Explain the doctrine of Marshalling and Contribution. In case of conflict.... which shall prevail?...

Question: Explain the doctrine of Marshalling and Contribution. In case of conflict among them, which shall prevail? Explain with the help of examples. [RJS 1988, 2011, BJS 2014]

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Answer

The doctrine of Marshalling is a principle of equity which ensures that when a creditor has access to two or more properties for satisfying his debt, and another creditor has access to only one of them, then the former must satisfy his claim from the property to which the latter has no access (to the extent possible).

Section 56 – Marshalling by Subsequent Purchaser (TPA, 1882):

When a person mortgages multiple properties and later sells one, the buyer can ask for the mortgage debt to be paid from the unsold properties first—unless there's a contrary agreement. However, this right cannot harm the mortgagee’s interests or those of any other bona fide purchaser.

Section 81 of the Transfer of Property Act, 1882 (India) codifies this doctrine. According to Section 81 of TP Act:

If a person mortgages multiple properties to one creditor and later mortgages some of them to another, the later (subsequent) mortgagee can ask that the earlier debt be recovered from properties not mortgaged to him—unless agreed otherwise. This right cannot harm the earlier mortgagee or any bona fide purchaser.

Illustration:

• A mortgages two properties X and Y to C.
• Later, A mortgages only property X to D.
• When A defaults, C can proceed against both X and Y.
• But D has interest only in X. So, under marshalling, C must (if possible) satisfy his debt from Y so D’s interest in X is protected.

Purpose: To protect the subsequent transferee’s interest by compelling the prior creditor to satisfy their debt from the property not covered by the subsequent mortgage.

Doctrine of Contribution

The doctrine of Contribution requires that when two or more parties are equally bound to discharge a common liability (e.g., co-mortgagors or co-sureties), but one of them pays more than his share, he is entitled to recover the excess from the others.

Statutory Recognition:

Section 82 of the Transfer of Property Act, 1882 deals with contribution among co-mortgagors. According to Section 82 of TP Act: 

When mortgaged property is co-owned, each owner's share must contribute proportionately to the mortgage debt based on its value at the time of mortgage, after deducting prior charges. If one property is mortgaged for a first debt and later both properties are mortgaged for a second debt, the second debt must be shared rateably between both properties—after adjusting for the first debt.
This rule does not apply where Section 81 (Marshalling by subsequent mortgagee) is involved.

In Thoppai M. Muthiah Bhagavathar & Ors. v. T.V. Venkatarama Ayyar & Ors. (1935), the Madras High Court dealt with a suit for contribution arising from two mortgages involving four items of property, some jointly and some individually owned. The plaintiffs, claiming excess contribution towards the mortgage debt, sought reimbursement under Section 82 of the Transfer of Property Act.

The Court held that Section 82 governs the distribution of liability across mortgaged properties but does not entitle a party to contribution if they have not paid more than their proportional benefit from the loan. It emphasised that the right to contribution arises only after assessing who benefited from the mortgage, and that Section 82 is subject to contracts between the parties.

Finding that the plaintiffs’ predecessor, Sundararaja, had received less of the loan amount and repaid less than his share, the Court ruled that no contribution could be claimed from the defendants, who had paid more than their share. The Court also disagreed with contrary decisions such as Jai Narain v. Rashik Behari Lal, reaffirming that equitable considerations and actual benefit derived override rigid proportional liability.

Illustration:

• A, B, and C mortgage their respective properties to X for a loan of ₹3,00,000.
• X recovers the entire loan by selling A’s property.
• A is entitled to a contribution of ₹1,00,000 each from B and C.

Purpose: To ensure equitable burden-sharing among co-obligants.

Conflict Between Marshalling and Contribution: Which One Prevails?

In the event of conflict between the two doctrines, Contribution prevails over Marshalling. Because marshalling is a personal equity and cannot prejudice the right of contribution which ensures fairness among multiple parties responsible for a common debt.

Example Showing Conflict and Resolution

Scenario:

• A mortgages Property 1 and Property 2 to X.
• A later sells Property 1 to B and Property 2 to C.
• X sues B and gets the full amount by selling Property 1.

Now:

• B tries to invoke marshalling and asks X to sell Property 2 (owned by C) instead.
• C argues that since both properties were liable, and X chose Property 1, B should seek contribution from him (C), not marshalling.

Outcome:

• C is right. Even though B can ask for a contribution, he cannot compel marshalling against C if it prejudices C’s contribution rights.