Opinion ID: 2060016
Heading Depth: 1
Heading Rank: 2

Heading: Ertel's subrogation claim.

Text: The Court of Appeals held that Ertel became subrogated to the rights of Economy upon payment of the debt owing from Delta to Economy. We fully agree with this conclusion. The Uniform Commercial Code, § 9-504(5), as adopted in Indiana, establishes the basic rights of subrogation: A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of the collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or disposition of the collateral under this Article [Chapter]. IC 1971, XX-X-X-XXX(5) (Ind. Ann. Stat. § 19-9-504(5) [1964 Repl.]). The issue is whether Ertel, as guarantor of the note, became subrogated to the rights of Economy as a result of satisfying the debt owing from Delta to Economy. The general rule, firmly imbedded in Indiana law, is that a surety, upon satisfaction of a debt, is subrogated to all the rights which the creditor had against the principal debtor prior to satisfaction of the debt. Gerber v. Sharp (1880), 72 Ind. 553; Vonderahe v. Ortman (1958), 128 Ind. App. 381, 146 N.E.2d 822, 147 N.E.2d 924; National Mut. Ins. Co. of Washington, D.C. v. Maryland Cas. Co. (1963), 136 Ind. App. 35, 187 N.E.2d 575. Additionally, the surety is subrogated to the interests which the creditor has in security for the principal's performance. Restatement of Security, ALI, Ch. 5, § 141. Therefore, it follows that Ertel, as subrogee of Economy, has a right to the accounts pledged by Delta as security for the initial obligation. Of course, this would include the RCA accounts. RCA argues that Ertel should not be subrogated to Economy's rights as against RCA. RCA asserts  and we concede  that subrogation is an equitable right subject to the principles and maxims of equity. Townsend v. Cleveland Fire Proofing Co. (1897), 18 Ind. App. 568, 47 N.E. 707; National Mut. Ins. Co. of Washington, D.C. v. Maryland Cas. Co., supra ; Restatement of Security, Ch. 5, § 141. [Subrogation] is not an absolute right, but one which depends upon the equities and attending facts and circumstances of each case. Vonderahe v. Ortman, supra, 128 Ind. App. at 392, 147 N.E.2d at 925, quoting 50 Am.Jur., Subrogation, § 2, § 10. RCA's position appears to be that Ertel, seeking equity, has not done equity. To substantiate that position, RCA cites the following inequities: 1. Ertel was a stockholder, director and secretary-treasurer of Delta; 2. Delta was, in effect, Ertel's company; 3. Delta received the payments from RCA and like Ertel, had knowledge of the Delta accounts to Economy, yet Delta continued to accept payments from RCA and, in fact, actively solicited RCA to make such payments; 4. Ertel had it in his power to prevent this from happening, but he took no action. The above allegations are largely unsubstantiated by the record. Ertel was merely an investor and took no active part in the management of the corporation. Dugan, the now vanished president and principal stockholder, was specifically designated as manager. Ertel did not become aware of the fact that notice had been delivered to RCA until after Economy sought payment from him as surety. Realistically, it seems highly untenable that Ertel could reasonably have prevented the wrongful payments without knowing of their wrongful nature. In conclusion, we are unable to discern any reason why Ertel should be denied the right of subrogation.