UK: What Is The Equity Of Exoneration, And When Is It Important?

Last Updated: 10 March 2014
Article by Robert Cooke

The legal concept "equity of exoneration" is essentially an indemnity coupled with a proprietary interest.  Although the term will not be immediately familiar to everyone, the recent decision in Day v Shaw and another [2014] EWHC 36 (Ch) shows that it is alive and well, and can make a significant difference when there is competition between secured creditors against the same asset.

The facts and decision

Mr Day made a loan to a company controlled by Mr Shaw and his daughter.  He obtained judgment against the company for a sum which, with costs exceeded £22,000, and obtained a charging order over Mr Shaw's interest in a property jointly owned by Mr Shaw and his wife.  The order ranked behind a first mortgage in favour of Lloyds TSB Bank plc, and a second mortgage securing facilities advanced by Barclays Bank plc to the company, and guaranteed by Mr Shaw and his daughter.  The property was sold and from the proceeds of sale of £145,500, sums of £27,300 and £70,000 respectively were paid to the first and second mortgagees, leaving approximately £45,000 after the costs of sale. 

No issue arose from the repayment of the first mortgage debt as Mr and Mrs Shaw agreed that they were jointly liable for it.  But Mrs Shaw argued that in the case of the second mortgage debt, she was entitled to be indemnified by her husband, and that this right of indemnity amounted to a proprietory interest in the property in the form of an equity of exoneration, thus increasing the extent of her beneficial interest in the property.  This depended on whether it was the joint intention of Mr and Mrs Shaw that the burden of securing the indebtedness should fall on his share of the property alone.  Put another way, the issue was between two sets of people with secondary liability (the primary liability for the loans being with the company), namely between Mr Shaw and his daughter, as joint and several guarantors on the one hand, and Mr Shaw and his wife, as third party mortgagors on the other hand. 

The court held that they could not all be treated as sureties with equal liability.  In substance, Mr Shaw and his daughter were co-sureties, but Mr Shaw and his wife were sub-sureties, and Mr Shaw could not deny his liability to indemnify his wife. Mrs Shaw was entitled to an equity of exoneration against her husband, which was a proprietory right binding his share in the property and with priority to Mr Day's charging order.  It meant that the liability under the mortgage to Barclays fell first on Mr Shaw's share of the property.  After the first mortgage had been repaid, leaving £118,000, all of Mr Shaw's half share of the debt, being £59,000, should be paid to Barclays, which exhausted Mr Shaw's interest in the property.  Only £11,000 had then to be found from his wife's share of the property, leaving her with £45,000.  Mr Day received nothing under its charging order against Mr Shaw's interest in the property from the proceeds of sale, because that interest had been wholly used up in repayment to the second mortgagee.  Had Mrs Shaw's claim to an equity of exoneration failed, she and her husband would have been equally entitled to the remaining equity in the property after repayment of the first and second mortgages, and Mr Shaw's share in the property would have exceeded £22,600, which would have been available to satisfy the debt to Mr Day.

Whether or not Mr Shaw's wife or daughter also held any shares in the debtor company was, on the evidence provided, unresolved.  Also, it not argued that Mr and Mrs Shaw should be equally liable on the basis that what they were effectively doing was helping their daughter in her business affairs. 


The decision applies a number of old authorities to a set of facts that may  be encountered today, and illustrates how the potentially conflicting rights and cross-rights were resolved.  There is helpful analysis in the judgment of where the ultimate liability may lie when a husband and wife mortgage their home to secure debts they owe jointly, or for a business or company owned by one of them, or by their child, or by a third party.  And although the facts involved a small business and a charge over a residential property, the principles are capable of wider application where there are "layers" of sureties and sub-sureties, with potentially significant practical and commercial results.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions