What is Equity

Equity Meaning

Equity represents one of the two main ramifications of the UK law system.  On one side there is Common law, such as the law made by the judges in the Common Law courts. On the other side there is Equity, the law made by the judges in the Chancery courts. A clear understanding of the origins of Equity is essential in order to comprehend the principles on which it is based and the way those are applied. Concepts such as ‘trust’ must be illustrated in the light of the historical development of the subject.

What is Equity?

The origins of Equity lie in the Middle age. At the time in order to go to court an individual needed to be a ‘free man’ (Sir and Lord) and make sure that the case fitted into a particular range of claims, called ‘writs’. Writs were templates that encompassed those claims considered deserving to reach the court. The purpose of creating writs was to prevent the courts to be flooded by undeserving cases. Furthermore, in 1258 the Proclamation of Oxford came into force with the aim to prevent the creation of further writs. Less potential claims were allowed to go to court. The society kept developing while the law fossilised.

Only one option was left to those not able to take their cases to court: The King. The King, as fount of all justice, had the power to override the writs and declare fair the consideration of a case even though it did not fall within the required categories. At some point due to the volume of claims, the King appointed someone to deal with this burden in his place, the Chancellor, traditionally the Senior Advisor of the King (someone that may be seen as the current Prime Minister). The Chancellor was usually a cleric, a religious person whose approach to the cases based on theoretical concepts such as justice, fairness and equity. The Claimant used to send his petition to the King in Council. The petition was addressed to the Lord Chancellor that examined the case. In time the Chancellor started building up a body of rules and Equity commenced to be more formalised. In order to balance the high degree of flexibility applied to the cases and guarantee more certainty, the Court of Chancery built up a proper legal system called Equity.

Equity has been created in order to mitigate the harshness of the Common Law.  Initially it was a second option for those cases not able to have a cause of action before Common law courts under the writs. Afterwards it became an option to reach a more suitable remedy upon the facts of the case that Common Law would have not provided and a way to fill the gaps, internal to the Common Law system. The purpose of Equity was to achieve justice and fairness ad hoc, by looking at each case on its own. As separated bodies of law, Equity and Common Law may reach different outcomes so that a conflict may arise. How could conflicts be resolved?

General Principle: Where there is a conflict between common law and equity, equity shall prevail (per Coke CJ).

Earl of Oxford’s Case 

Facts: Magdalene College sold a piece of land to Queen Elisabeth I. The land was later on sold to Mr Spinola. A statute, 13 Eliz c 10, provided that conveyances of estates by the masters, fellows, any college dean to anyone for anything other than a term of 21 years, or three lives, ‘shall be utterly void’. It was thought transfer to the Queen would grant unimpeachable title. Spinola thought this, and so did Edward de Vere, the Earl of Oxford, who bought the land in 1580 and built 130 houses. John Warren leased a house through intermediaries. Then, Barnabas Gooch, Master of Magdalene College, claimed that he was able to lease the land to John Smith. Warren brought an action of ejection against Smith, but his lease expired before it was heard by court. Warren asked the question to be decided anyway. Ratio: Equity is a modifier of the Common Law therefore whether a principle is established in Equity it has to be followed in Common Law. Per Lord Ellesmere LC “The office of the Chancellor is to correct man’s consciences for frauds, breach of trusts, wrongs and oppressions of whatsoever nature and to soften and mollify the extremity of the law (…) When judgment is obtained by oppression, wrong and a hard conscience, the Chancellor will frustrate and set it aside, not for any error or defect in the judgement but for the hard conscience of the party.” Application: The Court of Equity decided in favour of the Defendant, holding that he was entitled to relief.

Judicature Acts 1873-1875

The fundamental role exercised by both ramifications of the law and the potential conflict between the two have led to the introduction of the Judicature Acts 1873-1875. The Act has unified the civilian legal structure by creating one set of courts including both the court of Equity and the court of Common Law. Nevertheless, it is not that simple to transplant Equity and Common Law within one single system since they have been separated for several centuries. Two separate bodies of rules have been built up for years until the point that equity has, for instance, built a more sophisticated body of rules in relation to property rights with the introduction of trusts. Trusts are a property regime that is strictly related to the Equity system. They have developed out of the division of law and equity.

common law and equity

It is fundamental to understand that Equity is not a completely separated system. It works arm in arm with the Common law system. For instance, when answering to the question ‘who has legal title?’, you will look at the Common law rules, since the beneficiary owns the trust property in equity and the trustee in law.

This appears clear when looking at the equitable remedy of injunction. Example:A person keeps trespassing the land of Mr X. Prior to 1854, Common law courts would have dealt with the issue by awarding Mr X with damages. In order to obtain a different remedy, Mr X would have had to go through two separated processes: one at Common law courts, one at the Chancery court. What Mr X really wants is to prevent that person from trespassing. The remedy that would come from the Court of Chancery is the so-called injunction. The court would directly order the trespasser to stop.

DEVELOPMENT OF EQUITY  

During the Nineteenth century several important reforms were introduced in order to balance the presence of the two parallel law systems of Common law and Equity. The introduction of the Common Law Procedure Act 1854 permitted Common law courts to adopt equitable remedies next to the usual damages. The Chancery Amendment Act 1858 allowed the Court of Chancery to award the Common law remedy of damages next to the usual equitable remedies. The Judiciary Act 1873 and 1875 fused the two systems of Common law and Equity in one single administrative structure. More specifically, the purpose of the Act was ‘the vesting in one tribunal the administration of Law and Equity in every cause, action or dispute which should come before that tribunal’ as Jessel MR stated in Salt v Cooper [1880] 16 Ch D 544 In order to prevent situations where courts might face conflicts between the two systems, Section 25 of the Judiciary Act 1873 established:

‘Generally, in all matters not hereinbefore mentioned in which there is a conflict or variance between the rules of equity and the rules of common law with reference to the same matter, the rules of equity shall prevail.’

General Principle: ‘There is only one court and the equity rules prevail in it’ (Jessel MR)

Walsh v Lonsdale [1882] 21 Ch D 9 

Facts: The parties stipulated an agreement for the lease of a mill for seven years. The Claimant was let into possession. The agreement was stipulated without the adoption of a deed. In the agreement there was a clause establishing that rent would have been paid one year in advance whether the Defendant demanded. When Lonsdale asked the Claimant the payment in advance, he refused it and the Defendant distrained for the amount. The Claimant sued the Defendant on the ground of illegal distress and specific performance of the contract for the lease. Ratio: The equity rules prevail and the maxim applied by the court Lord Jessel MR was equity looks on that as done that which ought to be done. Application: Since Equity does not require compliance with particular formalities such as the use of a deed, the court held in favour of the Defendant on the ground that he was entitled of the payment in law and in equity. The agreement between the parties had to be treated as equivalent to a contract for a lease under a deed.     

General Principle: The purpose of the law is to reach fairness in the best interest of the parties, unhindered by the constraints of law or equity.

Federal Commerce and Navigation Ltd v Molena Alpha inc [1878] QB 927

Facts: Three ships got let to charterers for about six years. The agreement included the following clauses: i) the rent had to be paid twice monthly in advance. In default of payment the owners had the right to withdraw the vessel after notice; ii) deductions from hire were admitted. The charterers made deductions from hire without prior agreement with the owners. The ship-owners withdrew the charter by instructing the master not to sign any bills with the charterers. The latter read the owners’ action as a repudiation of the charter and they sued them. Ratio: ‘During that time the streams of common law and equity have flown together and combined so as to be indistinguishable the one from the other. We have no longer to ask ourselves: what would the courts of common law or the courts of equity have done before the Judicature Act? We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties?’ as Lord Denning stated. Application: The House of Lords held in favour of the charterers. The breach of the term of the contract made by the owners went to the root of the contract by depriving the charterers of their main benefit such as the issue of the bills which was essential to the charterers' trade. The Defendant’s conduct was held to be a wrongful repudiation of the contract.

LAW BOOKS

Use the legal textbooks from the Equity and Trusts Core Series, which were compiled by law Tutor, a lawyer who has worked as both a law professor and a barrister. Because they offer mock answers, the books in our Equity and Trust Q&A Series will help you prepare for examinations more easily.