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Nutter client Reading Co-operative Bank obtained a favorable decision from the Massachusetts Supreme Judicial Court (SJC) last week. The SJC agreed with the bank on every issue in its dispute with a construction company and, in doing so, clarified the law of secured lending under Article 9 of the Uniform Commercial Code.

Nutter represented the bank at trial, culminating in a jury verdict and judgment in favor of the bank. The construction company appealed.

The case arose from the relationship between the bank, the construction company, and a subcontractor. As security for a bank loan, the subcontractor assigned to the bank the proceeds from a subcontract with the construction company. The construction company thereafter received notice of the assignment (in accordance with Article 9) and also executed an acknowledgement agreement, thereby obligating the construction company to make payments under the subcontract to the bank. The construction company, however, made 12 payments totaling over $3.8 million to the subcontractor. The subcontractor later defaulted on its loan.

The bank sued the construction company under Article 9 and for breach of contract (the acknowledgment agreement). The trial court agreed with the bank that the UCC, not the common law, provided the measure of damages on the bank's Article 9 claim. In affirming the trial court's decision, the SJC clarified the remedy available to a lender when a borrower defaults and the lender collects on an account receivable assigned to the lender as security, holding that that Article 9 "displaces the common law on the question of the measure of a secured creditor's recovery under G.L. c. 106, § 9-405.” The SJC remanded the case to the trial court for entry of judgment in favor of the bank in the amount of $3,822,500, plus interest.

Nutter partners Nelson Apjohn and Eric Magnuson represented the bank at both the trial and on appeal. The full text of the opinion may be found in the opinion archive at www.massreports.com, under Reading Co-Operative Bank v. Suffolk Construction Company, Inc., SJC-11159.