Chapter five
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SCHOOL OF LAW A THESIS SUBMITTED IN THE, CHALLENGES OF CASE MANAGEMENT IN SOMALILAND HIGH COURT
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- Types of Subrogation
- Subrogation by the creditor
SubrogationDefinition of subrogationPothier, a French writer, defined subrogation as a legal fiction through which a creditor is considered as ceding all of his rights, actions, privileges, and mortgages to the subrogee who pays the debt.'1 Thus, subrogation can be said is a situation where an obligation extinguished with regard to the original creditor by payment which he has received from a third person or from the debtor himself but with funds that a third person has furnished to that effect is regarded as subsisting in favor of this third person who is entitled to assert, to the extent of what he has paid, the rights and actions of the original creditor. Thus, subrogation accompanies payment. Subrogation is the situation where a right with all its accessories is transferred from one person to the other. The mechanics of subrogation involve the substitution of the subrogee to the position occupied by the subrogor, who is a creditor of the principal debtor. The subrogee is then able to exercise the rights of the creditor- subrogor after he has effected the subrogation by payment of the debt. Thus, certain persons who are incapable of purchasing a credit may validly contract to pay the debt and obtain subrogation. In case of subrogation, there are three persons: subrogor (original creditor), subrogee (the new creditor who is subrogated on the right of the original creditor), and the debtor. Generally, the sources of subrogation are two: conventional (contractual) or legal subrogation. Types of SubrogationConventional subrogationConventional or contractual subrogation is divided into two: subrogation by the creditor and the debtor. Subrogation by the creditorThe most frequent form of contractual subrogation is where the creditor subrogates to his rights the third party who has paid him the debt (Article 1968 of the Civil Code). It seems that the creditor's subrogation envisaged by Article 1968 may be entered into by the creditor with any third person who is willing to pay the debt. The third party is thus exactly transferred into the position of the creditor and is granted the best chance of being refunded by the original debtor. For a creditor to subrogate a third person to his rights, Article 1968 imposes two conditions: the contract of subrogation must be express and must provide that the subrogation takes place at the time of payment. The requirement that subrogation be express is meant to preclude the courts from inferring simply from the circumstances surrounding payment, that the creditor has subrogated the person who paid him to the original creditor's rights against the debtor. In other words, subrogation requires unequivocal words as to its existence. The question that may be raised here is: what would happen where the subrogation does not satisfy the requirement that it be express? The law does not provide a solution to this problem. A certain writer, Jonathan A. Eddy, states that "the requirement that subrogation be express means that in doubtful cases, where the creditor's intention to transfer a right to a third party may be implied, or is even express, but there is no express declaration of intention to subrogate, the transfer must be treated". In other words, where the legal requirement that the subrogation be express is not fulfilled, the case may be treated as one of assignment. If the contract is one of assignment the effect would be the creditor will have the right of lien, mortgage or pledge attached to the right. On the other hand, Ato Tilahun Teshome, in his book titled Basic Principles of Contract Law, argued that if there is no express declaration as to subrogation, the payer is treated as ordinary creditor for the debtor. Thus, failure to meet the requirement laid down under Article 1968 deprives the payer from enjoying the rights of lien, mortgage and other accessory rights. The second condition put under Article, 1968(2) of the Civil Code is that subrogation should be effected at the time of payment. Normally, when payment is made, the obligation is extinguished thereby. Subrogation forms an exception to this rule, by allowing the debtor's obligation to continue to exist in favor of the subrogee, who takes the place of the original creditor. The subrogee and the subrogor could not by their agreement survive an obligation on the part of the debtor whose original obligation had already been extinguished by the subrogee's payment. A prior agreement by the subrogor and subrogee, however, that the subrogee will be subrogated to the rights of the subrogor when, in future, he makes payment presents no problem of "revival" and should be accepted as a valid subrogation, even if there is no further mention of subrogation when payment is actually made. Thus, it seems sound that this provision precludes subrogation after payment, but not before payment. Accordingly, the commentators insist that a subrogation agreement after payment cannot be valid even if the act of subrogation occurs on the same day as payment. The reason for the rule which prohibits subrogation after payment is that the creditor's power to subrogate ceases with the payment which extinguishes the obligation. Nevertheless, it should be observed that a person who pays the debt without obtaining subrogation has an action against the debtor for reimbursement on a quasi- contractual basis. The party that paid will become an ordinary creditor of the person for whose benefit the payment was made. Some legal systems, however, uphold subrogation in the cases in which the subrogation agreement is entered into before payment. Download 53.56 Kb. Share with your friends:
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