Skip to main content

Cookies

We use cookies to help provide a better website experience for you, as well as to understand how people use our website and to provide relevant advertising.

By clicking "I agree", you'll be letting us use cookies to improve your website experience. To find out more or to change your cookie preferences, click "Manage Cookies".

We value your privacy

Like many other websites, our website uses cookies. Cookies are small files placed on your computer when you visit our site. They serve a number of purposes, including ensuring that certain parts of the website work properly, allowing us to understand which areas of our website are the most popular and allowing us to provide more relevant advertising messages. They don't allow us to identify you specifically and no personal data is gathered about you.

If you'd prefer that cookies weren't placed on your computer when you visit our site, you can use the controls below to allow or disallow different types of cookie. Some cookies are essential for the website to work, so they can't be disallowed.

  • These cookies give us anonymised information on how people use our website. We use these cookies to help us tailor our site to meet the needs of our visitors, for example by making sure our most popular pages are easy to find.

  • These cookies serve a number of purposes, such as allowing you to share our content with your friends and social networks. We also use these cookies to provide targeted advertising, so you may see relevant adverts based on the pages you look at on our website.

  • About
  • News & Insights
  • Careers
  • International
0370 1500 100
Dialog that contains search functionality
Irwin Mitchell Logo
  • Personal
    • Personal
    • Personal Home
    • Personal Injury Claims
      • Personal Injury Claims
      • Personal Injury Claims Home
      • Abuse & Criminal Injury Claims
      • Accidents In Public Places Claims
      • Accident At Work Claims
      • Air, Rail & Maritime Claims
      • Asbestos & Mesothelioma Claims
      • Changing Solicitors During a Personal Injury Claim
      • Group Claims
      • Holiday Accidents & Illness Claims
      • Illness Compensation Claims
      • Industrial Disease Claims
      • Injury Types
      • Military Injury Compensation Claims
      • No Win No Fee Personal Injury Claims
      • Personal Injury Claims In Scotland
      • Personal Injury Information
      • How To Claim Compensation For Personal Injury
      • Product Liability Claims
      • Rehabilitation & Medical Care
      • Road Traffic Accident Claims
      • Serious Injury Claims
      • Who Can Help?
      • Support Services
    • Medical Negligence Claims
      • Medical Negligence Claims
      • Medical Negligence Claims Home
      • Cancer Misdiagnosis Claims
      • Birth Injury Claims
      • Cauda Equina Syndrome Claims
      • Birth Injury Claims
      • Cosmetic Surgery Claims
      • Cerebral Palsy Claims
      • Defective Medical Device Claims
      • Dental Negligence Claims
      • Diabetes Claims
      • Fatal Medical Negligence Claims & Inquests
      • GP Negligence Claims
      • Hospital Negligence Claims
      • What Is Medical Negligence?
      • Meningitis Misdiagnosis Claims
      • Failure To Prevent Suicide Claims
      • Misdiagnosis Claims
      • Ophthalmic Negligence Claims
      • Pregnancy & Gynaecology Injury Claims
      • Sepsis Negligence Claims
      • Shrewsbury & Telford Hospital NHS Trust Maternity Care Claims
      • Stroke Misdiagnosis Claims
      • Surgery Compensation Claims
    • Family Law
      • Family Law
      • Family Law Home
      • Divorce Solicitors
      • Prenuptial & Postnuptial Agreement Solicitors
      • Child Abduction Solicitors
      • Civil Partnership Solicitors
      • LGBT+ Family Law Solicitors
      • Unmarried Couples' Rights
      • Divorce Financial Settlement Solicitors
      • Child Arrangement Orders
      • Out Of Court Divorce Solicitors
      • Separation Agreement Solicitors
      • Adoption & Surrogacy Solicitors
    • Wills, Trusts & Estates
      • Wills, Trusts & Estates
      • Wills, Trusts & Estates Home
      • Estate Planning Solicitors
      • Powers Of Attorney
      • Trusts
      • Will Writing Services
      • Will Disputes & Contentious Probate
    • Conveyancing & Property Solicitors
      • Conveyancing & Property Solicitors
      • Conveyancing & Property Solicitors Home
      • Conveyancing Fees Calculator
      • Buying A Property
      • Selling A Property
      • Remortgage
      • Transfer Of Equity
      • Buy To Let
      • Absentee Landlord & Freeholder Tracing Service
      • Freehold Purchase (Leasehold Enfranchisement) Solicitors
      • Lease Extension Solicitors
      • Conveyancing Guide
    • Tax
      • Tax
      • Tax Home
      • Business Tax
      • Inheritance Tax
      • International Tax
      • Professional Negligence
      • HMRC Tax Investigations
      • Tax Disputes & Litigation
      • Tax Residence
      • Tax Returns & Compliance
      • Wealth Structuring
    • Probate
      • Probate
      • Probate Home
      • International Probate
      • Probate Sale Conveyancing
      • What Is Probate & How Does It Work?
    • Will, Trust & Estate Disputes
      • Will, Trust & Estate Disputes
      • Will, Trust & Estate Disputes Home
      • Trust Disputes
      • Inheritance Act Claims
      • Contesting A Will
      • Contentious Probate
      • Pre-Death Agreements
      • Professional Negligence
      • Challenging A Lifetime Gift
      • Financial Abuse
      • Statutory Will Disputes
      • Defending A Contested Will
    • Employment Solicitors
      • Employment Solicitors
      • Employment Solicitors Home
      • Employment Contract Solicitors
      • Employment Disputes
      • Dismissal & Redundancy Solicitors
      • Employment Discrimination Solicitors
      • Employment Lawyers for Legal Expenses Insurance
      • Harassment & Bullying At Work Solicitors
      • Parental & Family Friendly Employment Rights
      • Professional Discipline Solicitors
      • Recruitment & Promotion
      • Senior Executive Employment Lawyers
      • Settlement Agreements
      • Whistleblowing Solicitors
    • Elderly Legal Services
    • Protecting Your Rights
      • Protecting Your Rights
      • Protecting Your Rights Home
      • Actions Against The Police
      • Environmental & Planning Law
      • Assessment & Treatment Unit Solicitors
      • Data Protection Breach Claims
      • Education Law
      • Healthcare & Social Services
      • Human Rights
      • Judicial Review
      • Mental Capacity
      • Motoring Offences Legal Advice
      • Professional Regulation & Discipline
      • Dispute Resolution
      • Legal Aid
    • Immigration Solicitors
      • Immigration Solicitors
      • Immigration Solicitors Home
      • British Citizenship & Naturalisation Solicitors
      • EU & EEA Immigration Solicitors
      • Indefinite Leave To Remain Solicitors
      • Spouse Visa Solicitors
      • Innovator Visa
      • Tier 1 Entrepreneur Visa
      • Permanent Residence Solicitors
      • Tier 1 Investor Visa
      • Business Immigration Solicitors
    • Crime & Investigations
      • Crime & Investigations
      • Crime & Investigations Home
      • Crime
      • Fraud & Financial Crime
      • Court Martial Solicitors
      • Motoring Offences Legal Advice
      • Regulatory Investigations & Enforcement
    • Insolvency
      • Insolvency
      • Insolvency Home
      • Business Restructuring & Insolvency
      • Debt Consultancy
      • Insolvency Disputes & Litigation
    • Court Of Protection
      • Court Of Protection
      • Court Of Protection Home
      • Court Of Protection Problems & Disputes
      • Court Of Protection Deputyship
      • Healthcare and Social Services
      • Frequently Asked Questions
      • Personal Injury Trusts
      • Powers Of Attorney
      • Powers Of Attorney Disputes
      • Statutory Wills And Trusts
  • Wealth Management
    • Wealth Management
    • Wealth Management Home
    • Asset Management For Personal Injury
    • Charity & Philanthropy
    • Estate Planning
    • Ethical & Sustainable Investing
    • Financial Planning
    • Intergenerational Wealth Management
    • Investment Management
    • Retirement Financial Planning
    • Succession Planning
    • Tax Planning
  • Business
    • Business
    • Business Home
    • Sectors
      • Sectors
      • Sectors Home
      • Consumer & Retail
      • Education
      • Manufacturing
      • Media & Entertainment
      • Real Estate
      • Sport
      • Technology & Communications
    • Banking & Finance
      • Banking & Finance
      • Banking & Finance Home
      • Corporate Banking
      • Funds
      • Leveraged & Acquisition Finance
      • Real Estate Finance
      • Receivables Finance & Asset Based Lending
    • Business Crime
      • Business Crime
      • Business Crime Home
      • Anti-Bribery & Corruption
      • Fraud Lawyers
      • Insider Trading & Market Abuse
      • Corporate Internal Investigations
    • Business Immigration
      • Business Immigration
      • Business Immigration Home
      • Business Visitor Visa
      • Innovator Visa
      • Prevention Of Illegal Working
      • Sole Representative Of An Overseas Business
      • Tier 1 Entrepreneur Visa
      • Tier 1 Investor Visa
      • Tier 2 & 5 Sponsor Licence
      • Tier 2 Visa
      • Tier 4 Sponsor Licence
    • Commercial
      • Commercial
      • Commercial Home
      • Commercial Contracts
      • Competition Law
      • GDPR & Data Protection
      • Information Technology
      • Media & Entertainment
      • Sourcing
      • Licensing
      • Notary Public Solicitors
    • Commercial Litigation & Dispute Resolution
      • Commercial Litigation & Dispute Resolution
      • Commercial Litigation & Dispute Resolution Home
      • Banking & Finance Litigation
      • Business Interruption Insurance Lawyers
      • Contract Disputes
      • Commercial Judicial Review
      • Defamation & Reputation Management
      • International & Cross-Border Disputes
      • Litigation Funding
      • Professional Negligence
    • Corporate
      • Corporate
      • Corporate Home
      • Corporate Advisory
      • Equity Capital Markets
      • Mergers & Acquisitions (M&A)
      • Private Equity
    • Costs Team
    • Employment Law
      • Employment Law
      • Employment Law Home
      • Business Immigration
      • Employment Contracts, Policies & Procedures
      • Disciplinary & Grievance
      • Employee & Industrial Relations
      • Employment Lawyers for Legal Expenses Insurance
      • Employment Litigation & Dispute Resolution
      • Equality, Diversity & Discrimination
      • Flexible Working Arrangements
      • Health & Safety
      • HR Advice Service - IMhrplus
      • Managing Sickness Absence
      • Pensions
      • Recruitment
      • Restrictive Covenants
      • Restructuring & Redundancy
      • Self Employment, Contractors & Agency Workers
      • Employment Seminars, Training & Updates
      • TUPE
    • Environmental, Social & Governance (ESG)
    • In-House Counsel
    • Intellectual Property
      • Intellectual Property
      • Intellectual Property Home
      • Defamation & Reputation Management
      • Copyright Lawyers
      • Design Rights Lawyers
      • Image Rights Lawyers
      • IP Audits
      • Online Marketplace Seller Account Or Listing Suspensions
      • Stopping IP Infringement By Sellers On Online Marketplaces
      • Patent Lawyers
      • Trade Mark Lawyers
      • Trade Secrets Lawyers
    • Legal Helpline
    • Pensions
      • Pensions
      • Pensions Home
      • Employment
      • Managing Death Benefit Trusts
    • Regulatory & Compliance
      • Regulatory & Compliance
      • Regulatory & Compliance Home
      • Road Transport & Operator Compliance
      • GDPR & Data Protection
      • Regulatory Investigations
      • Environment & Safety Regulatory Compliance
      • Financial Services Regulation
    • Real Estate
      • Real Estate
      • Real Estate Home
      • Corporate Occupiers
      • Real Estate Development and Regeneration
      • Construction & Engineering
      • Real Estate Finance
      • Real Estate Investment
      • Later Living & Care
      • Real Estate Tax
      • Residential Development
      • Strategic Land
      • Structured Real Estate
      • Planning & Infrastructure
      • Property Litigation & Real Estate Disputes
    • Restructuring & Insolvency
      • Restructuring & Insolvency
      • Restructuring & Insolvency Home
      • Corporate Insolvency
      • Partnership Insolvency
      • Directors' Duties
      • Restructuring
    • Tax
      • Tax
      • Tax Home
      • Corporate Tax
      • Real Estate Tax
      • Tax Investigations
  • People
    • People
    • People Home
    • Search By Name
    • Search By Location
    • Search By Expertise
    • Business Management
  • Offices
    • Offices
    • Offices Home
    • Birmingham
    • Bristol
    • Cambridge
    • Cardiff
    • Chichester
    • Gatwick
    • Glasgow
    • Leeds
    • Liverpool
    • London
    • Manchester
    • Middlesbrough
    • Newbury
    • Newcastle
    • Reading
    • Sheffield
    • Southampton
  • Contact
  • About
  • News & Insights
  • Careers
  • International
Irwin Mitchell Logo
Dialog with Irwin Mitchell phone number
Call us on 0370 1500 100

We're here 24/7, 365 days a year.

  • Home
  • News & Insights
  • Newsletters
  • Restructuring & Insolvency
  • What is the Equity of Exoneration and Why is it Important?

What is the Equity of Exoneration and Why is it Important?

The Court of Appeal recently made an important decision on the equity of exoneration in the case of Armstrong (As Trustee In Bankruptcy Of Onyearu) V Onyearu & Anor (2017).

The equity of exoneration arises where one joint owner of a property charges the property for their sole benefit. The other co-owner is treated like a surety and is presumed to be entitled to be exonerated out of the other owner’s share. This equitable principle is based upon inferred intentions but can also be rebutted on the particular circumstances of the case.

A classic example where this equitable principle has arisen is where a wife mortgages the family home, together with her husband, as security for the husband's business ventures for the husband’s sole benefit and then claims that the loan should be taken solely against the husband’s share of the equity. 

The Facts 

This case concerns a husband and wife who were joint beneficial owners of their family home. 
The husband was a solicitor working in a sole practice and his wife was employed as a lecturer. The couple had separate bank accounts but contributed jointly to the family's living expenses. The husband met the monthly interest payments on the mortgage and the wife paid the utility bills, council tax and all other household expenses. 

The husband obtained a loan for the benefit of his legal practice secured on the family home. The husband was subsequently made bankrupt and the trustee in bankruptcy applied for the sale of the family home. In defence to this the couple claimed that the equity of exoneration applied so that the wife's share in the property was not subject to the husband's debt. 

The trustee claimed that the equity of exoneration did not arise because, although the loan was for the husband's benefit only, the wife had obtained an indirect benefit from it as it enabled the husband to carry on in practice and hence continue to earn and meet the mortgage payments on the property. At first instance the Judge found in favour of the wife as it was held that the business loan was the sole liability of the husband and the wife had her own separate income so the equity of exoneration applied. The trustee then appealed this decision.

Rebuttable Presumption

The key focus for practitioners and trustees has been and continues to be whether the wife or co-owner of the property received a benefit from the loan over which the property was secured against. This stems from the case of Re Pittortou [1985] in which the court stated that exoneration is a presumption which can be rebutted if the person in whose favour it operates received direct benefits from the lending. In that case the presumption was rebutted as the business made payments toward household expenses such as the mortgage, food and utilities. 

In Chawda, Re [2014] it was held that the wife of a bankrupt was not entitled to assert the equity of exoneration in respect of part of the proceeds of a re-mortgage. She alleged that the re-mortgage was for the sole benefit of her bankrupt husband but the court held they both benefited from the husbands business, they pooled their earnings together and took the ‘ups and downs’ of the business. Therefore the presumption was rebutted. The court held that it would be unfair to allow a wife to take the benefits of a business backed by a loan/mortgage and then subsequently seek to enforce the right of exoneration to his disadvantage and the disadvantage of his creditors. 

Indirect Benefit

This presumption is exactly what the Trustee in bankruptcy attempted to rebut in Onyearu by stating that the wife received a benefit, as the husband’s lending allowed him to continue to earn and use his drawings to meet the mortgage payments.

However, it was held that there was no authority to support the view that the existence of some indirect benefit to the non-debtor co-owner would prevent the equitable principle from arising.

In this case it was held that the indirect benefit was not sufficient on its own to deny a right of exoneration to the wife who acted as surety. Also at the time of securing the loan the prospect of benefit was wholly uncertain and incapable of valuation as the parties did not know if the husband’s business would survive or not. Importantly here also was the fact that the wife had her own separate income.

Conclusion

It is therefore clear from case law that where a loan is for the sole benefit of the husband and used by him for such, the presumption applies, but where part or all of the funds are used for the joint benefit of both co-owners, the presumption does not apply. For an indirect benefit it would also seem that the presumption applies as in the present case. However where the wife receives a direct benefit from the loan the presumption can still be rebutted.  

What can practitioners do?

Investigate the family finances. For example, is the borrower the sole source of income or are resources shared, and does the family unit take the ups and downs together rather than the finances being separated? What benefit does the family/wife take from the business entity that received the financing?

Find out more about our Restructuring & Insolvency expertise and how we can help you here.

For general enquiries

0370 1500 100

Or we can call you back at a time of your choice

Phone lines are open 24/7, 365 days a year

Contact us today

For a free initial consultation

Freephone

0370 1500 100

Prefer not to call?

Use our form

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.

Edward Judge Partner Meet the team

About Irwin Mitchell

Founded in Sheffield in 1912, Irwin Mitchell has always been a bit different. Our advisers really get to know the people and business that we help.

It's what we call 'expert hand, human touch'.

We have offices around the UK so wherever you are, our experts can help.

Contact Us

Give us a ring to speak to a member of our team in the strictest confidence. Or you can fill out our contact form and we'll ring you back.

0370 1500 100

Our phone lines are open 24/7, 365 days a year

Get a call back

Fill in your details below and we'll be in touch as soon as possible

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.

  • Contact
  • 0370 1500 100
  • Contact Irwin Mitchell
  • Social Media
  • Twitter
  • Facebook
  • YouTube
  • LinkedIn
  • Instagram
  • About Irwin Mitchell
  • About Us
  • Social Responsibility
  • Careers
  • Business Management
  • SRA Regulated
  • Terms & Conditions
  • Accessibility
  • Privacy & Security
  • Hoaxes
  • Modern Slavery Act Statement 2021
  • Manage Cookie Settings

© 2022  Irwin Mitchell LLP

Irwin Mitchell LLP is authorised & regulated by the Solicitors Regulation Authority. Our Regulatory Information

Dialog that contains a form to request a callback.

Request A Callback

Enter you details below and we'll call you back, at a time of your choice

Preferred date*
Today
Tomorrow

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.