Wife entitled to ”Equity of Exoneration” from Net Sale Proceeds of Mortgaged Property in Priority to Husband and his Chargee

Where joint proprietors mortgage their property to secure bank loans to a company that they both control, both might be said to stand in the position of guarantor in relation to that company.

Subject to the terms of the guarantee, both will be entitled to an equal right to be exonerated by that company to recover their outlay to the beneficiary of that guarantee.

In  Day v Shaw and another [2014] the debts secured were those of a company owned by Mr Shaw. Their daughter was involved with the company but not Mrs Shaw.

The High Court held (1) that Mrs Shaw, who mortgaged the home she owned jointly with Mr Shaw to secure those debts, was entitled to be indemnified against those debts by her husband, and, (2) that his share of the proceeds of sale from the house was subject to her rights to (“equity of”) exoneration.

Accordingly Mr Day, who had a charging order over the husband’s share of the sale proceeds, found that share reduced by the amount Mrs Shaw’s exoneration claim.

This blog is posted out of general interest. It does not reduce the need to seek proper advice in individual cases.