Contracts Connected with Trusts, and Specific Performance of Part

Section 12: specific performance of part

The rule, and why it exists

"(1) Except as otherwise hereinafter provided in this section, the court shall not direct the specific performance of a part of a contract."

The reason is that a court enforcing part of a bargain is imposing on the parties a contract they never made. If a buyer contracted for a hundred acres, a decree for sixty gives him something different.

But an absolute rule would be unjust in the common case where the vendor can convey almost all of what he promised, and the shortfall is trivial. So sub-sections (2) to (4) create graded exceptions, and the grading turns on how much is left unperformed.

The provision

"(2) Where a party to a contract is unable to perform the whole of his part of it, but the part which must be left unperformed be only a small proportion to the whole in value and admits of compensation in money, the court may, at the suit of either party, direct the specific performance of so much of the contract as can be performed, and award compensation in money for the deficiency.

(3) 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 either

(a) forms a considerable part of the whole, though admitting of compensation in money; or

(b) 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, if the other party

(i) in a case falling under clause (a), pays or has paid the agreed consideration for the whole of the contract reduced by the consideration for the part which must be left unperformed and in a case falling under clause (b) pays or has paid the consideration for the whole of the contract without any abatement; and

(ii) in either case, relinquishes all claims to the performance of the remaining part of the contract and all right to compensation, either for the deficiency or for the loss or damage sustained by him through the default of the defendant.

(4) When a part of a contract which, taken by itself, can and ought to be specifically performed, stands on a separate and independent footing from another part of the same contract which cannot or ought not to be specifically performed, the court may direct specific performance of the former part.

Explanation. For the purposes of this section, a party to a contract shall be deemed to be unable to perform the whole of his part of it if a portion of its subject-matter existing at the date of the contract has ceased to exist at the time of its performance."

The scheme in a table

The two things to notice, because they are what examiners test.

The defaulter loses the right to sue once the shortfall is considerable. Under (2) either party may ask; under (3) only the other party may, and the party who cannot perform is expressly "not entitled to obtain a decree".

Relinquishment is the price of relief under (3). The plaintiff must give up all claim to the remaining part and all right to compensation, and under (3)(b) he must pay the full price with no abatement at all.

The Explanation deems a party unable to perform the whole where a portion of the subject matter existing at the date of the contract has ceased to exist by the time of performance.

The leading case

B. Santoshamma v. D. Sarala, AIRONLINE 2020 SC 858, Supreme Court, 18 September 2020.

Facts. A dispute over an agreement to sell immovable property where the vendor had, after the agreement, sold part of the property to another, so that the whole could no longer be conveyed to the original agreement holder, who sued for specific performance.

Held. A court ordinarily enforces a contract in its entirety by passing a decree for its specific performance, but section 12 carves out exceptions in which the court may direct specific performance of a contract in part. Sub-section (1) states the rule that the court shall not direct specific performance of a part; sub-section (2) permits it where the part left unperformed is a small proportion of the whole in value and admits of compensation in money, with compensation for the deficiency; and the later sub-sections govern the case where the unperformed part is substantial, requiring the plaintiff to relinquish his claim to the remainder and to all compensation.

Why it matters here. It is a recent Supreme Court exposition of section 12, and it shows the section working in the commonest fact pattern, where a vendor has put part of the property beyond his own reach by selling it on.

A worked example

Amrita agrees to sell Bikram an estate of one hundred acres for five crore rupees. Before completion it emerges that she cannot convey the whole.

• She cannot convey two acres, worth about ten lakh, because of a boundary error. A small proportion in value, and it admits of money compensation. Section 12(2): either party may ask for specific performance of the ninety eight acres, with compensation for the deficiency.
• She cannot convey forty acres, worth two crore, having sold them to a third party. A considerable part, but it admits of compensation. Section 12(3)(a): Amrita cannot obtain a decree; Bikram may, if he pays the whole price reduced by the consideration for the forty acres, that is three crore, and relinquishes all claims to the rest and to compensation.
• She cannot convey the ten acres on which the only well stands, and the estate is worthless as farmland without water. The unperformed part does not admit of compensation in money. Section 12(3)(b): Bikram may obtain a decree for the ninety acres only if he pays the whole five crore without any abatement and relinquishes everything else. He must decide whether the land is worth it.
• The contract also included a separate agreement for her to manage the estate for three years, which cannot be specifically enforced because it depends on her personal qualifications. Section 12(4): the sale stands on a separate and independent footing and may be specifically performed although the management agreement cannot.
• A building on the estate existing at the date of the contract burnt down before completion. The Explanation deems Amrita unable to perform the whole, and the case falls to be worked under sub-sections (2) or (3) according to the value of what has gone.
• Amrita is a trustee and the estate is trust property, and she agreed to sell at half its value. Section 11(2) bars the suit altogether: a contract made by a trustee in breach of trust cannot be specifically enforced.

What it does NOT mean

"A court will enforce whatever part of a contract can be performed." The rule in section 12(1) is the opposite, and the exceptions are strictly graded.

"The party who cannot perform may ask for part performance." Only under sub-section (2), where the shortfall is small. Under sub-section (3) he is expressly not entitled to a decree.

"Under section 12(3)(b) the plaintiff pays only for what he gets." He must pay the whole consideration without any abatement, and relinquish all claims. That is the price of the relief.

"Section 11(1) presumes damages inadequate for trust contracts." It used to, through the old section 10. Since 2018 inadequacy is not a condition at all, and section 11(1) simply says such contracts shall be enforced.

"Any contract by a trustee can be enforced." Section 11(2) bars one made in excess of his powers or in breach of trust, and it is one of the three limits section 10 preserves.

Quick revision

• s.11(1): specific performance shall be enforced where the act agreed to be done is in performance wholly or partly of a trust. "shall" substituted for "may, in the discretion of the court" by s.4 of the 2018 Act.
• s.11(2): a contract made by a trustee in excess of his powers or in breach of trust CANNOT be specifically enforced. One of the three limits in s.10.
• s.12(1): the court SHALL NOT direct specific performance of a part of a contract.
• s.12(2): small proportion in value and admits of compensation: either party may sue; performance of what can be done plus compensation for the deficiency.
• s.12(3): only the OTHER party may sue. (a) considerable part, compensable: pay the price less the value of the unperformed part. (b) not compensable: pay the whole price without abatement. In both, relinquish all claims to the remainder and to compensation.
• s.12(4): a part on a separate and independent footing may be performed alone.
• Explanation: a party is deemed unable to perform the whole where part of the subject matter existing at the date of the contract has ceased to exist.
• B. Santoshamma v. D. Sarala, AIRONLINE 2020 SC 858: the court ordinarily enforces in entirety; s.12 carves out the exceptions.

Test yourself

1. What does section 11 provide about trusts? Sub-section (1) provides that, except as otherwise provided in the Act, specific performance of a contract shall be enforced when the act agreed to be done is in the performance wholly or partly of a trust; the word "shall" replaced "may, in the discretion of the court" in 2018. Sub-section (2) provides that a contract made by a trustee in excess of his powers or in breach of trust cannot be specifically enforced, and it is one of the three limits preserved by section 10.

2. State the rule and the exceptions in section 12. The rule in sub-section (1) is that the court shall not direct specific performance of part of a contract. Sub-section (2) allows it where the unperformed part is a small proportion in value and admits of compensation in money, at the suit of either party and with compensation for the deficiency. Sub-section (3) allows it, only at the suit of the party not in default, where the unperformed part is considerable or does not admit of compensation, on payment of the price on the terms it specifies and on relinquishment of all other claims. Sub-section (4) allows performance of a part standing on a separate and independent footing.

3. What must a plaintiff give up to obtain relief under section 12(3)? He must relinquish all claims to the performance of the remaining part of the contract and all right to compensation, whether for the deficiency or for the loss or damage sustained through the defendant's default. In a case under clause (a) he pays the agreed consideration for the whole reduced by the consideration for the unperformed part; in a case under clause (b) he pays the consideration for the whole without any abatement.

4. Can the party who is unable to perform ask for part performance? Only under sub-section (2), where the part left unperformed is a small proportion of the whole in value and admits of compensation in money, since that sub-section allows a suit by either party. Under sub-section (3) he is expressly not entitled to obtain a decree, and only the other party may seek one.

5. What does the Explanation to section 12 deem? That a party shall be deemed unable to perform the whole of his part of the contract if a portion of its subject matter which existed at the date of the contract has ceased to exist at the time of its performance. So a destroyed building or a lost parcel brings the case within the sub-sections on part performance rather than leaving the contract simply unenforceable.