A married couple opened a joint bank account. H’s business fell into difficulties and overdraft facilities were arranged, secured by a mortgage over their jointly-owned house. The account was used both for the husband’s business and for household purposes. The overdraft appears to have resulted purely from business drawings and the account in due course became used largely for business purposes only. H was made bankrupt.
Held: W was not entitled to exoneration out of the husband’s share of the house. The account was a joint account and the wife as well as the husband was liable to the bank as a primary debtor. There was no evidence of any agreement between them that the husband should be the principal debtor, and they were at all times co-debtors of the bank. If A and B are jointly liable as principal debtors, A can have no entitlement to exoneration against B in the absence of agreement between them to that effect, nor can there be any evidential presumption of such entitlement.
Richardson J said: ‘I can state my conclusions in this case quite shortly. Here, husband and wife were at all times co-debtors to the bank and later to the nominee company. There is nothing in that relationship of co-debtor to warrant the implication that as between themselves, one is principal debtor and the other is secondary debtor. It is not a case where a wife charged her property or pledged her credit and the husband received the loan moneys. They entered into the transactions jointly. They were jointly liable and they incurred liability in consideration of advances made an accommodation given to them jointly. And there is no evidence of any agreement between husband and wife that one should be principal debtor. In my opinion the mortgage transactions, whether taken on their own or in conjunction with the operation of the joint account, did not give rise to any obligations by the husband to the wife. In these circumstances I consider there is no room for the application of the principle of exoneration.’ He considered the equity of exoneration as applicable to sureties and referred to Paget v Paget and Hall v Hall, as well as Halsbury’s Laws of England (3rd ed.). By contrast, in the case before him, the husband and wife mortgaged jointly-owned property to secure ‘advances or accommodations made or given to them jointly and received by them jointly’. They were two-way transactions involving the lender and borrowers and they ‘did not involve three distinct parties (the lender, the principal debtor, and the surety) which is the essence of the surety situation.’
Richardson J considered: ‘the rights of husband and wife in relation to a joint bank account’, identifying the circumstances in which as a matter of law one of them will, as between themselves, have primary responsibility for any liability on the joint account and whether such circumstances existed in the case before the court. He said that the concern is ‘to ascertain the intentions of the parties in their particular circumstances and in relation to the events that have arisen.’ He identified as the starting point ‘what inferences may properly be drawn as to common intention of this husband and this wife in relation to the opening and operation of the joint account’ (emphasis added). He proceeded to consider the facts of the particular case and concluded from them that the family home was a joint asset and the joint account and mortgage were ‘joint responsibilities’. In this context, he referred to English cases concerned with joint accounts, such as Jones v Maynard [1951] Ch 572, Gage v King [1961] 1 QB 188, Re Bishop [1965] Ch 450.
Somers J delivered a concurring judgment to similar effect, with the proposition that the ‘equity of exoneration is an incident of the relation between surety and principal’ (page 382). He referred in some detail to the speech of Lord Selborne LC in Duncan, Fox and Co v North and South Wales Bank (1880) 6 App Cas 1, where he identified the three classes of case ‘in which the relations between co-debtors may be such as to entitle one to cast the liability, as between them, on the other or others’ (emphasis added).
‘The statements of principle contained in those cases and the suggestions as to the proper inferences to be drawn reflect both the position of a wife in relation to property before the Married Women’s Property Act 1882 and a social climate wholly different from the present. While as between strangers the simple question, who got the money, may afford a ready and just solution, its potency as a solvent in the case of a joint account of a housewife and mother in New Zealand in the 1970’s is not so apparent. It necessarily involves the proposition that husband and wife intended to enter into legal relations, such intent being an actual intention or – denied by Paget v Paget [1898] 1 Ch 470 – a presumed intent.’
Somers J continued that where there was no expressed intention by the parties and no facts warranting any other inference, the starting point was that adopted by Diplock J in Gage v King that ‘arrangements involving a joint account between husband and wife are not meant to be attended by legal consequences during the subsistence of the marriage’
Somers J said: ‘The same type of consideration is involved in a determination, if such be necessary, of whether the withdrawals were for the sole benefit of the husband. On that point, however, there is evidence. The account appears to me to have been opened as a matter of convenience to both parties each of whom, for a time, paid in moneys and made withdrawals. It then became for practical purposes an account into which the husband paid the profits of his business and withdrew moneys to support it. The evidence does not suggest it was a general business account. It became in fact an account concerned with a vital feature of the family life – the earnings of the husband – and a buttress of that business from which such earnings were derived. To assert that the wife had no benefit from the withdrawals is to take too narrow a view.’
Judges:
Richardson, Somers JJ
Citations:
[1978] 2 NZLR 373
Jurisdiction:
England and Wales
Cited by:
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.
Equity
Updated: 04 May 2022; Ref: scu.581746