READING CO-OPERATIVE BANK vs. SUFFOLK CONSTRUCTION COMPANY, INC.

LENK, J . 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

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respect to the final two checks, as there was insufficient evidence before the jury to support Suffolk's defense of estoppel. [Note 1]

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

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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. [Note 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 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. [Note 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

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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. [Note 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. [Note 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 (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 (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 (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 (1983). If the language of the statute is unambiguous, our function is to enforce

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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 (2004). Therefore, in assessing the 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. [Note 6]

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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 (1980), quoting Pineo v. White, 320 Mass. 487, 491 (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 (2009). Similarly, it may be inferred where the UCC provides a comprehensive scheme for enforcement 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 (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).

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G. L. c. 106, § 9-405 (a). See District of Columbia v. Thomas Funding Corp., 593 A.2d 1030, 1034 (D.C. 1991). [Note 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 default, the assignee "may notify an account debtor . . . to make payment or otherwise render performance to or for the benefit of the secured party" and "may enforce the obligations of an account debtor . . . and exercise the rights of the [assignor] with respect to the obligation of the account debtor." G. L. c. 106, § 9-607 (a) (1), (3). Thus, where an account debtor receives notification of assignment but nonetheless pays only the assignor, the account debtor remains obligated in full under the contract, and upon the assignor's default, the assignee may enforce the account debtor's contractual obligations. See First Bank v. Roslovic & Partners, Inc., 86 Ohio St. 3d 116, 119 (1999). See also comment 2 to UCC § 9-601, 3 U.L.A. 646 (Master ed. 2010) ("The rights of a secured party to enforce its security interest in collateral after the debtor's default are an important feature of a secured transaction"); G. L. c. 106, § 1-106 (2) ( "Any right or obligation declared by this chapter is enforceable by action").

Further, art. 9 provides a detailed framework for the distribution of funds recovered by an assignee from an account debtor. See G. L. c. 106, § 9-608. It directs, first, that reasonable expenses of collection and enforcement be deducted from the funds; second, that the obligations of the assignor secured by the security interest under which the collection is made be satisfied from the funds; and third, that any obligations secured by subordinate security interests on the same collateral be satisfied from the funds. G. L. c. 106, § 9-608 (a) (1). Finally, it directs the assignee to pay any remaining surplus over to the assignor. G. L. c. 106, § 9-608 (a) (4). The statute's explicit anticipation of a possible surplus in recovery beyond the sum the assignee is ultimately entitled to retain is itself indication that the Legislature did not intend to limit recovery under G. L. c. 106, § 9-405, to the assignee's actual loss. See J.J. White & R.S.

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Summers, Uniform Commercial Code § 34-5, at 418 (6th ed. 2010) ("Such direct payment by the account debtor may be sufficient to retire the debtor's obligation to the secured party. Indeed, it may be more than sufficient in which event [G. L. c. 106, § 9-608 (a) (4),] requires the secured party to pay any surplus received from the account debtor over to the debtor").

Taken together, G. L. c. 106, §§ 9-405, 9-607, and 9-608, provide a comprehensive scheme designed to put "the aggrieved party . . . in as good a position as if the other party had fully performed." G. L. c. 106, § 1-106 (1). Upon an assignor's default, the assignee may enforce the outstanding contractual obligations of the account debtor. G. L. c. 106, § 9-607 (a). However, the assignee is entitled to retain only such funds as are necessary to recover reasonable costs of collection and enforcement and to satisfy the obligations of the assignor for which collection was secured. G. L. c. 106, § 9-608 (a).

The statutory framework accords as well with the stated purposes of the UCC, which are, among others, to "simplify, clarify and modernize the law governing commercial transactions." G. L. c. 106, § 1-102 (2) (a). Setting an assignee's recovery at the total value of all wrongfully misdirected payments offers greater clarity and certainty to lenders, whose recovery upon default would otherwise be subject to a jury's determination of actual loss, which may be unpredictable. See First Bank v. Roslovic & Partners, Inc., supra at 120 (Stratton, J., concurring) ("strict construction . . . preserves the goals of commercial stability and reliability" because "[l]enders will not lend in such an uncertain climate that depends on litigation for resolution").

Although there is more explicit language elsewhere in the UCC when displacing the common-law measure of damages, see G. L. c. 106, §§ 4-103 (e) and 9-625 (f), we do not require such language in order to displace the common law. Our task in construing a statute is to determine the intent of the Legislature. See Boston Police Patrolmen's Ass'n v. Boston, 435 Mass. 718, 719-720 (2002). Legislative intent to displace the common-law measure of damages may be inferred from explicit language mandating an alternate measure of damages, or from the establishment of a comprehensive framework that would be undermined

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by application of common-law principles. See Bank of Am., N.A. v. Prestige Imports, Inc., supra.

Here, the UCC provides a coherent and comprehensive scheme under which an account debtor remains fully obligated on a contract when it wrongfully misdirects payments. See G. L. c. 106, § 9-405 (a). Application of the common-law measure of damages advanced by Suffolk would undermine this scheme by effectively forgiving a portion of an account debtor's outstanding contractual obligation whenever such obligation exceeds the assignee's actual damages. Further, the UCC makes specific provision for disbursement of recovered funds in excess of the secured creditor's actual damages. See G. L. c. 106, § 9-608 (a). Adoption of Suffolk's position would impermissibly render such provisions inoperative in the context of litigation, as under the common law no such excess funds would ever be recovered in enforcement actions. See Bankers Life & Cas. Co. v. Commissioner of Ins., 427 Mass. 136, 140 (1998) (statute must be construed so that no part is inoperative or superfluous). [Note 8]

In view of art. 9's comprehensive scheme for recovery and distribution of funds due pursuant to an assignment and notification thereof, we conclude that art. 9 displaces the common law on the question of the measure of a secured creditor's recovery under G. L. c. 106, § 9-405. Where an account debtor receives notification of an assignment but nonetheless makes payments

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to the assignor, it remains obligated in full under the operative contract. G. L. c. 106, § 9-405 (a). Accordingly, the proper measure of the assignee's recovery under G. L. c. 106, § 9-405, is the total value of all payments wrongfully misdirected. [Note 9] Here, the jury found Suffolk liable under art. 9 for wrongful misdirection of ten checks totaling $3,015,000.49. The judge properly entered judgment against Suffolk in this amount.

There is no question that application of art. 9 on these facts leads to a harsh result, because Suffolk is obligated to pay the bank nearly six times the bank's actual loss as determined by the jury. However, the result is neither illogical nor absurd; the Legislature has ensured against a windfall to assignees like the bank by mandating that they disburse recovered funds in excess of their actual losses plus reasonable expenses of collection and enforcement. See G. L. c. 106, § 9-608 (a) (1) (A), (4). Cf. Fulton County v. American Factors of Nashville, Inc., 250 Ga. App. 366, 371 (2001) ("The double payment is not punitive but simply the legal consequence of the [account debtor's] payment

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to the wrong party over notice. Under appropriate circumstances, legal redress is available to one making a payment in error").

Although G. L. c. 106, § 9-608, directs disbursement of excess funds first to subordinate creditors of the assignor and then to the assignor, rather than to the account debtor, Suffolk nonetheless has recourse to mitigate the excessive loss occasioned by double payment. It may bring suit against the subcontractor, its trustees, or successors to recover the misdirected payments, and thereby establish itself as a subordinate creditor in line for disbursement of excess funds recovered by the bank. See National Trade Trust, Inc. v. Merrimac Constr., 524 N.W.2d 14, 17 (Minn. Ct. App. 1994) ("Merrimac [account debtor] must pay the $19,418 [the full amount of the misdirected payment] to National [assignee] . . . . Merrimac's recourse is to proceed against Heart Drywall [assignor] for that $19,418 . . . . Neither party here is prejudiced by this reversal. Its net effect is that Merrimac, rather than National, has to suffer the possibility that Heart Drywall is insolvent. That penalty must rest with Merrimac because it paid Heart Drywall in the face of a valid assignment . . .").

b. Mitigation of damages. Suffolk contends that the judge erred in determining that the bank's recovery would not be offset by the amount of the Fox guaranty. It maintains that, because the bank had an "unfettered right" to apply the Fox guaranty to the subcontractor's debt, the bank's recovery under the UCC should be reduced by the amount of the guaranty, pursuant to the common-law doctrine of mitigation of damages. [Note 10] See Burnham v. Mark IV Homes, Inc., 387 Mass. 575, 586 (1982) ("The general rule with respect to mitigation of damages is that a plaintiff may not recover for damages that were avoidable by the use of reasonable precautions on his part"). "[A] judge's legal conclusions are reviewed de novo." Anastos v. Sable, 443 Mass. 146, 149 (2004).

As discussed supra, the bank's actual damages are irrelevant to the sum Suffolk must pay under G. L. c. 106, § 9-405.

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Regardless of whether the bank applied the Fox guaranty to the subcontractor's debt, art. 9 authorizes the bank to recover from Suffolk the full value of all wrongfully misdirected payments, see G. L. c. 106, §§ 9-405, 9-607, even if it ultimately may not retain recovered funds exceeding its actual loss plus costs. See G. L. c. 106, § 9-608 (a).

Further, under the UCC, a secured creditor's rights and remedies upon a debtor's default are cumulative and may be pursued simultaneously or in whichever order the creditor chooses. See G. L. c. 106, § 9-601 (c) (secured party's "rights . . . are cumulative and may be exercised simultaneously"); G. L. c. 106, § 1-201 (36) (" 'Rights' includes remedies"). See J.J. White & R.S. Summers, Uniform Commercial Code § 34-4, at 414 (6th ed. 2010) ("a secured creditor may first attempt to enforce its rights by one method, and if that proves unsuccessful follow another one"). Although the bank had an "unfettered right" to apply the Fox guaranty to the subcontractor's debt, it was under no obligation to do so, and it was free to pursue other means of recovery. See First Republic Corp. of Am. v. BayBank, 424 Mass. 704, 707-708 (1997) (rejecting argument that secured creditor must look to collateral before obtaining judgment); T.B. Merritt, Consumer Law § 20:63, at 181 (3d ed. 2010) ("the creditor has a choice of remedies, and, for example, is not required first to repossess the collateral before instituting a lawsuit on the debt and obtaining a judgment and execution").

Because an assignee's actual damages are irrelevant to the sum an account debtor must pay under G. L. c. 106, § 9-405, and because secured creditors' rights and remedies are cumulative and may be exercised simultaneously, we conclude that the common-law doctrine of mitigation of damages does not apply to claims brought under G. L. c. 106, § 9-405. Accordingly, the judge properly declined to offset the bank's recovery by the amount of the Fox guaranty.

c. Estoppel. The bank asserts that its motion for partial judgment notwithstanding the verdict was denied improperly; it contends as a matter of law that it is not estopped from recovering as to the eleventh and twelfth payments Suffolk made to the subcontractor. In reviewing the denial of a motion for judgment

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notwithstanding the verdict, we ask whether, viewed in the light most favorable to the nonmoving party, the evidence is sufficient to support the verdict. O'Brien v. Pearson, 449 Mass. 377, 383 (2007). We must evaluate whether any of the evidence before the jury could support a reasonable inference in favor of the nonmovant. Id. "To be reasonable, the inference [or conclusion] 'must be based on probabilities rather than possibilities and cannot be the result of mere speculation and conjecture.' " Cahaly v. Benistar Prop. Exch. Trust Co., 451 Mass. 343, 350, cert. denied sub nom. Benistar Ltd. v. Cahaly, 555 U.S. 1047 (2008), quoting Phelan v. May Dep't Stores, Co., 443 Mass. 52, 55 (2004).

To establish estoppel, a party must show "(1) a representation intended to induce reliance on the part of a person to whom the representation is made; (2) an act or omission by that person in reasonable reliance on the representation; and (3) detriment as a consequence of the act or omission." Bongaards v. Millen, 440 Mass. 10, 15 (2003). Silence may satisfy the first element of estoppel where it constitutes a representation of consent. See Tracy v. Lincoln, 145 Mass. 357, 359-360 (1887) (plaintiff's silence as she watched her husband mortgage her property to defendant estopped her from later claiming ownership as against mortgagee).

Here, there was evidence that the checks Suffolk issued to the subcontractor were deposited in the subcontractor's savings account with the bank; that at some point after Suffolk began issuing checks to the subcontractor, the subcontractor's president spoke with the bank's vice-president about depositing the Suffolk checks; and that, prior to Suffolk issuing the last two checks, the bank's vice-president may have attended a grand opening celebration for the furniture store, suggesting that she was aware that the construction job was complete and that payments had presumably been made on the HVAC subcontract. This evidence was sufficient for the jury to infer that, prior to Suffolk issuing the last two checks to the subcontractor, the bank knew that Suffolk was paying the subcontractor directly. In the face of such knowledge, the bank's lack of objection arguably constituted consent to Suffolk's method of payment. However, there was no evidence presented that the bank's silence was communicated

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to Suffolk. In other words, there is no indication that the bank made a representation of consent to Suffolk, as required under the first element of estoppel. See Bongaards v. Millen, supra.

Even if we were to assume that the first element of estoppel is satisfied, Suffolk points to no evidence before the jury sufficient to satisfy the second element of estoppel -- namely, that Suffolk made the last two payments to the subcontractor in reliance on the bank's silence. See id. Specifically, there is no evidence that anyone at Suffolk was ever made aware of the bank's silence. If Suffolk was never made aware of the bank's silence, it could not have acted in reliance upon it. See Tracy v. Lincoln, supra at 359 (plaintiff is estopped only where her conduct "is in fact acted upon by another"). The evidence indicates that the Suffolk employees responsible for making payments under the HVAC subcontract did not know, at the time the checks were issued to the subcontractor, that an assignment had even been made, that Suffolk had received notification of the assignment, or that Suffolk had agreed in writing to pay the bank directly. Such evidence does not permit a reasonable inference that Suffolk acted in reliance on the bank's silence as a manifestation of consent.

We recognize that "nullifying a jury verdict is a matter for the utmost judicial circumspection." Cahaly v. Benistar Prop. Exch. Trust Co., supra. Nevertheless, a verdict cannot stand if it is not supported by the evidence. Id. Because there was no evidence presented to suggest that Suffolk acted in reliance on the bank's silence when it issued the eleventh and twelfth checks to the subcontractor, we conclude that it was error to deny the bank's motion for partial judgment notwithstanding the verdict.

3. Conclusion. For the reasons set forth above, we affirm the judgment in part and reverse in part. We affirm the judge's ruling on the measure of recovery under G. L. c. 106, § 9-405, and his decision declining to offset the bank's recovery by the amount of the Fox guaranty. We reverse the denial of the bank's motion for partial judgment notwithstanding the verdict and remand to the Superior Court for entry of judgment against Suffolk as to all twelve payments.

So ordered.