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Henry E. Smith, Equity as Second-Order Law: The Problem of Opportunism (Jan. 15, 2015).


Abstract: Despite the fusion of law and equity and the apparent demise of equity as a distinct system, this Article argues that equity is a distinct decision making mode within a legal system. Private law relies on formal structures of rights and rules that can be exploited and abused by opportunists. The possibility of strategic manipulation of the information available to other parties and to courts furnishes a rationale for a second-order safety valve on the formal law. In the Anglo-American tradition this anti-opportunism safety valve corresponds roughly to a major strand of equity jurisprudence. The Article shows that an equitable safety valve is to be found in both traditional equity theory and as a theme in equity, from the maxims to defenses to remedies to procedure. The Article explains and partially justifies the equitable safety valve as an ex post higher-order intervention aimed at a problem of measurement and uncertainty: law needs protection against opportunistic distortion and misuse of probabilistic information used by parties and courts. The importance of equity suggests a rethinking of “actuarialist” assumptions in conventional law and economics about stable and unbiased probabilistic information being available to parties and courts. Opportunists can be regarded as entrepreneurs in doing bad who exploit uncertainty. Once the function of equity as an anti-opportunism device is understood, many jurisprudential debates, especially those revolving around formalism and contextualism, can be seen to be lacking an appreciation of hybrid decision making that equity makes possible. Equity as an anti-opportunism safety valve provides an attractive way out of some thorny dilemmas.