In Fleetwood v. Med Center Bank, 786 S.W.2d 550, 554-56 (Tex. App.--Austin 1990, writ denied), Fleetwood held a note secured by a deed of trust in real property, and Fleetwood also owned a lease interest in the real property that was subordinated to that deed of trust. See Fleetwood, 786 S.W.2d at 552.
A subsequent lender advanced funds that were used by the debtor to completely pay off the note and deed of trust held by Fleetwood. See id.
The trial court granted summary judgment, concluding that the subsequent lender was subrogated to Fleetwood's right under his deed of trust. See id.
The Third Court of Appeals reversed, relying primarily on a prejudice theory based on a loss of "protection." See id. at 555-56.
Under this theory, the Fleetwood court concluded that there was a fact issue as to whether granting subrogation to the subsequent creditor would prejudice Fleetwood because it would give a third party control over a deed-of-trust lien superior to his leasehold interest. See id.
The Fleetwood court reasoned that Fleetwood's holding of this superior lien provided some protection for his leasehold interest because it allowed Fleetwood to avoid foreclosing on the lien and cutting off his subordinate leasehold interest. See id.