Doctrine of Marshalling and Contribution
1. Doctrine of Marshalling (Section 56, TPA)
Meaning:
Marshalling means arranging or reordering securities in such a way that rights of multiple creditors are fairly protected.
π If a debtor owns two or more properties and:
He mortgages both properties to one creditor (say C1),
And mortgages one of those properties to another creditor (say C2),
Then C2 (the subsequent mortgagee) has a right to compel C1 (the prior mortgagee) to satisfy his debt from the property not mortgaged to C2, if possible.
Essentials:
The owner must have two or more properties.
The first mortgagee has a charge on all the properties.
The second mortgagee has charge on only one of them.
Then, the second mortgagee can ask the first mortgagee to recover dues from the other property first.
Illustration:
A owns Property X and Y.
A mortgages both X and Y to B for βΉ1,00,000.
A mortgages X alone to C for βΉ50,000.
π C can insist that B recover his money first from Y, so that X remains available for C.
Case Law:
Aldrich v. Cooper (1803) β Laid down the equitable rule of marshalling; equity aims to ensure fairness between creditors.
Kedar Lal v. Hari Lal (1952 SC) β The Supreme Court held that marshalling applies only if it does not prejudice the rights of the prior mortgagee or other parties.
Limitations:
Marshalling cannot defeat the rights of the first mortgagee.
Cannot be applied if it harms third parties.
Applies only to voluntary transfers, not statutory charges.
2. Doctrine of Contribution (Section 82, TPA)
Meaning:
Contribution means that when two or more properties are mortgaged to secure one debt, the mortgagee has the right to recover the debt proportionately from each property.
This ensures that all properties contribute fairly to the debt repayment.
Essentials:
A single debt must be secured by multiple properties.
The mortgagee can enforce repayment proportionately from each property.
The burden is divided according to value of properties.
Illustration:
A owns Property X worth βΉ60,000 and Property Y worth βΉ40,000.
A mortgages both X and Y to B for βΉ50,000.
π On default, X and Y will contribute in proportion:
X contributes 60% = βΉ30,000,
Y contributes 40% = βΉ20,000.
Case Law:
Narayan v. Narayan (AIR 1953 SC) β The Court held that when several properties are mortgaged to secure one debt, each property bears the burden proportionately.
Ghanshyam v. Charan Singh (1984) β Clarified that contribution is based on the value of property, not on the convenience of parties.
Limitations:
If parties agree otherwise, the agreement prevails.
Applies only to voluntary mortgages, not statutory charges.
Does not apply when one property is exempted by contract.
Key Difference Between Marshalling and Contribution:
| Aspect | Marshalling | Contribution |
|---|---|---|
| Section | 56 TPA | 82 TPA |
| Parties | Between successive mortgagees (creditors). | Between co-mortgagors / multiple properties of same mortgagor. |
| Focus | Protects rights of subsequent mortgagee. | Ensures fair distribution of debt among properties. |
| Illustration | First mortgage on X+Y, second on X β second mortgagee can insist first recover from Y. | One mortgage over X+Y β both X and Y contribute proportionately. |
β Conclusion (Exam Ready):
The Doctrine of Marshalling (Sec. 56) ensures fairness between successive mortgagees by allowing the subsequent mortgagee to demand that the prior mortgagee satisfy his debt first from property not mortgaged to the subsequent mortgagee.
The Doctrine of Contribution (Sec. 82) ensures fairness among multiple properties mortgaged for one debt, compelling all properties to contribute proportionately.
Both doctrines embody equity and justice, preventing undue hardship either to creditors or to property owners.
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