Plaintiff appeals an order of the circuit court granting summary disposition for defendants on plaintiffs complaint seeking recovery on a loan secured by a mortgage. We affirm.
Plaintiff alleges that it made a $392,000 loan to Hanna and Jaklin Shina secured by a mortgage on property located in West Bloomfield. Most of the loan proceeds were used to satisfy and discharge a prior first mortgage on the property in favor of Option One Mortgage Corporation. According to plaintiff, it was unaware of the fact that, at the time it made the loan to the Shinas, there were two other mortgages recorded against the property: a $200,000 mortgage in favor of ShoreBank and a $249,000 mortgage in favor of Standard Federal Bank. Plaintiff alleges that
Plaintiff filed a multicount complaint. Count one claimed that, under the doctrine of equitable subrogation, the mortgage in favor of plaintiff should be supe rior to, and have priority over, the mortgages in favor of ShoreBank and Standard Federal. That is, the Washington Mutual mortgage should stand in the place of the Option One mortgage. The trial court granted summary disposition in favor of defendants, concluding that plaintiff had no legal obligation to pay off the Option One mortgage and, therefore, it was a volunteer not entitled to equitable subrogation. The trial court also referenced plaintiffs ability to recover under a title insurance policy. Plaintiffs claims against ShoreBank and Standard Federal are the only ones at issue in this appeal. We review de novo the grant of summary disposition. Beaudrie v Henderson. 1
Subrogation comes in two forms described by the Supreme Court in French v Grand Beach Co 2 as follows:
The doctrine of subrogation rests upon the equitable principle that one who, in order to protect a security held by him, is compelled to pay a debt for which another is primarily liable, is entitled to be substituted in the place of and to be vested with the rights of the person to whom such payment is made, without agreement to that effect. This doctrine is sometimes spoken of as “legal subrogation,” and has long been applied by courts of equity. Stroh v. O’Hearn,176 Mich. 164 ,177 [142 NW 865 (1913)]. There is also what is known as “conventional subrogation.” It arises from an agreement between the debtor and a third person whereby the latter, in consideration that the security of the creditor and all his rights thereunder be vested in him, agrees to make payment of the debt in order to relieve the debtor from a sacrifice of his property due to an enforced sale thereof. It is wholly independent of any interest in the property which the lender may have to protect. It does not, however, inure to a mere volunteer who has no equities which appeal to the conscience of the court.
In Stroh v O’Hearn, 3 the Court noted that the equitable principle of subrogation is not available to volunteers:
Subrogation is an equitable doctrine depending upon no contract or privity, and proper to apply whenever persons other than mere volunteers pay a debt or demand which in equity and good conscience should have been satisfied by another. It is proper in all cases to allow it where injustice would follow its denial, and in allowing it all injustice should be guarded against so fax as possible.
The principle that subrogation is not available to a mere volunteer was again applied in
Lentz v
Stoflet.
4
Indeed, even in
Walker v Bates,
5
a case that cannot be reconciled with
Lentz,
the Court acknowledged that subrogation is not available to a mere volunteer. See also
Hartford Accident & Indemnity Co v Used Car Factory,
Inc
6
and
Thus, the question becomes whether plaintiff is properly categorized as a “mere volunteer.” Not surprisingly, plaintiff relies on Walker in its argument that it was not a volunteer in paying off the Option One mortgage. The relevant transaction history in Walker is this:
(1) The Hannas purchased the property at issue and granted a mortgage to Highland Park State Bank.
(2) The plaintiffs sued Henry and Frances Bates, claiming that the Bateses had fraudulently purchased the property with the plaintiffs’ money.
(3) Frances Bates contracted to sell the property to Charles Derr and his wife.
(4) The Derrs contracted to sell the property to the Howeses, with the Howeses assuming the mortgage given to Highland Park State Bank.
(5) A lis pendens was filed related to the plaintiffs’ suit against the Bateses.
(6) Frances Bates mortgaged the property to Commonwealth-Federal Savings Bank, with the Hannas’ mortgage to Highland Park State Bank being paid and discharged.
(7) Frances Bates conveyed the property by warranty deed to the Howeses.
(8) A judgment was rendered in favor of the plaintiffs and a lien was placed on the property.
(9) An action was commenced to foreclose on the lien.
In the litigation to foreclose the lien, Commonwealth-Federal claimed that it was entitled to be subrogated to the rights of Highland Park State Bank as mortgagee. The analysis by the majority in Walker, however, is scant. It essentially consists of quoting much of the same material from French that we did above, and then making the following statement:
The first mortgage was upon the property when the notice of lis pendens was filed. No injustice results from subjecting plaintiffs’ rights thereto. Their interest in the property is charged with the payment of a mortgage lien of the same amount as that which was on it when the lis pendens was filed. The trial court very aptly said:
“It is immaterial to the plaintiff and wasn’t wronging him any, to just simply change from the Highland Park Bank to the Commonwealth Bank.” [8]
In short, although the Walker majority acknowledged the “mere volunteer” rule by quoting from French, it did not engage in any meaningful analysis of the point. Rather, the extent of its analysis rested on its conclusion that applying the doctrine would not create any injustice to the holder of the lis pendens because the holder was in no worse position than it was before the remortgaging.
While the majority in Walker ignored the volunteer rule, the dissent did not, making the following observation:
A stranger to the title cannot, by payment of the whole or any portion of a mortgage, become subrogated to the rights of the mortgagee. The Commonwealth-Federal Savings Bank was a stranger to the parties and the title, a volunteer, with no interest in or claim against the parties or the premises which it was, in equity entitled to have protected. Under such circumstances, itis not entitled to subrogation to the prejudice of plaintiffs’ lien. [9]
Were Walker the last word on the subject, we might have to agree with plaintiff that Walker compels a conclusion that an entity in plaintiffs position is not a volunteer, though such a conclusion would arise more from the implications of Walker than its express holding or analysis. But Walker is not the final word on the subject. Rather, it appears that the Supreme Court’s opinion nine years later in Lentz is the Supreme Court’s latest word on the topic of equitable subrogation in the context of mortgages. Lentz, like Walker, was written by Justice Sharpe. Lentz, however, reached the opposite result as Walker, despite a similarity in facts.
Specifically, the transactions at issue in Lentz were these:
(1) William Mexico and his wife gave a mortgage in the amount of $4,000 to Rockwood State Bank over a 94.72-acre tract of land.
(2) The Mexicos conveyed the property to the Stoflets.
(3) The Stoflets mortgaged 68.49 acres of the property to Rockwood State Bank.
(4) Rockwood State Bank foreclosed on both mortgages and acquired title to the property.
(5) The Stoflets mortgaged the 68.49-acre tract to the State Savings Bank of Carleton.
(6) Rockwood State Bank discharged the mortgages it held and conveyed the property to the Stoflets.
(7) The next day, the Stoflets made payment to Rock-wood State Bank with money loaned to them by an agent of the plaintiffs, with a mortgage being granted to the plaintiffs covering the 68.49-acre tract of land as well as two other parcels.
(8) The plaintiffs commenced foreclosure on the mortgage and sought a determination that their mortgage be given priority over the mortgage to the State Savings Bank of Carleton on the basis that the plaintiffs’ rights should be subrogated to the rights of Rockwood State Bank and its two mortgages on the property under a theory of equitable subrogation.
In his analysis, Justice Sharpe again quoted from French, as well as three other sources discussing the volunteer rule. The analysis began with a discussion of the fact that the new mortgage was in a greater amount and covered additional land, with the ability of the State Savings Bank to recover any deficiency being reduced. The majority then made the following observations:
When plaintiffs loaned the money they had no interests to protect. It was done without any agreement or understanding that they were to enjoy the fruits of subrogation. It was voluntarily done upon their part and to grant it would not leave defendant in its former position. A mere volunteer is not entitled to subrogation. [10]
Interestingly, Justice Sharpe did not cite his previous opinion in Walker, much less explain how it was distinguishable from Lentz.
While Justice Sharpe ignored
Walker,
Justice POTTER, the author of the dissent in
Walker,
did not. Justice Potter filed a concurring opinion in
Lentz,
which opinion opened with the observation that the effect of the opinion in
Lentz
is to overrule
Walker.
11
After reviewing several authorities
This case [Walker] holds that a mere stranger to the title who voluntarily advances money to help a fraudulent holder of real estate pay a mortgage placed by him thereon has equities more appealing to the conscience of the court than those of the real but defrauded owner of the real estate with notice of whose rights the money was advanced. This case stands alone. It violates all the principles underlying the cases involving legal or conventional subrogation in England and America. It is not a precedent to be followed, but an accident to be avoided. [12]
We also find guidance from Justice POTTER in his concurrence:
Subrogation “from its very nature, never could have been intended for the relief of those who were in a condition in which they were at liberty to elect whether they would or would not be bound.” Gadsden v. Brown, 1 Speer’s Eq. (S. C.) 37 [17 SC Eq 37 (SC App Eq, 1843)]. This, says the Supreme Court of the United States, is perhaps as clear a statement of the doctrine as can be found anywhere. Ætna Life Ins. Co. v. Middleport,124 U. S. 534 (8 Sup. Ct. 625) [31 L Ed 537 (1888)]. This was the rule recognized in Smith v. Austin,9 Mich. 465 [1862], and Kitchell v. Mudgett,37 Mich. 81 [1877]. In Desot v. Ross,95 Mich. 81 [54 NW 694 (1893)], complainant was sought to be subrogated. It is said:
“She was a stranger to the title, and as such could not, by payment of the whole or any portion of the mortgage, become subrogated to the rights of the mortgagee.”
The court cited in support of this proposition Kelly v. Kelly,54 Mich. 30 , 47 [19 NW 580 (1884)]; Shinn v. Budd, 14 N. J. Eq. 234, 237 [(1862)]; Brice v. Watkins,30 La. Ann. 21 [(1878)]; and quoted with approval from Sanford v. McLean, 3 Paige Ch. (N. Y.) 117, 122 (23 Am. Dec. 773 ) [3 NY Ch Ann 80 (1832)], as follows:
“ ‘It is only in cases where the person advancing money to pay the debt of a third party stands in the situation of a surety, or is compelled to pay it to protect his own rights, that a court of equity substitutes him in the place of the creditor as a matter of course, without any agreement to that effect. In other cases the demand of a creditor which is paid with the money of a third person, and without any agreement that the security shall be assigned or kept on foot for the benefit of such third person, is absolutely extinguished.’" [13]
We are obligated to follow the most recent pronouncement of the Supreme Court on a principle of law. Brown v Genesee Co Bd of Comm’rs (On Remand). 14 The most recent pronouncement of the Supreme Court on this topic would certainly seem to be that the doctrine of equitable subrogation does not allow a new mortgagee to take the priority of the older mortgagee merely because the proceeds of the new mortgage were used to pay off the indebtedness secured by the old mortgage. It is clear to us that, under Lentz, plaintiff is a mere volunteer and, therefore, is not entitled to equitable subrogation.
First, three of the cases did not even involve the question of giving priority to one mortgage over another. In Linn v Linn, 15 the mortgagee held two mortgages on a property, which were replaced by a new mortgage, with the mortgagors being a husband and wife. After the husband’s death, the wife denied having executed the mortgage. The Court held that the earlier mortgages were to be revived because their discharge was obtained through the supposed execution of the fraudulent new mortgage. In White v Newhall, 16 the Court ruled against the purported mortgagee, concluding that the proper remedy was for the purported mortgagee to seek an equitable lien. 17 Finally, in Coulter v Minion, 18 Minion owned property in Barry County and Lloyd owned property in Grand Rapids. They exchanged the two properties, plus an additional $250 to be paid to Minion. Lloyd had mortgaged the Grand Rapids property and, under the agreement, Lloyd would mortgage the Barry County property to pay off the Grand Rapids mortgage and to pay the $250 to Minion. Minion arranged the mortgage with Coulter. As it turned out, Minion swindled Lloyd because the Barry County property was essentially worthless, and Lloyd abandoned it, defaulting on the mortgage. Coulter then sued Minion, seeking to be subrogated to the rights of the mortgagee on the Grand Rapids property (which now belonged to Minion) to recompense Coulter for her losses caused by Minion’s fraud. The Court granted the mortgagee subrogation to Coulter. None of those cases dealt with a later mortgage being equitably subrogated to an earlier mortgage to leap ahead of intervening mortgages on the priority list.
On the other hand, in Eggeman v Harrow, 19 there was a question of the priority of an intervening mortgage, but it presented a pure question of fraud rather than an application of the volunteer doctrine. In Eggeman, the Eggemans gave a $3,000 mortgage to Harrow covering two lots. Thereafter, a new mortgage was made covering only one of the two lots in the amount of $2,000. On the same day, the Eggemans gave a mortgage over the same lot to Miller, Mrs. Eggeman’s father. Although it appears that the new mortgage to Harrow was executed first, Mr. Eggeman maneuvered to have the Miller mortgage recorded first. In holding that the Harrow mortgage would have priority, the Court did not engage in a consideration of the application of the volunteer rule to the equitable subrogation doctrine. Rather, the Court concluded that the Miller mortgage was fraudulent in its entirety, noting that there had not, in fact, been any loan from Miller to the Eggemans that it secured, that there was not “any real consideration or equity” behind the mortgage. 20
Any fraud in the case at bar is not materially different from the fraud in
Lentz.
In both
Lentz
and this case, the
Plaintiff also argues that a mistake of fact prevents plaintiff from being considered a volunteer. We disagree. As with the fraud issue, the cases relied on by plaintiff are not analogous to this case. In Detroit & Northern Michigan Bldg & Loan Ass’n v Oram, 21 the mistake involved was by a life tenant who believed that she owned the real estate in fee and mortgaged the property, paying off the preexisting mortgage. A second mistake occurred when the title abstractor failed to discover that the life tenant was not the owner in fee. The mortgagee sought to be subrogated to the original mortgage, which relief was granted. But the Court’s holding very specifically noted two facts: the new mortgage was defective because the life tenant could not grant a mortgage, and there were no intervening encumbrances. Id. at 499. In this case, the mortgage to plaintiff is not defective and there are intervening encumbrances. Similarly, Sproal v Larsen 22 allowed subrogation where the mortgagor no longer held title because of a conveyance occurring between the filings of the original mortgage and the subsequent mortgage, with the Court noting the requirement that there could be no persons with intervening superior equities in order to apply subrogation. 23 Detroit Fire Marine & Ins Co v Aspinall, 24 also represents a case in which there was a failed mortgage with no intervening liens to be considered.
In Taylor v Roniger, 25 there was a mistake regarding ownership. The plaintiff bought the property subject to a preexisting mortgage, which he then paid off. But his title was defective because the seller’s ex-wife never signed the deed conveying the property to the plaintiff, and, therefore, she retained ownership (and became sole owner after her ex-husband’s death). The Court ultimately held that the plaintiff, in essence, became the equitable owner of the mortgage he paid off. 26
Plaintiffs reliance on
French
is grossly misplaced because a mistake was not at issue and the quotation in plaintiffs brief that refers to subrogation applying in cases of mistake, among others, which plaintiff attributes to
French,
is actually from a different source that
French
itself quotes. The issue in
French
was whether the holder of a promissory note secured by a first mortgage could be compelled to accept payment and issue an assignment and subrogation of that note to a new lender. Apparently the new lender in
French
wanted the priority of the first mortgage (which the plaintiff was foreclosing on because of a default by the defendant), and the plaintiff did not want the new lender to obtain priority over the second mortgage because the plaintiff also held bonds secured by the second mortgage. The Court determined that it was equitable to require the plaintiff to issue the assignment and subrogate the new lender to the original mortgage. No mistake was involved. See also
Moore v
Smith,
27
which also involved the right to an assignment,
Similarly, Palmer v Sharp 28 did not involve a mistake; rather, it involved a fraud. Further, while plaintiff does quote a brief passage that references “mistake,” that is not the basis of the analysis of that case. In fact, like in Oram, the Court in Palmer specifically noted that, for subrogation to apply, there can be no intervening encumbrances. 29 There also was no mistake involved in Draper v Ashley, 30 in which the facts differ greatly from the case at bar. Indeed, if anything, Draper supports defendants’ position because the Court specifically noted that “one who pays off a prior incumbrance, and takes a new security for the advance, is not entitled to priority over an intervening incumbrance.” 31
Also, as with the fraud argument, plaintiff overlooks the fact that the mistake in this case is no different than the mistake in Lentz. The mistake in both cases is that a new mortgage was granted to pay off a senior mortgage, without the discovery of intervening junior mortgages. Accordingly, there is no basis for distinguishing this case from Lentz on the basis of a mistake providing an exception to the volunteer rule.
Next, plaintiff cites Smith v Sprague, 32 for the proposition that a mere promise of repayment is sufficient to prevent plaintiff from being regarded as a volunteer. Once again, this overlooks the fact that the promise of repayment in the case at bar is no different from that in Lentz, and, therefore, provides no basis to distinguish Lentz. Furthermore, the cases are different. In Smith, there was no issue of providing priority over intervening encumbrances. Rather, the Court used the subrogation doctrine to impose liability on the promissor’s widow. Briefly, the defendant and her husband defaulted on mortgage notes. The husband borrowed money from his former daughter-in-law to pay off the mortgage, promising to grant the former daughter-in-law a mortgage to secure the debt, but he died without fulfilling his promise. The Court concluded that it was unnecessary to determine if the defendant had agreed with her husband to grant the mortgage to the plaintiff because, even if she had not, under equitable subrogation the plaintiff could be subrogated to the prior mortgage that had been paid off. Not only was that not a case of granting priority over intervening encumbrances, but it also appears that the exact opposite was true: the subrogation was subject to the intervening encumbrances. Although not discussed in detail in the opinion, in describing the trial court’s decree, which was affirmed, the Court stated that the plaintiff “had decree with respect to the mortgage of $5,000 and subject to incumbrances created in the meantime, and defendant has appealed.” 33 Thus, if anything, Smith supports defendants’ position in the case at bar. 34
Finally, relying on
Schanhite v Plymouth United Savings
Bank,
35
plaintiff argues that it should be given priority
By contrast, in this case, we are not presented with a new mortgage being accepted by the holder of the old mortgage. That is, had the new mortgage been given to Option One Mortgage, and Option One was before us rather than plaintiff, Schanhite might provide the authority to revive the original mortgage and give the new mortgage the same priority as the one it replaced. For that matter, it might be sufficient under Schanhite if the plaintiff had first purchased the Option One mortgage and then accepted the new mortgage. But neither of those situations is present here, and, therefore, Schanhite is inapplicable. For that matter, there is no indication that the mortgage granted by plaintiff was necessary to preserve defendants’ security in the property. That is, while defendants certainly have benefited by the new mortgage in that a debt with a higher security interest priority was discharged, there is no indication that defendants were about to lose their security interests if the loan had not been made at the time plaintiff made its loan to the Shinas. Accordingly, neither of the conditions present in Schanhite is present here.
Schanhite
is similar to
Wallace v
McBride,
40
another case relied on by plaintiff. In
Wallace,
the plaintiff had received
In sum, with the exception of Walker, we are unaware of any authority regarding the application of the doctrine of equitable subrogation to support the general proposition that a new mortgage, granted as part of a generic refinancing transaction, can take the priority of the original mortgage, which is being paid off, giving it priority over intervening liens. And, as for Walker, as Justice POTTER stated in his concurrence in Lentz, Walker “is not a precedent to be followed, but an accident to be avoided.” 42 Such bolstering of priority may be applicable where the new mortgagee is the holder of the mortgage being paid off or where the proceeds of the new mortgage are necessary to preserve the property from foreclosure or another action that would cause the intervening lien holders to lose their security interests. But neither of those circumstances exists here. Therefore, plaintiff is not entitled to be subrogated to the original mortgage and receive priority over the intervening lienholders. Accordingly, the trial court properly granted summary disposition for defendants.
Plaintiffs other issue on appeal is that, in ruling against plaintiff, the trial court erroneously relied on the existence of title insurance from which plaintiff could seek recovery. While we do not necessarily disagree with plaintiff that the availability of insurance coverage should have no bearing on the resolution of the substantive question presented in this case, because we conclude that the trial court properly granted summary disposition in favor of defendants, we need not address this issue.
Affirmed. Defendants may tax costs.
Notes
Id.
8 Walker, supra at 587.
9 Id. at 584-585 (Potter, J., dissenting).
10 Lentz, supra at 451.
Id. at 451 (Potter, J., concurring).
12 Id. at 455 (Potter, J., concurring).
13 Id. at 452 (Potter, J., concurring).
Id. at 647.
Id. at 439.
Id. at 143.
Id. at 104.
Id. at 423-424.
Id. at 531.
Id. at 579.
Interestingly, the unanimous decision in Smith was decided the same day as the apparently aberrant decision in Walker and cites many of the same authorities.
Id. at 38.
Id. at 39.
Id. at 40.
Id.
Id. at 600-601.
Lentz, supra at 455.