Where a joint owner of property uses that property to secure a debt, the other joint owner may be entitled to have that indebtedness discharged out of the interest of the debtor, rather than out of their joint share. This principle is known as the equity of exoneration. In Armstrong v Onyearu  EWCA Civ 268, the first case to be heard on the issue by the Court of Appeal in over 100 years (since Paget v Paget  1 Ch 470), the Court has clarified the proper approach to the equity of exoneration in the context of a "modern" co-habiting couple.
Mr and Mrs Onyearu are a married couple with an equal beneficial share in their home, which was subject to a mortgage. Mr Onyearu took out a loan against the property which he used for the purpose of discharging his own business debts. Mr Onyearu was subsequently declared bankrupt and the issue in the appeal was whether the trustee in bankruptcy was entitled only to draw on Mr Onyearu's share of the mortgaged property to discharge his business debts or whether he could also draw on Mrs Onyearu's share of the property and thus force a sale of their home.
The trustee in bankruptcy brought the appeal on the basis that Mr and Mrs Onyeauru were a co-habiting couple and, because the loan had enabled Mr Onyearu to continue his business and thus continue to contribute to the mortgage repayments, Mrs Onyearu had received an indirect benefit from the loan and should not be entitled to rely on the equity of exoneration.
The Court of Appeal dismissed the appeal on the basis that the benefit said to defeat the equity was too remote and incapable of valuation and there was no basis for changing the law to accommodate co-habiting couples operating as a family unit.
Jack Parker acted for the successful Respondent in the Court of Appeal. For a copy of the Judgment, please click here. For more information about the case, please contact Jack or his clerks.