Also known as: equitable rights · equitable interest · beneficial right
Written by attorneys — see sources below.
An interest in property arising from principles developed by courts of equity. The interest is enforceable against the holder of legal title when a trust, security arrangement, or executory contract creates a split between legal and beneficial ownership. Courts protect the interest by ordering specific performance, subrogation, or redemption.
On June 1, Grove Fiber contracted to buy a hilltop parcel from South Satellite for two million dollars with closing set for July 15. After a lightning storm destroyed the cell tower on July 8, Grove Fiber refused to close at the original price. South Satellite can still enforce the contract because Grove Fiber acquired an equitable interest on the date the binding agreement was signed.
Gate Signal paid forty percent of the purchase price under an installment land contract, recorded the contract, and took possession of the building. When a prior unrecorded deed surfaced, the court awarded Gate Signal the land subject to a lien securing the unpaid balance. Gate Signal's equitable interest arising from the payments receives protection under the recording act.
Elm Labs signed a contract to purchase Ash Stack's source-code library for seven hundred fifty thousand dollars. The board approved the transaction even though the seller's products were consumer-facing. Under its statutory powers Elm Labs may acquire and hold any legal or equitable interest in the intellectual property.
A landlord leased warehouse space to a tenant while a third party held an unrecorded equitable interest in the same parcel. When the tenant later purchased the property for value without notice of the equitable claim, the purchaser's legal title prevailed over the third party's interest.
Silver Charity conveyed its shelter building by absolute deed to Amy in exchange for funds that paid off an existing mortgage. A contemporaneous side letter stated that the deed secured repayment and that Silver Charity could reclaim title upon tender within three years. Upon repayment Silver Charity may enforce its equitable right to redeem and compel reconveyance.
A shareholder brought suit against corporate managers for breach of fiduciary duty arising from self-dealing transactions. Because the claim originated in equity as an action to enforce the beneficiary's right against a trustee, the shareholder may proceed directly rather than through a derivative action at law.
Petitioners, who were stockholders in the Lehman Corporation, a closed-end investment company, brought a derivative action in federal district court against the corporation's directors and its brokers, Lehman Brothers. They alleged that Lehman Brothers had obtained control through an illegally large representation on the board in violation of the Investment Company Act of 1940 and used that control to extract excessive brokerage fees from the corporation. The complaint charged the directors with converting corporate assets and with gross abuse of trust, gross misconduct, willful misfeasance, bad faith, and gross negligence. It also accused both the directors and Lehman Brothers of breaching fiduciary duties, committing waste and spoliation, and violating the brokerage contract. Petitioners requested that the defendants account for and pay to the corporation their profits and gains and its losses. They demanded a jury trial on the corporation’s claims. The district court denied the motion to strike the jury demand in part. It held that only the shareholder’s initial claim to speak for the corporation would be tried to the judge while the corporation’s underlying claims would be tried to a jury if the corporation itself had brought suit. Finding substantial grounds for difference of opinion, the district court certified the question for interlocutory appeal under 28 U.S.C. § 1292(b). The Court of Appeals for the Second Circuit reversed, holding that a derivative action is entirely equitable in nature and that no jury is available to try any part of it. Because of the conflict among the circuits, the Supreme Court granted certiorari.
View caseAn equitable right arises when equity splits ownership so that one party holds legal title while another holds the beneficial interest. Courts enforce the equitable right through specific performance, redemption, or injunction even though the holder lacks legal title.
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A buyer acquires an equitable right once a binding contract for the sale of land is formed. The seller then holds legal title only as trustee for the buyer, and the buyer bears the risk of loss in most jurisdictions.
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Yes. When a deed absolute on its face is accompanied by a contemporaneous writing showing the transfer was intended only as security, courts admit parol evidence to prove the true character of the transaction and recognize the grantor's equitable right to redeem.
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…of any will, deed, contract or other written instrument and for a judicial declaration or enforcement of any legal or equitable right, title, claim, lien or interest thereunder." § 48.02: "Where personal service of process cannot be had, service of process by publication may be had upon any party, natural or corporate,…