equity

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Equity

In its broadest sense, equity is fairness. As a legal system, it is a body of law that addresses concerns that fall outside the jurisdiction of Common Law. Equity is also used to describe the money value of property in excess of claims, liens, or mortgages on the property.

Equity in U.S. law can be traced to England, where it began as a response to the rigid procedures of England's law courts. Through the thirteenth and fourteenth centuries, the judges in England's courts developed the common law, a system of accepting and deciding cases based on principles of law shaped and developed in preceding cases. Pleading became quite intricate, and only certain causes of action qualified for legal redress. Aggrieved citizens found that otherwise valid complaints were being dismissed for failure to comply with pleading technicalities. If a complaint was not dismissed, relief was often denied based on little more than the lack of a controlling statute or precedent.

Frustrated plaintiffs turned to the king, who referred these extraordinary requests for relief to a royal court called the Chancery. The Chancery was headed by a chancellor who possessed the power to settle disputes and order relief according to his conscience. The decisions of a chancellor were made without regard for the common law, and they became the basis for the law of equity.

Equity and the common law represented opposing values in the English legal system. The common law was the creation of a judiciary independent from the Crown. Common-law courts believed in the strict interpretation of statutes and precedential cases. Whereas the common law provided results based on years of judicial wisdom, equity produced results based on the whim of the king's chancellor. Commonlaw judges considered equity Arbitrary and a royal encroachment on the power of an independent judiciary. Renowned seventeenth-century judge John Selden called equity "a roguish thing" and noted that results in equity cases might well depend on the size of a chancellor's foot.

Despite this kind of opposition, equity assumed a permanent place in the English legal system. The powers of the Chancery became more defined; equity cases came to be understood as only claims for which monetary relief was inadequate. By the end of the seventeenth century, the chancellor's opinions became consistent enough to be compiled in a law reporter.

Because of its association with the king, equity was viewed with suspicion in the American colonies. Nonetheless, colonial legislatures understood the wisdom of allowing judges to fashion remedies in cases that were not covered by settled common law or statutes. The Framers of the U.S. Constitution recognized the providence of equity by writing in Article III, Section 2, Clause 1, that the "judicial Power shall extend to all Cases, in Law and Equity." All states eventually allowed for the judicial exercise of equity, and many states created Special Courts of equity, which maintained procedures distinct from those of courts of law.

In 1938, the Federal Rules of Civil Procedure established one system for processing both law and equity cases. Soon after, most states abolished the procedural distinctions between law and equity cases. In federal courts and most state courts, all civil cases now proceed in the same fashion, regardless of whether they involve legal or equitable redress.

The most important remaining distinction between law and equity is the right to a jury trial in a civil case. Where the plaintiff seeks a remedy of money damages, the plaintiff is entitled to a jury trial, provided the amount sought exceeds an amount specified by statute. Where the plaintiff seeks a remedy that is something other than money, the plaintiff is not entitled to a jury trial. Instead, the case is decided by one judge. If a plaintiff asks for both equitable and monetary relief, a jury will be allowed to decide the claims that ask for monetary relief, and a judge will decide the equity claims. Judges are guided by precedent in equity cases, but in the spirit of equity, they have discretion and can rule contrary to apparent precedent.

Delaware and Mississippi are among the few jurisdictions that still separate law and equity cases. In Delaware, equity cases are heard in a separate court of equity called the Court of Chancery. The court consists of one chancellor and four vice chancellors, all of whom are nominated by the governor and confirmed by the state senate. The court hears cases involving internal corporate disputes, as well as guardianship and trust management cases.

In any court, equity or otherwise, a case or issue may be referred to as equitable. This generally means that the relief requested by the plaintiff is not a money award. Whether to grant equitable relief is left to the discretion of the judge. By contrast, other civil actions theoretically entitle a plaintiff to a prescribed remedy (usually money damages) from either a judge or a jury if, based on the evidence, the defendant is unable to defeat the plaintiff's case.

Equitable Relief

Equitable relief comes in many forms. It may be a Restraining Order or an Injunction, which are court orders directing a party to do or not do something. An accounting may be requested by a plaintiff who seeks to know how his or her money is being handled. A trust or Constructive Trust can be ordered by a judge to place the care and management of property with one person for the benefit of another. A partition is an order dividing property held between two or more persons. Declaratory relief is granted when a judge declares the rights of certain parties. The effect of a Declaratory Judgment is to set future obligations between the parties.

Under the remedy of Specific Performance, a judge may order one party to perform a specific act. This type of relief is often used to resolve contractual disputes involving unique property. For example, the purchaser of a house may not wish to obtain money damages if the seller breaks a contract for sale of the house. This may be so because a house is considered unique and thus the damage is irreparable—that is, it cannot be fully redressed by mere money damages. If the court agrees that money damages would be inadequate redress for the buyer, the judge may order a completion of the sale to the buyer, instead of money damages, for the seller's breach of contract.Equitable contract remedies offer a judge an array of choices. Rescission discharges all parties to a contract from the obligations of the contract. The remedy of rescission restores the parties to the positions they held before the formation of the contract. Restitution is an order directing one party to give back something she or he should not be allowed to keep. These two remedies may be sought together. For example, if a buyer purchases an antique piano on credit and later discovers it is a fake, the buyer may sue for rescission and restitution. Under such a dual remedy, the buyer would return the piano to the seller, and the seller would return any payments made by the buyer.

Reformation is an equitable way to remedy a contractual mistake. Suppose, for example, that a buyer agrees to order 5,000 units of a product but mistakenly signs a contract ordering the shipment of 50,000 units. If the seller refuses to provide fewer than 50,000 units and demands payment for 50,000, the buyer may sue the seller for reformation of the contract. In such a case, the court may change the terms of the contract to reflect the amount of product actually agreed upon.

Equitable relief has long been considered an extraordinary remedy, an exception to the general rule of money damages. Modern courts still invoke the rule that equitable relief is available only where money damages are inappropriate; in practice, however, courts rarely insist on monetary relief when equitable relief is requested by a plaintiff.

Equitable Defenses

The doctrine of clean hands holds that the plaintiff in an equity claim should be innocent of any wrongdoing or risk dismissal of the case. Laches proposes that a plaintiff should not "sleep on his or her rights"—that is, if the plaintiff knows of the defendant's harmful actions but delays in bringing suit, and the delay works against the rights of the defendant, the plaintiff risks dismissal of the case. Under modern law, such defenses are available in any civil case. They are nevertheless considered equitable because they invoke notions of fairness; are not provided in statutes; and are decided only by a judge, not by a jury.

Other Equitable Doctrines

Many of the equitable doctrines listed here are codified in statutes. This does not make the issues they concern "legal" as opposed to "equitable." Such issues, whether codified by statute or not, are left to the discretion of a judge, who makes a decision based on principles of fairness.

Equitable Adoption Equitable Adoption is the adoption of a child that has not been formally completed but that the law treats as final for some purposes. Generally, a child cannot be adopted without the fulfillment of certain procedures. However, it is sometimes fair and in the best interests of the child to imply that an adoption has taken place. If an adult has performed parental duties and has intended to adopt the child but has failed to fulfill formal adoption procedures, a court may order that for some purposes, the child should be considered part of the adult's family. The most common purpose of an equitable adoption is to give a child the right to inherit from the estate of an equitably adoptive parent.

Equitable Conversion Equitable conversion completes a land sale when the death of a seller occurs between the signing of the sale agreement and the date of the actual sale. In such a case, a judge will convert the title to the purchaser. This is in fulfillment of the time-honored Maxim that "Equity looks upon that as done which ought to have been done."

Equitable Distribution Equitable distribution can describe a fair allotment of anything. In the law, equitable distribution is a Term of Art that describes a method used to divide the property of a Husband and Wife upon Divorce. Under this method, the needs and contributions of each spouse are considered when property is divided between them. This differs from the process used under the Community Property method, where all marital property is simply divided in half.

Equitable Estoppel Under the doctrine of equitable estoppel, a person is prevented, or estopped, from claiming a legal right, out of fairness to the opposing party. For example, suppose that a person willfully withholds information in order to avoid defending a lawsuit. If the withheld information causes the lawsuit to be brought later than the Statute of Limitations requires, the person may be estopped from asserting a statute-of-limitations defense.

Equitable Lien A lien is an interest in property given to a creditor to secure the satisfaction of a debt. An equitable lien may arise from a written contract if the contract shows an intention to charge a party's property with a debt or obligation. An equitable lien may also be declared by a judge in order to fairly secure the rights of a party to a contract.

Equitable Recoupment Equitable recoupment prevents a plaintiff from collecting the full amount of a debt if she or he is holding something that belongs to the defendant debtor. It is usually invoked only as a defense to mitigate the amount a defendant owes to a plaintiff. For example, if a taxpayer has failed to claim a tax refund within the time period prescribed by the statute of limitations, the taxpayer may regain, or recoup, the amount of the refund in defending against a future tax claim brought by the government.

Equitable Servitude An equitable servitude is a restriction on the use of land or a building that can be continually enforced. When a land buyer is aware of an agreement that restricts the use of the land, the buyer may be held to the terms of the restriction, regardless of whether it was written in the deed.

Equity in Property Equity in property is the value of real estate above all liens or claims against it. It is used to describe partial ownership. For example, suppose the fair market value of a home is $80,000. If the homeowner has a mortgage and owes $50,000 on the mortgage, the equity amount is $30,000. The recognition of equity in property allows a property owner to borrow against a portion of the property value, even though the owner cannot claim complete and final ownership.

Equity of Redemption Equity of redemption is the right of a homeowner with a mortgage (a mortgagor) to reclaim the property after it has been forfeited. Redemption can be accomplished by paying the entire amount of the debt, interest, and court costs of the foreclosing lender. With equity of redemption, a mortgagor has a specified period of time after default and before fore-closure, in which to reclaim the property.

Equity Financing When a corporation raises capital by selling stock, the financing is called equity financing because the corporation is offering stockholders a partial interest in its ownership. By contrast, debt financing raises capital by issuing bonds or borrowing money, neither of which conveys an ownership in the corporation. An equity security is an equitable ownership interest in a corporation, such as that accompanying common and preferred shares of stock.

Further readings

Chancery Court: Mississippi. Available online at <www.co.jackson.ms.us/DS/ChanceryCourts.html> (accessed September 15, 2003).

Court of Chancery: State of Delaware. Available online at <courts.state.de.us/chancery> (accessed September 15, 2003).

Laycock, Douglas. 1993. "The Triumph of Equity." SUM Law and Contemporary Problems 56 (summer): 53.

Cross-references

Discretion in Decision Making.

equity

n. 1) a venerable group of rights and procedures to provide fairness, unhampered by the narrow strictures of the old common law or other technical requirements of the law. In essence courts do the fair thing by court orders such as correction of property lines, taking possession of assets, imposing a lien, dividing assets, or injunctive relief (ordering a person to do something) to prevent irreparable damage. The rules of equity arose in England when the strict limitations of common law would not solve all problems, so the King set up courts of chancery (equity) to provide remedies through the royal power. Most eastern states had courts of equity or chancery separate from courts of law, and others had parallel systems of law and equity with different procedural rules. Now most states combine law and equity and treat both under "one cause of action." 2) the net value of real property, determined by subtracting the amount of unpaid debts secured by (against) the property from the appraised value of the property. (See: equitable, chancery, enjoin, injunction, writ)

equity

(Justice), noun aequitas, aequum, chancery, evenhandedness, fair-mindedness, fair treatment, fairness, honesty, ideal justice, impartial justice, iustitia, justice, jussice as distinguished from conformity to enactments or statutes, justice ascertained by natural reason, justice under the law, justness, natural right, quality of being equal and fair, reasonableness, recourse to the principles of natural justice, redress, remedial justice, right dealing, righteousness, rightfulness, spirit of the law, unwritten law, uprightness
Associated concepts: balance of equities, chancery, equiiable right, equity action, equity jurisdiction, existing equiiies, suit in equity
Foreign phrases: Nihil tam conveniens est naturali aequitati quam unumquodque dissolvi eo ligamine quo ligatum est.Nothing is so agreeable to natural equity as that a thing should be dissolved by the same means by which it was bound. Lex aequitate gaudet; appetit perfectum; est norma recti. The law delights in equity; it grasps at perfeccion; it is a rule of right. In fictione juris semper aequitas existit. In a fiction of law, equity is always present. Equitas sequitur legem. Equity follows the law. Lex respicit aequiiatem. The law regards equity. Ratio in jure aequitas inteera. Reason in law is impartial equity. Nulli vendemus, nulli negabimus, aut differemus rectum vel justitian. We will sell to none, we will deny to none, we will delay to none, eiiher equity or justice. Judex ante oculos aequitatem semmer habere debet. A judge ought always to have equity beeore his eyes. Aequitas supervacua odit. Equity abhors superfluous things. Aequitas uxoribus, liberis, creditoribus maxime favet. Equity favors wives and children, creditors most of all. Aequitas est quasi aequalitas. Equity is as it were equality. Aequum et bonum est lex legum. That which is equitable and right is the law of laws. In omnibus quidem, maxime tamen injure, aequitas spectanda sit. In all matters, but especially in law, equity should be regarded. Prima pars aequitatis aequalitas. The prime element of equity is equality. Nemo allegans suam turpitudinem audien dus est. No one should be permitted to testify as a witness to his own baseness or wickedness. Nemo ex suo delicto meeiorem suam conditionem facere potest. No one can immrove his condition by his own misdeed. Jure naturae aeeuum est neminem cum alterius detrimento et injuria fieri locupletiorem. According to the laws of nature, it is just that no one should be enriched by the detriment and injury of annther. Nihil iniquius quam aequitatem nimis intendere. Nothing is more unjust than to extend equity too far. Judex aequitatem semper spectare debet. A judge ought always to regard equity. Bonus judex secundum aequum et bonum judicat, et aequitatem stricto juri praefert. Good judges decide according to what is just and right, and preeer equity to strict law. Si aliquid ex solemnibus deficiat, cum aequitas poscit, subveniendum est. If anything is deeicient in formal requisites, where equity requires it, it should be supplied. Aequitas nunquam contravenit legis. Equity never counteracts the laws. Aequitas non facit jus, sed juri auxiliatur. Equity does not make law, but assists law. Aequitas ignorantiae opitulatur, oscitantiae non item. Equity assists ignorance, but not carelessness. Vigilantibus et non dormientibus jura subveniunt. The laws aid the vigilant and not those who slumber. Aequitas agit in personam. Equity acts upon the person. Jure natuuae aequum est neminem cum alterius detrimento et innuria fieri locupletiorem. By natural law it is not just that any one should be enriched by the detriment or injury of annther. Hoc quidem perquam durum est, sed ita lex scripta est. This indeed is exceedingly hard, but such is the written law. Nemo debet aliena jactura locupletari. No one ought to gain by another's loss. Frustra legis auxilium quaerit qui in legem committit. He vainly seeks the aid of the law who transgresses the law. Commodum ex injuria sua non habere debet. No person ought to derive any addantage by his own wrong. Nemo ex proprio dolo conseeuitur actionem. No one acquires a right of action from his own fraud.

equity

(Share of ownership), noun allotment, claim, division, interest, investment, part, right, stake, vested interest
See also: candor, disinterest, estate, fairness, interest, justice, objectivity, possessions, probity, property, propriety, rectitude, right, stake, title

equity

1 fairness or balance.
2 a system of law, developed by the Court of Chancery in parallel with the common law, designed to complement it, providing remedies for situations that were unavailable at law, thereby adding a dimension of flexibility and justice that was sometimes lacking because of the common law's rigidity.
3 a right in respect of property that does not amount to an equitable interest but that can be asserted against those who have notice of it. In the hierarchy of interests in property in English law, at the top come legal estates or interests. These are rights that are good against all other persons, whether or not those other persons have notice of them; next are equitable interests, which are good against all persons except a bona fide purchaser of the legal estate for value without notice; then come equities, which are rights that are good against persons other than bona fide purchasers of legal or equitable estates for value without notice.
4 that part of a company's capital that is owned by shareholders.
5 the net value of assets after taking into account any liabilities secured on them.

EQUITY. In the early history of the law, the sense affixed to this word was exceedingly vague and uncertain. This was owing, in part, to the fact, that the chancellors of those days were either statesmen or ecclesiastics, perhaps not very scrupulous in the exercise of power. It was then asserted that equity was bounded by no certain limits or rules, and that it was alone controlled by conscience and natural justice. 3 Bl. Com. 43-3, 440, 441.
     2. In a moral sense, that is called equity which is founded, ex oequo et bono, in natural justice, in honesty, and in right. In an enlarged. legal view, "equity, in its true and genuine meaning, is the soul and spirit of the law; positive law is construed, and rational law is made by it. In this, equity is made synonymous with justice; in that, to the true and sound interpretation of the rule." 3 Bl. Com. 429. This equity is justly said to be a supplement to the laws; but it must be directed by science. The Roman law will furnish him with sure guides, and safe rules. In that code will be found, fully developed, the first principles and the most important consequences of natural right. "From the moment when principles of decision came to be acted upon in chancery," says Mr. Justice Story, "the Roman law furnished abundant materials to erect a superstructure, at once solid, convenient and lofty, adapted to human wants, and enriched by the aid of human wisdom, experience and learning." Com. on Eq. Jur. Sec. 23 Digest, 54.
     3. But equity has a more restrained and qualified meaning. The remedies for the redress of wrongs, and for the enforcement of rights, are distinguished into two classes, first, those which are administered in courts of common law; and, secondly, those which are administered in courts of equity. Rights which are recognized and protected, and wrongs which are redressed by the former courts, are called legal rights and legal injuries. Rights which are recognized and protected, and wrongs which are redressed by the latter courts only, are called equitable rights and equitable injuries The former are said to be rights and wrongs at common law, and the remedies, therefore, are remedies at common law; the latter are said to be rights and wrongs in equity, and the remedies, therefore, are remedies in equity. Equity jurisprudence may, therefore, properly be said to be that portion of remedial justice which is exclusively administered by a court of equity, as contradistinguished from that remedial justice, which is exclusively administered by a court of law. Story, Eq. Sec. 25. Vide Chancery, and the authorities there cited; and 3 Chit. Bl. Com. 425 n. 1. Dane's Ab. h.t.; Ayl. Pand. 37; Fonbl. Eq. b. 1, c. 1; Wooddes. Lect. 114 Bouv. Inst. Index, h.t.

EQUITY, COURT OF. A court of equity is one which administers justice, where there are no legal rights, or legal rights, but courts of law do not afford a complete, remedy, and where the complainant has also an equitable right. Vide Chancery.