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Date: 10-20-2015

Case Style: Bank of America, N.A. v. Diamond Financial, LLC

Case Number: 14-P-1315

Judge: Joseph A. Trainor

Court: Massachusetts Supreme Judicial Court

Plaintiff's Attorney: Howard S. Goldman

Defendant's Attorney: George E. Sousa

Description: We review the relevant undisputed facts.
Milton J. Miranda and Solange D. Miranda purchased a property in
Shrewsbury on July 31, 2002. The purchase was financed for the
most part with a mortgage loan from Moneyone Corporation. On
August 24, 2004, the Mirandas refinanced with a $336,150
mortgage loan from Argent Mortgage Company, LLC (Argent).3 This
mortgage was recorded. On or about June 28, 2006, the Mirandas borrowed $50,000
from the defendant and granted the defendant a mortgage on the
Shrewsbury property and on a property in the city of Worcester.4
On September 29, 2006, the Mirandas refinanced the Argent
mortgage with a mortgage loan of $344,000 from Equity Advantage
(Equity). As part of the refinancing, $330,368.29 of the Equity
loan was used to pay the full balance of the Argent mortgage.
The Equity mortgage was recorded on October 12, 2006, and the
discharge of the Argent mortgage was recorded on October 30,
2006. The closing of the Equity mortgage was conducted by a
closing attorney and Closeline, LLC. The Diamond mortgage was
not identified during the refinancing process and Equity did not
enter into a subrogation agreement. The closing attorney issued
a title insurance policy through TICOR Title Insurance Company
(TICOR). There is no evidence that Diamond learned of the change in
the record order of liens prior to this action. There also is
no evidence that Diamond extended additional credit or changed
the terms of its loan to the Mirandas at any time after the
initial loan. BOA is the current holder of the Equity mortgage.
BOA began foreclosure proceedings due to the Mirandas' default,
but stopped the proceedings when the Diamond mortgage was
discovered. Discussion. The defendant's underlying argument appears to
be that the plaintiff is barred from receiving an equitable
subrogation because BOA could make a title insurance claim, and
therefore has a remedy at law. Diamond also argues that the action does not contain a real party in interest, because BOA's title insurance company is Over the long history of our equity jurisprudence the
general rule has maintained a limitation on the exercise of
equity jurisdiction if an adequate remedy existed at law. Prior
to 1857, the equity jurisdiction of the Supreme Judicial Court
consisted of specified topics, each of which were generally
qualified by the phrase "when the parties have not a plain,
adequate, and complete remedy at the common law." Acts of 1817,
c. 87, and Revised Statutes 1836, c. 81, 8. When full equity
jurisdiction was given to the Supreme Judicial Court in 1857, it
was expressly limited to matters "where there is not a full,
adequate and complete remedy at law." Acts of 1857, c. 214.
This limitation upon equity jurisdiction was removed in 1877 but
a similar limitation was retained in 1882 for specific equity
cases enumerated in the statute. Compare Acts of 1877, c. 178,
involved in prosecuting the claim. BOA is the named party who has a real interest in the litigation. See Mass.R.Civ.P. 17(a), 461 Mass. 1401 (2011) ("every action shall be prosecuted in the name of the real party in interest"). There is no merit to the defendant's argument that this action is missing a real party in interest. Diamond also seems to argue that it is a violation of the title insurance policy for the plaintiff's title insurance company to assist with litigating this case. This argument also lacks merit. Even assuming the policy did not allow TICOR to assist with litigation, but see GMAC Mort., LLC v. First Am. Title Ins. Co., 464 Mass. 733, 743 (2013) ("initiating suit to cure a title defect is generally an option available to the title insurer under a standard title insurance contract"), the defendant has no right to enforce the terms of the title insurance policy. See James Family Charitable Foundation v. State St. Bank & Trust Co., 80 Mass. App. Ct. 720, 724 (2011) ("an incidental beneficiary obtains no right to enforce the contract").

1, with Public Statutes of 1882, c. 151, 4. See Public
Statutes of 1882, c. 151, 2. The 1882 act employed particular
topics of jurisdiction that are still employed in G. L. c. 214,
3. The limiting language is no longer included in the
statute. See G. L. c. 214, 3.6 However, after the limiting
language in the statute was removed, there was still a
continuing limitation expressed in our case law. When a remedy
at common law is full, adequate, and complete, "a party is still
remitted to the law court, unless a remedy in equity is given
expressly by statute." Maguire v. Reough, 238 Mass. 98, 99
(1921). See Jones v. Newhall, 115 Mass. 244, 251 (1874). This
limitation is grounded in the fundamental right to a trial by
jury guaranteed by our State Constitution. See Proctor v.
MacClaskey, 278 Mass. 238, 242 (1932).
It has been generally held that Massachusetts courts have
no inherent equitable authority and, since their creation,
6 Chapter 178 of the Acts of 1877 provided that, "The [S]upreme [J]udicial [C]ourt shall have jurisdiction in equity of all cases and matters of equity, cognizable under the general principles of equity jurisprudence; and in respect of all such cases and matters, shall be a court of general equity jurisdiction" (original and concurrent jurisdiction in the Superior Court was added by the Acts of 1883, c. 223, 1). This enactment would seem to confer an unlimited and unrestricted jurisdiction except for the principles inherent in equity jurisprudence.

exercise purely common law authority.7 Any equitable power they
may exercise is because of an express grant of such power by the
terms of a statute. Our courts have generally employed this
restrictive method of interpretation and have limited even
express grants of equitable authority to situations where there
is no "plain, adequate and complete remedy at law."8 Cadigan v.
Brown, 120 Mass. 493, 494 (1876). See Black v. Black, 4 Pick.
234 , 237-238; (1826); Bowditch v. Banuelas, 1 Gray 220, 228
(1854); Jones v. Newhall, supra; and Suter v. Matthews, 115
Mass. 253, 255 (1874).
Since the merger of the procedure for bringing suits in
equity and at law in 1974, some of our modern authorities have
determined that, "[a]s a practical matter today, the adequacy of
a remedy at law is anachronistic because of the merger of law
and equity. All actions, whether formerly at law or in equity,
are commenced as civil actions in a uniform manner." Nolan &
Sartorio, Equitable Remedies 4.18 (3d. ed. 2007). See
7 See Parker v. Simpson, 180 Mass. 334, 350 (1902) (" . . . although up to the time of the adoption of the constitution the common law courts were given certain powers to chancer bonds and to relieve against the foreclosure of mortgages, there never was in actual operation in the colony or province a court of chancery.")
8 For example, the power to decree the specific execution of a written contract was given by specific legislative grant of statutory authority. See Revised Statutes of 1873, G. L. c. 113, 2 (now G. L. c. 214).

Mass.R.Civ.P. 2, 365 Mass. 733 (1974). The Reporter's Notes to
rule 2, however, emphasize that "'[m]erger' of [l]aw and
[e]quity, refers only to the procedure involved, i.e., the
manner of framing and trying the issues, and the type of relief.
'Merger' does not alter the traditional substantive distinctions
between legal and equitable remedies. Although the once
separate procedures have been merged, the right to equitable
remedies still exists; now, however, a party may seek legal and
equitable relief simultaneously."9 We are reminded that even in
our desire and enthusiasm for ease and simplicity of practice
and procedure, "[t]he controlling reason why the boundaries of
general equity jurisdiction ought not to be widened by judicial
decision beyond those indicated by established principles, is
that the constitutional right of trial by jury would thereby
9 The reporter is not unique in this observation. "The reformed procedure, in its abolition of all distinction between actions at law and suits in equity; in its abrogation of the common law forms of action, and its institution of one 'civil action' for all remedial purposes . . . was not intended to affect, and does not affect, the differences which have heretofore existed, and still exist, between the separate departments of 'law' and 'equity.'" The reformed procedure "was not intended to affect and does not affect, the settled principles, doctrines, and rules of equity jurisprudence and equity jurisdiction." Pomeroy, Equity Jurisprudence, 354 (4th ed. 1918).

become correspondingly narrowed." Parkway, Inc. v. United
States Fire Ins. Co., 314 Mass. 647, 651 (1943).10
Notwithstanding this limitation on the exercise of equity
jurisdiction in our common law, commentators have long
maintained that "exclusive equitable jurisdiction, or the power
of the courts to adjudicate upon the subject matters coming
within that jurisdiction, exists independently of the adequacy
or inadequacy of the legal remedies obtainable under the
circumstances of any particular case." Pomeroy, Equity
Jurisprudence, 218 (4th ed. 1918). Pomeroy maintains that
exclusive equity jurisdiction exists in the areas of equitable
10 While the incidence of appellate review and discussion of this issue has significantly decreased since the change to our rules of civil procedure in 1974, our cases continue to suggest that an adequate remedy at law is still a material consideration when considering equitable relief. See, e.g., Foster v. Evans, 384 Mass. 687, 694 (1981) ("In cases involving fraudulent conveyances, attempts to levy upon an execution are particularly likely to prove futile. . . . We hold, therefore, that a plaintiff who has obtained a judgment at law against a debtor, and who alleges that the judgment cannot be satisfied because the debtor has fraudulently transferred his assets to a third party, has stated a case which is cognizable under the general principles of equity jurisprudence. Since the plaintiff here has no adequate remedy at law, he is entitled to the equitable relief he seeks"); Frank J. Linhares Co. v. Reliance Ins. Co., 4 Mass. App. Ct. 617, 619 (1976) ("It is a fundamental principle that, in the absence of a statute specifically conferring equity jurisdiction, a party may not seek in equity what he could obtain in an action at law. Otherwise the defendants' right to trial by jury might be infringed. [The plaintiff's] bill, while lacking in detail, alleged sufficient facts against [one of the defendants] to state a common law cause of action in tort for negligence. Having an adequate remedy at law against [that defendant], [the plaintiff] could not resort to equity").

estates, mortgages, and liens: specifically in the context of
"[s]ubstituted [l]iens" (subrogation). See Pomeroy & Symons,
Equitable Jurisprudence, 719a (5th ed. 1941). At least one of
our appellate decisions agrees that some plaintiff rights are
purely equitable in nature and the existence of an adequate and
complete remedy at law is irrelevant. See Boston v.
Santosuosso, 298 Mass. 175, 180 (1937). As a practical matter
however, this claim of exclusive jurisdiction is neither
incompatible nor inconsistent with our application of equitable
remedies only in the absence, or inadequacy, of an available
legal remedy. It is with this history and these considerations
in mind that we address the argument made by the defendant in
this case.
Massachusetts courts have long exercised broad powers over
mortgages including the power of equitable subrogation.11 "It is
the general rule that, where a mortgage has been discharged by
mistake, equity will set the discharge aside and reinstate the
mortgage to the position the parties intended it to occupy,
where the rights of intervening lienors have not been affected."
North Easton Co-op. Bank v. MacLean, 300 Mass. 285, 292 (1938).
11 The Land Court has jurisdiction over this action because it has "original jurisdiction concurrent with the [S]upreme [J]udicial [C]ourt and the [S]uperior [C]ourt of . . . [a]ll cases and matters cognizable under the general principles of equity jurisprudence where any right, title or interest in land is involved." G. L. c. 185, 1(k).

Cf. Bates v. Boston Elev. R.R. Co., 187 Mass. 328, 341 (1905)
("The court of law has no jurisdiction to inquire into and
adjust the equitable rights, if any, between the several
mortgagees where the mortgage debts are also secured by liens on
other funds. If such rights exist they must be enforced by a
court of general equity jurisdiction"). Subrogation allows "the
substitution of one person in place of another . . . so that he
who is substituted succeeds to the rights of the other."
Provident Co-op. Bank v. James Talcott, Inc., 358 Mass. 180, 188
(1970), quoting from Jackson Co. v. Boylston Mut. Ins. Co., 139
Mass. 508, 510 (1885).
While equitable subrogation has no specific statutory
authority for its application, see G. L. c. 214, 3, a review
of our appellate cases, well into the early part of the last
century and the later part of the previous century, involving
the subrogation of mortgages applied equitable principles even
when a legal remedy was available as it was in each of those
12 See, e.g., Worcester N. Sav. Inst. v. Farwell, 292 Mass. 568, 573-574 (1935) (subrogation was allowed for the new bank where plaintiff's attorney examined the title to the premises and presented it with a written certificate as to the state of the title, which did not mention the junior lien); North E. Coop. Bank v. MacLean, 300 Mass. at 289 (original first mortgagee had a title examiner who "certified to it that the new mortgage . . . would be a first lien on the property" but was allowed to return to first position under principles of equity); Provident Co-op. Bank v. Talcott, Inc., supra at 184 (allowing intended

While being mindful of the general rule that equity can
retain jurisdiction only in cases where there is no "plain,
adequate and complete remedy at law," Cardigan v. Brown, 120
Mass. at 494, our courts have consistently applied equitable
principles to actions involving mortgages generally and
specifically to actions requesting equitable subrogation. The
exercise of equity jurisdiction in these cases appears to have
been unlimited except for application of the limiting principles
inherent in our equity jurisprudence. See East Boston Sav. Bank
v. Ogan, 428 Mass. 327, 328-332 (1998). Our courts have always
applied equitable subrogation even though a remedy at law has
also always been available. The issue in this situation is the
adequacy and appropriateness of the legal remedy. The equitable
remedy sought is fundamentally different than any potential
remedy at law and is the only remedy capable of providing
complete justice in the situation. Here, the availability of a
remedy at law becomes immaterial, because it is inadequate and
inappropriate to resolve the issue fairly to all parties.13
senior lien holder declared as such even when the current lien holder was the attorney's mother who paid the mortgage to avoid a claim against her son's "errors and omission liability insurer").
13 See Noyes v. Bragg, 220 Mass. 106, 109 (1915) ("The objection that the plaintiff had an action at law to recover damages for breach of agreement does not deprive equity of its jurisdiction to compel specific performance of the contract"); Boston v. Santosuosso, 298 Mass. at 180 ("The city of Boston, in

Additionally, a legal remedy in the form of money damages
would not restore the plaintiff to its rightful senior position.
Any proposed legal remedy would also result in the unjust
enrichment of a junior interest because of the potential
unjustified windfall it would receive by advancing to the
priority position. Subrogation of a mortgagee, as an equitable
remedy, was always intended to prevent a person, in this case a
junior interest, from receiving an unearned windfall at the
expense of another person, who represents the rightful priority
interest. See Restatement (Third) of Property (Mortgages) 7.6
comments a & f(1997). The existence of a remedy at law is
irrelevant unless it provides a plain, adequate and complete
remedy to the issues confronting the parties. Here, only an
its brief, points out that the bill of complaint does not seek an equitable remedy for the protection of a legal right, but, as the beneficiary of a trust, seeks to have the trustees who received the legal title to the res of the trust [a fund of $50,000] perform the trust. The right of the city of Boston as a cestui que trust is preeminently an equitable right, and it arose as soon as the agreement was made and the fund was received by its mayor. When the fund was received under the agreement by the mayor the defendants held the legal title in trust to pay it over to the city of Boston. The trust obligation was not performed by holding the fund, dissipating the fund or converting the fund into a substituted res. The right of the plaintiff is a pure equitable right, and it is immaterial that it may have also a plain, adequate and complete remedy at law. . . . This court said in Wilkinson v. Stitt, 175 Mass. 581, 583, [1900], . . . 'we have never supposed that the fact that an action for the money had and received would lie at law was sufficient to oust the jurisdiction of the court in equity to compel the delivery of the money . . . [if] the cestuis que trust elected to proceed in that court'").

equitable subrogation could make the plaintiff whole without
also creating an unjust enrichment. Furthermore, the
plaintiff's remedy at law is against another third party. The
plaintiff has no legal remedy against the defendant. The
decision of the Land Court judge also satisfied the requirements
of equity jurisprudence in order to apply an equitable
In East Boston Sav. Bank v. Ogan, 428 Mass. 327, 330
(1998), quoting from Mort v. United States, 86 F.3d 890, 894
(9th Cir. 1996), the Supreme Judicial Court adopted five factors
that must be determined before equitable subrogation can be
applied. These five factors are:
"(1) the subrogee made the payment to protect his or her own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt paid, (4) the subrogee paid off the entire encumbrance, and (5) subrogation would not work any injustice to the rights of the junior lienholder."
In addition, "[t]he court must also examine the actions of the
subrogee." Id. at 331. "The subrogee's behavior is an
important consideration that the court must balance in its
equitable analysis of the interests of both mortgages." Id. at
332. However, the subrogee's negligence or lack of diligence

does not bar recovery and is only a material consideration when
the intervening lienholder has been prejudiced.14 See ibid.
Here, the judge appropriately found that the equities in
this case supported applying an equitable subrogation. There
was no evidence noted by either party indicating that Diamond
learned of the change in priority and changed its position based
upon that knowledge. As the judge correctly concluded, lack of
diligence or a mistake by the subrogee is only material if there
is evidence that the junior lienholder was prejudiced. See id.
at 332.
Finally, the judge ensured that the priorities in applying
equitable subrogation were accomplished. See id. at 330 ("A
court applying equitable subrogation must ensure that the
intervening mortgagee is not unjustly enriched by succeeding to
first priority, but it also must ensure that the intervening
mortgagee does not receive a lower priority as a result of the
subrogee's mistake").

Outcome: BOA was not equitably subrogated for the full value of the loan it acquired. Instead, only the portion of the Equity loan proceeds that were used to pay off the Argent mortgage were moved to the first position. As a result, BOA was
neither unjustly enriched by succeeding to first priority nor
was Diamond placed in a position of lower priority.

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