This section is from the book "Popular Law Library Vol7 Equity Jurisprudence, Trusts, Equity Pleading", by Albert H. Putney. Also available from Amazon: Popular Law-Dictionary.
Parties to a suit in equity are classified as indispensable, necessary and formal parties.
"Formal parties are those who have no interest in the controversy between the immediate litigants, but have an interest in the subject-matter, which may be conveniently settled in the suit, and thereby prevent further litigation. They may be parties or not at the option of the complainant. Necessary parties are those who have an interest in the controversy, but whose interests are separable from those of the parties before the court, and will not be directly affected by a decree which does complete and full justice between them. Such persons may be made parties, if practicable, in obedience to the general rule which requires all persons to be made parties who are interested in the controversy, in order that there may be an end of litigation. Indispensable parties are those who not only have an interest in the subject-matter of the controversy, but an interest of such a nature that a final decree cannot be made without either affecting their interests, or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience." 1
This classification originated with the Supreme Court of the United States and has become the generally recognized system of classification. The Supreme Court of the United States in discussing this subject in the case of Shields vs. Barrow,2 said:
"Such being the scope of this bill and its parties, it is perfectly clear that the Circuit Court of the United States for Louisiana could not make any decree thereon. The contract of compromise was one entire subject, and from its nature could not be rescinded, so far as respected two of the parties to it, and allowed to stand as to the others. Thomas R. Shields, the principal, and four out of six, of his indorsers, being citizens of Louisiana, could not be made defendants in this suit; yet each of them was an indispensable party to a bill for rescission of the contract. Neither the Act of Congress of February 28, 1839 (5 Stat, at L., 321, Sec. 1), nor the 47th rule for the equity practice of the circuit courts of the United States enables a circuit court to make a decree in equity, in the absence of an indispensable party, whose rights must necessarily be affected by such a decree.
1 See Fletcher on Equity Pleading, Sec. 40.
2 17 Howard, 139; see, also, Minnesota vs. Northern Securities Co., 184 U. S., 199; Ribon vs. Chicago, R. I. & P. R. Co., 16 Wall., 563; Kendig vs. Dean, 97 U. S., 423.
"In Russell vs. Clarke's Executors, 7 Cranch, 98, this court said: The incapacity imposed on the Circuit Court to proceed against any person residing within the United States, but not within the district for which the court may be holden, would certainly justify them in dispensing with parties merely formal. Perhaps in cases where the real merits of the cause may be determined without essentially affecting the interests of absent persons, it may be the duty of the court to decree, as between the parties before them. But, in this case, the assignees of Robert Murray & Co. are so essential to the merits of the question, and may be so much affected by the decree, that the court cannot proceed to a final decision of the cause till they are parties.'
"The court here points out three classes of parties to a bill in equity. They are: (1) Formal parties; (2) persons having an interest in the controversy, and who ought to be made parties, in order that the court may act on that rule which requires it to decide on and finally determine the entire controversy, and to complete justice by adjusting all the rights involved in it. These persons are commonly termed necessary parties, but if their interests are separable from those of the parties before the court so that the court may proceed to a decree and do complete and final justice without affecting other persons not before the court, the latter are not indispensable parties. (3) Persons, who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience.
"A bill to rescind a contract affords an example of this kind. For, if only a part of those interested in the contract are before the court, a decree of rescission must either destroy the rights of those who are absent, or leave the contract in full force as respects them, while it is set aside, and the contracting parties restored to their former condition, as to the others. We do not say that no case can arise in which this may be done; but it must be a case in which the rights of those before the court are completely separable from the rights of those absent, otherwise the latter are indispensable parties.
"Now it will be perceived that in Russell vs. Clarke's Executors, this court, after considering the embarrassments which attend the exercise of the equity jurisdiction of the circuit courts of the United States, advanced as far as this. They declared that formal parties may be dispensed with when they cannot be reached; that persons having rights which must be affected by a decree cannot be dispensed with; and they express a doubt concerning the other class of parties. This doubt is solved in favor of the jurisdiction in subsequent cases, but without infringing upon what was held in Russell vs. Clarke's Executors concerning the incapacity of the court to give relief when that relief necessarily involves the rights of absent persons. As to formal or unnecessary parties, see Wormley vs. Wormley, 8 Wh., 451; Carneal vs. Banks, 10 Wh., 188; Vattier vs. Hinde, 7 Pet., 266. As to the parties having a substantial interest, but not so connected with the controversy that their joinder is indispensable, see Cameron vs. M'Roberts, 3Wh., 591; Osborn vs. Bank of U. S., 9 Wh., 738; Harding vs. Handy, 11 Wh., 132. As to the parties having an interest which is inseparable from the interest of those before the court, and who are therefore, indispensable parties, see Cameron vs. M'Roberts, 2 Wh., 571; Mallow vs. Hinde, 12 Wh., 197.