The Law: Flipping/Assigning Contracts (Long) - Posted by Stacy (AZ)
Posted by Stacy (AZ) on January 09, 1999 at 11:12:19:
This subject has been discussed several times on this newsgroup, so I thought I’d repost an article I originally found in a Real Estate Lawyer’s newsletter here in Phoenix. What is most interesting to me, is
- The words “and/or assignee” ARE UNNECESSARY; any contract is assignable in Arizona unless prohibited in the contract.
- Also, the words “and/or nominee” mean something completely different. Both you and/or your nominee continue to be responsible for performing on the contract.
- You must include language that releases you from personal liability when assigning (or later get a release signed by the seller).
Anyway, I found it very helpful. This is, of course, for Arizona. Your state’s laws may vary.
CAN THIS CONTRACT BE ASSIGNED?
Can a contract for real property be assigned? Is the buyer relieved from liability after an assignment to another buyer? What legal effect do the phrases “and/or assignee” and “and/or nominee” have? Can the seller limit a buyer’s right to assign the contract? This article will address these common questions regarding assignment of contract rights.
Assignments involve a transfer of rights or interests in property.
The general rule is that, all rights or benefits arising out of a contract, including a real estate purchase contract are assignable. See Dunahay v. Struzik, 96 Ariz. 246, 393 P.2d 930 (1964) (rights arising out of a real estate purchase contract are assignable). The primary exception to this rule of assignability is that a contract for personal services, such as a listing agreement, cannot be assigned.
When a seller and buyer enter into a real estate purchase contract, equitable title to the property vests in the buyer while legal title remains in the seller. Thereafter, because equitable title is a recognized property interest, it can be assigned just like legal title.
Although a buyer may assign all of the buyer’s right in the contract, a buyer may not assign the buyer’s liabilities under the contract without the consent of the seller. The Arizona Court of Appeals has specifically rejected a buyer’s argument that the buyer was released from liability and that only the nominee was liable under the contract when “and/or nominee” was used. See Golder v. Crain, 7 Ariz.App. 207, 437 P.2d 959 (1968). The Golder court reasoned that the language of the contract at issue indicated that the parties intended that the buyer would continue to be bound by the agreement. The Golder court regarded the language “and/or nominee” as meaning the buyer agreed that either the buyer or the buyer’s nominee would perform the contract with the seller.
Because real property contracts are assignable, the inclusion of “and/or nominee” or “and/or assignee” language in the contract is oftentimes surplus verbiage. Even without these terms referring to assignability, a contract for real property may be assigned by the buyer, in light of the general principle that this type of contract right is assignable. Although real estate professionals have historically used “assignee” and “nominee” interchangeably, the meaning of the terms is not synonymous. In an assignment, the assignee becomes liable on the contract along with the buyer. The use of “nominee” language, however, may be used to attempt to limit the liability of the buyer by replacing the buyer with a third party, thereby releasing the buyer from the contract. However, as the Golder court explained, in Arizona, where a contract provides for nomination, the parties must clearly express their intent that the buyer be released from personal liability upon nomination, otherwise the buyer remains liable.
A seller can limit a buyer’s assignment rights.
Contract rights are not assignable where the contract itself prohibits assignment. A contract can prohibit assignment if the contract includes language which clearly and plainly restricts the right to assign. Arizona courts differentiate between a promise not to assign and a clause voiding an assignment. A contract which contains a promise not to assign does not necessarily prohibit an assignment, it merely provides a cause of action against the assignor for damages arising out of the assignment. Hanigan v. Wheeler, 19 Ariz.App. 49, 504 P.2d 972 (1972). In contrast, a contract term rendering an assignment void precludes an assignment. In other words, such a provision deprives the assignor of the power to assign. In that case, any assignment would be void and unenforceable.
A seller can also limit a buyer’s right to assign the contract by including in the contract a provision requiring the seller’s written consent before the buyer assigns the buyer’s rights. If the seller’s consent is required, Arizona courts do not appear to require the seller to act reasonably in granting or withholding consent, unless the contract provides otherwise. The seller can withhold such consent in the seller’s discretion.
In conclusion, even in the absence of “and/or nominee” or “and/or assignee,” real property contracts can be assigned, absent contract language to the contrary. A buyer generally continues to be liable to the seller under the contract after an assignment. To avoid liability after an assignment, a buyer must include contract language which unambiguously provides that the buyer will not remain personally liable under the contract thereafter. Otherwise, Arizona courts will likely impose liability on the buyer notwithstanding any assignment or nomination. Finally, if the parties intend the contract to be nonassignable, clear, plain language should be employed in the contract rendering any attempted assignment void.