Doctrine of Marshaling and Contribution
Introduction
The doctrines of marshaling and contribution deal with fairness between multiple creditors and owners. They ensure that no party suffers unnecessary loss when more than one property or owner is involved in a mortgage. These principles are based on equity (fairness).
Meaning / Definition
- Marshaling (Section 81): When a debtor mortgages multiple properties to one creditor and later mortgages one of those properties to another creditor, the second creditor can ask that the first creditor recover his money from the other properties first.
- Contribution: When multiple properties owned by different persons are subject to a common mortgage, each property must bear a fair share of the debt.
Modes or Types
Doctrine of Marshaling
- Applies when:
- A person mortgages two or more properties to one creditor.
- Later, one of those properties is mortgaged to another creditor.
- The second creditor can require:
- The first creditor to recover the debt from properties not mortgaged to him.
- Limitation:
- It should not harm the rights of the first creditor or third parties.
Doctrine of Contribution
- Applies when:
- Two or more properties with different owners are subject to a common mortgage.
- Each owner must:
- Contribute proportionately (fairly) to repay the debt.
- Contribution is calculated based on:
- Value of properties at the time of mortgage.
Important Case Law
- Aldrich v. Cooper: Established that one creditor should not harm the rights of another. If one creditor has security over two properties and another over one, the burden should be adjusted fairly.
Distinction / Comparison
Marshaling vs Contribution
| Basis | Marshaling | Contribution |
|---|---|---|
| Nature | Right of subsequent creditor | Liability of co-owners |
| Purpose | Protect second creditor | Ensure fair sharing of debt |
| Application | Multiple properties, same owner | Multiple properties, different owners |
| Effect | Adjusts burden between properties | Divides burden between owners |
Practical Example
A owns properties X and Y.
- A mortgages both X and Y to B.
- Later, A mortgages only X to C.
C can ask B to recover the loan from Y first. This is marshaling.
For contribution:
- X and Y are owned by different persons and both are mortgaged.
- If the total debt is to be paid, each owner contributes based on the value of their property.
Summary
- Marshaling protects the later (subsequent) creditor
- It allows shifting of burden to other properties
- Contribution ensures fair sharing of debt among owners
- Applies when properties belong to different persons
- Based on value of property at time of mortgage
- Both doctrines are based on fairness (equity)
- Neither doctrine should harm rights of prior creditor