Opinion ID: 10022
Heading Depth: 2
Heading Rank: 2

Heading: Subrogation Rights between Wilhite and Schendle

Text: 24 As an alternative theory of recovery, Wilhite argues that if the obligation is joint and divisible, Wilhite should still be able to recover through the theory of subrogation, or the substitution of one person for the rights of another. Under Louisiana law, subrogation may occur either by conventional or legal means. 11 Conventional subrogation occurs when an obligee receives performance from a third person and in express terms subrogates that person to the rights of the obligee, even without the obligor's consent. 12 Legal subrogation takes place by operation of law in favor of an obligor who pays a debt he owes with others and who has recourse against those others as a result of the payment. 13 25
26 The district court held that because Wilhite was also an obligor to the RTC, and had already extinguished the debt to the RTC, he could not seek conventional subrogation against Schendle. The court based its conclusion on Louisiana Civil Code article 1854, which provides that performance by the obligor extinguishes the obligation. This interpretation is correct. Wilhite and Schendle were liable for the same obligation, although in divisible portions. As such, article 1854 applies. Because Wilhite was an obligor, and paid the obligation, he cannot now be a third party to that same obligation, and seek subrogation from another obligor. 27 In addition, under Louisiana law, third party subrogation can not arise unless so provided by law or by agreement. 14 Wilhite argues that paragraph six provides the necessary authorization to pursue conventional subrogation. As discussed above, however, paragraph six is merely meant to preserve pre-existing rights, not to create new ones. Thus, Wilhite has no right to conventional subrogation against Schendle. 28
29 The five instances in which legal subrogation may occur are specifically listed in La.Civ.Code art. 1829. The only instance that is applicable to this case is the third one: 30 [Subrogation takes place by operation of law] in favor of an obligor who pays a debt he owes with others or for others and who has recourse against the others as a result of the payment. 31 The district court found that this section did not apply because the Settlement Agreement did not include a right to contribution among the directors and officers, and therefore the required recourse against the others was absent. For the reasons previously discussed, we agree with the district court's interpretation of the Settlement Agreement. 32 Furthermore, we find that regardless of the content of the Settlement Agreement, legal subrogation would not apply to this case. Under Louisiana law, where there is no solidary liability, any right to contribution must arise out of the rights of the common creditor. 15 In this case, the RTC did not subrogate its rights against the non-paying signatories to the only paying signatory, Wilhite. Therefore, Wilhite could have no right of contribution or subrogation against his co-debtors. To find otherwise would allow one party to transform a joint and divisible obligation into a solidary obligation by the mere application of the legal subrogation statute. This interpretation would make the distinction between divisible and indivisible meaningless. Therefore, we find that Wilhite has no subrogation rights against Schendle. 33