Equity:
Development of Equity:
Common law introduced to apply common set of rules across the realm in courts.
The common law was bad at self-reform, so there was injustice as the courts kept applying the same old rules without questioning their value.
People made appeals to the King, and later the Chancellor, eventually Courts of Chancery.
Equity and Contract:
Common law of contract answers 2 questions:
What promises are enforceable?
When consideration is given.
What remedies lie if those are broken?
Damages.
Equity gave other additional answers:
What promises are enforceable?
Promissory estoppel.
What remedies lie if those are broken?
Specific performance.
Equity and Property:
Common law of property answers 2 questions:
What sort of property interests can exist?
Freehold estates, leasehold estates etc.
How are these interests obtained?
Formality requirements.
Equity gave other additional answers:
What sort of property interests can exist?
Restrictive covenants, equity of redemption etc.
How are these interests obtained?
Informal dealings.
EG: Proprietary estoppel.
Beneficial Ownership:
Beneficial ownership: (broadly) an entitlement to take the benefit of the item, use it in furtherance of one’s own plans and interests.
The common law identified the beneficial owners of property through the rules of title. Sometimes, equity thought these rules were unjust.
An Example:
A defrauds B.
At common law, fraud wouldn’t ordinarily prevent the money or goods passing to A.
Regards A as the owner.
In equity, A cannot keep them for themselves, but must instead hold them for B.
Regards B entitled to take the benefit.
Trusts:
Trusts are the creation of Equity. A trust describes the situation where the legal title-holder of an asset is under a duty to hold and apply that asset for the benefit of some other person.
Trustee: the person who must hold the asset on trust.
Beneficiary: the person for whose benefit the asset is held.
Settlor: the person who creates the trust.
Ultimately, trusts require the trustee to distribute the property to the beneficiaries.
An Example:
A trust occurs where A holds property on trust for B.
A keeps the legal title to the asset, and also (ordinarily) retains control.
B has an equitable right and A has a corresponding duty, meaning A must use the asset for the benefit of B.
B (ordinarily) has an equitable title in their own right.
A trust can have multiple trustees and/or beneficiaries.
The same person can simultaneously occupy the roles of trustee, beneficiary and settlor. However, the same person cannot be the sole trustee and sole beneficiary (they would be holding the asset on trust for themselves, which is irrational).
Comparison to Power of Appointment:
Where there is a power of appointment, the trustee has the discretion as to whether the trust asset should be distributed at all.
Classification / Varieties of Trust:
Most Common Classification Model:
Express Trusts
Resulting Trusts
Constructive Trusts
Another Classification Model:
Fixed
Discretionary (the trustee has discretion in how the asset is used and divided between beneficiaries)
Core Elements of a Trust:
(Fiduciary) Duty
The trustee is obliged to hold and apply the property for the benefit of the beneficiary, not their own benefit.
Title
The beneficiary has their own equitable title to the property, additional to and distinct from the trustee’s legal title.
Equitable Title and (Bona Fide Purchaser) Third Parties:
The protections accorded to the beneficiary extend beyond the trustee.
If the trustee misapplies the trust property and transfers it to another, or they go bankrupt (and creditors are seeking to access their legal title to the trust property), the beneficiary may have a claim against third parties. This means they have a proprietary right in the trust property.
However, the beneficiary will not have a claim against all third parties. They will not have a claim if the trustee transfers the trust property to a third-party and the third-party gives value for the property and has no notice that they are receiving property in breach of trust. This is because the third-party is a bona fide purchaser for value without notice; the beneficiaries’ equitable title is defeated (instead, the claim would be against the trustee). [1]
It does not matter how great the value of exchange the purchaser provides, or whether it corresponds to the value of the property received to satisfy the rule (similar to the Doctrine of Consideration in Contract Law).
Conversion into Legal Title (Rule in Saunders v Vautier):
A beneficiary may be able to secure the legal title to the trust asset if they are an adult of sound mind and absolutely entitled to the relevant part of the trust fund. [2] This is done by asking the trustee to transfer legal title to them, thus ending the trust (or that part of it).
EG: if A and B have equal shares in £1000, either could demand their £500.
This allows a beneficiary to obtain legal title even if this goes against the terms of the trust.
Qualification on the Rule:
The rule cannot be invoked where one beneficiary’s exercise of their right would have an adverse effect on other beneficiaries.
EG: if A and B have equal shares in land, (it is likely that) neither could demand their half because the land would have to be sold, to the others detriment, in order to facilitate this.
The rule can, however, be invoked as a group.
EG: if A and B have equal shares in land, they could collectively demand their share of the land into their joint names.
Resources:
References:
[1] See Pilcher v Rawlins (1872) 7 Ch App 259 [2] Saunders v Vautier [1841] EWHC J82, 4 Beav 115
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