DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

PROPERTY LAW – II

Marshalling vs. Contribution: Which will prevail?

By

Divyaraj Singh Rajpoot

200101065

Semester VI
 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.

Illustration

X is the owner of property A, B and C. X mortgages all three properties (A, B,C) to Y.

Subsequently, X mortgages property B and C to Z. Hence under the rule of marshalling Y can
satisfy is debt out the property A, B and C. If the debt of Y can be satisfied out of property A
alone then property B and C should be left untouched. However, if Y’s debt cannot be satisfied out
of property A alone then he can proceed to satisfy his debt from property B and C also.

Case law
D.C. Johar And Sons Ltd. vs Mathew1 - Two brothers (A and B)who owned individual properties
mortgaged their properties to Bank 1. Subsequently one of the brothers (A) also mortgaged his
properties to Bank 2. Bank 2 contended that Bank 1 should proceed against the properties of the
other brother (B) first. The court held that this case would not fall under section 81 as there should
be a common debtor (mortgagor) of the properties.

In a leading English Case Aldrich v. Cooper 2, Lord Eldon stated that in a case where a person has
two funds he shall not by his election disappoint or prejudice the rights of the parties. He should
demarcate the interests and satisfy the precedent mortgagees debt having due regard of the
subsequent mortgagees. Hence he reiterated the doctrine of marshalling and held that marshalling
can be done in a way by arranging the securities so that one can satisfy various claims.

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

1
AIR 1962 Ker 106
2
(1803) 8 ves 382 (385)
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.

Illustration

X owns property 1 and Y owns property 2, both X and Y mortgage their properties (1 and 2) to C
to secure a debt. C cannot realize the value of debt from X or Y alone. Both X and Y will be liable
to contribute rateably in accordance with the value of the properties towards the debt.

Case law

Thoppai M. Muthiah Bhagavatharvs T.V. Venkatarama Ayyar and Ors. 3 Section 82 solely pertains
the distribution of the burden on the properties in a case where there is no other question as to who
had the benefit of the money in the beginning or any other similar complication arises. In a joint
family comprising of A and B, they mortgage two securities and subsequently the family separates
and A becomes the owner of one security and B the other security mortgaged. The value of those
securities were in the ratio 3:1. They there is no contract to the contrary under section 82, B will
be liable to contribute three-fourth and A will contribute one-fourth towards the debt.

3 163 IndCas 977

Difference between doctrine of Marshalling and

Contribution

DOCTRINE OF MARSHALLING DOCTRINE OF CONTRIBUTION

The right of marshalling is available only for The right of contribution is available to one
the lender of the mortgage. borrower against other borrower.

It settles right of subsequent lender of the It rights of borrower inter se.

mortgage.
Doctrine of marshalling based on principle of Doctrine of Contribution based on the principle
ratable distribution. of equity.

Supersession of the Rule of Marshalling over the

Contribution
The proviso to Section 82 denotes that the rule of Marshalling under section 81 supersedes
Contribution under Section 82. The Hon’ble Madras High Court has even held it to be well settled
that the Right to Contribution is controlled by the Right of Marshalling.This may be best
understood by an example:

There is an owner of two properties X and Y, who mortgages property X to A then to B then X
and Y properties to C and lastly property X to D. Since X and Y both contribute to C’s mortgage,
the value of the said contribution must include a deduction from property X, the value of A’s
mortgage and from property Y, the value of B’s mortgage. However, D being the last mortgagee
still has a right of marshalling and he can ask C to pursue property Y first instead of property X.
Thus, right of D to marshal his securities supersedes his contribution that is to be made.

The reason why marshalling supersedes contribution is because the last mortgagee is given an
opportunity to make the mortgagor discharge the mortgage debt from other mortgaged properties
first before he realizes the mortgage debt from the properties mortgaged to the person who holds
the right of marshalling. However, if after exercising the right of marshalling, the amount realized
from the other properties is insufficient, the last mortgagee must then contribute as his is the only
mortgage debt left to be realized.

Conclusion
Marshalling is the right of subsequent mortgagees whereas contribution is with respect to
mortgagors. 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. The Proviso
to Section 82 of TOPA gives precedence to the former over the latter.