Doctrine of equitable subrogation explained

LEGALLY SPEAKING:

What is Equitable Subrogation under Texas law? When can it be asserted?

The doctrine of equitable subrogation prevents unjust enrichment when one person confers upon another a benefit that is not required by legal duty or contract. Smart v. Tower Land & Inv. Co., 597 S.W.2d 333, 337 (Tex. 1980).

A payor who confers a benefit as a “mere volunteer” is not entitled to the remedy of equitable subrogation. Id. Therefore, the “party seeking equitable subrogation must show it involuntarily paid a debt primarily owed by another in a situation that favors equitable relief.” Frymire Eng'g Co., Inc. ex rel. Liberty Mut. Ins. Co. v. Jomar Intern., Ltd., 259 S.W.3d 140, 142 (Tex. 2008).

Voluntary vs. involuntary payment (of property taxes)

A payment is voluntary when the payor acts “without any assignment or agreement for subrogation, without being under any legal obligation to make payment, and without being compelled to do so for the preservation of any rights or property.” Id. at 145 (quoting First Nat'l Bank of Kerrville v. O'Dell, 856 S.W.2d 410, 415 (Tex. 1993)).

Real estate note holder's payment of taxes on subject property not considered voluntary

A person who pays property taxes assessed on property owned by another may be entitled to subrogation to the taxing authority's lien either by statute or by express agreement. Smart, 597 S.W.2d at 338. A mortgagee's interest in the security of his mortgage makes him more than a “mere volunteer” when he pays taxes owed by the mortgagor. Id.

SOURCE: Dallas Court of Appeals - 05-09-00788-CV - 8/11/11

Even if C&K did not “voluntarily” pay the property taxes on unit 32, appellants were also required to show that “the circumstances of the case favor equitable relief.” Frymire Eng'g, 259 S.W.3d at 146; Babu, 340 S.W.3d at 925. On June 6, 2006, C&K filed an “Assignment Affidavit” indicating its mortgagors had defaulted on their obligations under the deed of trust and that C&K was asserting a right to any rents collected by Holly Oaks relating to unit 32. C&K, therefore, put Holly Oaks in the position of being unable to use any rent from the unit to pay outstanding HOA dues and the property taxes. Based on our review of the record, we conclude the trial court, after balancing the equities, did not abuse its discretion by refusing to award appellants the property taxes paid on unit 32 on January 31, 2008.

We overrule appellants' second issue.

SOURCE: Dallas Court of Appeals - 05-09-00788-CV - 8/11/11