Home Savings Bank v. Bierstadt
48 N.E. 161
Ill.
1897
Check Treatment
Mr. Chief Justice Phillips

delivered the opinion of the court:

Subrogation, as a principle of equity jurisprudence, is generally confined to the relation of principal and surety and guarantors, or to a case where a person is compelled to remove a superior title to that held by him in order to protect his own, and also to cases of insurers. The general principle of subrogation is confined and limited to these classes of cases. (Bishop v. O’Conner, 69 Ill. 431; Borders v. Hodges, 154 id. 498.) Whilst these general heads include the doctrine and principles of subrogation, that doctrine has been steadily expanding and growing in importance and extent in its application to various subjects and classes of persons. This equitable principle is enforced solely for the accomplishment of substantial justice, where one has an equity to invoke which cannot injure an innocent person. The right of subrogation which springs from the mere fact of the payment of a debt, and which is included under the heads first above stated, is what is termed legal subrogation, and exists only where included within those classes. But in addition to this principle of legal subrogation there exists another principle, which is termed conventional subrogation, which results from an equitable right springing from an express agreement with the debtor, by which one advances money to pay a claim for the security of which there exists a lien, by which agreement he is to have an equal lien to that paid off, whereupon he is entitled to the benefit of the security which he has satisfied with the expectation of receiving an equal lien. Coe v. Maryland Railway Co. 81 N. J. Eq. 105; Tyrrell v. Ward, 102 Ill. 29; Tradesmen's Ass. v. Thompson, 32 N. J. Eq. 133.

This principle has been before this court, and the necessity and effect of such an agreement were considered in White v. Cannon, 125 Ill. 412, where it was said (p. 415): “It is only where the payment of < incumbrances is necessary to protect rights of the payer, or where they are paid pursuant to an agreement with the debtor that the payer shall hold them as security for the money advanced, that the payer will be subrogated to the rights of the holders of such liens and the liens will be kept alive for his benefit. Where the demand of a creditor is paid with the money of a third person not himself a creditor, without any agreement that the security shall be assigned or kept on foot for the benefit of such third person, the demand is absolutely extinguished.”

It is the agreement that the security shall be kept alive for the benefit of the person making the payment which gives the right of subrogation, because it takes away the character of a mere volunteer. Here the agreement between the debtor and the appellee, who advanced the money, was to the effect that appellee was to advance sufficient money to discharge the seven Goudy deeds of trust, and should receive from the debtor, by way of security for the money so advanced, a first mortgage upon the seven lots. In equity that was an agreement that the Goudy deeds of trust should become security for her loan. That was the substance of the transaction, and equity will effectuate the real intention of the parties, where no injury is done to an innocent party, by applying the principle of conventional subrogation. Draper v. Ashley, 104 Mich. 527; Tyrrell v. Ward, supra; Union Mortgage Co. v. Peters, 72 Miss. 1058; Levy v. Martin, 48 Wis. 198; Wilton v. Mayberry, 75 id. 191; Dillon v. Kaufman, 58 Tex. 696.

This principle will be applied even where the record shows a release of the satisfied incumbrance, as the lien so satisfied will be removed for the benefit of the party satisfying the same, where there has not been gross negligence and where justice requires it should be done,— and this will be done as against a subsequent incumbrancer whose incumbrance has not been taken or his position changed because of the record showing the discharge of the senior incumbrance. Tyrrell v. Ward, supra; Hammon v. Barker, 61 N. H. 53; Campbell v. Trotter, 100 Ill. 281; Emmert v. Thompson, 49 Minn. 386; Union Mortgage Co. v. Peters, supra; Bruse v. Nelson, 35 Iowa, 157; Draper v. Ashley, supra; Levy v. Martin, supra.

The Goudy deed of trust was in existence and recorded when the Billings deed of trust was made and recorded, as was the latter when appellee’s deed was made and recorded. So far as shown by this evidence there was only constructive notice to Billings of the Goudy deed and to appellee of the Billings deed. And as said in Campbell v. Trotter, supra, (on p. 284): “Campbell took his mortgage with knowledge of Trotter’s first mortgage of March 19, 1869, and as a second mortgage subordinate to Trotter’s, and it should be held subordinate to that mortgage. There has nothing occurred since, which, in equity, should displace priority. The taking the new mortgage of August 30, 1877, and entering satisfaction of the first mortgage, was, as designed by the parties, but in continuation of the lien of the first mortgage. * * * The transaction was entirely irrespective of Campbell. * * * It was with no reference to his benefit, and should not be made to redound thereto by the advancement of his mortgage to a priority over the lien of Trotter. * * * It was through ignorance, in fact, of the existence of Campbell’s mortgage that Trotter entered satisfaction of the first mortgage and surrendered the notes, and which he would not have done had he known of Campbell’s mortgage. This Trotter testifies to, and the nature of the transaction itself would satisfy one that such must have been the case.”

The failure of appellee or her agent to learn of Billings’ trust deed was not negligence which would bar her right to relief, when the only notice is constructive, and not actual. Tyrrell v. Ward, supra; Young v. Morgan, 89 Ill. 199; Smith v. Dinsmoor, 119 id. 656; Campbell v. Trotter, supra.

The contention urged by appellants that the payment made by appellee was that of a mere volunteer, cannot be sustained. Where a payment is made at the request of the debtor, the person so paying is never a volunteer; and in this case, the payment having been made at the request of the debtor, appellee was not a volunteer, merely. Emmert v. Thompson, 49 Minn. 386; London Co. v. Tracy, 58 id. 201; Carr v. Caldwell, 10 Cal. 380; 24 Am. & Eng. Ency. of Law, 290.

The judgment of the Appellate Court for the First District is affirmed.

Judgment affirmed.