Doctrine of Marshalling and Contribution

Doctrine-of-Marshalling-and-Contribution

The doctrine of Marshalling and contributions are very important in the transaction of mortgage Section 81,82 of Transfer of Property Act, 1882 provides about it. The word ‘TRANSFER OF PROPERTY’ is very important in the transfer of property act, 1882 because the very title of this act is transfers of property.

Though the definition of property is not given in Transfer of property act but section 5 of act of transfer of property act defines the ‘’Transfer of Property’’ as-In the following sections “transfer of property” means an act by which a living person conveys property, in present or in future, to at least one or more other living persons, or to himself, (or to himself) and one or more other living persons; and “to transfer property” is to perform such act. 1(In this section “living person” includes a corporation or association or body of people, whether incorporated or not, but nothing herein contained shall affect any law for the nonce effective concerning the transfer of property to or by companies, associations or bodies of people .)



CORPORATION OF CALICUT VS K. SHRINIWASAN, AIR. 2002 S.C. 2051, The Supreme court defined the transfer of property. Marshalling- Section 81 of the Act propounded the doctrine of Marshalling the credit goes to the case of “ Eldrich v/s Kapoor (1803 8V 382) to enter the doctrine in Indian law. It was propounded that “ It doesn’t depend upon one debtor to disappoint other creditors.  If a person mortgages his two or more properties to a person and further, he mortgage one or more properties to another person, here the subsequent mortgage has the right to satisfy the precedent mortgage debt by the property which is not in his possession.

But for these two requirements are necessary- Satisfaction of whole precedent mortgage debt by such an action and no I’ll or bad effect to any other person. This doctrine has been inserted in Section 81.

Section 81 Under Transfer of property act 1882-  Marshalling securities

If the owner of two or more properties mortgages them to at least one person then mortgages one or more of the properties to a different person, the next mortgage is, within the absence of a contract to the contrary, entitled to possess the prior mortgage-debt satisfied out of the property or properties not mortgaged to him, thus far because the same will extend, but not so on prejudice the rights of the prior mortgagee or of the other one that has for consideration acquired an interest in any of the properties.



It can be cleared with the following illustration – A owes three properties, J, K, L. He mortgages these three properties to B, After an interval of time, he (A) mortgages K and L to C again. Here according to the general rule, B can satisfy his mortgaged debt by all three properties, and if affects oppositely the interests of C, So section 81 says that satisfaction of the whole mortgaged debt of B van is by L then he should un touch J, K so that these may satisfy mortgage debt of C.

The propounded doctrine is based upon equity.  It protects the interest of the subsequent mortgage.  It controls the obstipation precedent mortgage.

The doctrine propounded in section 81 is based upon equity.  The interest of both the precedent and subsequent mortgage safeguards by this doctrine.  In the above example,  suppose the mortgage debt of ‘ B ‘ is Rs .30,000=00  and the recovery of the debt can easily be made from the mortgage property  ‘L’ then there is no appropriateness of recovery from the ‘J ‘ and ‘ K’. The debt of both ‘ B ‘ and ‘C ‘ satisfy from it.

But in case of not satisfying the debt of ‘ B ‘ from the property ‘L’ by at his own error or by any other reason then he can only recover his mortgage debt from the property ‘J’ and ‘K’. He could not be bounded to recover his mortgage debt only from the property ‘L’. In Krishna Aiyyar v/s Muthu Kumar Swamiyar( 1906 Chennai 217)  is a good case. In this case, the doctrine of Marshalling has been well elucidated.



Essential Conditions

For the applicability of the doctrine of Marshalling following three requirements are essential-

  1. There must be one debtor and all mortgage must be done by him. The provision of this section will not apply if there are separate debtor and mortgage (Venkayya v/s Venkat Rammaiya A.I.R 1930 Chennai 178)
  2. Minimum two properties must be mortgaged to precedent mortgage and one among them mortgaged to a subsequent mortgage.
  3. Precedent mortgage can recover his mortgage money from the property other than mortgaged to the subsequent mortgage.

It is remarkable that it is not necessary for the applicability of the doctrine that the subsequent mortgagee must aware of the precedent mortgagee. ( Deena v/s Nathu 1902 Mumbai 538).

Contributions

This doctrine is based on equity and public policy.  It is based upon maxim “ Question commodum senator debted onus. He who enjoy the benefits must also the burden.”

According to it There mortgaged property is of two or more person and who have separate entitlements,  there in absence of a contract to the contrary, the different shares of the properties will be liable to contribute,  in secured debt, that is in such cases, the recovery of debt will be made from all properties.

Section 82 Under Transfer of property act 1882- Contribution to mortgage-debt

Where property subject to a mortgage belongs to 2 or more persons having distinct and separate rights of ownership therein, the various shares in or parts of such property owned by such persons are, within the absence of a contract to the contrary, susceptible to contribute rateably to the debt secured by the mortgage, and, for the aim of determining the speed at which each such share or part shall contribute, the worth thereof shall be deemed to be its value at the date of the mortgage after deduction of the quantity of the other mortgage or charge to which it’s going to are subject thereon date.



Where, of two properties belonging to an equivalent owner, one is mortgaged to secure one debt then both are mortgaged to secure another debt, and therefore the former debt is paid out of the previous property, each property is, within the absence of a contract to the contrary, susceptible to contribute rateably to the latter debt after deducting the quantity of former debt from the worth of the property out of which it’s been paid.

Nothing during this section applies to a property liable under section 81 to the claim of the next mortgage. We can clear it with the following illustrations A, B, C mortgage their own properties to E and net debt of Rs. 30,000 combinedly as joint. Here all the three properties are payable for the payment of such debt viz the payment will be done from three properties.  E cannot recover complete debt from one property.  If he does so, however, the rest properties will be liable to payment of their shares. ( Hari Raj Singh v/s Ahmaduddin Khan 1897 Allahabad 545).

The main object of contributions is to protect the interest of the mortgage. It prevents credulous conduct of mortgagee or prejudiced conduct towards the mortgage. It also stops the collusion between parties. The mortgagee in order to provide illegal benefits to one mortgagor and loss to other mortgages, cannot recover the whole debt from one property.

In Hari Raj Singh vs Ahmaduddin Khan 1897 Allahabad 5451, it was decided that where a fund or treasure is responsible to pay debts with other fund or treasure,  there the fund or treasure cannot save from payment on the cause because the payment was done from a single fund.

It is to mention here that the responsibility under section 82 is not personal.  This is a liability imposed upon the property.  This liability is in the ratio of value.  ( Gopinath v/s Raghuvansh Kumar Singh A.I.R. 1949 Patna 522). This is another matter that the owner of the property can either make payments of his share at his own or can pay after recovery from the property. (Bhagirath vs Naubat 1882 Allahabad 115).

Compulsory Conditions

For the applicability of the doctrine of Contributions, the following conditions are required to be fulfilled-

  1. Two or more properties are mortgaged and the owner of the properties must different persons.
  2. All such properties are liable to payment of a debt.
  3. The mortgage must have recovered the whole debt from one of the properties.

 

Effect of conflict in Marshalling and Contributions

Now, the question arises that – In case of any conflict between the doctrine of Marshalling and contributions,  which will be prevailing? Its answer is clear.



If a conflict arises between the doctrine of Marshalling and doctrine contributions then the doctrine of Marshalling will predominate to the doctrine of contributions.

It is clear from the following illustrations. ‘A’ and ‘B’ are two owners of separate properties ‘A’ mortgage his property to ‘E’ and ‘B’ mortgage his property to ‘F’. Then A and B both mortgage their properties to H.

After interval of time, A again mortgage his property to G. In this condition,  the properties of A and B will be liable proportionally after mortgaged for H and the value rest after the subtraction of the debt- amount of E from the property of A and subtraction of the debt amount of F from the property of B. But according to the doctrine of Marshalling of G, H can make B bound to recover the mortgage debt. Thus, F the right of Marshalling will prevail over the right of contributions.

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Awesome post! Keep up the great work! 🙂