Transfer of Property Act (TPA)
Marshalling by a Subsequent Purchaser under Section 56, and How It Differs from Marshalling by a Mortgagee
A man mortgages two properties to one lender and then sells one of them. The buyer has paid for a property that is security for a debt he did not incur, while the seller still holds another property charged with the same debt. Section 56 lets the buyer insist that the mortgagee go first against what the seller kept. Nothing is taken from the mortgagee — he recovers his whole debt — but the order in which he resorts to his securities is arranged so that the loss falls where it belongs.
Figure 1: The mortgagee directed to the properties not sold, and the limits on the buyer's right
1. The Section
Section 56, TPA 'If the owner of two or more properties mortgages them to 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 mortgage-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.' |
2. The Essentials
- One owner of two or more properties. The properties must belong to the same owner at the time of the mortgage.
- A mortgage of them to one person. A single mortgagee holding all the properties as security is the situation the section addresses; where different properties are mortgaged to different people, the question is one of priority and contribution rather than marshalling.
- A subsequent sale of one or more of them to another person. The buyer must have bought after the mortgage; a purchaser who bought before it has no claim to marshal.
- The buyer's right. He may have the mortgage debt satisfied out of the properties not sold to him, so far as they will extend — and if they do not extend far enough, the mortgagee may come against the property sold for the balance.
3. The Three Limits
The limit | What it means |
|---|---|
A contract to the contrary | The right is a default rule. Where the buyer has bought expressly subject to the mortgage, or has agreed to bear it, he cannot marshal |
No prejudice to the mortgagee | The mortgagee must not be made to take a less convenient or less valuable security, to incur additional expense, or to await a slower realisation. His debt and his remedies are untouched |
No prejudice to another person who has acquired an interest for consideration | Where a third person has taken a mortgage or a purchase of the unsold property for value, marshalling cannot be used to throw the whole burden on him |
4. Section 56 and Section 81 Compared
The Act contains the same rule twice, in the sale chapter and in the mortgage chapter, for two different claimants. The words are almost identical, and the difference lies only in who is asking.
Point | Section 56 — marshalling by a purchaser | Section 81 — marshalling by a subsequent mortgagee |
|---|---|---|
Who claims | A person who has bought one of the mortgaged properties | A person who has taken a subsequent mortgage of one of them |
Where it appears | Chapter III, on sales of immoveable property | Chapter IV, on mortgages |
What he asks for | That the prior mortgage debt be satisfied out of the properties not sold to him | That the prior mortgage debt be satisfied out of the properties not mortgaged to him |
The limits | A contract to the contrary; no prejudice to the mortgagee; no prejudice to another person who acquired an interest for consideration | The same three limits, in the same words |
The principle | Identical — a creditor with two funds must not, by his choice of fund, defeat a claimant who can reach only one of them | Identical |
5. Marshalling and Contribution Distinguished
- Marshalling decides the order in which a creditor with several securities resorts to them, and it operates in favour of a person who can reach only one of them.
- Contribution, under section 82, decides how the burden of one debt is shared among several properties liable for it, rateably according to their value at the date of the mortgage.
- The two may operate on the same facts. Marshalling arranges the sequence; contribution adjusts the ultimate incidence between the owners of the properties.
6. Worked Examples
The facts | Result |
|---|---|
A mortgages plots X and Y to M for ₹10 lakh, then sells X to B. Y is worth ₹12 lakh | B may require M to realise the debt out of Y, which will extend to the whole of it; X is left untouched |
The same, but Y is worth only ₹6 lakh | M must go first against Y; for the remaining ₹4 lakh he may come against X in B's hands |
B bought X expressly subject to the mortgage | A contract to the contrary; B cannot marshal |
After the sale of X, A mortgages Y to N for value | Marshalling cannot be used so as to prejudice N, who has acquired an interest in Y for consideration |
Realising Y first would involve M in long and expensive proceedings | The right is subject to there being no prejudice to the mortgagee, and the court will not compel a course that damages his security |
7. Landmark Cases
📖 Aldrich v. Cooper, (1803) 8 Ves 382 Held: The foundation of the doctrine was stated by Lord Eldon: where one creditor has a right to resort to two funds and another creditor can reach only one of them, the former shall not by his election disappoint the latter. He is to be required to take his satisfaction out of the fund which the other cannot touch, so far as it will go. Ratio: A creditor with two funds may not, by choosing between them, defeat a claimant confined to one. |
📖 Barnes v. Racster, (1842) 1 Y & C Ch Cas 401 Held: Marshalling was held to operate only so as to adjust the incidence of the burden between the persons interested in the several properties, and not so as to affect the rights of the paramount creditor or of a person who had acquired an interest for value. Ratio: The right must not prejudice the creditor holding the securities, nor a third person who has paid for an interest. |
8. Related Topics and Provisions
- Section 81, TPA — marshalling by a subsequent mortgagee
- Section 82, TPA — contribution to a mortgage debt
- Court Sale Free from Encumbrances, Section 57 — the provision that follows
- Rights and Liabilities of Buyer and Seller, Section 55 — the seller's duty to discharge encumbrances
- Priority of Rights Created by Transfer, Section 48 — the order in which securities rank
- Section 92, TPA — subrogation, where a person pays off a prior mortgage