Court Opinion

ID: 987098
Source: CourtListenerOpinion
Date Created: 2013-07-02 21:58:04.520302+00
Date Added: 2024-06-11T07:52:16.456937
License: Public Domain

FILE
       IN CLERKS OPFICI
llJIRSE COURT, STATE Olf Mllll«mlN
                 JUN 2 0:

                                                                    Ronald R. Carp nt r       ,
                                                                    ~upreme  Court Clerk

       IN THE SUPREME COURT OF THE STATE OF WASHINGTON

   COLUMBIA COMMUNITY BANK,
                                                            NO. 87174-4
                     Respondent/Cross Appellant,
                                                            ENBANC
                     v.

   NEWMAN PARK, LLC,
                                                            Filed - -!JUN- 0 2013 -
                                                                      -
                                                                         2
                                                                           --
                     Appellant/Cross Respondent.

            GORDON McCLOUD, J.-The goal of equity is to do substantial justice.

   Equity exists to protect the interests of deserving parties from the "harshness of

   strict legal rules." 1 Washington courts embrace a long and robust tradition of

   applying the doctrine of equity. 2

            The question here is whether equitable subrogation-a species of equity

   developed to prevent unjust enrichment-is available to a lender to ameliorate the

    otherwise harsh consequence of a strict reading of the recording act, chapter 65.08

             1
             Rodriguez v. Dep 't of Labor & Indus., 85 Wn.2d 949, 953, 540 P.2d 1359 (1975)
    (quoting Ames v. Dep 't ofLabor & Indus., 176 Wash. 509, 513-14, 30 P.2d 239 (1934)).
           2
             See Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wn.2d 303, 326, 88 P.3d 395
    (2004) (Sweeney, J., dissenting).
Columbia Community Bank v. Newman Park, LLC, 87174-4

RCW. Specifically, in this case,- the issue is whether a lender who is tricked into

refinancing property that the borrower lacked the authority to pledge as a security

can benefit from equitable subrogation, when that lender had no preexisting

interest in the property. The lender argues that equitable subrogation applies in

this mortgage refinancing context. The property owner-debtor argues that the

lender's lack of a preexisting interest in the property bars it from equitable

subrogation because of the "volunteer rule," which would characterize such a

lender as essentially an intermeddler unworthy of the protection of equity.

      In accordance with our prior case law, with the modem trend, and with our

traditional robust reading of the doctrine of equity, we reject the volunteer rule as a

bar to equitable subrogation. We confirm what our recent prior decisions have

suggested, that is, that Restatement (Third) of Property: Mortgages § 7.6 (1997)

provides the more well-reasoned rule for determining whether a later lender has a

sufficient interest in property to step into the shoes of an earlier lender with a

higher priority lien. We therefore affirm the decision of the Court of Appeals,

which held that the lender in this case-who was defrauded into paying off a loan

of approximately $400,000-was entitled to be equitably subrogated to the

position of the first priority lienholder. 3

                                          FACTS

       Newman Park, LLC, a development company, was formed for the purpose

of developing a piece of real property in Thurston County. Newman Park was

       3
          The lender, of course, is entitled to equitable subrogation only to the extent of the
first priority lienholder's current obligation.
                                               2
Columbia Community Bank v. Newman Park, LLC, 87174-4

owned by 12 members. Eleven members were individuals, and the 12th member

was a company owned by Joseph Sturtevant: Landmark Development Ventures.

Landmark held a 39 percent interest in Newman Park, and the other 11 members

held the remaining 61 percent interest.
      In 2004, Newman Park purchased the Thurston County property that is the

subject of this litigation. To pay for the property, it obtained a loan of about

$400,000 from Hometown National Bank (HNB). HNB's loan to Newman Park

was secured by a deed of trust on the property itself. Although the loan was

negotiated by Sturtevant, all the members of Newman Park knew of and ratified

the loan.

      In 2008, without the knowledge of the other owners of Newman Park,

Sturtevant went to a different bank, Columbia Community Bank (CCB), and

requested a loan for his 95 percent-owned company, Trinity. CCB agreed to loan

Sturtevant $1.5 million. Trinity had nothing to do with Newman Park, but CCB's

loan to Sturtevant-Trinity was secured by a second deed of trust on the Newman

Park property, which Sturtevant signed as owner of Landmark, his company with a

39 percent interest in Newman Parle

       CCB was aware that HNB had a priority security interest in the Newman

Park property, so CCB required Sturtevant to use $400,000 of CCB's $1.5 million

loan to pay off HNB fully as a condition of CCB loaning Sturtevant the new

money. Through this transaction, essentially a refinance, CCB expected to acquire

the first priority security interest in the property.   CCB's expectation was

                                          3
Columbia Community Bank v. Newman Park, LLC, 87174-4

understandable because HNB was the only prior lender with an interest in the

property, and HNB's interest was extinguished when its $400,000 loan was paid

off out of CCB' s loan to Sturtevant.

      Unfortunately, Sturtevant had no authority to sign the deed of trust giving

CCB a security interest in Newman Park's property. Newman Park's operating

agreement required a membership interest of at least 80 percent to approve such a

transaction. Sturtevant's company Landmark had only a 39 percent membership

interest. Hence, Sturtevant lacked authority to grant the Newman Park property to

CCB as a security interest.

      CCB was unaware that Sturtevant lacked the authority to give CCB that

deed of trust.   CCB was unaware because Sturtevant had forged some of the

documents CCB reviewed before agreeing to make the loan. The key forgery was

Sturtevant's alteration of the original operating agreement for Newman Park. The

unaltered_ operating document correctly identified Sturtevant's company Landmark

as a 39 percent stakeholder with 11 other individuals.        Sturtevant, however,

showed CCB a version of the operating agreement listing Landmark as the only

stakeholder, with a 100 percent membership interest. 4

       The deception came to light in 2009. At that time, Sturtevant's company

Trinity, which received the $1.5 million loan from CCB, defaulted. CCB tried to

foreclose on the Newman Park property. Newman Park objected that it had never

       4
       CCB claims Sturtevant presented the same falsified operating agreement to HNB
when securing the HNB loan, which was ratified by the Newman Park members. Reply
Br. ofResp't at 23. Newman Park does not dispute this.
                                         4
Columbia Community Bank v. Newman Park, LLC, 8717 4-4

given CCB a security interest in the property and filed a complaint to prevent the

foreclosure. That was when CCB discovered Sturtevant's deception.

      In 2010, CCB sought a declaration from the superior court that the deed of

trust it received from Sturtevant was valid under various agency theories and, in

the alternative, that it had acquired a lien on the property through the doctrine of

equitable subrogation. Newman Park sought a contrary declaration that the deed

was invalid. On motions for summary judgment, the trial court ruled in favor of

Newman Park on the question of the deed's validity. It held that the deed of trust

on the property Sturtevant gave to CCB was invalid because Sturtevant's company,

Landmark, lacked the 80 percent membership interest in Newman Park required

for such a transaction.

      But the trial court also held that because CCB had paid off the $400,000 loan

from HNB to ensure a priority position for its security interest, CCB was equitably

subrogated to HNB' s position and acquired an equitable lien on the Newman Park

property in the amount of the $400,000 loan from HNB. The trial court denied

Newman Park's motion for attorney fees because both parties prevailed on

substantial issues, which they plainly did. 5

      In 2012, the Court of Appeals affirmed. 6          It rejected Newman Park's

argument that CCB was a mere volunteer and, hence, could not benefit from

       5
         Because we affirm the trial court and the Court of Appeals, it remains true that
both parties prevailed on substantial issues. Newman Park is thus still not entitled to
attorney fees, and its claim to the contrary is rejected.
       6
         Columbia Cmty. Bank v. Newman Park, LLC, 166 Wn. App. 634, 279 P.3d 869
(2012).
                                           5
Columbia Community Bank v. Newman Park, LLC, 87174-4

equitable subrogation. The Court of Appeals based its holding rejecting the so-

called "volunteer rule" in Washington on a recent case from this court, Bank of

America, NA v. Prestance Corp., 160 Wn.2d 560, 576, 160 P.3d 17 (2007). We

accepted review of the equitable subrogation issue only, to determine whether the
volunteer rule survives as a bar to equitable subrogation in the refinance context.

The answer is no. We hold that under the circumstances of this case, CCB is

entitled to be equitably subrogated to HNB' s position. We therefore affirm the

trial court and the Court of Appeals.

                                    ANALYSIS

      I. STANDARD OF REVIEW

      We review a trial court's order granting summary judgment de novo. Mohr

v. Grantham, 172 Wn.2d 844, 859, 262 P.3d 490 (2011). On review of a summary

judgment order, we view all the evidence in the light most favorable to the

nonmoving party.     Id.   Summary judgment is appropriate "if ... there is no

genuine issue as to any material fact and . . . the moving party is entitled to a

judgment as a matter of law." CR 56(c).

      II. EQUITABLE SUBROGATION OF COLUMBIA COMMUNITY BANK

          a. The General Rules ofEquitable Subrogation in Washington

      Equitable subrogation allows one party to step into the shoes of a second

party who is owed a debt or obligation and to receive the benefit of that debt or

obligation, in the absence of any contractual agreement or assignment of rights

between those two parties or the debtor. See Winters v. State Farm Mut. Auto. Ins.

                                          6
Columbia Community Bank v. Newman Park, LLC, 87174-4

Co., 144 Wn.2d 869, 875, 31 P.3d 1164 (2001). Subrogation is permitted without

assignment in order to prevent unjust enrichment. See Prestance, 160 Wn.2d at

576. Unjust enrichment is an equitable doctrine; thus this sort of subrogation is

called equitable subrogation.

      In its simplest form, equitable subrogation involves three parties: a lender, a

debtor, and a third party. 7 If a third party pays a debtor's outstanding loan to the

lender without any formal agreement between the parties, then, under certain

circumstances, equity permits the third party to take over the lender's interest and

receive the continuing payments of the debtor-to step into the lender's shoes to

the extent of the current obligation. In other words, the third party is subrogated to

the lender's interest. The rationale is that subrogation prevents the windfall that

would otherwise accrue to the debtor-that is, it prevents unjust enrichment. 8' 9

      Equitable subrogation takes a somewhat different form in the context of

mortgage refinancing.       In the refinancing world, equitable subrogation is

considered "a tool by which real property lenders, or lienors, may replace the prior,

      7
          As this court has commented, "Subrogation applies in many contexts, and while
the overall purpose of preventing unjust enrichment is the same, many times the
requirements will be tailored to the particular nuances of the situation." Prestance, 160
Wn.2d at 576. We do not suggest that equitable subrogation is limited to a three party
situation.
        8
          See generally Hannoch Dagan & James J. White, Governments, Citizens, and
Injurious Industries, 75 N.Y.U. L. REV. 354, 383-85 (2000).
        9
          Note that some commentators have objected to this restitution-based explanation
of subrogation, claiming that "[t]he nature of the world of subrogation is a complicated,
fragmented, multidoctrinal melange, which is not susceptible to any facile restatement."
Michael Sean Quinn, Subrogation, Restitution, and Indemnity, 74 TEX. L. REV. 1361,
 1363 (1996) (reviewing CHARLES MITCHELL, THE LAW OF SUBROGATION (1994)). This
is a minority point of view. Id. at 1395.
                                           7
Columbia Community Bank v. Newman Park, LLC, 87174-4

senior lien position of an earlier in time lender by paying off that prior lender's

loan. " 10

        We recently described how equitable subrogation ensures priority of a

security interest in the refinancing context:

        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. 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.

Prestance, 160 Wn.2d at 564 (citations omitted). In the refinancing situation, the

party who would become unjustly enriched absent equitable subrogation is usually

different than the party who would become unjustly enriched in other contexts. In

the refinancing context, it is generally not the debtor who would become unjustly

enriched by the payment of his or her debt by a third party; rather, it is the junior

lienholder. The reason is that, absent subrogation, the third party's payment would

bump the number two security interest into the number one position without the

junior lienholder having taken any action to warrant such an advancement. Id. at

567. We prevent this unjust enrichment by subrogating the party paying off the

priority interest to the party who held that interest, to the extent of the former
lienholder's interest at that time. 11

         10
          Scott B. Mueller, Is Equitable Subrogation Dead for Lenders and Insurers in
Missouri?, 66 J. Mo. B. 196, 196 (2010).
       11
          We note that the facts of this case do not implicate relative priorities under the
recording act in a refinancing context.
                                             8
Columbia Community Bank v. Newman Park, LLC, 87174-4

            b. The Development of the Intermeddler Exception to Equitable
               Subrogation in Washington
      In Washington, unjust enrichment, and by extension equitable subrogation,

has traditionally been restricted in application to a party who is not acting as a

"volunteer." Murray v. O'Brien, 56 Wash. 361, 371-72, 105 P. 840 (1909). The

most obvious "volunteer" is the "officious intermeddler"-a stranger to the

underlying transaction who is not acting under any legal compulsion or to protect

some interest. 12   But courts have debated the precise contours of the term

"volunteer" for over half a century. 13

      In the past, this court has sometimes used language suggesting that a party

seeking subrogation for a payment it made must have made that payment to satisfy

an existing legal obligation or protect an existing interest that was under threat.

For example, early in our state's history we stated:

      The right of subrogation under the better rule applies in cases where a
      party who has an interest in the property and who does not stand as a
      mere volunteer pays a debt owing in whole or in part by another to
      protect his own rights or to save his own property. The remedy is no
      longer limited to sureties and quasi sureties, but is freely applied by
      courts of equity in all cases where good conscience and equity dictate
      that a debt paid by one under any sort of legal coercion ought to be
      paid by another.

       12
          See Daniel Friedmann, Unjust Enrichment, Pursuance of Self-Interest, and the
Limits of Free Riding, 36 LOY. L.A. L. REv. 831, 845-47 (2003).
       13
          "All courts subscribe to the rule that subrogation will not be permitted a mere
'volunteer.' But there is no general agreement as to the personification of the word."
Note, Subrogation of Purchaser to Rights of Senior Mortgagee against Junior
Encumbrances, 48 YALE L.J. 683, 686 (1939) (footnote omitted).
                                            9
Columbia Community Bankv. Newman Park, LLC, 87174-4

Murray, 56 Wash. at 371-72 (emphasis added). Fifty years later, relying in part on

the Murray case, we similarly stated:

             Appellant does not fall within the rationale of the rule because
      her right to live in the house, if we indulge the presumption that it
      constituted an interest in the property, was never threatened by the
      grantor and her advancement of the down payment could not have
      been made for the purpose of protecting it. She acted freely and
      without compulsion. She was a volunteer.

Goodrich v. Fahey, 55 Wn.2d 692, 694, 349 P.2d 729 (1960) (emphasis added).

      More recently, in BNC Mortgage, Inc. v. Tax Pros, Inc., 111 Wn. App. 238,

254, 46 P.3d 812 (2002), the Court of Appeals ruled that to avoid the volunteer bar,

a party must pay to protect a preexisting interest or to satisfy a legal obligation. It

therefore concluded that equitable subrogation was unavailable to a refinancing

lender because the lender "did not act under any . . . duty or compulsion, but

instead chose freely and voluntarily to avail itself of a business opportunity." I d.

      These cases have sometimes labeled the doctrine barring intermeddlers from

benefitting from equitable subrogation the "volunteer rule." The context in which

the cases have used the rule suggests a strict interpretation of the term "volunteer"

-that "everyone [is] a volunteer who was not in the position of a surety or who

did not have some previous interest to protect in the subject matter in question." 14

       14
          Note, supra, at 686. This perspective is in the minority, but it is a well-
established minority. See generally id.
                                           10
Columbia Community Bankv. Newman Park, LLC, 87174-4

      However, in the context of mortgage refinancing, this court has generally

permitted a lender to be subrogated to the position of a priority interest holder

simply by paying off that priority interest holder's loan. E.g., Spokane Sav. &

Loan Soc'y v. Park Vista Improvement Co., 160 Wash. 12, 27, 294 P. 1028 (1930);

Prestance, 160 Wn.2d 560. In these cases we have not required any preexisting

interest or legal obligation.

      We recognize the tension between the rule that a subsequent lender may be

equitably subrogated to the interest of a prior lender simply by paying off the prior

lender and the rule that a party may not obtain equitable subrogation unless it acted

to protect a preexisting, threatened, interest or to fulfill a preexisting legal

obligation. In the refinancing context a lender often acts for future profit, rather

than to protect a preexisting, threatened, interest or to fulfill a preexisting legal

obligation. As BNC Mortgage makes clear, a lender may instead be acting "freely

and voluntarily to avail itself of a business opportunity." BNC Mortg., Ill Wn.

App. at 254.

          c. The Treatment of the Volunteer Rule in Restatement (Third) § 7. 6

       Restatement (Third) § 7.6 recognizes the tension between a strict volunteer

rule and equitable subrogation in the mortgage priorities context. It has expressly

addressed the problem by rejecting the strict volunteer rule and adopting the

"protect some interest" rule instead:

                                         11
Columbia Community Bank v. Newman Park, LLC, 87174-4

              Prior case law has often indicated that one who pays as a
       "volunteer" is not entitled to subrogation. However, the meaning of
       the term "volunteer" is highly variable and uncertain, and has
       engendered considerable confusion. This Restatement does not adopt
       the "volunteer" rule, but instead requires simply that the subrogee pay
       to protect some interest.

RESTATEMENT     (THIRD) § 7.6 cmt. b.      Restatement (Third) § 7.6 then defines

"interest" broadly to cover even lenders who do not have an existing interest in the

property at issue:

       [U]nder this section, the subrogee must have performed in order to
       protect an "interest," but that interest need not be a legally recognized
       interest in real property. It may be, for example, a business or
       financial interest that would be impaired by foreclosure of the
       mortgage, an interest in reputation, or a moral obligation.

Id.   Whatever tensions traditional interpretations of equitable subrogation have

engendered, Restatement (Third) § 7.6 resolves them with the rule that "one who

performs a mortgage is entitled to subrogation in order to avoid unjust

enrichment." !d. cmt. a.

          d. This Court Now Adopts Restatement (Third) § 7. 6

       This court recently adopted the liberal approach of Restatement (Third) § 7.6

in Prestance. Specifically, Prestance addressed whether "a party is barred from

seeking relief [via equitable subrogation] whenever he has actual knowledge of the

intervening interests."    Prestance, 160 Wn.2d at 566.         We considered three

different approaches:

                                          12
Columbia Community Bank v. Newman Park, LLC, 87174-4

      First, the Restatement approach that says actual or constructive
      knowledge of intervening interests is irrelevant; second, a minority
      approach that says a plaintiff with either actual or constructive
      knowledge cannot seek equitable subrogation; and third, a "majority"
      approach that says a plaintiff with actual knowledge cannot seek
      equitable subrogation, while one with constructive notice can.

I d. (emphasis and footnote omitted). The question in Prestance was strictly about

knowledge of intervening interests. We expressly adopted Restatement (Third) §

7.6 but only for the purposes of resolving the knowledge question. Id. at 582 ("We

adopt§ 7.6 of the Restatement (Third) and hold WFB West is equitably subrogated

to Washington Mutual's first-priority lien, regardless of either its actual or

constructive knowledge of intervening interests."). We did not expressly consider

the volunteer rule.

      Based on Prestance, the Court of Appeals in this case held that the volunteer

rule no longer applies in Washington:

      Volunteer Rule

            Newman Park further argues that equitable subrogation does
      not apply because Columbia was a volunteer.

            Previously, we recognized the volunteer rule in the context of a
      commercial loan. BNC Mortg., Inc., 111 Wn. App. at 254. After our
      decision in BNC Mortgage, Inc., 111 Wn. App. 238, 46 P.3d 812, the
      Washington Supreme Court considered the volunteer rule in
      [Prestance], 160 Wn.2d 560. In [Prestance], the court held that
      equitable subrogation was available in the refinance context and, as
      previously discussed, adopted Restatement (Third) of Property:
      Mortgages § 7.6, which rejects the "volunteer" rule. [Prestance], 160
      Wn.2d at 560-64. And our Supreme Court did not limit its adoption of

                                        13
Columbia Community Bank v. Newman Park, LLC, 87174-4

      the Restatement or attempt to preserve the volunteer rule. We now
      conclude that the volunteer rule is no longer a defense where a
      mortgagee pays off another mortgage holder. We therefore affirm the
      order granting partial summary judgment to Columbia on the basis of
      equitable subrogation.

Columbia Cmty. Bank v. Newman Park, LLC, 166 Wn. App. 634, 645, 279 P.3d

869 (2012).

      But because we did not explicitly "consider[ ] the volunteer rule" in

Prestance, the parties contest this holding. Newman Park argues that the BNC

Mortgage opinion stated the correct view of the law in Washington-that a later

lender without an existing interest or legal obligation who pays off a prior lender is

a volunteer and barred from equitable subrogation. Newman Park concludes that

CCB was a volunteer and cannot be subrogated to HNB' s interest. In contrast,

CCB argues that Prestance implicitly approved Restatement (Third) § 7.6's

rejection of the strict volunteer rule.
                                                                         15
       We now explicitly adopt Restatement (Third) § 7.6 in ful1.             We have

already adopted large portions of Restatement (Third) § 7.6.           As we said in

       15
            Restatement (Third)§ 7.6 states:

             (a) One who fully performs an obligation of another, secured by a
       mortgage, becomes by· subrogation the owner of the obligation and the
       mortgage to the extent necessary to prevent unjust enrichment. Even though
       the performance would otherwise discharge the obligation and the
       mortgage, they are preserved and the mortgage retains its priority in the
       hands of the subrogee.

                                               14
Columbia Community Bank v. Newman Park, LLC, 87174-4

Prestance, albeit in a slightly different context, "[The] trend is clearly toward the

more liberal approach, and we would be wise to follow it." Prestance, 160 Wn.2d

at 576.    We gave two policy reasons why a liberal approach to equitable

subrogation was desirable. First, we noted that "by facilitating more refinancing,

[liberal application of] equitable subrogation helps stem the threat of foreclosure."

Id. at 580. Second, we asserted that "a liberal equitable subrogation doctrine can

save billions of dollars by reducing title insurance premiums" and that those

premiums would be passed on to homeowners. Jd. at 580-81. Maybe the effect of

liberalizing equitable subrogation on promoting these policies was overstated.

Still, the Restatement (Third) § 7.6 approach is the more simple and clear approach.

It is most consistent with our recent prior case law and also remains an effective

way of preventing true intermeddlers from benefitting from an equitable remedy.

Indeed, the result in Prestance would have been the opposite if we had applied a

              (b) By way of illustration, subrogation is appropriate to prevent
       unjust enrichment if the person seeking subrogation performs the
       obligation:
              ( 1) in order to protect his or her interest;
              (2) under a legal duty to do so;
              (3) on account of misrepresentation, mistake, duress, undue
              influence, deceit, or other similar imposition; or
              (4) upon a request from the obligor or the obligor's successor to do
              so, if the person performing was promised repayment and reasonably
              expected to receive a security interest in the real estate with the
              priority of the mortgage being discharged, and if subrogation will
              not materially prejudice the holders of intervening interests in the
              real estate.
                                           15
Columbia Community Bank v. Newman Park, LLC, 8717 4-4

strict version of the volunteer rule in that case. To the extent that BNC Mortgage

suggested that the volunteer rule generally bars equitable subrogation in the

refinance context, it is overruled.

          e. Application a/Restatement (Third) § 7. 6 to This Case

      Our adoption of Restatement (Third) § 7.6 does not change the fact that

equitable subrogation remains "an equitable remedy." RESTATEMENT (THIRD) §

7.6 cmt. a.     As such, it is "founded in the facts and circumstances of each

particular case." Credit Bureau Corp. v. Beckstead, 63 Wn.2d 183, 186, 385 P.2d

864 (1963). From ancient times, "[t]he first maxim in equity" has been that one

'who seeks equity must do equity."' People's Sav. Bankv. Bufford, 90 Wash. 204,

208, 155 P. 1068 (1916) (italics omitted). Of similarly ancient provenance is the

requirement that those "'who come[ ] into equity must come with clean hands."'

Retail Clerks Health & Welfare Trust Funds v. Shapland Supermarket, Inc., 96

Wn.2d 939, 949, 640 P.2d 1051 (1982).

       In this case, CCB arguably failed to exercise due diligence when it loaned

Sturtevant $1.5 million without an in-depth investigation into his claimed assets.

But there is no question that Sturtevant altered the Newman Park operating

documents he submitted to CCB in support of his loan application to make it

appear that he was the sole owner of Newman Parle           Indeed, the trial court

declared that the deed of trust Sturtevant gave to CCB was invalid in part because

                                        16
Columbia Community Bankv. Newman Park, LLC, 87174-4

"the bank [CCB] was operating with a forged document." Report of Proceedings

(Apr. 15, 2010) at 78. Restatement (Third) § 7.6 expressly lists "misrepresentation,

mistake, duress, undue influence, deceit, or other similar imposition" as situations

in which equitable subrogation is warranted. RESTATEMENT (THIRD) § 7 .6(b)(3).

Thus, under Restatement (Third) § 7.6(b)(3), Sturtevant's deceit makes equitable

subrogation especially appropriate here. 16

      In fact, Restatement (Third)§ 7.6's comment d addresses "[p]erformance

induced by fraud and the like":

             In some cases one may be induced to perform and discharge a
      mortgage obligation by misrepresentation, mistake, duress, undue
      influence, deceit, or other similar imposition. The deception may be
      practiced on the payor by the mortgagor or by some other person. If
      the circumstances are such that subrogation to a prior mortgage will
      relieve the payor, and if no prejudice to any innocent person will
      result, the payor may have subrogation.
(Emphasis added.) This comment compels the same conclusion. CCB may have

been less than diligent when it gave Sturtevant a loan with apparently minimal

investigation. But granting equitable subrogation here would not result in any

prejudice to Newman Park because it retains exactly the same position it would

have had if CCB had never paid its loan-it owes a debt of approximately

$400,000. The only change is the identity of the party owed.

       16
          The parties in this case both stated at oral argument that the record in this case is
factually complete. This court can therefore balance these equitable considerations of
deception and due diligence to resolve whether summary judgment equitably subrogating
CCB to HNB 's interest was appropriate in this case.
                                              17
Columbia Community Bank v. Newman Park, LLC, 8717 4-4

       The fact that Sturtevant presented forged documents to CCB, along with the

fact that no prejudice to anyone will result, makes equitable subrogation

particularly appropriate here. We hold that under the circumstances of this case,

the trial court properly granted CCB' s motion to be equitably subrogated to HNB 's

interest.

                                  CONCLUSION

       Some past equitable subrogation cases in Washington contain language

suggesting support for a strict version of the volunteer rule. A strict volunteer rule

would bar commercial lenders like CCB from obtaining equitable subrogation in

most circumstances. Restatement (Third) § 7.6 applies a more liberal approach

that permits lenders like CCB to benefit from equitable subrogation in the

mortgage refinance context. This court recently expressly adopted Restatement

(Third) § 7 .6's liberal approach to equitable subrogation, albeit in a different

context where we did not consider the volunteer rule. We now expressly reject the

volunteer rule and adopt Restatement (Third) § 7.6 in full. Under Restatement

(Third) § 7 .6, equitable subrogation is available in the mortgage refinance context

and it is especially appropriate where the potential subrogee's payment is induced

by deceit or fraud.   That is just what happened here.      We affirm the Court of

Appeals.

                                          18
Columbia Community Bank v. Newman Park, LLC, 8717 4-4

WE CONCUR:

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