December 6, 2020

Doctrine of Marshalling and Contribution under Transfer of Property Act

Transfer Of Property Act

In the Transfer of Property Act, section 56, 81 and 82 deals with the doctrine of marshalling and contribution. Marshalling means arranging things, systematize, or regulate things. Contribution means providing money for a common fund.

Introduction to Doctrine of Marshalling and Contribution

Marshalling means arranging things, systematize, or regulate things which mean the things arranged in a proper manner or order. In the Transfer of Property Act, section 56, 81 and 82 deals with the doctrine of marshalling and contribution. According to section 56 of the transfer of property act, the marshalling applies on seller and buyer. Section 56, the rule of marshalling by the subsequent purchaser only deals with the sale not mortgage. Section 56 incorporates the rule of marshalling by a purchaser. And for a mortgage, section 81 is the rule of marshalling in which the subsequent mortgagee has the right to claim to marshal. The right of marshalling securities is not absolute.

The rule of contribution described in section 82 of the transfer of property act. The meaning of the rule of the contribution means providing money for a common fund. The doctrine of marshalling and contribution are very vital section (81, 82) for the transaction of the mortgage.

Doctrine of Marshalling

Marshalling means arranging something. Section 81 of the transfer of property act says that if the owner of two or more properties mortgages them to one person and other property mortgages to other people, the new mortgagee is in the absence of a contract to the contrary, entitled to have the mortgaged debt satisfied out of the properties not mortgaged to him, so far as the same will extend, but not to prejudice the rights of the prior mortgagee or persons claiming under him or of any other person who has for consideration acquired an interest in any of the properties. The right given to the subsequent mortgagee under this section contemplates a situation where a mortgagor mortgages more than two or more than two properties firstly to a mortgagee and after that mortgages some of these properties to the other person.

For example-

· X mortgages properties A, B and C to Y for securing a loan of 30,000 rupees. 

· After that X mortgages property B to Z for securing another loan of 10,000 rupees.

In this Y is the first mortgagee on properties A, B and C which are securities for a loan of 30,000 rupees. And property B mortgages to X for loan 10,000 rupees. Here Y is the prior mortgaged and Z is the subsequent mortgagee. The right is given to Z (subsequent mortgagee) entitles him to say that the loan of rupees 30,000, it should be satisfied out of sale proceeds of properties A and B only and it is not from C which has been mortgaged to him. In the case, A and B could be sold for less than 30,000 rupees, property C mat be sold to complete the amount. Although Z is a subsequent mortgagee and his claim is not before the Y but Z has right of marshalling or in other word he has right to arranging the securities in his favour.

According to this, the subsequent mortgagee under section 81 has right of marshalling securities.

Here the right of marshalling securities is not absolute, it follows some conditions-

1. The mortgagees may be two or more than two-person and the mortgagor must be same.

2. Mortgagor mortgages two or more than two properties to another new mortgagee without prejudice the prior mortgagee.

3. There exists not a contract to the contrary.

4. The new mortgagee entitled to have the mortgage debt satisfied out of the property.

5. At last new mortgagee must not be prejudiced to the first mortgagee as well as a third person or other person claiming as the purchaser.

Landmark Cases

In the case of Devatha Pullaya v. Jaldu Manikyala Rao[1], where a puisne mortgagee has taken the mortgage expressly on condition of discharging certain amount due on the prior mortgage but fails to fulfil that term, he cannot exercise the right of marshalling.

In the case of Fiatallis North America, Inc Et Al v. Pigott Construction Limited Et Al[2]held that there must be a single or common mortgagor or debtor.

In the case of Nova Scotia saving & loan v. O’Hara et al[3], held that the doctrine, whose object is to achieve fairness, will not be applied to the prejudice of the third party.

Section 82, Contribution to Mortgage-Debt

Contribution means providing money for the common fund. Section 82 of the transfer of property act deals with the rules relating to the contribution of money towards mortgaged debt. It is the right of a person who has discharged a common liability to recover proportionate share from others. The doctrine of contribution requires that the persons under common liabilities that liabilities equitable.

Section 82 contemplates a situation in which there are two or more than two mortgagors who take a common debt by mortgaging different properties in one property. The nature of the doctrine of contribution is based on the principles of equity, justice and good faith or good conscience. Each mortgagor or debtor must be liable to contribute to such common debt. When two or more properties of different persons are mortgaged to secure a loan, the mortgagee has the right to recover the debt from the property of any one person.

Rules of Contribution

1. The mortgaged property belongs to two or more persons.

2. One property is mortgaged first and then again mortgaged with another property.

3. Marshalling supersedes contribution.

Difference Between Doctrine of Marshalling and Contribution

Doctrine of Marshalling

  • The right of marshalling is available to mortgagees.
  • It settles right of subsequent mortgagees.

Doctrine of Contribution

  • Contribution determines the right of one mortgagor against other mortgagors.
  • It rights of mortgagors inter se.

Conclusion

The doctrine of marshalling and doctrine of contribution is a very important section (81, 82) for the transaction of the mortgage. Marshalling is the right of the subsequent mortgagee and the contribution to debt and in other words, it is the right of the co-mortgagors of several shares in one property. This is referred to as the scheme of ratable distribution. The nature of the doctrine of contribution is based on the principles of equity. Both the section plays an important role for a mortgage.

[1] AIR 1926 AP 425.

[2] (1992) 31 A.C.W.S.(3d) 266.

[3] (1979) 7 R.P,R 281.

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Author: Meghna Chandravansi

Editor: Aayush Akar

The views of the author are personal only. (if any)

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