Today the Supreme Judicial Court issued a 22-page decision on
whether a contractual provision prohibiting the pledge of a license to serve alcoholic beverages…as collateral for a commercial property violates public policy.
N&M Trust VII leased property to Burn, LLC.
Along with the lease, N&M sold its liquor license to Burn for $1.
According to court documents, the parties’ agreement prohibited Burn from using the liquor license as collateral (i.e., a “pledge”) for a loan.
If Burn did use the license as loan collateral, the lease would be in default, and the license would transfer back to N&M.
At some point, N&M accused Burn of pledging the license to a third party to secure a loan.
This prompted N&M to sue Burn.
N&M won at the trial court, and Burn appealed arguing, in part, that the lease provision concerning the liquor license violated public policy.
The SJC disagreed and upheld the lower court’s verdict.
we can discern no clear public policy implicated by the anti-pledge provision. The [state’s liquor-license statute’s] core purpose is to establish regulatory oversight, not to promote license pledges. Contractual arrangements, including financing restrictions among commercially sophisticated parties do not generally raise public policy concerns. The terms of the lease here — including the anti-pledge provision — were fully disclosed to the licensing board and the ABCC, and the anti-pledge provision affects only the ability of the licensee to use the license as collateral to secure a private loan. (Quotations and citations omitted.)
The full text of the decision is attached below.