Commercial And Corporation Law: Law Of Equity


Discuss about the Commercial And Corporation Law for Law of Equity.


Before the Law of Equity was introduced, English law was mainly governed by the common law, which refers to regulations of civil conduct formed in United Kingdom. However, many a times, the common law failed in providing appropriate remedy. Thus, the law of equity was developed aiming to provide remedy in good conscious[1]. In the legal world, the term equity means a set of rules, regulations and procedures which provide appropriate remedies. The equitable procedures and doctrine are different from the legal ones and are only used or applied when legal remedy becomes insufficient, inadequate or inappropriate in any manner. Thus, the law of equity suggests that a defendant should be prevented from acting unconscionably in cases where the common law would allow the said unconscionable conduct. However, the law of equity since the time it’s established in England till today when its globally recognized has faced conflicts with common law of every nation. However, law of equity plays important role in contract laws and equity in contracts is witnessed in restitution, mistake, estoppel and unjust enrichment[2].

In a famous contract law case law namely the Waltons Stores Interstate Ltd v Maher (1998) 164 CLR 387 the law of equity was applied in a contract case law to provide a more appropriate remedy[3]. In the said case, Walton Stores negotiated to lease a commercial property from Mahers. The condition on the said lease was that the Maher demolish the existing building and construct a new one according to the specifications of the Walton Stores. After Maher’s solicitors prepared a lease agreement with the modification, the copy was sent to the solicitors of Walton Stores who stated that they would reply the next day if they disagree with any modification. However, no communication was made after this event. Maher signer the contract and handed it to Walton Stores who delayed signing the contract even after Maher had started demolishing the existing building. Moreover, when the construction of the new building was ready by 40%, Walton Stores refused to sign the lease contract.

Thus, in the said case, a doctrine of equity law naming promissory estoppels was applied to reach to appropriate relief. Thus, the issue in the said case was whether Walton Stores were estopped from denying their early representation relating the lease contract.

Thus, the finding in the said case stated that even when the lease contract was not signed which under contract law would mean lack of consent and consideration, the Walton Stores silence and conduct had consciously made Mahers to assume that the contract is final and signing of the lease agreement is a mere formality and relying on the same, Maher demolished his existing building and started constructing the new one, which would incur extreme loss to Maher in case of Walton Stores denial to the lease agreement. Therefore, the doctrine of promissory estoppels was used in the said case to prohibit Walton Stores from denying his contractual obligation and saving Mahers from the losses which could be incurred upon cancelation of the lease agreement. Thus, under the law of equity Walton Stores was estopped from reconsidering his promise to complete the lease agreement, especially when he was aware Mahers was incurring expenses which would lead to losses by acting on false presumptions. Thus, it was inappropriate for Walton Stores to engage in a conduct which encouraged Mahers to demolish the building and construct new one if they had no intention to complete the contract[4].

Thus, it is clear in the said case that law of contract would allow Walton Stores to escape from liability under the said contract and would allow the unconscionable conduct, however, the doctrine of promissory estoppels under the law of equity prohibits the said conduct of Walton Stores providing an appropriate remedy when applied to the said case instead of law of contract[5]. Thus, the judgment in the said case was a landmark judgment which established a new concept that departure from contractual elements like consideration and consent can still establish a valid and a binding contract using the doctrine of promissory estoppels under law of equity[6].

In Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329, Mr. Collier was one of the three partners in a property developer firm. The said firm assented to paying £46,000 to Wright Ltd in monthly installment of £600. The partners in the firm were jointly liable for the said payment. However, after a certain lapse of period, the said installments declined to £200 per month. In 2000, a meeting was held where Wright Ltd stated that the partners of the said firm would be severally liable for payment of £15,600. However, the other two partners got bankrupt in the year 2004 and 22006. After Collier made his full payment, Wright Ltd issued a notice on him asking him for the balance amount of debt. In the said case, the Judge used the doctrine of promissory estoppels to arrive at justice and stated that the said doctrine can help and aid Mr. Collier. In the said case, Mr. Collier was assured that he only requires paying his due as a partner and relying on the same Mr. Collier made his payment, thus, stating that the said payment was still pending was inequitable on part of Wright Ltd[7].

In another Australian case, the laws of equity were used to derive at justice. The said case is Commercial Bank v Amadio (1983) 151 CLR 447 and the facts of the case are Amadios guaranteed their son’s indebtedness. The said transaction took place with the Commercial Bank of Australia. The said transaction included an agreement which provided the bank to mortaggae the property owned by the Amadios. In case of their son’s business failing, the said guarantee would be enforced[8]. It is important to note that in the said case, the Amadios were Italian nationals living in Australia with very poor understanding of English. Additionally, the manager of the bank who contracted with the Amadios was aware of the finanacial status of their son of Amadios. Thus, the Amadios asserted that they were at special disadvantage and the transaction was unconscionable under the law of equity. Thus, the issue in the said case was to state whether Amadios would be granted relief under the law of equity.

Thus, in the said case it was observed that Amadios were not capable of having any independent opinion on the guarantee matter and it was the duty of the bank to advice them and to state that their liability under the guarantee is unlimited. Moreover, they were aware of the financial position of Amadio’s son. Thus, law of equity states that remedy under unconscionable conduct is granted when advantage is taken of a party which is innocent who is unable to make independent and prudent decisions and when the said decision by him are made non-voluntary in nature[9]. In this case, the judge is allowed to use his discretion and adopt law of equity to remedy the innocent party and the court can set aside a contract or prohibit ordering its specific performance. Thus, in the said case, relief was granted to the Amadios using the law of equity.

In Harris v. Blockbuster Inc 622 F.Supp.2d 396 N.D. Tex. Apr. 15, 2009, in the said case a contract was formed between two parties. However, the defendant stated a contract term or a clause which permitted one party to make amendments in the said contract without ant notification. Thus, the defendant has stated a clause which compelled arbitration and prohibited class action suit. The said addition of clause was considered to be an illusion and unconscionable by the judges deciding the said case. Thus, the whole contract was considered void by the court applying the law of equity where unconscionable conduct in any transaction or negotiation is not allowed to be suffered by the innocent party[10].

Therefore, it is not uncommon for the Courts to apply Law of Equity whenever the common law fails to provide appropriate remedy. However application of law of equity depends totally on the discretion of the Court and raises the question of uncertainty in common laws. As judges opt for law of equity to provide remedy, it creates a doubt in the mind whether there is uncertainty in the common law or civil law which governs most of the conducts of a human being[11]. It is often argued that judge-made laws are more practically applicable compared to common law or civil laws. However, the struggle between certainty of common law and applicability of law of equity has always prevailed and will continue to exist and the only solution to the said conflict is the discretion of the Courts and Judges who are to be trusted in the said matter. The discretion given to the Court in the said matter should be used with upmost care and with the ultimate aim and objective to arrive at the best possible remedy where no party suffers loss due to uncertainty in statutes[12].


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