Mr and Mrs Shaw had granted a second charge over their jointly-owned matrimonial home to secure the personal guarantee given by their daughter and by Mr Shaw in respect of a bank loan to a company (Avon). Their daughter and Mr Shaw were the shareholders and directors of Avon. Mrs Shaw had no involvement in the company, and, while she may have held some shares in it, there was no evidence that it was a substantial shareholding. On the sale of their home, the liability to the bank was discharged out of the proceeds. In proceedings brought by a creditor with a judgment against Mr Shaw to enforce a charging order against the property, the issue arose whether Mrs Shaw was entitled to an equity of exoneration as against Mr Shaw’s share of the property.
At first instance, the district judge held that Mrs Shaw was entitled to be exonerated out of Mr Shaw’s share of the property and rejected the claimant’s case that, because Mr and Mrs Shaw’s financial position was tied up with the prosperity of Avon, the borrowings for Avon’s business were indirectly for their joint benefit, so precluding the equity from arising in Mrs Shaw’s favour.
Held: The sub-sureties (Mr and Mrs Shaw) were entitled to be indemnified by the sureties (Mr Shaw and Mrs Shergold) in just the same way as a surety was entitled to be indemnified by a principal debtor. Although, overall, Avon waqs the principal debtor, if one asked as between the guarantors and the mortgagors who was the principal debtor, the answer was: the guarantors.
Mr Shaw as one of the two guarantors was liable to indemnify Mrs Shaw as one of the two mortgagors in relation to the debt owed to Barclays and her right to an indemnity gave her a proprietary right in relation to Mr Shaw’s share in the property.
 EWHC 36 (Ch)
England and Wales
Cited – Re Cronmire, ex parte Cronmire CA 1901
At the husband’s request his wife deposited with his bankers the title deeds of her property as security for advances to be made to him. Before he became bankrupt the debt was paid off by her.
Held: The court acknowledged the entitlement of a . .
Cited – Hall v Hall ChD 1911
An equity of exoneration in favour of a wife arises ‘at the time she charges her estate’. The doctrine of exoneration is based on an inference in each case from all the facts of that particular case. Where one co-habitee joins in granting a charge . .
Cited – Gee v Liddell ChD 1913
A co-mortgagor has an ‘interest in [and] a charge upon the estate of the principal debtor’. An equity of exoneration was applied as between brothers.
An equity of exoneration operates in the nature of ‘a charge upon the estate of the principal . .
Cited – Re a debtor (No 24 of 1971), ex parte Marley (J) v Trustee of the property of the debtor ChD 1976
The court will look to the realities of the relationship between the mortgagors and will not be governed by the terms of the mortgage instrument if they do not accord with the actual facts.
Held: the court accepted that an equity of . .
Cited – In Re Pittortou (a bankrupt) ChD 1985
H and W charged the property to secure the H’s overdrawn bank account. The account was used both for his business and for payment of expenses relating to the matrimonial home. H was adjudicated bankrupt. W sought her equity to be exonerated from H’s . .
Cited – Paget v Paget CA 1898
The plaintiff wife was ‘a lady of fortune’, with the bulk of her property settled on her for life for her separate use without power of anticipation. They ‘moved in good society and, large as their income was, they lived far beyond it.’ They were . .
Cited – Re Woodstock (a bankrupt) ChD 19-Nov-1979
Walton J drew attention in his judgment to the need for the courts, in considering how the equity of exoneration should work as between a husband and a wife, to take into account the relationship which husbands and wives bear, or ought to bear, to . .
Cited – Royal Bank of Scotland v Etridge (No 2); Barclays Bank plc v Harris; Midland Bank plc v Wallace, etc HL 11-Oct-2001
Wives had charged the family homes to secure their husband’s business borrowings, and now resisted possession orders, claiming undue influence.
Held: Undue influence is an equitable protection created to undo the effect of excess influence of . .
Cited – Craythorne v Swinburne 23-Jul-1807
No contribution in favour of one Surety against another : his engagement, according to the bond, and parol evidence, which was held admissible, being, not as Co-surety, but, without the privity of the other, as a distinct collatteral secnrity, . .
Cited – Fox et al v Royal Bank of Canada et al 7-Oct-1975
Canlii Supreme Court of Canada – Guarantee -Surety and sub-surety – Co-sureties – Sub-surety guaranteeing liability of surety – Surety paying creditor-Right of sub-surety to indemnity from the co-sureties. . .
Cited – Scholefield Goodman and Sons Ltd v Zyngier PC 16-Aug-1985
(Victoria) By a mortgage executed in favour of the bank Mrs Zyngier covenanted to pay to the bank any sums which might be owed to it either by herself or by a named company, including any amounts for or in respect of any bills of exchange on which . .
Cited – Official Trustee in Bankruptcy v Citibank Savings Ltd 1995
(New South Wales) Mr and Mrs P owned and controlled W Ltd. W Ltd borrowed monies from Citibank which took security for repayment in the form of a charge over the home of Mr and Mrs P and also a charge over the home of the parents of Mr P. On the . .
Cited – Armstrong v Onyearu and Another CA 11-Apr-2017
Exoneration of partner’s equity on insolvency
The court considered the equity of exoneration, where property jointly owned by A and B is charged to secure the debts of B only, A is or may be entitled to a charge over B’s share of the property to the extent that B’s debts are paid out of A’s . .
Lists of cited by and citing cases may be incomplete.
Updated: 29 November 2021; Ref: scu.520821