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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Kavita Exports mortgaged two properties, a factory and a warehouse, to Bank A. It then mortgaged only the factory to Bank B. In the absence of any contrary contract, what can Bank B demand under Section 81 of the Transfer of Property Act, 1882?

Bank B can require that Bank A's debt be satisfied first out of the warehouse, which is not mortgaged to B, as far as it will extend. This is marshalling under Section 81, and it applies only if Bank A's rights are not prejudiced and no contrary contract exists.

  1. AThat Bank A's debt be satisfied first out of the warehouse, so far as it will extend, without prejudicing Bank A's rightsCorrect
  2. BThat Bank A must release the factory from its mortgage altogether
  3. CThat Bank A's debt be recovered equally from both properties
  4. DThat Bank B ranks ahead of Bank A on the factory

Explanation

Under marshalling, the subsequent mortgagee is entitled to have the prior mortgage debt satisfied out of the property not mortgaged to him, so far as it will extend. This must not prejudice the prior mortgagee or others who acquired an interest for consideration. Equal recovery from both properties is not what the section provides.

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