Court Opinion

ID: 3986158
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:42:18.884945+00
Date Added: 2024-06-11T13:36:26.004472
License: Public Domain

The law relating to subrogation was reviewed in the former opinion in this case [90 Utah 130, 40 P.2d 213], and in the present prevailing opinion is further reviewed and the cases somewhat classified and what is termed a "development" suggested. *Page 181 
In my view, this case, as indicated in the former opinion, is not a case for the application of the doctrine of subrogation, unless when subrogation is invoked law flies out of the window and "judicial discretion" or the "dictates of justice" preempt the whole field, and the "soul of justice, equity and benevolence," guided by the "conscience of the chancellor," cuts the "roots" of the law and disregards contract relations and the implications arising therefrom. One of the maxims of equity is, "Equity follows the law."
There are expressions in the cases that "the doctrine of subrogation is a pure, unmixed equity, having its foundation in the principles of natural justice, and from its very nature could never have been intended for the relief of those who were in any condition in which they were at liberty to elect whether they would or would not be bound." Aetna Life Ins. Co. v.Middleport, 124 U.S. 534, at page 549, 8 S. Ct. 625, 630,31 L. Ed. 537, quoting from the text of the case, and it is then said:
"This is perhaps as clear a statement of the doctrine on this subject as is to be found anywhere."
Yet the latter part of the quotation referred to contains this language:
"If one with a perfect knowledge of the facts will part with his money, or bind himself by his contract in a sufficient consideration, any rule of law which would restore him his money or absolve him from his contract would subvert the rules of social order."
Zorn parted with money with knowledge of the facts. It is said that "subrogation does not rest in contract." The expression does not accurately express what actually takes place in the operation of putting a subsequent creditor into the shoes of an antecedent creditor. Subrogation is "the substitution of one for another as a creditor, the new creditor succeeding to the former's rights in law and equity; the legal operation by which a third person who pays a creditor succeeds to his rights against the debtor as if he were his assignee." Webster's New International Dictionary, p. 2512. *Page 182 
Its operation arises out of a mistake or a contract, express or implied, whereby the subsequent creditor is advanced to the position of an antecedent one. The claim in the instant case, whether it be designated "equity," "subrogation," "legal fiction," or "unjust enrichment," is based upon the following assumptions, circumstances, and relations:
(a) The Zorn contract obligations with the Fritsch Loan 
Trust Company evidenced by a 7 per cent. note and mortgage, taken with actual knowledge of the first mortgage and its release or intended release. (b) An alleged oral agreement or representation between Zorn and the Fritsch Loan  Trust Company whereby it is claimed said company represented that the note and mortgage it was giving Zorn constituted a first mortgage against the Hickenlooper property. (c) Knowledge on the part of both that there was a former contract consisting of a 6 per cent. note and mortgage made and executed by Stoven to the state of Utah and the amount thereof. (d) That the obligation to the state of Utah made by Stoven, notwithstanding its release, should be revived. (e) That when it is thus revived Zorn shall be substituted by subrogation in the place of the state of Utah and be entitled to proceed upon that obligation — a legal fiction, an equitable operation. See Bouv. Law Dict. (Baldwin's Cent. Ed. 1934) p. 1143. (f) That by substitution Martin is not hurt. (g) That the recording statute charged notice. That Zorn had possession of an abstract showing the facts as to all the documents and their contents. (h) The evidence is that of an interested witness, uncorroborated, whose testimony aside from interest is far from convincing and bears the earmarks of necessity, if not invention, with the only person who could corroborate or deny being dead. The evidence is far from satisfactory and far from that clear and convincing evidence required in such cases. One claiming fraud, mistake, or lack of notice must prove the claims clearly and convincingly.
On the facts of this case Stoven mortgaged to the state. Then Stoven sold the property (land and water) to Hickenlooper. *Page 183 
Hickenlooper mortgaged to Martin (the land only). Then Hickenlooper conveyed to Fritsch Loan  Trust Company (land and water). Then the Fritsch Loan  Trust Company mortgaged to Zorn (land and water). The Fritsch Loan  Trust Company was not a debtor to the state and was not liable either on the note or the mortgage made by Stoven to the state, and at the time of the trial of this action had passed into the hands of a receiver. All the Fritsch Loan  Trust Company stood to lose in the event of foreclosure by the state was the title to the property with a right of redemption, subject also to Martin's mortgage. On the state's foreclosure Stoven stood to lose not only the property but suffer a possible deficiency. The Fritsch Loan  Trust Company, or its successor, could redeem, but having purchased subject to that mortgage, Zorn by subrogation is put into a better position than the Fritsch Loan  Trust Company with whom she contracted. Such an operation is neither subrogation nor equity.
Had Zorn been a purchaser of the property from Fritsch Loan 
Trust Company instead of a mortgagee, she would have been a "subsequent purchaser" within the terms of the statute. R.S. Utah 1933, § 78-3-2. The fact that a purchaser takes a warranty deed should at least be as strong a representation that the property is free and clear of encumbrances as an oral uncorroborated statement on the part of a mortgagee that the mortgagor said, "I will give you a first mortgage," or, "Yours will be a first mortgage."
The Zorn mortgage contains no word indicating that the Fritsch Loan  Trust Company intended it as a "first mortgage." The Fritsch Loan  Trust Company was in a different situation from that of Stoven, the original mortgagor. The Fritsch Loan  Trust Company could not say to Zorn with the same responsibility attaching thereto as Stoven, the original debtor, could have done, that, "Your mortgage will be a first mortgage."
In cases of secured obligations to pay, the security must be first exhausted, and when that is done resort may be had *Page 184 
against the obligor for any deficiency. Stoven became liable for a deficiency. That is what the trial court held and what must happen if Zorn is subrogated to the state's rights. In other words, Zorn steps into the shoes of the state. The state would have to sue on the note and mortgage. In such event Stoven could not escape liability either to pay the obligation or the judgment and take an assignment, or suffer the property to go to sale and be liable for a deficiency in case the property failed to bring the necessary amount. The prevailing opinion permits Zorn to step in, and the state and Stoven to step out. Martin could have said to the state before the release of the state's mortgage, "We will pay your mortgage and take an assignment," or, "We will pay your judgment and go against Stoven," or, "We will redeem if you foreclose and you may choose to take a deficiency against Stoven." Many of Martin's rights are by the prevailing opinion cut off. It cannot be said Martin is not injured. No authority is cited for relieving Stoven from the judgment rendered by the trial court under a contract to which Zorn is subrogated, and still hold the property under the "lien" created by the Stoven contract.
It may further be noted that under the evidence Zorn made Penner her agent. He drew the mortgage, told her the abstract had been examined, took the money to the state, received the release, had it recorded, and then turned the abstract and papers over to Zorn, all of which she testified she knew about. Penner was representative for both Zorn and the Fritsch Loan  Trust Company.
A further matter, evidently overlooked in the prevailing opinion, is that Zorn had a mortgage upon both land and water rights; Martin had a mortgage on land only. Martin, in any event, would be entitled to have the assets marshaled. Zorn should be required to exhaust the water right security first. Bouv. Law Dict. (Baldwin's Cent. Ed. 1934) p. 763; Shewmaker v. Yankey, 66 S.W. 1, 23 Ky. Law Rep. 1759; 3 Pomeroy's Equity Juris., § 1414. To be entitled to equity, one must be willing to do equity. Zorn can, under the judgment, *Page 185 
foreclose and sell the water right. It is not appurtenant to the land and not subject to redemption. Martin is therefore in the position, in the event of a sale, of being able to redeem the land only for the amount of the foreclosure sale price. He has no claim against the water. Zorn thereby gets payment and holds the water stock as profit in the event of her bidding the amount of the judgment. At the sale Zorn can force Martin to bid the amount of the judgment be cut off entirely or be left to the position of redemptioner of the land only.
For the reasons herein and those stated in the original opinion, I do not think the case one for the application of the doctrine of conventional subrogation. I therefore dissent.