Legal interests and equitable interests compared

Discretionary nature of equity

Unlike a right recognisable in law, all equitable rights are enforceable only at the discretion of the court. Thus, although since the Supreme Court of Judicature Acts 1873 and 1875, the rules of law and equity have both been administered by the same courts, it is important to know whether one is dealing with a legal interest or an equitable interest.

In the context of equitable rights, the maxim ‘he who comes to equity must come with clean hands’ is of great importance. A person may be able to show he has an equitable interest in land, but this is of little use to him if he has ‘dirty hands’, as he could be refused any remedy by the courts because of his bad behaviour. For example, if he claims to have an equitable easement entitling him to walk across another estate owner’s land, he may find he is refused a remedy to enforce his right of way if he has behaved improperly.

Legal rights, however, are enforceable as of right. Once the existence of the right is established it is not really open to the court to consider the merits of the situation before giving a remedy. Thus, if a person with a legal easement causes damages, the land owner may be able to claim compensation but the easement will still be enforced by the courts.

Enforcement against third parties

A major difference between legal and equitable rights used to be found in the rules governing the enforceability of those rights against a third party, for example, against the purchaser of the estate which is subject to the rights. Thus, while a legal easement over a piece of land could be enforced against a purchaser of land, it might not be enforceable against certain purchasers.

This was a rule which had its origins in the separate evolution of law and equity. Legal rights were said to be rights in rem; ie, rights in the land itself and hence generally could be enforced against any person who acquired an estate or interest in the land. This was expressed by saying that legal rights were ‘good against the world.’

By contrast, equitable rights were only rights in personam; ie, rights which were enforceable against certain categories of person, because it was considered to be fair or equitable that they should take subject to them. The rule which applied to equitable interests was that they bound everyone who took the legal estate except a bona fide purchaser for value of that legal estate without notice of the equitable interest. This rule is commonly referred to as the ‘notice rule.’

Over the years, the courts decided that that it would be fair to enforce such rights against: those who inherit from the trustee; those who take the property from him as a gift (‘donees’); and those who buy the property from him either knowing about the beneficiary’s rights or deliberately closing their eyes to them.

At the end of this development, there was just one person against whom it would not be fair to enforce the beneficiary’s rights: someone who buys the legal estate in ignorance of the fact that it is trust property, despite having made all the appropriate enquiries; ie, to use the technical phrase, the bona fide purchaser of the legal estate for value without notice.

Although Maitland (Equity (1936)) explains the doctrine of notice by reference to the trust, the courts applied it to all equitable interests. The doctrine of notice only applies in unregistered land to determine priority of equitable interests not governed by the Land Charges Act 1925.