Equity (law)

The Court of Chancery, London, in the early 19th century

Equity is the name given to the set of legal principles, in jurisdictions following the English common law tradition, that supplement strict rules of law where their application would operate harshly. In civil legal systems, broad "general clauses" allow judges to have similar leeway in applying the code.^[1]

Equity is commonly said to "mitigate the rigor of common law", allowing courts to use their discretion and apply justice in accordance with natural law. In practice, modern equity is limited by substantive and procedural rules, and English and Australian legal writers tend to focus on technical aspects of equity. There are 12 "vague ethical statements"^[2][3] that guide the application of equity, and an additional five can be added.^[2]

As noted below, a historical criticism of equity as it developed was that it had no fixed rules of its own, with the Lord Chancellor occasionally judging in the main according to his own conscience. The rules of equity later lost much of their flexibility, and from the 17th century onwards equity was rapidly consolidated into a system of precedents much like its common-law cousin.

History

The distinction between "law" and "equity" is an accident of history. The law courts or "courts of law" were the courts in England that enforced the king's laws in medieval times. Here the King's Judges, educated in law rather than theology, administered the universal law of the realm.^[4] This body of law evolved on the basis of previously set precedent into what is recognised as the Common law of England. However, if changes were not quick enough, or if decisions by the judges were regarded as unfair, litigants could still appeal directly to the King, who, as the sovereign, was seen as the 'fount of justice' and responsible for the just treatment of his subjects. Such filings were usually phrased in terms of throwing oneself upon the king's mercy or conscience. Eventually, the king began to regularly delegate the function of resolving such petitions to the Chancellor, an important member of the King's Council.^[4] The early Chancellors were often clergymen or nobles, acting as the King's confessor and thereby literally as keeper of the King's conscience. As a result of their theological and clerical training, Chancellors were well versed in the Latin and French languages as well as in classical Roman civil and canon law, which heavily influenced equity.^[5] Soon the Chancery, the Crown's secretarial department, began to resemble a judicial body and became known as the "Court of Chancery".

By the 15th century, the judicial power of Chancery was recognized. Equity, as a body of rules, varied from Chancellor to Chancellor, until the end of the 16th century. After the end of the 17th century, only lawyers were appointed to the office of Chancellor.

One area in which the Court of Chancery assumed a vital role was the enforcement of uses, a role which the rigid framework of land law could not accommodate. This role gave rise to the basic distinction between legal and equitable interests.

Development of equity in England

It was early provided that, in seeking to remove one who wrongfully entered another's land with force and arms, a person could allege disseisin (dispossession) and demand (and pay for) a writ of entry. That writ not only gave him the written right to re-enter his own land, but it also established this right under the protection of the Crown if need be, whence its value. In 1253, to prevent judges from inventing new writs, Parliament provided that the power to issue writs would thereafter be transferred to judges only one writ at a time, in a "writ for right" package known as a form of action. However, because it was limited to enumerated writs for enumerated rights and wrongs, the writ system sometimes produced unjust results. Thus, even though the King's Bench might have jurisdiction over a case and might have the power to issue the perfect writ, the plaintiff might still not have a case if there was not a single form of action combining them. Therefore, lacking a legal remedy, the plaintiff's only option would be petitioning the King.

People started petitioning the King for relief against unfair judgments and as the number of petitioners rapidly grew, the King delegated the task of hearing petitions to the Lord Chancellor. As the early Chancellors had no formal legal training, and were not guided by precedent, their decisions were often widely diverse. However, in 1529 a lawyer, Sir Thomas More, was appointed as Chancellor, marking the beginning of a new era. After this time, all future Chancellors were lawyers, and from around 1557 onwards, records of proceedings in the Courts of Chancery were kept, leading to the development of a number of equitable doctrines. Criticisms continued, the most famous being 17th century jurist John Selden's aphorism: ‘Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one as if they should make the standard for the measure we call a foot, a Chancellor’s foot; what an uncertain measure would this be? One Chancellor has a long foot, another a short foot, a third an indifferent foot: ‘tis the same thing in a Chancellor’s conscience.’^[6]

As the law of equity developed, it began to rival and conflict with the common law. Litigants would go ‘jurisdiction shopping’ and often would seek an equitable injunction prohibiting the enforcement of a common law court order. The penalty for disobeying an equitable ‘common injunction’ and enforcing a common law judgment was imprisonment.

The Chief Justice of the King’s Bench, Sir Edward Coke, began the practice of issuing writs of habeas corpus that required the release of people imprisoned for contempt of chancery orders.

This tension grew to an all-time high in the Earl of Oxford’s case (1615), where a judgment of Chief Justice Coke was allegedly obtained by fraud.^[7] The Lord Chancellor, Lord Ellesmere, issued a common injunction out of the Chancery prohibiting the enforcement of the common law order. The two courts became locked in a stalemate, and the matter was eventually referred to the Attorney-General, Sir Francis Bacon. Sir Francis, by authority of King James I, upheld the use of the common injunction and concluded that in the event of any conflict between the common law and equity, equity would prevail. Equity's primacy in England was later enshrined in the Judicature Acts of the 1870s, which also served to fuse the courts of equity and the common law (although emphatically not the systems themselves) into one unified court system.

Once equity became a body of law, rather than an arbitrary exercise of conscience there was no reason why it needed its own courts. Consequently the Judicature Act was established, which is the basis of the court structure in England to this date, and that there would no longer be different procedures for seeking equitable and common law remedies. The Judicature Acts fused only the administration of common law and equity; there is still a body of rules of equity which is quite distinct from that of common law rules, and acts as an addition to it. Although they are implemented by the same courts, the two branches of the law are separate. Where there is conflict, equity still prevails.

Statute of Uses 1535

In order to avoid paying land taxes and other feudal dues, lawyers developed a primitive form of trust called ‘the use’. This trust enabled one person (who was not required to pay tax) to hold the legal title of the land for the use of another person. The effect of this trust was that the first person owned the land under the common law, but the second person had a right to use the land under the law of equity.

Henry VIII enacted the Statute of Uses in 1535 (which became effective in 1536) in an attempt to outlaw this practice and recover lost revenue. The Act effectively made the beneficial owner of the land the legal owner, and liable for feudal dues.

The response of the lawyers to this Statute was to create the 'use upon a use'. The Statute recognised only the first use, and so land owners were again able to separate the legal and beneficial interests in their land.

For an example, see Godwyne v. Profyt (after 1393): a petition to the Chancellor^[8]

See generally treatises on equity and trusts.

Comparison of equity traditions in common law countries

As with the geographical transmission of any cultural artifact, direct English influence over equity weakened with time and distance, although the widespread import of printed opinions provided a corrective force, however long delayed. As the colonies gained political independence, each of their legal systems began drifting from the original in an irreversible departure from the English way of making laws and deciding cases. Nonetheless, each former colony acknowledged the reception of the common law and equity of England as a vital source of their jurisprudence.

The comparative question is an easy one to pose. Did English equity develop maturity early enough that all of its derivative systems necessarily tended toward the same doctrines, based on exactly the same set of general principles? Or did the split-offs of any of the colonies occur somewhere in the middle of its development so that substantial permanent differences resulted? One equity, or many?

The answer generally accepted in America, the earliest of the English colonies to gain independence, is the former, that the outcome of a case to be decided today upon principles of equity should be expected to be substantially the same whether decided in the UK or the US. The reasonableness of the belief enjoys strong historical support.

The perfection of modern equity as a system has been authoritatively credited to Philip Yorke, 1st Earl of Hardwicke who served as Chancellor 1737-1756.^{[citation needed]}

For a review of several distinct approaches to identifying how law changes that utilize English legal history as a test bed see Robert Palmer, English Legal History course.

United States

In modern practice, perhaps the most important distinction between law and equity is the set of remedies each offers. The most common civil remedy a court of law can award is monetary damages. Equity, however, enters injunctions or decrees directing someone either to act or to forbear from acting. Often this form of relief is in practical terms more valuable to a litigant; for example, a plaintiff whose neighbor will not return his only milk cow, which had wandered onto the neighbor's property, may want that particular cow back, and not just its monetary value. However, in general, a litigant cannot obtain equitable relief unless there is "no adequate remedy at law"; that is, a court will not grant an injunction unless monetary damages are an insufficient remedy for the injury in question. Law courts also enter orders, called "writs" (such as a writ of habeas corpus), but they are less flexible and less easily obtained than an injunction.

Another distinction is the unavailability of a jury in equity: the judge is the trier of fact. In the American legal system, the right of jury trial in civil cases tried in federal court is guaranteed by the Seventh Amendment, but only "[i]n Suits at common law," i.e., in cases that traditionally would have been handled by the law courts. The question of whether a case should be determined by a jury depends largely on the type of relief the plaintiff requests. If a plaintiff requests damages in the form of money or certain other forms of relief, such as the return of a specific item of property, the remedy is considered legal, and a jury is available as the fact-finder. On the other hand, if the plaintiff requests an injunction, declaratory judgment, specific performance, or modification of contract, or some other non-monetary relief, the claim would usually be one in equity.

Thomas Jefferson explained in 1785 that there are three main limitations on the power of a court of equity: "If the legislature means to enact an injustice, however palpable, the court of Chancery is not the body with whom a correcting power is lodged. That it shall not interpose in any case which does not come within a general description and admit of redress by a general and practicable rule."^[9] The U.S. Supreme Court, however, has concluded that courts have wide discretion to fashion relief in cases of equity. The first major statement of this power came in Willard v. Tayloe, 75 U.S. 557 (1869). The Court concluded, "...relief is not a matter of absolute right to either party; it is a matter resting in the discretion of the court, to be exercised upon a consideration of all the circumstances of each particular case."^[10] Willard v. Tayloe was for many years was the leading case in contract law regarding intent and enforcement.^[11][12] as well as equity.^[11][13]

In the United States today, the federal courts and most state courts have merged law and equity in the courts of general jurisdiction, such as county courts. However, the substantive distinction between law and equity has retained its old vitality.^[14] This difference is not a mere technicality, because the successful handling of certain law cases is difficult or impossible unless a temporary restraining order (TRO) or preliminary injunction is issued at the outset, to restrain someone from fleeing the jurisdiction taking the only property available to satisfy a judgment, for instance. Furthermore, certain statutes like ERISA specifically authorize only equitable relief, which forces U.S. courts to analyze in lengthy detail whether the relief demanded in particular cases brought under those statutes would have been available in equity.^[15]

Equity courts were widely distrusted in the northeastern U.S. following the American Revolution. A serious movement for merger of law and equity began in the states in the mid-19th century, when David Dudley Field II convinced New York State to adopt what became known as the Field Code of 1848.^[16] The federal courts did not abandon the old law/equity separation until the promulgation of the Federal Rules of Civil Procedure in 1938.

Today four states still have separate courts for law and equity, although merger in some states is less than complete.^[17] Delaware is one notable example, as its Court of Chancery is where most cases involving Delaware corporations are decided. Some other states (such as Illinois and New Jersey) have separate divisions for legal and equitable matters in a single court. Although Virginia consolidated the two courts in 2006,^[18] it maintains much of the same actions and remedies. Besides corporate law, which developed out of the law of trusts, areas traditionally handled by chancery courts included wills and probate, adoptions and guardianships, and marriage and divorce.

After U.S. courts merged law and equity, American law courts adopted many of the procedures of equity courts. The procedures in a court of equity were much more flexible than the courts at common law. In American practice, certain devices such as joinder, counterclaim, cross-claim and interpleader originated in the courts of equity. Also, the modern class action evolved out of the equitable doctrine of virtual representation, which enabled a court of equity to fully dispose of an estate even though it might contain contingent interests held by persons which the court did not have direct jurisdiction over.

India

In India the common law doctrine of equity had traditionally been followed even after it became independent in 1947. However in 1963 the "Specific Relief Act" was passed by the Parliament of India following the recommendation of the Law Commission of India and repealing the earlier "Specific Relief Act" of 1877. Under the 1963 Act, most equitable concepts were codified and made statutory rights, thereby ending the discretionary role of the courts to grant equitable reliefs. The rights codified under the 1963 Act were as under;

• Recovery of possession of immovable property (ss. 5 - 8)
• Specific performance of contracts (ss. 9 - 25)
• Rectification of Instruments (s. 26)
• Recession of Contracts (ss. 27 - 30)
• Cancellation of Instruments (ss. 31 - 33)
• Declaratory Decrees (ss. 34 - 35)
• Injunctions (ss. 36 - 42)

With this codification, the nature and tenure of the equitable reliefs available earlier have been modified to make them statutory rights and are also required to be pleaded specifically to be enforced. Further to the extent that these equitable reliefs have been codified into rights, they are no longer discretionary upon the courts or as the English law has it, "Chancellor's foot" but instead are enforceable rights subject to the conditions under the 1963 Act being satisfied. Nonetheless, in the event of situations not covered under the 1963 Act, the courts in India continue to exercise their inherent powers in terms of Section 151 of the Code of Civil Procedure, 1908, which applies to all civil courts in India. There is no such inherent powers with the criminal courts in India except with the High Courts in terms of Section 482 of the Code of Criminal Procedure, 1973. Further, such inherent powers are vested in the Supreme Court of India in terms of Article 142 of the Constitution of India which confers wide powers on the Supreme Court to pass orders "as is necessary for doing complete justice in any cause of matter pending before it".

See also

• Case law
• Common law
• Court of Chancery
• Delaware Court of Chancery
• Equitable remedy
• Inequity aversion
• Maxims of equity
• Restitution
• Statutory law
• Undue influence
• Unjust enrichment

Notes

1. ^ Glendon MA et al. (2008). Comparative Legal Traditions In a Nutshell, 3rd edition, pp. 142–143. Thomson-West. For example, Glendon et al. Article 138 of the German Civil Code states that "a transaction that offends good morals (guten Sitten) is void".
2. ^ ^{a b} Hudson A. (2009). Equity and Trusts, p. 24. Routledge-Cavendish.
3. ^ Hudson states that these are primarily "culled from Snell's Equity, the 4th edition of which can be read online. See Chapter 2 for the these statements.
4. ^ ^{a b} S Worthington, Equity (2nd edn. OUP, Oxford 2006) p. 8.
5. ^ S Worthington, Equity (2nd edn. OUP, Oxford 2006) p. 10/11.
6. ^ J Selden, Table Talk, quoted in M B Evans and R I Jack (eds), Sources of English Legal and Constitutional History, Butterworths, Sydney, 1984, 223-224.
7. ^ Earl of Oxford's Case (1615) I Ch Rep I, 21 ER 485
8. ^ Godwyne v. Profyt (after 1393): a petition to the Chancellor
9. ^ Letter from Thomas Jefferson to Phillip Mazzei, November 1785.
10. ^ Willard v. Tayloe, 75 U.S. 557, 565.
11. ^ ^{a b} Dawson, John P. "Judicial Revision of Frustrated Contracts: The United States." Boston University Law Review. 64:1 (January 1984), p. 32.
12. ^ "Events Subsequent to the Contract As a Defence to Specific Performance," Columbia Law Review, May 1916, p. 411.
13. ^ Renner, Shirley. Inflation and the Enforcement of Contracts. Cheltenham, England: Elgar, 1999, p. 20.
14. ^ See, e.g., Sereboff v. Mid Atlantic Medical Services, Inc., No. 05–260, slip op. (U.S. May 15, 2006) (Roberts, C.J. for a unanimous court) (reviewing the scope of equitable relief as authorized by the ERISA statute).
15. ^ Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).
16. ^ Douglas Laycock, Modern American Remedies, 3d ed. (Aspen Press 2002), page 370.
17. ^ Id.
18. ^ Virginia Suprme Court Rules § 3:1

References

For a history of equity in England, including the Statute of Uses 1535:

• Equity in a Nutshell by T. Cockburn & M. Shirley, Lawbook Co, Sydney, 2005.
• Equity & Trusts by T. Cockburn, W. Harris & M. Shirley, Butterworths, Sydney, 2005.

For a general treatise on Equity, including a historical analysis:

• S Worthington, Equity (2nd edn. OUP, Oxford 2006).

For a brief outline of the maxims, doctrines and remedies developed under equity:

• Todd & Watt, Cases and Materials on Equity and Trusts (6th edn. OUP, Oxford 2007).

External links

• Delaware Court of Chancery: Official site
• Equity and Trusts Hudson, Alastair, 5th edition, Routledge-Cavendish, London, 2007