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– Ajar Rab†
Traditionally, the term ‘specific performance’ means the original entitlement due under a contract.[1] In simpler terms, a party receives what was originally intended at the time of entering into the contract. When a party does not receive its original entitlement, and in the alternative, receives a substitutionary relief, i.e., compensation for the breach of contract, such a substitutionary relief falls within the concept of ‘damages’.[2]
A vital yet often missed distinction between specific performance and substitutionary relief is that specific performance means enforcing the contract, while compensatory or substitutionary relief means bringing a party as close to the position initially intended had the contract not been breached, i.e., expectation damages. Though this distinction appears simple, the existing jurisprudence under the common law on payment of the price of goods obscures this distinction leading to unintended consequences for commercial parties.
‘Suit for Price’ under Common Law
Under the common law, an ‘action for debt’ (an action to recover the money that was legally owed) was recognized and enforced by the courts of law, and specific performance was equitable relief granted by the courts of equity. Therefore, an action for the price of goods was not ‘specific performance’ but an ‘action of debt’. This position is statutorily recognized under Section 55 of the Sale of Goods Act,1930 (“SOGA”) which grants the seller the right to file a ‘suit for price’. The current jurisprudence on a ‘suit for price’ of goods treats an action for the price as a distinct remedy from specific performance blurring the lines between specific and substitutionary relief.
When a party to a contract to a sale of goods brings a claim for the price of the goods, a party seeks the original entitlement under the contract, which is nothing else but specific relief. The party is not claiming expectation damages or other substitutionary relief to bring itself closer to a position where the contract had not been breached. Instead, the party requests the court to enforce the contract between the parties and direct the party to pay the contractually agreed sum. Therefore, a ‘suit for price’ under Section 55 of the SOGA is nothing but disguised specific performance.
The argument has found currency in US jurisprudence too. A claim for the price of goods despite being monetary in nature constitutes a specific relief as it is in the nature of fulfilling the claimant’s original entitlement. Such a claim is not intended to provide for a substitute through damages. The logical corollary then is that an ‘suit for price’ is, in fact, an ‘action for debt’ to recover a specific sum. Hence, it is not conceived as a claim for breach of contract but as a property claim analogous to a claim for a specific chattel with the specific sum of money instead of the chattel.[3]
Determination of the Nature of the Remedy
Therefore, the legal consequence of a ‘suit for price’ is that a suit can only be brought if the contract has not been terminated since specific performance means the enforcement of a contract. Specific relief cannot be granted where the contract no longer exists. Contract enforcement in such cases is limited to the violation of those rights which survive termination, and a claim for money would not fall under such rights.
Post-termination, a claim can only be brought for expectation damages in the nature of substitutionary relief. The practical problem in such cases is the computation of expectation damages or what was originally referred to as Assumpsit (allowing damages for breach) under common law. The courts tend to compensate the delay by awarding interest which is discretionary. Interest cannot be claimed as a matter of right, unless it was part of the contract. Even in such cases, the courts may alter the rate of interest and hence, the burden of proof of the claimant is more in claiming and computing substitutionary relief. Therefore, loss of profit, mesne profits, and other similar claims require proof and a basis of assessment before a court can grant compensation under such heads. Moreover, a claim for expectation damages has to pass the muster of Section 73 of the Indian Contract Act, 1872 and the award of the actual sum is subject to the discretion of the court.
The Confusion Under the Sale of Goods Act
The trouble with the present jurisprudence is that Section 55 of the SOGA refers to a ‘suit for price’ as a remedy for the seller, and specific performance under Section 58 of the SOGA is available only for the buyer. Even courts have confused the nature of the remedy under Section 55 of the SOGA as a remedy distinct from specific performance,[4] even though a suit for the price is at its core a claim for the original entitlement under the contract.
The Effect of the Murky Jurisprudence
This murky jurisprudence and lack of discussion on the nature of the remedy under Section 55 of the SOGA is bound to have unintended consequences on claims, especially after introducing the 2018 Amendment to the Specific Relief Act, 1963 (“Relief Act”), which mandates specific performance of all contracts. Earlier damages was the primary remedy, and specific performance was the exception. Section 10 of the Amendment states that “specific performance of all contracts shall be enforced by the court…”. The implication of the amendment is that all contracts must necessarily be performed and hence substitutionary relief is a secondary remedy, in addition to specific performance. However, Section 3 of the SOGA has an overriding effect only to the extent of inconsistency with the Indian Contract Act, 1872 and not over the Relief Act. Hence, it is unclear whether a suit for price would now fall under Section 10 of the Relief Act and the claim will be specifically enforced, or would the suit be for a monetary claim distinct from specific performance.
In the absence of appropriate categorization and discussion on the nature of remedies under Section 55 of the SOGA, a party may effectively be barred from claiming the price of the goods if the contract has been terminated (as the courts cannot order specific performance of a terminated contract). In such cases, a party will have to demonstrate how it has computed the damages and whether there was any mitigation of damages. On the other hand, if the remedy under Section 55 of the SOGA is one of specific performance, the party claiming the price only has to establish its legal right to the price, the sum due and that it is ready and willing to perform the contract.[5]
Though it may be argued that the claimant ultimately will receive the money whether the remedy is classified as specific performance or not, the classification is imperative for a fair adjudication of the quantum of money due and the process of ascertaining such amount. The final relief and the process of claiming it will be materially different if the nature of relief to be given under Section 55 of the SOGA is specific or substitutionary. It would be best if Section 55 of the SOGA is revised to explicitly recognize a claim for the price of the goods to mean specific performance to bring the contract regime inline with the intent of the 2018 amendment to the Specific Relief Act, 1963.
† Ajar Rab is Partner at Rab & Rab Associates LLP, Dehradun, Adjunct Professor at NUJS Kolkata and Visiting Professor at NLSIU, Bengaluru. The Author would like to thank Rebecca Cardoso, student at Jindal Global Law School for her research assistance and valuable inputs.
[1] Dobbs DB, Dobbs Law of Remedies: Damages, Equity, Restitution (West Pub Co 1993).
[2] Indian Contract Act 1872, s 73.
[3] Dobbs DB, Dobbs Law of Remedies: Damages, Equity, Restitution (West Pub Co 1993).
[4] Kedarnath and Sons v The India United Mills Ltd. 1956 (58) BOMLR 907, p 13; Om Builders (P) Ltd. v Anil Chinubhai Kilachand and Ors MANU/MH/2607/2015, p 16; Sundara Ramanujam Naidu v. Sivalingam Pillai and Ors MANU/TN/0091/1923, p 3; Mrs Preeti A. Lotlikar v Auspicio Rodrigues 2012 SCC OnLine Bom 731, p 17; P.R. and Co. v Bhagwandas Chaturbhuj MANU/MH/0130/1908, p 24; P. Bhashyakarlu Naidu v Nungambakkam Andalammal MANU/TN/0121/1918, p 4.
[5] Specific Relief Act 1963, s 16.
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