Lecture 2 : Continuation Introduction to Equity and the Trust

I. Introduction to Equity and Trusts

Today’s lecture will provide a comprehensive introduction to the development of Equity and
Trusts in the English legal system. We will explore how Equity emerged as a system to mitigate
the rigidities and shortcomings of the common law, and how the concept of trusts developed as a
unique mechanism for managing property. Understanding these foundational concepts is crucial,
as they will permeate all subsequent discussions and topics in this module.

II. Origins and Development of Equity

1. Definition of Equity:
Equity is a body of law that supplements the common law by addressing its rigidities and
providing remedies based on principles of fairness, conscience, and justice. It developed
in response to the inadequacies and inflexibilities inherent in common law, particularly
where strict adherence to legal rules would result in unjust outcomes.
2. Historical Development of Equity:
o The Feudal System and Limitations of Common Law:
Following the Norman Conquest of 1066, English law was rooted in the feudal
system, where land was the primary source of wealth and power. Common law
courts recognized only legal ownership and enforced rights strictly according to
formal legal rules. This rigidity often led to situations where justice was not
served, prompting the need for a more flexible approach.
o Petitioning the King and the Chancellor's Role:
Dissatisfied parties could petition the King for justice, bypassing the common law
courts. The Chancellor, who was originally the King’s secretary, exercised the
royal prerogative to provide relief based on principles of conscience and fairness.
Over time, the Chancellor's Court, known as the Court of Chancery, became a
distinct institution that administered Equity.
o Key Cases Establishing Equitable Jurisdiction:
 The Earl of Oxford's Case (1615) 1 Ch Rep 1:
This case was pivotal in establishing that, where there is a conflict
between the rules of common law and equity, equity should prevail. It
marked the formal recognition of the supremacy of equitable principles
over the common law when they conflict.
o The Judicature Acts of 1873-1875:
These Acts merged the administration of common law and equity into one unified
court system. However, they preserved the distinct rules, principles, and remedies
of each system. The significance of these Acts is that they allowed judges to apply
both legal and equitable principles, ensuring more comprehensive and just
outcomes.
3. Key Characteristics of Equity:
o Equity is characterized by its flexibility and discretionary nature, designed to
provide fairness in cases where common law might produce harsh or unjust
results.
 o It is fundamentally remedial, focusing on providing appropriate relief where
common law remedies are inadequate.

III. The Maxims of Equity

Equity operates based on certain guiding principles known as maxims. These maxims provide a
framework for applying equitable rules and remedies:

1. Equity Will Not Suffer a Wrong Without a Remedy:

This maxim embodies the essence of Equity, ensuring that for every legal wrong, there is
a remedy available. It serves as the foundation for the development of various equitable
remedies, such as injunctions and specific performance.
2. Equity Follows the Law:
Equity does not disregard the law but supplements it. For instance, equitable remedies
like specific performance or injunctions are granted to ensure that justice is done in a
particular context, provided it does not contravene established legal principles.
3. Where Equities Are Equal, the Law Prevails:
When two parties have equally valid equitable claims, the common law is used to resolve
the dispute. For example, if two parties have equitable interests in the same property, the
party with the legal title will generally prevail.
4. Where Equities Are Equal, the First in Time Prevails:
This maxim establishes that if two or more parties have competing equitable interests,
priority is given to the one whose interest was established first. This is often relevant in
cases involving competing claims to the same property.
5. Delay Defeats Equities (Laches):
Equity requires prompt action. If a party unreasonably delays seeking an equitable
remedy, the court may refuse to grant it due to the principle of laches.
Case: Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 — The court
refused relief due to the claimant’s delay in bringing the claim.
6. He Who Seeks Equity Must Do Equity:
Anyone seeking equitable relief must be willing to act fairly toward their opponent.
Case: Chappell v Times Newspapers Ltd [1975] 1 WLR 482 — Injunctions were granted
on the condition that the plaintiffs continue to pay their union dues.
7. He Who Comes to Equity Must Come with Clean Hands:
A party cannot seek equitable relief if they have acted improperly in relation to the
subject matter of their claim.
Case: Dering v Earl of Winchelsea (1787) 29 ER 1184 — The court refused equitable
relief due to the claimant’s improper conduct.
8. Equity Is Equality:
Equity strives to ensure fairness and equality between parties. For example, in cases of
bankruptcy, the assets of the debtor are distributed equally among the creditors.
9. Equity Looks to Intent Rather Than Form:
Equity gives effect to the intention behind a transaction rather than its formal structure.
Case: Berry v Berry (1929) 2 KB 316 — The court gave effect to the true intent behind
an agreement, rather than its formal language.
 10. Equity Looks on That as Done Which Ought to Be Done:
If a party is under an obligation to perform an act, Equity treats it as if the act has already
been performed.
Case: Walsh v Lonsdale (1882) 21 Ch D 9 — The court enforced an agreement to grant a
lease as if the lease had been formally executed.
11. Equity Imputes an Intention to Fulfil an Obligation:
Equity assumes that a person intends to fulfill their obligations.
12. Equity Acts In Personam:
Equitable remedies are directed against individuals (in personam) rather than property.
This distinguishes equitable rights from legal rights, which may be enforced against the
world at large.
13. Equity Will Not Allow Statute or Common Law to Be Used as an Instrument of
Fraud:
Equity intervenes to prevent any abuse of statutory or legal rights to perpetrate a fraud.
14. Where Equity and the Law Conflict, Equity Shall Prevail:
This maxim reinforces that in cases of conflict between law and equity, equitable
principles take precedence.

Maxims of Equity: Legal Scenarios

1. Equity Will Not Suffer a Wrong Without a Remedy:

o Scenario: A shareholder, Alex, discovers that the company's directors have
committed fraud, causing the share price to plummet. The common law provides
no remedy because the fraud was not a direct action against Alex. He applies to
the court for an equitable remedy of an injunction to prevent further fraudulent
activities.
o Application: The court grants an injunction against the directors, recognizing that
equity will not permit a wrong to occur without providing a remedy, even where
the common law offers none.
2. Equity Follows the Law:
o Scenario: Ben contracts with Charles to buy a unique piece of artwork. Charles
later refuses to honor the contract, claiming the artwork was mispriced. Ben seeks
specific performance to compel the sale.
o Application: The court, applying the maxim that equity follows the law, grants
specific performance since the contract is valid under common law principles, and
compelling the sale does not contravene any statutory provision or common law
principle.
3. Where Equities Are Equal, the Law Prevails:
o Scenario: Daniel and Edward each claim an equitable interest in a trust property.
Daniel is a beneficiary under a trust deed, while Edward holds an equitable lien
for repairs he funded.
o Application: The court finds that since both parties have equal equitable interests,
the legal title held by the trustee governs, and Daniel's interest, under the formal
trust deed, prevails.
4. Where Equities Are Equal, the First in Time Prevails:
 o Scenario: Fiona and Grace both advance money to Henry against the security of
his land. Fiona's equitable charge is registered first, but Grace’s loan is larger and
secured later.
o Application: The court rules that Fiona's equitable interest, being first in time,
takes precedence over Grace's later charge, even though Grace's loan amount is
greater.
5. Delay Defeats Equities (Laches):
o Scenario: Isabella finds out that her neighbor, Jack, built a garage that encroaches
on her land five years ago. She waits an additional five years before filing for an
injunction to have it removed.
o Application: The court denies Isabella's request for an injunction due to her
unreasonable delay in asserting her rights, applying the doctrine of laches, which
bars equitable relief when there is undue delay.
6. He Who Seeks Equity Must Do Equity:
o Scenario: Karen, a landlord, seeks an equitable remedy of an injunction to evict
her tenant, Liam, for violating a no-pet clause in the lease. However, Karen had
earlier breached the lease by failing to provide adequate heating.
o Application: The court conditions the grant of the injunction on Karen’s
rectifying her own breach by compensating Liam for the inadequate heating, thus
ensuring she does equity.
7. He Who Comes to Equity Must Come with Clean Hands:
o Scenario: Mark seeks an injunction against Nora to prevent her from disclosing
confidential business information he provided. However, it is discovered that
Mark obtained this information by hacking into Nora's computer.
o Application: The court denies Mark's injunction request, applying the clean
hands doctrine, as his own misconduct (hacking) precludes him from obtaining
equitable relief.
8. Equity Is Equality:
o Scenario: Oliver's company goes into liquidation, and there are 20 creditors,
including a family member. Oliver instructs the liquidator to pay his family
member in full first, even though all creditors have an equal priority.
o Application: The court orders that all creditors be treated equally, applying the
maxim that equity is equality, and refuses to give preferential treatment to
Oliver’s family member.
9. Equity Looks to Intent Rather Than Form:
o Scenario: Paula signs a document gifting her property to her son, intending it as
security for a debt he owes her. However, the document appears to convey the
property absolutely to the son.
o Application: The court interprets the document as creating a mortgage, not an
outright gift, by looking at Paula's intention rather than the strict wording, in line
with this maxim.
10. Equity Looks on That as Done Which Ought to Be Done:

 Scenario: Quentin agrees to sell a commercial property to Rebecca and they sign a
preliminary agreement, but the formal transfer deed is yet to be executed. Quentin later
attempts to sell the property to a third party for a higher price.
  Application: The court enforces the preliminary agreement, treating it as if the formal
transfer had already occurred, thereby ensuring that the sale to Rebecca is honored.

11. Equity Imputes an Intention to Fulfil an Obligation:

 Scenario: Samuel inherits a piece of land from his father, subject to the obligation to
maintain a family burial ground on the property. Samuel begins constructing a
commercial building on the site.
 Application: The court orders Samuel to fulfill his obligation to maintain the burial
ground, assuming he intends to fulfill all obligations attached to the inheritance.

12. Equity Acts In Personam:

 Scenario: Tessa seeks an order for specific performance against Ulysses, who has moved
abroad after agreeing to sell her a rare manuscript. Ulysses claims that the court in Tessa's
jurisdiction lacks authority.
 Application: The court grants an in personam order compelling Ulysses to complete the
sale, as equitable remedies like specific performance target the individual's conduct, not
the property itself.

13. Equity Will Not Allow Statute or Common Law to Be Used as an Instrument of
Fraud:

 Scenario: Victor claims a statutory right to foreclose on a property after he discovers that
the property owner, Wendy, mistakenly signed a deed of trust to him instead of another
party. Victor attempts to exploit this mistake to his advantage.
 Application: The court sets aside Victor's claim to forec losure, preventing him from
using the statute as an instrument of fraud.

14. Where Equity and the Law Conflict, Equity Shall Prevail:

 Scenario: Xavier claims legal ownership of a piece of land based on a statutory

declaration. However, Yara, the equitable owner, had a prior agreement with the original
owner, which Xavier knew about. Xavier tries to evict Yara, relying on his legal title.
 Application: The court prevents Xavier from evicting Yara, ruling that equitable
ownership prevails over his legal title, given the circumstances and his prior knowledge
of Yara’s interest.

V. Seminar Questions and Discussion Points

To deepen your understanding consider the following questions:

1. Historical Context:
 oHow did the rigidity of common law contribute to the development of Equity?
Can you think of modern scenarios where such rigidity might still be a problem?
o In what ways did the Judicature Acts of 1873-1875 revolutionize the
administration of justice?
2. Application of Maxims:
o Choose a case where a maxim of equity has played a crucial role in the court’s
decision. How was the maxim applied, and what was its impact on the outcome?
o Discuss the relevance of the maxim "He who comes to equity must come with
clean hands" in modern equitable claims. Provide examples.
3. Real-World Application:
o Reflect on the distinctions between common law and equity. How do these
distinctions influence modern jurisprudence, particularly in property law and the
law of obligations?
o Consider the social, economic, and legal factors that have influenced the
development of the law of trusts. How might these factors shape its future?
4. Hypothetical Scenario:
o Imagine you are advising a client who has been unfairly treated under a contract.
What equitable remedies could you consider, and under what circumstances
would they be most appropriate?

VI. Conclusion

Equity and Trusts are foundational components of the English legal system, providing tools to
achieve fairness and justice where the common law may fall short. As we continue this module,
consider how these principles apply not only in historical contexts but also in contemporary legal
practice.

Please review the assigned cases and reflect on the above questions. Engage critically with
the materials to form your own interpretations and perspectives.