It is important to appreciate, especially when reading older cases on the law of trusts, that there were, until 1873 in England, two main separate courts – courts of law and courts of equity. Trust law was a product of courts of equity. We will thus look at: (i) the meaning of “equity” that is associated with courts of equity; (ii) the origins of courts of equity;
(iii) the development of the law of uses and trusts;
(iv) the transfer of equity jurisdiction to Canada;
(v) the current status of the fusion of law and equity.
II. THE MEANING OF EQUITY
Be able to describe four different meanings that might be associated with “equity” and the definition of “equity” that is important for our purposes. The word “equity” has several different meanings. Let’s examine some of those meanings and then focus on the meaning that is important to us in understanding the law of trusts.
A. Equity as “Fairness”
One meaning of the word “equity” is “fairness” or “justice”. This is often reflected in expressions such as “employment equity”, “pay equity” or “distributional equity”. People speak in terms of what is “fair” or “just” but there is often considerable disagreement as to what is fair or just. This concept of “equity” is not the concept of “equity” that we mean when we speak of what courts of equity did. B. Equity as Net Worth
The word “equity” is also used to mean net worth. That is, the amount one retains after creditors have been paid. For instance, shares in a corporation are often described as “equity investments”. The shareholders are entitled to what is left over after the creditors are paid off. Similarly, people speak of having “equity” in their house. For example, a person might buy a $400,000 house by making a $100,000 downpayment and borrowing the remaining $300,000 to pay the rest giving the lender a security interest (or collateral) in the house by way of a mortgage. The $100,000 would be that person’s equity in the house. If the person were able to pay off $50,000 on the loan then the person’s equity in the house would rise to $150,000 (i.e. the value the person would have 2 invested in the house net of paying the lender (or creditor)). The person’s equity in the house would, of course, vary with the market value of the house. This use of the word “equity” has its origins in a creation of courts of equity. Courts of equity developed the concept of the equity of redemption. To borrow money a borrower often had to provide some form of security interest (or collateral). A common method of doing this was to convey the legal title to the lender until the debt was paid. The agreement under which the loan was made required the lender to reconvey the property to the borrower if the debt was paid by a specified date. If the borrower failed to pay by that date the lender could keep the legal title to the property. Often lenders would retain the property even though the borrower was just a day late in paying. Courts of equity addressed this by allowing the borrower to pay in a reasonable period of time, often allowing the borrower as much as several years to complete payment on the debt. This was known as the equity of redemption – the right of the borrower to pay off the debt and get the property back (and thus the value of the borrower’s interest (or equity of redemption) was the value of the property less the amount of the unpaid debt. While the equity of redemption was a product of the courts of equity it is still not the concept, or definition, of equity that we are looking for. C. Equity as a Corrective to Law
Legal rules can work injustices in situations that weren’t anticipated when the rule was created. All legal systems need some mechanism to address this problem. In civil law systems it is usually a combination of broadly drafted code provisions and liberal interpretation together with a concept of...