Equitable subrogation "is a legal fiction" whereby "an obligation, extinguished by a payment
made by a third person, is treated as still subsisting for the benefit of this third person, so that
by means of it one creditor is substituted to the rights, remedies, and securities of another."
First Nat'l Bank of Houston v. Ackerman, 8 S.W. 45, 47 (Tex. 1888); accord Smart v. Tower
Land & Inv. Co., 597 S.W.2d 333, 337 (Tex. 1980). It essentially allows a subsequent
lienholder to take the lien-priority status of a prior lienholder. First Nat'l Bank of Houston, 8 S.
W. at 46-47; Murray v. Cadle Co., 257 S.W.3d 291, 299 (Tex. App.-Dallas 2008, pet. denied).
The general purpose of equitable subrogation is to prevent unjust enrichment of the debtor.
First Nat'l Bank of Kerrville v. O'Dell, 856 S.W.2d 410, 415 (Tex. 1993); Murray, 257 S.W.3d at
Texas courts are particularly hospitable to the doctrine of equitable subrogation. Murray, 257
S.W.3d at 299; Interfirst Bank Dallas, N.A. v. U.S. Fid. & Guar. Co., 774 S.W.2d 391, 397 (Tex.
App.-Dallas 1989, writ denied). "Texas courts have also given the doctrine `a liberal
application . . . broad enough to include every instance in which one person, not acting
voluntarily, has paid a debt for which another was primarily liable and which in equity and good
conscience should have been discharged by the latter.'" Murray, 257 S.W.3d at 299 (quoting
Forney v. Jorrie, 511 S.W.2d 379, 386 (Tex. Civ. App.-San Antonio 1974, writ ref'd n.r.e.)); see
Frymire Eng'g Co., Inc. v. Jomar Int'l, Ltd., 259 S.W.3d 140, 144 (Tex. 2008); Mid-Continent
Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007); Diversified Mortg. Investors
v. Lloyd D. Blaylock Gen. Contractor, Inc., 576 S.W.2d 794, 807 (Tex. 1978) (op. on reh'g).
There are two key elements to equitable subrogation: (1) the person whose debt was paid was
primarily liable on the debt, and (2) the claimant paid the debt involuntarily. Murray, 257 S.W.
3d at 299. The burden is on the party claiming equitable subrogation to establish he is entitled
to it. Id. at 300; Monk v. Dallas Brake & Clutch Serv. Co., Inc., 697 S.W.2d 780, 782 (Tex. App.-
Dallas 1985, writ ref'd n.r.e.).
"Additionally, each case turns on its own facts when the issue is one of purely equitable
subrogation." Murray, 257 S.W.3d at 300 (citing Providence Inst. for Sav. v. Sims, 441 S.W.2d
516, 519-20 (Tex. 1969)). The trial court must balance the equities in view of the totality of the
circumstances to determine whether a party is entitled to equitable subrogation. Id. Factors a
court may consider in conducting this balancing test are the negligence of the party claiming
subrogation, whether that party had notice of the intervening lien, and whether the intervening
lienholder will be prejudiced if equitable subrogation is allowed. Id.; see also Fleetwood v. Med
Ctr. Bank, 786 S.W.2d 550, 555 n. 2 (Tex. App.-Austin 1990, writ denied) ("Fleetwood I"). The
determination of whether subrogation prejudices intervening interests is made "as of the time
of the transaction supporting subrogation." Med Ctr. Bank v. Fleetwood, 854 S.W.2d 278, 286
(Tex. App.-Austin 1993, writ denied) ("Fleetwood II"). "The consequences of subsequent
transactions or events . . . are not relevant to this inquiry." Id. A junior lienholder does not
suffer prejudice merely because it is not elevated in priority. Id.
EQUITABLE SUBROATION - WHO CAN CLAIM IT AND WHEN?
The doctrine of equitable subrogation allows a party who would otherwise lack standing to step
into the shoes of and pursue claims belonging to a party with standing. Frymire Eng'g Co. v.
Jomar Int'l, Ltd., 259 S.W.3d 140 (Tex. 2008). As the Texas Supreme Court again recognized
in Frymire, Texas courts interpret this doctrine liberally. Equitable subrogation applies "in every
instance in which one person, not acting voluntarily, has paid a debt for which another was
primarily liable and which in equity should have been paid by the latter." Id. at 142. Thus, a
party seeking equitable subrogation must show it involuntarily paid a debt primarily owed by
another in a situation that favors equitable relief. The doctrine exists to prevent the unjust
enrichment of the debtor who owed the debt being paid.
Frymire was a subcontractor who installed a water valve that ultimately failed in a hotel,
causing extensive damage. According to Frymire's contract, it was responsible to the hotel for
any damage caused. Frymire paid the damage claim pursuant to its contract with the hotel, but
later sued the manufacturer of the valve in tort. The Texas Supreme Court recognized that the
payment fulfilled a debt owed by Frymire to the hotel and concluded that a tort claim against
the manufacturer still existed, along with some evidence that the manufacturing defect caused
the injury. Thus, there was some evidence that Frymire paid a debt primarily owed by the
manufacturer—and the court further found that the payment was involuntary, although made
under the terms of the contract—noting that the contract was not with the manufacturer, but
with another entity, and thus equitable subrogation was not foreclosed.
The doctrine of equitable subrogation "is not applied for the mere stranger or volunteer who
has paid the debt of another, 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 of his own." First Nat'l Bank of Kerrville v. O'dell, 856
S.W.2d 410, 415 (Tex. 1993) (quoting Oury v. Saunders, 77 Tex. 278, 280, 13 S.W. 1030,
1031 (1890)); Langston v. GMAC Mortgage Corp., 183 S.W.3d 479, 481 (Tex. App.-Eastland
2005, no pet.).
Frymire Engineering Co. v. Jomar International, No. 06-0755 (Tex. June 13, 2008)(Willett)
(equitable subrogation standing found) (construction law, subcontractors, water damage
caused by faulty valve, indemnity, equitable subrogation, third-party, involuntary payment,
unjust enrichment, standing)
(12-page pdf opinion)(Frymire has standing to pursue its claims against Jomar under the
doctrine of equitable subrogation)