The doctrine of subrogation

The doctrine of subrogation which means substitution of one person in place of another and giving him the rights of the latter is essentially an equitable doctrine in its origin and application, and if we examine the reason behind it, the answer to the question which we have to decide in this appeal is not difficult. Equity insists on the ultimate payment of a debt by one who in justice and good conscience is bound to pay it, and it is well recognised that where there are several joint debtors, the person making the payment is a principal debtor as regards the part of the liability he is to discharge and a surety in respect of the shares of the rest of the debtors. Such being the legal position as among the co-mortgagors, if one of them redeems a mortgage over the property which belongs jointly to himself and the rest, equity confers on him a right to reimburse himself for the amount spent in excess by him in the matter of redemption; he can call upon the co-mortgagors to contribute towards the excess which he has paid over his own share. This proposition is postulated in several authorities. In the early case of Hodgson v. Shaw 3 Myl. & K. 183 : 40 E.R. 70, Lord Brougham said :

“The rule is undoubted, and it is one founded on the plainest principles of natural reason and justice, that the surety paying off a debt shall stand in the place of the creditor, and have all the rights which he has, for the purpose of obtaining his reimbursement.”

11. I have italicised the word “reimbursement”. Sheldon in his well-known treatise on Subrogation has got the following passage in section 13 of the Second Edition :

“There is another class of cases in which he who has paid money due upon a mortgage of land to which he had some title which might be affected or defeated by the mortgage, and who was thus entitled to redeem, has the right to consider the mortgage as subsisting in himself, and to hold the land as if it subsisted, until others interested in the redemption, or who held also the right to redeem, have paid a contribution.”

12. Be it noted that what is spoken of here is a contribution.

13. Dealing with the subject of subrogation of a surety by payment of a promissory note and citing the observations of the Alabama Court, Harris says in his work on Subrogation (1889 Edition) at page 125 :

“The rule is, that a surety paying a debt, shall stand in the place of the creditor; and is entitled to the benefit of all the securities which the creditor had for the payment of the debt, from the principal debtors; in a word, he is subrogated to all the rights of the creditor; the surety, however, cannot avail himself of the instrument on which he is surety, by its payment. By payment it is discharged and ceases to exist, and the payment will not, even in equity, be considered an assignment; the surety merely becomes the creditor of the principal to the amount paid for him.”

14. To compel the co-debtors or co-mortgagors to pay more than their share of what was paid to the creditor or mortgagee would be to perpetrate an inequity or injustice, as it would mean that the debtor who is in a position to pay and pays up can obtain an advantage for himself over the other joint debtors. Such a result will not be countenanced by equity; the favouritism shown by law to a surety, high as it is, does not extend so far. The surety can ask to be indemnified for his loss : he can invoke the doctrine of subrogation as an aid to his right of contribution. Sheldon says in section 105 of his book :

“The subrogation of a surety will not be carried further than is necessary for his indemnity; if he buys up the security at a discount, or makes his payment in a depreciated currency, he can enforce it only for what it cost him. He cannot speculate at the expense of his principal; his only right is to be repaid.”

15. In section 178, Harris is still stronger :

“Since subrogation is founded on principles of equity, the surety who would avail himself of the doctrine and invoke equity must do equity; and while he is entitled to a reimbursement in all that he pays out properly for his principal, debt, interest and cost, he is not entitled, in any way to recover more than he has paid. For instance, if he pays the debt of his principal, in depreciated currency, the rule would seem to be that he could demand from the principal only the value of that currency at the time he made the payment. Nor would he upon principles of equity be permitted to purchase the debt at a discount and then be subrogated to collect the whole face value of the debt, and especially if he held securities, or if the creditor held securities which would fall into his hands, out of which to pay the debt; because the securities are trust funds for the purpose, and set aside for the payment of that debt and an assignee of trustee cannot speculate in the purchase of claims against the fund in his hands. It would not be equality; it would not be equity.”

16. While it can be readily conceded that the joint debtor who pays up and discharges the mortgage stands in the shoes of the mortgagee, and secures to himself the benefit of the security by such payment, the extent to which he can enforce his right as against the other joint debtors is a different matter altogether. In his monumental work on Equity Jurisprudence, Pomeroy points out that he will be subrogated to the rights of the mortgagee only to the extent necessary for his own equitable protection. (See page 632 of Volume IV of the Fifth Edition by Symons). Clearer still is the passage found at page 640 of the same book :

“The mortgagor himself who has conveyed the premises to a grantee in such manner that the latter has assumed payment of the mortgage debt becomes an equitable assignee on payment, and is subrogated to the mortgagee, so far as is necessary to enforce his equity of reimbursement or exoneration from such grantee.”

17. It is as regards the excess of the payment over his own share that the right can be said to exist. Pomeroy says this at pages 660 and 661 :

“In general, whenever redemption by one of the above-mentioned persons operates as an equitable assignment of mortgage to himself, he can keep the lien of it alive as security against others who are also interested in the premises, and who are bound to contribute their proportionate shares of the sum advanced by him, or are bound, it may be, to wholly exonerate him from and reimburse him for the entire payment……… The doctrine of contribution among all those who are interested in having the mortgage redeemed, in order to refund the redemptor the excess of his payment over and above his own proportionate share, and the doctrine of equitable assignment in order to secure such contribution, are the efficient means by which equity completely and most beautifully works out prefect justice and equality of burden, under these circumstances……………..”

Source: GANESHI LAL Vs. JOTI PERSHAD