PRIVATE EQUITY PORTFOLIO

PRIVATE EQUITY PORTFOLIO BUILDERS

Private equity firms raise funds from institutions and wealthy individuals and then invest that money in buying and selling businesses. … Private equity firms accept some constraints on their use of investors’ money. A fund management contract may limit, for example, the size of any single business investment.

Private equity. The very term continues to evoke admiration, envy, and—in the hearts of many public company CEOs—fear. In recent years, private equity firms have pocketed huge—and controversial—sums, while stalking ever larger acquisition targets. Indeed, the global value of private equity buyouts bigger than $1 billion grew from $28 billion in 2000 to $502 billion in 2006, according to Dealogic, a firm that tracks acquisitions. Despite the private equity environment’s becoming more challenging amid rising interest rates and greater government scrutiny, that figure reached $501 billion in just the first half of 2007.

Private equity firms’ reputation for dramatically increasing the value of their investments has helped fuel this growth. Their ability to achieve high returns is typically attributed to a number of factors: high-powered incentives both for private equity portfolio managers and for the operating managers of businesses in the portfolio; the aggressive use of debt, which provides financing and tax advantages; a determined focus on cash flow and margin improvement; and freedom from restrictive public company regulations.

But the fundamental reason behind private equity’s growth and high rates of return is something that has received little attention, perhaps because it’s so obvious: the firms’ standard practice of buying businesses and then, after steering them through a transition of rapid performance improvement, selling them. That strategy, which embodies a combination of business and investment-portfolio management, is at the core of private equity’s success.

Public companies—which invariably acquire businesses with the intention of holding on to them and integrating them into their operations—can profitably learn or borrow from this buy-to-sell approach. To do so, they first need to understand just how private equity firms employ it so effectively.

The Private Equity Sweet Spot

Clearly, buying to sell can’t be an all-purpose strategy for public companies to adopt. It doesn’t make sense when an acquired business will benefit from important synergies with the buyer’s existing portfolio of businesses. It certainly isn’t the way for a company to profit from an acquisition whose main appeal is its prospects for long-term organic growth.

However, as private equity firms have shown, the strategy is ideally suited when, in order to realize a onetime, short- to medium-term value-creation opportunity, buyers must take outright ownership and control. Such an opportunity most often arises when a business hasn’t been aggressively managed and so is underperforming. It can also be found with businesses that are undervalued because their potential isn’t readily apparent. In those cases, once the changes necessary to achieve the uplift in value have been made—usually over a period of two to six years—it makes sense for the owner to sell the business and move on to new opportunities. (In fact, private equity firms are obligated to eventually dispose of the businesses; see the sidebar “How Private Equity Works: A Primer.”)

How Private Equity Works: A Primer The benefits of buying to sell in such situations are plain—though, again, often overlooked. Consider an acquisition that quickly increases in value—generating an annual investor return of, say, 25% a year for the first three years—but subsequently earns a more modest if still healthy return of, say, 12% a year. A private equity firm that, following a buy-to-sell strategy, sells it after three years will garner a 25% annual return. A diversified public company that achieves identical operational performance with the acquired business—but, as is typical, has bought it as a long-term investment—will earn a return that gets closer to 12% the longer it owns the business. For the public company, holding on to the business once the value-creating changes have been made dilutes the final return.

In the early years of the current buyout boom, private equity firms prospered mainly by acquiring the noncore business units of large public companies. Under their previous owners, those businesses had often suffered from neglect, unsuitable performance targets, or other constraints. Even if well managed, such businesses may have lacked an independent track record because the parent company had integrated their operations with those of other units, making the businesses hard to value. Sales by public companies of unwanted business units were the most important category of large private equity buyouts until 2004, according to Dealogic, and the leading firms’ widely admired history of high investment returns comes largely from acquisitions of this type.

More recently, private equity firms—aiming for greater growth—have shifted their attention to the acquisition of entire public companies. (See the exhibit “Private Equity’s New Focus.”) This has created new challenges for private equity firms. In public companies, easily realized improvements in performance often have already been achieved through better corporate governance or the activism of hedge funds. For example, a hedge fund with a significant stake in a public company can, without having to buy the company outright, pressure the board into making valuable changes such as selling unnecessary assets or spinning off a noncore unit. If a public company needs to be taken private to improve its performance, the necessary changes are likely to test a private equity firm’s implementation skills far more than the acquisition of a business unit would. When KKR and GS Capital Partners, the private equity arm of Goldman Sachs, acquired the Wincor Nixdorf unit from Siemens in 1999, they were able to work with the incumbent management and follow its plan to grow revenues and margins. In contrast, since taking Toys “R” Us private in 2005, KKR, Bain Capital, and Vornado Realty Trust have had to replace the entire top management team and develop a whole new strategy for the business.

Private Equity’s New Focus
Many also predict that financing large buyouts will become much more difficult, at least in the short term, if there is a cyclical rise in interest rates and cheap debt dries up. And it may become harder for firms to cash out of their investments by taking them public; given the current high volume of buyouts, the number of large IPOs could strain the stock markets’ ability to absorb new issues in a few years.

Even if the current private equity investment wave recedes, though, the distinct advantages of the buy-to-sell approach—and the lessons it offers public companies—will remain. For one thing, because all businesses in a private equity portfolio will soon be sold, they remain in the spotlight and under constant pressure to perform. In contrast, a business unit that has been part of a public company’s portfolio for some time and has performed adequately, if not spectacularly, generally doesn’t get priority attention from senior management. In addition, because every investment made by a private equity fund in a business must be liquidated within the life of the fund, it is possible to precisely measure cash returns on those investments. That makes it easy to create incentives for fund managers and for the executives running the businesses that are directly linked to the cash value received by fund investors. That is not the case with business unit managers or even for corporate managers in a public company.

Furthermore, because private equity firms buy only to sell, they are not seduced by the often alluring possibility of finding ways to share costs, capabilities, or customers among their businesses. Their management is lean and focused, and avoids the waste of time and money that corporate centers, when responsible for a number of loosely related businesses and wishing to justify their retention in the portfolio, often incur in a vain quest for synergy.

Finally, the relatively rapid turnover of businesses required by the limited life of a fund means that private equity firms gain know-how fast. Permira, one of the largest and most successful European private equity funds, made more than 30 substantial acquisitions and more than 20 disposals of independent businesses from 2001 to 2006. Few public companies develop this depth of experience in buying, transforming, and selling.

HBR

THERE’S BEEN A COMMANDMENT BY GOD…

Matthew 6:12

“FORGIVE THOSE OF THEIR DEBTS / TRESPASSES AS GOD FORGIVE US OF OUR DEBTS / TRESPASSES” AMEN

Obedience is key in pleasing God, also in stewardship to gain territory and for God to enlarge our territories.

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God’s law as contrary to justice.

Whether God’s law can ever be unjust is now to be determined.

There is no injustice with God. If God’s law could be shown to be unjust in any respect, it would require that God Himself is unjust, for a perfectly just God could not make an unjust law. Hence, the question is whether there is any injustice with God.

The biblical record claims God is perfect in all His ways, which means He is perfectly just. There is no injustice with God.

“For I proclaim the name of the Lord; Ascribe greatness to our God! The Rock! His work is perfect, For all His ways are just; A God of faithfulness and without injustice; Righteous and upright is He.”

[Deut. 32:3-4.]

Justice is linked with impartiality in judgment. The normal form for legal exceptions to take is that they are granted to some people, but not others, or to people in some situations, but not others. Yet, granting exceptions to rules, particularly in a judicial setting, is a form of partiality prohibited by the law of God.

“You shall appoint for yourself judges and officers in all your towns which the Lord your God is giving you, according to your tribes, and they shall judge the people with righteous judgment. You shall not distort justice; you shall not be partial, and you shall not take a bribe, for a bribe blinds the eyes of the wise and perverts the words of the righteous. Justice,

justice, you shall pursue, that you may live and possess the land which the Lord your God is giving you.”

[Deut. 16:18-20.]

Justice in civil judgment requires that judges not apply the law in a partial way. That is, justice imposes a duty on every judge not to be a “respecter of persons.” As shown above, God is not a respecter of persons, which means that His law applies uniformly to all people. This is also the standard for human laws. Accordingly, uniformity in the application of legal rules is a necessary element of justice. A law that is not uniform is not just.

“You shall do no injustice in judgment; you shall not be partial to the poor nor defer to the great, but you are to judge your neighbor fairly.”

“You shall not show partiality in judgment; you shall hear the small and the great alike. You shall not fear man, for the judgment is God’s. And the case that is too hard for you, you shall bring to me, and I will hear it.”

But if you show partiality, you are committing sin

are convicted by the law as transgressors.

[Ja. 2:9.]

The definition of justice. The concept of justice is linked both to impartiality and righteousness. That is, what is just is also right. The definition of “righteousness” is linked to the concept of law, for the law declares what is right (or righteous) and what is wrong (or unrighteous). The word “justice” itself is based on the latin word “jus,” which means “law.” Therefore, justice would seem to mean “carrying out of the law.” And, if law is the expressed will of God, then to do justice is to carry out the will of God.

It would be impossible to carry out the law of God as it should, and have the result termed “unjust.” Whenever God’s law is followed, the result is always just. Conversely, whenever the law of God is not carried out, no matter what the result, injustice is the result. Consequently, “justice” is not a function of, or dependent upon, someone’s opinion of the results of the administration of law. Rather, the question of justice is a matter of whether the administration of law was righteous and impartial.

Discretion is an aspect of executive power. Jesus’ parable of the unmerciful slave is framed in terms of “a certain king” who wished to settle accounts with his slaves. [See, Mat. 18:23-35.] The parable opens with the statement that the story describes what the “kingdom of heaven” is like, and closes with the statement:

“So shall My heavenly Father also do to you, if each of you does not forgive his brother from your heart.”

[Mat. 18:35.]

The implication is that when God the Father forgives people, He does so in a kingly, or executive, capacity

The Nature Of Equity Jurisprudence

Having considered the history of equity jurisprudence, we may now inquire as to what the nature of that jurisprudence is. As the definition of equity suggests, equitable justice is a jurisprudence of discretionary judgment and exceptional situations. Historically, equity originated in the exercise of executive power by the English Chancellor, an officer of the king.

Equity is a jurisprudence of discretion.
The basis of equity is the administration of grace, or discretion, to do justice. For equitable purposes, though, “justice” does not mean carrying out the law in any strict sense, but to do what the judge thinks is fair, regardless of the law. Consequently, equity is largely a matter of personal moral conscience freed from the restraints of law.

The exercise of extraordinary jurisdiction by the Chancellor] was of favor, not of right; and hence those matters in which it was displayed were called emphatically “matters to be granted as of grace.” [Bispham, Principles of Equity, at 11.]

An executive function.

Although the English common law courts exercised their powers under the general authority of the king, they were primarily judicial in nature and function, limiting themselves to a non-discretionary judgment of the laws. England never separated the three branches of government as distinctly as we have in America, vesting judicial functions in the courts, Parliament and the monarch all at the same time, so this should be no surprise.

The Court of Chancery, however, was peculiarly executive in nature. The Chancellor purported to exercise the personal conscience of the king, that is, he wielded the power of executive discretion. As stated above, the Court of Chancery could not declare a legal judgment to be void, but it could prevent its enforcement. In essence, the Chancellor asserted the power to stay the execution of a legal judgment, which is a peculiarly executive function. The power to stay an execution of judgment is of the same nature as the power to pardon, which we recognize in America as the unique prerogative of the executive branch of government.

[T]he power of pardoning possessed by the chief executive is essentially the power to minister equity or grace . . .. [Bodenheimer, Jurisprudence, at 251.]

Equitable methodology.
“Equitable methodology” as used here means any manner of decision-making which is based on the concept of discretionary, individualized, or exceptional justice. The forms of equitable methodology which pervade modern jurisprudence are:

Equity Jurisprudence

Having considered the biblical and historic understanding of the definition of law, it may be helpful to compare and contrast it with the historic understanding of equity and to see how equity jurisprudence has shaped the modern view of law. Equity is often used in two senses relating to law, of which only the second will be examined here.

General equity. The general sense of equity, as used by Calvin and others, is a principle which undergirds all laws in general, much as love is said to undergird all of the divine law. [See, Mat. 7:12; 22:40; Rom. 13:8-10; Gal. 5:14.]

Particular equity. The particular sense of equity, the one which concerns us here, may be defined as a correction of a defect or error in the law, or a necessary exception to the law in order to prevent an unjust hardship.

IS GOD’S LAW IMPERFECT?
We have discovered that law is something permanent, uniform and universal. It would be helpful to determine at this point the extent to which the biblical record supports the concept of equity as a necessary or desirable exception to the law. Accordingly, the present task is to discover instances in the Bible where God’s law is viewed as defective or erroneous, as contrary to justice, or subject to exceptions.

God’s law as defective or erroneous.
If God’s law has any defect or error, it would be imperfect. An imperfect law would require that God Himself is imperfect, for a perfect God could not make an imperfect law. Similarly, a perfect law could not come from an imperfect God. Therefore, either God and His law are both perfect, or they are both imperfect.

God is perfect. God Himself is perfect, and He has no defects or errors. Neither does God make any mistakes. His work is perfect, and He sets the standard of perfection for all people.

The law of nature is perfect. When God made the world, He impressed His will for its governance upon the things that were made, which is the law of nature. This law of nature, upon the completion of the creation, was perfect in every way.
The Fall of man and the resulting curse of the ground did not introduce any defects or errors into the law of nature, for the perfection of God’s handiwork and His law was still evident to the Psalmist. “The Law of the Lord is perfect… Psalms 19:7
The divine law is perfect. The divine law as revealed in the Bible was promulgated in the form of several divine covenants. These covenants are discussed in detail below. Some of the divine covenants, particularly the covenant with Israel (the “Mosaic law”), have been modified by subsequent covenants. The question is whether such modifications imply an imperfection (in the sense of error or defect) in the original covenant.
As will be shown below, covenant modification is allowed only to the extent that the means of effecting the covenant are changed. The purposes of any covenant cannot be changed or terminated. Thus, the purposes of the divine covenants must be perfect. The distinction between means and purposes best explains the statement by Jesus, “Do not think that I came to abolish the Law or the Prophets; I did not come to abolish, but to fulfill.” [Mat. 5:17.] In other words, the purposes of Israel’s covenant would not be abolished, but the means of effecting it would be “fulfilled.”
The modification of the means of Israel’s covenant, being itself lawful, could not have violated the original covenant, nor be viewed as an exception to it. That is, all covenants are capable of modification. So long as the modification occurs pursuant to the terms of the covenant and the law of nature, the modification is itself lawful, not an exception to any law.
Covenant modification does not imply that a defect or error existed in the original covenant. Although Israel’s covenant is regarded as “not faultless” [See, Heb. 8:1-13], this is solely from the standpoint that the means of the covenant did not completely accomplish all that God wanted to do. Therefore, He set out to make it even better. However, “incompletion” as a means of spiritual redemption does not imply a “defect” or “error” in any of the legal rules under the original covenant.

THE RISE OF EQUITY
The early history of equity jurisprudence in England and America, in accord with the biblical record, clearly distinguished law from equity. However, the distinction between law and equity has become blurred in recent times.

Equity Defined

The nature of law as a rule of action which is permanent, uniform and universal mitigates against any generalized form of jurisprudence which is foundationally based on exceptional circumstances and case-by-case individualized justice.

“Equity” may generally be defined as the correction of a defect or error in the law. This idea is apparently of ancient origin, tracing back at least as far as Aristotle.

There are a number of reasons why a law may be deemed “defective” or “erroneous.” Three of the historic reasons given were the inability of legislators to foresee all situations, the unwillingness of judges to grant relief in some cases, and the need to prevent injustice in “hard cases.”

The first reason for making an equitable exception to a law was when the law suffered from “universality,” that is, the law was stated too broadly by the legislators. Supposedly the legislators, had they given thought to the matter, would have created an exception to the general rule in certain cases. The defect is really one of inaccurate word-crafting on the part of the legislative drafters. Thus, in theory, the statute does not accurately reflect the true law.

When therefore the law lays down a general rule, and thereafter a case arises which is an exception to the rule, it is then right, where the lawgiver’s pronouncement because of its absoluteness is defective and erroneous, to rectify the defect by deciding as the lawgiver would himself decide if he were present on the occasion, and would have enacted if he had been cognizant of the case in question. [Bodenheimer, Jurisprudence, at 250, quoting Aristotle.]

For since in laws all cases cannot be foreseen or expressed, it is necessary, that when the general decrees of the law come to be applied to particular cases, there should be somewhere a power vested of excepting those circumstances, which (had they been foreseen) the legislator himself would have excepted. [Blackstone, 1 Commentaries
*61.]

Equity has also been justified in cases where judges (typically in the common law courts) refused, for whatever reason, to grant relief to a complainant. In such cases, the complainant would seek relief in another place (typically in the Court of Chancery).

The general ground for equitable relief was then, as it professes to be now, either the failure of the common-law courts to recognize a right, or their inability to enforce it. . . . [T]he theory upon which courts of equity have always acted from the earliest times [is] the desire to supply deficiencies, no matter for what cause, in purely legal remedies. [Bispham, Principles of Equity, at 12.]

A third justification for equity relates to so-called “hard cases,” that is, where a strict application of the rule of law was clear and possible, but would have resulted in a hardship. In such cases, the harshness of the law was essentially viewed as contrary to justice.

In the words of the English medieval jurist Christopher St. Germain, “In some cases it is necessary to leave the words of the law, and to follow that [which] reason and justice requireth, and to that intent equity is ordained; that is to say, to temper and mitigate the rigour of the law.” In his discussion of the same problem Cicero . . . conveys the idea that a rigorous application of strict and invariable rules of law, untempered by equity, may at times produce undue hardship and great injustice. [Bodenheimer, Jurisprudence, at 363.]

The merger of law and equity. After 1616, equity was “supreme” over law in cases of jurisdictional conflict, but the two systems of justice were still very much distinct. By acts of Parliament in 1873 and 1875, however, the separate systems of law and equity were merged into a unity legal system. The effect of these acts was to confirm what Coke’s conflict had foreshadowed and what had in fact developed in the intervening years: that equity was not supreme merely in jurisdiction, but in substance as well. In other words, the substantive rules of equity were supreme over the substantive rules of law. The Judicature Act of 1873 ended with these words:

`Generally in all matters not hereinbefore particularly mentioned, in which there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter, the rules of equity shall prevail.’ [Maitland, Equity, at 16.]

It will be observed that, by the provisions of these Acts, the principles of justice, as administered in the Court of Chancery, were made to pervade the whole mass of English jurisprudence; and that, in fact, by the rules growing out of those principles, all questions of justice in England are hereafter to be determined. [Bispham, Principles of Equity, at 22.]

American equity jurisprudence. The nature and extent of equitable powers exercised in the English Court of Chancery seem to have been adopted as the rule of practice in American equitable jurisprudence as well.

Coach according to God’s game plan.

Over the course of the approximately 18 years that we have to influence our children, it should be our goal to instruct and guide them in God’s plan for their lives. Beyond that, we will find that each child has a unique calling of God on their life based on their gifts, their heart, and abilities. We need to help them discover God’s specific plan for their life, and not only the general plan of how He wants us all to live. Deuteronomy 6:7-9 guides us in how we should talk about the Lord when we get up in the morning, when we’re traveling, when we’re sitting down for meals, and going to bed at night. Talking about the influence of God on our family and our lives needs to be 24/7 and as natural as breathing.

In the federal courts [of the United States] the limits of equitable jurisdiction are to be ascertained by reference to the boundaries within which the powers of the English Court of Chancery were exercised. [Bispham, Principles of Equity
, at 2-3. See also, U.S. v. American Bell Telephone Co., 128 U.S. 315 (1888), at 359-361.]

Not bound by law. One of the familiar maxims of equity is that “equity follows the law.” However, the application of this maxim is itself discretionary, not obligatory. In other words, a judge need not follow the law if it would be “inequitable” to do so. And, since equity is supreme over law in both jurisdiction and substance, it is quite clear that the extent to which equity “follows” the law is discretionary.

“In the early days there were no fixed principles upon which the Chancellors exercised their equitable jurisdiction. The rule applied depended very much upon the ideas as to right and wrong possessed by each Chancellor.” [Walsh, Equity, at 41, quoting Prof. Holdsworth.]

[T]he customary generality of law is sacrificed in a concrete situation to the need of dispensing an individualized justice. A departure from, or relaxation of, fixed norms is deemed necessary in the interests of justice . . .. [Bodenheimer, Jurisprudence, at 249.]

An executive function. Although the English common law courts exercised their powers under the general authority of the king, they were primarily judicial in nature and function, limiting themselves to a non-discretionary judgment of the laws. England never separated the three branches of government as distinctly as we have in America, vesting judicial functions in the courts, Parliament and the monarch all at the same time, so this should be no surprise.

[T]he power of pardoning possessed by the chief executive is essentially the power to minister equity or grace . . .. [Bodenheimer, Jurisprudence, at 251.]

The formalization of equity. In some areas of equitable jurisprudence, rules of equity became formalized through repeated usage over time. Nonetheless, these formalized rules were still based on exceptions to the rules of law. Thus, the rules of equity have never lost their character as a jurisprudence of discretionary justice.

[A] judicial engrafting of an exception or qualification upon a previously existing rule of law may in many cases be no more than the initiation of a new normative standard to be applied to all similarly situated cases in the future. . . .

[A]s soon as [equitable relief] was granted as a matter of course in other and similar cases in which the remedy at law was found inadequate, the original equitable departure from the letter of the common law became transformed into a “rule of equity jurisprudence.” [Bodenheimer, Jurisprudence, at 250.]

In the course of time, much of what had in its inception been an “anti-legal” exercise of discretion, or “justice without law,” later formed into a body of legal rules supplementing those of the common law. [Bodenheimer, Jurisprudence, at 367.]

Individualized equity jurisprudence. Notwithstanding the formalization of some areas of equitable jurisprudence, a continuing hallmark of equity is the case-by-case method of analysis. This form of individualized equity is characterized by a “facts and circumstances” analysis where there are no formal rules, and every case is treated as exceptional.

This capacity of moulding a decree to suit the exact exigencies of a particular case is indeed one of the most striking advantages . . . of equitable jurisprudence. [Bispham, Principles of Equity, at 10.]

An equitable decision may be one that is neither based on an existing rule of law nor designed to inaugurate a new sequence of precedents. Its sole aim may be to do justice to the parties in a case characterized by a configuration of facts unlikely ever to be repeated in reality in the same or a similar way.[Bodenheimer, Jurisprudence, at 250-251.]

The practical application of any of the rules in equity requires the exercise of judicial discretion. The flexibility of equity needed to adapt its relief to special cases so that hard cases may be taken outside the operation of general rules where “reason and conscience” require it, is accomplished by this exercise of judicial discretion. May we not fairly conclude that this was always true . . .? [Walsh, Equity, at 43.]

Pray the plan into being.

It is crucial that a couple prays together for their marriage, for each child, and for issues in the home. Not only do we need to pray daily for our children, but we need to be praying daily with our children. As they get older, we may not be having bedtime prayers anymore, but we need to continue to pray together about significant events in their lives, and in the lives of other family members. To pray together with your kids (and your teens) during difficult times in their lives is so critical. For them to actually hear you holding them up before the Lord is a very beautiful gift. They will understand God’s place in your life as you pray together as a family.

CURRENT EQUITY METHODOLOGY
The point of the above review of the nature and history of equity is to consider the impact equitable jurisprudence has made on modern judicial decision-making. Indeed, this impact has been substantial, not merely in the extent to which rules of equity inform modern concepts of justice, but also in the fact that many judicial opinions today employ a methodology which is primarily equitable in nature, rather than legal.

A word of disclaimer is appropriate here, because the matter should not be pressed too far. That is, no present consideration is made of the legal validity of trusts, rescission, specific performance, and other legal subject matters historically reviewed in the courts of equity. That is, the present review does not concern itself with legal subject matters at all. Rather, the exclusive focus of this review is on judicial decision-making which employs equitable methodology, irrespective of the substantive legal subject matter considered.

Equity is not law.
Despite the formalization of some areas of equitable jurisprudence, the theory underlying all of equity is that justice demands discretionary exceptions. Accordingly, equitable rules were not permanent, uniform and universal as were the rules of law. That is, equity has always been viewed as something distinct from law in the strict sense, and that is no less true today than in earlier times. Equity thus depending, essentially, upon the particular circumstances of each individual case, there can be no established rules and fixed precepts of equity laid down, without destroying its very essence, and reducing it to a positive law. [Blackstone, 1 Commentaries
*61-62.] [T]his judicial vehicle for accomplishing justice [i.e., individualized equity], since it lacks the normative element typical for legal regulation, should clearly be distinguished from “law” in the proper sense, a distinction which Aristotle lucidly drew . . .. [Bodenheimer, Jurisprudence, at 251.]

Conflict with law. The concerns which motivate this examination are certain logical conflicts between the nature of equity and what we have discovered about the nature of law, namely:

Justice. The nature of law suggests that “justice” denotes carrying out the law. Equity, on the other hand, views carrying out the law as often contrary to justice. In fact, the underlying basis of equity is that an “equitable” rule of law may conflict with a “legal” rule of law, which places law in opposition to itself.

Discretion. The nature of law is such that a judge is to exercise judgment, not will. That is, a judge makes decisions because the law obligates him to do so. Equity, though, permits a judge to make decisions on the basis of personal discretion.

Uniformity. The nature of law requires that rules of justice be applied uniformly, and the failure to do so shows partiality on the part of the judge. However, equity allows for exceptions and special cases to override the application of general rules.

Equitable methodology. “Equitable methodology” as used here means any manner of decision-making which is based on the concept of discretionary, individualized, or exceptional justice. The forms of equitable methodology which pervade modern jurisprudence are:

Facts and circumstances test. Standard judicial practice with respect to a facts and circumstances analysis regards every case as exceptional, demanding extraordinary justice which is incapable of rule formulation. Consequently, only judges can decide such matters, and only on a case by case basis.

Balancing of interests. The idea of balancing interests is based on the concept of balancing equities. Indeed, the reason why “balancing” arose as a judicial concept was to avoid the “all-or-nothing” results of the application of the rules of the common law. Thus, balancing interests was a way to tailor remedies to the personal needs of the parties, and was just another form of facts and circumstances analysis.

Conclusions. The above analysis suggests the following conclusions:

Executive equity. Equity which is exhibited in the form of the pardon power and stays of execution are lawful and just when such actions are within the discretionary powers of executive officers.

Judicial equity. There are some cases in which judicial equity is appropriate, and other cases where it is not.

Although God’s law is perfect, human laws are not. Thus, judicial equity is appropriate where the judge finds that an imperfect human law, for whatever reason, fails to take into account some aspect of God’s law which bears on the case. Of necessity, then, an “exception” must be made to the human law to properly account for the applicability of God’s law. This is the best sense of judicial equity, because although an exception is made to a law, it is not discretionary, but legally necessary. Such exceptions are just because they carry out the law of God.

The reverse situation, where a human law “necessitates” the creating of an exception to God’s law is not an appropriate exercise of judicial equity. God’s law, being perfect, admits of no exceptions. Consequently, where God’s law demands one thing, the judge has no discretion to declare that the law demands something else.

Again, no suggestion is made here [per §70, supra] that equitable subject matters, such as trusts, specific performance, etc. are biblically or historically inappropriate matters for the promulgation of legal rules and the exercise of judicial power. However, such legal rules would most appropriately originate in the legislature, which could also define the jurisdiction of the courts to hear such matters. If this were done, judges could address such equitable subject matters from the standpoint of a statutory scheme having a non-discretionary application. And, although the subject matters would be equitable historically, their adjudication would be obligatory, not discretionary. Thus, the concern addressed herein is not equitable subject matters, but equitable methodology as a vehicle for exercising judicial power.

The danger. In the words of one legal commentator, “Equity had come not to destroy the law, but to fulfil it,” an obvious allusion to Mat. 5:17. [Maitland, Equity, at 17.] Perhaps a more accurate assessment would be that equity has supplanted the law. Indeed, equity methodology has captured the field of judicial decision-making today. The end result is a jurisprudence based not on law, but on individual notions of fairness. And, if that is the case, we ought to have the intellectual honesty to recognize it for what it is. Ultimately, however, continued reliance on equity methodology as a basis for general jurisprudence will set law adrift at sea without bearings, unable to administer justice according to any fixed norms or rules.

[T]he liberty of considering all cases in an equitable light must not be indulged too far, lest thereby we destroy all law, and leave the decision of every question entirely in the breast of the judge. And law, without equity, though hard and disagreeable, is much more desirable for the public good, than equity without law; which would make every judge a legislator, and introduce most infinite confusion; as there would then be almost as many different rules of action laid down in our courts, as there are differences of capacity and sentiment in the human.
EVANGELICAL ALUMNI FOUNDATION

An executive function.

Equity Jurisprudence

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