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Report No. 70

Chapter 79

Contribution

Section 82

79.1. Section 82.- Section 82 provides as follows:-

"82. Where property subject to a mortgage belongs to two or more persons having distinct and separate rights of ownership therein, the different shares in or parts of such property owned by such persons are, in the absence of a contract to the contrary, liable to contribute rateably to the debt secured by the mortgage, and, for the purpose of determining the rate at which each such share or part shall contribute, the value thereof shall be deemed to be its value at the date of the mortgage after deduction of the amount of any other mortgage or charge to which it may have been subject on that date.

Where, of two properties belonging to the same owner, one is mortgaged to secure one debt and then both are mortgaged to secure another debt, and the former debt is paid out of the former property, each property is, in the absence of a contract to the contrary, liable to contribute rateably to the latter debt after deducting the amount of the former debt from the value of the property out of which it has been paid.

Nothing in this section applies to a property liable under section 81 to the claim of the subsequent mortgage."

The principle of the section is sound enough, but a few matters are worth clarifying in order to avoid a possible misconception as to the scope of the section.

79.2. Three situations.-

There are three situations to be separately considered when one is dealing with section 82. In the first place, there is the position of the mortgagee. In the second place, there is the question of adjustment of rights as between the co-mortgagors. In the third place, there is the question of adjustment of the rights of purchasers of shares in the mortagaged property.

So far as the first situation is concerned, it is to be pointed out that the section does not prejudice the rights of the mortgagee. He is entitled to proceed against any property forming part of the mortgage security, unless there is a contract to the contrary, but such a contract must be one to which the mortgagee is a party.

So far as the second situation is concerned, it is not necessary that the mortgagee should be a party to the contract to the contrary. The co-mortgagors may enter into any contract which they think proper as to the proportion in which they will bear the burden, as amongst themselves.

It is the third situation which has given rise to problems in practice.

79.3. Meaning of "contract to the contrary".-

As to the first paragraph of the section, there is a certain amount of obscurity as to the meaning of the expression "in the absence of a contract to the contrary." Does the section intend that the contract must be between the mortgagor and the mortgagee? If the contract is only as between the mortgagors inter se, then what is the effect of the stipulation so entered into, on the right of an assignee of the mortgaged property? This and similar questions have arisen.

The Madras view1 on the subject is to the effect that an agreement binding only as between the mortgagors is not a contract to the contrary within the meaning of section 82 so as to bind a purchaser of a share in the mortgaged property. On the other hand, there is the Allahabad view2 to the effect that the expression is general, and may refer to any contract, and the mortgagee is not a necessary party to any contract which involves the right of contribution as between various portions of the properties mortgaged. The Allahabad case was not, however, concerned with the rights of assignees.

1. Rama Bhadhrachar v. Srinivasa lyyangar, 1901 ILR 24 Mad 85.

2. Khalesan-fi-Sabil v. Narendra Nath, AIR 1936 All 258 (261).

79.4. Recommendation as to first paragraph.-

It appears to us that the position would be-and should be-made more clear by providing that while the section as a whole would apply to every contract, yet it will not affect a transferee of the property. This was, in effect, the decision of the Full Bench1 in a Madras case. The net result of the ruling of the Full bench of the Madras High Court is that a contract to the contrary between the co-mortgagors alone cannot exclude the operation of section 82 as regards assignees. We recommend that the section should be suitably amended for the purpose.

1. Damodaraswami v. Govindarajulu, AIR 1943 Mad 429 (FB).

79.5. Second paragraph.-

The second paragraph of the section needs no comments. Ghose1 has pointed out that section 82 merely refers to the liabilities of the owners of incumbered estates inter se. He observes (with reference to the section as it stood before 1929):

"It is not very carefully worded; but the meaning is that where several estates subject to the same mortgage either originally belonged to, or subsequently become the property of different owners, and one of such owners pays off the debt, he has the right to call upon the owners of the other estates to contribute rateably to the payment of the debt, according to a valuation of the several estates, taking into account any other incumbrances affecting them respectively. The principle that each parcel of the mortgaged property is liable rateably to its value applies equally where the mortgagee himself buys the equity of redemption in one or more of such parcels, or releases any part of the security."

1. Ghose Law of Mortgage in India, (1902), p. 876.

79.6. As to the last paragraph of the section, Ghose observes1:

"The last paragraph of this section seems to have been taken from Fisher, section 1349, where it is said that the right of contribution will be prevented by the right of marshalling from being applied against an estate which is liable to other creditors of the debtor, citing (1737) Bartholomew v. May, 1 Atk., 487. Mr. Macpherson thinks that this clause goes too far (Law of Mortgage, p. 687), and as it stands, it is certainly not very intelligible."

1. Ghose Law of Mortgage in India, (1902), p. 876.

79.7. Section 82, last paragraph.-

Mulla has also stated that the last paragraph of section 82 is somewhat cryptic.1 But its gist can be set out by stating that the right of contribution is subject to the right of marshalling. Thus, to quote the illustration given by Mulla,2 if the owner of two properties, X and Y.

Mortgages X to ... ... ... ... A
"Y to ... ... ... ... B
"X and Y to ... ... ... ... C
"X to ... ... ... ... D

then X and Y both contribute to C's mortgage in the proportion of their value, after deducting from X the amount of A's mortgage and from Y the amount of B's mortgage; but, under the right of marshalling (section 81), D could require C to proceed first against Y. This right of D to Marshall would prevail against the right of contribution, according to Mulla. We should, however, point out that section 82 does not affect the mortgagee's right at all. These rights are governed by the general rule. It is that rule which is overridden by marshalling.

1. Mulla, (1973), p. 566.

2. Mulla, (1973), p. 566.



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