CONCEPT OF MARSHALLING UNDER TRANSFER OF PROPERTY ACT, 1882

UNDER THE SUPERVISION OF

Asst. Prof. Mr. VIVEK WILSON

Submitted by: Vaishali Saxena
VII semester

‘Doctrine of Marshalling’ under Transfer of Property Act, 1882

INDORE INSTITUTE OF LAW, INDORE

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TABLE OF CONTENTS

CHAPTER 1 RESEARCH METHODOLOGY........................................................................4

CHAPTER-2 ABSTRACT.........................................................................................................6

CHAPTER 3 INTRODUCTION TO MARSHALLING...........................................................7

CHAPTER 4 EMERGENCE OF CONCEPT, ITS OBJECT AND ESSENTIALS................10

CHAPTER 5 MARSHALLING BY SUBSEQUENT PURCHASER.....................................12

CHAPTER 6 MARSHALLING SECURITIES……………………………………..

…………………………………………..17

CHAPTER 7 MARSHALLING ASSETS FOR THE BENEFIT OF

MORTGAGOR……………………………………………………………………………….24

CONCLUSION

BIBILIOGRAPHY

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 ACKNOWLEGDEMENT

A research work of such great scope and precision could never have been possible without great
co-operation from all sides. Contributions of various people have resulted in this effort. Firstly, I
would like to thank God for the knowledge he has bestowed upon us.

I would also like to take this opportunity to thank Asst. Prof. Dr. VIVEK WILSON without
whose valuable support and guidance, this project would have been impossible. Also, I would
like to extend sincere gratitude to my parents, who guided me at every point during the research
of this project. I would also like to thank the library staff for having put up with my persistent
queries and having helped me out with the voluminous materials needed for this work. I would
also like to thank my seniors for having guided me and culminate this acknowledgement by
thanking my friends for having kept the flame of competition burning, which spurred me on
through these days.

And finally my parents, who have been a support to us throughout my life and have helped me,
guided me to perform my best in all interests of our life, my grandparents who have always
inculcated the best of their qualities in me.

VAISHALI SAXENA

BA.LL.B., 7th SEMESTER

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CHAPTER 1 METHODOLOGY

RESEARCH PROBLEM

The paper unfolds an analysis of the concept of Marshalling provided under Section 56 and
Section 81 of Transfer of Property Act, 1882. Basis of Marshalling lies in the fact that “the
mortgagee should not act in the manner which can hamper the right of other mortgagee”. Earlier
when the act was framed the concept of marshalling had no utility but with developments issues
were raised and a need was felt to introduce the principle of marshalling, so as to benefit the
creditor having access to one fund over the creditor who has access to two funds in order to
satisfy his debt. The aim of the ‘doctrine of marshalling’ is that any of the creditors is not
deprived of satisfaction.

AIMS AND OBJECTIVES

The purposes of this study are as follows:

1. To analyze the principle of marshalling.

2. To analyze and evaluate the concept of marshalling provided in Transfer of Property Act,
1882.
SCOPE AND LIMITATIONS

This study employs a database involving analysis of the principle of marshalling provided in
Transfer of Property Act, 1882. An attempt has been made to summarize all related facts. Data’s
were selected using targeted electronic searches. The overall database includes articles, reports,
books and reputed websites and every effort was made to confine within the ambit of topic by
focusing only on the topic.

RESEARCH QUESTIONS

1. What is the significance and object of ‘principle of marshalling’ ?

2. Analysis of Concept as provided in Act, and Essentials of ‘marshalling’?
3. What are the Limitations to the concept of ‘marshalling’?

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RESEARCH HYPOTHESES

The research project is entitled “The Concept of Marshalling under Transfer or Property Act,
1882.”It explains the meaning of the word “Marshalling” and the concept of marshalling by
subsequent purchaser and marshalling Securities as provided in the act. It also shows the
limitations to the doctrine of marshalling. An attempt has been made to analyze the ‘principle of
marshalling’ by various rulings of the Supreme Court.

RESEARCH METHODOLOGY

“DESCRIPTIVE” Method of Research” has been relied upon for conducting the research given
the availability of resources and time. The researcher has relied mainly upon secondary sources,
including books available in Library, Databases, Journals, Articles and Newspapers.

MODE OF CITATION

A uniform mode of citation is followed while writing the project.

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CHAPTER 2 - ABSTRACT

Marshalling is a distinctive doctrine in the law of securities. It deals with something that is not
itself a security interest, nor does it involve a question of priorities or of control over the
enforcement of securities. Rather, it takes existing security interests and their priorities as givens.
Nor does it interfere with the enforcement of those interests.

What Marshalling represents is a right under certain circumstances to utilize a security interest
given to another. That right to utilize such a security interest is one that sounds in equity and that
is sui generis, that arises automatically, that is not transferable, and that is highly vulnerable to
defeat by transfers of same, and qualification by the grant of other security in, that asset. It is also
fully effective in the insolvency of the debtor. This represents a most singular interest indeed.

In marshalling, if several properties are subject to a mortgage and one of them is sold free from
the encumbrance the mortgagee is required in the first instance to satisfy his debt from the other
property subject to the mortgage. This may be compared with contribution, in which, if several
properties are subject to a mortgage and the mortgagee is paid out of one of them, the others are
required to make a contribution. Where there is more than one purchaser neither has any
superiority of right or equity over the other and both contribute rateably to discharge the
encumbrance.

This is so, because, robbing Peter to pay Paul is not, as Lord Macnaughten said, a principle of
equity.1

1 See Ghosh: The Law of Mortgage in India, 7th ‘Edn., p. 512

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CHAPTER 3 - INTRODUCTION

Marshalling in general sense implies a procedure or method by which an arrangement is made to

systematized or regulate the sources of payment of debt due to the creditor.

If a creditor has access to two sources of payment, he shall take his payment out of
that fund upon which another creditor has no access or lien.
The general principle underlying the doctrine of marshalling is that a person having two funds at
his disposal to satisfy his claims, he has the option of resorting to either property (fund) or both
of them in order to satisfy his debt, but while doing so he is not entitled to prejudice the right of
another person who only has access to one of the two properties or funds.
Strictly speaking, a creditor who has a lien or a charge (such as a mortgage) and thus, a priority
on an asset (or fund), and also has access on another asset, can collect off one or the other or
both, to the satisfaction of his debt. This frustrates other creditors who do not have access to the
charged asset or fund. They see their only source of payment depleted by a creditor who could
have obtained satisfaction from other charged asset.
In stepped equity to the rescue, to construct a principle of fairness and which has become known
as the doctrine of marshalling, requiring the creditor with the enforcement choices to act first
upon the asset upon which he alone has rights or access.

Illustration:-
Raja mortgages his two properties X and Y to Rumi and then mortgages Y to Rana. If Rumi
seeks to realize his mortgage out of Y, Rana can compel Rumi to proceed first against X and
realize the debt from it. In case Rumi is unable to realize the whole amount due to him from X,
he is entitled to recover the balance from Y.

The doctrine of marshaling assets is not an absolute rule of law, in some jurisdictions the doctrine
is recognized by force of statute, such statutes being declaratory of the general equity rule.
Marshaling is not founded on contract, nor is it in any sense a vested right or lien, but rests upon
equitable principles only and the discretion of the court. A common application of this doctrine is

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where mortgaged real property is subject to sale under the mortgage in the inverse order of
alienation

Definition/ meaning

According to the definition defined in Black’s Law dictionary ‘marshalling’ means:

Arranging, ranking, or disposing in order; particularly, in the case of a group or series of

conflicting claims or interests, arranging them in such an order of sequence, or so directing the
manner of their satisfaction, as shall secure justice to all persons concerned and the largest
possible measure of satisfaction to each.

Suppose a person, who has two real estates, mortgages both to one person, and afterwards only
one estate to a second mortgagee, who had no notice of the first; the court, in order to relieve the
second mortgage, have directed the first to take his satisfaction out of the estate only which is
not in mortgage to the second mortgagee, if that is sufficient to satisfy the first mortgage, in
order to make room for the second mortgage, even though the estates descended to two different
persons.

In Ernst Brothers (1920), the Ontario court wrote:

"The doctrine of marshalling, in its application to mortgages or charges upon two estates or
funds, may be stated as follows: If the owner of two estates mortgages them both to one
person ... the second mortgagee may insist that the debt of the first mortgagee shall be satisfied
out of the estate not mortgaged to the second, so far as that will extend. This right is always
subject to two important qualifications: first, that nothing will be done to interfere with the
paramount right of the first mortgagee to pursue his remedy against either of the two estates; and,
second, that the doctrine will not be applied to the prejudice of third parties ....",

In Bockhold (1999), Madam Justice Morrison of the British Columbia Supreme Court wrote in
her typical clear and succinct style:

"Marshalling is an equitable remedy that may arise when you have two creditors of the
same debtor, with one creditor, sometimes referred to as the senior creditor, having the right to
resort to two funds of the debtor for payment of the debt, and the other creditor, the junior

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creditor, has the right to resort to one fund only. The court can marshal or arrange the funds so
that both creditors are paid to the greatest possible extent.

"Equity will be invoked to protect the junior creditor, make the senior creditor realize on assets
in such a way that the senior creditor will not wipe out assets that would only be available to the
junior creditor. The junior creditor will be subrogated and will have a charge on the second or
subsequent funds."

In the 8th Edition of Fisher and Lightwood's Law of Mortgages, the author writes:
"The doctrine of marshalling rests upon the principle that a creditor who has the means of
satisfying his debt out of several funds shall not, by the exercise of his right, prejudice another
creditor whose security comprises only one of the funds."

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 CHAPTER 4 - EMERGENCE OF CONCEPT, ITS OBJECT AND
ESSENTIALS

First Emergence of The Doctrine of Marshalling

The doctrine of marshalling was first emerged in the famous case Aldrich v. Cooper2. In that
case Lord Eldon stated:
“If a creditor has two funds, the interest of the debtor shall not be regarded, but the creditor
having two funds shall take that which, paying him will leave another fund for another creditor.”

Conditions of Application of the Doctrine of Marshalling :

a. There should be a common debtor,
b. All properties subjected to the prior mortgage cannot be re-mortgaged and only a portion of
them can be re-mortgaged,
c. It will not prejudice the rights or interests of prior mortgagee or third party who has acquired an
interest in any of the properties for consideration.
d. After the re-mortgage, no further mortgage of same property can be made.

Object of Doctrine

Doctrine of Marshalling is meant to providing justice to both the parties to the mortgage. Its
main aim is to see that any of the creditors is not deprived of satisfaction. Here equality of
treatment lies among different shares of creditors. It is an example of the maxim;
“Equality is Equity”.
So, the basis of Marshalling is that “the mortgagee should not act in such way which can hamper
the right of other mortgagee”.

2 (1803) 8 ves 382 (385).

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The ‘Doctrine of Marshalling’ under Transfer of Property Act, 1882 is defined as follows:

S e c . 58 61
CHAPTER 5 - MARSHALLING BY SUBSEQUENT PURCHASER

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 [Section 56 of the Transfer of Property Act, 1882]

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 contract to contrary, entitled
to have the mortgaged-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 mortgagee or persons claiming
under him or of any other person who has for consideration acquired an interest in any of the
properties.

This section deals with right of marshalling which the subsequent purchaser of property can
claim.3 It should be contrasted with section 81 of the Transfer of Property Act, 1882 that deals
with marshalling by subsequent mortgagee. It has been stated by story as following:

The general principle is that one party has a lien or an interest in two funds for a debt; and
another party has a lien or an interest in one only of the funds for another debt; the latter has right
in equity to compel the former to resort to another fund in the first instance first instance for
satisfaction, if that course is necessary for the satisfaction of the claims of both the parties,
whenever it does not trench upon the right or operate to the prejudice of the party entitled to
double fund.

To put it other way, the equitable principle underlying the doctrine of marshalling is that a person
having two funds at his disposal, out of which to satisfy his claims, shall not, by his election,
prejudice a person who has only one such fund.4

The words “but not so as to prejudice the rights of the prior mortgagee” cannot be construed as
giving the prior mortgagee a right to have the properties mortgaged to him sold in any order that
he may prefer.
The purchaser of the property in execution of his mortgage decree is entitled to enforce the rights
of marshalling against a prior mortgagee so long as that prior mortgage is not extinguished
‘Marshalling’ has been expressed in similar vein by Dart as follows:5
3 Ganpati Ram v. Batiram Raghunath, AIR 1974 Bom155.
4 Wharton, Law Lexican, 14th Edn., 1938 Sub Voice Marshalling.
5 Quoted in Mulla, op. cit., p. 542.

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If two estates X and Y are subjected to a common charge and estate X be sold to A, A will as
against his vendor and his representatives have a prima facie equity in absence of express
agreement and whether or not, he has notice of charge, to throw it primarily on estate Y in
exoneration of estate X.

A leading English case on doctrine of ‘marshalling’ is that of Aldrich v. Cooper. 6 In this case
explaining the equitable doctrine of marshalling Lord Eldon said:

A person having two funds shall not by his election disappoint the party having only one fund;
and equity, to satisfy both, will throw him, who has two funds, upon that which can be affected
to him; to the intent that the only fund to which the other has access, may remain clear to him.

In simple language ‘marshalling’ means arranging (assets and securities) in the order in which
they are available to meet various kinds of claim.7

The doctrine is based on a great ethical maxim “sic utere tuo ut alienum non-laedas”, that is so
exercise your right as not unnecessarily to prejudice that of your neighbour 8, or enjoy your
property in such a manner as not to injure that of another person.

section 56, embodying thee principle or doctrine of ‘marshalling’.

Essential Conditions for applicability of Section

Essential conditions for applicability of section are:

(i) Owner of two or more property mortgages them to one person;

(ii) Then sells one or more of the said properties to another person;
(iii) Exercise of the right of marshalling should not prejudice the rights of the mortgagee
or other persons claiming under him or of any other person acquiring interest in the
properties for consideration; and
(iv) There is o contract to the contrary.

Illustration

6 (1803) 8 ves 382 (385), see also Barnes v Racster, (1842) 1 Y &C Ch. Cas. 401; Filnt v. Howard, (1893) 2 Ch. 54
7 See Legal Glossary, op. cit., p. 205.
8 Story, equity jurisprudence, Section 633.

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 (i) A is the owner of three properties X, Y and Z. He mortgages them to B and then sells
X to C free from encumbrance. C can ask B, that he should satisfy his mortgage debt
as far as possible out of the properties Y and Z.
If whole of the mortgage debt is not realized by B out of Y and Z, he has a right to
proceed against X. But if this actually happens, then purchaser C has right to claim
from the mortgagor the amount realized from X.
(ii) A is the owner of X and Y properties. He mortgages both to B. thereafter, X sold to C
free from encumbrance and Y is sold to D subject to mortgage. C is entitled to ask B
to realize his mortgage debt out of Y as far as possible.9

Explaination to Section 56

 So as not to prejudice
But the right of marshalling under this section cannot be exercised by one purchaser of a
mortgaged property against another purchaser of mortgaged property provided properties are
sold free from encumbrance. Under such a situation a question will not as to which one of the
properties will be primarily responsible for discharge of debt. Both properties will contribute for
the discharge of mortgage debt in the ratio of their value. 10 So if A owner of two properties X and
Y mortgages them to B, and thereafter sells X to C and Y to D. Neither C, nor D can exercise the
right of marshalling. If C exercises his right, the right of D is prejudiced. Under such a situation,
as already stated, both the properties X and Y will contribute rateably (according to their values).
Stating the reason for this, Ghosh11 says:

‘Robbing Peter to pay Paul is not a principle of Equity, and there is no sound reason, in the
absence of special circumstances, for preferring one purchaser for value to another.’

As already stated the right of marshalling cannot be exercised so as to prejudice the mortgagee or
any other person claiming under him. Whether a prejudice has been caused or not is a question of
fact, it is for the person who so alleges to prove the prejudice, and it is always linked with the

9 See Mulla, op. cit., 544

10 Mangiram v Mehdi Hossein, (1904) ILR 31 Cal LR 296.
11 Law of Mortagages, 5th Edn., p. 393.

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value of the properties involved.12 See illustration (1). If the mortgagee is not able to realize his
whole of the mortgage debt out of properties Y and Z his right is prejudiced and in that case he
has a right to proceed against property X, also.

It may be noted, that this section applies only to cases where there is a common debtor and not to
cases of more than one debtor mortgaging their separate properties jointly for contracting a debt.

Illustration

A and B owing separate properties jointly mortgage their properties to C for contracting a debt
and B subsequently sells his properties to D. the mortgagee C in execution of his mortgage
decree is entitled to proceed against any of the items of the properties. Section 56 has no
application and therefore D cannot claim that the mortgagee C should proceed in the first
instance against properties belonging to A.13

 Notice- whether Material

Right of marshalling as embodied in Section 56 can be exercised by the subsequent purchaser,

whether he has the notice or not of the fact that the property which he has purchased is subject to
mortgage along with other properties. The right available to the subsequent purchaser is
independent of notice, and that is made clear by amendment in section 81 of Transfer of Property
Act, 1882.14 In other words, for the applicability of the doctrine of marshalling, notice is not
relevant.15

 Contract to Contrary
The right available under Section 56, that is marshalling exists only where there is “no contract
to the contrary”. The contract to the contrary need not always be express, it may be implied from
the facts and surrounding circumstances.16 Thus, for instance where the purchaser of the one of

12 Brahm Prakash v. Manbir Singh, AIR 1963 SC 1603.

13 K.K. Rao v. K. V. Rao, AIR 1973 AP 46.
14 Sain Dittamal v. Bulaqui Mal, AIR 1947 Lah 230.
15 Chunilal Vithaldas v. Fulchand, (1893) 18 Bom. 160
16 Shivramayya v. Venkayamma, AIR 1946 Madras 59

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several items of mortgaged property undertakes to discharge mortgage debt out of consideration
(purchase notice), held it is an implied contract to contrary. Again, where X and Y are subject to
mortgage and the mortgagor sells X to A and deposits with A a sum of money to discharge the
mortgage debt and further agrees that if the sum is not sufficient he will pay the excess with
interest. In this case the vendee also undertook to is charge the mortgage out of the sale proceeds
to a certain extent. Held, that it is a contract to contrary, which excludes A’s charge on Y and
makes the seller personally liable.17

CHAPTER 6 - MARSHALLING SECURITIES

[Section 81 of the Transfer of Property Act, 1882]

Marshalling means to arrange systematize or regulate.

Where one creditor has security on two funds of his debtor, and another creditor has security for
his debt on only one of those funds, the latter has a right in equity to compel the former to resort
to the other fund, if [such an action] is necessary for the satisfaction of both creditors, provided it
will not prejudice the rights or interests of the party entitled to the double fund, nor do injustice
to the common debtor, nor operate inequitably on the interests of other persons.

17 Pirthiraj v. Rukmin Kunkunwar, AIR 1926 All 415. See also Mulla, op. cit., p. 544

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To sum up, if the owner of the 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 entitled
to compel the prior mortgagee to resort to the property not mortgaged to him.

When a party has two funds by which his debt is secured, and another creditor has a claim only
on one of these funds, a court of equity will compel the creditor having a double security to
resort to that fund which will leave the other creditor his security, this is called marshalling
assets. Marshalling of assets respects two different funds, and two different sets of parties, where
one set can resort to either fund, the other only to one. It is grounded on obvious equity. It does
no prejudice to anybody, and it effectuates the testator's intent. It takes place in favor of simple
contract creditors, and of legatees, devisees and heirs, and in a few other cases, but not in favor
of the next of kin.

The cases in which a court of equity marshals real and personal assets for the payment of simple
contract debts and legacies, may be classed as follows:

 Where there are specialty and simple contract debts and legacies and lands left to
descend. In this case if the specialty creditors take a satisfaction for their debts out of the
personal estate, the simple contract creditors first, and then the legatees, shall stand in the
place of the specialty creditors, for obtaining satisfaction out of the lands, to the amount
of so much as was received by the specialty creditors out of the personal estate.

 Where there are specialty and simple contract debts, and lands are specifically devised. In
this case if the creditors take a satisfaction for their debts out of the personal estate, the
simple contract creditors shall stand in the place of the specialty creditors for obtaining a
satisfaction out of the lands to the amount of so much as was received by the specialty
creditors out of the personal estate, but then there can be no relief for the legatees,
because there is as much equity to support the, specific devise of the lands, as to support
the bequest of the legatees.

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  Where the debts are charged upon the lands. Here the legatees shall have the personal
estate towards their satisfaction, and if the creditors take it in payment or towards the
discharge of their debts, the legatees shall stand in their place pro tanto to have a
discharge out of the lands.

 When simple contract debts and legacies are both charged on the land. In this case the
land shall be sold and all paid equally.

There are separate rules for marshalling in respect of sale and mortgage:

 In respect of sale, the rule of marshalling is that a subsequent purchaser has a right to
claim marshalling. For instance, there are three properties A, B and C subjected to
mortgage. The mortgagor sells A to Mr. X free from any encumbrances. Mr. X is entitled
to insist that the mortgagee should realize his mortgage money out of the
properties B and C as far as possible. If the whole of the debt is not capable of being
realized from B and C, the mortgagee has a right to proceed against A. In that event, the
purchaser Mr. X has a right to claim from the mortgagor, the amount realized
from A. This rule applies in the absence of any contract to the contrary.

 In respect of mortgage, the subsequent mortgagee is entitled to regulate or marshal the

order in which the debt is to be realized by prior mortgagees. For
instance, Mr. A mortgages X and Y properties to Mr. B and then mortgages Y alone
to Mr. C. If Mr. B seeks to realize his mortgage out of Y, Mr. C can compel Mr. B to
proceed first against X and realize the debt from it. If Mr. B is unable to realize the whole
amount due to him from X, he is entitled to recover the balance from Y.

Section 81 of Transfer of Property Act provides that;

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 contrary, entitled to have the prior mortgage debt satisfied out of the property or

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

Comments

This section deals with ‘marshalling’ of securities, while Section 56 deals with marshalling be
subsequent purchaser. The doctrine of marshalling was explained in English case of Baldwin v.
Belchar,18 and followed in Aldrich v. Cooper.19 In Aldrich v. Cooper, Lord Eldon stated the
equitable ‘doctrine of marshalling’ as follows:

A person having two funds shall not by his election disappoint the party having only one fund;
and equity, to satisfy both, will throw him, who has two funds, upon that, which can be affected
to him only, the intent that the only fund, to which the other has access, may remain clear to him.

The equitable principle underlying the doctrine of marshalling is that a person having two funds
out of which to satisfy his demands or debt, shall not, by his election, prejudice another person
who has only one such fund.20 And this principle itself is based on great ethical maxim ‘sic utere
tuo ut alienum non- leadas’, that is so exercise your right so as not unnecessarily to prejudice that
of your neighbor.21 In simple language marshalling is arranging (assets or securities) in the order
in which they are available to meet various demand.

Above equitable principle has been enacted in Section 81. Under this section the subsequent
mortgagee has been given the right to regulate or Marshall the order in which the debt is to be
realized by prior mortgagee. It is laid down that if the owner of two or more of the properties
mortgages them to one person and then mortgages one or more of the properties to another
person the subsequent mortgagee to have his prior mortgage debt satisfied out of the property not
mortgaged to him.

Essential Conditions for applicability of Section

18 3 DR &Bar 173
19 (1803) 8 ves 382 (395).
20 Wharton’s Law Lexicon, 14th Edn., 1938 Sub voice Marshalling.
21 Story Equity Jurisprudence, Section 633.

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For applicability of the rule of marshalling following conditions need to be fulfilled:

(i) Owner of two or more property mortgages them to one person;

(ii) And then mortgages one or more of the said properties to another person;
(iii) The exercise of the right of marshalling does not prejudice the rights of the prior
mortgagee or other person who has for consideration acquired an interest in any of the
properties; and
(iv) There is no contract to the contrary.

Illustration

A, has properties ‘Nilyam’ and ‘Godawari Vila’; of which he is the owner, mortgages them to B.
Again , he mortgages ‘Nilyam’ to C, B threatens to realize his mortgage debt out of ‘Nilyam’ so
that C will be deprived of his security. According to the principle of marshalling C can compel B
that he should extend, and leave ‘Nilyam’ for him. It does not depend at the will of a creditor that
he should defeat or disappoint the other.22

The right of marshalling is to be exercised when prior mortgagee attempts to realize his
security.23the principle of marshalling applies only when the contending creditors are creditors of
same persona and not of different debtors.24 Thus, for instance, where A and B execute a
mortgage of properties X and Y to C and then A alone executes as D cannot compel C to proceed
first against property X.

Explanation to Section 81

 No Prejudice to prior mortgagee

The right of marshalling cannot be exercised so as to prejudice the prior mortgagee. Hhence the
prior mortgagee cannot be compelled to act upon a security which is insufficient or doubtful or
which entangles him in litigation.25 Again, the right of marshalling cannot be exercised where the
22 Aldrich v. Cooper, (Supra)
23 Unnamalai Ammal v. Gopalaswami Chetti, AIR 1931 Mad. 199.
24 Ex parte Kendall, (1811) 34 ER 199 (201)
25 Krishna Ayyar v. Muthukumarawamiya, 1906 ILR 29 Mad 217.

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properties (the subject-matter of mortgage) are not different. The question of “prejudice” is a
pure question of fact, it should be alleged and facts and circumstances established.26 The question
of prejudice is linked with the value of the properties involved.

Where after mortgage, because three out of four properties fell in Pakistan after partition, held
the right of marshalling cannot be exercised because it will cause prejudice to the mortgagee.27

 No prejudice to other mortgagee

The right of marshalling can also not be exercised where the right of a third party or any other
person who has for consideration acquired an interest in any of the properties, is prejudiced.

Illustration

(i) A mortgages ‘Nilyam’ and ‘Godawari Vila’ to B.

(ii) Then A mortgages ‘Nilyam’ to C.
(iii) Again, A mortgages ‘Godawari Vila’ to D.

Then if C compels B to realize his mortgage debt out of ‘Godawari Vila’, it is possible that
nothing remains for D. Hence C cannot exercise his right of marshalling for that may cause
prejudice to D. Similarly, D also cannot exercise his right of marshalling as that would cause
prejudice to C. In such circumstance, both the properties, ‘Nilyam’ and ‘Godawari Vila’ will
contribute towards discharge of the debt of B, and the case would fall under Section 82 that deals
with contribution to mortgage-debt.

 Volunteer

Section 81 talks of prejudice to rights of the first (prior) mortgagee or any other person who has,
for consideration, acquired an interest in any of the properties. And, this would appear to exclude
volunteers.

 Contract to Contrary

26 Brahm Prakash v. Manbir singh, AIR 1963 SC 1607; Karan Singh v.Shukla Bedi, AIR 1962 Punj 477 (478)
27 Jay Singh v. Harnam Das, AIR 1964 All 381.

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The right of marshalling as enacted in Section 81 exists only where there is no contract to the
contrary needs to be express. It may be implied from the facts and circumstances of the case. 28
Thus for instance where A mortgages X and Y to B and then mortgages X to C. C will have no
right to ask B to realize his mortgage-money as far as possible out of Y provided C’s mortgage
has been made expressly subject to and after satisfaction of B’s mortgage.29

The right of marshalling may be excluded by contract.

If,
A mortgages X & Y to…………………….B
A mortgages X to……………………..C
A mortgages X & Y to……………………..D
Then if D’s mortgage has been made expressly subject to and after satisfaction of the two prior
mortgages, D could not prevent C from marshalling against him.

 Notice

Right of marshalling is not subject to the principle of ‘notice’. Hence, subsequent mortgagee is
entitled to marshalling even if he has a notice of prior mortgage. In other words, the question of
notice so far as the subsequent mortgagee is concerned, is immaterial or of no importance. But
before 1929 the question of notice was material and of importance.

28 Shivaramayya v. Venkayamma, AIR 1946 Mad 59 (60)

29 Borrowed from Mulla, op. cit., p. 835

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CHAPTER 7 - MARSHALING ASSETS FOR BENEFIT OF MORTGAGOR

The doctrine of Marshaling Assets is defined as an equitable principle upon which the legal
rights of creditors are controlled in order to accomplish an equitable distribution of funds in
accordance with the superior equities of different parties entitled to share therein. It springs from.
the principle that one who is entitled to satisfaction of his demand from, either of two funds shall
not so exercise his election as to exclude a party who is entitled to resort to only one of the funds.
For example, where one creditor has a mortgage upon two parcels of land upon one of which
there is a junior encumbrance not otherwise secured, the first mortgagee may be compelled to
exhaust in the first instance that parcel of land which is otherwise unencumbered in order that the
security of the junior encumbrances may not be entirely destroyed. In such case, however, the
indisposition of equity to interfere with the legal rights of a creditor results in working out the

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 equity of the junior encumbrance through a substitution to the right of the paramount mortgagee
as against the other party.
The equity of marshaling seems capable of being carried into effect in one of two ways: either,
first, by restraining the parties against whom it exists from using a security to the injury of
another; or secondly, by giving the party entitled to the protection of this equity the benefit of
another security in lieu of the one of which he has been disappointed. In other words, the right
may be enforced either by injunction against the paramount creditor, or by subrogation in favor
of the junior creditor.
In practice, however, the latter of these two methods is the one usually employed and the sounder
doctrine seems to be that the first of the two ought not to be resorted to except under very
peculiar circumstances: But there are decisions to the contrary; of course, when both funds are in
court or under its immediate control, the case is different.
The general principle on which courts of equity interfere in these cases with the strict legal rights
of the prior lien holder, is that without such interference he whose interests are prior would
possess an unreasonable power of defeating the rights subordinate to his by satisfying his claim
to the exclusion of the junior claimants, so that in fact it would be entirely in his election whether
they should receive any satisfaction or not. Now courts of equity treat such an exercise of power
as wholly unjust and unconscientiously and therefore will interfere 'not indeed to modify or
absolutely destroy the prior lien holder’s power, but to prevent it from being made an instrument
of caprice, injustice or imposition.
.
Limitations of the Doctrine of Marshalling:

a. The doctrine applies only in case of mortgage of immovable property.

b. The doctrine does not apply in case of coparcenery property before partition.
c. The doctrine does not apply in presence of a contract to the contrary.
d. It will not prejudice rights of a third party who has acquired an interest for consideration.

It is obvious that, the claim to marshal must not be allowed to prejudice the rights of the prior
mortgagee.

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Concluding Remarks

This presentation has been about a doctrine that is singular, intuitively plausible and persistent.
Marshalling refers in law to an arrangement. An attempt has been made to summaries the
concept of ‘marshalling’ under Transfer of property Act, 1882. The concept of ‘marshalling’ is
dealt with in Section 56 and Section 81 of the Transfer of Property Act, India. The nature of the
interest marshalling rights represent is a ‘sui generis interest’.

The doctrine of Marshalling is one that requires careful understanding if its complexities, which
are formidable, are to be appreciated. This presentation was meant to assist with such an
understanding of the principle of marshalling.
The claim to marshal must not be allowed to prejudice the rights of the first mortgagee or of
others who have acquired an interest for consideration. For instance, if two estates, X and Y

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belonging to the same person are first mortgaged to B, then X is mortgaged to C and then Y to D,
C would not be permitted to compel B to marshal in his favour, if that course would prejudice D.
similarly, D could not compel B to resort in the first instance to the estate X.

Doctrine of Marshalling is meant to providing justice to both the parties to the mortgage. Its
main aim is to see that any of the creditors is not deprived of satisfaction.

BIBILIOGRAPHY

BOOKS

 Mulla. Transfer of property Act. Asian Law House.

 Ghosh on Law of Mortgage in India. 2005, 7th Edn. Jain Book Agency.

 Dr. T.P. Tripathi (2013).The Transfer of Property Act, 1882. 3 rd Edn. Allahabad Law

Agency Publications.

 Black’s Law Dictionary.

 Wharton’s Law Lexicon, 14th Edn., 1938.

 Legal Glossary
 Duhaime, Lloyd, Maritime Law Dictionary

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 https://www.academia.edu/6331085/The_transfer_of_property_act_1882

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