Reading Co-Operative Bank v. Suffolk Construction Co.
464 Mass. 543
Mass.2013Background
- Subcontractor assigned its HVAC receivables to the bank as collateral for a line of credit; Suffolk agreed to pay the bank directly but issued twelve checks to the subcontractor totaling $3,822,500.49.
- Subcontractor ceased operations in 2005 with a substantial outstanding debt to the bank; bank sued Suffolk for breach of contract and UCC 9-405 recovery.
- Jury found Suffolk liable for all twelve payments on both counts, but estoppel applied to the last two payments; judge awarded contract damages of $533,348.62 and UCC damages of $3,015,000.49.
- Court held that UCC Article 9 displaces common law on measure of recovery; however, there was error to deny partial judgment notwithstanding the verdict as to the last two payments for estoppel due to insufficient evidence of reliance.
- Court affirmed measure of recovery under § 9-405, declined to offset with Fox guaranty, and remanded for entry of judgment on all twelve payments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the proper measure of recovery under § 9-405? | Bank argues for total value of misdirected payments as recovery. | Suffolk argues for actual damages as the measure. | Article 9 displaces common law; recovery is total misdirected payments. |
| May the bank offset damages by the Fox guaranty under mitigation of damages? | Bank should offset only to reflect actual loss; guaranty not deducted. | Bank should mitigate by applying the guaranty to reduce its recovery. | Mitigation does not apply; recovery not reduced by the guaranty. |
| Was there sufficient evidence to justify estoppel for the last two payments? | Bank silence may have induced Suffolk to continue payments to the subcontractor. | Bank's silence was not communicated as consent and no reliance shown. | Evidence did not support estoppel; error to deny partial JNOV as to the last two payments. |
Key Cases Cited
- Bank of Am., N.A. v. Prestige Imports, Inc., 75 Mass. App. Ct. 741 (Mass. App. Ct. 2009) (comprehensive UCC framework displaces common-law damages measure)
- District of Columbia v. Thomas Funding Corp., 593 A.2d 1030 (D.C. 1991) (account debtor liability for misdirected payments under assignment)
- First Bank v. Roslovic & Partners, Inc., 86 Ohio St. 3d 116 (Ohio 1999) (assignee may enforce; account debtor remains liable when misdirected after notice)
- Estate of Haas v. Metro-Goldwyn-Mayer, Inc., 617 F.2d 1136 (5th Cir. 1980) (double payment liability for misdirected payments after valid assignment)