Equity versus Common Law

In the countries that have a legal system based on common law, there is a concept called “equity”. It is described in contradistinction to “law” or “common law” because historically in England “courts of equity” were separate institutions from “courts of law”.

Under Constantine, Emperor of Rome, in the fourth century, Christianity became the dominant religion. In the fifth century, classical antiquity ended when various Germanic tribes, some of whom had already converted to Christianity, invaded and sacked Rome. The center of political power moved from Rome and the Mediterranean northward toward the region of modern-day Germany. Western Europe was divided into kingdoms where each king was a Christian king. They derived their authority from the Roman Catholic Church based in Rome and, with some exceptions, obeyed the Church’s canon laws. These kings included the King of England.

In 1215, the Magna Carta was signed between the king and nobles of England. It established the principle that the king must obey secular law, not only the Church’s canon law. From then on, the secular law no longer merely meant the decrees of the king but had a separate existence. This allowed for the subsequent creation of courts of law as a separate institution from the Crown.

After the courts of law and the Crown separated, courts of equity were initially introduced as an institution that had a greater affinity with the king’s intentions, handling various matters that the king intended to delegate but were not purely adjudicative. By the fourteenth century, however, it had evolved into an adjudicative institution parallel with the court of law. During this period, a plaintiff who is physically injured may only litigate a “writ of trespass” in a court of law. But disputes over property rights, including contract disputes involving property, may be settled either through an “action” at law or through a “suit” in equity.

The reason for the parallel court system is the nature of thirteenth century judicial decision-making, which was quite different compared to the modern day. The courts of law were bound by a rigid decision-making process. This often resulted in unfair outcomes of cases. By contrast, courts of equity considered themselves less bound by strict rules and more inclined to reach a fair outcome in each case. In this historical context, courts of equity developed its important doctrines over the course of centuries.

By the seventeenth century ecclesiastical courts had declined. This was related to the decline of the Church’s influence over everyday affairs and the rise of the secular, legal state. By the nineteenth century, courts of equity were frequently merged with courts of law so that today we usually speak of “the common law system” as including courts of equity and their successor institutions, such as a chancellery division within a court of law. The concept of equity as a separate body of law is also disputed among scholars. It is customary among practitioners to speak of “the common law” as including equitable doctrines.

Broadly speaking, equitable jurisdiction is an exercise of judicial discretion to avoid an unfair result. However, this does not imply an open-ended discretion; equity proceeds instead on the basis of well-settled (if sometimes not always clearly articulated) principles.

Another distinction is that, historically, the forms of remedy that courts of law could provide were limited to determining and declaring an owner of a real property or chattel and to awarding of money damages. In contrast, courts of equity could issue injunctions. Injunctions are an order that a party (even sometimes not even involved in a case) do something or refrain from doing something. Courts of equity cannot directly declare somebody to be the owner of a real property or chattel but they may order a party to give the property to another or even declare that the legal owner merely holds the property in trust for a beneficiary.

Yet another way of conceptualizing the distinction between law and equity is that law is concerned with ascertaining the rights of litigating parties at a particular point in time – if this means that one party owes another, then damages are awarded – while equity imposes obligations that are ongoing. Equity decisions are not necessarily final but may be modified in the future depending on changes in circumstances.

The areas of law associated with equitable doctrines are closely related to the abovementioned characteristics of equity – discretion, injunctive remedy and non-finality. These include the law relating to fiduciary duties. A party may petition a court to monitor a fiduciary duty owed by one party to another and rule on its specifics. Closely related to fiduciary duties is the law of trusts. Unjust enrichment is another area of law closely related to equitable doctrines. There is a strong element of discretion when determining whether an enrichment is unjust. One common situation where discretion comes into play is when a debtor does not have enough money to pay all his creditors and, although there may be no legal relationship between the creditors, equitable doctrines may apply as to the division of money. In contract law, common applications of equity include: specific performance, which is ordered when money damages would be insufficient because of the unique nature of the subject of the contract; and unenforceability of a contract due to unconscionability.

We can also trace certain patterns of judicial decision-making to the law versus equity distinction. Law is more concerned with creating bright line rules that can reliably guide the public’s ex-ante expectations while equity is more concerned with balancing tests that seek to reach a just ex-post outcome in the particular case.

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