Introduction to Equity and Trusts - Lecture 1 - Property II

What are the 6 stages and timeline which led to the formation of Equity and Common Law in summary?

1. Medieval Chancery

2. Chancery Equity in Practise

3. Supremacy of the Chancery is successfully established in the Earl of Oxford’s case

4. John Selden criticises the Court of Chancery and Equity as being highly arbitrary and rougish form of law

5. Late of 17th Century doctrine of precedent develops in equity

6. Early and late 19th century led to the formation of the Judicature Acts 1873-1975

What is understood by the first stage of the development of equity and common law - otherwise known as the medieval chancery?

The king would be petitioned by the claimants who thought they were subject to injustice and hence the lord chancellor developed his own court which was known as the court of chancery and were concerned with matters of conscience which is later known as equity.

What is understood by the second stage of the development of equity and common law - otherwise known as the chancery equity in practise? And what brought about this around, and why was there this intervention?

St German spoke about the notion of ‘Double Payment on a Bond’ in which a debtor paid the creditor, but the failure to obtain the bond letter would mean the creditor is required to pay again and the Common Lawyers knew that this was not a desirable outcome, however they were restrained by the evidential rules of common law which required the debtor to pay TWICE, which was CONTRARY to conscience.

• Why did the Court of Chancery intervene? → The failure of the Common Law in regards to ‘Double Payment on a Bond’ meant the evidence could be used against the debtor against unjustly by the creditor. Hence, the CHANCERY equity court goes to solve the dispute and the equity court then issues the injunction and order the bond letter to be destroyed.

What is the importance of equity and the Court of Chancery? And why were there 2 seperate courts?

• There were two seperate courts for both Equity and Common law which administered these laws and equity emerged when common law failed to provide a remedy and produce an injust outcome, hence equity was used to mitigate this, by helping people seek redress for the common law outcome.

• Equity was used to mitigate the harshness of common law and this was a unconscionable use of common law and hence equity steps in.

What is understood by the third stage of the development of equity and common law - otherwise known as the supremacy of the Chancery successfully established in Earl of Oxford’s case? What did the Earl of Oxford’s case establish, what is the context and outcome?

Context of the case → At this time, there were disputes between common law judges and equity chancery as to who's right prevails.

What was outlined in Earl of Oxford’s case? → It was outlined where the person deserves to be relieved in equity, they shouldn't be abandoned and exposed to perish under the extermity of the (common) law. It was stated that the equity would go above common law and gave the equity a strong constitutional base.

What is understood by the fourth stage of the development of equity and common law - otherwise known as John Selden criticising the Court of Chancery and Equity as being highly arbitrary and rougish form of law? What was the criticism, what did John Selden mean by this, and what was the impact of this?

The quote in question was “as that is larger or narrower, so is equity […] one chancellor has a long foot, another a short foot, a third an indifferent foot, tis the same thing in the Chancellor’s conscience”

Impact of John Selden’s criticisms and what he meant? → concerns that equity was arbitrary, based on the chancellor's morality and not on the basis of law, hence equity was seen as unpredictable and uncertain in the eyes of the common law - whoever happens to be the judge in equity, will deal with the case differently and individually based on their morality and the outcome would PURELY be influenced by the chancellor themselves

What is understood by the fifth stage of the development of equity and common law - otherwise known as during the Late 17th Century where the doctrine of precedent develops in equity? And which judge altered this?

Upon these criticisms of equity being rougish, Lord Nottingham had ensured that equity became less about morality and became secularised and regularised its procedures to develop the doctrine of precedent in equity and was less reliant on the morality of chancellors and hence previous cases and rulings of precedents were used.

What is understood by the sixth stage of the development of equity and common law - otherwise known as during the early and late 19th century (The Judicature Acts 1873-1875)? What was the Judicature Acts 1973-1875 and what were the problems that it intended to solve?

The judicature act 1873 sought to solve the prior problems above, it unified the courts of equity and law, so both laws would be administered side by side and litigants wouldnt have to go to different courts in search of justice and could get the equity and common law remedies from the same court/place AND the law provided where there are conflicts between equity and common law, equity will prevail

What problems did the Judicature Acts 1873-1875 try to solve? → The parties would be drawn into the courts of the common law and whichever side lost would go to the chancery to complete the litigation process again, increasing costs and inconvenience.

What are the 5 key characteristics of modern equity in summary?

1. Equity as a gloss to the common law

2. Equity doesn’t contradict the common law

3. Equity operates in personam

4. Equity supplements common law remedies

5. Equity is discretionary

One of the 5 key characteristics of modern equity is that ‘equity as a gloss to the common law’, what does this mean? And what is an example of this?

Equity was merely a secondary body which helped the common law function more fairly and effectively and if we were to abolish equity, common law would continue to operate even if the common law would become strict but abolishing common law would mean limited laws and rules if equity remained.

An example of this is undue influence which is an equitable remedy in contract law - equity alters the operation of primary common law rules, even if there is a perfectly VALID contract as per common law even with undue influence, equity will VOID it as the action of undue influence is unconscionable to commence with, hence equity supplements the common law from claiming the contract as being void.

One of the 5 key characteristics of modern equity is that ‘equity doesn’t contradict the common law’, what does this mean?

Equity doesn't deny the rules of common law (such as the contract being invalid, however the equity will insist that it is void due to the application of undue influence)

One of the 5 key characteristics of modern equity is that ‘equity operates in personam’, what does this mean?

Equity acts on the person of the parties of the case, it doesnt repeal common law principles but advises and direct how people utilise their powers and legal rights in a way of equitable conscience - hence common law DOESNT conlfict with equity

One of the 5 key characteristics of modern equity is that ‘equity supplements common law remedies’, what does this mean? And an example of this?

Common law damages are insufficient remedies and equity can order what common law cannot do.

An example of this in application is where a person may want the property but the seller refused to continue the process hence breaching their contract and receiving damage as per common law, but this doesnt solve the issue of the person wishing for that SPECIFIC item of property, hence equity can command the person to sell it to them via specific performance as an example.

One of the 5 key characteristics of modern equity is that ‘equity is discretionary’, what does this mean? (4 points and what case law is mentioned)

1. The common law focuses on damages, while equity provides a wide range of remedies available such as specific performance and injunctions.

2. The fact that is discretionary, it means this discretion is EXERCISED in relation to past cases, precedents and existing equity rules, so the court doesnt have the power to do as they please.

3. If B wants the remedy of specific performance, showing breach of contract is not enough and they have to show that common law damages ARENT a suffiicent remedy to receive an equitable right - however the defendant can argue that the claimant has acted inequitable to REFUSE the equitable remedy to them - hence making equity discretionary

4. This is reminiscent to the case of Jaggard v Sawyer where the person had not informed the other person that they had a freehold covenant on the land and they watched as the individual had built an item or property on the land, then had attempted to reinforce his pre-existing rights despite his prior knowledge and not informing the person in question - the court concluded that a person CANNOT then reinsert their rights to make someone else's life inconvenient - therefore you will be ESTOPPED by equity from affirming your equitable right/remedy because it would be inequitable to do so

What is a trust defined as, and in relation to a trust, whom does the trustee hold the trust property for (there are two ways in which trust property can be held)? And how does the transfer of process work in relation to settlors, trustees and beneficiaries?

A trust is the relationship which arises whenever a person (named the trustee) is compelled in equity to hold property. This is where the settler is the one who creates the trust, the trustee is the one who holds the land/property or item -

1. for the beneficiary and acts in the duty of the beneficiary to exercise the rights for the beneficiary OR

2. accompishment for a purpose

   1. Disclaimer→ some purposes are valid or not valid, some purposes are not charitable and charitable - the purposes and duties will be varied

S transfers a legal title to T, T must hold for benefit of B (S or someone else).

Does the trustee owe any duty to the beneficiary at common law, or in equity - and how does this vary from the PAST to NOW?

In the past, there isn’t any enforcement of trusts at Common Law, hence the Trustee doesn’t owe a duty to the Beneficiary at Common Law. Though, this is a personal arrangement enforced by the Courts of Chancery.

Now, it remains the same in terms of there being no duty owed to the beneficiary at common law, though it is enforced by Equity NOW.

Is the trustee’s legal title as the holder of the trust for the benefit of the beneficary burdened in any way? And what rights does the beneficiary have against the trustee?

Yes it is.

It is a trust and involves the Trustee’s legal title is burdened with an equitable duty to the Beneficiary and B has a corresponding equitable right against the Trustee.

Do trusts have proprietary effects, and whom does this apply to, and what is the exception to this rule? (and how does this relate to the past approach to trusts)?

(In the past, only the Trustee was bound to the Trust and the obligations underneath, hence it wasn’t proprietary and ONLY enforceable against the Trustee.)

NOW, trusts have proprietary effect and trusts have MORE third party effects and binds similar to property rights - it binds NOT ONLY trustees, but the trustee’s successors in title, trustees heirs and creditors. However, there is an EXCEPTION to this proprietary effect in regards to bona fide purchasers of legal estate for value without notice.

What happens when the trustee (who is holding the trust property on trust for the benefit of the beneficiary) becomes bankrupt/insolvent, who has the better claim to recoup losses - the beneficiary or the creditors (third party)?

Now, if a trustee is bankrupt, the creditors cannot claim the trust because it is seen as belonging to the beneficiary.

How relevant is conscience in equity, and how does this relate to the formation of a trust and how does enforceability relate to conscience in equity?

Relevance → Equity operates on the owner of the legal interest’s conscience (otherwise known as the trustee in express trust).

How conscience relates to the formation of a trust? → The trustee has a legal title since they were INTENDED to hold it for the beneficary so it would be UNCONSCIONABLE for the trustee to act for their own interest since they INITALLY were chosen to perform the duty and exercise the rights on the beneficary's behalf or the court will impose a trust when the behaviour of the party is unconscionable in their behaviour and actions. This means the trustee cannot use the title for their OWN benefit or use it for the benefit of someone who ISNT the beneficary (ie a third party, since the trustee holds the trust property on trust EXCLUSIVELY for the beneficiary).

How conscience and enforceability relate in equity? → Since the enforcability of the trust relies on conscience, someone CANNOT be a trustee if they ARENT aware of that they are intended to hold a trust on land - so if they arent aware, the trust CANNOT be enforced.

In what two ways can trusts arise? And how does the difference in HOW they arise alter what type of trust it is?

Trusts arise in two ways which are -

1. An intentional decision to create a trust (these are Express Trusts)

2. Trusts imposed by law (these are Non-Express Trusts)

What are the Trusts which arise as a INTENTIONAL DECISION to create a trust generally? (express trust)

1. Trusts for persons

   • Fixed Trusts

   • Discretionary Trusts

2. Trust for purposes

   • Charitable Purpose Trusts

   • Private Purpose Trusts

What are ‘trusts of persons’ defined as? And whom do these trusts focus on in terms of types of groups or people and does it not include?

Trust for persons consist of fixed and discretionary trusts, trusts for persons are PRIVATE trusts and for a benefit of the PRIVATE class of people, doesnt benefit society as a whole.

What are the two specific derivations/subgroup of trusts which arise from ‘trusts of persons’?

1. Fixed trusts

2. Discretionary Trusts

What are ‘fixed trust’ defined as, and what is an example of a ‘fixed trust’? (a subgroup of trusts for persons and an express trust)

Fixed Trusts are where the beneficial interest is stated in the trust instrument.

The example of fixed trusts is £100 is given to my trustee to hold for A and B in equal shares.

What are ‘discretionary trust’ defined as, and what is an example of a ‘discretionary trust’? (a subgroup of trusts for persons and an express trust)

A discretionary trust is where the beneficial entitlement is NOT set out in the trust instrument, it is a matter of trustee DISCRETION and have the discretion to decide how the property/item in question is distributed

The example of a discretionary Trust is where £100,000 is given to my trustees to distribute amongst the employees of UCL in such shares as the trustees in their absolute discretion SHALL THINK FIT.

What are ‘charitable purpose trust’ defined as, and what is an example of a ‘charitable purpose trust’? (a subgroup of trusts for purposes and an express trust)

Trusts for purposes benefit society as a whole and the benefit of the public (such as trust for promotion of human rights or relief of poverty or advancement of religion).

An example of Charitable Purpose Trusts is £1m to my trustees to relieve poverty in Greater London.

What are ‘private purpose trust’ defined as, and what is an example of a ‘private purpose trust’? (a subgroup of trusts for purposes and an express trust)

Private Purpose Trusts are NOT for the benefit of a person but to purse an ABSTRACT purpose, but not for the public benefit, it is a PURELY private benefit.

An example of Private Purpose Trusts is £10k being given to my trustees to care for my cat peter after my death or £2.5k to my trustees to be used to maintain my grave.

What are the Trusts which arise by being IMPOSED BY THE LAW? (non-express trust)

1. Resulting Trust

   • Gratituous transfer

   • Failed express trust

   • Purchase in the name of another

2. Constructive Trusts

   • Remedy to claim for Proprietary Estoppel

   • Purchaser agrees to take subject to the rights of a third party licensee

   • Breach of Fiduciary Duty (unauthorised profits)

   • Following, Tracing and Claiming

What are the three specific derivations/subgroup of resulting trusts which arise from ‘non-express trusts aka trusts which arise by being imposed by law’?

• Gratituous transfer

• Failed express trust

• Purchase in the name of another

What is a Gratituous Transfer, and what is an example of this? (one of 3 component of resulting trusts, which are non-express trusts and trusts which arise from being imposed by the law)?

An example is that A transfers 100 shares in X to B, unless B can prove to A intended to make a gift and B will hold on a Resulting Trust to A

The legal title jumps back to the person who made it previously in a resulting trust - equity presume that you intended to hold the shares in trust for A and therefore impose a resulting trust which will arise to give it back A.

What is a Failed Express Trust, and what is an example of this? (one of 3 component of resulting trusts, which are non-express trusts and trusts which arise from being imposed by the law)?

An example is that A transfers £100 to B to hold on trust for his friends, this express trust will fail for uncertainty and B will hold on a resulting trust/RT for A .

A resulting trust arises when express trust failed, such as transfering the share in a trust and the definition of 'friends' is vague, difficult to distinguish and it will fail as a trust as you have NOT described the subject of the trust in a SUFFICIENT detail and hence it will fail - the reason the trustee had the trust is because theyre holding it for your friends, but the trustee will hold the trust on a resulting trust for A.

What is a Purchase in the Name of Another, and what is an example of this? (one of 3 component of resulting trusts, which are non-express trusts and trusts which arise from being imposed by the law)?

An example is that A transfers £100k to B to purchase land, unless B can prove the money was a gift or loan, B will hold the land on a resulting trust/RT for A.

Equity didnt presume that you intended to give them the property and equity presumes you want the person to hold it in a trust and a resulting trust has arisen as it wasnt a gift of a share or in the event of share will fail or those circumstances, UNLESS B can prove it was gift/loan, B will hold the land on a resulting trust for A.

What are 4 aspects of Constructive Trust which arise from ‘non-express trusts aka trusts which arise by being imposed by law’?

• Remedy to claim for Proprietary Estoppel

• Purchaser agrees to take subject to the rights of a third party licensee

• Breach of Fiduciary Duty (unauthorised profits)

• Following, Tracing and Claiming

What is a Remedy to claim for Proprietary Estoppel, and what is the relevant case law of this? (one of 4 component of constructive trust, which are non-express trusts and trusts which arise from being imposed by the law)?

This is taught in Property 1, therefore not as relevant.

However, the key cases regarding proprietary estoppel claims is Gillett v Holt [2000], Thorner v Major [2009].

What is a Purchaser agrees to take subject to the rights of a third party licensee, and what is the relevant case law of this? (one of 4 component of constructive trust, which are non-express trusts and trusts which arise from being imposed by the law)?

This is taught in Property 1, therefore not as relevant.

However, the key cases regarding Purchaser agrees to take subject to the rights of a third party licensee is Binions v Evans [1972], Lyus v Prowsa [1982]

What is a Breach of Fiduciary Duty: Unauthorised Profits and what is the relevant case law of this? (one of 4 component of constructive trust, which are non-express trusts and trusts which arise from being imposed by the law)?

This is relevant within Property 2.

This is where a trustee uses the trust property to make a profits for themselves which has not been authorised by the beneficiary, the trustee will hold the unauthorised profit on a CT for the beneficiary.

A relevant case law is Boardman v Phipps [1967].

What is a Following, Tracing and Claiming and what is the relevant case law of this? (one of 4 component of constructive trust, which are non-express trusts and trusts which arise from being imposed by the law)?

This is relevant within Property 2.

This is where the trustee, without authority, transfers trust property to a third party. The third party will hold the trust property on a CT for the beneficiary (unless they can prove they are a bona fide purchaser of the legal estate for value without notice).