Wilkin v. Dev. Con Builders, Inc. - 561 So. 2d 66 (La. 1990)

Rule:

When a third party pays the debt of another and becomes subrogated to the creditor's rights, that debt is extinguished as to the original creditor but not extinguished as to the debtor; instead the debt continues to subsist in favor of the third party. The third party who becomes subrogated to the rights of a creditor may exercise the original action which the creditor had against the debtor and also acquires all the accessory guaranties, rights, privileges, and mortgages. La. Civ. Code Ann. art. 2160(1) (1986).

Facts:

Plaintiff Charles Wilkin filed suit against a contractor, Dev Con Builders, Inc., the contractor's surety, Eastern Indemnity Company, and the contractor's principal, the Ponchatoula Housing Authority. Having paid certain Dev Con suppliers and taken subrogation from them, Wilkin sought to recover the amounts of those claims. The trial court denied his claim finding that he was not in the class of claimants to which the public contract statutes refer. The court of appeal affirmed on other grounds finding that Wilkin loaned money not to Dev Con but to Watkins personally and was therefore not properly subrogated to the suppliers' rights. Wilkin sought review of the decision. 

Issue:

Was plaintiff properly subrogated to the suppliers’ rights? 

Answer:

Yes.

Conclusion:

Upon review, the court held that there was a proper and legal subrogation and that plaintiff, as a subrogee, was permitted to assert the suppliers' subrogated rights under La. Rev. Stat. § 38:2241 et seq. The court concluded that the object of plaintiff's promissory notes with the suppliers was for plaintiff to pay off the suppliers' creditors and suppliers and to become subrogated to their rights. Language in the promissory note referred directly to the acts of subrogation, to funds paid directly to suppliers, and to La. Civ. Code arts. 2160, 2161, and 2162. Furthermore, money was paid by plaintiff directly to the suppliers and the suppliers, rather than the owner of the company owner, was the debtor, and that plaintiff's purpose was to infuse needed funds without his own risk of capital. Therefore, the intent of the parties was to subrogate the company owner's rights to the rights of the creditors and suppliers and that the documents which they executed were sufficient in form to achieve this purpose.