Specific Relief Act (SRA)
Liquidation of Damages Not a Bar to Specific Performance: Section 23
Contracts often name a sum payable on breach. Does naming such a sum mean the promisor can simply pay it and walk away, so that specific performance cannot be ordered? Section 23 answers: not by itself. The court asks why the sum was named. If it was named merely to secure performance, specific performance is still available; the promisor cannot buy his way out. Only if the contract truly gives him the option to pay the sum instead of performing is performance barred. This note explains the distinction, the no-double-recovery rule, and the relationship with Section 74 of the Contract Act.
Figure: Section 23: the question is why the sum was named; a clause to secure performance does not bar specific performance, an option to pay instead does
1. The Provision
Section 23 ▪ The rule. A contract is not unenforceable by specific performance merely because it contains a provision for a sum to be paid in case of breach, if the court is satisfied that the sum was named only to secure performance and not to give the party an option of paying money in lieu of performance. ▪ The single question. Was the sum a spur to perform, or the agreed price of not performing? ▪ No double recovery. Where specific performance is decreed, the plaintiff does not also recover the named sum; he cannot have both the performance and the money. |
2. The Two Readings of a Named Sum
What the sum was for ▪ To secure performance. The sum was named to ensure the party performs, as a penalty or liquidated-damages clause. Specific performance is still available; the promisor cannot escape by paying the sum. ▪ To give an option not to perform. The contract shows the parties intended the sum to give the promisor a genuine choice: perform, or pay the sum and be free. Specific performance is not available on that term, because paying the sum is itself a permitted way of performing. ▪ The presumption in practice. A true option to pay instead of performing is rare; the mere presence of a damages or penalty clause does not create one. The court leans towards reading the sum as a security for performance. |
3. Section 23 and Section 74 of the Contract Act
Basis | Section 23, Specific Relief Act | Section 74, Contract Act |
|---|---|---|
Question answered | Does the named sum bar specific performance? | How much money is payable when a sum is named for breach? |
Effect | A damages clause does not, by itself, bar performance | Reasonable compensation, not exceeding the named sum |
Applies to | Liquidated damages and penalty clauses alike | Liquidated damages and penalty clauses alike |
Plane of operation | The availability of the remedy of performance | The measure of the money remedy |
The two sections operate on different planes and do not conflict. Section 74 fixes the measure of money if the injured party sues for money; Section 23 says that naming such a sum does not take away the right to have the contract performed. A liquidated-damages or penalty clause, by itself, is not a bar to specific performance; only a genuine alternative-performance clause is.
4. Frequently Asked Questions
Q. Does a liquidated-damages clause bar specific performance?
A. No. Under Section 23, a clause naming a sum for breach does not bar specific performance if the sum was named only to secure performance and not to give an option to pay instead.
Q. When is specific performance barred by a named sum?
A. Only where the contract shows the parties intended the sum to give the promisor a genuine option to pay it instead of performing, so that paying is itself a way of performing.
Q. Can the plaintiff get both performance and the named sum?
A. No. Where specific performance is decreed under Section 23, the plaintiff does not also recover the named sum; there is no double recovery.
Q. How does Section 23 relate to Section 74 of the Contract Act?
A. They work on different planes: Section 74 fixes the measure of money payable for breach, while Section 23 says that naming such a sum does not, by itself, take away the right to specific performance.
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