Rules for Doctrine of Marshalling and Contribution

In respect of Mortgage property

Md. Abu Bakar
Marshalling means to arrange in proper order; to set out in an orderly manner; to arrange or
regulate clearly. Sections 56 & 81 and 82 of the transfer of property act deal about the doctrine
of marshalling and contribution. There are separate rules for marshalling in respect of sale and
mortgage. In respect of sale, the rule of marshalling is that a subsequent purchaser has a right to
claim marshalling which provide in section 56. But in respect of mortgage, the rule of
marshalling is that a subsequent mortgagee has a right to claim marshalling which provide in
section 81, and the rule of contribution provide in section 82. Marshalling is the converse of
contribution, for while marshalling requires that a mortgagee who has the means of satisfying his
debt out of several properties shall exercise his right so as not to prejudice the prior mortgagee
one of them, but Contribution requires that if several properties are liable to a mortgage and the
mortgagee has been paid out of one, the other shall not escape. So, in my term paper I try to
provide details analysis the rules relating with marshalling and contribution with proper
examples and relevant case references.

Sections: 81 of the transfer of property act 1882

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 new mortgagee is in the absence of a contract to
the contrary, entitled to have the mortgage-debt satisfied out of the property or properties not
mortgaged to him, so far as the same will extend, but not so as to prejudice the rights of the prior
mortgagee or persons claiming under him or of any other person who has for consideration
acquired an interest in any of the properties.

Essential ingredients for applying the doctrine of marshalling in respect of

mortgage property:
1. There must be a common debtor (mortgagor) of the mortgage property.

2. The mortgagor must hold two or more properties.

3. Then he mortgages one or more of the properties to another new mortgagee without prejudice
the prior mortgagee.

4. There exists no contract to the contrary.

5. The new mortgagee entitled to have the mortgage-debt satisfied out of the property or
properties not mortgaged to him,
6. Finally new mortgagee must not be prejudiced to the first mortgagee as well as 3rd person
claiming as purchaser.

There must be a common debtor (mortgagor) of the mortgage property:

This is the first criteria for marshalling applies. When there are different debts realizable out of
the several properties of a common debtor and so, the sections require that both mortgages shall
by the same owner. This qualification was first applied in a Madras case,

Joy 50% Samim 50%

Joy and Samim Mamun

Abu bakar

X is a joint property

Example: Suppose joy and Samim mortgaged property X, in which they had separate interest, to
Mamun and then Samim alone mortgaged his interest to Abu Bakar, it was held that Abu Bakar
had no right of marshalling.1

The principle of marshalling applies only where there is a common debtor, and not to other cases
of more than one debtor mortgaging their separate properties jointly for contracting the debt. 2

2. The mortgagor must hold two or more properties.

The second criteria are that the mortgagor must hold two or more properties for applying the
doctrine of marshalling.

Rahim Property X Property Y Karim

Rana

Illustration: Rahim mortgages his two properties x and y to karim and then mortgages y to Rana.
If karim seeks to realize his mortgage out of y, Rana can compel karim to proceed first against x
and realize the debt from it. In case karim is unable to realize the whole amount due to him from
x, he is entitled to recover the balance from y.

1
Neelamegan Vs Govindan 1891 ILR 14 Mad.71.
2
K Kotaswara Rao Vs K Vrukalaramana Air 1973 Ap 46.
4. Contract to the contrary:

The right of marshalling may be excluded by contract. thus, if joy mortgages x and y to Tuli, and
joy then mortgages x to Reaz, Reaz will have no right to require Tuli to realize his mortgage as
far as possible out of y if Reaz's mortgage has been made expressly subject to and after
satisfaction of mortgage. The converse is also true, for if there is a third encumbrancer thus:-

Joy Property X Property Y Tuli

Reaz

Mamun

Then if Mamun’s mortgage has been made expressly subject to and after satisfaction of the two
prior mortgages, Mamun could not prevent Reaz from marshalling against him3.

5. Protect the right of first mortgagee & Limitations of the doctrine of

Marshalling:
The claim to marshal must not be allowed to prejudice the rights of the first mortgagee or of
others who have acquired an interest for consideration.

Abu Bakar Property Property to Mamun

‘X’ ‘Y’

Reaz

Saiful

Suppose, Abu Bakar own two properties, X and Y then, first mortgaged both properties to
Mamun, then X is mortgaged to Reaz. And then Y is mortgage to Saiful, Reaz would not be
permitted to compel Mamun to marshal in his favour, if that course would prejudice Saiful.
Similarly, Saiful could not compel Mamun to resort in the first instance to the property X.

Doctrine of marshalling is meant to providing justice to both the parties to the mortgage. Its main
aim is to see that any of the creditors is not deprived of satisfaction. Here equality of treatment

3
Re Mower’s Trusts (1869) Lr 8 Eq 110; Deratha Pullaya V. Jaldu Manikyala Rao, AIR 1962 AP 425
lies among different shares of creditors. It is an example of the maxim, “equality is equity”. So,
the basis of marshalling is that “the mortgagee should not act in such way which can hamper the
right of other mortgagee”.

Section 82 of the transfer of property act 1882

It provides that 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
rateably 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 charge 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 contract to the contrary, liable to contribute
rateably to the latter debt after deducting the amount of former debt from the value of the
property out of which it has been paid

However, the above provisions are not applicable to a property liable under s 81 to the claim of
the subsequent mortgage.

Thus it is in effect declared that, where marshalling and contribution might conflict with
each other, marshaling is to prevail.

Example, Muhin the owner of two properties, x and y after mortgaging them separately to Rumi
and Rana, mortgages them together to Raisa, and then mortgages x to Rafi. here Rafi is under s
81 entitled to compel Raisa to resort to property y and satisfy his claim out of that security as far
as it will go. This right of Rafi to marshal would prevail against the right of contribution.

X Rumi

Muhin Raisa
Y Rana Rafi

The fundamental rule of contribution is – “equity delights in equality”. In the case of steel v.
dixon (1881), justice fry observed:- “where right in equality, there right is equally in separate
form”.
In the case of Ibne Hassan V. Rijibhukhan 4 , The right to compel marshalling as well as
contribution rests upon the principles that a fund which is equally liable with another to pay a
debt shall not escape because the creditor has been paid out of that other fund alone; and, on the
other hand, that a creditor who has the means of satisfying his debts out of several funds shall so
exercise his right as not to take from another creditor or claimant the fund which forms his only
security.

Problem: Abu bakar, Ridoy and Padda mortgaged their joint property first to Tuli and then to
Mamun. Abu bakar, Ridoy and Padda effected a partition into 3 shares. Tuli brought a suit and
realized the amount by the sale of Abu bakar’s share. Abu bakar obtained a decree for
contribution against the shares of Ridoy and Padda. then Ridoy and Padda redeemed the next
mortgage to Mamun and claimed contribution from Abu bakar. Is their claim maintainable?

Padda Abu
bakar

Ridoy

Joint Property Tuli next Mamun

Solution: They had no right to contribution as Abu Bakar’s share had been sold to satisfy the
prior mortgage debt5. Under s. 82 the liability to pay contribution is laid on the items of property
mortgaged. There is no personal liability. Since Abu bakar has no item of mortgaged property in
his hands, there can be no claim to contribution against him. An item of property sold to
discharge a prior incumbrance is not liable for contribution.6

4
(1904) 26 All. 407
5
[ Kashi Ram V. Het Singh (1915) ILR 37 All 101 ].
6
[Bohra Thakur Das V. Collector Of Aligarh, 32 All. 612 (P.C)]