Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Understanding Contracts ~ Common Law Courts and Equity Courts

July 22, 2013 - Updated: July 22, 2013

 

 

 

This may sound a little unusual but in England until the late 19th Century, there were two distinct legal systems running in parallel to one another. And, if you fail to appreciate this fact, then you will certainly have difficulty understanding many legal concepts and in particular the law of contracts.

 

So, the first legal system is the “common law system”. In a rather technical, narrow sense, this jurisprudence came out of the Royal Courts, being, the King’s Bench, Common Pleas and Exchequer. Any decisions which emanated from those particular courts were considered to be “common law”.

 

However, there was one more system, namely “equity” which arose from the decisions made by the Court of Chancery. The Chancery was the Royal Secretariat; it was in effect an extension of the King. And, of course, it could only act in matters where the King had power.

 

In some cases, where the common law system either did not provide a remedy or the imposition of the law was too harsh, then, the King may have the residual power to intervene. Those not satisfied with the result of their cases could petition the King for relief. During the 14th Century, there were actually so many requests for relief that an organized system of referring such cases to the Chancellor was undertaken. By the end of the 14th Century, the Chancellor began issuing the decisions in his own name rather than in the name of the King. So, by that time, the procedures to apply, the relief sought and the decisions made by the Chancellor came to be known as “equity”.

 

Two hundred years later, in 1615, the Chancellor explained “equity” as follows:

 

“…. the office of the Chancellor is to correct men’s consciences for frauds, breaches of trust, wrong and oppressions of what nature soever they be, and to soften and mollify the extremity of the law.”

 

The guiding principle was to “right the wrong” and “do what conscience told them to do”.

 

Oddly, the second legal system had as its purpose and role to “correct the wrongs” of the common law legal system.

By the late 17th Century, there were legal texts published with respect to the Law of Equity.

 

There were special remedies available from the King, which ultimately found there way into the Courts of Equity:

 

  1. relief from forfeiture,
  2. recission,
  3. injunction,
  4. specific performance.

 

The common law system was one which was based upon sound logic and basic principles. Rules could easily be expressed as algebraic formulas. The results were always clear. There were no exceptions!

 

When it came to contracts, for example, it was easy to formulate certain principles.

 

  • A has a contact to perform “xyz” for B.

 

  • If A performs “xyz”, he will be paid “123” by B.

 

  • If A fails to perform “xyz”, then he shall not be paid “123” and he shall forfeit “456” to B.

 

So, all you really needed to know, were the basic facts, and then you had to insert them into the formula.

 

Performance was fine. You got paid. Non-performance was also fine, and you gave something up. It would all be set out in the agreement.  There was nothing wrong with non-completion or non-performance, there was just a result. Damages were awarded for non-fulfillment. That was the remedy. Nothing else! While a man’s word was his bond, enforceable agreements were to be in writing.

 

As time went on, the Chancery Courts became backlogged. Just about everyone wanted a “better result”. While at one time, the purpose was to cure the common law courts, the Courts of Chancery had become a procedural nightmare themselves.

 

So, in the 1870’s, there were several reforms contained in the Judicature Acts, which merged the two separate and distinct legal systems into one. All Judges were given the authority to resolve cases on the basis of the common law system and apply equity in those situations where it was required.

 

Today, the historical evolution of the law is important since the fusion of the two systems is only procedural. It is not substantive. That means that one must be aware of the basic differences. Equity is the “cure”. In the event of conflict between law and equity, “equity prevails”.

 

In order to consider the remedies available in respect to enforceable and unenforceable agreements, one must look, first to contract, then to equity in order to arrive at the appropriate conclusion today. It’s still a two step process.

 

For consumers, real estate representatives and lawyers (except, perhaps those continuously engaged in commercial litigation) this is a confusing topic. Unfortunately, without knowing the history, it is very difficult to understand some of the cases.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: common law equity real estate ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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