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The Equitable Doctrine of Subrogation, 3 Md

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The Equitable Doctrine of Subrogation, 3 Md Maryland Law Review Volume 3 | Issue 3 Article 1 The quitE able Doctrine of Subrogation James Morfit ulM len Follow this and additional works at: http://digitalcommons.law.umaryland.edu/mlr Part of the Civil Law Commons Recommended Citation James M. Mullen, The Equitable Doctrine of Subrogation, 3 Md. L. Rev. 202 (1939) Available at: http://digitalcommons.law.umaryland.edu/mlr/vol3/iss3/1 This Article is brought to you for free and open access by the Academic Journals at DigitalCommons@UM Carey Law. It has been accepted for inclusion in Maryland Law Review by an authorized administrator of DigitalCommons@UM Carey Law. For more information, please contact [email protected]. Maryland Law Review VOLUME III APRIL, 1939 NUMBER 3 THE EQUITABLE DOCTRINE OF SUBROGATION By JAMES MORFIT MULLEN* Subrogation is a principle conceived in equity. It is a doctrine of great importance and of extensive application. The etymology of the term, from two Latin words, "sub" meaning "under" and "rogare" meaning "to ask" indi- cates the origin of this doctrine in the Civil Law. This, of course, explains its origin as an equitable doctrine. One of the dictionary definitions is :' "In Law the act or operation of law in vesting a person who has satisfied, or is ready to satisfy, a claim which ought to be borne by another with the right to hold and enforce the claim against such other for his own indemnification." The best generally known synonym for the word is "sub- stitution", or an assignment by operation of law. A con- cise statement of what is connoted by the word is :2 "Subrogation is simply a method of preventing un- just enrichment." Mr. Justice Miller in a leading case in the Supreme Court of the United States describes the doctrine a little more fully in the following language :$ "The doctrine of subrogation is derived from the civil law, and 'It is said to be a legal fiction, by force of which an obligation extinguished by a payment made by a third person is treated as still subsisting for the * Of the Baltimore City bar. A. B., 1899, Johns Hopkins University; LL.B., 1906, University of Maryland. 1 Century Dictionary. 2Note (1913) 26 Narv. L. Rev. 380; Note (1926) 39 Harv. L. Rev. 381. 3 Aetna L. Ins. Co. v. Middleport, 124 U. S. 534, 538-9, 31 L. Ed. 537, 542. 8 S. Ct. 625, 629-30 (1888). 202 MARYLAND LAW REVIEW [VOL. III benefit of this third person, so that by means of it one creditor is substituted to the rights, remedies, and se- curities of another.... It takes place for the-benefit of a person who, being himself a creditor, pays another creditor whose debt is preferred to his by reason of privi- leges or mortgages, being obliged to make the payment, either as standing in the situation of a surety, or that he may remove a prior incumbrance from the property on which he relies to secure his payment. Subrogation, as a matter of right, independently of agreement, takes place only for the benefit of insurers; or of one who, being himself a creditor, has satisfied the lien of a prior creditor; or for the benefit of a purchaser who has ex- tinguished an incumbrance upon the estate which he has purchased; or of a co-obligor or surety who has paid the debt which ought, in whole or in part, to have been met by another.' Sheldon, Subrogation, pp. 2, 3. "In section 240 it is said: 'The doctrine of subro- gation is not applied for -themere stranger or volunteer, who has paid the debt of another, without any assign- ment or agreement for subrogation, without being un- der any legal obligation to make the payment, and with- out being compelled to do so for the preservation of any rights or property of his own.' " The text writers say that subrogation arises in two in- stances, first, legal, that is by operation of law; and, second, conventional, that is by contract or acts of the parties. A third classification can be properly added in Maryland be- cause of the rights given to subrogation by statute. Dis- cussion of the subject, therefore, will be under these three heads. LEGAL SUBROGATION This branch of the topic is one that merits the most com- ment, as the other two might properly be dealt with under other subjects. The word "Legal" is, of course, here used as distinguished from the other two classes, "Conventional" and "Statutory". It is not used in contra-distinetion to "Equitable". Subrogation is perhaps more easily conceived in connec- tion with specific instances, of which the two following are typical: 19391 SUBROGATION 1. A has a second mortgage on the realty of B. The taxes on the property are in default. In order to prevent the state from selling the property for the tax lien, A is compelled to pay these charges. If later there is a sale by way of foreclosure of the first mortgage, and if this sale produces funds insufficient to pay even the first mortgage, then under the principal of subrogation A is entitled to be reimbursed for what he paid for taxes before the claim of the first mortgagee is satisfied. 2. Perhaps the greatest class of cases in which rights of subrogation are enforced involves payment by sureties. A typical instance of the application of this right arises where A was surety for B's obligation to the State. A is compelled to pay B's obligation. A, having paid the State, becomes thereupon subrogated to any rights that the State may have as creditor of B. Therefore, if A as subrogee of the State files a suit to recover for the State's rights to which he is subrogated and the claim has not been enforced for more than three years, A, the surety, is not bound by the statute of limitations, because the principles of subrogation confer upon A the State's exemption from the operation of the statute of limitations. The essential ingredients of the legal right of subro- gation are, therefore, two: 1. The person claiming subrogation must have an in- terest to protect, and be not merely a volunteer. 2. The right of subrogation exists as to such persons by operation of law without the creditor's consent and even against his wishes. The principal discussion of the subject arises in connec- tion with the persons entitled to assert the right. All the authorities state that a mere volunteer cannot claim subro- gation. The difficulty, of course, is in determining who is a volunteer. The following quotation from a law review dis- cussion of general application shows the difficulty of the question by saying :' "The term is usually applied to any person who is refused subrogation." Note (1913) 26 Harv. L. Rev. 261. MARYLAND LAW REVIEW [VOL. III The most satisfactory method, therefore, of determining who are included and who are excluded by the term is to deal with the specific classes of cases in which subrogation has been permitted or refused. General Creditors Considering the right of a general creditor from the point of view of the origin of the doctrine of subrogation to prevent unjust enrichment, and also from some of the deci- sions on the subject in Louisiana, where the Civil Law still prevails, it would seem to be good law to state as a general proposition (but not necessarily as Maryland law) that a general creditor is as much entitled to the right as someone holding a lien or claiming in some other capacity. In Louisiana there are some decisions where this phase of the matter is discussed and the court of last resort, as well as the Circuit Court of Appeals for that Circuit have deter- mined that a general creditor is entitled to the right of sub- rogation under appropriate circumstances." In the Zeigler case the court decides in favor of the gen- eral creditors' rights in the following language :6 "The theory of this, subrogation is that the creditor of inferior rank, in making the payment to the mort- gage creditor, has an interest in the property of the common debtor, the pledge of both creditors. Until the superior mortgage debt is discharged, the creditor of inferior rank gets nothing. He is concerned, therefore, in making that payment of the superior debt which pre- vents a sacrifice of the common pledge, and affords the creditor who makes the payment the opportunity to make the property bring enough to pay and have a surplus after the superior debt is satisfied. The whole reasoning on which this legal subrogation rests, points to the ordinary creditor as entitled to it, and excludes the contention that the legal subrogation is restricted to the second or third mortgage. The reason of the subrogation in favor of the creditor whose mortgage is inferior exists, with equal if not greater force in favor of the ordinary creditor whose payment stops the sacri- 5Zeigler v. His Creditors, 49 La. Ann. 187, 21 So. 666 (1896) ; Iberville Planting, Etc., Co. v. Monongahela, 168 Fed. 12 (C. C. A. 5th 1909). 0 Ziegler v. His Creditors, 49 La. Ann. 187, 188, 21 So. 666 (1896). 1939] SUBROGATION fice of the property under the writ of the superior creditor. In Boileux, Toullier, Marcade, and others of the French commentators, we find the most emphatic recognition7 of this subrogation of the ordinary credi- tors." In Maryland the law seems to be at variance with what is outlined above. In McNiece v. Eliasons a general credi- tor of a decedent's estate filed a bill against a mortgagee to be allowed to.
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