In the real estate and construction industry, purchasers of a property whose construction is already under way will often find themselves ham-strung by anti-assignment clauses contained in standardized construction and design contracts.
Imagine the following scenario: Owner enters into a standard American Institute of Architects (AIA) contract with Architect. The AIA Contract contains a general anti-assignment clause prohibiting the assignment of performance from Owner to a third party. After performance has been completed by both Owner and Architect under the AIA Contract, Owner enters into a Purchase and Sale Agreement in which Owner conveys the Property and assigns all of its rights in the AIA Contract to Purchaser.
In the event Purchaser should seek to bring a cause of action against Architect for the breach of the AIA Contract, does Purchaser have standing to sue Architect despite the anti-assigment clause? This paper will examine the legal standards applicable to this and related issues in construction contracts in Texas.
A. CAUSES OF ACTION BY PURCHASER AGAINST CONTRACTOR/ARCHITECT
The first contract at issue in the above scenario is the contract for the sale of the Property from Owner to Purchaser, typically a standard Purchase and Sale Agreement (PSA). It is customary for the PSA to include a provision mandating that, at closing, the Owner “assign and deliver” the originals or copies of the architects agreements and general contracts for the Property to Purchaser. A separate Assignment and Assumption of Contracts and Leases will then be executed, completing the assignment:
In connection with the conveyance of the Property, and as contemplated under the PSA . . . Owner hereby sells, transfers, conveys and assigns to Purchaser all of Owner’s right, title and interest in and to any and all contracts, leases and agreements relating to the Property . . . subject, however, to the terms and covenants of the Contracts and this Assignment.
That Assignment will typically also contain a provision specifically assigning “intangible” assets relating to the Property:
In connection with the conveyance of the Property, and as contemplated under the PSA . . . Owner hereby sells, transfers, conveys and assigns to Purchaser all of Owner’s rights, title and interest in and to any and all licenses, permits and all other intangible assets relating to the Property . . subject, however, to the terms and covenants of the Contracts and this Assignment." (Emphasis added.)
Texas courts have defined “intangibles” to include choses in action. Phrased differently, in Texas a chose in action is property, albeit intangible.
Returning to our scenario, per Texas law and the language in the PSA, Owner has assigned its choses in action against Architect to Purchaser. The question remaining is whether that assignment is void due to the anti-assignment clause in the AIA Contract.
To read more on Assignment Issues in Construction Contracts, please click here.