EquityFrequently Asked Questions on Equity
"In India and in the Island of Bombay the introduction at all, of a system of equity in the English sense bearing on the native community, implied on the part of the parliament and the crown an intention that equity should perform its characteristic functions. It was not intended that substantive native laws should, in their essence, be changed but it was intended that unprincipled men should be prevented from taking an unconscientious advantage of those laws for the purpose of fraud or opression. It was intended that a remedy should be found by equity in cases wherein the native law failed to provide a remedy which the court could apply. It must have been intended that the native laws should receive a consistent logical development........."So `Equity' is bundle of those rules which basically assist the court, to bring the cause of justice to its logical end. Equity is not penalty but justice and even were neither party is at fault, equitable considerations may shape the remedy. So principles of `Equity' as introduced by English legal system where of significant importance and played important role in development of Indian law. In Roshan Lal Nuthiala v. R.B. Mohan Singh Obrai, AIR 1957 SC 824 it was observed - Equitable jurisdiction is not hide bound by tradition and blinkered by precedent though trammelled by judicially approved rules of conscience. So, equity may be defined as that body of rules which, prior to the fusion of law and equity effected by the Judicature Acts, 1873 and 1875, was administered in the Court of Chancery. It is further concluded that -
(i) Equity is founded on natural justice.
(ii) Equity is an intellectual energy which is influenced by the gradual changes in the mental standpoint taken by successive generations.
(ii) Equity is the soul and spirit of law. Courts of equity generally follow the law as far as possible and act upon its analogy in so far as it may be available; and in the absence of both they proceed on the principles of natural law i.e. such rules of conduct which are supposed to be just that they are binding on all mankind.
(iv) Equity does not supersede the existing law, but is supplementary addition to such law.
(a) The Medieval period lasting until 1672;
(b) The Period of Transformation
(c) The Modern Period.(a) The Medieval Period - In England, the history of Equity can be traced from the time of Norman Conquest. After the Norman Conquest a royal court known as Curia Regis came into existence. It was the group of skilled administrators. In its early time the Curia Regis was concerned with the matters of King's own interest such as collection of revenue. But in due course of time this Curia Regis became the court of law also in which the suits of private parties could be decided and the Common Law of England took place of the various Customary rules. In thirteenth century, in the reign of Edward I the so-called Common Law took a definite shape. By the end of thirteenth century there were the following three great Courts of England :
(i) The King's Bench;
(ii) The Common Bench or the Court of Common Pleas; and
(iii) The Exchequer.The law formulated, developed and administered by these three courts was the Common Law based on the State Law and the customary Law. Out of these there courts, the Exchequer was not only a Court of Law but it was also an administrative Department of the Government. Its Secretariat Department was known as chancery. The head of chancery was called Chancellor who was the King's Secretary for all department and kept the King's Seal and all writing work in King's name were done under his supervision. The common law was deficient in the following three respects : (1) Remedy was not available in all cases for many wrongs as remained underdressed for want of proper writs. The number of writs was very small and many claims could not be brought under any them. (2) The relief granted by the common law courts was not always adequate. They gave relief only in damages, for breach of a contract but did not provide for specific performance. Reliefs such as injunction, accounting, appointment of receiver were outside the jurisdiction of the common law courts. (3) And lastly, being a reminiscence of the feudal period the procedure in the common law courts was defective and unsatisfactory; it was very cumbrous and formal. In 1285, the Parliament of England made an attempt to remove the deficiency of the Common Law through the Statute of West-minster. It was commonly known as Consimili Casu. This Statute empowered the Chancery to invent new writs for certain cases which were similar to those for which there were appropriate writs in vogue. But in cases where the Chancellor wanted to issue new writs, he had to seek the consent of the King-in-Council. As this Statute gave only a limited power and was confined to writs in Consimili Casu, the deficiencies in Common Law could not be removed. With the result there was enhancement in the number of petitions to the King "for the love of God and in the way of charity." These petitions were made to redress the wrongs, for which no remedy was available. The King was regarded as the Fountain of justice. The King discharged this judicial function by delegating them sometimes to his council and sometimes to his chancellor. This practice continued and in due course of time it resulted in the formation of the appellate jurisdiction of the House of Lords and the equitable jurisdiction of the Lord Chancellor. But even in this period the equity was not considered as a rival system to Common Law. The Chancellor consulted frequently the judges of Common Law court not only on points of pure Common Law but also on the principles on which he should give equitable relief. In Sixteenth Century the rules of equity and good conscience which were administered by Chancellor in the field of equity were developed. The equitable principles were discussed and published in report. In Sixteenth century, equity was so popular that even other courts besides the Chancery began to claim an equitable jurisdiction. In Seventeenth Century the dispute between the Common Law Courts and the Chancery regarding the issue of injunction was set at rest by King James-I. The dispute arose in the end of Oxford's case. The complaint of the Chief Justice Coke was that the issue of injunctions by Chancellor it should be ensured that the principle would always prevail, in case of conflict, over the rules of Common Law. The king James-I decided that the court of Chancery could issue an injunction restraining parties from suing in a Common Law court or from seeking enforcement of a judgment obtained in that court. (b) The Period of Transformation - The Seventeenth Century was the century of transformation of Equity. Chancellor Ellesmere was succeeded by Bacon who earned the reputation of being a most learned man of his time. He settled down the procedure of the court which helped his successors. Lord Nottingham became the Chancellor in 1673. He was a member of a great legal family. He is known as the father of modern equity because he saw that the time had come for equity to be systematised. He classified its rules and laid down broad principles which could be developed by his successors. He turned equity from matter of chance into matter of Principle. For example, he introduced the doctrine of "Clogs" on the equity of redemption and the modern rule against perpetuities. This work of systematisation of equity was continued by his successors Lord Hardwick (from 1736 of 1756) and Lord Eldon (1801 to 1806 and from 1807 to 1827) are notable for this work of systematisation of equity. They examined and formulated nearly all the rules of equity transforming it from a haphazard collection of rules into some well developed, true and definite system of juris prudence. Notwithstanding the development of equity as an important part of the English Law, there were two distinct systems of justice administered by the English Courts. The Courts of Queen's Bench, Common Pleas and Exchequer administered the Common Law whereas the Court of Chancery was governed by the Principles of Equity. In 1854 the Common Law Procedure Act was passed which enabled the Common Law Courts to grant equitable relief in certain cases. Similarly the Chancery Amendment Acts 1858 empowered the Court of Chancery to award damages in addition to or in lieu of injunction. But this double system of administration of justice led to the passing of the Judicature Acts of 1873 and 1875. By these Acts the old courts of Common Law and chancery were abolished and in their place High-court of Justice with a Court of Appeal over it were established. The High-Court of Justice was divided into the following five divisions -
(i) the Chancery
(ii) the Queens Bench
(iii) the Common Pleas
(iv) the Exchequer
(v) Probate, Divorce and Admiralty.All these five divisions of the High-Court of Justice administered both law and equity together. The procedure of the Court was governed by the Code of Civil Procedure which was the combination of the best features of the Common Law and Equity. It was clearly provided in the Act that in the matter of any conflict or variance between rules of equity and rules of Common Law with reference to the same matter, the rules of equity shall prevail. (c) Modern Period. The modern period was inauguranted by the Property Legislation of 1925. The property legislation of 1925 repealed the "Statute of Uses 1535" as it had clearly become futile legislation. Its abolition therefore simplified conveyancing. By Law of Property Act 1925, the only legal estates capable of subsisting are (i) an estate in fee simple absolute possession, (ii) a term of years absolute, (iii) certain legal interests or charges. All other estates, interests and charges are to take effect as equitable interests. The Law of Property (Amendment) Act 1926 removed trust for sale from the ambit of Settled Land Act. So settled principles of equity has taken the shape of legislative enactment.
"The chapter on the duties (Adab) of the Hazi in the principal works on Mohammedan Law clearly shows the rules of equity and equitable considerations commonly recognized in the courts of chancery in England, are not foreign to Mussalman system. -"Equity in the Courts of East India Company - The Courts established by the East India Company were presided over by English lawyers who frequently resorted to English Law of equity in cases of difficulties. Regulation 4 of 1827 required the Courts of East India Company to act according to justice, equity and good conscience in the absence of a specific law and usage. The Law Commissioner for preparing a body of substantive law for India, in its First Report recommended that the judges should decide those cases for which there is no provision in law in the manner they deem most consistent with the principles of justice, equity and good conscience. The Regulating Act of 1773 established Supreme Court which was also constituted a court of equity, justice and good conscience. Under clause 36 of the Supreme Court Charter 1823, the Supreme Court of Bombay was expressly made a Court of Equity and Law. Not only this, the Supreme Court of Bombay was also given an equitable jurisdiction corresponding to that of the Court of Chancery. Though the provisions of the rules of the justice, Equity and good conscience was expressly laid down in all subsequent Acts in British India for the guidance of judges, there was no separate court for exercising only equitable jurisdiction. In 1861 the Indian High Courts Act was passed by which the Supreme Courts and the Courts of Sadar Diwani Adalats were abolished and High Courts were established at Calcutta, Bombay, Madras and Allahabad. These High Courts also administered justice according to the well established principles of Equity, justice and good conscious. They had all the powers of a Court of Equity in England of enforcing their decrees in personam. Statutory Recognition of Equity in India - Statutory recognition of the principles of Equity in India is found in the Specific Relief Act, 1877, the Indian Trust Act, 1882, the Indian Contract Act, the Indian Succession Act, the Guardianship and Wards Act and the Transfer of Property Act. The various provisions of the Specific Relief Act, 1877 with regard to injunction, receiver, specific performance of the contract, rectification etc. recognise the principles of equity to a large extent. Section 48 and Section 51 of the Transfer of Property Act contain the principles of Equity. Similarly, the equitable doctrine of part performance of English Equity has been enunciated in Section 53-A of the Transfer of Property Act. The Indian Trust Act is based on most important selected and comprehensive principles of Equity jurisprudence. Sections 64 and 65 of the Indian Contract Act also contain the principles of Equity as they provide that the party who receives the benefit under a void or voidable contract has to restore such benefit or make compensation to the party from whom he has received it. In Bhagwan Das v. Girdhari Lal and Co., AIR 1966 SC 543, it was observed by Supreme Court in the administration of Law of Contracts the courts in India, have generally been guided by rules of English Common Law as applicable to contracts where no statutory provision to contrary is in force------Expression "Equity, justice and Good Conscience" has been consistently interpreted to mean rules of English Common Law, so far as they are applicable to Indian society and Circumstances.
"We ought not to think of Common Law and Equity as of two rival systems. Equity was not a self-sufficient system; at every point it presupposed the existence of Common Law."Difference between Common Law and Equity - Common Law and Equity differ from each other in the sense that the Equity comprised the body of rules administered by the Court of Chancery, and consisted of that portion of natural justice which, although of a nature suitable for judicial enforcement, was for historical reasons, not enforced by the Common Law Courts. Secondly, the Common Law Courts dealt with both civil and criminal matters whereas the Courts of Chancery which administered the Equity confined itself to the civil matters only. Thirdly, as stated above, the Common Law originated from feudal custom, but equity originated from Roman and Common Law. Fourthly, the Equity presupposes the existence of the Common Law and gives relief against its hardship. The Equity is supplementary to the Common Law as pointed out by Snell :
"Equity then, in its technical sense, may be defined as a portion of natural justice which, though of such a nature as properly to admit of being judicially enforced, was for circumstances, omitted to be enforced by the Common Law Courts..........an omission which was supplied by the Court of Chancery."In other words, the equity may be defined as a correction to the Common Law as such it pre-supposes the existence of Common Law whereas Common Law does not presuppose the existence of Equity. The Common Law of England, in this way, is older than Equity. Lastly, Underhill has summarised the difference between Equity and Common Law as under :
"Equity was originally revolt of common sense against the pedantry of law, and trammels of the feudal system, it became a highly artificial and refined body of legal principles and it is at the present day an amendment and modification of the Common Law."
(1) The Exclusive Jurisdiction,
(2) The Concurrent Jurisdiction,
(3) The Auxiliary Jurisdiction.(1) The Exclusive Jurisdiction - The cases where the Common Law Courts did not recognise the rights and thus provided no relief, were covered under the exclusive jurisdiction of the Chancery Court. The rights enforced and the remedies granted in such cases were purely equitable. The most important branch of this jurisdiction was the right of person claiming under trusts. For example in case of married woman's property given to them for their separate use, the Equity recognised their rights in those properties by allowing it to be settled on her as separate estate; and even in the absence of a trust, if the property was meant for her separate use, the husband was regarded as a trustee for her. The exclusive jurisdiction also included equity of redemption, mortgage, the doctrine of conversion, election, satisfaction and marshalling of assets. It should be noted that in all these cases the Common Law Courts did not recognise the equitable rights and interests and thus provided no relief. The Courts of Equity therefore had the exclusive jurisdiction over these cases. (2) The Concurrent Jurisdiction - In some cases the jurisdiction of the Court of Equity was concurrent with the jurisdiction of Courts of Common Law. In such cases the rights were recognised by the Courts of Equity as well as Courts of Common Law as such those rights could be enforced either at Common Law or in the Court of Chancery but in connection with which Common Law Courts granted no complete or adequate relief whereas the Courts of Equity gave proper relief. For example an order for the specific performance of the contract could be passed in Equity but not in Common Law. Similarly in cases of fraud, accident, mistake, partnership, recovery of specific chattels, set-off, dower and partition, the Common Law Courts recognised and defined the rights of the parties but provided no adequate relief. The Courts of Equity, on the other hand, not only recognised those rights but also provided adequate relief. The Court of Equity claimed jurisdiction to give relief against every sort of fraud except where it related to an acquisition of estate by means of forged will which fell within the exclusive cognizance of the probate Court. It should be noted that in such cases damages were granted to plaintiff by Common Law Courts but in Equity, the plaintiff could claim the rescission of the contract and restitution of the property. In such cases jurisdiction of Court of Equity was based on inadequacy of the legal remedy. (3) The Auxilliary Jurisdiction - In cases within the Auxillary jurisdiction, the nature and extent of rights and remedies depended exclusively on legal principles. In the words of Snells:
"The Court of Chancery merely lent its aid as by compelling discovery towards the enforcement of legal remedy for a legal right which owing to deficiency of administrative power of machinery, the Common Law Courts were unable practically to grant"STRAHAN has summed up the classification of the jurisdiction of the Equity Courts in the following words -
"Where the right to be enforced and the remedy sought were both equitable, the matter was within the exclusive jurisdiction, where the right to be enforced was illegal but the remedy sought was equitable, it was within the concurrent jurisdiction; where both the right to be enforced and the remedy sought were legal and the equity only intervened to help the plaintiff to get the legal remedy, it was within the auxiliary jurisdiction."
"When the law clothes a man with a right, he must have a means to vindicate and maintain it, and remedy if he is injured in the exercise and enjoyment of it, and indeed it is a vain thing to imagine a right without a remedy, for want of right and want of remedy are reciprocal."As discussed earlier, the equity came into existence due to the deficiencies in Common Law. There were many wrongs which were left without remedy under Common Law. Not only this, in many cases, the reliefs granted by Common Law Courts were inadequate. This led to the establishment of the Courts of Chancery for redress of wrongs which remained unredressed by Common Law Courts. It is important to point out here that this maxim finds place in many Indian Enactment also. For example the Specific Relief Act contained equitable remedies, Indian Trusts Act deals with trusts.
"When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as the court may seem just."The provisions of the section explain the maxim by laying down that in cases of unconscionable money lending, the court may relieve the borrower against the oppressive terms of his contract, but subject to the repayment to the lender of the money actually advanced with reasonable interest. (B) Equity Follows the Law Courts of Equity granted relief by recognising and enforcing those rights which were either not recognised and enforced or which were not adequately redressable in case of their infringement. Under these circumstances a question was raised : Did Equity, in the exercise of its jurisdiction altogether ignore the law ? The Maxim, "Equity follows the law" is an answer to this question which connotes that the Court of Equity in the exercise of its jurisdiction did not ignore the rules of Common Law, but followed them. Equity treated the Common Law as laying the foundation of all jurisprudence. Story observed :
"Where a rule, either of the Common or the statute law, is direct, and governs the case with all its circumstances on the particular point, a Court of Equity is as much bound by it as a Court of land and can little justify a departure from it."In Burgess v. Wheate, (1759) 1 Eden. 177, it was observed that "The court of Chancery never claimed to override the express provisions of Common Law. Equity treated the Common Laws as laying the foundation of all jurisprudence and did not depart unnecessarily from legal principles." The maxim may be considered in the following two respects :
(i) As regards legal estates, rights and interests
(ii) As regards equitable estates and interests.(i) As regards legal estates, rights and interests - As regards legal estates, rights and interest the Equity follows the law. The Court of equity cannot depart from the legal principles where the common Law or the Statute Law was clear on the point and as such followed the rules of law as the appropriate system. Thus for example, the Common Law provided that where a man died intestate, leaving sons and daughters, the eldest son was entitled to the whole real estate to the exclusion of the younger sons and daughters. Although it was most unfair, Equity followed the rule of Common Law and did not grant relief to the younger sons and daughters. The equity interfered only in case of fraud. Thus if in the above case, the eldest son had persuaded his father not to make a will and had agreed to share the property with his younger brothers and sisters. Equity would interfere and would compel the eldest son to divide the property with his brothers and sisters. (ii) As regards equitable estates and interests - As regards equitable estates and interests equity although not bound by the rules of law but followed the law in the sense of acting in analogy with legal rules when an analogy existed. In Cowper v. Cowper, Jekyll M.R. said that the law was clear and the Courts of Equity ought to follow it in their judgments concerning titles to equitable estates, otherwise great uncertainty and confusion would ensure. Thus for example, if B was the beneficiary under a trust, his interest in the trust property was merely equitable and not recognised by the Common Law but his interest in Equity was held to devolve according to the legal rules for the devolution of property. It should be noted that in dealing with its own equitable estates and rights Equity had adopted most of the legal rules. Exception : The maxim `Equity follows the Law' has following exceptions -
(i) In case where the rules of Law were not directly applicable nor capable of being extended on principle of analogy, Equity follow its course of principles
(ii) In cases where the court of Equity found the legal rules right but not adequate it followed them and extended its help to redress it and to enforce the legal right, if it was capable of being judicially enforced.This maxim has full application in Indian Legal system. In Yeshwant v. Wal Chand, 1950 SCR 852 it was observed that "Rules of equity have no application where there are definite statutory provisions specifying the grounds on the basis of which alone the stoppage or suspension of running of time can arise. While the courts are necessarily astute in checkmating fraud, it should equally borne in mind that the Statutes of Limitation are statutes of repose." (C) Equity act in personam - This maxim in a sense comprise the whole of Equity. It lays down the procedure rather than any substantive law. In England the Chancery Court had now the Chancery divisions of the High Court has jurisdiction to entertain certain suits respecting immovable property, though the property might be situate abroad if the relief sought could be obtained through the personal obedience of the defendant. The personal obedience of the defendant could be secured only if the defendant resided within the local limits of the jurisdiction of the court or carried on business within those limits. Its essential feature was that the land in respect of which the suit was brought was situate abroad, but the person of the defendant or his personal property was within the jurisdiction of the court in which the suit was brought. The land being situate abroad the decree could not be executed against the land, but the person or personal property of the defendant being within the jurisdiction of the court the decree could be executed in person. A court of equity operates primarily in personam not in rem; and in the exercise of its jurisdiction in personam it will compel the performance of contracts and trusts relating to property which is not locally within the jurisdiction. (Halsbury's Laws of England, Fourth Edn. Vol. 16 para. 1295 p. 868). The doctrine was thus explained by Lord Selborne L.C. in William Ewing v. Malcolm Hari Orr Ewing, (L.R. (1883) 9 A.C. 34, 400 :
"The courts of Equity in England are, and always have been, Court of conscience operating in personam and not in rem, and in the exercise of this personal jurisdiction they have always been accustomed to compel the performance of contracts and trusts as to subjects which were not either locally or ratione damicilli within their jurisdiction.The jurisdiction in personam wielded by the Chancery Court gave it a longer arm than that of the common law courts, especially in case of land falling outside the jurisdiction of the court. But the court of equity never assumed to determine questions of title in the land which was situate in England or abroad; all that it did was to get hold of the defendant or other personal property of his and bring pressure to bear on him.
"Section 40..........where a third person is entitled to the benefits of an obligation arising out of contract and annexed to the ownership of immovable property, but not amounting to an interest or an easement thereon, such right or obligation may be enforced against a transferee with notice thereof or a gratuitous transferee for consideration and without notice of the right or obligation, nor against such property in his hands.""A contracts to sell Sultanpur to B. While the contract is still in force he sells Sultanpur to C who has notice of the contract. B may enforce the contract against C to the same extent as against A." Section 78 of the Transfer of Property Act provides as under :
"Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee, another person has been induced to advance money on the security of the mortgaged property the prior mortgagee shall be postponed to the subsequent mortgagee."It should be noted that the principle embodied in section 78 of the Transfer of Property Act also applies to sell. Thus if a prior mortgagee is guilty of fraud or misrepresentation or gross negligence as a result of which a subsequent purchaser is induced to enter into a transaction of sale with the owner of the property as though there was no prior transfer, the prior mortgagee will be postponed after the subsequent purchaser.
(i) the fee simple absolute in possession,
(ii) the term of year absolute; and
(iii) certain legal interests or charges.An estate in fee simple is one that is granted to a man and his heirs. It is the greatest estate a subject of the Crown can possess. An estate of free hold is one originally held by a free man and subject to free services, for life or for the life of another. An Equitable estate may be defined as one created and recognised by the Court of Equity. Equitable estates in real property are created in two ways, namely -
(i) under trust; and
(ii) under mortgage.In case of trust, the trustee is the legal owner whereas the equitable estate resides in the cestui que trust. Similarly in case of mortgage, the mortgagor loses his rights in case of his failure to redeem the property on the due date but equity relieves him by vesting in him an equity of redemption. Difference between Legal Estates and Equitable Estates - The following are the points of difference between Legal and Equitable estates:
(i) Where there is a prior equitable and subsequent legal estate, an equitable right cannot be enforced against a purchaser of the legal estate, if the latter has acquired property for valuable consideration, without notice of a prior equitable right, the maxims that govern the legal equitable estates are : -
"Where there is equal equity, the law shall prevail." and "Where the equities are equal, the first in time shall prevail."
(ii) Doctrine of Conversion lies within the domain of equitable estate and not a legal estate.
(iii) Common Law rule that a fee simple estate could not be conveyed inter vivos without the use of the word `heirs' or in fee simple was applicable strictly to legal estate only and not to equitable estate.
(iv) Rights of a married woman to hold property were enlarged by equity whereas the Common Law gave them limited rights regarding property.
"Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be either such as may fairly and reasonably by considering arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it."In India - In India, Section 74 of the Indian Contract Act has abolished the distinction between Penalty and Liquidated damages. Section 74 provides that the party complaining of the breach is entitled to receive from the other party any reasonable compensation not exceeding the amount named in the contract to be paid on a breach. The explanation attached to Section 74 provides that a stipulation for increased interest from the date of default may be a stipulation by way of penalty. In other words all such sums shall be treated as penalties.