In jurisdictions following the English common law system, equity refers to the body of law which was developed in the English Court of Chancery and which is now administered concurrently with the common law.
For much of its history, the English common law was principally developed and administered in the central royal courts: the Court of King's Bench, the Court of Common Pleas, and the Exchequer. Equity was the name given to the law which was administered in the Court of Chancery. The Judicature Reforms in the 1870s effected a procedural fusion of the two bodies of law, ending their institutional separation. The reforms did not effect any substantive fusion, however. Judicial or academic reasoning which assumes the contrary amounts to a "fusion fallacy".
Jurisdictions which have inherited the common law system differ in their current treatment of equity. Over the course of the 20th century some common law systems began to place less emphasis on the historical or institutional origin of substantive legal rules. In England, Australia, New Zealand and Canada, Equity remains a distinct body of law with specialised practitioners. Modern equity includes, amongst other things:
- The law relating to express, resulting and constructive trusts;
- Fiduciary law;
- Equitable estoppel (including promissory and proprietary estoppel);
- Relief against penalties and forfeiture;
- The doctrines of contribution, subrogation and marshalling; and
- Equitable set-off.
The latter part of the 20th century saw increased debate over the utility of treating Equity as a separate body of law. These debates were labelled the "fusion wars". A particular flashpoint in this debate centred around the concept of unjust enrichment and whether areas of law traditionally regarded as equitable could be rationalised as part of a single body of law known as the law of unjust enrichment.
Origins of the common law
After the Norman Conquest of England in the 11th century, royal justice came to be administered in three central courts: the Court of King's Bench, the Court of Common Pleas, and the Exchequer. The common law developed in these royal courts. To commence litigation in these royal courts, it was necessary to fit one's claim within a form of action. The plaintiff would purchase a writ in the Chancery, the head of which was the Lord Chancellor. Where the law provided no remedy (or no efficacious remedy), litigants could sometimes appeal directly to the King. Eventually, the King would delegate resolution of these petitions to the King's Council. These petitions were eventually delegated to the Lord Chancellor himself.
Emergence of the Court of Chancery
By the 14th century it appears that Chancery was operating as a court, affording remedies where the strict procedures of the common law worked injustice or provided no remedy to a deserving plaintiff. Chancellors often had theological and clerical training and were well versed in Roman law and canon law.
By the 15th century the judicial power of Chancery was clearly recognised. 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. Over time, Equity developed a system of precedent much like its common-law cousin.
One area in which the Court of Chancery assumed a vital role was the enforcement of uses, a role that 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 gave him the written right to re-enter his own land and 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 began petitioning the King for relief against unfair judgments, and as the number of petitioners rapidly grew, so the King delegated the task of hearing petitions to the Lord Chancellor. As the early Chancellors lacked formal legal training and showed little regard for precedent, their decisions were often widely diverse. 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. Beginning around 1557, records of proceedings in the Courts of Chancery were kept and several equitable doctrines developed. 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.
A criticism of Chancery practice as it developed in the early medieval period was that it lacked fixed rules and that the Lord Chancellor was exercising an unbounded discretion. The counter-argument was that Equity mitigated the rigour of the common law by looking to substance rather than to form.
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.
This tension climaxed in the Earl of Oxford’s case (1615) where a judgment of Chief Justice Coke was allegedly obtained by fraud. The Lord Chancellor, Lord Ellesmere, issued a common injunction from 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.
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’ that 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 therefore liable for feudal dues.
The response of the lawyers to this Statute was to create the 'use upon a use'. The Statute recognized only the first use, and so land owners were again able to separate the legal and beneficial interests in their land.
Comparison of equity traditions in common law countries
Equity remains a distinct part of English law. The main challenge to it has come from academic writers working within the law of unjust enrichment. Scholars such as Professor Birks and Professor Burrows argue that in many cases the inclusion of the label "legal" or "equitable" before a substantive rule is often unnecessary. Many English universities, such as Cambridge, continue to teach Equity as a standalone subject. Leading practitioner texts include Snell's Equity, Lewin on Trusts, and Hayton & Underhill's Law of Trusts and Trustees.
Equity remains a cornerstone of Australian private law. A string of cases in the 1980s saw the High Court of Australia re-affirm the continuing vitality of traditional equitable doctrines. The High Court has recently affirmed the importance of Equity and dismissed the suggestion that unjust enrichment has explanatory power in relation to traditional equitable doctrines such as subrogation.
The state of New South Wales is particularly well known for the strength of its Equity jurisprudence. However, it was only in 1972 with the introduction of reform to the Supreme Court Act 1970 (NSW) that empowered both the Equity and Common Law Division of the Supreme Court of NSW to grant relief in either equity or common law. Nevertheless, in 1984 three alumni of Sydney Law School and judges of the NSW Supreme Court, Roderick Meagher, William Gummow and John Lehane produced Equity: Doctrines & Remedies. It remains one of the most highly regarded practitioner texts in Australia and England. The work is now in its 5th edition and edited by Dyson Heydon, former Justice of the High Court, Justice Mark Leeming of the NSW Court of Appeal, and Dr Peter Turner of Cambridge University.
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, 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 can also enter certain types of immediately enforceable 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 in Suits at common law, 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, 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." The US 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 that "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." Willard v. Tayloe was for many years the leading case in contract law regarding intent and enforcement. as well as equity.
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. 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 Employee Retirement Income Security Act specifically authorize only equitable relief, which forces US courts to analyze in lengthy detail whether the relief demanded in particular cases brought under those statutes would have been available in equity.
Equity courts were widely distrusted in the northeastern US 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. The federal courts did not abandon the old law/equity separation until the promulgation of the Federal Rules of Civil Procedure in 1938.
Today three states still have separate courts for law and equity; the most notable is Delaware, whose Court of Chancery is where most cases involving Delaware corporations are decided. However, merger in some states is less than complete; some other states (such as Illinois and New Jersey) have separate divisions for legal and equitable matters in a single court. 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. Bankruptcy was also historically considered an equitable matter; although bankruptcy in the United States is today a purely federal matter, reserved entirely to the United States Bankruptcy Courts by the enactment of the United States Bankruptcy Code in 1978, bankruptcy courts are still officially considered "courts of equity" and exercise equitable powers under Section 105 of the Bankruptcy Code.
After US 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 over which the court did not have direct jurisdiction.
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".
- 'Common law' here is used in its narrow sense, referring to that body of law principally developed in the superior courts of common law: King's Bench and Common Pleas.
- See JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane's Equity: Doctrine and Remedies (LexisNexis, 5th ed, 2015).
- See generally, JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane's Equity: Doctrine and Remedies (LexisNexis, 5th ed, 2015); McGhee (ed), Snell's Equity (Sweet & Maxwell, 33rd ed).
- There is currently a divergence of opinion between the High Court of Australia and the Supreme Court of England on this point. In Australia, relief against penalties is an equitable doctrine: Andrews v ANZ (2012) 247 CLR 205. In England, it is regarded as a legal doctrine: Cavendish v Talal  UKSC 67.
- See generally, Edelman and Degeling, Equity in Commercial Law (LexisNexis, 2005); for an example of the pro-fusionist view, see Andrew Burrows, 'We Do This At Common Law But That in Equity' (2002) 22(1) Oxford Journal of Legal Studies 1-16.
- See generally, Peter Birks, Unjust Enrichment (2nd ed, 2005); Andrew Burrows, Law of Restitution (3rd ed, 2011); Graham Virgo, Principles of the Law of Restitution (3rd ed, 2015).
- Sarah Worthington, Equity (2nd edn. OUP, Oxford 2006) p. 10/11.
- 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.
- Earl of Oxford's Case (1615) I Ch Rep I, 21 ER 485
- Godwyne v. Profyt (after 1393): a petition to the Chancellor
- Andrew Burrows, 'We Do This At Common Law But That in Equity' (2002) 22(1) Oxford Journal of Legal Studies 1-16
- See, e.g., Muschinski v Dodds (1985) 160 CLR 583
- Bofinger v Kingsway  HCA 44
- "Supreme Court Act 1970 (NSW)". http://www.austlii.edu.au/au/legis/nsw/consol_act/sca1970183/s44.html
- Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd  UKPC 20,  (Lord Mance); Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298,  (Spigelman CJ)
- JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane's Equity: Doctrine and Remedies (LexisNexis, 5th ed, 2015)
- Letter from Thomas Jefferson to Phillip Mazzei Archived April 15, 2007, at the Wayback Machine., November 1785.
- Willard v. Tayloe, 75 U.S. 557, 565.
- John P. Dawson, "Judicial Revision of Frustrated Contracts: The United States." Boston University Law Review. 64:1 (January 1984), p. 32.
- "Events Subsequent to the Contract As a Defence to Specific Performance," Columbia Law Review, May 1916, p. 411.
- Shirley Renner, Inflation and the Enforcement of Contracts. Cheltenham, England: Elgar, 1999, p. 20.
- 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).
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).
- Douglas Laycock, Modern American Remedies, 3d ed. (Aspen Press 2002), page 370; Kellen Funk, "Equity without Chancery: The Fusion of Law and Equity in the Field Code of Civil Procedure, New York 1846-76," Journal of Legal History (2015), 152-191.
- The other two are Mississippi and Tennessee. Sources that mention four states (i.e., Laycock 2002) generally include Arkansas, which abolished its separate chancery courts as of January 1, 2002. https://web.archive.org/web/20110804025412/http://courts.state.ar.us/circuitcourt/index.cfm. Archived from the original on August 4, 2011. Retrieved July 3, 2012. Missing or empty
- Hawes, Lesley Anne (January–February 2013). "Another Conflict in the Circuits Brewing Over Bankruptcy Court's Equitable Powers Under §105(a)". ABF Journal. Retrieved 18 June 2015.
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).
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- Christopher St. Germain's Doctor and Student (1518), the classic common law text on equity.
- Delaware Court of Chancery: Official site
- 978-0-415-41847-8 Equity and Trusts Hudson, Alastair, 5th edition, Routledge-Cavendish, London, 2007