ACN 077 991 890 v NAB [2007] NSWSC 358

There is an ancient law of Equity that allows a second mortgagee whose security is sold by the second mortgagee to be granted a second mortgage over any other security the first mortgagee has from the same debtor. This allows a the second mortgagee to collect from the other property if the first mortgagee has chosen to disadvantage the second mortgagee by selling its security first and taking all of the proceeds. This rule is known as the doctrine of Marshalling.

Justice Windeyer noted that:

Generally speaking, marshalling requires a common debtor: Ex parte Kendall (1811) 17 Ves 514; 34 ER 199. There has however been recognised an exception to this requirement that arises where the owner of the singly charged security can be compelled at law or in equity to pay the debt owing to a creditor of the owner of the doubly charged security. That circumstance arises, inter alia, where the doubly charged security is charged by its owner as surety in favour of a creditor of the owner of the singly charged security as principal or primary debtor

His Honour then found that the exception applied in the present circumstances and allowed the Plaintiff to Marshall.

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