Equitable interest


In law, an equitable interest is an "interest held by virtue of an equitable title or claimed on equitable grounds, such as the interest held by a trust beneficiary". The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law tradition, such as New Zealand, England, Canada, Australia, and the United States.

Equity

Equity is a concept of rights distinct from legal rights; it is "the body of principles constituting what is fair and right ". It was "the system of law or body of principles originating in the English Court of Chancery and superseding the common and statute law when the two conflict". In equity, a judge determines what is fair and just and makes a decision as opposed to deciding what is legal.
Perhaps the most common example of an equitable interest is the interest of a beneficiary under a trust. Under a trust, the trustee has a legal interest in the trust property and all of the rights and powers that follow from that legal interest, subject to the interest of the beneficiary and the terms of the trust. The beneficiaries under the trust have an equitable interest in the trust property.
The precise nature of the interests and rights of the beneficiary under a trust is contested. Ben McFarlane states that there are three principal theses about the nature of equitable rights:
  1. Equitable interest is a right against a right, rather than right against a thing or right against a person.
  2. Whenever a party B has a right against a right of another A, B's right is prima facie binding on anyone who acquires a right that derives from A's right.
  3. B will acquire such a persistent right whenever A is under a duty to hold a specific claim-right or power, in a particular way, for B.
The rights and obligations of the beneficiary, trustee, third parties contracting with the trust and potentially of other parties depend on the terms of the trust deed. Trust law includes both mandatory law and default law. The trust deed, therefore, has a significant role to play in determining the rights and obligations of the parties in that default law may be excluded or modified by the trust deed.
In DKLR Holding Co Pty Ltd v Commissioner of Stamp Duties , the High Court of Australia held that if a person has an equitable interest in property, this implies that some other person has the legal interest in that property. If one person has both the legal and equitable interest in the relevant property, he or she has no 'equitable interest' in that property as such. Aickin J said "If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable". As stated by Brennan J held that " equitable interest is not carved out of a legal estate but impressed upon it".
Latec Investments Ltd v Hotel Terrigal Pty Ltd establishes that, in New South Wales, there are 3 classes of equitable interests: equitable interest, mere equity and personal equity. Mere equity, for example, may arise when one party has been unjustly disadvantaged by the unconscionable behaviour of another. Importantly, however, a 'mere equity' will not prevail over an actual bona fide equitable interest – such as an equitable charge.

Land law

An enforceable contract for sale confers an equitable interest on the purchaser of the land, as per the rule established in Lysaght v Edwards It was similarly held in Walsh v Lonsdale that 'equity looks on as done that which ought to be done'. A contract, which does not meet the requirements of a deed, required by the Law of Property Act 1925 s.52, may be specifically enforced to convey the equitable interest to the new purchaser. This rule has had a significant impact because it allows interests that have not been conveyed by a deed to still be binding on future purchasers, through the doctrine of constructive notice. However, the UK Parliament has weakened the impact of this rule, with the Law of Property Act 1989 s.2, which requires all contracts for the sale of land to be in writing, to contain all the terms of the agreement and be signed by both parties. Any contracts that are not in writing and signed by both parties cannot be specifically enforced and so will not create or transfer an equitable interest in land.