MARSHALING AND CONTRIBUTION findoutabout.in

Table of Contents

INTRODUCTION

Marshaling means arranging things, systematizing, or regulating things. Contribution means providing money for a common fund.

Marshalling means arranging things, systematize, or regulate things which mean the things arranged in a proper manner or order. In the Transfer of Property Act, section 56, 81 and 82 deals with the doctrine of marshalling and contribution. According to section 56 of the transfer of property act, the marshalling applies on seller and buyer. Section 56, the rule of marshalling by the subsequent purchaser only deals with the sale not mortgage. 

Section 56 incorporates the rule of marshalling by a purchaser. And for a mortgage, section 81 is the rule of marshalling in which the subsequent mortgagee has the right to claim to marshal. The right of marshalling securities is not absolute.

The rule of contribution described in section 82 of the transfer of property act. The meaning of the rule of the contribution means providing money for a common fund. The doctrine of marshalling and contribution are very vital section (81, 82) for the transaction of the mortgage.

SECTION – 81

Marshaling securities

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 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 mortgaged to him, so far as the same will extend, but not so as to prejudice the rights of the prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties.

example

X mortgage properties A, B, and C to Y to secure a loan of 30,000 rupees.

After that X mortgages property B to Z to secure another loan of 10,000 rupees.

In this Y is the first mortgagee on properties A, B, and C which are securities for a loan of 30,000 rupees. And property B mortgages to X for a loan of 10,000 rupees. Here Y is the prior mortgaged and Z is the subsequent mortgagee. The right given to Z (subsequent mortgagee) entitles him to say that the loan of rupees 30,000, should be satisfied out of sale proceeds of properties A and B only and it is not from C which has been mortgaged to him.

In this case, A and B could be sold for less than 30,000 rupees, property C may be sold to complete the amount. Although Z is a subsequent mortgagee and his claim is not before the Y but Z has the right of marshaling or in other words he has the right to arrange the securities in his favor.

The right to marshaling securities is not absolute, it follows some conditions-

1. The mortgagees may be two or more two-person and the mortgagor must be the same.

2. Mortgagor mortgages two or more two properties to another new mortgagee without prejudice to the prior mortgagee.

3. There exists not a contract to the contrary.

4. The new mortgagee is entitled to have the mortgage debt satisfied out of the property.

5. At last new mortgagee must not be prejudiced against the first mortgagee as well as a third person or other person claiming as the purchaser.

SECTION – 82

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 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 obligation, 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.

Nothing in this section applies to a property liable under section 81 to the claim of the subsequent mortgage