Paper by Mr. Kihangire Nish ( Lecturer Uganda Christian University)
Trusts
Compare and contrast the trust with the following
Agency
Debt
Power of appointment
Bailment
Contracts
Trusteeship involves onerous obligations, where a donor retains no responsibility for the property once the gift has been made. Difficulty has been found in providing a comprehensive definition of a trust but various authors have made attempts to define the term trust.
A trust is a relationship which subsists when a person called the trustee is compelled by a court of Equity to hold property, whether real or personal, and whether by legal or equitable title for the benefit of some persons, of whom the trustee himself may be one and who are called cestui que trust or beneficiaries, or for some object permitted by law; in such a way that the real benefit of the property accrues not to the trustee, as such, but to the beneficiaries or other objects of the trust.
Definition in Hague Convention on Law of Trusts:
This has been incorporated into English Law by the UK Recognition of Trusts Act 1987 and under Article 2 of that convention, a trust is defined as follows:-
For the purpose of this convention, the word trust refers to the legal relationships created inter vivos or on death by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.
A trust has the following characteristics
the assets constitute a separate fund and are not part of the trustees own estate;
title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;
The trustee has the power and duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.
A trust can be distinguished from other legal concepts such as bailment, agency, contract, debts, conditions and charges, powers.
Trust & Agency s.118 CONTRACTS ACT, 2010
Agency is a contractual arrangement express or implied, written or verbal whereby one person may act on behalf of another and bind that other as if he or she acted personally. An agency arises where a person called the agent has expressed or implied authority to act on behalf of another called the principal and he consents to do so. The agent is normally treated as an accounting fiduciary party and he binds the principal vis-à-vis third parties. Royal Brunei Airlines v Tan [1995] 2 AC 378 where a travel agent was appointed to sell tickets for the plaintiff airline on condition that all monies received by the agent were to be held for the airline on trust.
There are some similarities between trustees and agents;
-The relationship of trustee and beneficiary is fiduciary in nature while that of principle and agent is normally fiduciary but not inevitably so.
-Both trustees and agents must act personally and should not delegate their duties
-Neither of them may make un-authorised profits from their office
There are differences however
The trustee in exercise of his office will contract as principal and cannot bind the beneficiaries unless they have constituted him both trustee and agent but an agent binds his principal so long as he acts on the principals authority or on the apparent or ostensible authority that he is deemed to have.
Although the trustee has a right of re-coup an indemnity against the beneficiaries for any properly incurred expenses and creditors may subrogate those rights in certain circumstances there is therefore no direct contractual link between the beneficiary and 3rd parties comparable to the link between the principal and 3rd parties
Agency is normally terminated on death of either party and also by the principal acting unilaterally if there is no contract to the contrary or the contract permits him to do so. On the other hand a trust cannot be revoked unless the trust instrument reserves the power of revocation. Mallot v. Wilson [1930] 2 Ch. 494.
However the beneficiaries if sui juris unanimous and together entitled may demand that the trust property be distributed and consequently that the trust be brought to an end.
Normally the principal in agency gives binding directions to his agent whereas beneficiaries cannot control the exercise of the trustees discretion. Refer to Re Brockbank [1948]Ch. 206;
The central distinction between agency and trust is in relation to property. An agent does not per se hold any property for his principal. Many agents do not obtain items of property at all and those who do so acquire only possession but not title. On the other hand there can be no trust unless title to the trust property vests in the trustee or in another party on behalf of the trustee.
Trust and agency overlap
Note that trust and agency may overlap. A trust may be created under which the trustee undertakes a contractual obligation to act on behalf of the beneficiary e.g. the vesting of company shares in a nominee for a fee. Conversely an agent may become a trustee if for instance he acquires title to property to be held for the benefit of his principal.
It has been said that an agent becomes a trustee for his principal if he obtains title to the property for the principals benefit and on the face of if this is a clear proposition. However this is not easy to gauge in practice especially if what is involved is a mere chattel or money whose title may be transferred by mere delivery of possession with an intention to transfer it. The question was tested in Cohen v. Cohen [1929]1 CLR in which a wife had sued her estranged husband for several sums of money and the husband in defence pleaded the statute of limitations her claims were time barred under the statutes of the Limitations Act. The defence would succeed unless the claims arose under a trust or had been acknowledged within the limitation period applicable to personal claims. The claims were as follows: 9000 DM being money and the sale price of chattels sold on her behalf by an agent in Germany. In order to overcome difficulties which attended transfer of funds from Germany to England where she lived, the wife had arranged for her husband to collect her 9000 marks and use it for purchase of goods in Germany for his own business, it being agreed that he would pay her out of his own funds in England.
The second claim was for £123 pounds sterling being the sale price of surplus furniture of the wife sold after the marriage, the husband having retained this amount.
The third claim was as to £80 pounds sterling being settlement of an insurance claim arising from the loss of the wifes jewellery again the husband having retained this amount.
The court held that she succeeded in all the claims, the court finding that the husband stood in a fiduciary relationship with regard to the wifes property in the circumstances and was therefore a trustee for her benefit. In arriving at this decision the court followed the decision in Burdick v. Garrick 9000 DM (1870) L.R. 5 C.L 233 where Lord Justice Giffard stated as follows:
in respect of attorneys who had been authorised and buy property and had attempted to set up the statute of limitations as a defence there was a very special power of attorney under which the agents were authorised to receive and invest to buy real estate otherwise to deal with the property but under no circumstances could the money be called theirs. Under no circumstances had they the right to apply the money to their own use or to keep it otherwise than to a distinct and separate account throughout the whole of the time that this agency lasted, the money was the money of the principal and not in any sense theirs. Under these circumstances, I have no hesitation in saying that there was in the plainest possible terms a direct trust created. I do not hesitate to say that where the duty of persons is to receive property and to hold it for another and to keep it until it is called for, they cannot discharge themselves from that trust by pleading lapse of time.
A trust and a debt
The distinction between trust and debt is more difficult. The traditional view is that the relationship between trustee and beneficiary is not one of debtor and creditor. In other words, the trustee does not owe the value of the rights he holds to the beneficiaries. Take a simple example. If I lend you £100, your obligation to repay me £100 will not be taken away if a bolt of lightning immediately destroys the very banknotes I gave you. But if you hold £100 on trust for me, then destruction of the subject-matter of the trust by lightning (so long as it was without fault on your part) will mean that your obligations to me are at an end; it is not possible for me to bring an action against you, claiming that you owe me £100 (see Morley v Morley (1678) 2 Cas Ch 2). Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 created confusion in this area, holding that a borrower of money can be both a debtor and trustee in respect of the same sum. That decision is, however, extremely controversial, and has been recently reviewed in Twinsectra v Yardley [2002] UKHL 12 But though, under the traditional view enunciated above, a trustee will not owe the value of the right held on trust, this is not to say that a debt cannot form the subject-matter of a trust. When we talk of a trust of a bank account, we mean nothing more than that the creditors right to sue is held on trust.
A debt may or may not be contractual and the duty of the debtor is to repay money to the creditor. In contrast, the trust does not need to be contractual and the duty of a trustee is to hold trust property for the beneficiary.
The obligation of a debtor is personal but a trust is proprietary.
A trustee should where possible use trust property in income bearing investment and account to the beneficiary for income. In the case of a debtor, such an obligation is unnecessary except in so far as provided for in agreements express or implied.
See Potters v loppert (1973) CH. 399
Furthermore if money borrowed is stolen from the borrower, he is still under obligation to repay it. However within trusts, a trustee is not liable for the loss which is not attributed to his negligence.
See Morley v Morley 22 ER 817 (1678) 2 CH.D.2
Further the words of an instrument may be employed in such a manner as to create both personal and trust obligation thereby creating a situation where a debt and trust exist.
In Barclays Bank ltd v quitsclose investment ltd 1970 AC 567
In the above case Rolls Royce Razor ltd was highly indebted to Barclays bank and was in need of 209,000 pounds to pay dividends which had been declared on its shares. The sum was borrowed from Quitsclose under an arrangement whereby the loan was to be used for that purpose. The money paid into a separate account at Barclays Bank which had notice of the nature of the arrangement. Before dividends were paid, Rolls Razor went into liquidation. The issue was whether the money on the account was owned by the beneficiary Rolls Razor, in which case Barclays Bank claimed to set it off against the overdraft or whether Rolls Razor had received the money as trustee and still held it in trust for Quitsclose. The House of Lords unanimously held that the money had been received in trust to be applied for payment of dividends that purpose having failed, the money was held in trust for Quitclose.
The fact that the transaction was a loan, recoverable by an action at law did not exclude the implication of a trust. The legal and equitable rights of remedy could coexist; the bank having notice of the trust could not retain the money against Quitclose.
A TRUST AND BAILMENT S.88
Bailment refers to a relationship which arises where an owner of property gives permission to another person to possess it. A bailment is a delivery of personal chattels to a bailee subject to a condition that they be returned to the Bailor or be dealt with as the Bailor directs when the purpose of the bailment has been carried out. There is an element of delivery in bailment.
Read part 9 of the contract Act No 7 of 2010.
Suppose that you are going abroad for a year. You may have a painting which you do not want to leave in the house. You therefore hand it to a friend to look after during your absence. This will probably amount to a bailment, though it could be a trust. Everything will depend on the location of your title, your right to exclusive possession, of the painting.
If you vested it in a friend, then they will be a trustee of that right for you. If however, you kept your right in yourself, handing over only the possession of the painting, the transactions will be one of bailment, not trust. The difference between the two is crucial for a number of reasons. One is this. If, in breach of instructions, your friend sold his title to the painting to an innocent purchaser, it will matter a great deal whether you created a bailment or a trust. If your friend was a bailee, then the purchaser will not acquire a title good against you and you will be able to recover the paintings value from the purchaser in an action in the tort of conversion, no matter how innocent the purchaser may have been.
The basic rule is nemo dat quod habet (no one gives what he does not have), and since your friend did not have your title to the painting, he could not transfer it to the purchaser.
But if your friend was a trustee, the position of the purchaser would be different; for now your friend does have the right in question and so is capable of passing it on to third parties. You, of course, have rights under the trust, but such rights are destroyed when the subject-matter of the trust comes into the hands of an innocent purchaser of value. It suffices to note that bailment is governed by common law. The position of a bailee is similar to that of a trustee in the sense that both are entrusted with anothers property. The Trustees duty to take care of trust property is roughly comparable with the duty of a gratuitous bailee although generally the trustees duties are more onerous. There are however differences
Bailment differs from a trust in the following ways:
A bailee obtains only possession and what is referred to as special property in the goods property while a trustee takes title to the trust property. As a consequence a bailee cannot except in a sale in market overt by virtue of estoppel or under special legislations such as the Factors Acts pass a title to the Chattels valid against the bailor whereas a bona fide purchaser who purchases the legal estate from a Trustee for value without notice of the trust acquires a good title;
Bailment is a common law notion worked out in proceedings for common law relief such as actions for conversion, detinue or breach of contract whereas the trust relationship is purely equitable. In conversion, initial possession is lawful but later converts the goods contrary to what the owner intended. Detinue is where the defendant is unlawfully withholding the plaintiffs goods with no good reason.
Bailment applies only to personal chattels that are capable of delivery whereas a trust may arise in respect of real or personal property and whether tangible or intangible.
A bailment is enforced by the bailor who is a party to the arrangement while generally the trust is enforced by the beneficiary who is not a party to the trust instrument.
-In bailment, there is no transfer of property from the bailer to the bailee, i.e from A to B
-Bailment duties are dependent on rules of common law and not equity.
-The duties of trustees under a trust are minimal in character compared to the duties that exist in bailment.
-Bailment is restricted to chattels but a trust may exist for all types of property.
-Under bailment, the bailer can lose his legal ownership of the bailed property through any of the ways by which legal owners lose rights; for example, Estoppel, however under a trust, the beneficiarys interest/title can only be defeated by transfer of legal title to a bonafide purchaser for value without notice of the trust.
See Pilcher V Rawlins (1872) LR.7 Ch.APP. 259
Contracts
There is no clean division between contract and trust, though some judges have attempted to draw one (e.g. as in re Cook [1965] Ch. 902). Indeed, there can be no hard and fast line between contract and trust because contract is a source of rights while trust is a way of holding rights. Indeed, many of the rights held in trust are born of contract. A simple example will illustrate. Suppose I open a bank account and pay in £1,000. I have a right born of contract that the bank repays me £1,000 on demand. If I then declare that I hold that right on trust for my children, it is impossible to say that this is now a case of trust and not contract; in truth, it is both.
A contract is a common law personal obligation resulting from an agreement between parties. On the other hand, a trust is an equitable relation which can rise independently of an agreement. However, there are situations when a distinction between the two is hard to draw, for example;
Settlement and covenants to settle
Where property is vested in trustees on a settlement, it is held upon a trust on the settlement. However if the property has not yet been transferred to the trustees but it is simply subject to a consent to settle, the beneficiaries will only be able to enforce the consent if they have given consideration. This is based on the principle that “equity will not assist a volunteer
Power of Appointment
Appointment. In trust law, "appointment" often has its everyday meaning. It is common to talk of "the appointment of a trustee", for example. However, "appointment" also has a technical trust law meaning, either:
the act of appointing (i.e. giving) an asset from the trust to a beneficiary (usually where there is some choice in the mattersuch as in a discretionary trust); or
the name of the document which gives effect to the appointment.
The trustee's right to do this, where it exists, is called a power of appointment. Sometimes, a power of appointment is given to someone other than the trustee, such as the settlor, the protector, or a beneficiary.
This refers to a power that is conferred upon a donee to dispose of the donors property by nominating and selecting one or more third-parties to receive it. The property may consist of tangible items like cars, boats, house hold items, or it may consist of an intangible interest in property such as the right to receive dividend income from stocks.
The distinction between trusts and powers of appointment is fundamental. A trustee must do as the settler directs whereas powers of appointment are discretionary.
Further, the beneficiaries under a trust are owners in equity of the trust property. However, the objects of powers of appointments are nothing unless and until the donor of the power makes an appointment in favour of the donee. See Vesty v IRC (1980) AC 1148
Question Two
The application of the maxims of equity in Uganda
Equity is a body of rules of fairness or natural justice or public morality. Courts administer justice by applying rules of fairness or principles of natural justice and not any other law.
Equity is applicable to Uganda with reference to the judicature Act which states that, in every case or matter before the high court, the rules of equity and rules of common law shall be administered concurrently. The contract Act also preserves the rights of parties to a contract both at law and in equity.
Equity therefore is law, in the sense that its part of Ugandas law with reference to the magistrates court Act, which provides that, in every civil cause or matter before a magistrates court, law and equity shall be administered concurrently.
However in underlying the application of equity are certain maxims or principles which guide the courts. These maxims not only help to explain the essence of equity but indicate situations in which equitable rules would or wouldnt be applied as well as the relationship between law and equity. As such they act as rather general guidelines to a court in reaching a decision. These maxims include, Equity looks at substance rather than form, Equity looks at that as done which ought to be done, where equities are equal, the first in time prevails, Delay defeats equities, Equity acts in personam, Equality is equity, he who seeks equity must do equity, equity follows the law, equity won’t suffer a wrong without a remedy, equity imputes an intention to fulfill an obligation, equity won’t allow a trust to fail for a want of a trustee, equity won’t allow a statute to be used as a cloak for fraud, equity wont complete an imperfect gift, equity wont aid a volunteer, equity will take jurisdiction to avoid a multiplicity of suits, equity delights to do justice and not by halves, equity doesnt require an idle gesture, equity abhors a forfeiture.
It should be noted that not all the maxims are applicable to Ugandas legal system, however there are those which are applicable as discussed below;
1) Equity looks at the substance rather than the form
Equity developed with the aim of achieving justice rather than sticking to the forms. This approach to technicalities has constitutional backing which requires courts to administer justice without undue regard to technicalities. In applying this provision the supreme court of Uganda, in Stephen Mabosi Vs Uganda Revenue Authority, held that a memorandum of appeal which was filled out of time couldnt be rejected because the appellant couldnt file it before obtaining the official record of proceedings from the high court which were released after the 60 day period required for filing the memorandum of appeal had elapsed. This maxim is intended to examine instances where equity has intervened to ensure that the substance is upheld over formalities and this instances include; time clause, covenants, mortgage, penalties, deeds and under instruments of possession where justice okello, in jaffer Bros limited Vs Hajji Bagalaaliwo, held that since the relevant letter was issued by a competent authority there was valid repossession by the appellant, in essence court looked at the substance of the action of the minister rather than the form of the instrument required under the Expropriated properties Act.
2) Equity looks at that as done which ought to be done
This maxim is illustrated by the principle that an agreement for a lease is as a good as a lease, this is further illustrated by a provision of the Registration of Titles Act where by in breach of or non-observance of any of the covenant expressed in a lease or implied by law, the lesser may exercise the right of re-entering the leased property this is because equity treats an agreement as done since the parties had agreed and one had fulfilled the obligation then its fair for the other to benefit the principal is followed in the case of serunjogi Vs katabira, in this case by a memorandum of agreement it was dully signed by both parties. The defendant sold to the plaintiff a piece of land and a house situated thereon, the plaintiff paid the full price but the defendant neglected to transfer title and deliver up possession to the plaintiff. The plaintiff sued and court held that equity treats an equitable interest as if it were already conveyed hence the defendant was ordered to deliver up vacant possession of the premises.
This maxim can also be seen in a situation were a contract to create a mortgage was treated as a promise by the debtor to execute a legal mortgage when called upon to do so such an agreement created an equitable mortgage as illustrated in Barclays bank Vs Gulu millers, where court held that under a doctrine of equity a deposit of title deeds by way of security whether or not accompanied by a memorandum was equivalent to one agreement to execute a legal mortgage and carried with it the entire remedies incidental to a legal mortgage. Creation of an equitable mortgage by deposit of a certificate of title is provided for under the Registration of Titles Act.
3) Where equities are equal the first in time prevails
The maxim deals with priority where there is a conflict between two competing equitable interests in property because priority of time gives better equity. In Ndigejjerawa Vs Kizito and Kubulwamwana court held that Kizitos /Kubulwamwanas equitable interests had priority because it was created earlier than Ndigejjerawas interest. Court further stated that the first in time rule only applies where equities are equal.
It should be note that in determining priorities between competing equitable interests the doctrine of notice does not apply. In Ugandas legal system the general law rules for determining priorities are substantially different with respect to the land registered under The Registration of Title Act.
However there situations where the courts do not apply the maxim for example in situation where there are successive assignments or mortgages of equitable interest
4) Delay defeats equities/Doctrine of laches
The essence of the doctrine is that an equitable relief wont be given if the applicant has unduly delayed in bringing the action unlike adverse possession, the doctrine can only be used as a defense against an action and not as a basis for establishment of a cause of action thus where the land owner knows that his rights are being violated and he chooses to sit idly, he is taken to have delayed in the violation and will be stopped from arguing otherwise, in climatong Vs Olinga the applicant for a period of thirty years occupied and cultivated the respondents land although the latter was aware of the intrusion, he made no attempt to stop it or recover the land. High court held that the applicant had taken to long to enforce his right. there is no fixed time for the doctrine to operate its up to the court to decide whether or not in the circumstances of a particular case it considers that delay to bring an action was unreasonable.
However the courts wont apply the doctrine in situations which are governed by statutes of limitations for example under The Limitation Act, provides that no person shall make an action to recover land after the expiration of twelve years from the date the cause of action accrued to him, where fraud is alleged there is no limitation period.
There are three basic defenses to the invocation of the doctrine of laches, where by courts won’t permit delay so as to bar a claim and they include disability or infancy of the plaintiff, fraud on the part of the defendant, ignorance of the facts on which the claim is based
5) Equity acts in personam
In personam, that is against the defendant personally for example beneficial interests are a right in personam because like all equitable rights it was done or enforced in personam for a trustee to observe a trust. Where one acquires an equitable interest then its enforceable against the vendor thus in katarikawe Vs William katwiremu (deceased) and Oneziforo Bakampata.Where court held that where the purchaser acquires an equitable interest in the nature of right in personam its enforceable against the vendor only. This is further illustrated in a situation where a defendant fails to comply with a decree of specific performance; the court may appoint another person to execute the transfer in respect of the disputed property. Alternatively, the courts may make a vesting order. The effect of this courts decision is to transfer property from one person to another without a formal conveyance.
It should be noted that courts won’t apply the maxim in situation where a bonafide purchaser for value of the legal estate without notice of an earlier equitable claim over the subject property
6) Equality is equity
This maxim applies in three broad circumstances that is, the presumption of tenancy in common severance of joint tenancies and the principle of equal divisions. In Ugandas legal system there is a presumption of tenancy in common since the basic rule is that equity operates against joint tenancies hence a right of survivorship.
In relation to Ugandas Succession Act, equity operates against the right of survivorship and presumes a tenancy in common because they share of the deceased tenant passes to those who are entitled to his property under his will or under the rules of intestacy. This is further illustrated by the Partnership Act which states that where there is no basis for distributing property between two or more claimants the court may apply this maxim to divide the property equally for example where a parent has died leaving many children, the presumption inequity is that they should all share equally in the property.
7) Equity follows the law
According to the Judicature Act, provides that equity is based on the law. Equity has adopted some of the rules of common law for example those affecting mistake that is under mistake common law is rigid or at times harsh thats why equity has attempted to temper the unfairness in some areas by introducing certain remedies where the common law failed to grant any, a leading example of an equitable remedy could be granted at common law is Solle Vs Butcher .
The principle that only parties to a contract will be bound by that contract under the law of contract is observed by a doctrine of equity for example special performance can’t be granted where damages will provide adequate remedy, this is because equity follows the law and is designed to supplement the grant of damages but not to override them like in contracts for sale or lease of land or where chattels sold have a special beauty or interest specific performance will be decreed
However if the common law rules are ancient or too rigid then equity won’t follow them since it won’t promote fairness to the litigants.
8) He who comes to equity must come with clean hands
The plaintiff must approach the court free from any blame on his part because court wont grant equitable relief to the plaintiff if there is any evidence of fraud, mistakes, misrepresentation or illegality, thus in Katarikawe Vs Katwiremu where court held that if a tenant is in breach of several terms of his agreement with the land owner then court wont grant relief.
Also when certain transactions are illegal and one seeks to get an equitable relief out of such a transaction for example under the Employment Act which provides that wages can only be paid in local currency and not in kind and any agreement to such will be illegal, null and void. However for the inequitable conduct to amount to un clean hands, it need not be illegal strictly as required by law. Its sufficient if the conduct is un conscionable and morally reprehensible and need not have been to the other party to the action.
9) Equity wont suffer a wrong to be without a remedy.
Trusts exemplifies this maxim, equity enabled the beneficiary through the procedures of the trust, to enforce obligations where no remedy at common law existed. That is the beneficiary has no right at common law to have the terms of the trust enforced but our legal system never the less requires the trustee to carry out those terms to prevent him or her to commit what would be in effect wrong against that beneficiary.
Specific performance and injunctions constitute one of the chief ways in which equity supplements the law by granting auxiliary or additional remedies where the common law remedies where inadequate. The remedy will only be granted where it’s just and equitable to do so having considered all the circumstances of the case for example it won’t be awarded in contracts of every description but only where legal remedy is inadequate or defective that it becomes necessary for equity to interfere like in the Sale Of Goods Act, contracts for sale of goods, damages may be a warded for failure to supply goods.
However there are situations where equity cant provide a remedy for example in situations of unfair trade competition or contracts involving personal services. In such situations, courts may be unable to order specific performance even where damages are inadequate.therefore the maxim is subject to what is realistic, practicable and convenient for the court.
10) Equity imputes an intention to fulfill an obligation
The doctrine of performance and satisfaction are based on this maxim because both doctrines are based on intention, however in our legal system courts tend to rely more on the presumptions as to the partys intensions that is where a person who is under a duty to do an act, does an act amounting to the performance of the duty, in equity he/ she will be deemed to have executed the duty.
11) He who seeks equity must do equity
A person seeking an equitable remedy must him or herself act fairly, thus in case of Bank Of Uganda Vs Hassan Bassajabalaba where court held that Bassajabalaba failed to act fairly when he forged a court order so as to get back his land titles hence an equitable remedy couldnt be granted to him.
This maxim can be illustrated through the following arrangements that is, doctrine of election, notice to redeem mortgage, consolidation of mortgage and illegal loans.
CONCLUSION
Basing on the above discussion, equity didnt deny the existence of the legal right but it has added something to it .Our legal system as a whole would have been un fair to justice if the system of the common law hadnt been supplemented by the system of equity
QUESTION 3: Compare and contrast the implied and resulting trusts with constructive trusts. Clearly indicating whether such treatment is justified
Approach to the question.
Define a trust.
The recognized valid trusts.
Give the formalities of a trust.
Briefly mention about how a trust is created in the law of trusts.
Give the essentials of a trust.
Briefly mention the different types of trusts in the law of trusts.
Define implied, resulting and constructive trusts and discuss about them.
Compare implied and resulting trusts to a constructive trust.
Contrast implied and resulting trusts with the constructive trust.
In the conclusion show whether the treatment is justifiable.
A trust is a right, enforceable solely in equity, to the beneficial enjoyment of property to which another person holds the legal title. This is also a property interest held by one person (the trustee) at the request of another (the settlor) for the benefit of a third party. Therefore under the law of trusts there is an order that is mainly characterized of the settlor who is the owner or who is bequeathing, the trustee who holds the property on behalf of the third party who is the beneficiary. This means that the beneficiary will be the owner of the trust if the trustee executes it. However, the beneficiarys interest in the trust can be bought or sold off. The interest of the beneficiary will be lost if it is the bonafide purchaser for value who takes the property.
For a trust to be valid there are different circumstances that are considered in the law of trusts. These are, a trust must involve a specific property. This means that there has to be something that the settlor is giving to the trustee who holds it on behalf of the beneficiary an example can be land. A trust must reflect the settlors intention. In Lord Walpole v Lord Orford, it was held that am implied trust can be upheld in respect of mutual wills if the agreement on which the parties based on was certain. The case propounds the settlors intent so that no conflicts arise in future. Thirdly, the trust must be created for a lawful purpose. This can be portrayed in United States of America where a constructive trust is a remedy to the plaintiff to prevent the unjust enrichment of the defendants.
A trust is divided into two main categories that is the private trust which deal between individuals; and public or charitable trusts. A charitable trust is one which is created to benefit a specific charity or charities; or the general public rather than a private individual or entity.
A trust has two main formalities for creation a trust. These are Registration of Titles Act Cap 230 (R.T.A) and by will. A settlor may create a trust by manifesting an intention to create it. However, under section 95 of the R.T.A, a creation of a trust must be evidenced by a memorandum in writing signed by a party creating the trust this also seen in section 54. Under by will, section 50 of the Succession Act can apply. It provides for the forms of executing a will according to the following provisions if he is not a member of armed forces, engaged in actual warfare, or a mariner at sea. The provision are (a), that the will shall be in writing; (b) that it shall be signed at the foot and end, thereof by a testator or other person in his presence and by his direction; and that the signature be acknowledged by atleast two witnesses in writing in the presence of the testator. The formalities will be discussed in details while comparing and contrasting the three trusts.
In the law of trust, a trust is created basing on the mainly four key issues. These are according to minors, mental abnormality, married women and companies. However, these issues will be propounded and discussed when dealing with the comparing of the implied and resulting trusts with constructive trusts.
A trust is also composed of essentials under the law of trust. These have to be followed during the creation of a trust by the parties to the trust that is the settlor, trustee and the beneficiary. The essentials are certainty of words; certainty of the subject matter; certainty of objects; and the effects of the uncertainty. The essentials will also be discussed in entirety when drawing the comparison between implied and resulting trusts with constructive trusts and the contrasts therein between the mentioned trusts.
The law of trust is comprised of various trusts which include vitiated trusts, charitable trusts implied and resulting trusts, and constructive trusts.
An implied trust is one which the courts deduce from the conduct of the parties and circumstances of the transaction. In Bannister v Bannister, a clear explanation was given that this is where a person in return for a valuable consideration agrees to settle the property for the benefit of another. If such a person does such an act, he or she becomes an implied trustee of that property. Implied trusts are created where formalities for creation of express trust are missing. Equity recognizes implied and resulting trusts so as to execute the presumed intention of the testator thus the settlor. Another thing that is important is that implied trusts are less common in expressed trusts. This trust discusses the presumption of implied and resulting trusts; the presumption of advancement which entails purchase in the name of the child, where a husband provides money to the wife, where a true purchaser stands in loco parentis, mutual wills, joint purchase and joint mortgage and joint accounts of the spouses then the restrictions on the application of presumption and lastly rebutting the presumption.
Resulting trusts is a remedy imposed by equity when property is transferred under circumstances suggesting that the transfer did not intend for the transferee to have the beneficial interest in the property. This trust arises by operation of law and is distinguishable from an implied trust which arises from the effect of a rule of equity. However, implied and resulting trusts are treated as one since courts aim at giving effect to the presumed intention of the parties. Thus distinction between the two is inappropriate.
Constructive trust is an equitable remedy that a court imposes against the one who has obtained property by wrong doing. The word constructive is derived from the verb construe not from the verb construct. The courts came up with such a trust to prevent unjust enrichment and also not to create a fiduciary relationship. A fiduciary relationship is one which one person is under a duty to act for the benefit of another on matters within the scope of the relationship. This relationship can be guardian and ward, principal and agent. Constructive trusts are imposed by a court of Equity as a person personal remedy. Therefore, if a person in a fiduciary relationship uses the property to gain personal advantages he becomes a constructive trustee for the person who is deprived of the profit. Constructive trusts look at the vendors in terms of the constructive trustee; mortgagee as constructive trustee; stranger to trust as constructive trustee; agent as constructive trustee; then the Re Vandervells trusts.
Implied and resulting trusts have a lot that they do share with the constructive trusts. This can be portrayed through the various comparisons discussed. Implied and resulting trusts if compared with the constructive trust, these trusts are all equitable remedies in the law of trusts. Thus drawing a similarity amongst the trusts. This can be deduced from their definitions per the Blacks Law dictionary by Garner.
They are all awarded in the courts of equity thus making them to be given whenever the legal remedies are not inadequate. This can also be elaborated more in Equity and Trusts by Prof. Bakibinga page 170. Therefore, such treatment is justifiable since all both the remedies are awarded to fill the loop holes of common law in terms of administering justice in society.
Implied and resulting trusts are similar to a constructive trust in the way that they all have the same personalities who form up the trust arrangement in the law of trusts. In the definition of a trust, the has to be a settlor who bequeaths the property or the trust, the trustee to whom the property has been given by the settlor and becomes a legal owner who holds it on behalf of the beneficiary who is an equitable owner. Those are the three parties that cut across all the mentioned trusts thus drawing a similarity amongst the trusts. However, for the trust arrangement to be complete, the trustee executes the trust thus making the property pass onto the beneficiary. Such treatment is justifiable in the way that there is a purpose that is to pass on property by the trustee thus completing the trust arrangement and fulfilling the intention of the settlor. In Kekewich v Manning, a testator bequeathed residuary personally to his wife and the remainder to the daughter. In that case, the testators intention was pass on property to wife and the rest to daughter which was affected since the daughter signed the whole of her interests to the trustees for the benefit of her nieces. It was held that the trust was valid she had all the powers to divest her interest which was equitable.
Another comparison that cuts across the mentioned trusts is that they do share the same criteria when a trust is to be created. These mainly concern about minors, mental abnormality, married women and companies. Minors are those below the age of 18 years there are taken not to hold legal estate, settlement of trust. Therefore, a settlement of a trust by a minor is voidable and he can repudiate it if he attains the majority age and within a reasonable time. The rule is that a person with a mental problem cannot create a trust. Section 50(1)(b)(ii) provides that a court may direct a settlement of a trust by a lunatic as expedient. Women can now create trusts unlike the old days where women were not regarded as less important to society thus the husbands could even hold property on their behalf. Article 33 today provides for the rights of women. This is more evident in subsection (2) where women are given power to realize their full potential and advancement. In brief, trading companies under section 89 debenture and shareholders do have a right to inspect the register of debenture holders and have copies of a trust deed. Thus any company which is registered under the Companies Act can fall in the arrangement of the trust thus being a settlor, a trustee or a beneficiary. The treatment is justifiable because it does protect the parties not to be affected by the executions made which are against the law.
Implied and resulting trusts are similar to the constructive trust in the way that they all do have a certainty of subject matter. This means that the settlor has something that he gives to the trustee to hold as a trust for the beneficiary. Without the subject matter, there can never be a trust of any kind. A subject matter may be land, chattels, money, or choses in action. In Re Diggles, it was portrayed that uncertainty of a subject matter will adversely affect the creation of a trust. Thus the treatment is justifiable because there is minimize of difficulties in settling the trust.
Implied and resulting trusts are in another away similar to constructive trusts because certainty of objects is required. Certainty of objects includes the recipients or the purpose of the gift should be identifiable and the interest should be discoverable. This means that the gift or the property should be certain thus being capable of identifying it and it should be discoverable that is it can be traced from the settlor to the trustee and lastly to the beneficiary or beneficiaries. The beneficiaries must therefore be ascertainable within the period of perpetuity. Such treatment is justified since it helps the flow of the arrangement of the trust order thus from the settlor to the trustee then the beneficiary. This does not arouse confusion and minimizes mistakes say to give a trust property to a wrong person since the property is easily ascertained and can be traceable.
The implied and resulting trusts are similar to a constructive trust in the way they do deal in mortgages. This may however differ in the mode of operation but they share an area in the law of real property which deals with mortgages. Implied trust deals with joint mortgages while the constructive trust deals with the mortgagee as a constructive trustee. The operation is different but the two trusts deal with the law of real property concerning mortgages which is a comparison.
Although the implied and resulting trusts do share some similarities with the constructive trust, there are some differences that contrast the mentioned trusts in the law of trust. These are discussed as follows. Implied and resulting trusts do cover a wider coverage in terms of the law trust is concerned well as a constructive trust covers a smaller scope. This is evidenced where in contrastive trust is imposed against one who has obtained property by wrong doing yet implied trust is one which results from the deduced conduct of the parties and circumstances of the transaction. The difference is that under implied trusts there is no immediate person to refer to yet under constructive it is that person who obtained the property by wrong doing.
The implied trust is created where formalities for the creation of an express trust are absent. Therefore, for the court to conclude that there was an implied trust it will look at the conduct of the parties and the circumstances of the transactions. A constructive trust in contrast is one which is imposed by the court. Therefore it is not does not arise from the operation of law or even acts of parties. Thus one is a constructive trustee when he is pronounced by court.
Implied and resulting trusts are executed on the presumption of the intention of the testator. Therefore the intention of the testator or the settlor is important. In contrast, a constructive trust is imposed on the parties by court regardless their intention. In Re Diggles supra, the intention of the parties was shown when the husband and the wife agreed upon joint ownership of property and the last to die will take the property hence a doctrine survivorship. In that case an implied and resulting trust arise but not a constructive trust since no intentions are required.
A constructive trust creates no fiduciary relationship. Fiduciary relationship is one in which one party is under a duty to act for the benefit of another on matters within a scope of the relationship for example a principal and an agent. This is why constructive trust arises where a person uses fiduciary relationship to gain personal advantages. In Reading v A.Ga soldier serving in Egypt who was supposed to accompany criminal vehicles while in his uniform assisted criminals to smuggle drugs into Cairo. The Crown seized his money in his bank account. He brought a claim to retain his money but the House of Lords held that as a result of a use of his uniform in breach of his duty to the crown could be retained by the Crown thus a person who use the fiduciary relationship to enrich himself he becomes a constructive trustee. However, in implied and resulting trusts the element of fiduciary relationship arises. This means that there has to be a relation between the settlor and the beneficiary. In Hussey v Paimer,
an elderly widow went and lived with the daughter and son-in-law, however the accommodation was limited. She paid for the construction costs following the arguments she left the place and claimed for building costs. Per Lord Denning, he said By whatever name is described, it is a trust imposed by law when justice and good conscience require itI have doubt that there was a resulting trust however, the major concern is that the relation between the wife and the husband is evident with that of the widow, she was the mother of the girl and mother-in-law of the man.
In conclusion, implied, resulting and constructive trusts are equitable remedies that are awarded in the courts of Equity. They do have similarities but also differences. The mentioned trusts were created to fill the gaps that common law remedies like probation, and certiorari had left. According the above presentation, I do find such treatments as justifiable. Reason being such remedies do prevent unjust enrichment thus depriving the beneficiary the right of enjoyment of the property an example is the constructive trust. The implied and resulting trusts help in the execution of the testators or settlors intention. Thus does being the leading reasons for the implied and resulting trusts, in their nature, I do find them being justifiable in the law of Equity and Trusts both at home and international at large.
Question 4
Question; Equity jurisdiction may be divided into three categories namely, Exclusive jurisdiction, (creation of new rights), Concurrent jurisdiction (creation of new remedies), axillary Jurisdiction (creation of new procedure). Examine the above statement with the aid of relevant authorities.
ABSTRACT.
The question requires the appreciation of the definition of Equity, a detailed extract into in to how Equity has evolved as regards the creation of new rights then show how Equity works alongside common law that is concurrent Jurisdiction and the creation of new procedure, a procedure to cure any absurdity created by common law then conclusion.
DEFINITION
Equity is the name given to the set of legal principles, in jurisdictions following the English common law tradition, that supplement strict rules of law where their application would operate harshly it refers to the right doing, good faith, honest and ethical dealings in transactions or relationships between individuals however it is important that for Equity to be enforced in court, there is need to understand its juristic concept in matters of administration of law and justice by the judiciary. The juristic concept of Equity has by all means bring out the idea of meeting the moral standards of Justice in any particular case and at the same time there is need to take into consideration the common law, that is, there is need to harmonize the two; Equity and common law.
HISTORICAL EVOLUTION OF EQUITY AND ITS RATIONALE
Equity arose and developed in the early days as a reaction to the rigors and inadequacies of the common law. The inability of writs for some who needed them, the high costs, too many procedural difficulties and the dominance of technicalities meant that common law was losing touch with requirement of community.Disappointed litigants began to petition the king as the Fountain of Justice asking him to do justice in respect of some complaint, the King with the Chancellor eventually set up a special court, court of chancery to deal with these petitions. The Chancellor dealt with these petitions on the basis of what was morally right not according to any precedent but according to the effect produced upon his own individual sense of right or wrong by the merits of a particular case before him. In Uganda, the Judicature Act states that the rules of Equity and the rules of common law shall be administered concurrently and where there is a conflict or variance between the rules of equity and the rules of common law with reference to the same subject the rules of equity shall prevail.
The Constitution of Uganda 1995 recognizes that in adjudicating cases both civil and criminal in nature, the courts must take into consideration that substantive justice shall be administered without undue regard to technicalities. Thats why in Stephen Mabosi V Uganda Revenue Authority the Supreme court of Uganda held that a Memorandum of Appeal which was filled out of time could not be rejected because the appellant could not file it before obtaining the official record of proceeding from the High Court which were released after the 60 day period required for filing the Memorandum of Appeal had elapsed. Its against this background that Equity developed with proper justification.
Equity jurisdiction is divided in to three categories; exclusive jurisdiction (creation of new rights) that is common law courts had rights that they recognized and enforced but for their inflexibility, Equity created new rights which included some of the following;
Trusts; these arise where one party gives property to trustees to hold for the use of beneficiaries. A trust is an ownership structure, developed by courts of equity, which divides legal and beneficial rights to an object of property among two separate entities. The cestui que trust, or trustee, is said to hold legal title on trust for the beneficiary, who holds equitable (beneficial) title. There are several classes of trusts which include; Express trust are inferred by law from unequal contributions made to a purchase price, subject to contrary presumption or evidence of actual intention as to beneficial ownership, implied trusts which the court deduces from the conduct of the parties and circumstances of the transaction.
Mortgagor's Equity of redemption. At common law, if the mortgagor had not repaid the loan once the legal redemption date had passed, he would lose the property but remain liable to repay the loan. Equity allowed him to keep the property if he repaid the loan with interest. Thus this right to redeem the property is known as the equity of redemption. Equitable mortgages are where a mortgagor who only has an equitable interest in a piece of property can only create an equitable mortgage over it when he borrows money and uses that interest as security. Similarly, a beneficiary under a trust can create an equitable mortgage over his equitable interest under a trust if he uses it as security for a loan advanced to him.
Concurrent jurisdiction (creation of new remedies) depended on rights which common law recognized and enforced. Initially the exercise of concurrent jurisdictions depended on rights recognized and enforced by the common law, the problem being that the remedies given by common law courts were inadequate. Equity intervened to provide adequate and just remedies like specific performance, whose subject matter was unique, injunction, and an order for an account. However there were conditions to grant the equitable remedies and these still apply in Uganda today.
The decree of specific performance. The general rule of specific performance is stated by Mukanza, Ag J that specific performance is not granted if the plaintiff would be adequately compensated by the common law remedy of damages .A decree of specific performance is an order of the court compelling the defendant personally to do what he or she promised to do. Thus, specific performance is the equitable right to the specific relief in respect of an intermediate class of agreements which do not call for the execution of a further instrument. In Beswick v Beswick it was stated that the common law remedy may be regarded as inadequate and specific performances may be available in an appropriate case, where only damages can be recovered by an action of law.
rescission. This is defined as the unmaking of a contract between parties. The equitable remedy is concerned with the avoidance abinitio of agreements or other dispositions. It requires a court order, and the court has discretion whether to grant it or not. In a situation where the contract is voidable but not void, the contract remains valid but may be rescinded. It arises where a contract is expressed by word or orally in an unequivocal manner that he or she is no longer willing or that he or she refuses to be bound by the contract. This puts an end to the contract and restores the parties as to the position they were in before the contract was entered into. Instances recognized under this are those where the mistake is as to existence of the subject matter, identity of subject matter, quality of the subject matter of the contract. Also for the unilateral mistake where the party is mistaken as to whom he or she he contracted with. In Cooper v Phibbs the appellant was a legal owner and trustee of land, unknown to the other party was that the property belonged to them. The appellant renovated the place and let it to the defendant. The defendant discovered it was their property and wanted to set aside the contract. The House of Lords held that the contract should be set aside subject to expenditure of the former. A contract is rescindable because such a mistake is fundamental to render the contract void which may not be provided in common law however equity resolves it.
Rectification. It is a remedy whereby court orders a change in a written document to reflect what it ought to have said in the first pIace. Rectification may be used to rectify documents which include conveyancing documents, building contracts, insurance policies, bills of exchange and marriage settlements. Rectification is limited to the harmonization of the written document with the intention of the parties. In Rose v Pim, Denning LJ stressed that it is necessary to show that the parties were in complete agreement on the terms of other contract but by an error wrote them down wrongly. Then the concurrent intention of the parties must remain unaltered up to the time of execution of the documents intended to the effect of the antecedent agreement subject to the contract. On the contrary, where the contract has been fully executed and nothing remains to be done under it, it will not be rectified.
Injunction. An injunction is an order made to compel observance or performance of some obligation. Section 38states that the High Court shall have power to grant an injunction to restrain any person from doing any act as may be specified by the High Court. Injunctions should be applied as it is provided for by the law. That is the evidence should be applied to the law. Being an equitable remedy, injunctions require a balance of convenience. That is, where granting of the injunction would cause harm to the other party then, the courts should not grant it if you can get another remedy ( if one can be paid damages for the loss suffered.) Osotraco limited V AG clearly shows that injunctions can be issued against the state.
Delivery up and cancellation. Under certain circumstances, where the existence of a seemingly valid document which is, in fact, void, may cause embarrassment to the plaintiff for example, because an action is brought on it, the court can order the document to be delivered up for cancellation. The remedy applies to all kinds of document for example insurance policies and negotiable instruments.
Auxillary jurisdiction (Creation of New Procedures) Equitys auxiliary jurisdiction was exercised in order to assist the defective procedure at common law with a view to common law courts giving better and effective justice. Under auxiliary jurisdiction, courts of equity would allow a defendant to give evidence when a common law court would not allow him to do so, or adding parties to the proceedings to be heard where a common law court would not allow. In another creation of new procedure, courts of equity had the power to force what is known as disclosure whereas common law had no power to do so. When the auxiliary jurisdiction is invoked, the Courts reasoning process is, or should be, different, and the range of available relief that requires consideration might include common law damages. These facts necessarily affect the conduct of a case in at least three ways; There is need for a claimant to first establish a common law right, either under the general law (in contract, tort or to the extent that the law of restitution is not in truth equitable in character, restitution) or a statute, in aid of which equitable relief such as an injunction or an order of specific performance is sought. Secondly, that even if the legal right is established the claimant needs to persuade the court that he or she should not, on an exercise of the courts discretion, be left to his or her remedy in damages at Law. That is, the claimant must establish that damages are not an adequate remedy. The third is that consideration needs to be given to a range of policy objections to a grant of equitable relief in aid of legal rights. For example, equitable relief might be refused if a grant of relief is directed towards restraint of commission of a crime and the court is minded to leave the criminal law to take its ordinary course. Equitable relief might also be refused if enforcement of relief, whether by way of specific performance or injunction, would acquire a degree of supervision beyond the courts capacity to administer. The above illustrated policy issues do not only arise in the auxiliary jurisdiction. In one guise or another, they might arise in exclusive jurisdiction (for instance in the enforcement of the obligations of a trustee) and be taken into account on a discretionary defence or in the moulding of relief. Nevertheless, auxiliary jurisdiction provides a fertile field for a consideration of policy issues because inherent in the jurisdiction is the existence of a question whether or not a claimant for relief should be left to pursue a remedy for which the law otherwise provides.
In conclusion the underlying principle is that under Equity jurisdiction, Equity cannot suffer a wrong without a remedy. Equity jurisdiction addresses the lacunas in the law that common law creates since it is based on morally accepted justice.
QUESTION 5
QUESTION: Critically analyse the origins, rationale and nature of equitable remedies with particular references to the remedies of specific performance, rescission and rectification.
The approach to the question.
Define the equitable remedies of specific performance, rescission and rectification.
Give the origin of the equitable remedies.
Discuss the remedies in integrity.
Specific performance
The definition
The nature and rationale of the remedy
Specific performance in particular situations
Defences in ration to specific performance in brief
Damages in lieu or addition to specific performance
Jurisdiction
Measure of the damages
Third parties
Rescission
The definition
The nature and rationale of the remedy
The grounds on which the remedy can be granted
Situations where the remedy is lost thus the loss of right to rescission
Rectification
The definition
The nature and rationale of the remedy
The grounds on which the remedy can be granted
Situations where the remedy is not granted
1. Conclusion.
Equity does not have a universal definition but it refers to right doing, good faith, honest and ethical dealings between individuals. Specific performance is an equitable remedy that is within courts discretion to award whenever the common law remedy is insufficient, either because the damages would be inadequate or the damages could not possibly be established. Rescission is an agreement by contracting parties to discharge all remaining of performance and terminate the contract. Restitution is the return or restoration of some specific thing to its rightful owner or status or compensation for the benefits derived from a wrong done to another.
Equity and equitable remedies owe their origin in England. Before the development of equity in England, there was administration of common law by the judges. This led to the rigidity and inflexibility in administering justice by the judges as a result of political and judicial developments. The judges would make laws and issue writs without the approval of parliament thus undermining its power. Common law courts would also handle cases with well established remedies and the courts distinguished law and ethics. Thus this created a loop hole in the law towards the administration of justice. In addition, the remedies that were awarded by the common law courts were inadequate thus not fulfilling the end result of justice.
Towards the thirteenth century, the litigants began to petition the King-in-Council. This was so because the common law courts could not provide remedies in accordance to justice and also corruption amongst the courts since the rich did manage the common law courts then thus finding favour for the fellow rich. Thus the common law courts were now imperfect and deficient. The petitioning by the litigants led to development of Lord Chancerys judicial power. The Chancery court could therefore grant reliefs based in Kings prerogative thus the power to administer justice among the citizens. The reliefs were granted in the name of the King. However, the common law judges started to have influence in the chancery courts. They started to use precedents and to judge cases basing on the principles of conscience and good justice thus causing injustice again.
However, through the exclusive jurisdiction, there was creation of new rights. Common law enforced rights which were inadequate while equity provided remedies that were adequate such as specific performance. Thus the development of equitable remedies in England. Jegede M.E said, It has been observed that the contemptuous disregard of the common law for human values aided the expansion of the chancery jurisdiction in Britain, in that the latter gave effect to the accepted elementary principles of social justice. Since the courts were now administered by the common law judges and chancery, they granted both equitable remedies and inadequate remedies. The development of equity was to correct the any injustice that was caused by strict application of common law. There was no administration of law and equity in Uganda before the Judicature Acts 1873-1875 of the British. However, through the Uganda Order-in-Council 1902 and 1911 Order 15 Uganda received the English laws. Equity and common law were to be administered concurrently. Where the laws do conflict, the principles of equity do apply. This is embedded in Article 2(2) where any law or custom that is inconsistent with the Constitution shall be null and void. The Constitution does preserve the natural justice which leads to equity. This is further reflected in section 14(2) and (3)which provides for how law is to be applied by the High and Supreme Courts; and common law and equity are recognized. Section 11(1) and (2) of the Magistrate Court Act Cap 16 also provides for the application of law and equity concurrently. Therefore, that is how Ugandan courts came to apply the law and principles of equity. The development of equity therefore, makes the courts today to administer the principles of equity for example by awarding equitable remedies like specific performance, rescission, rectification, injunctions, delivery up and cancellation of documents.
The rationale of specific performance is to enforce positive contractual obligations unlike an injunction. It is an equitable which is granted by court as provided for in section 33 of the Judicature Act Cap 13. The nature of the remedy is that it is granted when the common law remedies are inadequate, at the courts discretion and that equity will not act in vain. In addition, the remedy is granted where the defendant will comply with the order. In Jones v Lipman the defendant signed a contract where he sold a piece of land to the plaintiff. However, he changed his mind by selling the land to a company where he was the owner. It was held that the defendant could not resist the order of specific performance since he was still in possession to complete the contract therefore, court ordered for specific performance against the vendor and the company. The remedy also operates in personam. The remedy will be issued against the individual defendant if he is within the jurisdiction of the court. In Jones v Lipman ibid, it was the defendant whom the court ordered to perform not any other person.
The general rule is that the remedy is not granted if the plaintiff would be adequately compensated by the common law remedy of damages. Therefore, if the plaintiff can be compensated with the damages, specific performance will not be granted. The instances of where the remedy can be granted include the following. In contracts for sale of land. Land is a real estate and unique therefore damages are inadequate remedies for the purchaser. However, the remedy is discretionary. If damages are however adequate, then specific performance will not be granted. This also portrays that the remedy acts in personam. In Verall v Great Yarmouth Borough Council the court of Appeal confirmed the grant of specific performance to enforce a contractual licence to occupy premises, there being no alternative premises.
Contracts for sale of personal property. The general principle is that chattels, stocks and share are not enforceable. Contracts for the purchase of government stock will not be enforceable however damages will be awarded instead. However, section 51 of Sales of Goods Act Cap 82 provides that the court has power to decree the remedy of a contract of specific or ascertained goods. The exception to the rule is also that if chattels are special, unique or of special value like individuality, beauty, or rarity the remedy will be enforceable. In Behnke V Bede Shipping Co.the court ordered specific performance of a contract for a sale of a ship. Wright J. stated that the ship was of perculiar and practically unique value to the plaintiff.
Contracts to pay money are generally not enforceable under the remedy. However the exception is that where there is payment of an annuity. In Beswick v Beswick, Peter who was a local merchant concluded a contract with John that he should pay the latters wife five pounds annually when he dies. Peter therefore sold his business to John. However when Peter died, John breached the contract. It was held that the widow was entitled to the money since they had to follow the rule of annuity. The reason was that the common law remedies could be inadequate and it would be difficult to estimate the damages. Other exceptions include where the contract is to pay a third party if the damages to be paid would be nominal; where a contract is to take up and pay for debentures thus section 94 Companies Act Cap 110; and also to enforce the execution of a mortgage if the money has already been lent therefore, equity will order an indemnifying party to pay a debt if that is the true construction of the contract.
Specific performance is also not granted without varnishing consideration. However, the exception is that it can be granted where the plaintiff is in possession of the land as a volunteer. Therefore, it would be unfair to deprive him of the legal estate.
The contracts requiring supervision are not enforceable thus no remedy of specific performance will be granted. The exception is that where the vendor is uncooperative, the court appoints someone in his place to execute the contract. In Cooperative Insurance Society Ltd v Argyll stores Ltdthe court of Appeal held that a tenants covenant to keep demised premises open for retail trade during normal hours was specifically enforceable.
Contracts for creation of transient or terminable interests will not be specifically enforceable. This is because equity does not act in vain. Specific performance will not be granted for example when an agreement for a lease has expired. However, the exception is where there has been a reasonable time past when the lease has expired. A contract was refused after a period of one year.
Specific performance will also be granted were the contract is enforceable. In Ogden v Fossick it was held that specific performance could not be granted because the part of the contract of the employment could not be enforced. However, the contract may be enforced when it has several parts within it. Other sceneries where the remedy will not be awarded are contracts to leave property by will; contracts to transfer good will; contracts for personal services; and contracts that refer to arbitration for example in Re Smith (1890)45 Ch.D the court enforced the arbitrators award instead of specific performance. This is because in the agreement the parties agreed that if a dispute arises, it will be settled by arbitration thus Order XLVII Rule 1(1) of the Civil Procedure Rules of Uganda.
Defences available to stop the court to grant the remedy include mistake and misrepresentation, in Malins v Freeman the remedy was not granted although the mistake was due to the defendants fault and not on the vendor. The conduct of the plaintiff that is if he comes with unclean hands and they are also not prepared to do equity, the remedy will not be granted. Laches and acquiescence will also make the court not to grant the remedy that is if the plaintiff delayed to bring the case refer to Lavery v Pursell supra. This is also supported by the maxim of equity that delay defeats equity. The remedy will also be refused if there will be any hardships caused on parties thus equity does not act in vain. If there is misdirection of the matter and also where if the remedy is granted will be against public policy for example a remedy forcing one to perform an illegal contract.
Thus, the remedy is discretionary and awarded to enforce a positive contractual obligation. Damages awarded should be equitable and within the jurisdiction. Specific performance can also be granted for the benefit of third parties thus refer to Beswick v Beswick supra.
Rescission is another equitable remedy that was developed. The nature of the remedy is that a contract is voidable but not void. Therefore, the contract remains valid until it is rescinded by the parties to it. The rationale of the remedy is to restore the parties to their original place as if the contract had not occurred. Rescission is not a judicial remedy but an act of the party entitled to rescind. However, court may interfere and order an account to be taken of property that had passed between parties. The main essence will be restoring the parties to their status qou before the contract. However, the court will decide whether the right to rescind was justifiable and whether the remedy relied upon is effective.
There remedy is granted on the following grounds. Where there is mistake. This is both common or mutual and unilateral mistake. Mutual mistake is where both parties to the contract are mistaken about the contract thus, rescinding the contract. In Sole v Butcher [1950]1 KB 671, it was held that a contract, is liable to be set aside if the parties were under a common misapprehension as to the facts or to the respective rights which were so fundamental. The recognized mistakes are the existence of the subject matter, identity to the subject matter and the quality of thing contracted for. Unilateral mistake is where one party is mistaken. In Cundy v Lindsay (1878)3 AC it was held that there was no contract between the defendant and the plaintiffs since the plaintiffs did not intend to deal with the defendant but with another person. Therefore, the contract can be rescinded.
Misrepresentation is also another ground where the remedy can be granted. Innocent misrepresentation is where the defendant believes in the truth of his action even if he has no reasonable ground for his belief. Therefore, a misrepresentation may arise where one does not disclose something. In Anderson & Sons Ltd v Rhodes Ltd [1967] ALLER 850, a commission agent made a representation to the seller about the insolvency of his principal, the buy. It was held that agent owed a duty of care to the seller thus in such situation a contract can be rescinded. Fraudulent misrepresentation is where a party makes a false representation knowingly so that the other can act upon it. The law of equity therefore renders that contract as rescinded. In Derry v Peek (1889) 14 AC 337 the House of Lords held that a statement is fraudulent when made with knowledge of its falsity; without belief in its truth; or recklessly, not caring whether it is true or false. In Sule v Aromire [1951]20 N.L.R 20, the misrepresentation entitled the plaintiff to cancel and a refund of the purchase price.
Constructive fraud is also another ground for reward of the remedy. This is mainly as a result of undue influence. This arises where one party is influenced into a contract which he does not want. However, the burden of proof is on the one who alleges. There are some contracts that do not arise to undue influence like parent and child; doctor and patient; solicitor and client; teacher and student; trustee and beneficiary; employer and employee; and religious ministry and disciples. Non-disclosure of material facts is another situation. However the general rule is that a party to a contract is not under a duty to disclose information relation to a transaction. The exception is that sometimes the non-disclosure may lead to misrepresentation. This can be in context of matters concerning land family arrangements, contracts for surety and statutory disclosure. The right to rescind is lost when the party affirms the transaction that is he agrees to the contract; when restitution in integrum arises thus not being substantially possible taking account of services rendered or property deteriotion; and also when an innocent party acquires rights for value before the plaintiff sets aside the transaction.
Rectification is a discretionary remedy to rectify a document a document so that it accords correctly with what the parties agreed upon. In Lavell v Christmas v Wall (1911) 104 L.T 85, Cozen-Hardy M.R said that the essence of rectification is to bring the document which was expressed and intended to be in pursuance of a prior agreement into harmony with that prior agreement. Thus the remedy presupposes an antecedent contract. The rationale and nature of the remedy is therefore to rectify a number of documents in concluding conveyancing documents. In White v White (1872) L.R 15 Eq. 247, the court ordered rectification of the deed of conveyance to conform to the agreed intention of the parties. Other documents include leasehold agreements, building contracts, and insurance policies. However, the documents that cannot be rectified include wills where there is fraud (Administration of Justice Act 1982 section 20). The remedy is also limited to harmonized written documents. In Mackenzie v Coulson (1969) L.R Eq.36 James V.C said that courts do not rectify contracts unless when the instruments might have been made in pursuance to the terms of the contract.
The remedy can be granted on grounds that there existed a contract. Thus, there has to be a contract of antecedent. In Rose v Pim, Denning L.J said that it is necessary to show that the parties were in complete agreement on the terms of the contract but an error wrote them down wrongly. There has to be mistake. This is the same a ground for rescission. Thus without mistake, the remedy cannot be granted. There must be continuing intentions of the parties. Their intention to execute a contract must not be altered. Thus the court looks at what the parties said and what they wrote down. There must also be mistake of fact not of law in order for the remedy to be granted. In Napier v William (1911)1 Ch.361, Warrington J. said that a remedy will not be granted where mistake is arising from legal effect but it must be from the legal effect of words used.
The remedy is denied when the contract cannot be performed that is when it is granted it will act in vain for example where there is a bona fide for value (Smith v Jones [1954]2 ALLER 825); when the contract was fully executed. This means that the parties agreed; and where there are laches thus delays in time, the remedy will not be granted. This follows a principle that delay defeats equity.
In conclusion, the above remedies are all discretionary. They were developed to fill the gaps that common law was leaving for example by not providing an adequate remedy. This created a meaningless end of the law since it was not achieving justice. Therefore, through the chancery courts, the remedies were developed to ensure justice by providing equitable remedies as they have been discussed above in particular specific performance, rescission and rectification.
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