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property_law:doctrine-of-subrogation

Doctrine of Subrogation

The Doctrine of subrogation in the Transfer of Property Act, 1882, has been laid down under section 92. It was inserted after an amendment in the year 1929. The plain text of the section is as under:

Subrogation: Any of the persons referred to in section 91 (other than the mortgagor) and any co- mortgagor shall, on redeeming property subject to the mortgage, have, so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee. The right conferred by this section is called the right of subrogation, and a person acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgage he redeems. A person who has advanced to a mortgagor money with which the mortgage has been redeemed shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such persons shall be so subrogated. Nothing in this section shall be deemed to confer a right of subrogation on any person unless the mortgage in respect of which the right is claimed has been redeemed in full.”

As defined under the Black’s Law dictionary , ‘Subrogation’ is: “the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.”

Section 92 provides for:

  1. Any person other than the mortgagor referred to in section 91, and any co-mortgagor can redeem the mortgage.
  2. On redeeming the mortgaged-property, they shall have the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee,
  3. The rights are regarding redemption, foreclosure or sale of the mortgaged property.
  4. This right is known as the right of subrogation. The person acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgage he redeems.

Historical Perspective

Subrogation is a roman term. It means ‘substitution’. Lord Hardwicke in his decision in Randal V. Cockran marked its identification with equity. In his opinion, he suggested a possible theoretical basis for the doctrine and a justification for the role of equity in the area of contribution. In a letter to Lord Kames, he had noted that new commercial conditions, new methods of dealing with property, and different forms of property made it necessary for equity to play a novel part in the further development of subrogation. The above case arose out of a decree by King George II allowing compensation to be paid to those that suffered loses in a war with Spain. Some individuals had already been indemnified by their insurers for the losses that they had suffered. The insurers successfully sought to be subrogated to the rights of their insured to receive this compensation.

The first English case to adopt the word ‘subrogation’ was Stringer V. The English and Scotch Marine Insurance Co. In this case, the plaintiffs insured a ship cargo with the defendants for ‘taking at sea, arrests, restraints, and detainment of all Kings, princes and people.’ The ship was subsequently captured by a United States cruiser and taken into New Orleans, where a suit for its condemnation was instituted. The plaintiffs contested the action successfully and the captors appealed. The court ordered the plaintiffs to furnish security against costs, which they could not afford. As a result, the ship was condemned; the plaintiffs gave formal notice of abandonment of the cargo, and requested the insurers pay for their total loss. The court, in holding for the plaintiff, noted that the plaintiff as the assured was free to choose between defending the appeal before the American court or claiming a loss under the policy. Because the assured chose the latter, the insurers were obligated to pay. Having paid, the insurers were entitled ‘to be subrogated to them. They would get what they can out of the hands of the Americans for their own benefit.’

There has been some disagreement in English courts about whether subrogation is an equitable or legal doctrine. Canadian courts have treated it as the equitable doctrine. The leading case in Canada is National Fire Insurance Co. V. McLaren which states:

The doctrine of subrogation is a creature of equity not founded on contract, but arising out of the relations of the parties. In cases of insurance where a third party is liable to make good the loss, the right of subrogation depends upon and is regulated by the broad underlying principle of securing full indemnity to the insured on the one hand, and on the other of holding him accountable as trustee for any advantage he may obtain over and above compensation for his loss. Being an equitable right, it partakes of all the ordinary incidents of such rights, one of which is that in administering relief the Court will regard not so much the form as the substance of the transaction. The primary consideration is to see that the insured gets full compensation for the property destroyed and the expenses incurred in making good his loss. The next thing is to see that he holds any surplus for the benefit of the insurance company.”

The Canadian and English jurisprudence is agreed that subrogated rights do not come from the contract of indemnity. It arises by operation of the common law to govern the relationship. At common law, no subrogated rights arise until the insured is fully indemnified for its loss. Once full indemnity is made, the insurer has the right to commence proceedings against the wrongdoer in the insured’s name and make all decisions in the litigation. The insured has a duty to co-operate in the litigation in matters such as giving evidence at trial. It was in the case of London Assurance Co. V. Sainsbury, the principles of subrogation established by equity were taken and forged into the common law. The common law also assumed a major role in fashioning the future progress of this equitable doctrine. The Court of Exchequer in the case of Deering v. Winchelsea, held that The basis of ‘bottom of contribution’ was said to be a fixed principle of Justice, and is not founded in Contract: His contribution is considered as founded in Equity; Contract is not mentioned. The principle operates more clearly in a Court of Equity than at Law. At Law the party is driven to an Audita Querela or Seire Facias to defeat the execution, and compel execution to be taken against all.

In Craythorn V. Swinburn , the court explained the grounds upon which the courts of law could justify the application of equitable rules in the field of contribution. If there are co-sureties by the same instrument, and the creditor calls upon either of them to pay the principal debt, or any part of it, that surety has a right, either upon a principle of Equity, or upon Contract, to call upon his co-surety for contribution.

The Privy Council in the case of Gokuldas V. Puranmal held that Gokuldas was subrogated to the rights of the prior mortgagee whom he had paid off. This claim could not be disposed unless it was redeemed.

The facts of the case Gokuldas, was that the creditor of the mortgagor, purchased the equity of redemption at a sale in execution of a money decree and got possession. He paid off a prior mortgagee but was sued for possession by a puisne mortgagee. The council through this decision declared the inapplicability of the rule in Toulmin V. Steere in India. According to the principle laid down by the case when a purchaser of equity of redemption is redeeming a mortgage there is no presumption that he intend to keep it alive against subsequent encumbrance of which he has no knowledge but may have had constructive notice. The one who initially discharges the obligation is called the ‘subrogee’ and the party who is compensated is the called ‘subrogor.’

Kinds of Subrogation

This kind of subrogation takes place by operation of Law. It is based on the principle of reimbursement. Where a person is interested in making some payment, which another is legally bound to make, than such person must be reimbursed when he makes the payment. Legal or equitable subrogation is not available to volunteers. It is not available until full compensation has been paid. It is based on equitable considerations.

The following people can claim Legal Subrogation :

Puisne mortgagee

He is a subsequent mortgagee, who redeems a prior mortgage; he has a right to be subrogated to the position of the prior mortgage.

Co-mortgagor

He is liable only to the extent of his share of the debt. When, besides redeeming his own share, he pays off the share of the other mortgagor also, he becomes entitled to be subrogated in place of such other mortgagor. In the case of Krishna Pillai Rajasekharan V. Padmanabha Pillai the question arose whether arose that what were the rights and liabilities the parties qua each other and whether a suit for the partition was maintainable. The court here held that it was not a case of subrogation by agreement but by the operation of law. Section 92 does not have the effect of a substitute becoming a mortgagee. The provision confers certain rights on the redeeming co-mortgagor and also provides for remedies of redemption, foreclosure and sale being available to the substitutes as they were available to the substituted. Therefore, the suit for declaration, partition and recovery of possession by non- redeeming co-mortgagor was held to be maintainable.

Surety

The person, who stands as a surety in a mortgage for repayment of loan in case mortgagor fails to do so, is also entitled to redeem the mortgaged property under section 91. When the surety of the mortgagor redeems the property he is subrogated to the position and rights of the creditor.

Purchaser of equity of redemption

There were certain doubts regarding the purchaser of equity of redemption that whether he can be subrogated or not. Equity of redemption is regarded as a property of the mortgagor, which he can sell or assign. The purchaser of such equity becomes owner of the property.

The Privy Council in the case of Malireddy Ayyareddy V. Gopi Krishnayya held “it is now settled law that where in India there are several mortgages on q property, the owner of the property subject to a mortgage may, if he pays off an earlier charge, treat himself as buying it and stand in the same position as his vendor, or to put it in another way, he may keep the encumbrance alive for his benefit and thus come in before a later mortgagee. This rule would not apply if the owner of the property had covenanted to pay the later mortgage- debt but in this case there was no such personal covenant.“

Conventional Subrogation

The conventional Subrogation takes place where the person paying off the mortgage-debt is a stranger. He has no interest to protect. He advances under an agreement, that he would be subrogated to the rights and remedies of the mortgagee who is paid off. The right to subrogation can be claimed only if the mortgagor has agreed by registered instrument that he shall be subrogated.

Indian Courts on Section 92

In the case of Isap Bapuji Amiji’ V. Umarji Abhram Adam; as per Broomfield, J., the retrospective effect should be taken as a guide for determining in cases, where there is a conflict of authority, what equitable rules not inconsistent with the Act should be adopted as valid in India; whereas according to N.J. Wadia, J., Section 92 of the Transfer of Property Act, as amended in 1929, has a retrospective effect.

It was held in the case of Narain V. Narain , that where the mortgagor himself redeems the property this doctrine couldn’t be invoked. The mortgagor who discharges a prior debt is not entitled to be subrogated to the rights and remedies of his creditor. This is because by discharging a prior encumbrance created by himself, he is discharging his own obligation to his creditor.

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Created on 2021/01/24 15:34 by LawPage • Last modified on 2021/01/24 15:34 by LawPage