CLAT 2026 Preparation Plan – Click Here to Start Smart   |   Target CLAT 2026 Crash Course – Exam Date Out, Enroll Now   |   CG Judiciary Prelims Test Series – Exam Date Out, Join Now   |   CG Judiciary Prelims Preparation Strategy – Click Here to Begin
         









Home / Transfer of Property Act

Civil Law

Doctrine of Marshalling and Contribution

   »
 18-Aug-2023

Introduction

  • Sections 56, 81 and 82 of the Transfer of Property Act, 1882 deal with the doctrine of Marshalling and Contribution.
  • The doctrine of marshalling and contribution are very vital provisions for the transaction of the mortgage.

Doctrine Of Marshalling

  • Marshalling means arranging or regulating things.
  • Section 56 gives the right of marshalling to a subsequent purchaser and Section 81 confers a similar right on puisne mortgages.
    • A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt.
    • The transferor is called a mortgagor and the transferee a mortgagee.
  • Section 56 talks about Marshalling by subsequent purchaser. It states that -
    • If the owner of two or more properties mortgages them to one person and then sells one or more of the properties to another person,
    • the buyer is entitled to have the mortgage -debt satisfied out of the property or properties not sold to him (subject to the contrary contract).
  • Section 81 deals with Marshalling securities. It states 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,
    • the subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage debt satisfied out of the property or properties not mortgaged to him.
  • The Doctrine of Marshalling was explained in the case of Aldrich v. Cooper (1803). In this case, Lord Eldon (of HC of England and Wales) stated that, “if there are two creditors who have taken securities for their respective debts, and the security of the one is confined to both, and the security of the other is confined to one of those funds, the Court will arrange or marshal the assets, so as to throw the person who has two funds liable to his demand on that which is not liable to the debt of the second creditor”.

Essential Elements of Doctrine of Marshalling

  • The mortgagees may be two or more persons, but the mortgagor must be common i.e., there must be a common debtor.
  • The right can’t be exercised at the cost of the interest of the earlier mortgagee or any other person having a claim over the property.
  • The right of marshalling (section 81) is subject to a contract to the contrary. This right may be excluded by the parties to the mortgage by mutual agreement.

In Barness v. Rector (1973), W mortgaged two of his properties A and B to X. W then mortgaged property A to Y and property B to Z. Here, the court held that X’s mortgages will be apportioned proportionately between properties A and B and the surplus of A will go to Y and surplus of B will go to Z.

Contribution of Mortgage Debt

  • Section 82 of the Transfer of Property Act, 1882 deals with the rules relating to the contribution of money towards mortgaged debt.
  • The doctrine of contribution provides that several properties mortgaged to secure one debt are liable to contribute to that debt in proportion to their values at the date of mortgage, the amount of the previous mortgage or charge being deducted.
    • Contribution is based on the principles of equity, justice and a good conscience.
  • 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

  • The mortgaged property belongs to two or more persons.
  • One property is mortgaged first and then again mortgaged with another property.
  • Marshalling supersedes

Difference Between Doctrine of Marshalling and Contribution

  1. Marshaling is the right of subsequent mortgages while contribution is identified with mortgagors as it relates to contribution of money towards mortgage debt.
  2. Marshalling is if a creditor has multiple funds to realize his debt, he must first pursue the multiple funds instead of prejudicing the creditor who is secured only by one fund. Whereas in contribution all the co-mortgagors who have taken a debt by mortgaging their properties have to make contributions towards debt proportionately according to their respective shares.