Reading Co–Operative Bank v. Suffolk Constr. Co.

Citation464 Mass. 543,984 N.E.2d 776
Decision Date13 March 2013
Docket NumberSJC–11159.
PartiesREADING CO–OPERATIVE BANK v. SUFFOLK CONSTRUCTION COMPANY, INC.
CourtUnited States State Supreme Judicial Court of Massachusetts

464 Mass. 543
984 N.E.2d 776

READING CO–OPERATIVE BANK
v.
SUFFOLK CONSTRUCTION COMPANY, INC.

SJC–11159.

Supreme Judicial Court of Massachusetts,
Suffolk.

Argued Nov. 6, 2012.
Decided March 13, 2013.


[984 N.E.2d 778]


R. Robert Popeo (Paul J. Ricotta with him), Boston, for the defendant.

Nelson G. Apjohn (Cynthia M. Guizzetti with him), Boston, for the plaintiff.


Present: IRELAND, C.J., SPINA, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.

LENK, J.

[464 Mass. 544]This case requires us to determine, among other things, whether art. 9 of the Uniform Commercial Code displaces the common law on the question of the proper measure of a secured creditor's recovery under G.L. c. 106, § 9–405. We conclude that it does.

The defendant, Suffolk Construction Company, Inc. (Suffolk), contracted with Benchmark Mechanical Systems (subcontractor) for construction of elements of a heating, ventilation, and air conditioning (HVAC) system at a building project in Reading. As partial collateral for a revolving line of credit, the subcontractor assigned to the plaintiff, Reading Co–Operative Bank (bank), its right to receive payment under the contract with Suffolk. Suffolk received notification of the assignment and agreed to make payments directly to the bank. However, Suffolk instead made twelve payments to the subcontractor. The subcontractor subsequently ceased business operations, with an outstanding debt to the bank on its line of credit.

Seeking recovery of the total value of the misdirected payments, the bank filed an action in the Superior Court for breach of contract and violation of the Uniform Commercial Code (UCC), pursuant to G.L. c. 106, § 9–405. A Superior Court jury found Suffolk liable on both counts for ten of the twelve checks that Suffolk had delivered to the subcontractor. The jury found that the bank was estopped from recovering with respect to the final two checks. The jury calculated the bank's actual damages as $533,348.62, and the judge entered judgment on the contract claim in this amount. However, concluding that he was statutorily required to do so, the judge entered judgment on the statutory claim in the amount of $3,015,000.49, the full face value of the ten checks for which the jury found liability. Both parties appealed, and we transferred the case to this court on our own motion.

We conclude that the judge properly entered judgment on the bank's statutory claim in the amount of the wrongfully misdirected payments, and that he properly declined to apply the common-law doctrine of mitigation of damages to the same claim. However, we conclude that it was error to deny the bank's motion for partial judgment notwithstanding the verdict with [464 Mass. 545]respect to the final two checks, as there was insufficient evidence before the jury to support Suffolk's defense of estoppel.1

[984 N.E.2d 779]

1. Background. a. Facts. We recite the facts the jury could have found, reserving certain facts for discussion in connection with the specific issues raised.

In December, 2000, the subcontractor opened checking and savings accounts with the bank, as well as a revolving line of credit secured by its accounts receivable and business assets. The bank later increased the amount the subcontractor could borrow under the line of credit to $1,500,000. In May, 2004, Suffolk entered into a contract with the subcontractor for construction of elements of an HVAC system at a furniture store to be built in Reading (HVAC subcontract). As security for its line of credit, the subcontractor assigned its accounts receivable under the HVAC subcontract to the bank, authorizing Suffolk to make payments due under the HVAC subcontract directly to the bank. Suffolk signed an acknowledgment and assent to assignment (acknowledgment agreement), by which it agreed to make payments directly to the bank. In the terminology of the UCC, the subcontractor thus became the “assignor,” the bank became the “assignee,” and Suffolk became the “account debtor.” See G.L. c. 106, § 9–405 ( a ). The line of credit [464 Mass. 546]was also secured by a personal guaranty from W. Douglas Fox, one of the subcontractor's owners (Fox guaranty).

Although Suffolk agreed to make payments directly to the bank, those at Suffolk with responsibility for such payments were not aware of this arrangement. As a result, between June 14 and December 30, 2004, Suffolk issued twelve checks totaling $3,822,500.49 to the subcontractor instead of to the bank. The checks were deposited into the subcontractor's savings account with the bank.

The subcontractor ceased business operations in 2005, with an outstanding debt of $1,499,149.42 on its line of credit. In 2006, the bank brought suit against Suffolk for recovery of the total value of the twelve payments mistakenly issued to the subcontractor, alleging breach of contract and violation of G.L. c. 106, § 9–405.2 In other collection efforts, the bank recovered $430,402.38, which it applied against the subcontractor's debt.

In May, 2007, the bank and Fox entered into a forbearance agreement restructuring the Fox guaranty. Fox agreed to convert

[984 N.E.2d 780]

certain real estate into cash collateral, and the bank agreed not to apply the collateral to any debt guaranteed by Fox until the earlier of the date on which its litigation against Suffolk was complete or May 11, 2009.

b. Prior proceedings. In April, 2009, a Superior Court jury found that, as to all twelve payments made to the subcontractor, Suffolk had both committed a breach of the acknowledgment agreement and violated art. 9 of the UCC. 3 However, the jury found that the bank was estopped from recovering as to the last two payments. On that issue, the bank filed a motion for partial judgment notwithstanding the verdict, which was denied. On [464 Mass. 547]May 26, 2009, the bank and Fox entered into a modification agreement that allowed the bank to hold the Fox guaranty to secure another loan guaranteed by Fox.

On June 12, 2010, the judge issued an order for entry of judgment. As to the breach of contract claim, the judge entered judgment in the amount of $533,348.62, which represented the jury's determination of the bank's actual damages.4 As to the UCC claim, the judge entered judgment in the amount of $3,015,000.49, which represented the total value of the ten payments the jury found had been wrongfully misdirected.5 The judge also determined that, although the bank had an “unfettered right” to apply the Fox guaranty to the subcontractor's debt as of May 11, 2009, Suffolk was not entitled to an offset in the amount of the guaranty. Both parties appealed.

2. Discussion. a. Measure of recovery. Suffolk argues that the proper measure of recovery under G.L. c. 106, § 9–405, is the bank's actual damages, rather than the total value of the wrongfully misdirected payments. “The measure of damages is a question of law reviewed de novo on appeal.” Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 424, 837 N.E.2d 1121 (2005).

We interpret a statute in accordance with the plain meaning of its text. Massachusetts Community College Council MTA/NEA v. Labor Relations Comm'n, 402 Mass. 352, 354, 522 N.E.2d 416 (1988). “[S]tatutory language should be given effect consistent with its plain meaning and in light of the aim of the Legislature unless to do so would achieve an illogical result.” Sullivan v. Brookline, 435 Mass. 353, 360, 758 N.E.2d 110 (2001). “[T]he primary source of insight into the intent of the Legislature is the language of the statute.” International Fid. Ins. Co. v. Wilson, 387 Mass. 841, 853, 443 N.E.2d 1308 (1983). If the language of the statute is unambiguous, our function is to enforce [464 Mass. 548]the statute according to its terms. Massachusetts Community College Council MTA/NEA v. Labor Relations Comm'n, supra. To guide our interpretation of a particular section of a statute, we consider the statute as a whole. Wolfe v. Gormally, 440 Mass. 699, 704, 802 N.E.2d 64 (2004). Therefore, in assessing the

[984 N.E.2d 781]

proper measure of damages under G.L. c. 106, § 9–405, we look to the text of that section, as well as to the text of the UCC as a whole, to determine the intent of the Legislature.6

[464 Mass. 549]Suffolk asserts that, following common-law principles, the bank's recovery under G.L. c. 106, § 9–405, should be limited to its actual damages. Common-law principles supplement the UCC “[u]nless displaced by the particular provisions of this chapter.” G.L. c. 106, § 1–103. “[A] statute is not to be interpreted as effecting a material change in or a repeal of the common law unless the intent to do so is clearly expressed.” Riley v. Davison Constr. Co., 381 Mass. 432, 438, 409 N.E.2d 1279 (1980), quoting Pineo v. White, 320 Mass. 487, 491, 70 N.E.2d 294 (1946). Such intent need not be explicitly stated in the statute. It may be inferred “[w]here a UCC provision specifically defines parties' rights and remedies.” Gossels v. Fleet Nat'l Bank, 453 Mass. 366, 370, 902 N.E.2d 370 (2009). Similarly, it may be inferred where the UCC provides a comprehensive scheme for enforcement

[984 N.E.2d 782]

of rights and allocation of losses that would be effectively undermined by application of conflicting common-law principles. See Bank of Am., N.A. v.Prestige Imports, Inc., 75 Mass.App.Ct. 741, 764, 917 N.E.2d 207 (2009).

Article 9 contains a comprehensive scheme for enforcement of rights and allocation of losses. Once an account debtor (here, Suffolk) receives notification of an assignment, it may discharge its contractual obligation to the assignor (here, the subcontractor) only by paying the assignee (here, the bank). [464 Mass. 550]G.L. c. 106, § 9–405 ( a ). See District of Columbia v. Thomas Funding Corp., 593 A.2d 1030, 1034 (D.C.1991).7 Therefore, upon receipt of notification of assignment, the account debtor becomes statutorily obligated to pay the assignee in order to discharge its contractual obligation to the assignor. Upon the assignor's...

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