What Is a Specific Performance Clause?
A specific performance clause is a specialized type of contractual equitable relief that may require a defendant to complete the terms of a contract when the court believes that no other remedy (for example, money) will sufficiently compensate the injured party.
Parties to an agreement may insert a specific performance clause into the contract to protect their interests in the event of a breach of contract by either party, especially when the awarding of a monetary award may be deemed inadequate.
For example, a contract for the sale of a specific piece of property, from which the owner pulls out, may result in a specific performance order requiring the seller to complete the sale to put the buyer in the position they would have enjoyed if the contract had been honored in the first place.
- A specific performance clause is part of a contract that calls for the party that breaches a contract to fulfill the terms of the contract (as opposed to paying a monetary penalty).
- Specific performance clauses are used primarily in cases where a monetary award would not be sufficient.
- To have a specific performance clause invoked, an injured party must prove that the contract is valid, that they have lived up to the terms of the contract, that the defendant could have done the same but did not do so, and that a monetary award is not sufficient.
- Specific performance is a type of equitable relief and is rarer than legal (monetary) relief.
How a Specific Performance Clause Works
A specific performance clause is typically enforced by a court when money cannot adequately compensate the injured party and when the contractual obligation is unique or difficult to value.
In New York state, for example, a court will order specific performance only if the non-breaching party can prove that:
- The underlying contract is valid and enforceable.
- The plaintiff has performed (or the court believes it will perform) its contractual obligations.
- The defendant could perform its obligations but has failed to do so.
- A monetary remedy is not sufficient.
In addition to real estate, which is considered unique, courts have deemed other commodities appropriate for specific performance clauses. These include works of art, custom-made products, and items that are in short supply.
Specific Performance vs. Monetary Compensation
As noted above, specific performance is a type of equitable relief. Equitable relief is a court-ordered action rather than a monetary award. Equitable relief is often granted when monetary compensation is not adequate. Monetary compensation is a type of legal relief.
Before specific performance or some other form of equitable relief is ordered, the court may require that monetary damages are not available or, more likely, that it is difficult to calculate the actual amount of damages.
Monetary compensation, on the other hand, is a type of legal remedy and can include compensation for damages, reimbursement, or even punitive damages. Monetary compensation is a much more common type of remedy than specific performance.
Sample Specific Performance Clause
“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 and 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 the necessity of proving the inadequacy of money damages as a remedy, including an order of the Bankruptcy Court requiring any Party to comply promptly with any of its obligations hereunder.”
Examples of a Specific Performance Clause
Suppose an art collector paid $1 million for a famous van Gogh painting, but the seller changed their mind at the last minute and did not deliver the painting. In a normal contract transaction, the buyer would be entitled to their money back. If the contract included a specific performance clause, in the event of a breach of contract suit, the court would likely enforce the clause and require the seller to relinquish the painting rather than refund the buyer his money.
Typically, specific performance disputes are more complicated than the example above. Such a case involved the contract between Elon Musk and X Corp. (formerly Twitter) for Musk to purchase the social media platform Twitter for $44 billion. At one point, Musk wanted to back out of the agreement, and X Corp. threatened to take him to court to enforce the specific performance clause that both parties signed. Musk, however, contended that X Corp. failed to disclose information about the number of Twitter users that are bots (not humans). The legal controversy ended when Musk decided to fulfill the contract.
What's a Specific Performance Clause?
A specific performance clause is a part of some contracts, agreed to by both parties, to require the contract to be completed even if one party breaches or fails to perform their obligations under the contract.
When Will a Court Enforce a Specific Performance Clause?
Specific performance clauses are typically enforceable only if the underlying contract is fair and equitable. If the contract is deemed by the court to be one-sided or unfair, then enforcement of a specific performance clause is not likely.
How Can a Party Defend Against a Specific Performance Clause?
If the injured party delayed bringing their lawsuit for an unreasonable period of time or otherwise didn’t perform their obligations or provided false information, a court is not likely to enforce a contract’s specific performance clause.
The Bottom Line
The purpose of a specific performance clause is to provide protection for both parties to a contract or agreement when simple monetary compensation would not be adequate. This could involve the purchase or sale of unique property such as real estate, artwork, or other valuables.
A specific performance clause is typically enforceable as long as it is fair to both parties, and as long as the injured party can prove that the defendant failed to live up to their obligations and that they (the injured party) lived up to theirs. The injured party must also demonstrate that a monetary award is insufficient.