Contributions by Equity to Common Law - Essay Example

Equity and Trusts "The power of Equity to act in personam against the defendant, allowed the development of a range of remedies, more flexible than those of the common law, in the form of various orders addressed to a party and backed up by the threat of imprisonment for contempt if those orders were not obeyed". Explain the statement with reference to the personal and proprietary remedies and procedures employed by Equity with particular referencing the principles governing their availability and enforcement. Equity can be defined as a system of doctrines and procedures which developed side by side with the common law and statute law1. In simpler terms Equity is the degree to which one party judges that another party will fulfill its commitments and that the relationship is equitable. It is commonly assumed that there is a reciprocal relationship between equity and trust. Trust is a product of equity, and equity would not have developed the way it did had it not created the trust as a form of property The concept of equity is developed in exchange theory2, which argues that participants in a relationship desire: 1) reciprocity, by which one is morally obligated to give something in return for something received; 2) fair rates of exchange between utilitarian costs and benefits; and 3) distributive justice, through which all party receive benefits that are proportional to their investments. Alternatively, the emergence of trusts can be based on more direct utilitarian reasoning. First, there are many non legal sanctions which make it expedient for individuals and organizations to fulfill commitments. Contributions by equity to common law: -> The trust -> Remedies such as specific performance of contracts for any sale or leasing. -> Restrictive covenants and so on. The difference between legal and equitable rights: The difference arises because of the fact that the common law only recognized legal ownership and gave no effect to trusts, which were enforceable only in equity. Legal interests in any assets are therefore rights in rem, enforceable against anyone; equitable interests were at first rights only in personam, enforceable against the trustee personally. Equity, however would not enforce a trust against any innocent buyer who knows nothing about the trust, as that enforcement would itself be inequitable, and so an equitable right is still not as strong as a legal right. These equitable rules became embodied in what is known as the doctrine of notice. This can be expressed as the following maxims: "Legal rights are good against the whole world; equitable rights are good against all persons except a bonafide purchaser of the legal estate for value without notice of the equitable interests in that land, and those claiming under him"3 This bonafide purchaser is often known as "equity's darling". The essential features of this privilege person are that he is: 1) Bona fide - Any dishonesty, sharp practice or other inequitable practice will forfeit equity's protection. 2) Purchaser for Value - "purchaser" excludes those who inherit the property or acquire it by operation of law. "for value", while it does not necessarily mean "full value", means money or money's worth or marriage. The decision of the House of Lords in Midland Bank Trust Co Ltd v Green 1981 AC 5134 shows that the consideration need not be adequate. 3) Of a legal estate - This is essential; the purchaser of equitable interest5 is in general bound by prior equitable interests whether he had notice of them or not. 4) Without notice - The purchaser must have no knowledge of the equitable interest at the time he purchased his interest. There are three types of notices: a) actual notice - this must be within his own knowledge and must not be nearly a vague reference, except that such vague knowledge might lead to constructive notice. b) constructive notice - a purchaser cannot attempt to avoid equitable interest by shutting his eyes and ears and thus not having actual notice. He is deemed to have notice of all matters about which a reasonably diligent purchaser would have inquired and which would have come to his notice on such inquiry. This would be derived either from not following some information or by deliberately abstaining from making any inquiries. c) Imputed notice - if a purchaser employs an agent, e.g. a solicitor, in the purchase, any actual or constructive notice which that agent receives in the course of the same transaction is imputed to the purchaser. 5) Successors in title - The protection, once acquired extends to all persons claiming through the original purchasers, even though they are not purchasers for value. 6) While the doctrine of notice has become less important since the passing of the 1925 legislation, it still has a part to play in several aspects of the law. Law is at times classified in terms of principles of law and principles of equity. The early English courts were very limited as to the kind cases they could handle. Persons who could not obtain relief in those courts would petition the king to grant them special relief according to the principles of equity and justice. In the course of time, these special cases developed certain rules that are called principles of equity. In general, the rules of equity apply when the remedies provided at law cannot provide adequate relief in the form of monetary damages. Although law and equity are today merged into a common system in which equity principles are cited freely, the old equity domain (injunctive relief, specific performance of contract, contract modification, family law, and divorce) is particularly influenced by the idea of fairness and is deliberately more relaxed in its concept of justice. Also, jury trial is not available in an equity-typed proceeding, the jury having been a feature of common law courts. Thus, although the equity court as separate system of justice has ceased to exist; equity principles permeate all of the common law but are most diligently applied to traditional equity subject matter. An important difference between common law and equity is that the chancellor could issue a decree, or order compelling a defendant to do, or refrain from doing, a specified act6. A defendant who did not comply with this order could be held in contempt of court and punished by fine or imprisonment. This power of compulsion available in a court of equity opened the door to many needed remedies not available in a court of common law. Courts of equity in some cases recognized rights that were enforceable at common law, but they provided more effective remedies. For example, in a court of equity, for breach of a land contract the buyer could obtain a decree of specific performance commanding the defendant seller to perform his part of the contract by transferring title to the land. Another powerful and effective remedy available only in the courts of equity was the injunction, a court order requiring a party to do or refrain from doing a specified act. Another remedy not available else where was reformation, where, upon the ground of mutual mistake, an action could be brought to reform or change the language of a written agreement to confirm to the actual intention of the contracting parties. An action for rescission of a contract, which allowed a party to invalidate a contract under certain circumstances was another remedy. Although courts of equity provided remedies not available in courts of law, they granted such remedies only at their discretion, not as a matter of right. This discretion was exercised according to the general legal principles, or maxims formulated by equity courts over the years. Example of new remedies: At common law the only remedy for breach of contract were damages, a money payment as compensation for the loss suffered. Equity realized that in some cases damages was not an adequate remedy, and therefore proceeded to introduce the equitable remedies of injunction and specific performance. As mentioned earlier, injunction is used to prevent a party from acting in breach of their obligations; a decree of specific performance is used to order a party to carry out their side of a contract. Thus an injunction takes the following two forms: Firstly, mandatory - an order to perform an act, for example, an order to a trespasser to leave the owners land and Secondly, prohibitory - an order not to do something, for example, to stop picketing, to stay away from the matrimonial home, not to carry on an activity in breach of a contract. Thus we conclude these remedies mean that a party to a contract cannot just decide to break it and pay damages. Other equitable remedies are the declaratory order or judgment; the right to have a deed corrected by the process known as rectification; and the right to rescind (withdraw from) a contract. The willingness of equity to intervene where fraud was proven and its preparedness to deal with detailed accounts in the law of trusts and the administration of estates, also gained it wide jurisdiction. The appointment of a receiver is another solution to the problem of the management of certain financial matters, and was introduced by equity. Example of new procedures: In contrast to the rigid system of common law remedies equity favored a flexibility of approach. Consequently it was prepared, by a "subpoena"7, to order witness to attend, to have they examined and cross examined orally, to required relevant documents to be produced, known as discovery of documents, to insist on relevant questions being answered, by the use of interrogatories, and to have the case heard in English, where the common law of the centuries used Latin. In the event of failure to comply with an order, equity was prepared to impose immediate sanctions for this contempt of court. Another classification, sometimes employed is to define the jurisdiction of equity as exclusive, concurrent and auxiliary. In the exclusive jurisdiction sense, equity recognized actions, as in trusts and mortgages, where the common law would provide no remedy; in the concurrent jurisdiction sense equity would add to the remedies provided by the common law, as by the introduction of the injunction and the decree of specific performance; in the auxiliary jurisdiction sense equity employed more flexible position than the common law. It will be seen that these three terms simply emphasize the ways in which equity can be seen to be related to, but to be different from, common law. Equitable Rights: Today there are still discretionary unlike common law remedies which in appropriate circumstances may be demanded as of right, for example, for breach of contract. Equity is still applied in accordance with certain principles embodying concepts of justice and expressed in a series of maxims discussed hereafter. The following are examples of some important equitable rights: 1) Trusts: A significant equitable right is that of a beneficiary under a trust. At common law a person who is the legal owner of a property is regarded as the absolute owner and so such a person is able to dispose of such property. This is true even if the legal owner has only been entrusted with the property for it to be held for another person who is to receive the benefit of it. Equity recognizes the rights of beneficiaries which require that trustees must hold the trust property for the benefit of the beneficiaries; remedies like injunctions were developed to ensure they do. The trustee must act in good faith and perform his or her duties in strict accordance with the terms of the trust. Trust makes it possible to create a succession of interests. 2) Lien: An equitable lien is an equitable right whereby one party acquires a charge on the property of another until a certain claim has been met. A simple example is the right of an unpaid seller of goods to retain them until payment is made. It could also arise where a repairer of goods may keep them until payment has been made for the repair. In some circumstances the right may be not just to retain the goods but to sell then to defray expenses. At common law the ownership should be with the purchaser or owner who commissioned the repair. 3) Equitable Estoppel8 : This arises when one party indicates that he or she does not intend to enforce his or her strict legal rights. That party then may be prevented from going back on that undertaking at some later stage. For example, if a landlord indicates that a lesser rent will be asked from a tenant than the rent originally agreed because of particularly difficult circumstances and a result the tenant stays in occupation rather than giving up the tenancy, the landlord will be stopped from going back on promise and demanding the full past rent. This is simply because the landlord will have let the tenant act to his or her detriment in the belief that the promise will be honored. Maxims of Equity: There is a long list of the so - called maxims of equity9. Here we would be discussing about few of them which indicates the approach the courts adopt in deciding whether or not to grant an equitable remedy. 1) 'Equity does not suffer a wrong to be without a remedy'. It provided new remedies where a remedy at common law was deficient. It was this principle that lay behind the creation of such remedies like injunctions to prevent wrongs being perpetrated and decrees of specific performance to enforce the fulfillment of contractual obligations. 2) 'Equity will not assist a volunteer". Specific performance will not be granted to a person who has given no consideration in return for the obligations he or she wants to have enforced. For example, equity will not enforce a promise to create a trust in favor of a person who has provided no consideration. It seems reasonable that the courts should not protect the interests of a person who wants something for nothing10. 3) 'He who comes to equity must come with clean hands'11. For example, there will be no remedy for someone who has behaved improperly such as a beneficiary who has been a party to a breach of trust. 4) 'Equity looks on that as done which ought to be done'. For example, equity would give affect to the parties' intentions notwithstanding the absence of some formality, thus an agreement to create a formal lease may be as effective as the lease itself. 5) 'Delay defeats Equity'. Where the plaintiff has been dilatory or negligent in pursuing a claim the remedy sought may be denied even though all other conditions have been met. Common law remedies have specific time limits: equity may allow less time. CONCLUSION: It could be well concluded that equity supplemented and remedied the deficiencies in the common law. Equity and common law long remained administered in separate courts. Today, all courts can apply rules from the common law and principles of equity. Equity can deal with cases in which the common law has no competence trusts, for instance-or perhaps in cases where there are potential suits in both common law and equity and where there has been no preceding case at common law. It is to be noted that the word 'equity' will be found used in a variety of ways, not just in the sense of a parallel system of law to the common law. BIBLIOGRAPHY: -> Duddington John, 2006: Essentials of Equity and Trusts Law -> Edwards Richard & Stockwell Nigel, 2003: Trusts and Equity -> Emerson W Robert, 2003: Business Law. - pg 7 -> Fortier Mark, 2005: The Culture of Equity In Early Modern England - pg 78 -> Handley, 1997: Business Law pg 15 - pg 17 -> Lupoi Maurizio, 2001: Trusts: A comparative study - pg 57 -> Moffat Graham, 2005: Trusts Law: Text and Materials - pg 114 -> Roberts, S Barry & Mann, A Richards, 2005: Smith and Roberson's Business Law -> Twomey, P David, 2004: Anderson's Business Law and the Legal Environment. -> Remedies Maxims of Equity: umanitoba.ca/law/Courses/conner/45345/materials/p2.pdf Read More