Ertel v. Radio Corp. of America

Ertel (plaintiff) is the Secretary-Treasurer of Delta Engineering Corp. (Delta). Delta obtained a loan from Economy Finance Corp. (Economy). As security for the loan, Delta assigned to Economy all payments due to Delta from its accounts receivable. Radio Corporation of America (RCA) (defendant) possessed one such account receivable to Delta. RCA received notification of the assignment of its debt from Delta to Economy. Pursuant to the assignment, RCA was required to make all future payments required of it to Economy instead of Delta. RCA failed to make payments to Economy but continued to remit the payments to Delta. Delta defaulted on its loan from Economy, and Economy brought suit in Indiana state court against Ertel to recover past-due monies from Delta. Ertel paid Delta’s debt to Economy and brought a third party complaint against RCA for the money wrongfully paid by RCA to Economy. Ertel argued that after he paid Delta’s debts in full, he became subrogated to any rights held by Economy against RCA. The trial court entered judgment against Ertel on both Economy’s original complaint against Delta and Ertel’s third party complaint against RCA. Ertel appealed, and the appellate court reversed. The appellate court held that Ertel should be subrogated to Economy’s rights against RCA and that Ertel should be permitted to recover from RCA free of certain set-off rights claimed by RCA against Delta. RCA appealed.