A court of equity is also known as an equity court or chancery court. It is a court that passes judgment on disputes by virtue of fairness rather than the law. As the term itself infers, a court of equity passes an equitable decision in disputes. It may be separate and independent from the court of law, or a court of law may also act as a court of equity depending on the judgment given. Bankruptcy courts are one such example of a court of law that also functions as a court of equity.
The principle idea of a court of equity is that a ruling based on the laws may not be fair or equitable to the parties involved, especially the slighted party. Thus, a court of equity provides a more evenhanded decision. Because each dispute is settled by providing a fair decision, a court of equity may not set a precedent. Decisions are made solely on a case-to-case basis and cannot be applied to any other case or to be used in reference to another case.
Despite deciding based solely on equitability, a court of equity still has legal obligations it must fulfill in settling a dispute. However, a judge in a court of equity is not limited to come to a decision based on previous interpretations of the law. A judge from this type of court may have the option to explore every reasonable argument present in the dispute before reaching a decision. As such, courts of equity are seen to be more lenient and more reasonable than courts of law.