David 2
29 Apr 1991
23 May 1996
03 Feb 2005
B.Com. (Hons), LLM.
Legalbrief sm
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Benjamin west   paetus and arria   google art project

The Equity of Exoneration

Ierino -V- Gutta [2012] WASCA 222

Suppose a husband and wife jointly take out a mortgage loan. Suppose also that the husband uses all the proceeds for his own purposes. In these circumstances the wife will be entitled to have the burden of repayment cast onto the husband's share of the mortgaged property. This is the "equity of exoneration".

Until 2012 the last time this exotic equity had been considered at appellate level was the decision of the Full Federal Court in Parsons and Parsons v McBain [2001] FCA 885. But equity lawyers the land over are now rejoicing (we're a wild lot) because there is now another Court of Appeal decision confirming the principles in play.

In Ierino -V- Gutta [2012] WASCA 222 the Western Australian Court of Appeal upheld an equity of exoneration granted to the respondent who was the former de facto partner of the appellant. The appellant knew that the respondent’s signature to a land transfer had been forged and conceded that he was liable to account to her for the proceeds. The respondent had succeeded in falsifying the appellant's account to her to the tune of $90,000, being a loan which had been applied solely for the appellant’s benefit. That is, the amount which the appellant had to pay was increased by $90,000 and this stood as a charge on the sales proceeds.

The Court of Appeal confirmed that although the equity of exoneration originated with the rights of married women at a time when those rights were severely curtailed, the equity is not confined to the relationship of husband and wife.  Nor is it confined to de facto partners. Moreover, the juridical basis of the doctrine is that Courts should recognize that where joint debtors (or principal debtor and guarantor) intend that only one of them should bear the burden of the debt and the other be exonerated, the exonerated party has an equitable charge on the asset securing the debt. In particular, the equity arises at the time when the debt is drawn down.