Opinion ID: 2571489
Heading Depth: 1
Heading Rank: 3

Heading: Equitable Subrogation Doctrine

Text: ¶ 9 Borrowed from English courts of equity, equitable subrogation simply seeks to maintain the proper order of priorities. Burgoon v. Lavezzo, 68 App. D.C. 20, 92 F.2d 726, 729 (Cir.1937). [3] For example, suppose A, a homeowner, has two mortgages: one recorded first by bank B and one recorded second by bank C. Our recording act says B has a higher priority because it recorded first, putting the world on notice as to its interest in A's land. RCW 65.08.070. If D fully discharges B's debt, then equitable subrogation substitutes D for B, so D has a higher priority than C, even though D recorded after. See Jackson Co. v. Boylston Mut. Ins. Co., 139 Mass. 508, 510, 2 N.E. 103, 104 (1885) (Subrogation is the substitution of one person in place of another . . . so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.). At first blush, equitable subrogation conflicts with the recording act because it is an exception to the general rule first in time, first in right. But no new lien or interest is created; D simply takes over B's interest and that interest came first in time. C never expected his priority to be promoted simply because A refinanced the mortgage with a new company. C bargained with A to have a second-priority mortgage; it is immaterial who has priority before C. [4] See RESTATEMENT (THIRD) § 7.6 cmt. a, at 510 (The holders of intervening interests can hardly complain about this result, for they are no worse off than before the senior obligation was discharged.). Equitable subrogation preserves the proper priorities by keeping the first mortgage first and the second mortgage second. ¶ 10 Despite an initial resistance to equitable subrogation, many courts now apply it liberally. See Martin v. Hickenlooper, 90 Utah 150, 161, 59 P.2d 1139, 1144 (1936) (It will be seen that the more recent cases show a very decided liberality over the stricter cases of a generation ago.). This language from an Arkansas Supreme Court opinion, applying subrogation freely with regard to perfect justice instead of unnecessary rules, is typical: The doctrine of subrogation is an equitable one, having for its basis the doing of complete and perfect justice between the parties without regard to form, and its purpose and object is the prevention of injustice. . . . It rests upon the maxim that no one shall be enriched by another's loss, and may be invoked wherever justice and good conscience demand its application in opposition to the technical rules of law, which liberate securities with the extinguishment of the original debt. . . . Cox v. Wooten Bros. Farms, Inc., 271 Ark. 735, 737-38, 610 S.W.2d 278, 280 (1981) (quoting Baker v. Leigh, 238 Ark. 918, 923-24, 385 S.W.2d 790, 794 (1965)); see also Home Sav. Bank v. Bierstadt, 168 Ill. 618, 48 N.E. 161, 162 (1897) ([Equitable subrogation] has been steadily expanding and growing in importance and extent in its application to various subjects and classes of persons. This equitable principle is enforced solely for the accomplishment of substantial justice where one has an equity to invoke which cannot injure an innocent person.). ¶ 11 But Bank of America asks us to adopt an unnecessarily limited view of equitable subrogation where a party is barred from seeking relief whenever he has actual knowledge of the intervening interests. This ignores subrogation's equitable underpinnings, misunderstands its use in a refinancing context, and dismisses important policy concerns  all to give credence to a rule that serves no meaningful purpose.