Facts
- Shaw, a general contractor on a Boston subway project, subcontracted excavation, masonry, and iron/steel work to George A. Lancaster.
- Lancaster borrowed money from Homer and executed a written assignment to Homer of “all sums due and to become due” under Lancaster’s subcontract with Shaw.
- Shaw accepted the assignment in writing.
- After work began, Lancaster again lacked funds, stated his workers were unpaid, and indicated he would have to abandon the job.
- Shaw and Lancaster then made a new arrangement under which Shaw agreed to (1) pay existing labor and material debts on the job, (2) advance funds needed to complete the work, and (3) pay Lancaster $25 per week for supervising and for use of his tools.
- Lancaster continued to oversee the work to completion, with no obvious change at the work site.
- Homer sued Shaw as assignee for amounts claimed due under the original subcontract after the new arrangement.
- After a bench trial, the factfinder concluded the later arrangement rescinded the original subcontract and substituted a new contract, so Homer’s assignment did not reach sums payable after that change; judgment entered for Shaw.
Issues
- After a contractor accepts an assignment of amounts due under a subcontract, may the contractor and subcontractor, without the assignee’s consent, enter a later agreement that rescinds the subcontract and replaces it with a new contract?
- On the record, was the later arrangement a mere modification of payment terms (leaving the assignment effective) or a rescission and substitution (cutting off the assignee’s claim to later-accruing sums)?
- Did the trial court commit legal error by refusing rulings premised on the assignment preventing any later change detrimental to the assignee?
Decision
- The Supreme Judicial Court overruled Homer’s exceptions and affirmed judgment for Shaw.
- The court held the evidence supported treating the later arrangement as a rescission of the original subcontract and substitution of a new agreement.
- Because Lancaster’s right to the original contract price depended on performance of the original subcontract, and that subcontract was rescinded in good faith when Lancaster could not proceed, Homer as assignee had no right to sums accruing after the substitution.
- The trial judge properly refused Homer’s requested rulings that assumed the original subcontract remained in force or that the assignment barred a good-faith rescission and replacement.
Legal Principles
- An assignee acquires no greater rights than the assignor; the assignee’s claim depends on the assignor’s entitlement under the assigned contract.
- After notice/acceptance of an assignment, the original parties may not, without the assignee’s consent, alter the assigned contract to the assignee’s prejudice by secret or fraudulent means designed to defeat the assignment.
- The original parties may, in good faith, rescind an assigned contract and substitute a new agreement when performance by the assignor has become impossible or impracticable due to unforeseen circumstances, even though the change eliminates amounts that would otherwise have become payable under the assigned contract.
- Whether a later arrangement is a modification or a rescission and substitution is a fact question; if supported by the evidence, the finding controls the assignee’s recovery.
Conclusion
The court held that Homer, as assignee of payments under Lancaster’s original subcontract, could not recover payments accruing after Shaw and Lancaster, acting in good faith in response to Lancaster’s inability to continue, rescinded the original subcontract and replaced it with a new financing-and-supervision arrangement.