Law, Equity and trusts

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Summary

Law is, generally, a system of rules which are enforced through social institutions to govern behaviour,Robertson, Crimes against humanity, 90. although the term "law" has no universally accepted definition.Lord Lloyd of Hampstead. Introduction to Jurisprudence. Third Edition. Stevens & Sons. London. 1972. Second Impression. 1975. Page 39. Laws can be made by legislatures through legislation (resulting in statutes), the executive through decrees and regulations, or judges through binding precedents (normally in common law jurisdictions). Private individuals can create legally binding contracts, including (in some jurisdictions) arbitration agreements that exclude the normal court process. The formation of laws themselves may be

Details

Equity is a body of rules that developed in England separately from the "common law". The common law was administered by judges. The Lord Chancellor on the other hand, as the King's keeper of conscience, could overrule the judge-made law if he thought it equitable to do so. This meant equity came to operate more through principles than rigid rules. For instance, whereas neither the common law nor civil law systems allow people to split the ownership from the control of one piece of property, equity allows this through an arrangement known as a 'trust'. 'Trustees' control property, whereas the 'beneficial' (or 'equitable') ownership of trust property is held by people known as 'beneficiaries'. Trustees owe duties to their beneficiaries to take good care of the entrusted property. In the early case of Keech v Sandford [1722] a child had inherited the lease on a market in Romford, London. Mr Sandford was entrusted to look after this property until the child matured. But before then, the lease expired. The landlord had (apparently) told Mr Sandford that he did not want the child to have the renewed lease. Yet the landlord was happy (apparently) to give Mr Sandford the opportunity of the lease instead. Mr Sandford took it. When the child (now Mr Keech) grew up, he sued Mr Sandford for the profit that he had been making by getting the market's lease. Mr Sandford was meant to be trusted, but he put himself in a position of conflict of interest. The Lord Chancellor, Lord King, agreed and ordered Mr Sandford should disgorge his profits. He wrote,

Of course, Lord King LC was worried that trustees might exploit opportunities to use trust property for themselves instead of looking after it. Business speculators using trusts had just recently caused a stock market crash. Strict duties for trustees made their way into company law and were applied to directors and chief executive officers. Another example of a trustee's duty might be to invest property wisely or sell it. This is especially the case for pension funds, the most important form of trust, where investors are trustees for people's savings until retirement. But trusts can also be set up for charitable purposes, famous examples being the British Museum or the Rockefeller Foundation.

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