Pay Attention to Bank Assignments – Or Pay TwiceConstruction Law Alert April 29, 2013
Last month, the Massachusetts Supreme Judicial Court forced a general contractor to pay its HVAC subcontractor's bank more than $3.8 million, even though it had already paid the subcontractor for the same work. In Reading Cooperative Bank v. Suffolk Construction Company, Inc., 2013 Mass. LEXIS 42 (March 13, 2013), the Court held that a general contractor that had signed an acknowledgement agreeing to make payments directly to the bank was not entitled to any credit when it inadvertently paid the subcontractor instead. When the subcontractor subsequently went out of business, the bank turned to the contractor for the amounts it had mistakenly paid the subcontractor directly. The Court concluded that requiring the contractor to make the double payment was appropriate because once the assignment took place, the general contractor could only satisfy its obligations by making payments directly to the bank, not the subcontractor.
Why This is Important: The takeaway here is that contractors should pay close attention to bank assignments that state that all further payments should go to a subcontractor's bank. Courts will enforce those assignments, and if you don't pay the right party, you could end up having to pay twice.