit at her warehouse by 1 June for forty lakh rupees. He abandons the work in April with the unit half installed.

• Can Rashi simply engage somebody else and bill Suhas? Only by following section 20. She must first give written notice of not less than thirty days calling on him to perform within the time specified.
• She gives notice on 15 April requiring completion by 20 May. That is more than thirty days, so the notice is good.
• He does not respond. On his refusal or failure, she may get the work done by a third party or by her own agency.
• She engages another contractor who completes it for twenty six lakh. She may recover from Suhas the expenses and other costs actually incurred, spent or suffered.
• She serves notice, he ignores it, and she does nothing for a year. The proviso bars her: she is not entitled to the expenses unless she has got the contract performed.
• Having completed through the third party, she also sues for specific performance. Barred, by section 20(3), and by sections 14(a) and 16(a).
• She also lost three months of storage revenue. Sub-section (4) preserves her claim to compensation, assessed under section 73 of the Contract Act. She recovers the expenses under (1) and the lost revenue under (4), taking care not to count the same loss twice.
• The contract said "the remedy of substituted performance under section 20 shall not be available". The section applies "except as otherwise agreed upon by the parties", so the clause is effective and Rashi is left to her other remedies.

What it does NOT mean

"Section 20 is about the court's discretion." That was the old section 20, replaced in 2018.

"The aggrieved party can start work immediately." Sub-section (2) requires written notice of not less than thirty days first, and forbids substituted performance being undertaken without it.

"He can recover the estimated cost." Only expenses and other costs actually incurred, spent or suffered, and only if the contract has in fact been performed.

"He can have both substituted performance and specific performance." Sub-section (3) forbids it, and sections 14(a) and 16(a) repeat the bar.

"Substituted performance replaces damages." Sub-section (4) preserves the claim to compensation, so the two are cumulative.

"The remedy cannot be excluded." It applies except as otherwise agreed, so the parties may contract out of it.

Quick revision

• s.20, substituted by s.10 of the 2018 Act, in force 1 October 2018. MU's topic 4.2.4. The old s.20 was "Discretion as to decreeing specific performance"; the group heading changed from "Discretion and powers of Court" to "Substituted performance of contracts, etc."
• (1) On a breach by non performance, and except as otherwise agreed, the aggrieved party has the option of substituted performance through a third party or by his own agency, and may recover the expenses and other costs actually incurred, spent or suffered.
• (2) Mandatory written notice of not less than THIRTY DAYS, calling for performance within the time specified. Proviso: no recovery of expenses unless the contract has actually been performed.
• (3) Having done so, he cannot claim specific performance. See also s.14(a) and s.16(a).
• (4) He may still claim compensation, assessed under s.73 of the Contract Act. Do not double count the expenses.
• The advantage is speed: no decree is needed to begin.

Test yourself

1. State section 20 and say what it replaced. Where a contract is broken by non performance, and except as otherwise agreed by the parties, the party who suffers has the option of substituted performance through a third party or by his own agency and may recover from the party in breach the expenses and other costs actually incurred, spent or suffered. It replaced the old section 20, which was headed "Discretion as to decreeing specific performance", the substitution being made by section 10 of the Specific Relief (Amendment) Act 2018 with effect from 1 October 2018.

2. What procedure must be followed before substituted performance? The party who suffers the breach must give the party in breach a notice in writing of not less than thirty days calling upon him to perform the contract within the time specified in the notice. Only on his refusal or failure to do so may the aggrieved party get the contract performed by a third party or by his own agency, and sub-section (2) forbids substituted performance being undertaken without that notice.

3. When can the expenses be recovered? Only where the aggrieved party has in fact got the contract performed through a third party or by his own agency, as the proviso to sub-section (2) requires, and only to the extent of the expenses and other costs actually incurred, spent or suffered. A party who serves notice and does nothing recovers nothing under the section.

4. Can a party who takes substituted performance also seek specific performance or damages? He cannot seek specific performance: sub-section (3) bars it, and sections 14(a) and 16(a) say the same from the other direction. He can seek compensation, because sub-section (4) provides that nothing in the section prevents the party who has suffered the breach from claiming compensation, which is assessed on the principles in section 73 of the Contract Act.

5. Why is MU's topic 4.2.4 evidence that the syllabus follows the amended Act? Because "Substituted Performance of Contract" is the marginal note of section 20 only since 1 October 2018. Before that date section 20 conferred the court's discretion as to decreeing specific performance, and the remedy of substituted performance did not exist anywhere in the Act. A syllabus naming that topic must therefore be built on the amended Act.