CONTENTSINTRODUCTION.................................................................................................. 2 THE DOCTRINE OF MARSHALLING...................................................................... 4 MARSHALLING UNDER THE TRANSFER OF PROPERTY ACT, 1882 ....................... 6 Essential Elements of Marshalling................................................................... 7 Common Debtor ............................................................................................. 7 No Prejudice to the Prior Mortgagee .............................................................. 8 No prejudice to other encumbrances ............................................................. 8 Contract to the contrary ................................................................................. 9 Securities to be on Same Footing .................................................................... 9 Rights of Purchasers ....................................................................................... 9 DOCTRINE OF CONTRIBUTION ......................................................................... 11 Where the mortgage property belongs to two or more persons ............ 12 Where one property is mortgaged first and then again mortgaged with another property .......................................................................................... 14 MARSHALLING V. CONTRIBUTION ................................................................... 15 Marshalling supersedes contribution ............................................................ 15 CONCLUSION ................................................................................................... 16 BIBLIOGRAPHY ................................................................................................. 17 1|Page Marshalling in common parlance means 1 Story. on the other hand. Both Marshalling and Contribution are equitable remedies and are based on the principles of natural justice. In this assignment. Section 56 and 81 of the Transfer of Property Act. Equity Jurisprudence. Contribution to debt. 1882. These sections and their interpretation with appropriate case laws will be broadly discussed in this paper. while Section 82 deals with Contribution to mortgage debt.INTRODUCTION This assignment deals with two very crucial concepts of the Transfer of Property Act. While Marshalling is the right of the subsequent mortgagee or the subsequent purchaser. Both of these principles are quintessential to the concept of mortgage and are based on the principles of equity. is the right of the co- mortgagors of several properties or of several shares in one property. These two are Marshalling and Contribution. 1882 (hereinafter referred as TPA) deals with Marshalling by subsequent purchaser and Marshalling of securities respectively. Both of these are English doctrines and have been incorporated in the TPA and have been further strengthened through different case laws in India. Marshalling is based on the ethical maxim sic utere tuo ut alienum non-laedas1 which means that you should exercise your right as not unnecessarily to prejudice that of your neighbour. Section 633 2|Page . I’ve tried to prove how Marshalling settles the rights of competing mortgagees while Contribution settles the rights of mortgagors of several properties or of several shares in one property. 3|Page .arranging (assets or securities) in the order in which they are available to meet various demands. sentire debet et onus which means he who receives the advantage ought to suffer the burden. The doctrine of Contribution according to Justice Story2 rests upon the legal maxim: qui sentit commodum. 2 Equity Jurisprudence (by A E Randall) 3rd Eng. Edn. Also. but we’re confining ourselves to Marshalling of securities (Section 81) only in this work. So in a nutshell. both the doctrines of marshalling and contribution have evolved from the principle of equity and natural justice and we’ll look into these detail in the coming sections. although Marshalling has been dealt with in both Section 56 (marshalling by subsequent purchaser) and Section 81 (Marshalling of securities). 8 Ves. prejudice another creditor whose security comprises only one of the funds. 32 ER 402 (LC) at pg. 395 4|Page . to the extent that the only fund. will throw him. who has two funds." 3 (1803). The modern root of the doctrine can be found in the oft cited English case of Aldrich v.” Marshalling is an equitable doctrine applied in the context of lending. but one of whom can enforce his claim against more than one security or fund and the other can resort to only one.THE DOCTRINE OF MARSHALLING The doctrine of marshalling is an old equitable remedy that can be traced back as far as the mid-seventeenth century. to which the other has access may remain clear to him. upon that which can be affected by him only. each of whom are owed debts by the same debtor. Cooper3 ("Aldrich"). the author writes: "The doctrine of marshalling rests upon the principle that a creditor who has the means of satisfying his debt out of several funds shall not. by the exercise of his right. to satisfy both. It gives the latter an equity to require that the first creditor satisfy himself (or be treated as having satisfied himself) so far as possible out of the security or fund to which the latter has no claim. 382. It was described by Lord Hoffmann as: A principle for doing equity between two or more creditors. In the 8th Edition of Fisher and Lightwood's Law of Mortgages. and equity. where Lord Eldon stated the doctrine as follows: “A person having two funds shall not by his election disappoint the party having only one fund. Marshalling means to arrange/put in line. the second creditor is subrogated to the rights of the first creditor and can stand pro tanto in the shoes of the first creditor in relation to the security over which the second creditor has no legal security. Joshep story. In case B is unable to realize the whole amount due to him from X. so far as the same will extend. page 382 5|Page . Otherwise. in the absence of a contract to the contrary. For example. The general principle is that the second creditor has a right in equity to require the first creditor to satisfy himself out of the security to which the second creditor has no claim. the subsequent mortgage is. Section 81 of the Transfer of Property Act provides that if the owner of two or more properties mortgages them to one person and then mortgages one or more of the properties to another person. C can compel B to proceed first against X and realize the debt from it. entitled to have the prior mortgage-debt satisfied out of the property or properties not mortgaged to him. but not so as to prejudice the rights of the prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties.4 4 Commentaries on Equity Jurisprudence. he is entitled to recover the balance from Y. and if he chooses to satisfy himself out of the security which represents the second creditor’s only security. A mortgages his two properties X and Y to B and then mortgages Y to C. If B seeks to realize his mortgage out of A. it is open to the first creditor to satisfy himself out of any security in any order. 00 only then. This right arises when two or more properties mortgage them to one person and mortgages one or more of them (already mortgaged to the first mortgager) to another person. all though Y is subsequent mortgager his claim is not prior to that of 6|Page . to have the prior mortgage debt satisfied out of properties not mortgaged to him. B and C to a mortgagee X for Rs. so far as the same will extend. 1882 1) If the owner of two or more properties mortgage them to one person and mortgages one or more properties to another. a mortgager mortgages his three properties A.15. The subsequent mortgage is entitled. entitled to have the prior mortgage debt satisfied out of the property or properties not mortgaged to him. 00.5.MARSHALLING UNDER THE TRANSFER OF PROPERTY ACT. In case if the proceeds of properties A and B is less than 15. unless there is contract to the contrary. This section give Y a right to say that debt of X shall be satisified out of sale proceeds of properties A and B and not C. Section 56 right of marshalling to a subsequent purchaser and section 81 confers same on the puisne mortgagees. the property C can be sold. 1882 According to section 81 of the Transfer of Property Act. in the absent of contract to the contrary. 000. For example. He further mortgages only property C to Y for Rs. Therefore. 3) But not so as to prejudice the rights prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties. 2) The subsequent mortgagee is. Marshalling means arranging things. there must be a common debtor. 81 is applicable only to mortgages. S. The doctrine of marshalling rests upon the principle that a creditor who has the means of satisfying his debt out of several funds shall not. by the exercise of his right. No marshalling can be exercised unless the mortgagees between whom it is to be enforced are creditors of the same person and have claims against the property of a common debtor. 7|Page . but he has the right of marshalling i. (3) The right cannot be exercised to the prejudice of any other person having claim over the property. (2) The right cannot be exercised to the prejudice of the prior mortgagee. page 445 6 Ex parte Kendall. Bothe the prior and subsequent mortgagee must have given the loan to the same person on the security of his properties. on the other hand.5 Section 56 deals with the concept of marshalling in a transaction involved in subsequent sale. Essential Elements of Marshalling (1) The mortgages may be two or more persons but the mortgager must be common i.X. 1 WTLC 46. 1811 17 Ves 520.6 5 Mulla Transfer of Property Act. prejudice another creditor whose security comprises only one of the funds.e.e. arranging the securities in his favour as far as possible. Common Debtor It is necessary that the mortgager is the same person. B. Mitra and Sengupta.No Prejudice to the Prior Mortgagee Marshalling must not be in prejudice to the interest of the prior mortgagee. the doctrine of marshalling cannot be invoked.B. 7 No prejudice to other encumbrances The right of marshalling cannot be exercised so as to prejudice the rights of any other person. It being the rule of equity cannot be enforced so as to work injustice to the prior creditor. 7 Transfer of Property Act. for example. Therefore. The subsequent mortgagee cannot compel the prior mortgagee to proceed against a security which is insufficient. for consideration. there might be nothing left for D. The Madras High Court held that marshalling implies the existence of two sets of properties one of which is subject to both mortgagees and the other is subject only to an earlier mortgage. there are no longer two sets of properties liable to be sold by the first mortgagee. who has. (1) A mortgages two properties X and Y to B (2) A then mortgages X to C (3) A again mortgages Y to D If C here insists that B should pay himself wholly out of Y. page 223 8 1842 1 1842 1 Y&C Ch 401 8|Page . Rector8. Therefore. The leading case on this point is Barness v. but only one property which is subject to both the mortgages. acquired any interest in any of the properties. By the release of one of the properties. the court will apportion B’s Mortgages rateably between X and Y and the surplus of X will go to C whereas surplus of Y to D. Securities to be on Same Footing It is necessary for application of equity that the securities should be on the same footing. Where the rights are not equal there can be no marshalling. they will not be considered as different properties. he cannot be compelled by a second encumbrance on the first fund to abandon his change and rely on his right of set off. a puisne mortgagee. having a right of marshalling against a prior mortgagee. It is necessary that the prior mortgagee must have equal rights over the other two properties mortgaged to him.868) 9|Page . Smith (1885) 30CH D 192 CA ( Mulla. For example. Different fragments of the same property are not considered different properties.Contract to the contrary The right of marshalling under this section is subject to the contract to the contrary. Where a double creditor has a change over a fund and a right of set off against another fund. In enforcement of his security C 9 Webb v. 9th edn. The right may be excluded to the mortgage by mutual agreement.9 Rights of Purchasers Section 56 gives recognition to right of purchaser. Page. Only successive mortgages come within the purview of this section. does not lose his right because he has purchased the equity of redemption. X and Y properties are mortgaged by A and B. Where one portion of the property already mortgaged is subsequently mortgaged to another person. Then mortgages X to C. The Tranfer of Property Act. Then B obtains an order for sale on his mortgage.10 10 Inderdawan Pershad v. Gobind Lall. C was held entitled to require B to bring Y to sale first and realise his security as far as possible out of Y only. 10 | P a g e . (1896) 23 Cal 790.brings X property to sale and himself purchases X. liable to contribute rateably to the debt secured by the mortgage. that a creditor who has the means of satisfying his debts out of several funds shall so exercise his right as not to take from another creditor or claimant the fund which forms his only security. in the absence 11 | P a g e . in the absence of a contract to the contrary. But in Equity he could claim contribution from the latter. each property is. and by the common Law. “Where property subject to a mortgage belongs to two or more persons having distinct and separate rights of ownership therein. The section reads as. for the purpose of determining the rate at which each such share or part shall contribute. of two properties belonging to the same owner. Where.DOCTRINE OF CONTRIBUTION The fundamental rule of contribution is – “Equity delights in Equality”. the value thereof shall be deemed to be its value at the date of the mortgage after deduction of the amount of any other mortgage or charge to which it may have been subject on that date. Where a creditor has a single claim against several persons. one is mortgaged to secure one debt and then both are mortgaged to secure another debt. so that the burden might fall equally on all. and the former debt is paid out of the former property. he has the option of realizing the debt from any one of them. on the other hand. Section 82 of the TP Act deals with the doctrine of contribution. the debtor who had thus been compelled to pay the debt in full. and. The right to compel marshalling as well as contribution rests upon the principles that a fund which is equally liable with another to pay a debt shall not escape because the creditor has been paid out of that other fund alone. had no remedy against his co- debtors. and. the different shares in or parts of such property owned by such persons are. liable to contribute rateably to the latter debt after deducting the amount of former debt from the value of the property out of which it has been paid. for better understanding this section. As is clearly evident from the plain reading of this section. Nothing in this section applies to a property liable under Section 81 to the claim of the subsequent mortgagee. This part is comparatively less complex than the other part. Where the mortgage property belongs to two or more persons The first para of Sec. Later C realised the debt from property X alone. Here. where marshalling and contribution might conflict with each other. In this case B must contribute rateably in proportion to the value of his property Y. Illustration: The property X belongs to A and the property Y belongs to B. Thus it is in effect declared that. Here A can claim contribution from B.of a contract to the contrary. let us break it into two parts based on the first and second para of Section 82. and A and B jointly executes a mortgage of both the properties for securing a loan taken from C. 82 deals with contribution in cases where the mortgaged property is owned by two or more persons. Marshalling stands as an exception to Contribution. The only two essentials for this section to apply are: 12 | P a g e . marshalling is to prevail. then that is duly subtracted from its actual value. In that case. all the different shares in the property or parts of such property owned by such persons are liable to contribute rateably. C and D are liable to contribute Rs. 1 Lakh. 13 | P a g e . B. C and D have equal shares. Such property is subject to one mortgage and there isn’t any contract to the contrary. their actual market value at the date of the mortgage is taken. All four of them jointly mortgaged this property to E for Rs. If some part is already under mortgage or has some charge on it at the date of the mortgage.000 each to A in pursuance of their contribution to mortgage debt. For determining the ratio in which the various properties are to contribute. In such cases. This can be better understood with this illustration: There is a property X in which A. 25. The mortgagor may recover his whole debt from any of the share or part of the mortgaged property. Mortgaged property is owned by two or more persons having distinct and separate shares therein ii. doctrine of subrogation comes into force and the mortgagor who paid out the mortgage debt from his share steps into the share of original mortgagee and gets the right to sue his co-mortgagors for contributing rateably to the debt. Now B. Now E realises the whole mortgage debt from A alone. i. But first.000 and Y will contribute Rs. 40. while calculating the contribution towards the debt payment to C. In such cases. one is mortgaged to secure one debt and subsequently both are mortgaged to secure another debt. 50.000 and subsequently mortgages both X and Y to C for a sum of Rs. Thus both will contribute in the ratio of 3:5. 82 deals with cases in which two properties are owned by the same person.000.000. the property which is subject to both the mortgages is liable to contribute rateably to the discharge of second mortgage. 40.000 will be satisfied from X towards the payment to B. the former debt has to be paid from it and the amount of former debt has to deducted from it while determining its value for contribution towards the second debt. 14 | P a g e . 1 Lakh for Y. So. 80. the debt of Rs. Now first of all. Illustration: A is the owner of two properties X and Y both worth 1 Lakh rupees. Firstly. Where one property is mortgaged first and then again mortgaged with another property The second para of Sec. while it will be Rs. the value of X will be just Rs. 60. Now he mortgages X to B for a sum of Rs.000. 30. that is X will contribute Rs. it is in effect declared that. Marshalling settles the rights of competing mortgagees. marshalling is to prevail. 15 | P a g e . Both belong to the same genus but are different species. Marshalling can be seen as the converse of contribution. where marshalling and contribution might conflict with each other. Marshalling supersedes contribution: By the last paragraph of Section 82. Both are based upon the principle of equity and natural justice.D Then.MARSHALLING V. Whenever there is a conflict between contribution and marshalling.B Mortgages X & Y to……………………..A Mortgages X to……………………. CONTRIBUTION Marshalling stands as an exception to contribution. X and Y both contribute to C’s mortgage in the portion to their values after deducting from X the amount of A’s mortgage and from Y the amount of B’s mortgage. This right of D to marshal would prevail against the right of contribution. Thus. D could require C to proceed first against Y. but under the right of marshalling. Here is an illustration showing how marshalling supersedes or prevails over contribution. the contribution settles the right of mortgagors. whether they are in different properties or several shares in one property. if the owner of two properties X and Y: Mortgages X to……………………. marshalling prevails. whereas.C Mortgages X to……………………. by the exercise of his right. the doctrine of marshalling dictates that where there are two creditors of the same debtor. provides that if several properties belonging to several persons or of a single mortgagor having several shares in one property are mortgaged to secure a debt due to taking of a loan. the court will "marshal" or arrange the funds so that both creditors are paid as far as possible. Doctrine of contribution. or. In other words: marshalling by compulsion or marshalling by subrogation. Doctrine of marshalling rests upon the principle that a creditor who has the means of satisfying his debt out of several funds shall not. prejudice another creditor whose security comprises only one of the funds. Either the courts will require the senior creditor to resort to the singly secured fund. the law says that each property should contribute towards the debt in proportion to its value (rateably). all I can say is that both the concept of marshalling and contribution are based on the principle of equity and natural justice. and the other a right to resort to one fund only. Marshalling is an equitable remedy available to protect the recovery of a junior creditor against the arbitrary action or whims of a senior creditor. Simply stated. one creditor having a right to resort to two funds for payment of his debt. Thus it is clearly established that Marshalling settles the rights of competing mortgagees while Contribution settles the rights of mortgagors of several properties or of several shares in one property. 16 | P a g e .CONCLUSION In conclusion. the courts will allow the junior creditor to subrogate to the senior creditor's interest in that fund. Marshalling can be achieved in two ways. on the other hand. Both these principles protect the rights of the subsequent mortgagee and the co- mortgagors of several properties or of several shares in one property. 2010. The Transfer of Property Act. Poonam Pradhan. Lexis Nexis Publications Sinha. Allahabad: Central Law Agency. R. 2nd Edition.P. T. Allahabad Law Agency Publications Saxena. Property Law. 12th Edition. Lexis Nexis Publications Tripathi. Sir Dinshaw Fardunji. 3rd Edition.BIBLIOGRAPHY BOOKS Mulla. The Transfer of Property Act.. 11th Edition. 17 | P a g e . The Transfer of Property Act.K. 1882 .