H mortgages his property 1 and 2 to Z and later mortgages property 1 to Y, which of the following would be the next course of action, as per the doctrine of marshalling?a) H would have to satisfy the debt from the sale proceed of the property 2.b) H would have to satisfy the debt from the sale proceed of property 1 or 2.c) H would have to get a formal permission from Y in case of selling property 1 before property 2.d) H could not satisfy his debt from the sale of property 1.
Question
H mortgages his property 1 and 2 to Z and later mortgages property 1 to Y, which of the following would be the next course of action, as per the doctrine of marshalling?a) H would have to satisfy the debt from the sale proceed of the property 2.b) H would have to satisfy the debt from the sale proceed of property 1 or 2.c) H would have to get a formal permission from Y in case of selling property 1 before property 2.d) H could not satisfy his debt from the sale of property 1.
Solution
The doctrine of marshalling protects the rights of the second mortgagee. In this case, Y is the second mortgagee who has rights only on property 1. Z, being the first mortgagee, has rights on both properties 1 and 2. According to the doctrine of marshalling, Y has the right to insist that Z should first satisfy his debt from property 2, which is not mortgaged to Y. This way, Y can still have the security of property 1 for his debt.
So, the next course of action would be:
a) H would have to satisfy the debt from the sale proceed of the property 2.
This is to ensure that the rights of the second mortgagee (Y) are not affected. If property 1 is sold first to satisfy the debt to Z, Y would lose his security. Therefore, Z should first be satisfied from the sale of property 2, which is not mortgaged to Y.
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