A person can be substituted in place of another regarding a lawful claim, demand, or right against a third party. The substituted person can gain the rights of the other person regarding those legal claims against a third party. This right is called subrogation which is an equitable doctrine. The right of subrogation is a derivative right[i]. A person can satisfy his/her loss that is created by the wrongful act or omission of another person by stepping into the shoes of the loser and recovering on the claim from the wrongdoer[ii].
The major goal of subrogation is to obtain reimbursement for a subrogee for payments made by the person with respect to a legal claim[iii]. However, the person should not be acting as a mere intruder or volunteer. A person cannot claim rights by subrogation from another, rights that person did not possess[iv].
There are two types of subrogations:
- Legal subrogation: a legal subrogation arises by operation of law. It is an equitable subrogation that can take effect with or without an agreement[v]. However, legal subrogation cannot be used to displace a contract agreed upon by the parties. A legal subrogation can be modified or terminated by a contractual agreement.
- Conventional subrogation: a conventional subrogation is a right flowing from a contract[vi]. When one individual satisfies the debt of another as a result of a contractual agreement which provides that any claims or liens that exist as security for the debt be kept alive for the benefit of the party who pays the debt. It is necessary that a conventional subrogation agreement should be supported by consideration. However, it does not have to be in writing and can be either express or implied.
- Statutory subrogation: a statutory subrogation arises by an act of legislature[vii]. The act vests a right of subrogation with a party or category of parties. It is governed by the terms of the statute under which it is claimed as a matter of statutory construction.
A subrogation is given a liberal application in law[viii]. Courts do not restrict the application of subrogation rights.
The right of subrogation is not available when a person pays a debt that s/he is obligated to pay. The right of subrogation is not available to a person who is paying his/her own debt. A subrogation is not applicable to volunteers or intruders who, without any moral or legal duty, pay the debt of another. When a person pays the debt of another without any assignment or agreement of subrogation, s/he can be considered a volunteer[ix].
Generally, a right to subrogation does not accrue in favor of a surety until the surety has performed its contractual obligation. A person who has an interest in a property can pay the taxes and the assessment that are due from another on the land. In doing so, the person is subrogated to the lien of the state or of the public taxing bodies[x]. Generally, such rights of subrogation are statutorily granted[xi]. When there is no written agreement for subrogation, no person can pay the taxes or the assessment on a property in which that person has no interest[xii]. If there is no prior agreement, subrogation can be denied even if the party paid the taxes on the request of the owner of the property[xiii].
When a person pays the debts of another by mistake, s/he is in the same position as a volunteer. However, a protection under the doctrine of subrogation cannot be awarded to such persons when they have no interest in the property[xiv]. According to equitable subrogation, the responsibility of a mistake can determine the results of the mistake[xv].
A person who pays a mortgage when the original debtor fails to pay can get all the rights under the doctrine of subrogation. However, the entire mortgage should be paid off by the person[xvi]. The person should also have an interest over the property mortgaged. A person cannot invoke the rule of subrogation favorably without an agreement of subrogation, unless fraud, mistake, or some other consideration is shown[xvii]. However, when a person has an interest in the property, the person can hold the subrogation rights of a creditor when the person has lent money for the property.
The doctrine of subrogation also applies the rules of equity maxims. When there is adequate legal remedy, the claimant should approach courts with clean motives. The claimant should not be interfering in the rights of another by committing fraud or negligence[xviii].
[i] Blackburn v. Hamoudi, 1990 Ohio App. LEXIS 4135 (Ohio Ct. App., Franklin County Sept. 18, 1990).
[ii] Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co., 182 Cal. App. 4th 23 (Cal. App. 1st Dist. 2010).
[iii] Rosenbaum v. Goodman, 78 Va. 121 (Va. 1883).
[iv] Home Ins. Co. v. Smith, 235 Mo. App. 552 (Mo. Ct. App. 1940).
[v] In re Eastern Marine, Inc., 104 B.R. 421 (Bankr. N.D. Fla. 1989).
[vi] National Union Fire Ins. Co. v. Riggs Nat’l Bank, 646 A.2d 966 (D.C. 1994).
[vii] In re Stratford Lamps, Inc., 120 B.R. 31 (Bankr. W.D. Pa. 1990).
[viii] Osterman v. Baber, 714 N.E.2d 735 (Ind. Ct. App. 1999).
[ix] Hulen v. Hamilton, 2008 Tex. App. LEXIS 1672 (Tex. App. Fort Worth Feb. 28, 2008).
[x] Willmon v. Koyer, 168 Cal. 369 (Cal. 1914).
[xi] In re Baltimore Pearl Hominy Co., 294 F. 921 (D. Md. 1923).
[xii] Pacific Tel. & Tel. Co. v. Pacific Gas & Electric Co., 170 Cal. App. 2d 387 (Cal. App. 1st Dist. 1959).
[xiii] Employes’ Bldg. & Loan Ass’n v. Crafton, 63 Okla. 215 (Okla. 1917).
[xiv] Scott v. Silverleaf Dev., Inc., 1988 Tex. App. LEXIS 2157 (Tex. App. Houston 1st Dist. Aug. 25, 1988).
[xv] Martin v. Hickenlooper, 90 Utah 150 (Utah 1936).
[xvi] Merchants’ Ins. Co. v. Herber, 68 Minn. 420 (Minn. 1897).
[xvii] Stroh v. O’Hearn, 176 Mich. 164 (Mich. 1913).
[xviii] Blair v. Claflin, 310 Mass. 186 (Mass. 1941)