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The Latest Installment

The Seller’s Conveyance to a Third Party Occurs Because of the Installment Agreement with S.Crow Collateral Corp.

October 8, 2021

Because the installment seller to S.Crow Collateral Corp. typically conveys the asset directly to the third party who contractually purchases from S.Crow Collateral Corp., there are those who think that means that the sale to S.Crow Collateral Corp. isn’t “real”.

Here’s the situation: A seller (whom we’ll call “S”) contracts to sell an asset (which we’ll call the “Property”) to a third-party buyer (whom we’ll call “TP”).

 

Either before or after the contract between S and TP is signed, but in all events before the closing on that contract, S enters into another contract, this time with S.Crow Collateral Corp., to sell the Property to S.Crow Collateral Corp. on an installment basis. The contract between S and S.Crow Collateral Corp. allows S.Crow Collateral Corp. to assign any of its rights under the contract and, further, explicitly requires S to convey the Property to TP on behalf of S.Crow Collateral Corp.

 

Further, S and TP enter into an agreement in which TP acknowledges S.Crow Collateral Corp.’s agreement to purchase the Property from S but says that S will nonetheless convey the Property to TP to fulfill that requirement of their agreement.

 

If the agreement between S and S.Crow Collateral Corp. is signed before the agreement between S and TP is signed, the agreement between S. and S.Crow Collateral Corp. explicitly makes the agreement between S and TP subordinate to the one between S and S.Crow Collateral Corp.

 

Through these mechanisms, the two sale agreements are fully consistent with each other.

 

If there were no sale agreement between S and S.Crow Collateral Corp., S might well choose not to proceed to closing with TP. Refusing to proceed to closing with TP might or might not incur some penalty or other obligation for S, but that is a choice which S could make.

 

Because of the sale agreement between S and S.Crow Collateral Corp., however, S is under two contractual provisions for S to proceed to closing with TP. Without it, S might well back out of the deal with TP. Indeed, if S didn’t already expect to sign an installment agreement with S.Crow Collateral Corp., S might well not agree to any sale to TP in the first place.

 

So, when S later complies with S’s obligation to convey to TP, S is doing so because of S’s installment sale to S.Crow Collateral Corp. S might have gone ahead with the TP deal anyway, or S might not have. So, those who think that S’s installment transaction with S.Crow Collateral Corp. isn’t “real” simply have not paid attention to the contractual realities.

 

Furthermore, examples of comparable contractual realities abound throughout the economy. For example, in expectation of an agreement with Developer, Promoter contracts to buy a parcel of real estate from Owner. Developer and Promoter then indeed come to agreement, and Promoter arranges for Owner to convey the real estate directly to Developer. That doesn’t mean that the contract between Promoter and Owner (or the one between Promoter and Developer) wasn’t “real”.

 

Or, Owner contracts to sell a certain apartment building to Buyer, but before the closing, Owner enters into an exchange agreement with Accommodator and assigns the Owner-Buyer agreement to Accommodator. The agreement between Accommodator and Owner requires Owner to convey the building to Buyer rather than to Accommodator. Buyer pays Accommodator, and Owner conveys the building to Buyer. That doesn’t mean that the agreement between Owner and Accommodator wasn’t “real”.

 

Or, in anticipation of changing brands, Dealer enters into a “requirements” contract with Manufacturer for such number of Manufacturer’s brand of new cars as Dealer needs during the succeeding one year. Dealer then assigns the Dealer-Manufacturer agreement to Dealer #2, and Manufacturer supplies that brand to Dealer #2 instead of to Dealer. That doesn’t mean that the Dealer-Manufacturer contract (or the agreement between Dealer and Dealer #2) wasn’t “real”.

 

It’s such a commonplace event for buyers to assign their rights to purchase, that the practice even has a name: it’s called “wholesaling”. To read about it, see https://www.asreb.com/2014/06/assignments-buyers-rights-purchase-agreements/. That doesn’t make either the initial purchase agreement or the one between the purchaser and the assignee not “real”.

 

Where S agrees to convey Property to TP at S.Crow Collateral Corp.’s direction, S stands in the shoes of S.Crow Collateral Corp. The conveyance is done physically by S but is on behalf of S.Crow Collateral Corp. and may well not have been executed at all if there were no agreement between S and S.Crow Collateral Corp.

 

One may read about countless varieties of such transactions, as described at https://saylordotorg.github.io/text_law-for-entrepreneurs/s17-01-assignment-of-contract-rights.html from the Restatement (Second) of Contracts. And so on, ad infinitum.—Stan Crow

Stanley Crow, our Editor

The Latest Installment addresses situations, questions and issues which are brought to us in the course of the consideration, negotiation or execution of transactions. We don't use the real names of parties to transactions, and we may edit the statement of the question to try to tell the story better. Please feel free to comment, or to take issue, or to raise your own question or situation. If you do the latter, please do not relate any confidential information.

The Latest Installment blog is edited by Stanley D. Crow, who is president of S.Crow Collateral Corp.

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