Wilkin v. Dev Con Builders, Inc.
1990 WL 55857, 561 So. 2d 66 (1990)
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Rule of Law:
A third party who pays a supplier on a public works project and becomes validly subrogated to the supplier's rights is entitled to assert the supplier's statutory claim under the Louisiana Public Works Act (La.R.S. 38:2241 et seq.). Such a subrogation merely transfers the supplier's existing right and does not impermissibly expand the class of claimants protected by the statute.
Facts:
- Dev Con Builders, Inc. (Dev Con), led by its president Charles A. Watkins, contracted with the Ponchatoula Housing Authority to construct low-income housing.
- During the project, Dev Con experienced cash flow problems and was unable to pay certain material suppliers, causing them to halt deliveries.
- Charles R. Wilkin learned of Dev Con's financial difficulties and agreed to provide funds to pay the suppliers to allow the project to proceed.
- On December 5, 1983, Watkins signed a 'Promissory Note' in favor of Wilkin, which referenced the payments to be made to suppliers and the intent to subrogate Wilkin to their rights.
- Between December 6 and December 9, 1983, Wilkin paid four of Dev Con's suppliers directly.
- Upon receiving payment from Wilkin, each supplier executed a 'Subrogation of Rights' document, explicitly transferring its rights of collection to Wilkin.
- Watkins, as President of Dev Con, also signed each subrogation document, acknowledging the payment and the transfer of rights to Wilkin.
- Despite Wilkin's payments, Dev Con defaulted on the Ponchatoula project on December 23, 1983.
Procedural Posture:
- Charles Wilkin filed a sworn statement of amounts due, styled as an 'Affidavit of Lien,' in the Tangipahoa Parish mortgage records.
- Wilkin filed suit in district court (trial court) against Dev Con Builders, Inc., its surety Eastern Indemnity Company, and the Ponchatoula Housing Authority to enforce his claim.
- The district court ruled in favor of the defendants, concluding that Wilkin was not in the class of claimants protected by the public contract statutes.
- Wilkin, as appellant, appealed to the Louisiana Court of Appeal, First Circuit.
- The court of appeal affirmed the trial court's judgment for the appellees, but on the different ground that Wilkin was never properly subrogated to the suppliers' rights.
- The Supreme Court of Louisiana granted Wilkin's application for a writ of certiorari to review the court of appeal's decision.
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Issue:
Does a third party who pays a contractor's suppliers on a public works project and obtains a valid subrogation of the suppliers' rights have the right to assert a claim under the Louisiana Public Works Act?
Opinions:
Majority - Calogero, C.J.
Yes, a third party who is validly subrogated to a supplier's rights can assert a claim under the Louisiana Public Works Act. The court first determined that a valid conventional subrogation occurred. Despite the presence of a 'promissory note,' the court looked to the common intent of the parties, noting that Wilkin paid the suppliers directly, and the suppliers and Dev Con's president both signed documents expressly transferring the suppliers' rights to Wilkin. This satisfied the requirements of La.C.C. art. 2160(1) (1870). Secondly, the court held that allowing a subrogee to assert a claim does not improperly extend the privileges of the Public Works Act. Subrogation does not create a new right but merely transfers the original supplier's right to a new party. Therefore, Wilkin 'stands in the shoes' of the suppliers and is entitled to enforce their statutory rights, a conclusion supported by Louisiana precedent (State v. Miller) and analogous interpretations of the federal Miller Act.
Dissenting - Cole, J.
No, a supplier's privilege under the Public Works Act is not transferable to a third party not involved in the project. While concurring that a valid subrogation occurred under the Civil Code, the dissent argued that the Public Works Act must be strictly construed. The statute's protections are intended only for the specifically defined class of 'claimants'—those who perform labor or furnish materials. Allowing a third-party financier like Wilkin to assert these rights extends the privilege by implication, contrary to the principle of strict construction. The dissent warned this could open the door to speculation in claims and use the Act for purposes beyond its legislative intent.
Analysis:
This decision clarifies that the statutory protections afforded to suppliers and laborers under the Louisiana Public Works Act are not strictly personal to the original claimant but are ancillary to the debt itself and thus transferable. By allowing a subrogee to 'stand in the shoes' of a supplier, the court provides a mechanism for contractors to secure short-term financing from third parties, who can be assured they are acquiring a secured claim. This potentially benefits public projects by preventing defaults due to temporary cash flow issues, but it also expands the potential liability of sureties to include claimants with whom they have no direct or indirect contractual relationship.
