Parsons v McBain: 5 Apr 2001

Federal Court of Australia – BANKRUPTCY – constructive trust – transfer of property to beneficiary – whether void as against trustee in bankruptcy
EQUITY – equity of exoneration – how defeated
TRUSTS – ‘common intention constructive trust’ – whether trustee in bankruptcy takes subject to trust – time at which trust ari
A surety, or a person in the position of a surety, has a right of exoneration whereby he or she is entitled to be indemnified by the principal debtor against any liability incurred as a consequence of being called on to pay the debt, describing it as an incident of the relationship between surety and principal debtor.
‘Where co-owners mortgage their property so that money can be borrowed for the benefit of one mortgagor, the other co-owner will be treated as if he or she was a surety and the equity of exoneration will also arise. In those circumstances that other has an interest in the property of the co-mortgagor whose property is to be regarded as primarily liable to pay the debt: Parsons at [21], Duncan, Fox and Co v North and South Wales Bank (1880) 6 App Cas 1 at 10.
However, the right to exoneration is lost where the surety receives a benefit from the loan or the funds raised in respect of which the charge has been given. ‘So, if the borrowed funds are applied to discharge the surety’s debts, the surety could not claim exoneration, at least in respect of the benefit received.’
Here, the giving of the [Brighton Westpac mortgage] might have created a relationship whereby Mr Mogilevsky would be treated as a surety and Mrs Mogilevsky would be treated as principal debtor if:
the mortgage was for the purpose of raising money to benefit the co-owner, in this case Mrs Mogilevsky;
the money borrowed was used for that purpose; and
Mr Mogilevsky derived no benefit from the money so raised.’
References: [2001] FCA 376, (2001) 109 FCR 120, 192 ALR 772
Links: Austlii
Judges: Black CJ, Kiefel, Finkelstein JJ
Jurisdiction: Australia
This case is 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 . .
    (, [2017] EWCA Civ 268, [2017] WLR(D) 271,, )

These lists may be incomplete.
Last Update: 27 November 2020; Ref: scu.581747