Doctrine of Marshalling and Contribution

Introduction to Doctrine of Marshalling and Contribution

The Transfer of Property Act, 1882, under Sections 56, 81, and 82, addresses the doctrines of marshalling and contribution. These doctrines are essential for regulating the rights and responsibilities in property transactions, particularly in the context of mortgages.

Doctrine of Marshalling

Marshalling involves arranging things in a systematic manner. According to Section 81 of the Transfer of Property Act, when the owner of two or more properties mortgages them to one person and subsequently mortgages one or more of those properties to another person, the subsequent mortgagee has the right to demand that the debt be satisfied out of the properties not mortgaged to them, provided this does not prejudice the rights of the prior mortgagee or any other person who has acquired an interest in the properties for consideration.

For example:
X mortgages properties A, B, and C to Y to secure a loan of ₹30,000.
Later, X mortgages property B to Z to secure another loan of ₹10,000.

Here, Y is the first mortgagee with a claim on properties A, B, and C, while Z is the subsequent mortgagee with a claim on property B. Z can invoke the right of marshalling to ensure that Y’s loan of ₹30,000 is satisfied from properties A and C, rather than B, thereby protecting Z’s interest in property B. However, if A and C are insufficient to cover Y’s loan, property B may also be sold to make up the difference. The right of marshalling is designed to protect the subsequent mortgagee, but it is not absolute and must meet certain conditions.

Conditions for Marshalling:

• There must be two or more mortgagees, and the mortgagor must be the same person.
• The mortgagor must mortgage two or more properties to another mortgagee without prejudicing the rights of the prior mortgagee.
• There must be no contract to the contrary.
• The subsequent mortgagee is entitled to have the debt satisfied out of the other properties.
• The rights of the first mortgagee and other interested parties must not be prejudiced.

Landmark Cases:

• Devatha Pullaya v. Jaldu Manikyala Rao: The court held that a subsequent mortgagee who fails to fulfill the conditions of the prior mortgage cannot claim the right of marshalling.
• Fiatallis North America, Inc v. Pigott Construction Limited: It was established that there must be a single or common mortgagor for the right of marshalling to apply.
• Nova Scotia Saving & Loan v. O’Hara: The court ruled that the doctrine of marshalling should not be applied to the detriment of third parties.

Section 82: Contribution to Mortgage-Debt

Contribution refers to the obligation of providing money towards a common liability. Section 82 of the Transfer of Property Act addresses the distribution of mortgage debt among multiple mortgagors. This section is based on principles of equity, justice, and good conscience, ensuring that all mortgagors contribute equitably to the common debt.

Section 82 applies when two or more properties belonging to different persons are mortgaged to secure a loan. The mortgagee has the right to recover the debt from any of the properties, but the liability must be equitably distributed among the mortgagors.

Rules of Contribution:

• The mortgaged property must belong to two or more persons.
• One property is mortgaged first, followed by another property.
• The doctrine of marshalling takes precedence over contribution.

Difference Between Doctrine of Marshalling and Contribution

Doctrine of Marshalling:

• The right of marshalling is available to mortgagees.
• It addresses the rights of subsequent mortgagees.

Doctrine of Contribution:

• Contribution determines the rights of one mortgagor against other mortgagors.
• It addresses the rights of mortgagors among themselves.

Conclusion

The doctrines of marshalling and contribution, as outlined in Sections 81 and 82 of the Transfer of Property Act, play a critical role in mortgage transactions. Marshalling protects the rights of subsequent mortgagees by ensuring that debts are satisfied from other properties, while contribution ensures that the burden of debt is equitably shared among co-mortgagors. Both doctrines are grounded in the principles of equity and fairness, ensuring that all parties involved in a mortgage transaction are treated justly.