A gross oversimplification of the English common law system is that the law aims to punish evil and protect property. More often than not this gets shunted into the categories of criminal and civil law. In the age of monarchy and feudal obligations, the legal profession was relegated to an even smaller minority of literate people. Often times this minority was composed of clerics from which we get the word “clerk.1” The legal system was extremely formalized and even minor derivations from the prescribed form may result in a case being tossed out. The power of the law was limited in the types of remedies it could provide. To achieve greater fairness or equity, at least since King Edward IV the Crown established the court of Chancery to adjudicate a variety of property cases2.

In England, the Chancellor was a special judge appointed by the Crown to oversee these cases. The Lord chancellor still exists in England to this day. The Chancery courts were different from the “courts of law” in evidentiary requirements, procedure, and most notably the relief they could provide. The Chancery focused almost exclusively on issues of property and contract, thus the remedies are focused on those issues. Equitable remedies included injunctions, specific performance, rescission of contracts, and restitution. For example, if you entered into a contract for the sale of land and a person refused to honor that contract the Chancellor could force the sale. Another example is if a neighbor is repeatedly violating your property by stealing your fruit the court of Chancery could issue an injunction on the neighbor. If the neighbor violated that injunction they could be subject to punishments for contempt of court.

In the United States, the courts of Chancery became fused together with courts of law. Thus, if an individual is seeking both monetary damages, which is a function of law, and an injunction, which is a function of equity, they can achieve both in a single court. A notable exception is that the US still has bankruptcy courts which were traditionally an issue of equity. An even more notable exception is Delaware which still has courts of Chancery. This is part of why so many businesses are incorporated there.

In the late 19th Century with the rise of capitalism, an investor seeking to profit off a venture would purchase a portion of a company. These cumulative shares comprise an individual’s equity in the company. Equity in this instance means the ownership of the company. In bankruptcy, the remaining assets are distributed to those who have equity.

As you can probably imagine this is a very very simplified version of the history of equity. However, I think the key points to remember are that (1) Courts of law and equity were separate. (2) Courts of equity called the Chancery focused on providing a set of remedies relating to property and contracts. (3) Issues of equity are functionally different from law even if today they may be adjudicated in a court of law.

Next time we will look at definitions of equity as it is presently used and distinguish it from its historical and etymological roots.

1. Oxford, The Oxford Dictionary of English Etymology 181 (C.T. Onions, 1966)
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2. Thomas A. Robers, Esq., The Principles of the High Court of Chancery, and The Powers and Duties of Its Judges; Designed as The Student’s First Book on Equity Jurisprudence 5 (Wildly and Sons, 1852).
For the remainder of this post, you can assume I am getting my information from this book. If you wish to read it yourself there is a free copy available here.
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