Rule of Marshaling Securities Law and Legal Definition
The equitable doctrine of marshaling securities states that where there are two creditors standing in equal equity, one of whom has security upon two funds, and the other upon only one of the two, the former is required to proceed primarily against the fund upon which the latter has no claim.
The following are examples of case law on the rule:
The equitable rule of marshaling securities is that a person having two funds subject to his demands shall not by his election disappoint a party having but one fund. The general rule is that if one creditor, by virtue of a lien or interest, can resort to two funds, and another to one of them only as, for example, when a mortgagee holds a prior mortgage on two parcels of land, and a subsequent mortgage on but one of the parcels is given to another, the former must seek satisfaction out of the fund which the latter can not touch. [Walhoefer v. Hobgood, 19 Tex. Civ. App. 629 (Tex. Civ. App. Austin 1898)]
The equitable doctrine of marshaling securities does not apply where a creditor has a lien upon two funds belonging to two separate debtors, and a creditor of one of the debtors has a lien upon one of the funds. Creditors of a common debtor alone can invoke this right, and it has no application as between creditor and debtor. Nor will the rule be applied to the injury of the prior creditor, e.g., where the fund is dubious, or only to be reached by litigation; or so as to delay the prior creditor, or prevent him from realizing his whole debt, or to impair his security. So in the case of successive mortgages, and as between a mortgagee and subsequent bona fide purchasers from the mortgagor of portions of the mortgaged. [Boone v. Clark, 129 Ill. 466 (Ill. 1889)]
This is also known as marshaling doctrine; rule of marshaling remedies; rule of marshaling assets.
