Cox v. W. M. Heroman & Co., Inc.

• Decision Date: 10 June 1974
• Docket Number: No. 54094,54094
• Citation: 298 So.2d 848
• Court: Louisiana Supreme Court
• Parties: Charles W. COX, Plaintiff-Appellee-Relator, v. W. M. HEROMAN & CO., INC., and American Employers Insurance Co., Defendants-Appellants-Respondents.

Page 848

298 So.2d 848

Charles W. COX, Plaintiff-Appellee-Relator, v. W. M. HEROMAN & CO., INC., and American Employers Insurance

Co., Defendants-Appellants-Respondents.

No. 54094.

Supreme Court of Louisiana.

June 10, 1974.

Rehearing Denied Aug. 30, 1974.

Robert P. Breazeale, Van R. Mayhall, Jr., Breazeale, Sachse & Wilson, Baton Rouge, for defendant-respondent.

R. Boatner Howell, Jr., Howell & Brown, Baton Rouge, for plaintiff-applicant.

TATE, Justice.

A subcontractor ('Cox') sues his general contractor ('Heroman') for the balance due on the subcontract. The general contractor claims a credit for a payment made directly by Heroman to a supplier ('Reulet') of the subcontractor. The trial court did not allow the credit, as not authorized by the subcontract. The court of appeal reversed the trial court's disallowance of the credit. 282 So.2d 734 (La.App.1st Cir. 1973). We granted certiorari. 286 So.2d 656 (1973).

The issue before us is two fold:

(1) Was Heroman entitled to pay Cox's creditor Reulet directly, over Cox's protect, thus (under Civil Code Article 2134) extinguishing Cox's debt to Reulet as to the extent of the payment and also giving Heroman a right to receive reimbursement of this payment from Cox?;

(2) If Heroman was Not entitled to pay Cox's debt to Reulet, nevertheless was not Heroman (by his payment and express agreement with Reulet) subrogated to recover Reulet's debt against Cox (Article 2159), thus entitling Heroman in the present suit to reduce the balance due by Heroman to Cox under the subcontract to the extent that it is extinguished (through the compensation of two debts, Article 2207) by the subrogated (Reulet) debt due by Cox to Heroman?

Facts

Heroman as general contractor entered into a construction contract with a university in the amount of over five hundred thousand dollars. Heroman and Cox entered into a subcontract by which Cox agreed to perform the electrical work for $37,590.00.

In the course of construction, progess payments were made by Heroman to Cox totalling $27,681.27. (An additional ten percent of the total of the progress estimates was retained by Heroman, in accordance with the subcontract agreement, for payment upon final acceptance.)

As the completion of both the general contract and the subcontract neared, the present controversy arose. Heroman was informed by several suppliers of Cox on the job that Cox had not paid them, and Reulet (Cox's principal supplier) informed Heroman that it would lien the job.

The facts forming the basis of the litigation occurred when on April 14, 1971 Heroman paid Reulet directly $4,349.74 to credit against Cox's debt due Reulet for supplies on the job. This sum was the total balance then due by Heroman to Cox. (It did not include the ten percent retained per the contract.) The payment was specifically made for the account of Cox due for supplies on the present contract. Cox was sent a carbon copy of the letter by which payment was made.

Prior to this payment of April 14, 1971, Reulet had conferred with Heroman about an unpaid amount of $8,360.55 due for supplies furnished Cox for the contract. Heroman had then sent to Cox a check for $4,439.74, payable to Cox and Reulet jointly. (This was the same amount later paid Reulet directly, being the then total unpaid balance due by Heroman to Cox.)

Cox returned the check to Heroman. He stated that he considered this direct payment improper and unacceptable. He alleged that there were considerable overcharges claimed by Reulet amounting to over twenty-five hundred dollars.¹

Reulet then wrote Heroman that it would place a lien on the job unless the amount due was paid at this time. Reulet's letter concluded, that, if Heroman would pay the unpaid invoices due by Cox, Heroman 'is subrogated to all rights that we have against Cox in connection with this job and such payment.'²

Upon receipt of this letter, Heroman immediately paid Reulet the full balance then due Cox ($4,349.74) by progress estimates, as stated above. Reulet accepted this payment, credited Cox's account, and did not lien the job.

Cox then on April 22, 1974 filed a lien for the unpaid balance due on the job. Correspondence introduced by Cox shows that unsuccessful negotiations were subsequently conducted between Cox, Reulet, and other suppliers in an effort to allocate the remaining amount due by Heroman to Cox to unpaid accounts of Cox resulting from his performance of his subcontract.

On December 27, 1971, Cox filed the present suit against Heroman and its surety (American Employers) to recover $10,016.62, then allegedly due under the contract, together with ten percent statutory attorney fees. The suit alleged that the unpaid balance included the sum of $4,349.74 which had been paid by Heroman to Reulet. In the suit, Cox specifically alleges that he was contesting the total amount claimed by Reulet ($8,360.55) because he estimates 'Reulet overcharges and errors in the amount of $2,500.00' See Art. 9 of petition.

Cox alleged that Heroman owed him: $5,448.99 representing the final draw and retainage (which Heroman in its answer conceded owing, except for back charges of $304.45), an alleged add-on due of $107.89 (which both previous courts found not owing), and the $4,349.74 previously paid by Heroman to Reulet.

Heroman's answer pleaded the facts of the dispute, and acknowledged liability for only the final draw and retainage of $5,254.54.

The trial court held that Heroman was not entitled under its contract to pay Reulet, Cox's creditor, directly. It therefore disallowed credit to Heroman for such payment and awarded Cox judgment for that sum, plus the amount due for the final draw and retainage, for a total amount of $9,908.73.³

As earlier noted, the court of appeal concluded that the trial court was in error in refusing to allow Heroman credit against Cox's claim for the amount paid by Heroman to extinguish pro tanto Reulet's claim against Cox for supplies furnished for the present job. The court of appeal essentially held that Heroman was entitled to pay the debt due by Cox to Reulet and to be reimbursed by Cox for this payment, by reason of Civil Code Article 2134.⁴ See Standard Motor Car Company v. State Farm Mutual Automobile Insurance Co., 97 So.2d 435 (La.App.1st Cir. 1957).

1. 'Payment' under Article 2134

We granted certiorari primarily because of our doubt that, under the circumstances here shown, the debtor Heroman could extinguish a debt due to its creditor Cox by paying, not Cox, but Cox's creditor. We entertained this doubt because: (a) Cox expressly opposed such payment by Heroman of His debt due Reulet; instead, Cox expressly desired to receive amounts due him by Heroman for purposes of negotiating the payment due by him to Reulet in connection with certain disputed items; (b) The subcontract between Heroman and Cox expressly provided for Heroman's remedy, in the event of Cox's non-payment of suppliers on the job, namely, Heroman was to withhold payments due Cox until the grounds for non-payment were removed.

Article 2134 (quoted in full in Footnote 5) provides that an 'obligation may even be discharged by a third person in no way concerned in it', provided that, 'if he act in his own name, he be not Subrogated to the rights of the creditor.' (Italics ours.)

Although not subrogated to the rights of the creditor (such as to receive a stipulated interest or attorney's fees in the event of non-payment), a third person acting in his own name is entitled to be reimbursed by the debtor for the sum used to discharge the latter's debt. See Article 2299; Roman v. Forstall, 11 La.Ann. 717, 720 (1856); Standard Motor Car Company v. State Farm Mutual Automobile Insurance Co., 97 So.2d 435 (La.App.1st Cir. 1975). See also Hutchinson v. Rice, 105 La. 474, 29 So. 898 (1901); Weil v. Enterprise Ginnery & Mfg. Co., 42 La.Ann. 492, 7 So. 622 (1890); Gernon v. McCan, 23 La.Ann. 84 (1871); Nicholls v. His Creditors, 9 Rob. 476 (1845). The creditor cannot even refuse to receive the payment tendered by the third person, State ex rel. John Klein & Co. v. Pilsbury, 29 La.Ann. 787 (1877), unless perhaps the creditor has some special interest in having the obligation fulfilled by the debtor himself, Article 2136.⁵

Articles 2134 and 2136, literal translations of French Civil Code Articles 1236 and 1237, are in accord, as thus interpreted, with traditional civilian obligations theory. 1 Litvinoff on Obligations, Section 27, p. 47, and Section 49 (Louisiana Civil Law Treatise, Vol. 6; 1969); Planiol, Civil Law Treatise, Vol. 2, Section 401 (LSLI translation, 1959); 1 Civil Law Translations (Aubry & Rau, Obligations), Sections 315, 316 (1965).

As summarized in the last-cited translation of Aubry & Rau, at pp. 156--58: 'In general, the creditor cannot refuse payment offered by a third person whether or not interested in the extinction of the obligation . . . A payment made by a third person and accepted by the creditor extinguishes the obligation as definitively as one effected by the debtor personally, Except where the third person is legally or contractually subrogated to the rights of the creditor. In the last case, the debtor is discharged toward the original creditor, but the obligation continues to exist in favor of the third person who has been subrogated thereto.' (The italics are supplied to emphasize a legal distinction between 'payment' under Article 2134 and 'subrogation' under Articles 2159--2161, a distinction which is of decisional importance in this case.)

The right of the third person to pay the creditor in his own name, and the obligation of the creditor to receive such payment for the benefit of the debtor's account, is not unqualified:

Where, for instance, it is done to harm the debtor's interest, it may be an abuse of the third person's right to make the payment. See Comment, Abuse of Rights in Louisiana, 7 Tul.L.Rev. 426 (1933). Further, when the debtor opposes the payment, some...