Unit 5:-  Provisions of Mortgage

          5.1 Marshalling, Subrogation and Charges (Sections 80, 92 and 100) 

          5.2 Lease of Immovable Property – Provisions of Lease of Immovable Property (Sections 105 to 117) 

         5.3 Provisions for Transfer of Actionable Claims (Sections 130 to 137) 

 

Unit 5: Provisions of Mortgage, Lease & Actionable Claims

5.1 Marshalling, Subrogation, and Charges

(Sections 81, 92, and 100)

A. Marshalling Securities (Section 81)

Introduction & Definition

The doctrine of Marshalling means “arranging things in order.” It protects a subsequent lender who has lent money on only one of the properties that the first lender has already taken as security.

Principle: A lender who has the option to recover their debt from two properties should not do so in a way that prejudices another lender who has security on only one of them.

Statutory Provision: Section 81, Transfer of Property Act, 1882.

Essential Ingredients

• Two Properties: The Mortgagor (Borrower) owns two or more properties (say, X and Y).
• Prior Mortgagee: Both X and Y are mortgaged to a Prior Mortgagee (A).
• Subsequent Mortgagee: Only one property (say, X) is then mortgaged to a Subsequent Mortgagee (B).
• No Prejudice: B has the right to ask A to satisfy their debt from property Y first, so that property X is left available for B.
• Condition: This right must not prejudice the rights of the prior mortgagee (A) or third parties.

Exam-Style Example

Borrower owns House A and House B. He mortgages both to Bank 1. Later, he mortgages only House A to Bank 2.

• Bank 2’s Right: Bank 2 can insist that Bank 1 should sell House B first to recover its dues. Bank 1 should only touch House A if House B is insufficient. This ensures Bank 2 gets paid.

B. Subrogation (Section 92)

Introduction & Definition

“Subrogation” means substitution. It refers to the right of a person to “step into the shoes” of a creditor after paying off the creditor’s debt.

Concept: If a third party (or a co-mortgagor) pays off the mortgage debt to the lender, they acquire all the rights of that lender (including the right to sell the property to recover the money).

Statutory Provision: Section 92, Transfer of Property Act, 1882.

Kinds of Subrogation

1. Legal Subrogation: By operation of law. Applies to persons who have an interest in the property (e.g., a subsequent mortgagee pays off a prior mortgagee to protect their own security).
2. Conventional Subrogation: By agreement. A stranger pays the debt, but there is a specific registered agreement stating they will be subrogated to the rights of the mortgagee.

Landmark Case Law

1. Ganeshi Lal v. Jyoti Pershad (1953)

• Facts: A mortgage was paid off by one of the co-mortgagors. He then claimed the right to recover the share of the other co-mortgagors.
• Judgment: The Supreme Court held that the doctrine of Subrogation applies. The co-mortgagor who paid the full debt steps into the shoes of the original mortgagee and can enforce the security against the other co-mortgagors for their share of the debt.

C. Charges (Section 100)

Introduction & Definition

A “Charge” is a security for the payment of money where no transfer of interest takes place. It is a lesser form of security than a mortgage.

Statutory Provision: Section 100, Transfer of Property Act, 1882.

Essential Ingredients

• Immovable property of one person is made security for the payment of money to another.
• The transaction does not amount to a mortgage (no transfer of interest).
• Can be created by:
  1. Act of Parties (Contract).
  2. Operation of Law (e.g., a decree of a court).

Comparison: Mortgage vs. Charge

Feature	Mortgage (Sec 58)	Charge (Sec 100)
Interest	Transfer of an interest in property.	No transfer of interest; only a right to payment.
Duration	Fixed term usually.	Usually in perpetuity (e.g., maintenance).
Personal Liability	Generally exists.	Generally does not exist.
Enforcement	Can follow property into any hands (Right in Rem).	Cannot be enforced against a Bonafide Purchaser for Value without Notice.

5.2 Lease of Immovable Property

(Sections 105 to 117)

Introduction & Definition

A Lease is the transfer of a right to enjoy property for a certain time, in consideration of a price (Rent). It separates “ownership” from “possession.”

Statutory Provisions

• Section 105: Definition of Lease, Lessor, Lessee, Premium, and Rent.
• Section 106: Duration of Lease in absence of written contract.
• Section 107: How Leases are made (Registration).
• Section 108: Rights and Liabilities.
• Section 111: Determination (Ending) of Lease.

Essential Ingredients of a Valid Lease (Section 105)

1. Parties: Lessor (Landlord) and Lessee (Tenant). Both must be competent.
2. Subject Matter: Immovable property.
3. Transfer of Right: Right to enjoy the property (Possession), not ownership.
4. Duration: For a specific time (e.g., 11 months) or in perpetuity.
5. Consideration: Premium (one-time price) or Rent (periodic payment).

Distinction: Lease vs. License

This is the most common exam question in this unit.

Feature	Lease (Sec 105, TPA)	License (Sec 52, Easements Act)
Interest	Transfer of interest in property.	No transfer of interest; mere permission to use.
Possession	Exclusive possession is given.	No exclusive possession.
Transferability	Can be sub-let or transferred (unless restricted).	Generally personal; cannot be transferred.
Revocability	Cannot be revoked at will (requires notice/cause).	Revocable at the will of the grantor.
Case Law	Associated Hotels of India Ltd v. R.N. Kapoor	Delta International Ltd v. Shyam Sundar Ganeriwalla

Rights and Liabilities (Section 108)

• Lessor’s Duty: To disclose material defects; to put the lessee in possession; covenant for quiet enjoyment.
• Lessee’s Duty: To pay rent; to keep the property in good condition; not to erect permanent structures without permission; to restore possession upon expiry.

Determination (Termination) of Lease (Section 111)

A lease determines (ends) by:

1. Efflux of Time: The term expires.
2. Implied Surrender: Lessee accepts a new lease incompatible with the old one.
3. Forfeiture: Breach of express condition (e.g., non-payment of rent) + Notice by Lessor.
4. Notice to Quit: Under Section 106 (15 days for residential, 6 months for agricultural/manufacturing).

Landmark Case Law

1. Associated Hotels of India Ltd v. R.N. Kapoor (1959)

• Issue: Was the agreement a Lease or a License?
• Judgment: The Supreme Court laid down the test of Exclusive Possession. If the occupier has the right to exclude others (even the owner) from the premises, it is likely a Lease. If the owner retains control and the occupier only has use, it is a License.

Exam-Style Conclusion

A lease is a “partial transfer” where the right of enjoyment is separated from the right of ownership. The relationship is governed strictly by the contract, but Section 108 implies certain rights and duties to ensure fairness. The distinction between Lease and License is crucial as Leases offer statutory protection (like Rent Control) that Licenses do not.

5.3 Transfer of Actionable Claims

(Sections 130 to 137)

Introduction & Definition

An Actionable Claim is a claim to an unsecured debt or a beneficial interest in movable property that is not in the claimant’s possession. It is an intangible asset (like a pending lottery prize or an unpaid loan).

Statutory Provisions

• Section 3: Definition of Actionable Claim.
• Section 130: Mode of Transfer.
• Section 132: Liability of Transferee.

Essential Ingredients

1. Unsecured Debt: A debt not secured by mortgage or pledge (e.g., “A owes B ₹1000 on a promissory note”).
2. Beneficial Interest: Interest in movable property not in possession (e.g., Right to claim share in a partnership fund).
3. Civil Court: The claim must be one that the Civil Courts recognize as affording grounds for relief.

Mode of Transfer (Section 130)

• Writing Mandatory: Transfer must be effected by an instrument in writing signed by the transferor.
• No Registration: Registration is not compulsory.
• Notice: Notice to the debtor is not necessary for the transfer to be valid, but it is necessary to prevent the debtor from paying the original creditor by mistake.

Exceptions (Section 137)

The provisions of Actionable Claims do not apply to:

• Stocks/Shares.
• Negotiable Instruments (Cheques, Bills of Exchange) — governed by the Negotiable Instruments Act.
• Debentures.

Landmark Case Law

1. Simon Thomas v. State Bank of Travancore (1976)

• Judgment: The Court held that a claim to a “Provident Fund” is an actionable claim. It can be transferred or assigned, provided it is done in writing as per Section 130.

Exam-Style Conclusion

Actionable claims represent “future wealth” or “debts” that can be bought and sold. Section 130 simplifies commerce by allowing these debts to be transferred merely by a written instrument, without the complex formalities required for immovable property. However, Negotiable Instruments are excluded as they have their own specific law.