Equitable interest

An equitable interest is an "interest held by virtue of an equitable title (a title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title) or claimed on equitable grounds, such as the interest held by a trust beneficiary." The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law (connotation 2) tradition, such as New Zealand, England, Canada, Australia and the United States.

Equity is a concept of rights distinct from legal (that is, common law) rights; it is (or, at least, it originated as) "the body of principles constituting what is fair and right (natural law)". It was "the system of law or body of principles originating in the English Court of Chancery and superseding the common and statute law (together called 'law' in the narrower sense) when the two conflict". In equity, a judge determines what is fair and just and makes a decision as opposed to deciding what is legal.

Perhaps the most common example of an equitable interest is the interest of a beneficiary under a trust. Under a trust, the trustee has a legal interest in the trust property and all of the rights and powers that follow from that legal interest (for example, rights to deal with that trust property and to invest trust property), subject to the interest of the beneficiary and the terms of the trust (deed). The beneficiaries under the trust has an equitable interest in the trust property.

The precise nature of the interests and rights of the beneficiary under a trust is contested. Ben McFarlane states that there are three principal theses about the nature of equitable rights. The first one is that, equitable interest is a right against a right, rather than right against a thing or right against a person. Second, whenever a parthy B has a right against a right of another A, B's right is prima facie binding on anyone who acquires a right that derives from A's right. Third, Bwill acquire such a persistent right whenever A is under a duty to hold a specific claim-right or power, in a particular way, for B.

The rights and obligations of the beneficiary, trustee, third parties contracting with the trust and potentially of other parties (such as the settlor of the trust or, if the trust provides for such, a protector or enforcer of the trust) depend on the terms of the trust deed. Trust law includes both mandatory law (that is, law which cannot be excluded, such as the irreducible core, information rights and the supervisory jurisdiction of the court) and default law (that is, law which can be excluded by express provision in the trust deed). The trust deed, therefore, has a significant role to play in determining the rights and obligations of the parties in that default law (such as fiduciary obligations and rights of recourse against non-entitled third parties) may be excluded or modified by the trust deed.

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