Sourcecorp, Inc. v. Norcutt
229 Ariz. 270
Ariz.2012Background
- Sourcecorp obtained a >$3M judgment against Shills and recorded a judgment lien on the Prescott property.
- Shills sold the property to Norcutts for $667,500; Zions Bank satisfied its first mortgage with $621,000 of the sale proceeds.
- Norcutts purchased title insurance, but the title insurer did not uncover Sourcecorp's lien.
- Sourcecorp sought to foreclose on its lien after the Norcutts paid the mortgage, prompting litigation.
- Norcutts argued they were equitably subrogated to Zions Bank's priority; Sourcecorp argued otherwise.
- Arizona Supreme Court adopted the Restatement approach to equitable subrogation and limited subrogation to the amount paid.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Norcutts are equitably subrogated to Zions Bank's priority over Sourcecorp | Norcutt paid to protect own interest | Subrogation requires volunteers or an agreement | Yes; Norcutts subrogated to priority to the amount paid |
| Whether an express/implied agreement is required for subrogation | Agreement not required under Restatement | Agreement or implied agreement is required | No; no agreement required |
| Whether the presence of title insurance negates subrogation | Insurer negligence should not prevent subrogation | Subrogation would unjustly enrich the Norcutts | No; title insurance does not defeat subrogation |
| Scope of subrogation—priority to proceeds only, not foreclosure rights | Subrogation should extend to preventing unjust enrichment | Subrogation could foreclose Sourcecorp's lien | Norcutts have priority to proceeds equal to amount paid ($621,000); foreclosing rights not granted |
Key Cases Cited
- Mosher v. Conway, 45 Ariz. 463 (Arizona Supreme Court 1935) (subrogation purpose and limits; prevents unjust enrichment)
- Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478 (Arizona Court of Appeals 2004) ( Restatement-aligned approach; four elements plus consideration)
- Peterman-Donnelly Eng'rs & Contractors Corp. v. First Nat'l Bank of Ariz., 2 Ariz.App. 321 (Arizona Court of Appeals 1965) (implied/express agreement test for subrogation)
- Han v. United States, 944 F.2d 526 (9th Cir. 1991) (protective interest basis for subrogation)
- E. Boston Sav. Bank v. Ogan, 428 Mass. 327 (Massachusetts Supreme Judicial Court 1998) (subrogation when paying to protect own interest)
- Restatement (Third) of Property: Mortgages § 7.6, Restatement § 7.6 (1997) (subrogation without required agreement; focus on preventing unjust enrichment)