MARSHALLING ASSETS. An equitable principle upon whicji the legal rights of cred itors are controlled in order to accomplish an equitable distribution of funds in accord ance with the superior equities of different parties entitled to share therein. It springs from the principle that one who is entitled to satisfaction of his demand from either of two funds shall not so exercise his election as to exclude a party who is entitled to re sort to only one of the funds. For example, where one creditor has a mortgage upon two parcels of land upon one of which there is a junior incumbrance not otherwise secured, the first mortgagee may be compelled to ex haust in the first instance that parcel of land which is otherwise unencumbered in order that the security of the junior incumbrancer may not be entirely destroyed. In such case, however, the indisposition of equity to inter fere with the legal rights of a creditor re sults in working out the equity of the junior incumbrancer through a substitution to the right of the paramount mortgagee as against the other property ; Bisph. Eq. § 27, 340. Marshalling assets is a pure equity ; it does not rest at all upon contract, and will not be enforced to the prejudice of either the dominant creditor or third persons, or even so as to do an injustice to the debtor ; Gijliam v. McCormack, 85 Tenn. 597, 4 S. W. 521. See Brimer's Appeal, 7 W. & S. (Pa.) 269; 2 Lead. Cas. Eq. 260; Norfolk State Bank v. Schwenk, 51 Neb. 146, 70 N. W. 970 ; Hunter v. Whitfield, 89 Ill. 229 ; Kent v. Williams, 114 Cal. 537, 46 Pac. 462.
The doctrine applies only when both funds are in the hands of a common debtor ; Ferry's Adm'r v. Elliott, 101 Va. 709, 44 S. E. 919. It will not be applied if the doubly, charged security is precarious, or where its applica tion would delay or injure the senior cred itor ; Kendig v. Landis, 135 Pa. 612, 1,9 Atl. 1058; Butler v. Elliott, 15 Conn. 187 ; Evert son v. Booth, 19 Johns. (N. Y.) 486. It is said that the right is an equity against the debtor himself to prevent his getting the fund singly charged free from both debts by throwing both creditors on the fund doubly charged, and is not a right of the inferior against the paramount creditor ; Benedict v. Bene
dict, 15 N. J. Eq. 150 ; Pope v. Harris, 94 N. C. 62.
The equity of marshalling seems capable of being carried into effect in one of two ways: either, first, by restraining the parties against whom it exists from using a security to the injury of another ; or, secondly, by giving the party entitled to the protection of this equity the benefit of another security in lieu of the one of which he has been dis appointed. In other words, the right might be enforced either by injunction against the paramount creditor, or by subrogation in favor of the junior creditor. In practice, however, the latter of these two methods is the one usually employed, and the sounder doctrine seems to be that the first of the two ought not to be resorted to except under very peculiar , circumstances. But there are de cisions to the contrary ; 2 Lead. Cas. Eq. 280. Of course, when both funds are in court or under its immediate control, the case is different.
One whose securities have been re-hypoth ecated by a pledgee, together with securi ties belonging to the latter, has a right to compel the application of the latter securities to the payment of the debt before resort is had to those wrongfully re-hypothecated ; Union Pac. Ry. Co. v. Schiff, 78 Fed. 216.
A common application \ of this doctrine is where mortgaged real property is subject to sale under the mortgage in the inverse order of alienation. The leading English case was Barnes v. Racster, 1 Y. & C. Ch. 401, and the rule in that country has been termed the rule of ratable contribution ; Sto. Eq. Jur. § 1233 ; while the American rule was first set tled by Kent, Ch., in Clowes v. Dickenson, 5 Johns. Ch. (N. Y.) 235, where the doctrine of exoneration in the inverse order of convey ance was adopted. It has been noted that in this case a statement in fact obiter has been generally adopted and followed in the United States. See a valuable article by J. M. Gest in 27 Am. L. Reg. N. s. 739, for a critical view of the English and American cases.