Taaffe v. Central Trust Co.
275 F. 829
7th Cir.
1921
Check Treatment
EVANS, Circuit Judge

(after stating the facts as above). Priority is sought on the theory of subrogation. Having paid $3,384 on the first valid and subsisting mortgage, appellant urges equitable considerations in support of his claim for a lien. He invokes the doctrine of conventional rather than legal subrogation, and disclaims all rights under and by virtue of the trust deed given to secure the $80,000 bond issue.

[1, 2] That appellant could have protected his advance cannot be questioned. That he failed to do so, however, is, we think, equally apparent. Instead of taking an assignment of the first mortgage bonds and interest coupons, or agreeing with the creditor that he should have a lien similar to the lien of the holders of the bonds that were canceled, he accepted, for his security, a much larger amount of the bonds represented by the new $80,000 issue. His failure to record this trust deed, thus defeating the lien which a recordation thereof would have given, leaves him, in view of the bankruptcy act, in the position of an unsecured creditor.

Conventional subrogation must rest upon an agreement, express or implied, and this agreement must be to the effect that the payor shall have the same priority as tire holder of the security and be substituted for him. Sheldon on Subrogation (2d Ed.) § 248; 37 Cyc. 469, 470; Murphy v. Baldwin, 159 Wis. 567, 571, 150 N. W. 957; 25 R. C. L. p. 1342. Generally speaking, the payor is not entitled to subrogation, if he accepts other and different security.

The evidence in this record convinces us that Henning was not to have a lien similar or equal to that of the creditors whose bonds he satisfied, nor was there any agreement or understanding between him and bankrupt that he was to have the security of a first mortgage. He accepted bonds of the face value of $29,000, secured by a second mortgage, to secure his $3,384 loan. These bonds, as well as the entire issue of which they were a part, were executed on the hypothesis of a complete satisfaction and discharge of the bonds and interest coupons paid by his loan. In other words, instead of an agreement whereby Henning was to be subrogated to the rights of the then existing lien holders, the evidence establishes another and different agreement as to security, the terms of which negative the existence of any agreement for subrogation. Instead of supporting, the agreement of the parties actually defeats, any claim of subrogation; for to accept twenty-nine eightieths of a new bond issue, secured by a second mortgage, instead of a lien of approximately three fifty-fourths of the first mortgage, is necessarily fatal to appellant’s asserted lien based on conventional subrogation.

The decree is affirmed.