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 debt.
Held: Scott J said that where payments had been made for the joint benefit of the household, they must be paid from the net proceeds before division. However an equity of exoneration applied to payments made purely for business purposes and for H’s sole benefit, and these were to be deducted only from H’s share.
Exoneration depended on the presumed intention of the parties. To apply, it would be necessary to demonstrate that (a) the spouse joined in a charge over jointly owned property; (b) the spouse did so for the purposes of the bankrupt; and (c) the money must have been borrowed and used for the bankrupt’s sole benefit.
The joint owner who is effectively in the position of a surety for the other joint owner is not only entitled to be indemnified by the other joint owner in relation to the relevant debt but the right to an indemnity carries with it a proprietary right over the indemnifying party’s share in the property. Thus, the party with the benefit of an equity of exoneration has not only a personal claim but is also a secured creditor in relation to that claim.
The court set out a definition of an equity of exoneration: ‘if the property of a married woman is mortgaged or charged in order to raise money for the payment of her husband’s debts, or otherwise for his benefit, it is presumed, in the absence of showing an intention to the contrary, that she meant to charge her property merely by way of security, and in such case, she is in the position of a surety, and is entitled to be indemnified by the husband, and to throw the debt primarily on his estate to the exoneration of her own.’
‘It is, I think, clear that the effect of the equity of exoneration in a case such as this is indeed to enhance the proprietary interest of the surety/joint mortgagor and not simply to give the surety a personal right to an indemnity from the debtor who is the other joint mortgagor.’
Judges:
Scott J
Citations:
[1985] All ER 285
Jurisdiction:
England and Wales
Citing:
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 – 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 – 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 by:
Cited – Day v Shaw and Another ChD 17-Jan-2014
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 . .
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, Land, Insolvency
Updated: 06 May 2022; Ref: scu.420747