Cox v. WM Heroman & Co., Inc.
298 So.2d 848 (1974)
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Rule of Law:
Although a debtor may not be permitted to extinguish a debt to its creditor by directly paying the creditor's own creditor against their wishes, the debtor can achieve the same result through conventional subrogation, whereby the creditor's creditor expressly transfers its claim to the debtor at the time of payment, creating a new debt that can be offset.
Facts:
- Heroman, a general contractor, entered into a subcontract with Cox for electrical work on a university project.
- During the project, Cox failed to pay his primary supplier, Reulet, for materials furnished.
- Reulet informed Heroman that it had not been paid and threatened to place a lien on the job.
- Heroman first issued a check payable jointly to Cox and Reulet, which Cox rejected, stating he disputed the amount claimed by Reulet.
- In a letter, Reulet then offered to subrogate its rights against Cox to Heroman if Heroman would directly pay the portion of the debt that Heroman currently owed to Cox.
- Despite Cox's ongoing protest, Heroman paid Reulet $4,349.74, the full balance then due from Heroman to Cox.
- Upon receiving the payment, Reulet credited Cox's account and did not file a lien against the project.
Procedural Posture:
- Charles W. Cox sued his general contractor, W. M. Heroman & Co., Inc., and its surety in a Louisiana trial court to recover the unpaid balance of a subcontract.
- The trial court entered judgment for Cox, holding that Heroman was not entitled to a credit for the direct payment it made to Cox's supplier, Reulet.
- Heroman, as appellant, appealed the trial court's decision to the Louisiana Court of Appeal, First Circuit.
- The Court of Appeal reversed the trial court, ruling that Heroman was entitled to the credit under Civil Code Article 2134.
- The Supreme Court of Louisiana granted a writ of certiorari to review the appellate court's decision.
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Issue:
Is a general contractor, who pays its subcontractor's supplier directly over the subcontractor's objection, entitled to offset that payment against the amount it owes the subcontractor, when the supplier has expressly subrogated its rights against the subcontractor to the general contractor?
Opinions:
Majority - Justice Tate
Yes, the general contractor is entitled to offset the payment. While Heroman's direct payment to Reulet was not a proper discharge of its debt to Cox under Civil Code Article 2134 due to the contract's terms and Cox's express opposition, the transaction constituted a valid conventional subrogation under Article 2160. Reulet, as the creditor, had the legal right to receive payment and subrogate its payor (Heroman) to its claim against the debtor (Cox). Cox could not prohibit this transaction, as a creditor's right to contract for payment of a debt is paramount. This subrogation created a new, valid debt owed by Cox to Heroman, which, being equally liquidated and demandable as Heroman's original debt to Cox, was extinguished by compensation (offset) under Article 2207.
Dissenting - Justice Dixon
No, the general contractor is not entitled to offset the payment. Civil Code Article 2160 explicitly requires that a conventional subrogation be 'made at the same time as the payment.' The majority incorrectly relies on a prior agreement to subrogate, which does not satisfy the code's requirement for a simultaneous act. Furthermore, it is fundamentally wrong to allow a debtor (Heroman) to pay a third party instead of his direct creditor (Cox) over the creditor's strong and explicit protest. The proper remedy would be to require Heroman to pay its creditor, Cox, and reserve Heroman's right to seek reimbursement from Reulet for the mistaken payment.
Analysis:
This case clarifies the critical distinction between a simple third-party payment (governed by C.C. Art. 2134) and a conventional subrogation (governed by C.C. Art. 2160). It establishes that while a debtor's right to simply pay his creditor's creditor can be limited by contract or the creditor's opposition, the mechanism of conventional subrogation remains a powerful tool. The decision solidifies that a debtor cannot prevent his own creditor from subrogating a claim to a third party, thereby reinforcing the creditor's right to secure payment and providing general contractors a method to resolve supplier debts and avoid liens even over a subcontractor's objection.
