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Equitable remedy in contract law

Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, but otherwise is not generally available if damages are an appropriate alternative. Specific performance is almost never available for contracts of personal service, although performance may also be ensured through the threat of proceedings for contempt of court. An injunction, often concerning confidential information or real property, is a type or subset of specific performance and is one of the more commonly used form of specific performance. While specific performance can be in the form of any type of forced action, it is usually to complete a previously established transaction, thus being the most effective remedy in protecting the expectation interest of the innocent party to a contract. It is usually the opposite of a prohibitory injunction, but there are mandatory injunctions that have a similar effect to specific performance and these kinds of distinctions are often difficult to apply in practice or even illusory. At common law, a claimant's rights were limited to an award of damages. Later, the court of equity developed the remedy of specific performance instead, should damages prove inadequate. Specific performance is often guaranteed through the remedy of a right of possession, giving the plaintiff the right to take possession of the property in dispute. As with all equitable remedies, orders of specific performance are discretionary, so their availability depends on its appropriateness in the circumstances. Such orders are granted when damages are not an adequate remedy and in some specific cases such as land (which is regarded as unique).

In practice, specific performance is most often used as a remedy in transactions regarding land, such as in the sale of land where the vendor refuses to convey title. One traditional justification for this position is that land is unique and that there is not another legal remedy available to put the non breaching party in the same position had the contract been performed. However, modern decisions in at least one common law jurisdiction (Ontario) have argued that "uniqueness" is only a proxy for the real conceptual justification of specific performance, which is that it is fundamentally an open ended rule of justice and will be awarded wherever the plaintiff shows that the land in question, rather than damages, better serves justice between the parties in all the circumstances. However, the limits of specific performance in other contexts are narrow. Moreover, performance based on the personal judgment or abilities of the party on which the demand is made is rarely ordered by the court. The reason behind it is that the forced party will often perform below the party's regular standard, when it is in the party's ability to do so. Monetary damages are usually given instead. Traditionally, equity would only grant specific performance with respect to contracts involving chattels where the goods were unique in character, such as art, heirlooms, and the like. The rationale behind this was that with goods being fungible, the aggrieved party had an adequate remedy in damages for the other party's non performance. In the United States, Article 2 of the Uniform Commercial Code displaces the traditional rule in an attempt to adjust the law of sales of goods to the realities of the modern commercial marketplace. If the goods are identified to the contract for sale and in the possession of the seller, a court may order that the goods be delivered over to the buyer upon payment of the price. This is termed replevin. In addition, the Code allows a court to order specific performance where "the goods are unique or in other proper circumstances", leaving the question of what circumstances are proper to be developed by case law. The relief of Specific Performance is an equitable relief which is usually remedial or protective in nature. In the civil law (the law of continental Europe and much of the non English speaking world) specific performance is considered to be the basic right. Money damages are a kind of "substitute specific performance." Indeed, it has been proposed that substitute specific performance better explains the common law rules of contract as well, see (Steven Smith, Contract Law, Clarenden Law ). In English law, in principle reparation must be done in specie unless another remedy is ‘more appropriate’.

There is an ongoing debate in the legal literature regarding the desirability of specific performance. Economists, generally, take the view that specific performance should be reserved to exceptional settings, because it is costly to administer and may deter promisors from engaging in efficient breach. Professor Steven Shavell, for example, famously argued that specific performance should only be reserved to contracts to convey property and that in all other cases, money damages would be superior. In contrast, many lawyers from other philosophical traditions take the view that specific performance should be preferred as it is closest to what was promised in the contract. There is also uncertainty arising from empirical research whether specific performance provides greater value to promisees than money damages, given the difficulties of enforcement.

In contract theory, economists have compared specific performance to at will contracts. Suppose that a seller and a buyer have agreed to trade a good in the future. In the case of specific performance, delivery of the good can be mandated by the court, while in the case of at will contracting, the seller always has the right to walk away from the contract. Hart and Moore (1988) have shown that if only at will contracts are enforceable, then the parties have insufficient incentives to make relationship specific investments. Subsequently, several authors such as Aghion et al. (1994) have shown that the underinvestment problem (sometimes called the hold up problem) can be solved if specific performance contracts are feasible. However, these conclusions rely on the assumption that there are no information asymmetries. Schmitz (2022) has pointed out that if the seller may gain an informational advantage over the buyer after the contract has been signed, then at will contracts may sometimes be preferable from an economic efficiency point of view.