Marshalling and the Personal Property Security Acts: Doing Unto Others...
(1994) 28:1 University of British Columbia Law Review 91-122
32 Pages Posted: 19 Dec 2013
Date Written: 1994
Where a senior creditor has access to two funds from the same debtor to satisfy its claims and the junior creditor has access to only one of these funds, it could be equitable to expect that the senior creditor satisfy itself out of the fund in which the junior creditor does not have an interest. Where a court makes an order based on this principle, it has invoked the doctrine of marshalling, sometimes called the two-fund rule.' Marshalling is an equitable doctrine and therein lies its strengths and weaknesses. Equity gives it its flexibility, adaptibility and utility. Equity also gives it its uncertainty and lack of clear boundaries.
Marshalling is used to prevent the arbitrary action of a senior creditor from destroying the rights or expectations of a junior creditor or a creditor with less security. It is used to lessen the chance that a junior creditor may lose its security solely at the whim of the senior creditor's choice of property to pursue.
Marshalling is not based on the law of contracts or liens. It is founded instead in equity, being designed to promote fair dealing and justice. Equity has its limits.
Use of the doctrine of marshalling is common in several different areas of the law. It is frequently used in the administration of estates to help determine the distribution of assets. This is usually called marshalling of assets and is to be distinguished from its use in settling priorities between successive encumbrancers, called marshalling of securities."
Keywords: Personal Property Security, Marshalling, Secured Creditors, Priority
Suggested Citation: Suggested Citation