Concentrate Q&A Equity & Trusts 2e

Equitable doctrines

Introduction

The maxims of equity are the general principles upon which the Chancery Court developed this

system of law and reflect the desire to be fair and even-handed between litigants. The maxims

underlie the equitable doctrines and remedies. Their origins are to be found in the history of

property law but they are sometimes applied to more modern situations and not always very

happily. The application of conversion to trusts for sale of land led to some surprising results and

the Trusts of Land and Appointment of Trustees Act (TLATA) 1996 converted all trusts for

sale of land existing on 1 January 1997 (when the Act came into force) into trusts of land to which

the doctrine does not apply. (There is one very limited exception to this which is referred to in

question 2(a)(iii) in this chapter.) Although it is still possible to create a trust for sale of land, there

is little point in it, as the power to postpone sale overrides any provision to the contrary (s. 4(1)),

and s. 3 abolishes the application of the doctrine of conversion to a trust for sale of land.

Questions on the doctrines of equity may well be general essay questions which will draw on

your overall knowledge of the subject. It would be unwise to attempt these types of questions

perhaps, unless you feel you have read generally and widely enough on the background of equity.

Problem questions involving the more modern applications of the doctrines are a possibility if your

lectures have covered these areas.

In deciding how much attention to give to these more general areas of equity, you should look at

past examination papers and consider the emphasis given to equity itself by your lecturer.

Although all courses on trusts will include some background of equity, some lecturers will not

regard it as worthy of examination questions, whilst other lecturers may set questions on it. You

will only know which type of course your lecturer favours by looking at the past examination

questions and listening to your lecturer!

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Question 1

Equity looks on that as done which ought to be done.

Discuss critically the applications of this maxim in the equitable doctrine of conversion.

Commentary

The equitable doctrine of conversion is an anachronism which can produce unfortunate results in

its present day applications. It probably has more significance in land law than in trusts, although it

is still capable of affecting interests on succession. The material for this type of question is more

likely to be found in a book on equity rather than a book on trusts, and some reference may well

be made to it in books on land law, e.g., Maudsley and Burn’s, Land Law: Cases and Materials,

9th edn, Oxford University Press, 2009.

It is essentially only something which would be examined on a course which covers equity as

well as trusts.

Answer plan

 Wherever there is an obligation to convert property to another form, e.g., to sell land and

thereby convert it to money, equity regards the obligation as carried out

 Where there is a contract for the sale of land, equity therefore regards the purchaser as

having already acquired the beneficial interest in the land; the vendor has the bare legal title

and an interest in the proceeds of sale (personalty)

 This was extended in the rule in Lawes v Bennett to options to purchase and applied in Re

Sweeting to a conditional contract

 Trustees of residuary personalty left in succession must also convert wasting or future assets

into authorised investments (rule in Howe v Dartmouth)

Suggested answer

Although equity did not have the same rigid rules of precedent as the common law, the Court of

Chancery did have certain principles which it applied in administering equity. These became

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known as the ‘maxims’ of equity, and ‘equity looks on that as done which ought to be done’ is one

of these. Its application is evident in several areas of equity and it underlies the doctrine of

conversion.

The doctrine applies wherever there is an obligation to convert property into another form. Equity

will then notionally convert the property before the actual conversion takes place. This has the

curious result that realty may sometimes be regarded as personalty, and vice versa, in the eyes of

equity. This was significant on the passing of property on an intestacy before 1926, when realty

devolved upon the heir and personalty to the next of kin, and may still be relevant after 1925 in the

case of a will leaving realty to one person and personalty to another.

Jekyll MR gave the reason for the doctrine in Lechmere v Earl of Carlisle (1733) 3 P Wms 211

as the fact that a cestui que trust should not be prejudiced by a trustee’s possible delay in dealing

with trust property in accordance with his obligations. It has received some unfortunate extensions

however, in certain areas, which have produced criticisms from the judges, and it was abolished

as regards trusts for sale of land by s. 3 of the TLATA 1996.

The doctrine of conversion still applies, however, to a contract for the sale of land. As soon as

there is an enforceable contract, equity will impose a constructive trust on the vendor. From the

contract, the vendor’s interest is treated as being in the proceeds of sale which, if the vendor dies

before completion, are payable to the persons entitled to his personalty. The purchaser, who is

regarded as having a beneficial interest in the land, should therefore insure it. The position as to

insurance may of course be varied by the terms of the contract for sale, and the Standard

Conditions applicable to domestic conveyances provide that insurance of the property shall remain

the responsibility of the vendor until completion.

In Re Sweeting (deceased) [1988] 1 All ER 1016, the doctrine was applied to a conditional

contract where the condition was not fulfilled until after the testator’s death. An unfortunate

extension of its application is the rule in Lawes v Bennett (1785) 1 Cox 167, which decided that

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the doctrine applies retrospectively when an option to purchase is exercised after the grantor’s

death. Moreover, if the option is granted after a specific devise of the property by will, on exercise

of the option the devise is adeemed and the property, which becomes personalty retrospectively,

passes to the residuary legatee: Weeding v Weeding (1861) 1 J & H 424.

A duty to convert property also arises under the rule in Howe v Earl of Dartmouth (1802) 7 Ves

137. The rule aims at achieving fairness as to investments between a life tenant and a

remainderman. It requires trustees of a residuary personalty fund which is left in succession to

convert any wasting assets, or future assets not yielding an income, into authorised investments,

unless the will reveals a contrary intention. The income from any such part of the fund before

conversion is apportioned between the life tenant and the remainderman.

A strict application of the doctrine of conversion can produce some unfortunate results, and it is

hardly surprising that the courts have sought to avoid it in some circumstances.

Question 2

James, who died earlier this year, appointed Tina and Tom as executors and trustees of his will

and devised all his realty to his son Sam and all his personalty to his daughter Doris.

Advise the executors as to who is entitled to the following properties owned by James:

(a)(i) ‘The Beeches’, held by James and his wife Wynne upon trust for sale for themselves as

tenants in common.

(ii) Would your answer differ if James and Wynne had held ‘The Beeches’ as joint tenants?

(iii) Would your answer differ if James had died before 1 January 1997?

(b) ‘The Larches’, which James contracted to sell to Peter shortly before he died, subject

to Peter obtaining planning consent for an extension. Peter has now obtained planning

consent.

(c)‘The Firs’, upon which he had granted an option to purchase to Frank. Since James died,

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Frank has given notice to Tina and Tom of his intention to exercise the option. Would your

answer differ if the will had included a specific devise of ‘The Firs’ to Sam?

Commentary

This question requires a knowledge of some of the circumstances in which the doctrine of

conversion applies.

Like all questions in parts, it is probably unwise to attempt it unless you know the answer to at

least two parts of it! If you have revised this topic, however, it is a fairly straightforward question,

with almost arithmetical answers. You should achieve at least a pass if you can apply the

principles, although a more detailed knowledge of the cases would be required to pass well.

Part (a)(iii) will have an increasingly limited relevance as its only importance now is in tracing title

to unregistered land where there is such a will disposing of property subject to a trust for sale.

Answer plan

(a) (i) A trust for sale takes effect as a trust of land under TLATA 1996 and the doctrine of

conversion does not apply to it (TLATA, s. 3). ‘The Beeches’ is regarded by equity as land and

passes to Sam

(ii) Wherever there is a joint tenancy, property passes by the right of survivorship to the surviving

joint tenant or joint tenants and not under the will. ‘The Beeches’ would therefore go to Wynne

(iii) This is the only exception to TLATA, s. 3. The doctrine of conversion still applies to land held

on a trust for sale in the will of a testator who dies before 1 January 1997 leaving ‘realty’ and

‘personalty’ specifically in the will. ‘The Beeches’ would therefore pass as personalty to Doris

(b) The doctrine of conversion applies to a binding contract for sale, and ‘The Firs’ is therefore

regarded as personalty which passes to Doris

• This includes a conditional contract once the condition is fulfilled (Re Sweeting), and so the

proceeds of sale of ‘The Larches’ would go to Doris

(c) As soon as an option to purchase is exercised, there is a binding contract to sell, and ‘The Firs’ is

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therefore regarded as personalty which passes to Doris

• If ‘The Firs’ had been specifically devised by name before the option was granted, the option

would override the devise and the position would be as above

• If the specific devise was made after the option was granted, then ‘The Firs’ would go to Sam

together with the benefit of the option

Suggested answer

(a)(i) Wherever there is co-ownership of land, this must take effect behind a trust. Before 1

January 1997, s. 34 of the Law of Property Act 1925 imposed a statutory trust for sale. Because

a trust imposes a binding obligation on trustees and ‘equity looks on that as done which ought to

be done’, the equitable doctrine of conversion operated to convert property held on a trust for sale

to personalty. In the eyes of equity, there was a notional sale and the property was regarded as

money.

On or after 1 January 1997 when the TLATA 1996 came into force, co-ownership takes effect

behind a trust of land under the Act, and any trusts for sale existing at that date became trusts of

land. It is still possible expressly to create a trust for sale (as here), but the requirement to sell can

be overridden (TLATA 1996, s. 4(1)) and it will take effect as a trust of land under the Act.

Section 3 of the Act abolishes the doctrine of conversion as regards any trust for sale of land (with

one exception referred to in (iii) below).

James and Wynne will therefore hold the legal estate to ‘The Beeches’ as joint tenants at law on

a trust of land under TLATA 1996, for themselves as tenants in common in equity. The right of

survivorship does not apply to a tenancy in common and James’s share of ‘The Beeches’ will

therefore pass under his will to his son Sam as realty.

(ii) If James and Wynne held ‘The Beeches’ as joint tenants, the position as regards the legal

estate is the same, and co-ownership takes effect behind a trust of land under TLATA 1996. The

right of survivorship applies to a joint tenancy at law or in equity, however, so that James’s

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equitable interest in ‘The Beeches’ will pass to Wynne and not under James’s will at all.

(iii) Although s. 3 of the TLATA 1996 abolished the application of the doctrine of conversion to a

trust for sale of land, a saving was made by the section for a will such as James’s where the

testator died before the Act came into force. If James had died before 1 January 1997, therefore,

at his death the doctrine of conversion would have applied to the trust for sale on which ‘The

Beeches’ was held, and his share would have passed under his will as personalty to Doris.

The position would have been the same even if there had been no express trust for sale but one

had been imposed by reason of co-ownership by s. 34 of the Law of Property Act 1925.

This provision can now be relevant only in tracing title, and in practice, wills leaving personalty to

one person and realty to another are rare (except perhaps in examination questions!). A testator is

much more likely to specify the property he is leaving by name (‘The Beeches’) in his will.

(b) As soon as a valid and enforceable contract to sell property exists, equity regards the

beneficial interest as having passed to the purchaser, and the vendor holds the legal title as a

constructive trustee for the purchaser. Because the contract is enforceable by equity, equity

regards the transaction as a notional sale. The interest of the vendor is therefore in the proceeds

of sale, which are personalty.

In Re Sweeting (deceased) [1988] 1 All ER 1016, conversion applied to property subject to a

conditional contract for sale when the condition was fulfilled after the testator’s death.

The proceeds of sale of ‘The Larches’ will therefore go to Doris as personalty.

(c) The application of the doctrine of conversion to contracts for the sale of land was extended by

the rule in Lawes v Bennett (1785) 1 Cox 167 to options to purchase. As soon as an option to

purchase land is exercised, the property becomes personalty in the hands of the vendor because

there is a binding obligation to sell it. This is still the case, even if the option is made exercisable

after the death of the grantor (Re Isaacs [1894] 3 Ch 506). Therefore, as soon as Frank gives

notice to Tina and Tom of his intention to exercise the option, it is regarded as personalty in their

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hands and will again go to Doris.

However, if the will makes it clear that the devisee of property is to take all the testator’s interest

in it, then the devise may operate to override the rule in Lawes v Bennett. Moreover, it is relevant

whether the option was granted before or after the devise in the will. If it was granted before the

devise, then there may be a presumption that the testator intended to give the whole of his interest

in the property to the devisee, including any rights under the option. In Calow v Calow [1928] Ch

710, a devise of land or ‘the proceeds of sale of the land’ was held to survive a subsequent

contract to sell the land completed after the testator’s death. Conversely, if the option was granted

after the devise, then the option is regarded as overriding the devise: Re Carrington [1932] 1 Ch

1.

If James’s will specifically devising ‘The Firs’ to Sam was made before the option to purchase

was granted, then the effect of Frank’s notice to Tina and Tom to exercise the option is to operate

the doctrine of conversion retrospectively. ‘The Firs’ becomes personalty in their hands and will go

to Doris.

If James’s will was made after the option was granted, however, then it is likely that the option will

be regarded as a right attaching to the property, and ‘The Firs’ will pass, together with the right, to

Sam as realty.

Question 3

(a) Two sisters, Amy and Bertha, were joint tenants of a house. Amy, who died recently, by her will

purported to leave the house to Bertha and their brother Cyril in equal shares. There was also a

bequest in the will of valuable jewellery worth at least half of the value of the house to Bertha.

Advise Bertha and Cyril.

(b) John, who died recently, made a will in which he gave a legacy of £5,000 to Bill. Bill had lent John

£5,000 secured by a charge on John’s house. There is a sum of £3,000 outstanding on this debt.

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Advise Bill as to whether the debt will be satisfied by the legacy.

Commentary

The first part of this question is on the application of the doctrine of election, and the second part

on a possible application of the doctrine of satisfaction.

Both of these doctrines have their origins in equity’s desire to be fair to the children of a family in

the distribution of family wealth. The doctrines were extended, however, beyond the family

circumstances and the doctrine of satisfaction particularly, in its application to creditors to whom a

legacy was left. There are few recent cases on the doctrines although they are still occasionally

applicable today.

This is not a subject to cover unless your lecturer directs you to do so or deals with it in your

lectures. The doctrines, which were included in the 15th edition of Hanbury and Martin’s Modern

Equity (Sweet & Maxwell, 1997) were left out of the 16th edition (2001) and all later editions, no

doubt to allow room for more modern developments and applications of the subject.

Answer plan

(a) • Where a person receives a benefit but also suffers a loss from a transaction or a will, he may

elect to reject it or to accept it; if he accepts the benefit of the transaction, he must also suffer the

loss

• The doctrine would therefore apply to Bertha with regard to Amy’s half share of the house and

the jewellery

(b) • The doctrine of satisfaction, which had its origins in allowing for portions advanced to

beneficiaries under a family settlement, was extended to debts owed by a testator

• The satisfaction of a debt by a legacy left to a creditor became subject to certain technical rules

(listed in the answer) which may mean that it will not apply here

Suggested answer

(a) The doctrine of election means that a person who receives a benefit from a transaction, from

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which he also suffers a loss, must elect to take with the transaction or against it; that is, he may

elect to take the benefit and suffer the loss, or not to accept the benefit at all. It usually applies to a

will and arises where property is left to A and some of A’s property is left by the same will to B. A

cannot accept the gift under the will unless he compensates B from his own property. It is

irrelevant that the testator has made a mistake as to the ownership of A’s property which he has

purported to leave to B.

Because Amy and Bertha were joint tenants of the house and the right of survivorship applies to

a joint tenancy, the house automatically passes to Bertha on Amy’s death. Amy is therefore

leaving to Cyril property which is not hers to dispose of. In Re Gordon’s Will Trusts [1978] Ch

145, where a mother and son owned a house as joint tenants and the mother devised it to her

trustee upon trust for sale and left furniture and £1,000 to her son, Buckley LJ accepted that the

doctrine of election could apply to those gifts to the son.

In that case, other property given in trust for the son was not freely alienable by him, which in fact

prevented the application of the doctrine to it. If the property of the elector is not freely alienable,

no case for election arises (Re Lord Chesham (1886) 31 ChD 466). The jewellery in this question

would appear to have been given outright to Bertha, however, so it would seem that the doctrine

would apply.

Bertha will therefore have to elect to take with the will, in which case she may keep the jewellery

but must convey half of the house to Cyril, or against it, in which case she may keep the whole of

the house but must compensate Cyril by letting him have the jewellery. She will be obliged to let

him have the whole of the jewellery, however, and not just jewellery to the value of half of the

house.

Hanbury and Martin’s Modern Equity, 15th edn, Sweet & Maxwell, 1997, criticised the doctrine of

election as ‘too uncertain an instrument of equity’, pointing out that the ultimate donee of the

elector’s property will always benefit, whereas the person put to their election may not benefit at

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all. This would seem to be the position here.

(b) The doctrine of satisfaction evolved in order to ensure, as far as possible, an equal distribution

of family wealth among the children of a family. It was applied in certain circumstances to adeem a

legacy left to a child who had previously received a portion (a sum of money to set him up in life).

It also applies where a legacy is left to a creditor, the underlying maxim for this being that ‘equity

imputes an intent to fulfil an obligation’. It must be possible to presume from the circumstances

that the testator did intend to pay the debt with the legacy and, like all presumptions, it is

rebuttable. Certain technical rules have developed to rebut the presumption.

First, the legacy must be as beneficial to the creditor as the debt (see Re Van den Bergh’s Will

Trusts [1948] 1 All ER 935). As Bill’s loan was secured by a charge on John’s house, this would

not be the case.

Secondly, the doctrine applies only if the will was made after the debt was incurred. We are not

told the dates of the will or the debt.

Thirdly, it will not apply if the will includes a clause (which is frequently included in wills) directing

the testator’s executors to pay the testator’s debts and funeral and testamentary expenses. In

these circumstances, both the debt and the legacy will be payable. This principle was established

in Chancey’s Case (1717) 1 P Wms 408. It is not even necessary for the clause to include

reference to the payment of legacies (Re Manners [1949] 2 All ER 201).

For all these reasons, it is possible that the doctrine of satisfaction will not apply to the legacy in

John’s will, and Bill will be able to recover his debt from the estate and also take his legacy of

£5,000.

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