Report No. 70
Marshalling of Securities
Still dealing with problems raised by conflict of interests between rival mortgagees and the adjustment of their claims, the Act, in section 81, deals with the interesting doctrine of marshalling, which is said to be based on the ethical principle1 that one must so exercise one's right as not to prejudice that of one's neighbour. Under section 81, 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 nave 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.
The general rule is that where two properties are mortgaged to a mortgagee, he can proceed against any of them unless he has contracted to the contrary. The doctrine of marshalling is an exception to this general rule.
Section 81 requires that the prior mortgagee shall first proceed against properties not mortgaged to a subsequent mortgagee. In this sense, it is not possible to understand the significance of section 81 without a background of the general rights of a mortgagee.
1. Story Equity Jurisprudence.
78.2. The right of marshalling is often1 described as an exception to the rule of contribution enacted in section 82. The last paragraph of section 82 expressly provides that nothing in that section applies to a property liable under section 81 to the claim of the subsequent mortgagee. It should, however, be noted that section 82 does not prejudice the mortgagee's rights as such.2
1. AIR 1962 Pat 236 (238).
2. See section 82.
78.3. No Change.- We have no changes to recommend in the section.