Understanding the Rule of Marshaling Securities: A Legal Overview
Definition & Meaning
The rule of marshaling securities is an equitable doctrine in law that applies when two creditors are competing for payment from the same debtor's assets. It states that if one creditor has a claim on two funds while another creditor has a claim on only one of those funds, the first creditor must seek payment from the fund that the second creditor cannot access. This principle ensures fairness among creditors and prevents one creditor from unfairly disadvantaging another.
Legal Use & context
This doctrine is primarily used in civil law contexts, particularly in cases involving secured debts, mortgages, and liens. It is relevant in situations where creditors have competing claims on a debtor's assets. Understanding this rule can help individuals and businesses navigate their rights and obligations in debt recovery scenarios. Users can find legal templates on US Legal Forms that may assist in managing these situations effectively.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A mortgage lender has a mortgage on two properties owned by a borrower. A second lender has a lien on only one of those properties. If the borrower defaults, the first lender must seek repayment from the property that the second lender cannot access.
(Hypothetical example) Example 2: If a business owes money to two suppliers, and one supplier has a lien on two of the business's assets while the other has a lien on just one, the first supplier must pursue the asset that the second supplier cannot claim.