Transfer of Property Act (TPA)
TPA Marshalling Securities Section 81
Marshalling Securities under Section 81: The Essentials, the Rights of a Subsequent Mortgagee, and the Contrast with Section 56
A lender who holds two properties as security may satisfy himself out of either. A second lender who holds only one of them may find that the first has taken everything out of his fund and left the other untouched. Marshalling prevents that: the prior mortgagee may be required to go first against the property the later mortgagee cannot reach. He loses nothing — he recovers his whole debt — but the order is arranged so that the loss falls where it belongs.
1. The Section
Section 81, TPA '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 mortgagee 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.' |
2. The Essentials
- One owner of two or more properties. The properties must belong to the same owner when the prior mortgage is made; marshalling does not operate between securities given by different people.
- A prior mortgage of all of them to one person. A single prior mortgagee holding several properties is the situation the doctrine addresses — he is the creditor with a choice of funds.
- A subsequent mortgage of one or more of them to another person. The later mortgagee is the claimant confined to a single fund.
- The right claimed: to have the prior debt satisfied out of the properties not mortgaged to him, so far as they will extend. If they do not extend far enough, the prior mortgagee may come against the property the later mortgagee holds for the balance.
- Subject always to the three limits the section states.
3. The Three Limits
The limit | What it means in practice |
|---|---|
A contract to the contrary | The right is a default rule. Where the subsequent mortgagee took his security expressly subject to the prior mortgage on the footing that it would be realised from his property, he cannot marshal |
No prejudice to the prior mortgagee | He must not be required to take a less valuable or less convenient security, to incur extra expense or delay, or to face a doubtful title. His debt and his remedies are untouched by the doctrine |
No prejudice to a person who has for consideration acquired an interest | Where a third person has purchased or taken a mortgage of the other property for value, the whole burden cannot be thrown on him; marshalling adjusts the incidence between the parties before the court, and does not create a new victim |
4. The Rights of the Subsequent Mortgagee
- He may require the order to be arranged, either by a term of the decree in a suit on the prior mortgage, or in his own suit for sale.
- He may redeem the prior mortgage under section 91, and on doing so he is subrogated under section 92 to the prior mortgagee's rights and priority — which is often a more effective route than marshalling.
- He cannot compel the prior mortgagee to split his debt or to accept part payment; marshalling is about sequence, not about apportionment.
- And he takes the benefit subject to what has already happened. If the prior mortgagee has already realised the fund the later mortgagee wished to protect, the right cannot be exercised retrospectively against an innocent purchaser at that sale.
5. Marshalling by a Mortgagee and by a Purchaser
The Act states the same rule twice, once in the mortgage chapter and once in the sale chapter, for two different claimants.
Point | Section 81 — by a subsequent mortgagee | Section 56 — by a purchaser |
|---|---|---|
Who claims | A person who has taken a later mortgage of one of the properties | A person who has bought one of the properties |
Where it appears | Chapter IV, on mortgages | Chapter III, on sales of immoveable property |
What he asks | That the prior debt be satisfied out of the properties not mortgaged to him | That it be satisfied out of the properties not sold to him |
The limits | A contract to the contrary; no prejudice to the prior mortgagee; no prejudice to a person who has acquired an interest for consideration | The same three, in the same words |
His alternative remedy | Redemption and subrogation under sections 91 and 92 | A claim against his vendor on the covenants for title under section 55 |
Before the amendment of 1929 the section was framed more widely, and a purchaser claimed under it. The present arrangement separates the two claimants, and each finds his provision in the chapter that governs his transaction.
6. Worked Examples
The facts | Result |
|---|---|
A mortgages plots X and Y to M for ₹10 lakh, then mortgages X alone to N for ₹6 lakh. Y is worth ₹12 lakh | N may require M to realise his debt out of Y, which will meet the whole of it; X remains available to N |
The same, but Y is worth only ₹6 lakh | M must resort first to Y; for the remaining ₹4 lakh he may come against X, and N takes what is left of X |
N took his mortgage of X expressly subject to M's mortgage being realised from X | A contract to the contrary; N cannot marshal |
After N's mortgage, A sells Y to P for value | Marshalling cannot be exercised so as to prejudice P, who has acquired an interest for consideration |
Realising Y would involve M in protracted litigation over a doubtful title | The right is subject to there being no prejudice to the prior mortgagee, and the court will not compel that course |
N prefers certainty | He may redeem M's mortgage under section 91 and stand in M's place under section 92 |
7. Landmark Cases
📖 Aldrich v. Cooper, (1803) 8 Ves 382 Held: Lord Eldon stated the equity on which marshalling rests: 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, but shall be required to take his satisfaction out of the fund which the other cannot touch, so far as that fund will extend. Ratio: A creditor with a choice of funds may not, by exercising that choice, defeat a claimant confined to one of them. |
📖 Barnes v. Racster, (1842) 1 Y & C Ch Cas 401 Held: Marshalling operates to adjust the incidence of the burden as between the persons interested in the several properties. It cannot be applied so as to affect the rights of the paramount creditor, nor so as to prejudice a third person who has acquired an interest for value in any of the properties. Ratio: The doctrine rearranges the order between claimants; it never enlarges the creditor's rights nor creates a fresh victim. |
8. Related Topics and Provisions
- Contribution to a Mortgage Debt, Section 82 — the companion doctrine, which shares the burden
- Marshalling by a Subsequent Purchaser, Section 56 — the same rule for a buyer
- Priority Between Mortgages — the order marshalling rearranges
- Sections 91 and 92, TPA — redemption by a subsequent mortgagee, and subrogation
- Section 78, TPA — postponement of a prior mortgagee for his own misconduct
- Section 82, second paragraph — where one property has already answered an earlier debt