Tom C. Clark

“ The Government urges that it be applied to effect the collection of its junior income tax lien on the cash surrender value of certain life insurance policies. The senior lien is secured by the entire proceeds of the policies and absorbs practically all of their cash surrender value. ”

“ Applying New York law, this results in the bank's lien being the senior one on the entire proceeds of the policies with the tax lien only attaching to the cash surrender value subject to the bank's claim. The narrow question remaining is whether in such a situation the doctrine of marshaling of assets is compelled.
This Court has said that ' (t) he equitable doctrine of marshaling (sic) rests upon the principle that a creditor having two funds to satisfy his debt may not, by his application of them to his demand, defeat another creditor, who may resort to only one of the funds.' Sowell v. ”

“ See In re Bailey, 8 Cir., 176 F. 990, where a state legislative homestead exemption was held to be a superior equity in the hands of a bankrupt, preventing the marshaling of assets to his disadvantage; Robert Moody & Son v. Century Savings Bank, 239 U.S. 374, 378, 36 S.Ct. 111, 113, 60 L.Ed. 336 (1915) , where Iowa's requirement that a homestead, even when validly mortgaged, may be sold only for a deficiency remaining after exhausting all other property was declared available to a junior mortgagee to prevent a marshaling of assets ”