Introduction to equity

Transcription

1 Introduction to equity History of equity à Every judge is expected to be fair and just in decision making. à Equity as distinguished from law stands for a distinct body of rules and law which was developed by the court of Chancery in England before 1873 After 1873 law (used to run by common law courts) and equity (ran by courts of chancery) merged Equity used to be run by the chancellor. What does equity do? Qualifies, moderates and reformed the rigour, hardness and edge of the law Assists the law from crafty evasions and delusions Equity does not destroy the law, nor create it but assist it Equity does not overturn or destroy but supplements the common law. The law was rigid, strict and inflexible. à There are no remedies if there is no writ (writ system) ù Writ of summons ù Writ of originating summons Writ system if there is no writ, cannot sign an action / cannot get remedy for their grievances. Defects of common law remedied by equity à Rigidity of writs in common law courts à Rigid insistence on formalities à Inadequacy of remedies (common law courts could only award damages for proven loss) à They could not prevent possible cause of future loss à Where common law was rigid, equity softened it à Common law would enforce a formal agreement and would not admit parole evidence à A debtor might have paid his debt but not cancelled the sealed bond à He would still be bound by the bond and an unscrupulous creditor might make him pay back the debt all over again à Creditor can sue you twice for a debt Enter the chancellor People dissatisfied with a binding decision of a common law court could petition the king, the fountain of justice

2 The king passed this on to the Chancellor (also known as the keeper of the king s conscience), often a Christian clergy (men of cloth) The Chancellor appointed deputies to handle such petitions This led to the creation of courts of chancery (also known as courts of conscience/ equity courts) in parallel with courts of law until both courts were merged in 1870s à The office of the chancellor is to correct men s conscience for frauds and breach à Equity varies with the length of the chancellor s foot i.e. it has no fixed decision, however now courts apply equity principles within the contours of judicial precedent and established rules and principles Battle of courts Lawyer can become judges in the courts Equity is based on what you feel is right based on the principles that had been laid down previously Chancery courts tried to avoid clashes by consulting common law courts from where the complaint came to them Rules of war à To avoid clashes, equity courts gave awards in personam (against the person). Telling the creditor do not act on the award/ order given by the common law court. à Chancery court can order an injunction à do not act on the common law court order à If someone acts against the order i.e. common law court wants to enforce the order and chancery says do not enforce order acting in contempt (imprisonment) of court (equity principle) à Common law court à habeas corpus (release from prison) In personam (affecting one person) à When equity courts developed the idea of trusts, they would not challenge that the trustee had legal ownership of the property à They only ordered the trustee not to treat it as his own property, but to hold it for the benefit of the beneficiaries Settlor > i.e. Father is the sole owner of a property (legal, equitable) Trustee > (i.e. mother holds the trust for the benefit of the sun) Beneficiary (i.e. 5 year old son) Originally father had both the legal and equitable interest. When the father creates a trust, the legal interest moved to the trustee and the equitable interest moves to the beneficiaries. Father has divested himself off the interests of the property. Common law courts only recognizes the mother (trustee) has legal ownership. Equity recognizes that the beneficiary has equitable interest.

3 In personam (+ve) Ability of courts to order an injunction against a person subject to its jurisdiction even where the subject matter of the order is situated outside its jurisdiction. It can get a court order that freezes its asset even if the company is not in HK. So no one can deal/ dispose of the assets and the owner can have claim to assets. (King sided with equity courts) If there is a conflict between common law and equity, equity will always prevail. If there is a legal lease and an equitable lease in relation to a land, their terms are in conflict, the equitable lease will prevail. Fusion of law In 1879, common law courts and courts of equity were merged into one set of courts of law and equity. The two streams of jurisdiction, though they run in the same channel, run side by side and do not mingle their waters. Supreme court of Judicature Act 1873 fused the two systems of substantive and adjectival law. The common law courts could apply equitable principles and the courts of chancery can apply common law principles. Taylors Fashions à Where a court is dealing with a rule of equity, it cannot ignore the foundation and background of its development There is a fusion of the administration of the common law and equity, however common law and equity have not completely blended to form a unified system. One cannot study trusts without equity. Equity follows the law Equity will adhere to the common law unless there are exceptional circumstances i.e. privity of contract (only binds the parties to the contract and not third parties), S. P will not be available against 3 rd parties to a contract. Tenants have their own rights i.e. quiet enjoyment of land. Flat will have a title and must register the title at registry (takes 2 months usually) then the purchaser will be recognized as the new owner. That s when sale agreement completes. During the 2 months of time there is a constructive trust between the vendor and purchaser (after the purchaser enters the deposit). Constructive trust is imposed by law Private à express, implied Public à charitable trust

4 Lecture 1 In a common law court no action could be commenced without the appropriate writ. I.e. if a tenant of land died and before his heir could enter the land, a stranger took it, the heir could take action against the stranger for possession. The appropriate writ varied depending on whether the heir was the son, grandson or great grandson of the deceased. Rigidity of the law: If a certain formality was required for a transaction to be valid, common law regarded as invalid a transaction entered into without full compliance with formalities. A legal lease of land for more than 3 years must be by deed. However, if such a lease is in writing but a deed has not been executed, there is a lease in equity. If the tenant enters into possession and pays rent, in law there is an implied periodic tenancy. There will thus be at the same time an implied legal periodic tenancy (i.e. yearly) as well as an equitable tenancy for the fixed period (i.e. 7 years). Walsh v Lonsdale if there is a conflict between the terms of the implied legal lease and the equitable lease, the equitable lease prevails. Equity recognizes valid certain agreements. Equity recognizes remedies of injunction, specific performance, rescission, rectification and account. Equity also introduced substantive concepts such as trust In both Hong Kong and UK, Judicature Act 1973 provides if there is a conflict between common law and equity, the latter prevails. Equitable rights can only be enforced against a person Restrictive covenants do not run with the land. The original covenanter must observe the restrictive covenant, but if he sells the land to another, the purchaser is not bound by the covenant, although s. 40 of CPO (Conveyance and property ordinance) provides: a convenant is deemed, unless the contrary intention is expressed to be made by the covenanter on behalf of himself, his successors in title and persons deriving title under or through him or them Equity regards that a restrictive covenant for the benefit of neighboring lands is enforceable against successors in title who had notice of it

5 Tulk v Moxhay It is said that, the covenant being one which does not run with the land, this court cannot enforce it; but the question is, not whether the covenant runs with the land but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor and with notice of which he purchased This has been interpreted to mean that equity will recognize only a restrictive covenant that places a burden on the covenanter for the benefit of a third party (i.e. not less than 20% of the land shall remain open space without any permanent structure) United Scientific Holdings Ltd v Burnley Borough Council The innate conservatism of English lawyers may have made them slow to recognize that by the supreme court judicature act 1873, the two systems of subjective and adjectival law formerly administered by courts of law and courts of Chancery were fused Tinsley v Milligan More than 100 years have elapsed since the fusion of the administration of law and equity. The reality of the matter is that in 1993, English law has one single law of property made up of legal estates and equitable estates Maxims of Equity Equity unlike common law is not a complete system, but there are certain principles upon which the courts of Chancery exercised their jurisdiction. Many of these are embodied in the maxims of equity. These maxims are just guidelines. There is no logical division of these overlapping maxims. Perhaps all these maxims can be brought under the first 2 maxims: Equity will not suffer a wrong to be without a remedy and Equity acts on the person 1) Equity will not suffer a wrong to be without a remedy For instance, the enforcement of trust, whereby trustee, the legal owner of the property was compelled to keep his promise that he would administer the property for the benefit of the beneficiary. That promise could not be enforced at common law. Common law courts did not have power to order disclosure of documents (to get information and documents within the control of the other party) 2) Equity follows the law This maxim applies to equitable remedies and equitable properties Equitable remedies: Leech v Schweder judgment I always supposed that where a right existed at law and a person only came into equity because the court of equity had a more convenient remedy than a court of law there equity followed the law and the person entitled to the right had no greater right in equity than at law

6 Equitable property rights: Tulk v Moxhay It is to prevent the convenantor taking such unconscionable advantage of the legal rule of privity of contract that equity permitted the original vendor to enforce the restrictive covenant against any ultimate purchaser who acquired the burdened land with notice of the covenant. 3) Where there is equities are equal, the law shall prevail [When determining priority between competing equitable claims] Where one person has a legal right and the other an equitable right in relation to land, the legal right takes priority. This and next maxims which relate to priority have been modified by statutory provisions. (I.e. where A granted an equitable mortgage to B and then another to C, the present maxim allows C to gain priority over B by the simple expedient of purchasing the legal title from A Bailey v Barnes). Exception: Dearle v Hall According to this rule, priority between competing assignees of a debt is awarded to the first one to give notice to the debtor. It does not matter that one of the competitors has a legal interest and the other merely an equitable one. 4) Where equities are equal, the first in time shall prevail This rule applies where there are competing equitable claims. However, equitable interests have to be equal. So if the person who claims a prior equitable interest has been guilty of inequitable behavior, he loses priority because equitable interests are not equal. 5) He who seeks equity must do equity Lodge v National Union Investment Co Ltd B borrowed some money from M, an unregistered moneylender and mortgaged certain securities to him. The contract was illegal under the Moneylenders act When B sued M for delivery up of the securities, it was held that no such order would be made unless B would repay the money. B was seeking equitable relief and had to do what was right and fair. 6) He who comes to equity must come with clean hands He who has committed inequity shall not have equity. I.e. a tenant may not be entitled to specific performance if he is in breach of his obligations. If a minor fraudulently misrepresenting him to be of age obtains from his trustees a sum to which he is entitled only on coming of age, he will not be permitted to compel the trustee to make that payment again when he comes of age. Infants have the privilege to cheat man If you seek an equitable remedy against your tenant, you must have not violated the tenant s rights An individual cannot claim for specific performance if the contract was brought about by misrepresentation

7 7) Delay defeats equities A court of equity has always refused its aid to stale demands, where a party has slept upon his right and acquiesced for a great length of time. Smith v Clay 8) Equality is equity Where 2 or more persons are entitled to an interest in the same property, then the principle of division is equality unless there is for good reason any other basis for division. Jones v Maynard Joint bank account owned by husband and wife If there is no document that shows who is entitled to the balanced sum. If the trustee has not been told how to divide trust property between the children of the settlor, the court will apply the maxim equality is equity and divide the property equally. 9) Equity looks to the intent rather than the form Equity will look at circumstances of the case. Equity will regard a transaction as a mortgage even though it is not so described, if in substance it appears that the property was transferred by way of security. Where property was transferred as security for a loan it was considered a mortgage although the relevant deed did not describe as such. 10) Equity regards as done that which ought to be done Where a specifically enforceable contract for the sale of land transfers the equitable interest to the purchaser, the vendor must hold the legal title on constructive trust until completion of the transaction Where a person enters into a contract to sell his land to another, he may change his mind and sell it to another. But equity intervenes and says that an agreement to sell which is specifically enforceable is as good as a sale itself. The seller is regarded as a constructive trustee for the purchaser until the legal title vests in the purchaser. 11) Equity imputes an intention to fulfill an obligation Where a person has an obligation to do an act and does some other act, which may be regarded as a fulfillment of that obligation, the latter act will prima facie be so regarded. Snowden v Snowden the husband promised to pay pounds to the trustees of the marriage settlement to buy land in Devon upon the trusts of the settlement. He never paid that money but purchased land in Devon for pounds and died without transferring it to the trustees. It was held that the man must be presumed to have bought the property to be transferred to the trust and therefore held to be subject to the trust of his marriage settlement.

8 12) Equity acts in personam Where a court of equity held that the plaintiff was entitled to the possession of property, which was in the defendant s possession, it would not force the defendant out, but made an order against the defendant and if he did not give up possession he was punished for disobedience. Other general principles 1) Equity will not permit a statute to be a cloak for fraud Where statutory formalities have been prescribed to prevent fraud, equity will not allow a party to take undue advantage of the fact that a transaction has not complied with the prescribed formalities. Where the transferor of land intended a limitation in the nature of a trust but such intention is not reflected in a formal conveyance of land, the court may force the transferee to honour the corresponding obligation, which legally would have no effect for lack of formality. Banister v Banister an elderly woman was living in a house which belonged to her, she transferred the house to a third party, X, on the understanding that she could live in the house for the rest of the her life rent free. X sold the property. She entered an oral agreement and did not sign any documents. Court granted the lady a life interest in the property (letting her live there as long as she lives but she cannot write to pass this interest to her son). 2) Equity will not assist a volunteer A party to a contract may not obtain specific performance unless he has provided valuable consideration, even though the contract is under seal, while he will be entitled to common law remedies such as damages. If the contract is under a seal, then the volunteer can recover damages, but cannot ask for specific performance. 3) Equity will not perfect an imperfect gift If a person has promised to give you a gift, but has not yet given it to you, you cannot compel him to fulfill his promise. (This illustrates the maxim that equity will not assist a volunteer) Jones v Locke Father came back from overseas trip and didn t bring anything back for the child. The mother was annoyed. Father wrote out a cheque and put it at the baby. Although he wrote the cheque out, he did not endorse the cheque. The gift failed because the court refused to cure the defects (lack of signature). If the gift is perfect, it would comply with all the formalities. For it to succeed need strong evidence that there is an intention

9 Lecture 2 Specific performance Specific performance = an equitable remedy & enables a party to a contract to require the other party to continue to perform what he is required to do. Where common law allows a D to break his contractual obligations to pay damages for the privilege, equity intervenes and compels a D to fulfill his obligation. à The court will only grant an order of specific performance if it is just and reasonable to do in the circumstances of the case. à It is the court s discretion to grant the remedy Where a party fails to perform, he is in breach of contract. The aggrieved party is entitled to damages, as of right. However, if the party thinks that damages are an inadequate remedy, he may apply for specific performance. 1) Specific performance is generally not granted in respect of personalty (a person s personal property) Damages are considered adequate for nonperformance, because you can buy the same thing in the market, so damages in cost is already enough. However, specific performance is required if the object agreed upon is of particular importance ie. 2 unique China jars (Falcke v Gray) or shares which are not freely available (SL Omnibus Ltd v Perera) s. 54 SOGO In any action for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its judgment direct that the contract shall be performed specifically without giving the defendant the option of retaining the goods on payment of damages. The judgment may be unconditional or on such terms and conditions as to damages, payment of the price and otherwise, as to the court may seem just. The application by the plaintiff may be made at any time before judgment Specific performance is generally applicable in relation to breached contracts for sale of land because land is considered to be unique so damages for breach of contract are generally inadequate. 2) Where specific performance has been granted, the person against whom the order is made has a duty to comply with the order

10 Court can decide whether there has been sufficient compliance, so they will keep an eye on the person to see that he complies with the order. Problems arise with a contract for personal services: specific performance is unworkable where the effect of the order is to compel parties to maintain a personal relationship they are unwilling to continue. i.e. if the court orders an employer to reinstate a dismissed employee (specific performance ordered of the employment contract), the court will have to mediate any dispute between employer and employee as to whether the employee is performing his duties under the employment contract or whether the employer is making unreasonable demands on the employee, therefore courts are reluctant to make an order of specific performance. C H Giles & Co Ltd v Morris Singer could purposely sing too fast, flat, sharp or too loudly/ quietly on purpose so order of specific performance should not be made in these instances but one should not assume that as soon as any element of personal service or continuous services can be discerned in a contract, the court will without more, refuse specific performance. R v Incorporated Froebel Educational Institute ex p L where the court refused to order a school to revoke suspension of a student from school Courts would be reluctant to order a business to be carried on as agreed by contract, where the promisor is not prepared to do so. Coorperative Insurance Society ltd v Argyll Stores 3) An applicant for specific performance must have provided valuable consideration Equity does not assist volunteers. Where the contract is under seal and involves a gratuitous transfer, the intended transferee will not be able to obtain specific performance. The provision of money or money s worth (however small) is adequate consideration, past consideration will not suffice. à Valuable chattels Sometimes it cannot be estimated in damages. Falcke v Gray Mrs Gray had agreed to sell 2 China jars for 40, under the impression that that was the true value. Mr Falcke, a man experienced in dealing with antiques and who knew that they were much more valuable, took advantage of the ignorance of Mrs Gray. The Vice Chancellor held that the intention of Mrs Grey was to sell the jars at a fair price and it was unjust for Mr Falcke to take advantage of her