Doctrine of marshalling

The doctrine of marshalling

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Principle of Marshalling: The doctrine of marshalling is contained in section 81 of the Transfer of Property Act, 1882. The right of marshalling is a right given to the puisne mortgagee for the protection of his junior lien. If one incumbrancer has security in respect of two properties of the mortgagor, and another mortgagee has security as to one of the properties only, the two properties will be marshalled so as to throw the first incumbrance, as far as possible, on the property not included in the second security.

A mortgages X and Y to B. Then A mortgages X to C. B wants to proceed against property X. If he does so, C's security would be lost. C is a puisne mortgagee. If the property mortgaged to him is found insufficient or just sufficient to pay a prior mortgage, nothing remains out of it to satisfy his own mortgage. This would work a hardship on C. The law, therefore, recognizes the right of marshalling. C can claim this right. When this right is claimed B has to proceed first against the other property mortgaged to him, namely, Y. He has to marshal or arrange his securities in such a way as not to prejudice C. So he will have to proceed first against property Y and then only against property X. This right cannot be exercised by C if other persons have acquired for consideration rights in the other property.

This principle underlying the doctrine is stated in Aldrich v. Cooper by Lord Chancellor Eldon to be "that it shall not depend upon the will of one creditor to disappoint the another" so that " 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".