GUJARAT NATIONAL LAW UNIVERSITY

GANDHINAGAR

TRUST, EQUITY AND FIDUSIARY RELATIONSHIP

PROJECT ON

-: EQUITY AND COMMERCE :-

SUBMITTED TO SUBMITTED BY

Garima Goswami Vinod Panwar

(Assistant Professor of Law) (13B190)

TABLE OF CONTENT

ACKNOWLEDGEMENT

INTRODUCTION

1. Meaning Of Equity

2. The Development Of Equity

3. Role Of Equity In Commerce

4. Principle Of Equitable Estoppel And Contract

5. Equity In Oral Contract To Convey Land-Specific Performance-Personal Services

6. Equity-Unconscionable Contract Cancelled

7. Equity-Specific Performance Of Contracts

8. Redemption In Mortgage

9. Conclusion

10. Bibliography

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 ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during the
project work topic on Equity and Commerce.
My deepest thanks to Mrs. Garima Goswami (assistant professor of law at GNLU) the guide
of the project for guiding and correcting various documents of mine with attention and care.
He has taken pain to go through the project and make necessary correction as and when
needed.
I would like to thank all other friends for their support and encouragement which help me in
completion of this project. I would like to extend my sincere thanks to all who support me to
complete this project.

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 INTRODUCTION

In last few years Equity has played a major role in commercial conduct and transaction.
There are many judicial decision are taken in relating to commercial dealing and law of
equity has developed that now this build the equitable foundation. The commercial world
reflects other manifestation of the combination between common law and equity for, sir
Anthony Mason notes, the fiduciary relationship has been spearhead of equitys incursions
into the area of commerce
Equity, unlike the common law, was never intended to be an independent system of law. It
presupposed the existence of the common law, which it supplemented and modified. The
system of equity followed the portion of natural justice which is judicially enforceable but
common law courts various reasons was not enforced that portion. Equity is that system of
justice which was developed in and administered by the high court of chancery in England in

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the exercise of its extraordinary jurisdiction. This definition of equity is rather suggestive
than precise and invites inquiry rather than answers it.

Meaning of Equity-

According to Black law Dictionary Equity means In its broadest and most
general signification, this term denotes the spirit and the habit of fairness, justness, and right
dealing which would regulate the intercourse of men with men. 1As a legal system, it is a
body of law that addresses concerns that fall outside the jurisdiction of common law.

Equity is also used to describe the money value of property in excess of claims, liens, ormort
gages on the property. Equity is never intended to separate from the common law. Equity for
assist, supplement and modify the common law system.

The Development of Equity-

In England before 1066, all law were local and no centralise courts. Over a period law was
developed and universally applicable. Thus creating law which was common to the whole
country known as common law. Common law was nothing, it is a municipal law. But in
common law system there were big deficiency that- there was limited remedy and the system
entirely based upon writ, king was considered as a formation of justice.

There were three types of courts that time-

1. Kings court 2. Court of common plea 3. Ex-chequer court headed by chancellor

Many of people did not get proper remedy from the common law court then chancellor
developed new remedy which was not in the common law. In 1474 the Chancellor issued the
first decree in his own name, which began the independence of the Court of Chancery from
the King's Council.

There was new procedure laid down and equity was not bound by the writ system. Equity
created new rights by recognising trusts and giving beneficiaries rights against trustees.

Equity also developed the equity of redemption. At common law, under a mortgage, if the
mortgagor had not repaid the loan once the legal redemption date had passed, he would lose

1 http://thelawdictionary.org/equity/

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the property but remain liable to repay the loan. Equity allowed him to keep the property if he
repaid the loan with interest. This right to redeem the property is known as the equity of
redemption.

Equity created new remedies:

(a) Specific performance (b) Rectification (c) Rescission (d) Injunctions.

ROLE OF EQUITY IN COMMERCE

The role of equitable principle has taken a part in the resolution of commercial dispute and
explore the implications function of the law of contract. The principles of equity deals with
marginal or peripheral contract- like transactions where the parties nonetheless intend to
effectuate a commercial transaction. A puzzle with which theorists of the law of commercial
contracts need to grapple is the increased role of equity in commerce.

Usually, it's been thought, equity has small place in commercial dealings. When business men
are operating at arm's length, each for his own financial benefit, any suggestion that they
stand in a fiduciary relationship towards one another, with all that that idea implies, would
superficially seem to be irrelevant. In commerce, where title to goods, money & securities is
often the subject of speedy (sometimes speedy) turnover, certainty as to title is clearly
supremely important to all the parties concerned. That certainty was said to be embodied in
the common & statute law:

equity was seen by lots of commercial lawyers as a thicket of recondite doctrines and of
extraordinary remedies and, as such, inappropriate to the realities of the marketplace.

There were three reason by which equity come into picture in commerce2-

1. The dramatic increase within the sheer volume and range of corporate activity since
the Second World War has inevitably been accompanied by litigation brought to
explain the modern scope and content of that most classical of fiduciary relationships,
namely, that of a director of a company towards his company.
2. A second reason for these developments has clearly been the enormous impact of
legislation, especially in relation to corporate activity and taxation, which has resulted

2 http://www.austlii.edu.au/au/journals/UWALawRw/1988/11.html

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 in the use of trusts employed in order to circumvent legislative prescriptions and their
consequences.
3. Thirdly, Modern corporate financing devices such as the addition of retention of title
("Romalpa") clauses in financing agreements, and purpose trust ("Quistclose") clauses
requiring that funds lent will only be used, say, to pay off a particular debt or class of
creditors, have in their turn given rise to equitable considerations, and again
particularly so in corporate insolvency situations.

In many cases the courts have invoked, and continue systematically to invoke, by applying
equitable principles and not principles of the law of contract to resolve commercial disputes
in transactions governed by a contractual framework.

The principle of equity is playing major role in commerce, by following aspects-

PRINCIPLE OF EQUITABLE ESTOPPEL AND CONTRACT-

This concept at common law, which was confined in the beginning to various formal matter,
was later on expanded by equity courts that any representation of existing facts, whether by
words or by conduct which was acted upon by a person before whom it was made and the
maker of representation was not allowed to go back upon it. Later on this doctrine of
equitable estoppel was expressed in two forms called promissory estoppel and
proprietary estoppel

It is a principle evolved by equity to avoid injustice and though commonly named as

promissory estoppel, it is neither in the realm of contract nor in the realm of estoppel. This
Equitable estoppel based on equity maxim He Who Seeks Equity Must to Equity.

Application in India

Originated in equity, first pressed into service by Calcutta High court in 1880 and therefore
by the Supreme Court. In a case of Gujarat State Financial Corps. V. LOTUS Hotels (p)
Ltd.3- the corporation first sanctioned a loan of Rs. 29.93 lacs to Lotus Hotels for constructing
of q hotel by creating an equitable mortgage. The plaintiff relying thereon proceeded to act
and execute the project, but subsequently the corporation changed its mind and refused to
disburse it. Supreme court ruled that the corporation was bound by its promise and must
3 (1983) 3 SCC 379

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discharge its statutory duty. This is because when the officer acts within the scope if his
authority under a scheme and enters into an agreement and makes a representation and a
person acting on that representation puts himself in a disadvantageous position, the Court is
entitled to require the officer to act according to the scheme and the agreement or
representation. The officer cannot arbitrarily act on his mere whim and ignore is promise on
some undefined and undisclosed grounds of necessity or change the conditions to the
prejudice of the person who had acted upon such representation and put himself in a
disadvantageous.

Equitable intervention in commercial transactions has continued through a number of

devices. The studied of these is equitable estoppels, both in the form of proprietary estoppels-
which only applies to promises concerning interests in land but can serve as a cause of action-
and promissory estoppels, which applies to a broader range of promises but can only be a
defence.

EQUITY IN ORAL CONTRACT TO CONVEY LAND-SPECIFIC PERFORMANCE-

PERSONAL SERVICES -

In oral contract, many of time defendant give oral promises later on he denies for that and
common law did not recognise the oral contract, therefore law of equity gave legal to oral
promise. By this plaintiff would get relief of specific performance to defendant to complete
the contract which he oral promised. There are some main cases on oral contract where court
of equity granting relief of specific performance and also recognised the oral promises.

In first case, Burns v. McCormick (1922) 233 N. Y. 230, I35 N. E. 273- Under an oral contract
the plaintiffs lived with, boarded, and cared for the defendant's testator, having sold their
home and business in reliance upon his oral promise to give them his residence at his death.
The plaintiffs sued for specific performance, there being no remedy at law for the loss of
business. The defendants pleaded the Statute of Frauds. Held, that the plaintiffs could not
recover. In equity it is well settled that part performance may take a parol contract for the sale
of land out of the Statute of Frauds. Comments (1915) 24 Yale Law Journal, 426. There are
two theories as to the acts of part performance which are considered sufficient to take the
contract out of the Statute. The first is embodied in the English rule which requires the acts to

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be unequivocally referable to the contract, the reason being that the actual contract may be
proved if the acts of their own nature point to some contract concerning the land.

Maddison v. Alderson (I883, H. L.) 8 A. C. 467; Fry, Specific Performance (6th ed. i92i) sec.
582- in this case relief was granted where possession has been taken pursuant to the oral
contract and this case are decided upon above theory, but they are sometimes classed by
themselves as an arbitrary exception to the Statute.

The second theory is that which usually prompts equity to action, namely, the prevention of
irreparable injury and fraud. 5 Pomeroy, Equity Jurisprudence (2d ed. i919) sec. 2239. Cases
involving the performance of personal services come under this theory. A few jurisdictions
refuse to grant specific performance unless the acts satisfy both theories.

Taylor v. Holyfield (i9i9) io4 Kan. 587, i8o Pac. 208; - The better view seems to be that
specific performance of such contracts should be granted on the ground of "equitable or
constructive fraud," in that the plaintiff in reliance on the defendant's promise has so changed
his position that he will be irreparably injured.

Gladville v. McDole (1910) 247 Ill. 34, 93 N. E. 86- For the same reason some courts grant
specific performance of a contract to convey or devise land in those cases where the personal
services rendered by a minor are construed as equivalent to adoption.

Clark, Licenses in Real Property (I92I) 21 COL. L. REV. 757, 779 - The Statute of Frauds
was passed to prevent fraud, not to produce or protect it. The proper solution of the problem
seems to lie in the adoption of the "equitable or constructive" fraud theory.

EQUITY-UNCONSCIONABLE CONTRACT CANCELLED -

Equity in a contractual context, is principally associated with the broad notion of

unconscionable transaction that has received statutory force in a number of common law
jurisdictions, most notably the US(via the UCC) and Australia. Unconscionability is a
doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly
one-sided in favor of the party who has the superior bargaining power, that they are contrary
to good conscience. England does not have any equivalent to this doctrine. While a few
equitable concept have received some attention particularly on the statutory doctrine of
unconscionability as it exists in Australia and in the American, the court of equity granting

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the remedies provided by promissory and proprietary estoppels, the doctrine of clean hands
and fiduciary relations and fiduciary duties.4.

In the case, Gierth v. Fidelity Trust Company (N. J., 1921), 115 Atl. 397- The plaintiff had a
deposit in a trust company of $22,500, of which he had lost all recollection because of an
illness which had resulted in a loss of memory. A company official who knew of the plaintiff's
mental condition, and also, by reason of his connection with the company, of the deposit,
concealed from the plaintiff his official connection and induced him to contract to pay nearly
one-half of the sum as consideration for revealing its whereabouts. Later the plain-tiff sued
for cancellation of the contract. There was no claim of mental incapacity to contract.

Held- because of the abnormal condition of the plaintiff's mind, and also because of
the semi-confidential position which the defendant occupied with respect to the plaintiff,
equity would give the desired relief. The case was well decided on either of the two bases
suggested by the court. As to the effect of the plaintiff's mental condition, although there was
no claim that he was mentally incompetent to contract, yet his illness had materially
weakened his mental powers and impaired his power of self-protection. In such cases,
especially when coupled with inadequacy of consideration, equity will give relief, even
though neither the mental impairment nor the inadequacy of consideration, standing alone,
would suffice. Courts are particularly willing to refuse specific performance against a
defendant so afflicted.

In an another case, Jones v. Stewart, 62 Neb. 207- The plaintiff had forgotten the existence of
a certain bank deposit, and the defendant , who knew about it, though he was not connected
with the bank, induced the plaintiff, as consideration for the conveyance of some relatively
worthless land, to assign the deposit to him by executing the necessary papers without
reading them. When the plaintiff learned what he had done he sued the defendant in case for
deceit. A decision for the defendant was predicated upon the fact that the parties had
contracted on equal terms and that there was no fiduciary relationship between them. The
plaintiff's position was somewhat weaker than that of the plaintiff in the principal case
because there was no evidence of an abnormal mental condition, nor was the defendant

4https://books.google.co.in/books?
id=NoggAwAAQBAJ&pg=PA147&dq=equity+and+commercial+contract&hl=en&sa=X&ei=PF8BVY_cHdGe
ugSOwIGgDw&ved=0CB0Q6AEwAA#v=onepage&q=equity%20and%20commercial%20contract&f=false

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connected in any way with the bank. So, in spite of the imposition on the plaintiff which
would have made a decree granting relief seem equitable, the two cases may be distinguished.

EQUITY-SPECIFIC PERFORMANCE OF CONTRACTS -

In the case, Tennessee Electric Power Company vs. White County, 52 Federal 1065 (1931)-
Plaintiffs, White and Van Buren counties filed a petition against defendant, The Tennessee
Power Company, for permission to raise its dam to a height of 75 feet above the low water
mark in Caney Fork river, the dividing line between the two counties. It was visible that the
erection of a larger dam would cause the waters in the river and tributaries to flood certain
bridges and fords which the counties maintained. As a condition to the granting of the
permission sought, the company agreed to raise the bridges and build others where the fords
were destroyed, without cost to the counties, agreeing to bear the "cost of continued
maintenance of said bridges." The bridges were raised or erected and maintained until March,
1929, when an unprecedented flood damaged them in varying degrees.

After that company denied to repair them then suit was brought to compel performance of the
contract. Court did not give Specific performance because following grounds: -That proper
performance would invoke an extensive supervision of a series of acts, which a non-expert
could not give, and that there was a complete and adequate remedy at law, in a suit for
damages. The general rule is that the courts will not decree specific performance of contracts
for the erection of and repair of buildings, the construction of works, and the conduct of
operations requiring special knowledge, skill or foresight. Pomeroy's Specific Performance of
Contracts (3rd Ed.) paragraph 23;

Jones vs. Parker, 163 Mass. 564. Walsh, in his treatise on Equity, states "Where the remedy at
law is clearly inadequate, the bogy developed by the courts in the earlier cases of the
difficulty of necessary superintendence has been disregarded. The courts now realize that
superintendence by the courts or its representative is unnecessary, and that the court is called
on merely to construe the contract and to make the decree, ordering its performance
accordingly, leaving to the plaintiff the privilege of raising the question thereafter as to
whether or not the decree has been complied with, with undoubted power in the court to
compel full performance. Consequently, impracticability of specific performance because of
difficulty of superintendence by the courts may be regarded as an exploded doctrine under the
prevailing and better considered cases."

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Brummel vs. Clifton Realty Co., 125 Atlantic 905. The one important question involved in
cases of this type is whether or not enforced specific performance is as expedient as the
performance of the work by the plaintiff himself through another contractor, or otherwise,
and the recovery of the cost by an action for damages. In the case under discussion, the latter
relief seems most suitable and practical, for all the parties concerned, for the reason that the
counties could themselves do the work or have it done, and recover costs thereof from the
defendant by way of damages. There even need be no delay in bringing the suit, because the
cost of repairs could readily be ascertained. It is well established that where public interest
demands specific performance, equity will decree it and if necessary supervise it for an
indefinite period.

Joy vs. St. Louis 138 U.S. 1. In the principal case, the public was, of course, interested in the
restoration of the bridges, but nevertheless that interest was no of such a character as to
justify a decree of specific performance, such as where a utility corporation fails or refuses to
operate its franchise, there being no one else to operate it. In that situation, damages could not
measure the loss the public would sustain. It might be contended for the plaintiff that the
doing of the work at a reasonable expense must depend upon the control of the stages of the
water behind the dam, and as that control is in the defendant, it is not practicable to do the
work economically, unless the power company does the work itself. However, it would be
against the interest of the defendant company not to cooperate in the work, for they would
have to bear any additional expenses incurred by reason of their conduct. It is to be
remembered that the fundamental basis of specific performance of contracts is the inadequacy
of damages as a remedy, and any other ground relied upon is simply a supporting argument.
Consequently, the holding of the court in the principal case is sound, for without a doubt
damages are sufficient relief for the plaintiffs.

REDEMPTION IN MORTGAGE -

In mortgage there is a right of redemption which every mortgagor have and this right is
created by virtue of the mortgage deed. This right is considered to be inalienable and cannot
be taken away from a mortgagor, it means of any contract to the contrary. According to
Blacks Law Dictionary, term redemption can be defined as the act of the vendor of
property in buying it back again from the purchaser at the same or an enhanced price.5

5 http://www.legallyindia.com/Blogs/Entry/mortgaged-property-inalienable-right-of-redemption-of-a-
mortgagor

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The right of redemption of a mortgage is a legal right under Section 60 of the Transfer of
Property Act, 1882 , a right of redemption can be described as the mortgagors right to get
retransferred the mortgaged property, free from any encumbrance, on his repaying the
mortgage debt with due interest, before his right to redeem is foreclosed or the property
mortgaged is got sold by the mortgagee6.

It simply means that makes mortgagor the owner of the property mortgaged, and makes him
able get his property back from the mortgagee on paying the amount borrowed from him.

A clog on a right, it means the mortgagee cannot insert a clause in mortgage deed that clause
would seize the mortgagors right of redemption. Under Indian legal system, such
provisions would not be able to alienate a mortgagor of his Right of Redemption, and such
provisions would be void ab initio.

The reason for such clauses under the mortgage deed being void is quite interesting and
reasonable. It would not be difficult to understand that a person mortgages his property when
he is in need of money, and would not be in the same position as that of the mortgagee. Also,
it would not be difficult to understand that mortgagee would try to misuse his position to take
advantage of the mortgagor, and it is for this reason that such clause becomes obvious which
would push away a mortgagor from his property. It is highly possible that a person agrees to
enter in a mortgage having clauses which extinguish his right of redemption, but it would not
be necessary that the provisions have been accepted by him willingly. In need of money, a
person would agree to the terms and conditions of the mortgagee even if he doesnt want to
do so. But, law doesnt sit silent and in such cases it steps in the picture, and save the basic
rights of a mortgagor. Law doesnt allow any person to alienate a mortgagor of his Right of
redemption. Such right would remain effective unless the property has been sold off or
under any statutory provision. Even if mortgage has went to the court for the foreclosure of
the property mortgaged, mortgagor can redeem his property by paying off the full amount in
the court.

In recent years Supreme Court gave decision on right of redemption .

Time period is not the essence in case of right of redemption.

6 Section 60 of Transfer of Property Act, 1882

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One such case was decided by the court in Achaldas Durgaji Oswal v Gangabisan Heda7, in
this case two suit were filed by mortgagee for the foreclosure of the property and another by
mortgagor. Lower court asked mortgagor to pay off the amount within 3 months, but he was
failed do so. Instead, he paid off the amount after a period of 3 years and at that point of time
his suit was rejected by the lower court on ground of exceeding the limitation period as
decided by the court. Lower courts decree was reversed by the High Court, which was
upheld by the Supreme Court. It was held by the Supreme Court that the right of redemption
of mortgagor being a statutory right, the same can be taken away only in terms of the proviso
appended to Section 60 of the Act which is extinguished either by a decree or by act of
parties. Admittedly, in the instant case, no decree has been passed extinguishing the right of
the mortgagor nor such right has come to an end by act of the parties.

In Harbans v. Om Prakash8, Supreme Court referred Mullas The Transfer of Property Act,
9th Ed, where it is stated that The right of redemption is an incident of a subsisting mortgage
and subsist as long as the mortgage itself subsists. It can be extinguished as provided in the
section and when it is alleged to be extinguished by a decree, the decree should run strictly in
accordance with the forum prescribed for the purpose. Dismissal of an earlier suit for
redemption whether as abated or as withdrawn or in default would not be barred the
mortgagor from filing a second suit for redemption so long as the mortgage subsists and the
right of redemption is not extinguished by the efflux of time or decree of the court in the
prescribed form.Consequently, the suit was decreed in favour of the mortgagor.
Similar view was taken by the Supreme Court in Pomal Kanji Govindji v Vrajlal Karsandas
Purohit9.Further it was held by the Supreme Court in Shivdev Singh v Sucha Singh10- that a
provision incorporated in the mortgage deed to prevent or hamper the redemption would be
void, and that the right provided by section 60 of the Transfer of Property Act, 1882 is a
statutory right and clog on this right should be determined depending on the facts and
circumstances of each case.

7 (2003) 3 SCC 614

8 AIR 2006 SC 686

9 AIR 1989 SC 436

10 AIR 2000 SC 1935

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CONCLUSION

In whole through project I finally on conclusion that Common law does not recognise many
of rights and does not give remedy , only recognise the legal right but after the court of equity
started giving right like right of redemption, doctrine of unconscionable transaction etc.
and giving relief of injunction, specific performance etc. By all this court of equity come in
area of commerce. In commerce like in banking, commercial transaction, contract etc many
of cases now a day solved by principle of equity. Judges also give more importance to the
equity rather the literal statutes because equity looks into object or intention behind the act.
Equity play major role in commerce and also accepted by legal system. In many of statutes

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where equity uses like- Transfer of property Act, Contract Act, Specific Relief Act, Indian
Trust Act etc. So intervention of equity in commerce, many of problem in commercial
transaction and contract are solved. In this project I describe oral contract, unconscionable
transaction, in mortgage deed and how equity play a major role in this and also give relief of
specific performance, and also developed the new right of redemption which mortgagor right
to redeem his property back. Many of commercial cases are decided by equity, not only by
reason of the relevance of equitable doctrine, but also, and especially, because of the
availability of the equitable proprietary remedy of tracing and the significance of equitable
securities .

BIBLIOGRAPHY

Books Referred-

1. Gandhi BM : Equity, Trust and Specific Relief; 4th Ed. Eastern Book Co, Lucknow,
pp 240-273
2. Durga Das Basu : Equity Trust and Specific Relief; 6th Ed. (2002) Published by
Kamal Law House p-149-166

Cases Referred-

1. Gujarat State Financial Corps. V. LOTUS Hotels (p) Ltd.

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 2. Burns v. McCormick (1922) 233 N. Y. 230, I35 N. E. 273
3. Maddison v. Alderson (I883, H. L.) 8 A. C. 467
4. Taylor v. Holyfield (i9i9) io4 Kan. 587, i8o Pac. 208
5. Gladville v. McDole (1910) 247 Ill. 34, 93 N. E. 86
6. Clark, Licenses in Real Property (I92I) 21 COL. L. REV. 757, 779
7. Gierth v. Fidelity Trust Company (N. J., 1921), 115 Atl. 397
8. Jones v. Stewart, 62 Neb. 207
9. Tennessee Electric Power Company vs. White County, 52 Federal 1065 (1931)-
10. Jones vs. Parker, 163 Mass. 564.
11. Brummel vs. Clifton Realty Co., 125 Atlantic 905
12. Joy vs. St. Louis 138 U.S. 1
13. Achaldas Durgaji Oswal v Gangabisan Heda
14. Harbans v. Om Prakash
15. Pomal Kanji Govindji v Vrajlal Karsandas Purohit
16. Shivdev Singh v Sucha Singh

Sites Referred

1. https://books.google.co.in
2. http://thelawdictionary.org/
3. http://www.legallyindia.com/
4. http://www.jstor.org/
5. http://www.manupatra.com/
6. http://www.heinonline.org/

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