Claim to Performance in Contractual Law

The Claim to Performance in Contractual Law

In the Principles of European Contract Law (PECL)

The issue

Most contracts contain a promise of performance. One party undertakes to provide goods, rights or services, and the other side undertakes to pay a sum of money in return. If one party reneges on his promise, however, the problem arises as to whether that party can be sued for specific performance or only for damages arising from non-performance.

The basic rule governing monetary payments

The continental legal systems allow a creditor to require performance of a contractual obligation to pay money. In common law too, an action to enforce payment of an agreed sum of money is often possible, although this remedy is limited in certain respects, and such an action may be brought only when the price has been “earned” by performance; see the British and Irish Sale of Goods Acts, section 49(1). Nevertheless, in both types of legal system the creditor can tender his performance to the other party and can subsequently claim payment of the price. This is also the main rule in the Principles of European Contract Law (see Article 9:101(1)).

Exceptions

But should it always apply, even though a buyer of goods or services does not want them and is unwilling to receive and pay for them?. Experience gained from common law and Scottish cases seems to indicate that there should be exceptions from the main rule. In cases other than sale of goods the rule in common law and in Scots law now appears to be that if a party repudiates a contract, and if at the date of the repudiation the other party has no legitimate interest in performing, he is confined to an action for damages, and his recovery will be subject to his obligation to mitigate his loss. The onus is on the repudiating party to show that the other party has no legitimate interest in performing.

Most continental systems do not recognise restrictions upon a claim for payment of the price. The forerunner of the United Nations Convention on Contracts for the International Sale of Goods (CISG), the Uniform Law on Contracts for the International Sale of Goods (ULIS) of 1964 provides in Article 61(2) that a seller shall not be entitled to require payment of the price by the buyer if it is in conformity with usage and reasonably possible for the seller to resell the goods. In that case the seller may only claim damages. The United Nations Convention on Contracts for the International Sale of Goods however, has not imposed this restriction on the seller’s right to perform and claim the price.

It has been reintroduced in the PECL. The underlying consideration is that a debtor should not have to pay for a performance which he does not want in cases where the creditor can easily make a cover transaction or in other cases where it would be unreasonable to oblige the debtor to pay the price.

Non-monetary obligations

In common law, specific performance of a non-monetary obligation is a discretionary remedy based on equity. However, the discretion exercised by the courts is not an arbitrary discretion but one which is governed by rules. One is that specific performance will only be granted where damages are inadequate. The sale of land is a prime example. In the civil-law countries the aggrieved party’s right to specific performance is generally recognised. In German law this right is regarded as axiomatic.

owever, civil law makes exceptions too. On the Continent specific performance is not available when performance has become impossible or unlawful. In several civil- and common-law countries, specific performance will also be refused if it would be unreasonable to grant it, if, for instance, the cost of raising a ship which has sunk after it was sold would considerably exceed the value of the ship. Nor is performance available for contracts which consist in the provision of services or work of a personal character, and in several countries a performance which depends upon a personal relationship such as an agreement to establish or continue a partnership; in such a case, the defaulting partner cannot be legally compelled to play an active role in the partnership. These exceptions show that the difference between civil and common law is ultimately far smaller than might appear at first sight. Furthermore, even in the civil-law countries an aggrieved party will generally pursue an action for specific performance only if he has a particular interest in performance which damages would not satisfy.

The United Nations Convention on Contracts for the International Sale of Goods formula

In spite of the many points of resemblance in results, the civil and the common lawyers did not agree on common rules when the United Nations Convention on Contracts for the International Sale of Goods was drafted. Article 46 states that “The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement”. Article 28, on theother hand, stipulates that, “If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by the Convention”. In other words, the lawyers agreed to differ. Thus Article 46 of the United Nations Convention on Contracts for the International Sale of Goods reflects the position of the civil-law countries of continental Europe, while Article 28 reflects the common-law position.

The Principles of European Contract Law formula

This partition was unnecessary. The civil-law countries could have allowed the possibility of restricting specific performance to the situations for which this remedy is needed in pratice. The common-law countries could have conceded that in these situations specific performance as a genuine right, rather than a discretionary remedy (see above), is the appropriate solution. This compromise forms the basis of the formula adopted in Article 9:102(1) and (2) of the Principles of European Contract Law.

Article 9:102(2) provides that:

“Specific performance cannot, however, be obtained where
(a) performance would be unlawful or impossible, or
(b) performance would cause the obligor unreasonable effort or expense, or
(c) the performance consists in the provision of services or work of a personal character or depends on a personal relationship, or the aggrieved party may reasonably obtain performance from another source”.

The commentary on these provisions states that that the exception defined in third item is explained by the consideration that an order to perform personal services or work would severely restrict a party’s personal freedom. Further, such performance rendered under duress would often be unsatisfactory and, finally, it would be difficult for a court to supervise the proper enforcement of the order. The exception defined in item (d) is explained by very similar considerations. The rules governing the means and procedure for enforcing a judgment for performance are left to the national legal system. These rules differ between the civil-law and the common law-countries, and this may render the common-law phrase “specific performance”, as used in Article 9:102 of the Principles of European Contract Law, somewhat dubious. Nevertheless, it is used for want of a better and generally comprehensible term.

Source: Ole Lando, European Parliament

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