How a Trust Interacts with Equity - Essay Example

Running Head: TRUSTS AND EQUITY Trusts And Equity By ____________________ There is no hard and fast rule that describes the principle that relates equity to common law, however the grounds on which the resulting trust operates, refers to the fundamental question that how a trust interacts with equity. Martin (1993) describes the resulting trust as "a situation in which a transferee is required by equity to hold property on trust for the transferor; or for the person who provided the purchase money for the transfer" 1. It seems that equity resides upon the appreciation of trusts, as trust depends upon equity's decisions to solve its concerns. Most resulting trusts requires equity to solve their matters in one of two situations: (i) where there has been an apparent gift of property or (ii) where an express trust has failed to dispose of all of the trust property. In both cases, Chambers writes equity assumptions that the owner was not intended to receive the benefit of the property and raises a resulting trust in favour of the provider of that property. In Re Vandervell's Trusts (No. 2), Megarry J. concluded that the resulting trust operated on different principles in each of these two situations. His lordship classified the resulting trust of an apparent gift as 'presumed' and the resulting trust on the failure of an express trust as 'automatic'. The presumed resulting trust was said to be based on the presumed intention of the provider of the property to create it and could be rebutted by evidence to the contrary. The automatic resulting trust arose independently of intention and was indisputable 2. Resulting trusts arise by operation of law settled on by equity. That means trust is dependant on the decisions of equity particularly in conditions where property has been transferred to another and the provider of that property did not intend to benefit the recipient, equity responds by imposing a resulting trust. The distinction between express and resulting trusts is that the former are created by an intention to create a trust, whereas the latter arise because of a lack of intention to benefit the recipient 3. Geldart writes, "Apart from Common Law and Statute Law, the most important department of our legal system is Equity" 4. That means the vitality of equity is apparent in English law system, that's why when the terms 'law' and 'equity' are used in legal sense, it does not concern about equity being an aspect of law and order, all it means is two different kinds of law the Common Law on the one side while the rules of Equity on the other. It is due to the rule that morally and legally binds to the decisions enforced by the courts. These two sets of rules imposed in the terms of 'law' and 'equity', must not be looked upon as two co-ordinate and independent systems. On the contrary, the rules of Equity are only a sort of supplement or appendix to the Common Law; they assume its existence but they add something further. In this way Equity is an addition to the Common Law. Further, the rules of Equity, though they did not contradict the rules of Common Law, in effect and in practice produce a result opposed to that which would have been produced if the Common Law rules had remained alone. A Common Law right was practically, though not theoretically, nullified by the existence of a countervailing equitable right 5. Though since the Judicature Act came into force in 1875 the rules of Common Law and Equity are recognised and administered in the same court, yet they still remain distinct bodies of law, governed largely by different principles. In order to ascertain the rights to which any given set of facts gives rise, we must always ask (i) what is the rule of Common Law (ii) What difference (if any) is made in the working of this rule by the existence of some rule of Equity applying to the case 6 Like the Common Law, the rules of Equity are judicial law, i.e. to find them we must look in the first instances to the decisions of the judges who have administered Equity. But some branches of Equity, like some branches of the Common Law, have been restated with amendments and additions in codifying Acts, such as the Partnership Act 1890 7. Equity is adding new fields of jurisdiction. In the sixteenth century and the beginning of the seventeenth, fraud and accident especially the accidental loss of a document were regarded as matters peculiarly appropriate for relief in a Court of Equity matters which a Common Law Court was unable to deal with. Mortgages formed a special subject, which the Chancellor used to deal with. A man borrows money and transfers his land to the creditor, making the creditor legally owner. He promises to pay on a definite date. If he keeps his promise, his land is to be returned to him; if not, it is to belong to the creditor forever. Suppose by mistake or accident he fails to repay on the day named, is it fair that he should be held to the terms of the deed Equity says no, and soon goes so far as to lay down a rule that a mortgage is a mere security for money, and something quite different from a genuine transfer of the ownership. The debtor remains in a sense owner; he has a new sort of equitable ownership, 'an equity of redemption', which he is only to lose after the court has given him ample opportunity to repay, and it becomes plain to the court that he cannot or will not pay 8. Lord Upjohn said that the presumption of a resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution 9. That means there are certain situations that create circumstances in which an intention to create a trust, even when proved, is not effective enough to reach to a conclusion unless made in accordance with certain formalities (e.g. trusts of land and testamentary trusts). In Brown v. Brown, where the presumption of advancement was denied by evidence that the mother did not intend to make a gift or loan to her sons, Gleeson C.J. concluded: 'Since there was no operative presumption of advancement, the basic presumption of resulting trust applied' 10. If we analyse the recipient's intention in English trust law, we would see that in most cases of fiduciary relationship resulting trust, the only relevant intention is that of the provider 11. The presumptions of resulting trust and advancement are inferences of the provider's intention and it is the lack of his or her intention to benefit the recipient, which attracts the resulting trust itself. The recipient's intentions are usually irrelevant and the presumptions and resulting trust can apply even though he or she is unaware of the receipt of the property in question. However the recipient's intentions are relevant in three situations i.e., in case of bonafied purchase, in contract and above all common intention. In Westdeutsche Landesbank Girozentrale v. Islington L.B.C., Lord Browne Wilkinson suggested obiter that resulting trusts are traditionally regarded as examples of trusts giving effect to the common intention of the parties 12. Different rules of equity are said to apply where the transfer is made on trusts, which fail to completely dispose of the property 13. The resulting trust here does not depend on any intentions or presumptions, but is the automatic consequence of A's failure to dispose of what is vested in him. Since the transfer is on trust, the resulting trust does not establish the trust but merely carries back to A the beneficial interest that has not been disposed of. Geldart (1995) while highlighting the remedies of trust which equity provides to common law proves that equity provides money compensation, i.e., if a person have been wrongfully turned out of his land, then, only the grounds of Common Law puts him back into possession; but this is practically the only exception from the rule that the Common Law remedy for every wrong and every breach of contract is damages. With the one exception mentioned, Common Law will not order a defendant to do anything except paying money 14. This implies the ease common law has provided to equity, as it is a much easier order to enforce. It is easier to say whether a man has paid the money or not than to say whether he has complied with other orders; and if he fails to pay, it is easy to get the money by selling his goods, if he has any. Common Law understands the concern and implies accordingly each decision. So, equity has simplified things to understand by a lawyer as well as by a common man. It is Equity who discovered remedies of specific performance and injunction in context of common law. Equity induces a man actually to do what he has promised to give someone the land in return for the money, to pay him the purchase money in return for the land; injunction to forbid him to do what he has promised not to do or what he has no right to do and even to compel him to pull down the objectionable wall; hence the rules are set by equity and implementation is done by common law. Thus it would be right to say that common law along with Equity alters and simplify the procedure, which was not done decades back. There was a time when Law and Equity were administered in different English courts with distinct proceedings taken about the same matter in those courts, and work out the result of those separate proceedings. Yet signs are not wanting that the mental effort of doing so is one which will become more and more difficult as the memory of the distinct courts of Law and Equity dies out; and perhaps already the unified jurisdiction of the High Court, and the statutes which have codified certain branches of Common Law and Equity, have produced some results which could hardly have been given by any combination of proceedings in the separate courts, or by the development of the law solely by means of cases decided in them 15. Except that trusts of land must be created by writing, a trust may be created by any sufficient expression of intention to create it, whether the legal ownership is transferred to another to hold as trustee or remains with the creator of the trust, who in that case will himself be the trustee. (It may be noted that equitable rights may themselves form the subject of a trust. A, who has an interest in property held by B upon trust for him, may hold that interest upon trust for D, or transfer it to C upon trust for D.) If, however, an attempt is made to create a trust by transfer to a trustee, but the transfer itself fails from a defect in form where land, for instance, is transferred by unsealed writing, or the transfer of shares in a company has not obtained some necessary consent of the Treasury the trust also will fail, unless the transaction is one made for value, a term which includes settlements or agreements for settlement in consideration of a contemplated marriage, but not of one already celebrated. So too an attempt to make a direct gift, which fails because the proper method of transfer is not employed, will not take effect as a trust. On the other hand, a trust will not fail because the intended trustee refuses to undertake it or, in the case of a trust created by will, dies before the testator. A disposition, as distinct from creation, of a trust, whatever its subject-matter, must be in writing, and the term 'disposition' includes a mandate by the beneficiary to his trustee to hold it on behalf of someone else 16. In Westdeutsche v. Islington L.B.C., Lord Browne-Wilkinson suggested that equity has maintained a distinction between the creation of a trust (which depends on the conscience of the owner of the trust property being affected through notice of the trust) and the continued existence of the trust in the hands of subsequent owners of that property 17. What affects the conscience of an innocent subsequent recipient of trust property or distinguishes that person from the innocent original recipient can be understood from the following example case: Consider an example in which A pays money by mistake to B, who makes a gift of that money to C, who has no notice of the mistake. If, as Lord Browne Wilkinson suggests 18, the trust of a mistaken payment depends on the recipient's notice, C's beneficial entitlement to that money will depend on whether B had notice of the mistake before the gift to C was made. It is difficult to understand why B's notice should matter or why the outcome should be any different if C had received the mistaken payment directly from A. The trust is responding to the transfer of property and A's lack of intention to benefit the recipient. Although the recipient's knowledge or notice is relevant to the defences of bona fide purchase or good faith exchange or change of position 19, it is not a relevant fact to which the trust responds. Hamowy (2003) concludes his article by visualising the need of equity in historical context of earlier English decades, as it was only with the rise of the law of equity that English law was able to deal with the legal needs of a growing commercial society 20. From the role fiduciary plays in different jurisdictions to the breaches it imposes in context of duties and remedies, it is equity, which has given ease to common law by creating laws with respect to cases which helps regulate even complex cases. Therefore, it would not be wrong to say that Common law is parasitical upon Equity rather than to consider Equity parasitical upon Common law. References & Bibliography Chambers Robert, (1997) Resulting Trusts: Oxford University: Oxford. Foster Charles, (December 2002) Fifty Glorious Legal Years English Law during the Reign of Queen Elizabeth II In: Contemporary Review. Volume: 281: 1643. Page Number: 321+. Geldart William, (1995) Introduction to English Law: (Originally Elements of English Law): Oxford University Press: Oxford. Hamowy Ronald, (2003) F. A. Hayek and the Common Law In: The Cato Journal. Volume: 23: 2. Page Number: 241+. Hayton David, (1999) English Fiduciary Standards and Trust Law In: Vanderbilt Journal of Transnational Law. Volume: 32: 3. Page Number: 555. Martin, (1993), Hanbury and Martin's Modern Equity, 14th edn. London, 1993 Simpson A. W., Brian, (1996) Leading Cases in the Common Law: Oxford University Press: Oxford. 'Still Going Strong after All These Years' In: Business Perspectives. (1990) Volume: 3: 4. Page Number: 9+. Read More