Wilkin v. Dev Con Builders, Inc.

• Decision Date: 30 April 1990
• Docket Number: No. 89-C-1753,89-C-1753
• Citation: 561 So.2d 66
• Parties: Charles R. WILKIN v. DEV CON BUILDERS, INC., et al. Consolidated with In re PONCHATOULA HOUSING AUTHORITY.
• Court: Louisiana Supreme Court

Page 66

561 So.2d 66

Charles R. WILKIN v. DEV CON BUILDERS, INC., et al.

Consolidated with

In re PONCHATOULA HOUSING AUTHORITY.

No. 89-C-1753.

Supreme Court of Louisiana.

April 30, 1990.

Mark C. Landry, Newman, Drolla, Mathis, Brady & Wakefield, Metairie, for applicant.

Robert Tillery, Thomas E. Balhoff, Mathews, Atkinson, Guglielmo, Marks & Day, Baton Rouge, for respondents.

CALOGERO, Chief Justice. ^*

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. ¹ 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. We granted writs to determine whether there was a proper and legal subrogation, and whether, assuming he is properly a subrogee, Wilkin could assert the suppliers' subrogated rights under La.R.S. 38:2241 et seq. We answer both questions in the affirmative.

In 1983 Charles R. Wilkin became interested in developing a construction business. As a result of Wilkin's inquiries, Charles A. Watkins learned of that interest and called Wilkin. The two men met on or about October 25, 1983, to discuss the possibility of a future partnership in the construction business. When they met Watkins was already president, chief executive officer, and 20% shareholder of Dev Con Builders, Inc. Dev Con was under contract at the time with the Ponchatoula Housing Authority to construct low income housing, and was also involved in a different construction project in Belle Chasse, Louisiana. Watkins and Wilkin met several times to discuss possible business ventures, whereupon Wilkin learned of Dev Con's ongoing projects and of the cash flow problems associated with those projects; because of Dev Con's inability to pay certain suppliers, those suppliers were refusing to continue to supply needed materials.

Wilkin reviewed Dev Con's financial records and decided to extend cash to help Dev Con over its "cash flow hump" and allow it to successfully complete those projects. To protect his cash outlay Wilkin drew up five documents, the legal significance of which are now in question. One was labeled "Promissory Note," dated December 5, 1983, and signed by Charles A. Watkins and two witnesses. ² The other four documents were labeled "Subrogation of Rights." ³ These latter four documents were dated between December 6 and December 9, 1983, and filled in to reflect amounts owed to different suppliers. ⁴ As Wilkin paid each supplier directly, that supplier signed the "subrogation of rights, acknowledgment by creditor" and Watkins signed the "acknowledgment by debtor" as the President of Dev Con.

Despite Wilkin's cash infusion, Dev Con defaulted on the Ponchatoula project on December 23, 1983, when the December draw was withheld and Dev Con found itself without funds to proceed. Thereafter, on January 27, 1984, Wilkin filed in the Tangipahoa Parish mortgage records an "Affidavit of Lien," which was a sworn statement of amounts due him as a result of money he paid to suppliers of materials for the Ponchatoula building project. ⁵ On January 4, 1985, Wilkin filed suit against Dev Con, Eastern Indemnity Company of Maryland which issued the payment and performance bond on the project, and the Ponchatoula Housing Authority, to enforce his claim. When the State of Maryland issued orders of liquidation and insolvency against Eastern Indemnity Company, Wilkin amended his petition to add the Louisiana Insurance Guaranty Association as defendant. ⁶

The district court ruled in favor of defendants, finding that the suppliers could not validly subrogate their rights to one not expressly designated as a claimant under La.R.S. 38:2241 et seq., and Wilkin appealed. The court of appeal affirmed, but for different reasons. The court of appeal determined that Wilkin was never properly subrogated to the rights of the suppliers. Wilkin v. Dev Con Builders, Inc., 546 So.2d 254 (La.App. 1st Cir.1989). The dissenting judge argued that Wilkin was properly subrogated to the suppliers' rights, but declined to express an opinion as to the validity of the lien filed by Wilkin as subrogee. 546 So.2d at 259. We granted writs to determine whether the court of appeal was correct in finding that the subrogation was invalid, whether the district court might have been correct in finding that no proper and legal statutory claim under the act could be secured by a supplier's subrogee, and/or whether both the court of appeal and the district court were wrong and Wilkin was properly subrogated and has a valid statutory claim which should be respected.

The court of appeal concluded that subrogation did not take effect because the promissory note signed before the subrogations were executed indicated that Wilkin had loaned money to Watkins, which money was then used to pay suppliers, so that Wilkin had not paid suppliers with his own money but rather with Watkins' money, and for Watkins. Furthermore, according to the court of appeal, the note evidencing the loan showed that the money was loaned to Watkins personally since the note did not contain express language binding Dev Con for the debt. Therefore the court of appeal concluded that Wilkin was not properly subrogated. We find otherwise.

Because Wilkin's agreements were made before the 1984 Civil Code revisions, we look to the articles on subrogation in the Civil Code of 1870, in force in 1983, to determine the legal effect of these agreements. The Code defines subrogation as "the right of a creditor in favor of a third person who pays him." La.C.C. art. 2159 (1870). It delineates two types of conventional subrogation:

1. When the creditor, receiving his payment from a third person, subrogates him in his rights, actions, privileges, and mortgages against the debtor; this subrogation must be expressed and made at the same time as the payment.

2. When the debtor borrows a sum for the purpose of paying his debts, and intending to subrogate the lender in the rights of the creditor. To make this subrogation valid, it is necessary that the act of borrowing and the receipt be executed in presence of a notary and two witnesses....

La.C.C. art. 2160 (1870).

It is clear that had Wilkin only utilized the four "subrogation" documents when paying the suppliers, subrogation would have taken place according to article 2160(1) because the creditors (suppliers) received payment from a third person (Wilkin) and expressly subrogated him to their rights at the same time that payment was made. Only the presence of the prior executed "promissory note" creates some doubt. If, in fact, Wilkin had loaned funds to Watkins, or to Dev Con, Wilkin could not be validly subrogated to Dev Con's claim against the Housing Authority according to article 2160(2) because the act was not executed in the presence of a notary (although it was before two witnesses). Furthermore, the "promissory note" raises questions as to the intent of the parties and the nature of their overall transaction. Was money loaned to Dev Con, or to Watkins personally, to help complete the construction project? Or was money paid by Wilkin to suppliers with the knowledge and consent of Dev Con, the debtor, with the intention, or anticipation, of Wilkin's stepping into the suppliers' shoes?

When the language of a contract is unclear, it must be interpreted so as to ascertain the common intent of the parties rather than to adhere to the literal sense of the terms, and it should be interpreted in the way most congruous to the object of the contract. La.C.C. arts. 1950, 1952 (1870); Emile M. Babst Co., Inc. v. United States Fidelity & Guaranty Co., 497 So.2d 1358, 1360 (La.1986). Furthermore, doubtful provisions may be interpreted by reference to other agreements made by the same parties on the same subject either before or after the agreement in question. La.C.C. art. 1949 (1870); Emile M. Babst, 497 So.2d at 1360.

When applying these principles to the "promissory note," we are convinced that the object of the agreement, as with the "subrogations," was for Wilkin to pay off Dev Con's creditors/suppliers and become subrogated to their rights. Language in the "promissory note" refers directly to the acts of subrogation, to funds paid directly to suppliers, and to articles 2160, 2161, and 2162 of the Louisiana Civil Code. ⁷ Furthermore, money was paid by Wilkin directly to the suppliers rather than to Watkins or some other representative of Dev Con. Finally, both Wilkin and Watkins testified that Dev Con, rather than Watkins personally, was to be the debtor, and that Wilkin's purpose was to infuse needed funds without his own "risk of capital." Therefore, we find that the intent of the parties was to subrogate Wilkin to the rights of the creditors/suppliers and that the documents which they executed were sufficient in form to achieve this purpose.

Next we must determine the effect of the subrogation agreement and of Wilkin's attendant claim filed in the mortgage records. The trial court determined that public contract law did not recognize liens (or claims) filed by parties not specifically defined in the statute as claimants. Upon applying the principles of subrogation and the statutes pertaining to public contract law, we conclude that the claim filed by Wilkin as subrogee of the suppliers has binding legal effect under La.R.S. 38:2241 et seq.

Louisiana has long evidenced an intent to protect those who perform work and supply materials for the construction and repair of buildings and other works. The earliest Louisiana Civil Code granted a privilege on...