Transfer of Property Act (TPA)
TPA Contribution to Mortgage Debt Section 82
Contribution to a Mortgage Debt under Section 82: Rateable Liability Between Properties, and How It Differs from Marshalling
One debt, several properties, and several owners. The mortgagee may realise the whole of his money from any of them, and he is entitled to do so. What section 82 settles is the position between the owners afterwards: each share is liable to contribute rateably to the debt, measured by its value at the date of the mortgage after deducting any other encumbrance it then carried. Marshalling arranges the sequence in which the creditor takes; contribution adjusts the burden once he has taken it.
1. The Section
Section 82, TPA Where property subject to a mortgage belongs to two or more persons having distinct and separate rights of ownership in it, the different shares in or parts of the property owned by them are, in the absence of a contract to the contrary, liable to contribute rateably to the debt secured by the mortgage. For the purpose of determining the rate at which each share or part shall contribute, its value shall be deemed to be its value at the date of the mortgage, after deducting the amount of any other mortgage or charge to which it was 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 the former debt from the value of the property out of which it has been paid. Nothing in the section applies to a property liable under section 81 to the claim of the subsequent mortgagee. |
2. The Doctrine
- The creditor is unaffected. He may realise the whole debt from any property subject to his mortgage; contribution is worked out between the owners afterwards.
- The burden is shared rateably. No owner should bear more than the proportion his property bears to the whole security, merely because the mortgagee chose to proceed against him.
- The owner who has paid more than his share may recover the excess from the owners of the other properties, and in practice this is worked out in the mortgage suit or in a separate suit for contribution.
- It is a default rule, displaced by a contract to the contrary among the owners.
3. How the Rate Is Worked Out
Step | What is done |
|---|---|
Take the value of each share or part | Value is taken as at the date of the mortgage, not as at the date of realisation — so a property that has since appreciated or fallen in value contributes on its original footing |
Deduct prior encumbrances | From the value of each share, deduct the amount of any other mortgage or charge to which it was subject on that date, since that much of its value was never available to the common creditor |
Apportion the debt | The debt is divided among the shares in the ratio of the net values so ascertained |
Adjust between the owners | An owner who has paid more than his rateable share recovers the excess from the others |
A worked calculation A mortgage of ₹12 lakh is secured on property X, worth ₹10 lakh at the date of the mortgage and then subject to a prior charge of ₹4 lakh, and on property Y, worth ₹12 lakh and unencumbered. Net values: X = ₹6 lakh; Y = ₹12 lakh. The ratio is 1 : 2. Rateable liability: X bears ₹4 lakh of the debt, Y bears ₹8 lakh. If the mortgagee realises the whole ₹12 lakh out of Y, Y's owner may recover ₹4 lakh from the owner of X. |
4. The Second Paragraph
The second paragraph deals with a common sequence. Of two properties belonging to the same owner, one is mortgaged to secure a first debt, and then both are mortgaged to secure a second. If the first debt is then paid out of the property that alone secured it, that property has already borne a burden the other never shared. In working out contribution to the second debt, the amount of the first debt is therefore deducted from the value of the property out of which it was paid. The result is that the property which has already paid contributes correspondingly less.
5. Marshalling and Contribution Compared
Point | Marshalling — section 81 | Contribution — section 82 |
|---|---|---|
What it decides | The order in which a creditor with several securities resorts to them | How the burden of one debt is shared among the properties liable for it |
In whose favour | A claimant who can reach only one of the properties — a subsequent mortgagee | The owners of the several properties, as between themselves |
Against whom | The prior mortgagee, as to the order of realisation | Each other; the mortgagee is not concerned |
Effect on the creditor | None — he recovers in full, in a stated order | None — he has already recovered |
The measure | So far as the other properties will extend | Rateably, on values at the date of the mortgage, less prior encumbrances |
When it operates | Before or at realisation | After realisation, by way of adjustment |
Their relationship | Where a property is liable under section 81 to the claim of a subsequent mortgagee, section 82 does not apply to it — the last paragraph of section 82 says so expressly | — |
6. Where Contribution Does Not Apply
- Where there is a contract to the contrary among the owners — for instance, where a purchaser of one property agreed to take it subject to the whole mortgage.
- Where the property is liable under section 81 to the claim of a subsequent mortgagee; marshalling then governs, and the last paragraph of section 82 excludes contribution.
- Where the properties never belonged to persons with distinct and separate rights of ownership — the section addresses divided ownership, not a single owner's several properties, save in the situation covered by the second paragraph.
- And it does not touch the mortgagee's own rights at any point; he is entitled to his money from whichever property he chooses.
7. Landmark Cases
📖 Barnes v. Racster, (1842) 1 Y & C Ch Cas 401 Held: Where one creditor held a security over two properties and another creditor held a security over one of them, the court worked out the incidence of the burden so that neither the paramount creditor nor a purchaser for value was prejudiced, and the loss was distributed among the properties according to their liability. Marshalling and contribution were treated as complementary means of adjusting the incidence of the debt between the persons interested. Ratio: The adjustment is made between the persons interested in the properties, and never at the expense of the paramount creditor or of a purchaser for value. |
📖 Aldrich v. Cooper, (1803) 8 Ves 382 Held: The court will so arrange the satisfaction of a creditor who has resort to two funds that a claimant confined to one of them is not disappointed. The same equitable foundation — that no party should bear a burden which in justice belongs to another — underlies both the marshalling of securities and the rateable contribution of properties liable to a common debt. Ratio: Both doctrines rest on the same equity: the burden must fall where, as between the parties, it properly belongs. |
8. Related Topics and Provisions
- Marshalling Securities, Section 81 — the companion doctrine, which arranges the order
- Marshalling by a Subsequent Purchaser, Section 56 — the same idea in the sale chapter
- Priority Between Mortgages — the rules that decide who is paid first
- Sections 91 and 92, TPA — redemption by a person interested, and subrogation
- Section 55(4)(b), TPA — the seller's charge, another incident of a divided burden
- Section 100, TPA — charges, and how they affect the value available to a later creditor