Opinion:RCB Bank v. Stitt, 2022 OK CIV APP 3
Subject matter:Real Estate; Creditor’s Rights
Date Decided:January 5, 2021; Mandate Issued: March 3, 2022
Trial Court:District Court of Washington County; Judge Vaclaw
Route to this Court:Appeal of trial court’s order granting summary judgment to RCB Bank.
Facts:Kent Stitt, as Trustee of 186th St. Land Trust, mortgaged Trust property in Washington County to RCB Bank as security for a loan made to Kent Stitt in his individual capacity. In addition, Kent Stitt, as Trustee of the Trust, executed a guaranty agreement wherein the Trust guaranteed payment of “all obligations, debts and liabilities” that Kent Stitt owed to RCB Bank. Prior to the mortgage to RCB Bank, Kent Stitt had mortgaged the same Washington County property to Keith Stitt as security for a revolving line of credit. However, RCB Bank recorded its mortgage some six weeks prior to Keith Stitt recording his mortgage. 

Kent Stitt defaulted on a number of promissory notes to RCB Bank and defaulted on the note to Keith Stitt. Both RCB Bank and Keith Stitt sued Kent Stitt for the unpaid promissory notes and to foreclosure their mortgages on the Washington County property. Following dueling motions for summary judgment, the trial court found that RCB Bank’s mortgage lien was superior to Keith’s mortgage lien and that RCB Bank was entitled to be satisfied first (on the note secured by the mortgage and on all notes under the guaranty agreement) from the sale of the mortgaged Washington County property. The trial court also ruled that RCB Bank was not required to marshal Kent Stitt’s assets in order to resort to other property on which it holds a mortgage before resorting to the Washington County property. Keith Stitt appealed. 
Standard of Review:Ruling from summary judgment are reviewed de novo
The central issue in the appeal is whether the district court erred when it determined that RCB Bank’s mortgage was superior to Keith Stitt’s mortgage an also whether the Bank was entitled to satisfy the entire amount of its judgment (including on notes covered by the cross-collateralizing guaranty agreement) before any proceeds of the sale of the Washington County property would be distributed to Keith Stitt. 
First, the Bank recorded its mortgage on the Washington County property prior to the time Keith Still recorded his mortgage on the same property. There is nothing in the record suggesting that the Bank had actual notice of Keith Stitt’s mortgage at the time it agreed to loan Kent Stitt the funds secured by the mortgage at issue. Because the Bank recorded its mortgage first (even though Keith Stitt’s mortgage predates the Bank’s mortgage), the Bank’s lien has priority. 

Second, Marshaling of assets is an equitable doctrine designed to achieve fairness in the distribution of a debtor’s assets among secured creditors. Marshaling is codified in Oklahoma by 24 O.S. § 4 and 42 O.S. § 17. In order for marshaling to apply, three conditions must be met; there must be  (1) two or more secured creditors of a common debtor, (2) two or more funds belonging to the common debtor, and (3) a senior creditor who has the right to resort to more than one fund and a junior creditor who has the right to only one. 

In this case, there is no common debtor. The Bank’s debtor is Kent Stitt individually, not the Trust. With respect to the Bank, the Trust is a surety. With respect to Keith Stitt, the debtor is the Trust. For that reason, Keith Still has failed to meet the first two requirements of the marshaling test. Keith Stitt’s marshaling argument is an attempt to invoke an equitable solution for what is essentially a contract issue. The Bank’s right to foreclose on the Washington County property is, in the first instance, a matter of contract law (the cross-collateralizing terms in the guaranty agreement executed by the Trust). Where the parties rights are clearly defined and established by law, equity has no power to change or unsettle their rights. The Bank is entitled to satisfy its entire judgment from the Washington County property. 
Vote:3-0CONCUR: Wiseman, C.J. (sitting by designation), Barnes, P.J.,and Fischer (author).
Other: Petition for certiorari denied 6-3. J. Rowe wrote in his dissent that he would grant cert to address the marshaling issue.