security and trusts and today i'm going to explain why the doctrines of both conventional and equitable subrogation do not allow p b e i with its fourth recorded mortgage to take priority over third recorded mortgage first for conventional subrogation p v e i argues time and time again that its fourth recorded mortgage has priority because p v e i refinanced f n b dietrich's first recorded mortgage p v i base this argument solely on the macro it does that refinancing the problem is there are actually four requirements under illinois law for conventional subrogation to apply the fact that a refinancing occurred is just one of those four elements and those four elements are first that the third requirement is that no harm will come to an innocent party and the fourth requirement is that there has been no gross negligence i'm going to concentrate mostly on the first and fourth elements as they go forward but all four of them are required in order for a conventional subrogation to apply so the first element is the express agreement and this is the aims and union planners cases where the court held that the subsequent lender in the debtor had come to an express agreement that subrogation was to occur because the mortgages provided three things there was no magic language saying yes we're going to step into the shoes of the first lender but there were three things that indicated that intent on the part of the parties one that no subordinate and liens were to remain open at the closing to the lender could pay off and he leans that had priority and three that additional amount would become part of additional debt secured by that mortgage so the court held that that language in the mortgage or in both of those cases in the mortgages that in issue showed that the debtor in the subsequent lender intended that the subsequent lend er was to be able to assert their rights of previous lenders so p v i attempts to argue that the law does not really require an express agreement that the subsequent lender is to gain priority  argument is that it just requires there's a degree meant to the a fact that a refinancing is to take place if that is the case then there would be no need for this element of an express agreement there's already an element of refinancing is to take place that doesn't make sense why there would be this express agreement element and that's not what the case law provides the case law specifically states that the parties need to have intended that the subsequent language language similar to the language you are into it says correct and in fact it provides language that there are still going to be other loans out there and that the debtor in this case lakeland is supposed to continue paying off these other loans rather than p v e i being able to pay off those loans and add that amount to the amount that is indebted to them so it is actually and in ams the case that the that  i can continuously sites throughout it these names actually distinguishes it self from another case with language just like this one where prior liens were remaining open and  the debtor in that case was i'm sorry the lender subsequent lender in that case was distinguishing itself from the prior so and p p i also argues that under a s you can't agree to priority that it is determined by law first that statement in ames is dicta second a conventional subrogation also known as contractual  gratian by agreement is the law that we're dealing with in this case many other cases that we will be discussing today show that there is a requirement of an expressed agreement or apply and actually aims did as well as i said that statement was dicta earlier in the case as i said before in contrast itself with a previous case where there was no express agreement so that as said before the language of anger and union planers is exactly opposite of the language of p p p i's market in this case it provides in a section entitled prior security interest that the mortgage or is to make all payments on those loans when do and aims and union planners both demonstrate that the express agreement requirement is not that there was an expressed agreement for refinancing but there was an express agreement that the subsequent lender would step but that's a rather different situation is it not i think isn't the normal rule one that is if you're seeking if you're the appellant seeking to reverse you can't argue to reverse the trial court based on the issue not raised there but if you're the apple e you can are you for anything shown on the record as  actually costs motions for some judgment and so you know where the position of the appellant is that whenever the apple e had its motion for summary judgment before the trial court it has the opportunity to clear on the record why can't we if we're reviewing judgments not reasons why can't we affirm for any judgment supported by the record or for any reason supported by the record even if it's that no substantial harm will come to an innocent party if indeed dietrich had to loans in this case it had the first priority loan for seven hundred fifty thousand there was another loan for about four hundred thousand and then it had a third loan for about two hundred forty two if i remember correctly so the third loan that it had with behind over a million dollars in debts being in third place and being in first and third place are two different things and that is why this case is distinguishable from the union planners as far as this element goes the bank of dried blood would never have learned that extra two hundred forty two thousand if it didn't have to first that first place they should already and applying conventional subrogation in this case would allow p v e i to pick and choose which superior liens it wants to pay off them moving on then to the gross negligence element the fourth element this element centers on whether the subsequent lender had noticed a third party's lean but failed to establish priority over it constructive notice meaning billing was recorded but the subsequent lender didn't find it this is this combined with the failure to establish priority has not resulted in gross negligence findings in the past that would be the union planners case however when a subsequent lender has had actual notice but does nothing to gain by priority if not even accurate of all subrogation is available the subsequent lender would have no conventional so there's actually in the bierstadt case which is the very first case where a conventional subrogation is mention or at least the first case that either of the parties was able to cite which suggests that actual knowledge coupled with the failure to obtain priority would bar relief here's a quote from that case that says the failure of apple easy or her agent to learn of appellants trust deed was not negligence which would bar her ri to relief when i only know when the only notice was constructive and not actual i think that tells you what the court was getting into whenever it said there needs to be no gross negligence there needs to be no actual notice and failure to obtain priority in our i'll read the quote again the failure of apple e or her agent to learn appellants trustee was not negligence which would bar her right to relief when the only notice is constructive and not actual they actually made that distinction in that case and i think that gives a big clue as to what they were talking about whenever they were talking about gross negligence and in union planers you see that again the court noted that some form of negligence had been committed because the title insurer in that case didn't locate a prior record when i mean that was the refinancing lender to fail to obtain priority over that prior recorded so the court had to decide whether the trial i cited whether the title insurers negligence was in punitive all to the refinancing lender and if so whether that negligence was growth in nature so the trial court ultimately how are ultimately hel that it was not impute of also there was no need to address whether there was gross negligence or not so given that case constructive knowledge again would not be gross negligence but it again with the hints from the bierstadt case there's that and not actual language at the end of that quote implying that whenever they're talking about gross negligence if you've got actual knowledge combined with the failure to obtain priority that would be gross negligence  so let's see going through those elements again you've got the express agreement you've got the refinancing and then the third element and then finally the third  element or the fourth element i'm sorry that there is no gross negligence so premier asserts that it was not negligent when it failed to gain priority through a subordination agreement or loaning enough money to pay off both a loan because the law was clear that conventional  the argument is a little bit suspect because internal documents from premier or from p p i showed that there was a note that and that there was an issue due to lack of the subordination agreement and that they were going to be working with an attorney so that they could work on a claim of subrogation so the claim that they knew that so that conventional s apply is highly suspect given these internal documents moving on then to equitable subrogation even if p v i did not waive that argument merits there are actually very few cases that discuss their requirements for equitable subrogation to apply those that do discussion discuss it suggests that the expectations of the parties  the central inquiry so you've got detroit steel products is one of the cases cited by p v e i for the proposition that the court should not look to technical niceties so in that case there leins arose after the bank's lien but there was a contract provision saying that they were supposed to have statute statutory priority and did in fact give them statutory priority but the court held that the bank's expectation was that it was  charging all of those prior levens if you contrast that case with the fire lactose case that i cited in my brief the court held that there was some evidence or that there must be some evidence that the party seeking other banks mortgages on their property then harris bank filed a list pendants notice mars then paid off the two other banks mortgages and harris bank subsequently have tainted judgment because of as harris bank was entitled to priority over murders murders tried to argue that equitable subrogation applied are yet to equitable subrogation apply unlike in detroit steel products though in which the bank ha demanded that those prior mechanics liens had been paid off and there was no evidence that mers had attempted to gain priority over harris thank even knowing that that was an ins notice was out there and had actual knowledge of the list pendants notice and here we have the same thing there was actual knowledge of the prior lien f n b to trick the third recorded mortgage and there was actually  there was no attempt at all made to gain priority over that mortgage and this bank p p i knew how to do that it had obtained a subordination agreement from the normans and it didn't do that with the third recorded mortgage and presumably that was because the original plan was to pay off both the first and third recorded mortgage according to its internal document but at the last minute for whatever conventional subrogation in order to fix its mistake and the doctrine of conventional subrogation just simply does not apply to fix a mistake in that manner whenever there was gross negligence actual knowledge less failure to obtain third year and relative to the motions for purchase summary judgment and then there is the how the judgment of foreclosure that was entered by the trial court in august at the conclusion of that may twenty third hearing t your favor on the issue of priority and i just see that it uses the word subrogation is to as opposed to either conventional or supper patient two parts to this question will doesn't always apply and i our position is that the track or properly applied these exceptions in this case first is to conventional separation that elements that are presenting only accurate but i'm going to refer back to the genesis of that factor in discussing particularly the express agreement where the supreme court said your status conventional equitable right springing from an express agreement with the debtor by which one advances made pay plain for the securities of which there exist a lien and by such agreement used to have an equal game to that paid out twenties entitled to the benefit of the security which he is satisfied purpose of getting the agreement with the known men's but not doing it with respect to the amount that we're here to your honor i i can't answer what the reasoning of that was that that is what happened i don't perspectives i'm not sure that i totally understand the good the documents involved but it's my understanding that your opponent would suggest taken to its logical conclusion your argument would lead to the conclusion that every refinancing agreement is of the equivalent of conventional subjugation that's not every refinancing agreement here on a but he or in his capital well that the law of the that there were some discussion of language in that agreement that suggests that there is nothing we would be if a priority position such that acknowledging that there could be other security liens would be betting his party someone who in the interim wasn't aware of the refinancing agreement and would then be harmed by some predation being applied well consistent with the purposes of the recording statutes behind one million one hundred fifty thousand dollars of total be its own personal gain and then the normans and then its third and of course they had actual notice of refinancing because they received a check to pay off the balance that  if they're in the exact same position as they were behind one million one hundred fifty thousand dollars of total beans so they're actually in a better position also because they received a lump sum satisfaction of their entire first mortgage if and if you look at the numbers they first loaned lakeland seven hundred fifty thousand dollars and they were paid in full for that loan when p v i refinanced and took over that position they later loan late one two hundred forty two thousand dollars and secure their loan with title to mobile homes on the property the court documents show they later received one hundred seventy eight thousand dollars for payment of that third one and is now only over sixty three thousand dollars and that their v i on the other hand lonely and seven hundred fifty thousand dollars to refinance and is still owed six hundred thirty thousand dollars on that love if if diederick is found their priority they will have recovered their entire first mortgage which b v i paid for and took over and then will be first in line to recover their third mortgage as well when it's already been reimbursed for over two thirds of the amount of third mortgage so they're not again you don't believe it's gross negligence to not seek an agreement someone or are you know firemen do that especially when there's no guarantee that the agreement will be excepted and again they were fully aware that we were paying off their money to pay off every loan that was outstanding out there when they refinanced first so they didn't pick and choose which means hey they just refinanced the first mortgage they didn't act in utter indifference to the rights of the bank to read their first national bank their rights they gave them their money they paid off their loan at the priory and they released their own again everyone had actual knowledge of all lien at any given time so we don't think there's anything that would e that the law is farce on the subject but in general it says that application does not depend on any set of circumstances but depends on the equities of each individual case and is designed to prevent unjust enrichment which they were otherwise in time and looking at the circumstances to write or say them earlier as far as where the money went with all these transactions and what still outstanding here it would be unjustly enrich that  in favor of their own thirdly they want the court to ignore the ultimate consequences that i discussed earlier of the refinancing transaction so that they can and just they both pain the entire amount of that first mortgage that was paid by t thank you your honour's just to address some things very quickly here moving to the xpress agreement requirement of opposing counsel was cited the ames case as the proposition  for saying that there is no actual need for an express agreement that one party will step into the shoes of another party is just an express agreement that a refinancing is to take place and as your honor noted that is actually conflating two of the elements here that wouldn't there would be no need for the second element which is that a refinancing is to take place if it was somehow also part of this first element that there is an express agreement what the cases say is that the agreement between the debtor and the lender must be to the fact that the lender would advance sufficient funds to pay the prior deeds of trust and here's the second part and then would receive from the debtor of first mortgage as security for the funds at the end that is what the ames case actually says and i believe that opposing counsel's argument  sort of ignores the second part of that language where it says that would receive from the debt or a first mortgage i believe that that language shows that it's not necessarily just that there's an agreement that a refinancing happened that's what the second is for the first element is that there's an express agreement that someone's going to be stepping into the shoes of another person and again in the ames case the facts are completely contrasts and here from what happened in that ames case itself it contrasts did with i believe it's called first mark standard in ames the court how that in contrast to other cases in which the refinancing refinancing mortgage expressly stated that it was subject to prior liens the three provisions i discussed earlier where there was no support in it leans to remain open the lender could pay off any other liens and the additional amount would become debt secured by the mortgage that was what the aims court held was the express agreement even though it wasn't expressly saying that somebody was going to step into the shoes of another that was the intent of those three provisions in that case that case again does indicate that the failure of the lender to learn of the prior mortgage the intervening mortgage cannot be negligence and that negligence occurs when there is actual rather than constructive notice combined with the failure to obtain priority let's see moving onto equitable s dietrich would be unjustly enriched and equitable subrogation is not applied since it knew of the first recorded mortgage there is no unjust enrichment here again premier was supposed to be paying off both of these loans all along and then at the last second change of mind for whatever reason and then failed to get that subordination agreement now trying to fix that mistake by using the conventional s part of the person opposing equitable subrogation is not relevant it's the knowledge of the person who is trying to apply equitable abrogation that is relevant unless you have any questions i would