Can a Court Force the Other Side to Perform? Specific Performance in Texas

Why damages are the rule and performance the exception

Texas law treats a broken contract as a claim for money. The injured party gets what the bargain was worth, and the breaching party keeps the freedom to pay rather than perform. Specific performance reverses that: the court orders the breaching party to do what it promised. Because it is an equitable remedy, it is available only when the legal remedy is inadequate, and the court has discretion to grant or refuse it. The question for a business is therefore whether what it lost can be replaced with money at all.

When money is not enough

Courts find damages inadequate in a recognizable set of situations:

• Real estate. Every parcel is treated as unique, so a contract to sell land is the paradigm case. That subject has its own article: forcing a real estate sale to close.
• Ownership interests in a closely held business. Shares or LLC interests with no public market cannot be bought elsewhere, and their value is hard to prove. A buy-sell agreement, an option to purchase a departing partner's interest, or a contract to sell a company is often enforced by ordering the transfer.
• Unique or scarce goods. Business and Commerce Code section 2.716 provides that specific performance may be decreed where the goods are unique or in other proper circumstances, and the decree may set terms for payment of the price and other relief. Custom-built equipment, an identified piece of art or machinery, or goods in short supply that cannot be covered qualify; ordinary inventory available on the market does not.
• Exclusive rights. An exclusive license, distribution territory or supply commitment whose loss cannot be measured in lost profits with reasonable certainty.
• Long-term contracts with speculative damages. Where the loss stretches far into the future and depends on too many variables to prove, a court may prefer to order performance rather than guess at a number.

What the claimant must prove

Specific performance follows the ordinary contract case: a valid contract, the claimant's own performance, the defendant's breach. It then adds requirements of its own.

Definite terms. A court cannot order a party to perform a contract whose essential terms are missing or vague. The order has to say what the defendant must do, and if the contract does not supply that, equity will not fill the gap.

Performance or tender by the claimant. The party seeking performance must have done its own part, or offered to, or been excused from doing so by the other side's refusal. The Texas Supreme Court made the point in DiGiuseppe v. Lawler in 2008: a party seeking specific performance must plead and prove that it was ready, willing and able to perform its obligations when due, even where the other side's breach excused an actual tender. A buyer that could not have closed, or a party that could not have paid, does not get the remedy however clear the defendant's breach. Proof of financing or available funds at the relevant time is often the deciding evidence.

Inadequate legal remedy. The claimant must show why damages will not do, using the categories above.

Clean hands and the equities. Because the remedy is equitable, the court weighs the claimant's own conduct, delay in seeking relief, and the hardship an order would impose on the defendant against the benefit to the claimant. A claimant that waited years, or that contributed to the breakdown, may be left with damages.

What a court will not order

Texas courts do not order specific performance of contracts for personal services. An employee, consultant or artist who refuses to perform cannot be compelled to do the work; the remedy is damages and, where a valid restrictive covenant exists, an injunction against competing. Courts are also reluctant to order performance that would require ongoing judicial supervision, such as running a business or completing a construction project to a standard the court would have to monitor, and they will not order a party to perform an act that is illegal or impossible. A contract that gives the defendant a choice of how to perform is enforced only to the extent of what it actually requires.

Damages alongside performance

A claimant can plead specific performance and damages in the alternative and choose after the evidence is in. A court that orders performance can also award incidental damages caused by the delay, such as lost rent or the cost of interim arrangements, so that the order puts the claimant where timely performance would have. What the claimant cannot do is recover the benefit of the bargain in money and also receive the bargain itself. Where specific performance is denied, the case proceeds as an ordinary damages claim, and the measures are covered in what damages a business can recover for breach of contract in Texas.

Clauses that call for specific performance

Many shareholder agreements, buy-sell agreements and supply contracts state that the parties agree damages would be inadequate and that specific performance is an available remedy. Texas courts give such clauses weight as evidence of the parties' intent and of the inadequacy of damages, but the remedy remains equitable and the court keeps its discretion. The clause helps most when it is paired with definite terms: a formula for the price, a date for the transfer, a mechanism for valuing the interest. A clause that announces specific performance for a contract whose key terms are left to future agreement does not cure the indefiniteness.

Example

Suppose two owners of a Dallas engineering firm, organized as an LLC, have a company agreement with a buy-sell provision: when one owner gives notice of withdrawal, the other may buy the withdrawing owner's interest at a price set by a named formula, closing within 90 days. One owner gives notice, the other elects to buy and delivers written confirmation that financing is in place, and the withdrawing owner then refuses to sign the transfer documents because he has a higher offer from a competitor. The remaining owner sues for specific performance. The contract is definite: the price is fixed by formula and the closing date is set. The remaining owner has tendered performance and can prove, with the lender's commitment, that he was ready, willing and able to close. Damages are inadequate because the interest has no market and the loss of control over the firm cannot be priced. A Texas court can order the transfer, and a temporary injunction can prevent a sale to the competitor while the case is pending. The withdrawing owner's defenses would focus on whether the formula was applied correctly and whether the buyer truly had the funds on the closing date.

Procedure and timing

Specific performance is tried to the court as an equitable claim, though fact issues underlying it can go to a jury. Because the remedy depends on the subject still being available, speed matters: a seller who conveys the asset to a good-faith third party before the claimant acts may leave nothing to order. Filing promptly, pleading the remedy expressly, requesting a temporary injunction to preserve the asset, and in real property cases recording a notice of lis pendens, are the steps that keep the remedy alive. A claimant should also preserve proof of its own readiness to perform as of the date performance was due, since that evidence is the one most often found missing at trial.

Whether to pursue performance or damages is a business decision as much as a legal one, and it should be made early with a clear view of what the court can realistically order. Tina Wysk represents Dallas businesses and owners seeking and defending specific performance of purchase, buy-sell and supply agreements in state and federal court.