Where a person is under a duty to convert property of one type to another, (e.g. real property to personal property or vice versa), it may cause injustice, if it continues to be in its original form, because there is a failure to perform an obligation. The doctrine of conversion is a principle of equity that regards what ought to be done, as done. It may deem one type of property to be another type, by reason of an obligation to convert it from one form to another. This notional conversion is deemed to occur in equity, in order to do justice.
The principle was once extremely significant in the context of intestacy, as freehold real property passed to the heir at law, whereas other property, including latterly, registered freehold estates, leasehold estates and movable property passed to the next of kin. The Succession Act has assimilated real and personal property and both pass to the successors as defined by the Act, or under and in accordance with the terms of a will. However, the distinction remains of importance in deeds and wills.
Where money is directed to be used to purchase land or where land is directed to be sold and turned into money, equity deems there to be land and money respectively, where the obligation has arisen, but the conversion to those forms has not yet occurred. Conversion may arise by way of an order of the court, directing that that property be sold.
In order to effect conversion, the direction for sale must be imperative. There must be a duty to sale. This creates an immediate notional conversion. In the case of a will, it must be shown that the conversion is intended. In the case of a deed, it takes place on the date of execution.
In the case of a will, conversion generally takes place as from the date of death.
A trust for sale was a common mechanism by which land was held prior to the 2009 land law reforms. It enabled property to be held on trust for the benefit of persons in succession, without importing certain statutory rights for the person entitled for life. It became common in many instruments, settlements and wills to provide that land would be held on trust for sale with potential and indefinite power to postpone sale for the beneficiaries.
The trust for sale has been replaced largely, by the statutory “trust of land” under the Land and Conveyancing Law Reform Act, 2009. Te Act requires that many former legal interests in land, be deemed to subsist in equity only, under a deemed trust of land.
Where there is a contract for the sale of land, the seller’s property is deemed to be personal property/ money from the date of contract. This is provided that the contract is capable of being the subject of an order for a specific performance. Accordingly, where the vendor dies before completion of the contract, the asset passed as if it was money rather than real property. Similarly, the purchaser’s asset is deemed to be real estate, subject to the obligation to complete the purchase.
Partnership assets, even if they comprise real property are deemed personal property and not real property, as between the partners themselves. The asset effectively comprises the net proceeds on dissolution and winding up of the partnership.
Property which has been converted may be deemed reconverted in some circumstances. Where a person is entitled to property expresses his desire to take it in its original unconverted form, equity will not deem it to be converted or will regard it as re-converted
In some cases, the statute provides to the contrary. Capital money arising by reason of the disposition of property pursuant to Settle Land Acts was deemed realty, notwithstanding that it constituted monies rather than land. Equity does not act in vain.
Election is an equitable doctrine, that follows from the principle of equity that a person shall not be allowed to approbate and reprobate. This means that a person may not accept the benefit of a particular asset, without taking its corresponding and associated burden. The “election” refers to the fact the beneficiary may choose to take the benefit or not take it.
The principle applies where a person takes a benefit under a will or deed, which also purports to disposes of his property. The court infers that the donor would not have wanted the beneficiary to receive the gift and also retain his own property. The court may, therefore, imply a condition that the beneficiary gives up his property if he wishes to receive the gift.
Where a person takes a benefit under a will or other instrument, and the instrument purports to deal with something beyond the power of the donor, but to which effect can be given by the concurrence of the person who receives the benefit, equity may impose an obligation on him to do if he elects to take the gift or benefit. The obligation to compensate or offset is limited to the extent of the benefit derived.
The doctrine of election applies most frequently to wills, but it also applies to deeds. It arises where the gift or benefit arises in the same instrument as the purported or ineffective benefit is granted to the third party. If two documents together give effect to a single intention, the principle may also apply.
It is necessary that the testator/donor has conferred a benefit on the recipient, with which he can compensate the third party if he elects to take under the instrument. Some disposable property must be given to the beneficiary, which can compensate for what he has purported to take away and give to the third party.
Election requires that the beneficiary/donee has a choice. If the benefit cannot be transferred, he will not be required to make the election, and he may take the benefit free from the obligation. The title to the electing party’s property or asset must be independent of the instrument concerned.
Election may be made expressly or by implication from conduct. Provided there is clear understanding of the choice, and it may be deemed to take place. The beneficiary must be aware or deemed to be aware of the relevant rights and must act on that knowledge. Once an election is made, it is retrospective to the date of the benefit of a gift. Any offsetting compensation payable depends on the valuations on that date that the instrument took effect.
A person must have the capacity to elect. Accordingly, a minor or a person who lacks mental capacity may not elect or be deemed to have elected.
The doctrine is of less relevance in modern times. It has been criticised as being inconsistent with the intention of the testator, in that he may have intended to benefit the done.
The doctrine of satisfaction follows from the principle that the equity imputes an intention to fulfil an obligation. The principle may apply where the act performed, is of a different nature to that which is agreed to be performed.
Where testator gives a legacy to a creditor, the question arises as to whether he may keep both. If the legacy is expressed to be in the reduction of debt, the position is clear. However, if it is not so stated, it is presumed by equity that a legacy in a will to a creditor, which equals or exceeds the amount of the debt without mentioning it, is to be treated as being made in satisfaction of the debt. The principle does not apply where there is an indication to the contrary. The indication may be express or implied.
A direction in a will to pay debts may be sufficient. The doctrine may be excluded by the nature of the debt or by how it was incurred. Accordingly, it must have existed at the time when the will was made. It will not apply to a continuing account, which has not been fixed at the time the will was prepared. Where an amount smaller than the debt is given, the presumption will not apply. Where the legacy is within the amount owed, satisfaction is not presumed. The legacy must be as beneficial as the debt.
Where a parent or a person in an equivalent position undertakes to make a gift of a substantial nature or incurs an obligation to do so and subsequently makes provision in the will in the nature of a portion for the child, the obligation is deemed satisfied by the obligation contained in the will. A portion in this context refers to a gift of a substantial nature, relative to the means of the child and parent. It may be intended to set up the child in a significant way for life.
Satisfaction of Portion Obligations
The presumption of satisfaction of portion obligations/debts arises only where the person is a parent, stands in loco parentis or has assumed the obligations of a parent to the child. Historically, the duty applied to fathers only but is likely in modern times to apply to both parents. A relatively small gift or advancement is not a “portion” for the purpose of the principle.
Unlike the case in respect of debts, a portion satisfaction is possible in the case of a legacy in satisfaction of a portion obligation. Accordingly, if the amount is less is value than the obligation, the portion obligation will be reduced proportionately. If the original portion obligation is substantial (e.g. being to set up the person for life), a smaller gift or benefit which of itself would not satisfy the obligation may proportionately reduce it.
The property provided in the will must be of substantially the same nature, as that to which the beneficiary is entitled, under the existing obligation. The interest taken must be as beneficial. If the parent or person in loco parentis has actually advanced the portion to the child and later makes a legacy to that child, the legacy is not regarded as made in satisfaction. The child is entitled to take it, where the clear intention is that it is intended to be additional.
Satisfaction of Legacies
The converse principle is that of the satisfaction of legacies by portions. This is equivalent to the principle of ademption, in the context of wills. Where a testator gives a legacy to a child or to a person with whom he stands in loco parentis, and afterwards makes a gift or enters a binding contract to favour that person, there is a presumption that both gifts were to fulfil the same natural or moral obligation. This follows from the presumption of law against double proportions.
The principle is a presumption only. It may be rebutted by evidence to the contrary. The burden rests on the person who claims the double benefit to do so.
Where two or more legacies are given to the same person in a single will or in a will and codicil, the question arises as to whether one is in substitution for the other, or whether both may be taken. Where the two legacies are to for different amounts, they are presumed to be cumulative. If they are given in two different instruments they are also presumed to be cumulative.
The equitable doctrine of part performance is based on a similar principle. A person is presumed to have done that which he is bound to do. Performance involves carrying out an obligation, as opposed to doing a substitutional act. Where a person is under an obligation to do an act and subsequently does an act which can be considered performance, equity will, in some cases, presume that the subsequent act was done in the performance of the earlier obligation.
Where a person undertakes to purchase land and settle it on trust, and subsequently purchases the land and fails to do so, the purchase may amount to the performance of the covenant. The land will be considered to be held on the trusts of the settlement agreed. The principle applies only where the act done is essentially the same as the one covenanted to be done.
McMahon Legal, Legal Guide Limited and Paul McMahon have no liability arising from reliance on anything contained in this article nor on this website.