A court of chancery is a court of equity, which means its decisions are based on fairness instead of application of the common law. England was the first to establish a court of chancery as a forum where people could seek and obtain remedies for disputes not recognized in the common law. The common law evolved in England from ancient customs and traditions of the community. Common law courts would not resolve disputes unless the common law recognized the dispute and provided a remedy. This resulted in angry citizens complaining to the king, and the eventual establishment of England’s Court of Chancery.
The ultimate purpose of a court of chancery is to avoid injustice by affording equitable relief. Awarding money damages is not a fair remedy in some cases. Accordingly, a court of chancery could order equitable relief, such as specific performance, which common law courts did not recognize. Specific performance requires a party to fulfill his obligations under a contract. For instance, if a party entered a contract to sell a piece of land and then backed out, a court of chancery could enforce the contract by ordering specific performance to force the sale of the land.
England exported its common law court and court of chancery system to the colonies in America, where the king of England authorized such courts to function. These courts operated in the same manner as the courts in England by using its methods and laws to resolve disputes. After the colonies won independence from England, the American judicial system continued to apply England’s methods of hearing cases and providing remedies based on the common law and court of chancery. As time passed, the application and interpretation of laws changed to satisfy American notions of justice.
England eventually abolished its Court of Chancery, including its common law courts. England abolished these courts because of inefficiency and the high cost of processing cases. In its place, England established the High Court of Justice with a chancery division. The chancery division exercises equitable powers.
The U.S. also abolished its common law courts and chancery court system through the enactment of the Federal Rules of Civil Procedure. The Federal Rules of Civil Procedure established one form of action, called a civil action, which eliminated all other actions based on the laws of equity and the common law. Most states would follow the federal government’s lead and adopt State Rules of Civil Procedure, which mirrored the federal rules. This resulted in the elimination of state courts of chancery for those states.