Nature of Equitable Interests

• Pages: 147-215

NATURE OF EQUITABLE INTERESTS

HISTORICAL EVOLUTION

The rights which equity intervened to protect were not countenanced by

the common law. They arose from the obvious wrongs which were

endured by the King’s subjects as a result of the unconscionable insistence

on the strict legal rights of their opponents. The common law courts were

never inclined to right those wrongs. If land was conveyed to T, a trustee,1

upon trust for B, a beneficiary,2the common law acknowledged T’s title as

the absolute owner; the common law therefore suffered T to do whatever

he chose with his rights as an owner. It was of no moment to the common

law that in so allowing the trustee to deal with the trust property the law

prejudiced the beneficiary’s (B’s) rights. The beneficiary’s rights were

never recognised by the common law courts. However, the courts of equity

sought to protect the rights of the beneficiary, as a matter of conscience. For

it was thought to be a breach of confidence to disregard the rights of the

beneficiary. At law T became the legal owner and equity recognised his

legal title as such. Since B’s interest in trust property was an interest which

equity protected, B the beneficiary had the right to enjoy the property,

whilst T the trustee had the bare legal estate, which he had to hold in

accordance with the terms of the trust; he therefore had the title without

enjoying its fruits. B enjoyed the fruits of the title vested in T. B was the

beneficial owner.

The legal ownership which is in T confers what is described as right in

rem, rights of property in land itself which is good against the whole world.

That is, everybody has to acknowledge the rights of T, the legal owner. It is

no respecter of persons. Any interference with a legal right will give rise to

liability.

The rights protected by equity, equitable interests, take the form of

rights in personam. They are not good against the whole world. Only

certain individual persons, who by their relationship with those whom

equity protects and having their conscience affected by their dealings with

property rights protected by equity, are bound to respect and recognise

1Aperson holding property to the use (for the benefit) of another is referred to as a feeoffee

to uses.

2Abeneficiary under a trust is referred to as a cestui que trust; the plural is cestuis que trust.

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such equitable rights. For equity would proceed against them personally to

ensure that they give effect to those rights, which the courts of equity

protect. Apart from such persons who fall within this limited class, equity

will not enforce such rights against any other person.

The trustee comes within this category of people whom equity will

enjoin to respect the rights of those it protects. For the trustee’s conscience

is affected by the fact that the property was not conveyed to him (the

trustee) for his own benefit; it is for the benefit of the beneficiary. It is

unconscionable for the trustee to convert it to his own use. It is not doubted

that the property is held by him at law, but it is so vested in him on

terms and those terms should not be flouted. Conscience demands that he

should observe the terms on which the property was given to him. Equity

will hold him to such terms by compelling him personally to perform the

trust.

Problems, however, arise when the trustee, who initially gave the

promise or took the property on such terms of trust, dies and the property

is succeeded to by another person (successor in title), or the trustee even

disposes of the property to a purchaser or makes a gift of it to another

person (grantee). The successor in title or the grantee of the trustee may

rightly claim that he never gave any promise to hold the property for the

benefit of the beneficiary. Neither the successor in title nor the grantee of

the trustee can be said to have succeeded to or purchased the property

with any promise or understanding to hold the property for the benefit of

the cestui que trust, the beneficiary. There is nothing which impinges on his

conscience as would make him feel obliged to respect the rights of the

beneficiary. As a solution, equity gradually extended the class of persons

who would be enjoined to respect the rights of those persons equity pro-

tected. Equity began to enforce these rights not only against the person

originally bound in equity but also against his heir or donee, executors,

volunteers. The only person left outside the class, was the Chancellor’s

darling, a bona fide purchaser of legal estate for value without notice of the

equitable interest.

This development started with the person who initially undertook to

hold the land or goods on trust. To preserve confidence he was directed

to hold the property on the terms on which the property was delivered to

him. After a decision of 1465 the trust or equitable interest could be

enforced against the person into whose hands the estate descended by

way of conveyance with notice of the trust, i.e., a person who purchased

the property with notice of the rights which equity protected. In 1483 the

trustee’s heir was attacked and was also required to observe the terms

on which his ancestor held the property. It was therefore held that the

trust can be enforced against those who come to the land or goods by

inheritance or succession to the original trustee. The executor or the per-

sonal representative of the trustee was equally included. “Such persons”,

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according to Maitland, “may be regarded as sustaining wholly or partially

the persona of the original trustee and being bound by his obligations as

regards the proprietary rights to which they have succeeded.”3

Aperson to whom a trust property had been conveyed as a gift could

validly argue that he did not promise the beneficiary to hold the property

on his behalf, and that he was utterly ignorant of the interest of the cestui

que trust when the property was granted to him. Equity was not persuaded

by those arguments. In 1522 equity extended its tentacles and engulfed any

person who acquired the trust property through the trustee as a volunteer,

i.e., without furnishing any or any valuable consideration, even though

he did not know of the pre-existing trust. And in 1660, immediately after

the Restoration, the trustee’s creditors who took the land by elegit were

brought into the net.4In 1905 it was laid down in re Nisbet & Potts Contract5

that squatters were subject to any such prior rights protected by the courts

of equity.

Thus an interest which was being protected against an individual and

could therefore be described as a right in personam, gradually acquired the

status of a right in rem; it became recognised as a right which is good

against the whole world except a bona fide purchaser of a legal estate for value

without notice, and those claiming through such bona fide purchaser. “It has

now advanced to the status of legal rights, but not quite.” Its only

deficiency is that it cannot be enforced against a person who acquires

a legal estate in good faith and for valuable consideration in complete

ignorance of the existence of an interest protected by equity.

It would be worthwhile at this point to examine the contrasting

features of legal and equitable interests.

EQUITABLE INTEREST VERSUS LEGAL INTEREST

(A) Technical meaning of notice

An equitable owner is therefore not in as strong a position as a legal owner.

For his interest can be defeated by this single individual called the bona fide

purchaser (for short). But the courts of equity construed this doctrine of

bona fide purchaser so strictly that it is hard for one to qualify as a bona

fide purchaser so as to avail oneself of this exception and thereby defeat

the interest of the equitable owner.

3Brunyate, Equity, 1936, rev. edn, 117.

4See Finch v. Earl of Winchilsea (1715) 1 P. Wins. 277.

5(1906) 1 Ch. 386.

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