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The rules of equity and promises

A promise may be defined as an act of binding oneself upon a valuable consideration by words to do or perform the promised act in agreed terms and upon conclusion of the agreement a legal action can be grounded on the terms of promise.

Promises are in the form of declarations which bind individuals who make it, either in honour, conscience, or law, to do or for-bear a certain specific act, and which gives to the person to whom made a right to expect or claim the performance of some particular thing. A promise is also a declaration, verbal or written, made by one person to another for a good or valuable consideration, in the nature of a covenant by which the promisor binds himself to do or forbear some act, and gives to the promise a legal right to demand and enforce a fulfilment.1

These types of promises are usually made either by natural persons or legal entities at an arm's length. By arm's length we mean that there are no hidden conditions attached to such agreements or promises and the same have been agreed on equitable terms.2

Despite all care and prudence such promise and agreements give rise to disputes. These disputes are the result of many causes, and obviously give rise to confrontations between the promisor and promise. For example, one may allege existence of inequality between the parties, since all these conflicts spring from failed promise and lead to litigation.

Parties often allege many novel causes for refusing to fulfil their promises. The courts have often held that mutual relationship between the parties springs from an equitable relationship. This lack of understanding of the nature of promise may give rise to questions and may possibly guide us to understand the true nature of equity in relations to contracts. This write up accordingly examines the inter se relationship of equity, and promises.

By the term 'equity' we mean a fair and just treatment amongst the members of society. An element of fairness is the hallmark of an equitable environment. The modern constitutions of the states guarantee the protection of law and to be treated in accordance with law to all citizens.3 It means that no person or class of persons shall be denied the same protection of law, which is enjoyed by other persons or other classes in like circumstances in their lives and in pursuit of happiness.4

The concept of equity also becomes important when we talk of distribution of income amongst the member of society. Such programs are evaluated in terms of vertical and horizontal equity. Horizontal equity is achieved when household in same circumstances are treated equally. Vertical equity is accomplished when the household in unequal circumstances are treated unequally but appropriately.

An unequal distribution of income may lead to dissatisfaction and may extend more political powers to those who give a call to bring reforms to mend the disbalanced equity, whereas the existence of inequalities in a given system can alienate a large segment of the population and may lead to the behaviour inimical to social and political stability.5

One may have observed that in a given political system, political actors make promises to their electorates and commit to create a balanced system catering to requirements of all segments of society, where these promises are not fulfilled the electorates throw out such politicians from power. Hence maintenance of equity is highly desirable in public policy making.

Promises made and converted into contracts bind individuals to abide by their promises. A person who is party to a contract and makes a promise and later on intends to modify it against other party is generally not allowed to resile from such a promise.6 Equity states if there has been a variation of a deed by a simple contract (which in the case of a lease required to be in writing would have to be evidenced by writing), the courts may give effect to it.7

We use the tool of freezing injunctions on the basis of equity. A court can restrain an individual to dispose of his property for avoiding the payment of substantial damages to claimants by moving their assets.8 The rules of equity state that promises intended to create legal relations and which are in the knowledge of the person making the promise, are to be acted upon by the person who made it. In such cases the courts have said that the promise must be honoured.9

The concept of estoppel on the other hand is one which can be described as, "a promise which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on."10

The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is in that sense only, that such a promise gives rise to an estoppel.11

An equitable right empowers courts to grant injunctions to protect that right.12 Whenever a right, which can be asserted either at law or in equity, does exist, then, whatever the previous practice may have been, the Court is enabled by virtue of the provision, in a proper case, to grant an injunction to protect that right.13 Attempts have been made to utilise the doctrine of promissory estoppel after High Trees14 to create a new inroad into the rule settled in Pinnel's case that an agreement to accept part payment of a debt in full satisfaction of it is unenforceable for want of consideration.15 However, this view is now not being accepted.16

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)

1. It can be an express undertaking, or agreement to carry a purpose into effect.

2. Where agreements are the result of coercion, such agreements are not enforceable at law.

3. See, for example, Article 4 of the Constitution of Pakistan 1973

4. In this sense, it can be termed as 'social equity' and can be defined as: "the fair, just and equitable management of all institutions serving the public directly or by contract; the fair, just and equitable distribution of public services and implementations of public policy; and the commitment to promote fairness, justice, and equity in the formation of public policy."

5. The behaviour inimical to social and political stability can be observed in civil disobedience movements, wars of freedom, riots and lawlessness. One good example is that of war in Srilanka waged by Tamil Tigers.

6. Central London Property Trust v. High Tree Ltd, (1947) KB 130: Normally, to be enforced, any promise needs to be given in exchange for something of value (in law known as 'consideration'), but equity here 'does not make such a requirement. Mr Justice Denning's doctrine of 'promissory estoppel' has affected hundreds of thousands of such situations ever since, either because people take legal advice before they try to go back on such a promise (made within an existing contract), or they just try to go back on their word and so learn about the principle through a lawyer once things have gone wrong.

7. Berry v. Berry [1929] 2.K.B 316

8. Mareva Compania Naviera SA v. International Bulk Carriers SA, 2 Lloyds Rep 509 (1975) : [1980] ALL ER 213

9. Fenner v. Black [1900] I Q B. 426: They are really promises - promises intended to be binding, intended to be acted on.

10. Id.

11. Hughes v. Metropolitan Ry. Co (1877) 2 App. Cas. 439

12. North London Railway Co v. Great Northern Railway Co (1883) CA

13. See 24 Halsbury's Laws, (4th Edn), para 918

14. Id.

15. In the High Trees case Lord Denning commented, obiter, that such an agreement should now be enforceable under the doctrine of promissory estoppel. However, the courts have traditionally been reluctant to overrule cases like Pinnel's case and Foakes v Beer as they have formed part of the common law for so long.

16. See, Collier v. P & MJ wright (Holding) Ltd, [2007] EWCA CIV 1329

Copyright Business Recorder, 2015



 



 
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Banking Review 2014


Annual2013/14
Foreign Debt $61.805bn
Per Cap Income $1,386
GDP Growth 4.14%
Average CPI 8.6%
MonthlyMay
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