The law of promises
IT is difficult to say when exactly the law began to concern itself with broken promises, but it is safe to assume that it almost always has. The inherent injustice in leading a person to believe one thing then doing another, never fails to draw the court’s repudiation. Consequently, several legal principles and devices have evolved to hold us accountable to the commitments we give. This article will discuss two.
Undertakings
Undertakings are a fundamental part of business practice and a frequently used tool in legal and commercial arrangements. Broadly, they are promises given by one party to another which are not to be broken. A bank, for example, after confirming that the buyer in a commercial transaction has the requisite funds in their account, may be asked to give an undertaking that it will pay those funds to the vendor when the transaction closes and upon certain criteria being met. The beauty of a banker’s undertaking is the peace of mind it brings. It allows the seller to feel free to hand over the thing being sold to the buyer without first being paid, safe in the knowledge that a bank has committed to paying him thereafter. He need not worry that the buyer will take possession of his product and then fail to pay, because, via the undertaking, the bank has assumed responsibility for the payment and, once the criteria for payment by the bank are met, it would be required to pay those funds to the seller.
Attorneys’ undertakings are significant also, being a major part of how property is bought and sold in Jamaica. Some property owners have mortgages and, in order to sell his property, an owner must first pay off his outstanding debt on the mortgage to the mortgagee. In most cases, however, an owner can only afford to pay off his mortgage after the property has been sold, using the proceeds of sale. How then can a mortgagee safely consent to the property being sold without first being paid? An undertaking. Here the property owner’s attorney gives an undertaking to the mortgagee that the balance of the mortgage will be paid to the mortgagee once the proceeds of sale have been received. Just as in the case of the banker above, the attorney, likewise, assumes responsibility via his undertaking for paying out the mortgagee upon receipt of the proceeds of sale.
But how have undertakings acquired their reputation for being readily enforceable? Simply put, the consequences of breaking an undertaking are swift and severe. In a court action brought on a dishonoured undertaking, the beneficiary of the broken undertaking will likely be entitled to summary judgment against the undertaker (the promisor), so long as he can show that an undertaking was in fact given and that it remains unfulfilled.
To prove an undertaking was given you must show that the defendant gave a promise in their professional capacity:
1.orally or in writing (whether or not it includes the word ‘undertake’ or ‘undertaking’);
2. to someone who reasonably places reliance on it;
which says that they will do something, or cause something to be done, or refrain from doing something.
Important to note re attorneys’ undertakings is that normal trial procedures may not apply to actions for enforcement. Attorneys are officers of the court and fall under its supervisory jurisdiction. Courts can be expected to act swiftly and severely against an attorney in breach of his undertaking.
Promissory Notes
Whereas undertakings have a broader scope and include promises to take certain actions, promissory notes deal exclusively with promises to pay money and are bills of exchange (ie like a cheque) governed by the Bills of Exchange Act. In essence they are written promises to pay a certain amount of money by a certain time. In order to be valid, the note must be signed by the payer and must also name or otherwise sufficiently identify both the payer and the payee. The note must also be clear on the amount of money to be paid, the manner in which it will be paid (lump sum, instalments, etc) and, very importantly, the time by which it is to be paid. Many promissory notes have failed on account of not having specified when the money will be paid. If the note does not say that the money is payable upon demand by the payee, then it must specify a particular date, for example, “payment to be made by August 14, 2024”. Alternatively, it must specify a fixed period, for example, “within thirty (30) days of the date hereof”.
A person who is lending a friend money for their small business pursuant to an oral agreement could (out of an abundance of caution) have that friend execute a promissory note to repay the money borrowed. Like an undertaking, the payment, once due, is likely to be enforced summarily by a court. To be a promissory note, the note must make an unconditional promise to pay. A promissory note may help a lender who has lost his primary loan document contracts but holds a promissory note reciting that payment to him is due (and it has not been made). The Bills of Exchange Act also allows promissory notes to specify collateral security for the payment, which security the payee may take possession of, or sell, in the event payment is not made as promised.
Another thing to be aware of with promissory notes is that they are incomplete until delivered to the payee. Delivery may be ‘actual’ ie the physical handing over of the note to the payee, or delivery may be constructive. This is seen where the circumstances show a clear enough intention that the promisor holds the note as an agent of the promisee. To avoid having to prove intention, a person hoping to rely on a promissory note should take physical possession of it.
Similarly to undertakings, the court will move quickly to enforce a promissory note which meets the requirements for validity. The named promisee in a dishonoured promissory note, like the beneficiary of a dishonoured undertaking, is likely to get summary judgment from a court on the claim.
A word to the wise: Don’t make a promise if you don’t have to and, if you do, keep it!
This article is general and will not apply to all situations. If you have an issue concerning an undertaking or promissory note, you should consult with an attorney.
Jamaiq Charles is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Litigation Department. Jamaiq may be contacted via jamaiq.charles@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.