Equity law Essay Example

  • Category:
  • Document type:
  • Level:
  • Page:
  • Words:

Equity Law

An Assessment on the Possibility of the Equitable Doctrines being a Threat to the Stability and Certainty of Commercial World; Do they threaten these commercial transactions or not?

The wellsprings of the conduct of the commercial sector are out rightly important for the efficient operation of a nation’s economy. The main goal and objective is the profit making in an individualistic and capitalistic economy and not care for fairness. This paper seeks to examine the relationship between the doctrines of equity and the commercial objectives in an economy and how the doctrines of equity hamper the commercial transactions. It will seek to identify the extent in which the doctrines of equity affects commercial transactions and come up with remedies on how the jury and other legal practitioners can address this gap.

1Equity is a set of legal principles that retains the idea of justice and fairness and seeks to supplement the application of law in an unfair way. It developed from the English common law and traces its origin to the Chancery courts. This system of law gives leeway to juries to apply justice in line with the doctrines of natural law. In other words, equity law offers to guide the application of natural laws in a manner that’s deemed fairly reasonable to the satisfaction of parties involved. The application of law at times results in unfair outcomes but can be corrected using the principles of equity law.

The system of law put in place by equity is that in which its main principle of rendering fairness and discretionary justice may negatively affect other aspects of law such like commercial law. It’s therefore wise for courts and other legal practitioners to exercise maximum caution in ensuring a flexible balancing between fairness and commercial objectives.2The doctrines of equity are applied in different judicial settings, in different nations. However, it’s interesting to note that the fundamental principles of equity are almost similar since equity is entrenched in the desire to extend justice, something which is naturally inherent in mankind.

From time in memorial, judges have played a key role in the formulation of the law. In fact, they are regarded as the traditional law makers although with the onset of democracy. This role has been shared with the other arm of governance; the legislature which has taken a leading role in the law making. The Australian judicial system has evolved over time in its interpretation of the law. It shares most of its doctrines with the chancery court especially in the application of the principles of equitable law. One of its major contributions in the development of law was the principle of equity which led to the law of equity. The court marked an increase in the ‘90s in its application of rulings on equitable doctrines and the law of commerce. These developments paved way for the institution of related legislations in the state and other territories within Australia. On the other hand, commercial people are overly important and in the running of the nation’s economy and their main drive are making investments with the sole purpose of making profits. They are not interested in the aspect of fairness, a stand which prompts courts and juries to be careful when handling matters of the equitability and commercial aspects.

The Australian law of equity allows juries to cancel contracts on the grounds of fraud and when one fails to honor his fiduciary duties. The aim of these privileges is to assist courts to stop contracts whose result would be unfair to either of the party. In such a state, it’s the prerogative of the court, under the guidance of both the doctrines of equity and commercial law to enforce promises made in a given commercial transaction despite the underlying factors, thereby leaving all parties satisfied.

The modern era of entrepreneurship demands that there be a consideration on the sides of courts and juries making rulings on equity law. There is, therefore, a dire need for a balance to be struck between the principle of fairness on one extreme, and the commercial objective of many business of making profits on the other extreme. The judicial system in Australia has done a wonderful job in crafting this equilibrium between these two extremes. For instance, in one of its historic rulings in the Cole v Whitefield, the case adopted a free-trade approach in the case seeking to abolish the protectionism in the common market. The interpretation which guided the ruling is based on section 92 of the Australia constitution which states that, ‘trade, commerce, and intercourse among states…..shall be totally free. ‘The ruling went miles in addressing the gap created by the otherwise misplaced laisez faire system of section 92 which had been created by another ruling on the Bank Nationalization case. The jury of the case had ruled in 1949 that the intended nationalization the private bank was in contravention of section 92 of the supreme constitution. The attempt to nationalize the bank was and would have been to the interest of the public under the pretext of equity principles a move which would have negatively affected the objective of the owners of the bank to reap maximum proceeds from the financial industry.3

Equity law generates a lot of excitement in the Australian judicial corridors. It has been regarded as a , the saving supplement and compliment of the Common Law…..prevailing over the common law where there is a conflict of interest between equity law and common law.”4 The Australian Equity law endeavors to repair the gap created by the common law thereby giving remedy and solutions to a wide range of legal issues. The principles of equity, which are universal, are long lasting and their vitality. Therefore, the parties in the field of law have a huge and important role of developing the principles of equitability in a way that they adapt to the modern demands and conditions. This is a task that calls for an all-round approach to ensure that the ongoing renewal and remedies of equity law conforms and respect other aspects of law and for the purpose of these study doctrines of commercial law. Some of the doctrines of equity include equitable adoption, relief, equitable estoppel, equitable lien, equitable recoupment, equity in property as well as in financing. These doctrines combine to offer guidance to juries making rulings on certain aspects of law not covered by the common law.

A key area of commercial transaction where the doctrine of equity comes in is when making contracts. Contracts are agreements entered by two or more parties with a commitment or obligations to fulfill the agreement made. The parties into a contract are bound by the duty not to lie and endeavor to honor promises they make and the duty to honor the reliability of induced assumptions.5 In awarding a remedy in case of a breached contract, the jury ought to exercise his judgment cautiously and borrow from the doctrine of ‘minimum equity’. This is aimed at delivering justice to all the parties involved. One of the best ways to achieving is to make a ‘conditional award to the parties whose claims are within the law. The conditional award is one of the doctrine of equity law in which its flexibility allows courts to make such awards in a flexible way just like the judgment in Austotel Pty v Franklins Selfserve Pty Ltd.6 Equity law scholars have over the years argued that he primary goal of equity law is to allow the maximization of commercial practices and benefits through the contractual agreement between the parties involved.

Parties in a commercial relationship are out rightly entering into a relationship based on a given context. The equitable law brings to fore the principle of unconscionability. The court has jurisdiction to apply estopell on a party who want to recede from the contractual agreements earlier entered. This is best exemplified by two cases Austotel Pty v Franklins Selfserve Pty Ltd and the Weiss v Barker Gosling. In making rulings on the two cases, juries explore the possibility of there having been the question of the need to ensure the reliability of induced assumptions so that he issue could be handled effectively.7 In our referral case, the argument was that Austotel was bound either by contract law or the estoppels as there was an agreement made when the two parties were entering into the commercial dealing marked by negotiations between the parties. However, after the initial agreements, the two parties on entering the commercial transaction can’t contravene crucial elements in the agreement by declining a commitment to honor their promise. One of the parties namely Franklin refused to come to the table with Austotel over the rent issue hoping to get an extra coin from the deal. The court sought to rule in a way that the doctrine of equity couldn’t affect the commercial goal of the two parties.8 Another case in the application of the unconscionable doctrine was the ACC v Berbatis Holdings Pty Ltd in which the jury commented that the doctrine of equity has been evolving overtime in response to the development of our society.9

In the case of Royal Brunei Airlines v Tan, Lord Nicholls made an observation that there is a typical question in the appropriate role of equity in commercial contracts.10 There are prior critics to introduction of equitable principles in commercial sales transactions as it is viewed questionably. There are restrictions which have come up with people arguing against the introduction against equity intervening with commercial transactions.11

On either sides of this debate, there lies an assumption that equity intervening with modern commercial law is a development of its kind. There has been a general assumption that equity has been exercising a certain right in this field. According to Baker (1990), through the fifteenth century, commercial cases as well as tort cases were a prominent feature in Chancery in the face of property disputes. In most of the cases, there were instances of poverty or position abuse by an opponent. In the present day, most of the cases with which equitable principles have developed are still based on the same circumstances. This has happened in the case of O’Sullivan v MAM where an equity rescission was granted to a pop star for a contract that he had assigned while young that was unfavorable following the influence of his then manager.

There is a clear point, however, that needs to be looked into; equity will not act to mend a soar bargain. When a person enters into a commercial contract without undue pressure and then the deal turns negatively on him, equity law should not be applied here. This assertion has been supported by Bramwell in New Zealand & Australia Land Co v Watson (1881) 12 who is wary of the doctrines of trust being included in transactions of commerce, a result which would be a lot of issues that would affect a party in a negative way.

The issue of equity in commercial contracts has also been seen to come into effect on the question of whether a secured creditor who has obtained goods from a debtor is subject to restitution for the amount similar to the value of the goods by some third party. This cannot be the case not unless there are extraordinary as per the commercial codes. In the case of Knox v. Phoenix Leasing Inc. (1994), Domaine entered into a contract with Knox to purchase wine barrels. Domaine got into the contract with Phoenix Leasing where they agreed to finance the expansion project under the protection of a security agreement that covered personal property belonging to Domaine.

In accordance with the commercial code of Australia, Phoenix was given a security interest in the collateral due to Domaine’s execution of the security agreement. Phoenix obtained priority of the property over other creditors by filing a financing statement with the secretary of state. This compliance makes him to be immune to the restitution claims by Knox.

This issue brought up some opposing argument that sprung up from the directives in commercial law/code that the provisions can be supplemented by the equity principle. This brought a division on making a decision as to whether restitution could occur in the case of a secured creditor. On one hand, there is a restriction to the equitable restitution remedy which accepts the harshness brought about by going by the commercial codes. This is served in order to encourage compliance with the code. On the other hand, there is permission of restitution in case of secured creditors. This is in support to the introduction of equity doctrines in the case of commercial law.13

There is an intervention in contractual formation matters by equity by the rescission remedy. There is a restraint to the freedom of contract by invention and protection of freedom redemption equity and by relief against forfeitures as well as penalties. Equity has to some extent helped to regulate contractual performance of various defenses that are available to suits for certain performance and for relief to injunctions. When offering equitable relief, the court institutes the principle of equitable relief where a restraining order, an injunction or a declaratory relief are instituted. The aim of this principle is to settle a dispute involving parties to a contract especially when one or more of the parties breach the contract.

In the legal fraternity, equity is meant to offer a balance for the individual aspect and the community concern on natural fairness. Therefore, the jury seeks to reach an equitable balance between the commercial interests and the doctrines of equity.14 The underlying issue and guiding factor in equity law is that you suffer no right without a remedy. This best employs the law of restitution where the aggrieved party seeks to get justice either in the form of monetary gain or the actual award of the item in the agreement. There is need t assess the relevance of the evolution of the doctrines of equity in the modern society and how their applications affects the commercial sector.

Works cited

Austotel Pty v Franklins Selfserve Pty Ltd, (1989) 215 (Priestley, JA).

Birks, P, ‘Equity in the Modern Law: An Exercise in Taxonomy’ (1996) 26 UWALRev1.

Finn, P. Equity and Commercial Contract: A Comment (2001) AMPLA Yearbook,414,18.

Knox v. Phoenix Leasing Inc. (1994) 29 Cal. App.4th 1357 [35 Cal. Rptr.2d 141].

Lindell, G. Judicial Law Making and the Mason Court” “Judge & Co, pp 90).

Michael Spence, Australian Estoppel and the Protection of Reliance.

Michael Spence, Reliance, Conscience and the New Equitable Estoppel (1999), Oxford:Hart publishers.

New Zealand & Australia Land Co v Watson (1881) 7 QBD 374 at 382

Paterson, Robertson &Duke, Principles of Contract Law, 3rd edition, 2009. Pp 148, 167-8.

R P Meagher, J D heydon and M J Leeming. Meagher Gummon and Lehane’s Equity, Doctrines and Remedies (2002), Butterworhts:LexixNexix, 4th.

The Hon Justice Michael Kirby AC CMG, Equity’s Australian Isolationism. 2008

1 R P Meagher, J D heydon and M J Leeming,Meagher Gummon and Lehane’s Equity, Doctrines and Remedies. Butterworhts LexixNexix, 4th ed, 2002.

2 Ibid 410.

3 Lindell, Judge & Co, Judicial Law Making and the Mason Court, pp 90).

4 Michael Spence, Reliance, Conscience and the New Equitable Estoppel (1999), Oxford:Hart publishers.

5 . Michael Spence, Australian Estoppel and the Protection of Reliance.

6 . Austotel Pty v Franklins Selfserve Pty Ltd, (1989) 215 ( Priestley, JA)

8 Paterson, Robertson &Duke, Principles of Contract Law, 3rd edition, 2009. Pp 148, 167-8.

9 The Hon Justice Michael Kirby AC CMG, Equity’s Australian Isolationism. 2008.

10Knox v. Phoenix Leasing Inc. (1994) 29 Cal.App.4th 1357 [35 Cal.Rptr.2d 141].

12New Zealand & Australia Land Co v Watson (1881) 7 QBD 374 at 382.

Finn, P. Equity and Commercial Contract: A Comment (2001) AMPLA Yearbook, 414, 18.

14 Birks, P, ‘Equity in the Modern Law: An Exercise in Taxonomy’ (1996) 26 UWALRev1.