What is Equity and Trusts?

Question 1

What is meant by equity? (Layman and lawyer)

Answer 1

Layman - fairness or justice

Lawyer - the body of rules which were originally developed and administered by the modern chancery. These rules are now administered through all courts through their equitable jurisdiction

Question 2

Why is equity described as a gloss on the common law by Maitland?

Answer 2

Equity developed in response to the injustices caused by the common law (amends the wrongdoing)

Question 3

What are the 3 purposes for equity?

Answer 3

Equity is used to achieve a result when -

1. Formalities are lacking
2. There is no common law action possible
3. Where a common law remedy is available but not appropriate

Question 4

What is the history behind the development of equity?

Answer 4

• Medieval times - claimant could only bring an action in the Courts of Common Law if their complaint came within the scope of an existing writ. Range of writes was narrow, creating a new writ required the King’s approval
• King hired Lord Chancellor to deal with cases that required a remedy the common law could not apply
• Cases increased, chancellor began dispensing justice on his own. Theory should be based upon natural justice and not his own perception.
• Chancellor began relying on advisors, this later evolved into the Court of Chancery which operated seperately from the Common Law Courts.
• Equal systems covering the same matters but differently

Question 5

What became of the Court of Chancery? (Earl of Oxford’s case 1615)

Answer 5

17th Century - late 19th Century - evolved into a system of established rules and authorities which were almost as rigid as the common law.

Question 6

What did the Judicature Acts of 1873-1875 do?

Answer 6

The acts abolished the older separate courts and created the Supreme Court of Judicature, with a High Court divided into three divisions, including the chancery. The acts established that where there is conflict between law and equity, equity prevails.

Question 7

What was equity’s impacts on English law?

Answer 7

1. The creation of new laws
2. The creation of new remedies: (discretionary and only appropriate where the common law remedies are inadequate)
   Specific performance
   Injunctions
   Rectification
   Search orders
3. Allowing restrictive covenants to run with the land
4. The subpoena - compelling a litigant to appear in person before the court

Question 8

What is a trust?

Answer 8

A trust is a creation of equity. There is no universally accepted definition. A trust is an equitable obligation binding a person (the trustee) to deal with property over which he has control (trust property) for the benefit of persons (beneficiaries)

Question 9

What are the general purposes of a trust?

Answer 9

a. holding of land or other property for two or more persons.
b. to provide for property to be held for the benefit of a person subject to a legal disability eg minors.
c. to provide for a charitable purpose by will.
d. tax saving.

Question 10

What are the family purposes of a trust?

Answer 10

a. to make flexible provision for family according to future needs or events (discretionary trusts).
b. to provide for spendthrifts (protective trusts).
c. to make provision on death for persons whose names one does not
wish to make public eg illegitimate children (secret trusts).

Question 11

What are the modern commercial purposes of trusts?

Answer 11

a. unit trusts

b. pension funds

Question 12

What is a private trust?

Answer 12

a. A private trust is for either named individuals or a class of individuals.

Question 13

What is a public trust?

Answer 13

b. A public trust is a trust to promote a charitable purpose eg animal welfare. Public trusts are enforced by the Attorney General as there is no specific beneficiary.

Question 14

What are the classes of private trusts?

Answer 14

Private trusts can be created either expressly or impliedly.

a. Express trusts are intentionally created by the settlor.
b. Implied trusts are not created expressly by the settlor but instead arise by implication or operation of law.

Question 15

What are the types of express trusts?

Answer 15

a. Fixed Trust
b. Discretionary Trust
c. Secret Trusts

Question 16

What are the types of implied trusts?

Answer 16

a. Constructive Trusts – Arise by operation of law and are imposed where justice and conscience requires it eg the law will presume a legal owner hold the property for another where it would be unjust to hold it for his own benefit and if a trustee purchases trust property from the trust (in breach of his fiduciary duty) a constructive trust will apply requiring that the property is held on behalf of the beneficiaries.
b. Resulting Trusts – These arise in 2 main circumstances. Firstly where an express trust fails (eg doesn’t satisfy the requirements for creating a valid trust) the property will result back to the settlor (automatic) Secondly, where A buys property but registers it in B’s name, B is presumed to hold the property on resulting trust for A (presumed).
c. Statutory Trusts – These are created by law as a result of certain circumstances eg land and co ownership. Co ownership of land always occurs behind a trust under TOLATA 1996

Question 17

Distinguishing Trusts from Bailment

Answer 17

This is when goods owned by A are, with A’s permission, in the possession of B. Unlike a trust there is no transfer of ownership and the bailee’s duties are much less extensive than those of a trustee. Bailment is a common law relationship.

Question 18

Distinguishing Trusts from Agency

Answer 18

The relationship between principal and agent is contractual whereas a trust relationship creates proprietary rights The agent represents his principals interests in dealings with third parties. However, unlike a trustee, an agent does not usually have title to the property unlike a trustee

Question 19

Distinguishing Trusts from Contract

Answer 19

A contract is a common law obligation resulting from a negotiated agreement and is a personal obligation. It is also only valid if supported by consideration and cannot be enforced by third parties. Trusts are a development of equity and are unilateral, no agreement is needed.

Question 20

Distinguishing Trusts from Debt

Answer 20

A debt is usually contractual and a personal obligation whereas a beneficiary under a trust has a proprietary right.

Question 21

Distinguishing Trusts from Administration

Answer 21

Personal Representatives (“PR’s”) administer the estates of the deceased. Although both PR’s and trustees hold property for others the PR’s role ceases when the estate is finalized. Trustees can administer funds for years.

Question 22

Distinguishing Trusts from Power

Answer 22

1. Powers can be legal (power of attorney) whereas trusts are always equitable;
2. Powers are discretionary, the donee does not have to exercise the power whereas a trust is mandatory;
3. If a trustee fails to carry out his duties the court will intervene. The court will not compel the donee of a power to exercise it;
4. The potential object (beneficiary) of a power has no interest in the property which is subject to the power until the power is exercised. A beneficiary under a trust has an equitable interest in the trust property.