Mining Investment Group, LLC v. Roberts

• Citation: 217 Ariz. 635,177 P.3d 1207
• Decision Date: 11 March 2008
• Docket Number: No. 1 CA-CV 06-0684.,1 CA-CV 06-0684.
• Parties: MINING INVESTMENT GROUP, LLC, Plaintiff/Counter-Defendant/Appellant/Cross-Appellee, v. Billy V. ROBERTS and Sandra J. Roberts, husband and wife, Defendants/Counter-Plaintiffs/Appellees/Cross-Appellants.
• Court: Court of Appeals of Arizona

177 P.3d 1207

217 Ariz. 635

MINING INVESTMENT GROUP, LLC, Plaintiff/Counter-Defendant/Appellant/Cross-Appellee, v. Billy V. ROBERTS and Sandra J. Roberts, husband and wife, Defendants/Counter-Plaintiffs/Appellees/Cross-Appellants.

No. 1 CA-CV 06-0684.

Court of Appeals of Arizona, Division 1, Department B.

March 11, 2008.

Vakula Kottke, PLC by Alex B. Vakula, and Jennifer B. Campbell, Marguerite Kirk, Prescott, Attorneys for Plaintiff/Counter-Defendant/Appellant-Cross-Appellee.

Tevis Reich, Attorney at Law by Tevis Reich, Flagstaff, Attorneys for Defendants/Counter-Plaintiffs/Appellees/Cross-Appellants.

Mack & Associates PC by Richard V. Mack, and Paula M. DeMore, Phoenix, and K. Michelle Lind, General Counsel for the Arizona Association of Realtors, Phoenix, Attorneys for Amicus Curiae Arizona Association or Realtors.

OPINION

OROZCO, Judge.

¶ 1 Mining Investment Group, LLC, (Buyer) appeals from partial summary judgment finding that Buyer's failure to fund escrow on the closing date of a real estate purchase agreement with Billy and Sandra Roberts (Sellers) constituted a material breach of contract. Buyer also appeals the trial court's award of liquidated damages to Sellers. Sellers cross-appeal the trial court's denial of their cross-motion for summary judgment on their claim for improper filing of a lis pendens. For the following reasons, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 On August 17, 2005, Buyer entered into a purchase contract (the contract) for approximately two acres of vacant land owned by Sellers for a total purchase price of $126,000. The contract provided that the purchase price would be paid as follows: an initial earnest money deposit of $10,000; an additional $30,000 deposit on or before the close of escrow; and a $86,000 promissory note and deed of trust payable to Sellers.

¶ 3 The contract originally set the close of escrow on or before October 12, 2005. However, given a scheduling conflict on Buyer's part, the parties mutually agreed to extend the closing date to October 14, 2005.¹ Although Buyer had deposited the $10,000 earnest money with the escrow company, Yavapai Title Agency (Yavapai Title), it had not deposited the additional $30,000.

¶ 4 On October 14, 2005, Sellers arrived at Yavapai Title's office at 1:00 p.m. to sign all the necessary documents to close escrow. After waiting two hours for Buyer to wire transfer the $30,000 deposit to Yavapai Title, Sellers left. By the close of business at 5:00 p.m., Yavapai Title had not received the $30,000 from Buyer. After being made aware of this, Sellers faxed a cancellation notice withdrawing the property from escrow, which Yavapai Title received at approximately 5:30 p.m. On October 17, 2005, one business day after the scheduled closing,² Buyer wire transferred the $30,000 to Yavapai Title.

¶ 5 On October 24, 2005, Buyer filed a complaint, requesting specific performance of the contract, which it alleged Sellers anticipatorily breached. In connection with the complaint, Buyer also recorded a Notice of Lis Pendens regarding the property in dispute. Sellers, thereafter, moved for partial summary judgment, requesting that the court enter an order finding that Buyer's failure to fund escrow on the closing date constituted a material breach pursuant to a "time of the essence" clause contained in the contract and, as a result, Buyer forfeited its $10,000 earnest money deposit. Sellers also filed a counterclaim, asserting that the lis pendens recorded by Buyer was groundless in violation of Arizona Revised Statutes (A.R.S.) section 33-420 (2007).

¶ 6 Buyer cross-moved for summary judgment, requesting the court enter an order finding that its delay in funding the escrow account by one business day was an immaterial breach, notwithstanding the "time of the essence" clause, and that Sellers' counterclaim was meritless. Sellers, in turn, cross-moved for summary judgment on their counterclaim.

¶ 7 The trial court granted Sellers' motion for partial summary judgment, finding that Buyer's failure to fund the escrow account by closing constituted a material breach pursuant to the terms of the contract. The court further found that Sellers were entitled to the full amount of earnest money deposited by Buyer, pursuant to a liquidated damages clause contained in the contract, as well as attorneys' fees. The court denied Seller's cross-motion for summary judgment on the counterclaim, finding that Buyer had a good faith legal argument and, accordingly, the lis pendens was not improper.³

¶ 8 Buyer timely appealed and Sellers timely cross-appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).

DISCUSSION

¶ 9 This court reviews "a grant of summary judgment de novo." Emmett McLoughlin Realty, Inc. v. Pima County, 212 Ariz. 351, 353, ¶ 2, 132 P.3d 290, 292 (App.2006). Additionally, "[w]e view the facts in the light most favorable to the party against whom summary judgment was entered." Id. (citing Link v. Pima County, 193 Ariz. 336, 340, ¶ 12, 972 P.2d 669, 673 (App. 1998)). A motion for summary judgment should be granted if there is no genuine issue of material fact. Ariz. R. Civ. P. 56(c)(1).

The Materiality of Buyer's Breach

¶ 10 Buyer argues that the trial court erred in granting partial summary judgment in favor of Sellers because the contract conferred on Buyer an equitable property interest, which could only be forfeited by a material breach of contract. Notwithstanding the express terms of the contract, Buyer argues that, at a minimum, a question of fact exists as to the "materiality" of its failure to fund escrow by the scheduled closing date. Buyer maintains that Foundation Development Corp. v. Loehmann's, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990) and the Restatement (Second) of Contracts § 241 (1981) should control our determination of the issue. We disagree.

¶ 11 Loehmann's involved a commercial lease containing a "time of the essence" clause. 163 Ariz. at 439-40, 788 P.2d at 1190-91. After the tenant was a few days late in paying common area charges, the landlord brought a forcible detainer action pursuant to A.R.S. § 33-361(A) against the tenant seeking to terminate the lease. Id. at 441, 788 P.2d at 1192. After an extensive discussion of the importance of a tenant's property interest at common law, Id. at 441-42, 788 P.2d at 1192-93, the Arizona Supreme Court concluded that, although a tenant could forfeit such interest if the tenant committed a material breach, A.R.S. § 33-361(A) should not be construed as permitting a landlord to terminate a leasehold for every breach of the lease, especially one that is trivial. Id. at 443-44, 788 P.2d at 1194-95. The Court then adopted the Restatement (Second) of Contracts § 241, which sets forth the standards for determining the materiality of a breach of contract.⁴ Loehmann's, 163 Ariz. at 446-47, 788 P.2d at 1197-98. Applying § 241 to the "landlord-tenant context," the Court held that the tenant's breach was trivial, especially in light of the fact that the tenant was at most three days late in paying the common area charges. Id. at 447-48, 788 P.2d at 1198-99.

¶ 12 Because there was a "time of the essence" clause in the lease agreement, the court in Loehmann's also considered whether such a provision could in effect render material an otherwise trivial breach. Id. at 449-50, 788 P.2d at 1200-01. In holding that a "time of the essence" clause was not dispositive in determining the materiality of a breach, the Court reasoned "[t]he mere incantation that `time is of the essence' works no magic to transform trivial untimeliness into a material breach; rather, the same factors we delineated in determining general materiality apply to evaluating the effect of a particular `time of the essence' provision." Id. at 450, 788 P.2d at 1201.

¶ 13 We do not find Loehmann's to be controlling in an executory contract for the purchase of real property. Buyer correctly asserts the well-established principle that an executory contract, like the real estate contract here, operates to pass to the buyer an equitable interest in the land and to the seller an equitable interest in the purchase proceeds. Tucker v. Byler, 27 Ariz. App. 704, 708, 558 P.2d 732, 736 (1976). However, Buyer is incorrect in its assertion that the equitable interest it held in the property "necessarily included" a possessory interest in the property akin to the possessory interest held by the tenant in Loehmann's. It is well-established that "[a] contract for the sale of realty does not effect a transfer of legal title," which remains in the seller's name until the close of escrow. Wayt v. Wayt, 123 Ariz. 444, 446, 600 P.2d 748, 750 (1979); Hoyle v. Dickinson, 155 Ariz. 277, 280, 746 P.2d 18, 21 (App.1987). Furthermore, "the buyer is not entitled to possession prior to the transfer of legal title unless the contract expressly entitles him to possession or the seller voluntarily grants him possession." Stapley v. American Bathtub Liners, Inc., 162 Ariz. 564, 566, 785 P.2d 84, 86 (App. 1989). We, therefore, do not find that the equitable interest held by Buyer by virtue of the executory contract was elevated to a possessory interest meriting protection from inequitable forfeiture under Loehmann's.

¶ 14 Nor do we find the reasoning adopted in Loehmann's persuasive in resolving this matter, when the parties' contract expressly provided that failure to perform (i.e., pay the required funds by the close of escrow) would constitute a material breach. As previously stated, the primary issue before the Court in Loehmann's was whether the tenant's delay in paying common area charges was a material breach of the commercial lease agreement. Id. at 449, 788 P.2d at 1200. Applying the factors set forth in the Restatement (Second) of Contracts § 241 for determining the materiality of a breach, the Court concluded that the delay was trivial. Id. at 447-48, 788 P.2d at 1198-99. Buyer asks that we employ a similar...