Equity of exoneration

Indirect benefit

Armstrong v Onyearu

[2017] EWCA Civ 268


For a benefit to a co-owner/surety to displace the equity of exoneration, it must be direct or closely connected to the secured indebtedness, and must be capable of carrying a financial value. Facts Mr O was the sole registered proprietor of a property that was his matrimonial home with his wife. Following an application for sale of the property by his trustee in bankruptcy a declaration was made by the Registrar that that the beneficial interest in the property was owned by himself and Mrs O in equal shares. He had previously charged the property to a bank. It was subsequently held that Mrs O was entitled to an equity of exoneration, the effect of which was that the charge exhausted Mr O’s share, so the court refused to make an order for sale.

Mr O’s trustee in bankruptcy appealed to the High Court, contending that the equity of exoneration did not apply. Although the charge was for Mr O’s direct benefit only, in enabling him to discharge his business debts, Mrs O had obtained an indirect benefit because the borrowings had enabled Mr O to continue in business and service the original mortgage loan, secured on the property. The appeal was dismissed.

The trustee in bankruptcy sought permission for a second appeal on the basis that the case raised an important and novel point of law as to the application of the equity of exoneration where the joint owner has received an indirect, as opposed to a direct, benefit. Permission was granted to appeal to the Court of Appeal.


The Court of Appeal dismissed the appeal. Following a detailed review of the case law, the court concluded that English law has not regarded an indirect benefit to be itself sufficient to deny a right of exoneration to the surety. The benefit must be direct or closely connected to the secured indebtedness. In the present case, an indirect benefit was far from certain to accrue, particularly when viewed as at the date of the transaction. In general, the benefits must be capable of carrying a financial value.


This case may now be regarded as the leading authority on the application of the equity of exoneration. Lord Justice David Richards began his judgment with a useful summary:

    “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 share. This is known as the equity of exoneration…The authorities establish that the availability of the equity is a matter of the actual or presumed intention of the parties. If the actual intention is that the equity is to apply, or conversely is not to apply, this determines the issue. In many cases, however, there is no evidence of actual intention, and the law will arrive at the parties’ presumed intention from an examination of all the relevant circumstances.”

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