On occasion, the Arizona Court of Appeals is presented with a case in which the Court is required to examine an Arizona REALTORS® standard transaction form. Cases of this nature are always of interest as it’s important to the Association that courts interpret and enforce these forms in alignment with the drafter’s intent. Fortunately, that’s exactly what occurred when the Arizona Court of Appeals reviewed the Arizona REALTORS® Residential Resale Real Estate Purchase Contract (“Purchase Contract”) in the case of Saxton v. Berkner, No. 1 CA-CV 18-0275 (Oct. 1, 2019).[1]

Plaintiff Saxton contracted to purchase from Defendant Berkner a 10-acre property located in New River (the “Property”). The Additional Terms section of the Purchase Contract obligated Defendant Berker, during the Inspection Period, to provide buyer with: (i) a survey that had been prepared when the Property was previously split from an adjacent parcel to the south; and (ii) a copy of a well share agreement.

Defendant Berkner timely provided the survey and well sharing agreement to Plaintiff Saxton who disapproved of both documents. Plaintiff Saxton then demanded that: (i) the Property be split differently to include portions of the parcel to the south; and (ii) the well sharing agreement be changed to provide additional well capacity.

Defendant Berkner declined to make the requested changes at which point Plaintiff Saxton’s REALTOR® informed him that he could cancel the Purchase Contract and retain his earnest money. Rather than cancel the Purchase Contract, Plaintiff Saxton threatened litigation, demanded mediation, and, on March 27, 2017, notified Defendant Berkner that he would not close escrow on March 31, 2017, the contracted closing date.

In response, on March 30^th Defendant Berkner issued a Cure Period Notice and, after Plaintiff Saxton failed to pay the purchase price on March 31^st, Defendant Berkner cancelled the Purchase Contract following which Plaintiff Saxton initiated litigation.

While the Court of Appeals considered a number of issues raised by the parties, two are of particular interest.

Did Plaintiff Saxton breach the Purchase Contract?

The Purchase Contract obligated Defendant Berkner to timely provide a survey and shared well agreement, which she did. Having read the Purchase Contract, the Court explained that Plaintiff Saxton could then approve or disapprove of the documents.

Pursuant to Section 6(j) of the Purchase Contract, if Plaintiff Saxton disapproved, the Court found that he could provide notice electing to either cancel the Purchase Contract and retain his earnest money or provide seller with the opportunity to correct the items disapproved. The Court went on to explain that if seller is unwilling or unable to correct any of the disapproved items, buyer again has the right to cancel. If buyer does not cancel within five days after seller’s response, buyer is obligated to close escrow without correction of those items.

Having correctly interpreted the Purchase Contract, the Court held that “Forcing Berkner to offer a modified version of the survey and shared well agreement was not an option available to Saxton under the Contract.” Plaintiff Saxton ultimately failed to satisfy the Purchase Contract’s requirement to either cancel or tender the remaining purchase price and close escrow. As a result, the Court deemed Plaintiff Saxton in breach of contract.

Did Defendant Berkner terminate the Purchase Contract according to its terms?

Although the Purchase Contract scheduled close of escrow for March 31^st, Defendant Berkner’s Cure Period Notice was conveyed on March 30^th. Plaintiff Saxton argued before the Court that it was not possible for him to be in breach on March 30^th, prior to close of escrow, and so a timely cure notice was never sent.

The Court rejected this argument, holding that “While a contract generally cannot be breached until the date of the performance, if one party unequivocally indicates he will not perform when the date arrives, he has committed anticipatory breach.” On March 27^th, Plaintiff Saxton emphatically expressed that he would not close escrow on March 31^st unless Defendant Berkner agreed to different versions of the survey and well share agreement. This communication constituted an anticipatory breach, enabling Defendant Berkner to issue a Cure Period Notice on March 30^th.

Although the Arizona REALTORS® drafts roughly 70 transactional documents for use by its members, it is the role of the court to interpret the documents and enforce their provisions. It’s nonetheless gratifying when a court reviews an Arizona REALTORS® form, finds it clear and unambiguous, and enforces its terms as the Association envisioned when the form was created.

[1] The Court in Saxton v. Berkner issued a Memorandum Decision, which is a written disposition of a matter not intended for publication and which does not create legal precedent.  

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.