INTRODUCTION
Marshalling means arranging things or regulating things which suggests arrangement of thing in an exceedingly proper and inappropriate manner. The doctrine of marshalling and contribution is applied within the Transfer of Property Act, 1882 for sellers and buyers. It covers section 56, 81 and 82 of Transfer of Property Act, 1882.
Section 56 of Transfer of Property Act, 1882 talks about marshalling by subsequent purchaser during this the rule deals with the sale and not with the mortgage.
Section 81 of Transfer of Property Act, 1882 talks about Marshalling, securities during this the rule deals with the subsequent mortgage has right to say marshal.
Section 82 of Transfer of Property Act, 1882 talks about Contribution to mortgage- debt during this the rule deals with providing money for a common fund.
Section 81 and 82 of the Transfer of Property Act, 1882 pander to Marshalling and Contribution and these two sections play an important role for the transaction of the mortgage.
Doctrine of Marshalling
Marshalling means assembling or arranging in proper manner.
The doctrine of Marshalling supported the principle that when a creditor who has the means of fulfilling his debt out of several funds shall not, by the exercise of his right, prejudice another creditor whose security comprises just those one funds.
Section 56 of Transfer of Property Act, 1882:- (Marshalling by subsequent purchaser)
If the owner of two or more properties mortgages them to at least one person and then sells one or more of the properties to another person, the buyer is, in the absence of a contract to the contrary, entitled to have the mortgaged-debt satisfied out of the property or properties not sold to him, so far as the same will extend, but not so as to prejudice the rights of the mortgagee or persons claiming under him or of any other person who has for consideration acquired an interest in any of the properties.
COMMENT
In this section the Rule of Marshalling given to the buyers. The right to demand from the owner that the property has been free from any and every one burden on the customer purchases the property.
Section 81 of Transfer of Property Act, 1882:- (Marshalling, securities)
If the owner of two or more properties mortgage them to one person and then mortgages one or more of the properties to another person, the subsequent mortgage 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 mortgage to him, so far as the same will extend, but not so as to prejudice the rights of the prior mortgage or of any other person who has for consideration acquired an interest in any of the properties.
COMMENT
Under this section the rights are given to the subsequent mortgagee (lender) which considered a situation where a mortgagors (borrower of the mortgage) and mortgages were moreover two or more over two properties. Firstly to mortgagee (lender of the mortgage) and then mortgages of these properties to another person.
In this section rights of marshalling securities isn’t absolute, it follows some instruction:
- The lender in a very exceedingly mortgage could also be two or more than two person and also the borrower within the mortgage must be same.
- The borrower within the mortgage mortgages two or more than two properties to a different new lender without prejudice the prior lender within the mortgage.
- They exists not a contract to the contrary.
- The new lender within the mortgage entitled to have the mortgage debt pleased out of the property.
- In the last new lender must not be prejudiced to the primary lender further as a third person or other person claiming as the purchaser.
CASES
Devatha Pullaya v. Jaldu Manikyala Rao
In this case, a junior can claim on the mortgaged asset to the preceding or senior has taken the mortgage expressly on the situation of discharging specific amount because of the prior mortgage but fails to satisfy the term.
The court held that during this case he cannot exercise the right of marshalling.
Doctrine of Contribution
Contribution means providing money for the common fund.
The doctrine of contribution is predicated on the principle of equity.
If several properties belonging to many persons are mortgaged to secure a debt because of taking of a loan, the law says that every property should contribute towards the debt in proportion to its value.
Section 82 of Transfer of Property Act, 1882 (Contribution to mortgage- debt)
Where property subject to a mortgage belongs to two or more persons having distinct and separate rights of ownership therein, the different shares in or parts of such property owned by such persons are, in the absence of a contract to the contrary, liable to contribute rate ably to the debt secured by the mortgage, and, for the purpose of determining the rate at which each such share or part shall contribute, 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 change to which it may have been subject on that date.
Where, of two properties belonging to the same owner, one is mortgaged to secure one debt and then both are mortgaged to secure another debt, and the former debt is paid out of the former property, each property is, in the absence of a contact to the contrary, liable to contribute rate ably to the latter debt from the value of the property out of which it has been paid.
Nothing in this section applies to a property liable under section 81 to the claim of the subsequent lender.
COMMENT
This section deals with the foundation regarding the contribution of funds. It is a right of someone who has discharged a common liability to recover proportionate share from others.
Rules of Contribution
- The mortgaged property belongs to two or more persons.
- First the property is mortgaged and then again mortgaged with another property.
- Marshalling takes place of contribution.
CASES
Bohra Thakur Das v. Collector of Aligarh
In this case the borrower mortgaged the village of Kachaura to at last one, Nand Kishor. He again mortgaged villages, Kachaura and Agrana, to Nand Kishore. The plaintiffs purchased the equity of redemption from Agrana. The primary lender purchased Kachaura by a decree. The plaintiffs sued and contended that he first lender were susceptible to pay the proportionate share of the debt for redemption of the second mortgage.
The court held that the full of Kachaura was swallowed up by the primary mortgage by the decree; the complete burden of the second mortgage fell entirely on Agrana.
The Privy Council, in appeal, overruled the decision of the court and held that the first mortgages would have to contribute to the second mortgage, as they purchased Kachaura.
Difference between doctrine of Marshalling and Contribution
| DOCTRINE OF MARSHALLING | DOCTRINE OF CONTRIBUTION |
| The right of marshalling is available only for the lender of the mortgage. | The right of contribution is available to one borrower against other borrower. |
| It settles right of subsequent lender of the mortgage. | It rights of borrower inter se. |
| Doctrine of marshalling based on principle of ratable distribution. | Doctrine of Contribution based on the principle of equity. |
CONCLUSION
The doctrine of marshalling and contribution is very important for the transaction of the mortgage. The doctrine of marshalling is based on the principle of sharing funds. The doctrine of contribution is based on the principle of equity. Marshalling is the right of the lender and contribution talks about right of one borrower against other borrower. In the doctrine of marshalling, right is given to the subsequent lender of the mortgage. In the doctrine of contribution rights of borrower inter se.
This article is written by Shruti Tripathi, 2nd year, B.A.LLB student of JIMS, SCHOOL OF LAW, GGSIPU.
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