PROPERTY LAW

Introduction to Doctrine of Marshalling

Submitted By:

Bhavya Guliani
A3211116072
BA LL.B. (H)
Section – B
Semester – VIII

Submitted To:

Ms. Ruchi Lal

 INTRODUCTION

According to Sec. 81 of the Transfer of Property Act:

If the owner of two or more properties –

i) mortgages them to one person,

ii) and then mortgages one or more of the properties to another person,

in such a case, the subsequent mortgage is entitled to have prior mortgage-debt

satisfied out of property or properties which are not mortgaged to him. This will
not affect the right of the prior mortgagee who has acquired an interest in any of
the properties for consideration. (in the absence of a contract to the contrary).
For e.g.: Mr ‘A’ mortgages two of his properties namely; ‘1st’ and ‘2nd’ to Mr.
‘B’. Thereafter, Mr. ‘A’ mortgages property ‘2nd’ to Mr. ‘C’.  If the Mr. ‘B’
mortgagee prefers to proceed against ‘2nd’ property, then subsequent mortgagee
Mr. ‘C’ may compel Mr. ‘B’ to first proceed against ‘1st’ property to realize his
dues. But later, if Mr. ‘B’ is unable to realize his dues from ‘1st’ property, then he
may proceed towards recovery of dues from ‘2nd’ property.

SECTION 81. MARSHALLING SECURITIES: -

 According to section 81 of the transfer of property Act 1882 provide 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 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.

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.

LIMITATIONS OF RULE: -
The claim to marshal must not be allowed to prejudice the rights of the first
mortgagee or of others two have acquired an interest for consideration. For
instance, if two estates, X and Y 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 favor, if that course would prejudice D. similarly, D
could not compel B to resort in first instance to the estate X. The case would be for
contribution under the first paragraph of section 82. As between C and D, B if
bound to satisfy himself out of two estates ratably, and thus to leave the surplus
proceeds of each estate to be applied in payment of the respective mortgages
thereon.
                                                  

Finally, it should be noted that this section safeguards the interests for
consideration and not those of a volunteer. The right of marshalling may be
excluded by a contract between the parties.

CASE LAW UNDER SECTION 81

According to Section 81 – Marshalling - Concept of marshalling by subsequent

purchaser can be explained by the following illustration - A owns properties X and
Y Both these properties are mortgaged to C -- Later, A sells property X to B --
Now, B will be entitled to insist that his vendor A, shall satisfy his mortgage debt
out of property Y (unsold) in the first instance as far as possible -- If after property
Y is exhausted there still remains balance of debt, only then property X will be
drawn upon -- Section 56 deals with the concept of marshalling in a transaction
involved in subsequent sale, on the other hand, Section 81 is applicable only to
mortgages -- 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. M/s J.P. Builders & Another v. A. Ramadas Rao & Another.
According to Section 81 – Sale of mortgaged property – Marshalling -- In view of
the sale agreement which results into decree for specific performance, the plaintiff
is entitled to insist upon defendant Nos. 1 to 3 to have the mortgage debt satisfied
out of the properties not sold to the plaintiff and in any case if the sale proceeds are
not sufficient then to proceed against the said suit properties. M/s J.P. Builders &
Another v. A. Ramadas Rao & Another.              

According to Section 81 –Marshalling – Plea of -- Plea of marshalling being pure

question of law based upon the decree obtained for specific performance, cannot
simply be thrown out merely because the same was not specifically pleaded. M/s
J.P. Builders & Another v. A. Ramadas Rao & Another.

SECTION 6 IN THE TRANSFER OF PROPERTY ACT,

1882 STATES THAT
Property of any kind may be transferred, except as otherwise provided by this Act
or by any other law for the time being in force, -

(a) The chance of an heir-apparent succeeding to an estate, the chance of a relation

obtaining a legacy on the death of a kinsman, or any other mere possibility of a like
nature, cannot be transferred

(b)A mere right of re-entry for breach of a condition subsequent cannot be

transferred to anyone except the owner of the property affected thereby

(c) An easement cannot be transferred apart from the dominant heritage

(d) All interest in property restricted in its enjoyment to the owner personally
cannot be transferred by him; 1( A right to future maintenance, in whatsoever
manner arising, secured or determined, cannot be transferred)

(e) A mere right to sue 2 cannot be transferred

(f) A public office cannot be transferred, nor can the salary of a public officer,
whether before or after it has become payable

(g) Stipends allowed to military 3[naval], 4[air-force] and civil pensioners of the
5[Government] and political pensions cannot be transferred

(h) No transfer can be made (1) in so far as it is opposed to the nature of the
interest affected thereby, or (2) 6[for an unlawful object or consideration within the
meaning of section 23 of the Indian Contract Act, 1872 (9 of 1872)], or (3) to a
person legally disqualified to be transferee; 7 [Nothing in this section shall be
deemed to authorize a tenant having an transferable right of occupancy, the farmer
of an estate in respect of which default has been made in paying revenue, or the
lessee of an estate, under the management of a Court of Wards, to assign his
interest as such tenant, farmer or lessee.]

The General rule related to Transfer of Property is that property of any kind may
be transferred and this property can be movable or immovable. Property of any
kind can be transferred from one party to another.

ANALYSIS

Lets further look into the exceptions for transferring the property.

1.Chance of an heir apparent or Spes Succession

If there is an immovable property, which Mr. A is going to get, then Mr. A has a
chance of being legal heir. If Mr. A assumes that he is the owner of the property
and transfers the property to Mr. B, that transfer will be considered to be invalid.
Mr. A cannot transfer the property unless he gains the ownership of the property
and the property belongs to Mr. A.
2.A mere right of re-entry for a breach of a condition subsequent

Mr. A and Mr. B have a contract in which Mr. A gives his agricultural land on a
lease to Mr. B for 10 years. There is a land on the tree and Mr. A has asked Mr. B
that if he cuts the tree that is there on the land, Mr. A will have a re-entry. Mr. A
has now put a condition on Mr. B after the transfer of property and that is why it is
known as condition subsequent. Mr. A has the right of re-entry and this right
cannot be transferred. Right of re-entry cannot be transferred.

3.An Easement

An easement cannot be transferred. Easement is the enjoyment that the owner of

the property holds with his property. Easement cannot be transferred. Once the
property is transferred, easement is by default transferred too.

4.Future Maintenance

A and B are related. Court orders that A will pay maintenance expenses for B. The
future maintenance of this right cannot be transferred.

5.Right to sue

Mr. A has committed a wrong against Mr. B and Mr. B can sue Mr. A in court. Mr.
B has the right to sue. If Mr. B wants to transfer this right to Mr. C, that is not
possible. Right to sue cannot be transferred.

6.Public Office

If you hold a public office such as judge, inspector, doctor, etc, then you cannot
transfer your public office to anyone.

7.Stipends
Stipends related to Military, Naval, Air Forces, Civil Prisoners, government
pensions, etc are personal rights and cannot be transferred.

General rule of Transfer of Property is that property of any kind can be transferred
from one person to another. Exceptions can be classified into exceptions
mentioned under section 6 of Transfer of Property Act and exceptions mentioned
in other laws.
It is open to the donor to transfer by gift title and ownership in the property and at
the same time reserves its possession and enjoyment to herself during her lifetime.
There is no prohibition in law that ownership in a property cannot be gifted
without its possession and right of enjoyment.

CASE LAWS

K.Balakrishnan v K.Kamalam (2004) [with respect to section 6 of Transfer of

Property Act]

The only substantial question of law involved in this appeal is whether the
appellant, who was minor on the date of execution of the gift-deed dated
24.9.1945, can be held to have legally accepted the property in suit gifted to him
and the said gift-deed was irrevocable. The appellant shall hereinafter be described
as 'the donee' and his deceased mother as the 'doner.'

On 24.9.1945, mother Devyani-donor executed a registered gift-deed of 1/8th share

of the property inherited by her from her maternal grandfather in favour of her
minor son aged 16 years being the present appellant (donee) and her daughter
Kamalam (respondent No.1 herein) who was aged four years. The 1/8th share of
the property gifted is described in the schedule of gift-deed i.e. one acre and 25
cents of property in Survey No.7481 & 7482 with school building in Mayyanad
Cherry in the State of Kerala. Under the terms of the gift-deed ownership of the
property, half and half, to each of the two donees was transferred but the donor
retained during her life time the management of the school and the income from
the property.

The High Court in the impugned judgment took a contrary view and confirming
the trial court judgment dismissed the suit of the donee holding inter alia that the
terms of the gift-deed do not indicate that any property was transferred thereunder.
The High Court held that when the donor reserved to herself the right to sign the
papers with respect to management of the school and right to take usufruct from
the property where the school is situated, there arose no question of passing over
ownership of the property to the donees, which the donees could accept.
The High Court further went on to hold that the entire right in the property gifted
was reserved by the donor to herself and therefore even when the father had
handed over the documents to the plaintiff there arose no question of any
acceptance of gift made in respect of the school property. The High Court further
held that the same legal position is in respect of property gifted to the minor
daughter and no question of acceptance of gift arose in respect of that part of the
property as well.

Bharat Petroleum Corporation v P.Kesavan (2004) [with respect to section 5

of Transfer of Property Act]

A deed of lease was executed on or about 22.11.1967 by one Smt. Angammal wife
of Shri AngappaChettiar in favour of Burmah Shell Oil Storage & Distributing
Company Limited (Burmah Shell) in respect of 23 acres and 16 cents of
property/land situated in the town of Bhavani for a period of twenty years on a
quarterly rent of Rs.300/- for the purpose of "erecting an installation and/or one or
more pumps service/ filling stations together with overhead/underground tanks and
other fittings for storage of petroleum products and such other facilities and
buildings as the lessee may require and for carrying business is such products
through such facilities and other kindered motor accessories or any other trade or
business that can conveniently be carried on in the demised premises". The original
lessor allegedly executed a will bequeathing the said site to her grandson
Meenashisundaram, who expired on 3.11.1971 whereafter rent used to be paid to
the guardian and mother of the said Meenashisundaram, Smt. G. Chellammal.

The appellant herein claimed itself to be a tenant in respect of the said premise
relying on or on the basis of the provisions of the said Act. It is not in dispute that
the lessor by a notice dated 4.2.1987 purported to terminate the tenancy calling
upon the appellant herein to quit and deliver the peaceful and vacant possession as
per terms of the lease dead. In reply to the said notice , the appellant herein in
terms of letter dated 26.2.1987 addressed to its advocate invoked the provisions of
Sections 5(2) and 7(3) of the Act stating that it had no intention to vacate the site
on the expiry of the existing lease on 30.6.1987 and wish to continue occupying
the same for a period of twenty years from 1.7.1987 by paying the existing rental
of Rs.500/- per quarter. By reason of letter dated 19.5.1987, the appellant herein
exercised its option to renew the lease for a further period of twenty years
commencing from 1.7.1989 on the same terms and conditions on which the
Burmah Shell held the lease immediately prior to the appointed day.

It was requested:

"May we therefore request you to let us know when it will be convenient for you to
have the lease registered on terms similar to those existing in the current lease. On
receipt of your advice in this matter, we shall take further action."

Despite the said letter, the tenancy was purported to have been terminated and as
the appellant did not quit and deliver possession unto the lessor on expiry of the
said period of lease, a suit was filed in the Court of the District Munsif, Bhawani. It
appears that the appellant herein had also filed a suit for specific performance of
contract which was not pressed.
The learned Munsif decreed the suit holding, inter alia, that although in terms of
Section 5 of the Act, the lease may be renewed for the same period but as
perSection 107of the Transfer of Property Act, necessary documents had to be
executed by the company. An appeal there against by the appellant herein was
dismissed by the District Judge, Erode. The appellant herein filed a second appeal
before the High Court of Madras which was also dismissed stating
:
"It is clear that the suit filed for renewal of the lease was only subsequent to expiry
of the lease and as such it cannot be said that the affidavit he has taken steps for the
renewal of the lease, especially when he kept quiet for nearly 3 years without
taking any steps, in spite of the filing of the suit by the appellant. It cannot be said
that the filing of the suit can be construed as step being taken for the renewal.
When the suit for recovery of possession is pending, as soon as filing of suit for
renewal of the lease, the appellant ought to have taken steps for joint trial. He has
allowed two suits to be proceeded with, independently. That means, he wanted to
take a chance before both the courts below. This conduct of the appellant cannot be
appreciated. Hence, I do not find any error in the findings of the Courts below that
the appellant has not taken any steps to get the lease renewed prior to the expiry of
the lease. Hence, the second appeal is dismissed.