Also known as: right of subrogation · subrogation rights · subrogation
Written by attorneys · grounded in primary & secondary sources — see below
An equitable right by which a party who fully performs another's secured obligation steps into the creditor's position against the primary obligor. The right prevents unjust enrichment and preserves the underlying claim and any security to the extent of the payment made.
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Rowan Russell contracted with Regal Apparel to pay a debt Rowan owed to a supplier. Regal Apparel failed to pay. Rowan satisfied the supplier in full from personal funds. Rowan may now enforce the supplier's original claim against Regal Apparel by subrogation to the extent of the payment.
Ralph Richardson personally guaranteed a mortgage loan on property owned by Rhapsody Entertainment. After Rhapsody Entertainment defaulted and the lender accelerated, Ralph paid the full balance to avert foreclosure. Ralph may enforce the mortgage against the property by subrogation even though the lender recorded a satisfaction.
When an intended beneficiary holds an enforceable claim against the promisee, the beneficiary may obtain judgment against the promisee, the promisor, or both. Satisfaction of either duty satisfies the other to the same extent, but the promisee's payment triggers a right of subrogation to the beneficiary's claim against the promisor.
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Subrogation may arise even when the payor is not personally liable, as when a transferor of mortgaged property without assumption pays the debt to protect an equitable interest. The right is designed to prevent unjust enrichment and allows enforcement against the land or the primary obligor depending on the facts.
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Reimbursement is a direct claim by the secondary obligor against the principal obligor for amounts paid. Subrogation instead assigns the creditor's own rights and security to the secondary obligor, allowing enforcement of the original claim and any collateral rather than a new personal action.
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A recorded satisfaction does not automatically extinguish the subrogation right because equity looks beyond the record to prevent unjust enrichment. The payor who discharges the debt to protect an interest may still enforce the mortgage against the transferee's property unless the record misled a subsequent purchaser without notice.
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