Callaway v. North Ironwood

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DAWN CALLAWAY, Plaintiff/Appellant,

v.

NORTH IRONWOOD, LLC, Defendant/Appellee.

No. 1 CA-CV 21-0337
FILED 3-29-2022

Appeal from the Superior Court in Maricopa County
No. CV2019-004131
The Honorable Randall H. Warner, Judge

AFFIRMED

COUNSEL

Law Office of Timothy M. Collier, PLLC, Scottsdale
By Timothy M. Collier, William A. Weber
Counsel for Plaintiff/Appellant

Stoops Denious Wilson & Murray, PLC, Phoenix
By Michael T. Denious
Counsel for Defendant/Appellee
 CALLAWAY v. NORTH IRONWOOD
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Maria Elena Cruz delivered the decision of the Court, in
which Judge Samuel A. Thumma and Judge Michael J. Brown joined.

C R U Z, Judge:

¶1 Dawn Callaway appeals from the superior court’s judgment,
following a bench trial, finding in favor of North Ironwood, LLC, on her
claims for breach of contract and breach of the implied covenant of good
faith and fair dealing. For the following reasons, we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 In February 2017, Callaway and North Ironwood entered into
a Real Estate Purchase Agreement and a Lease Agreement (collectively,
“the Agreements”) for Callaway to lease and then subsequently purchase
residential real property owned by North Ironwood. Under the terms of
the Purchase Agreement, Callaway had an extended escrow of two years.
During this two-year period, Callaway would lease the property while
renovating the existing home and making other improvements. The
Purchase Agreement also provided that all plans for construction and
improvements were subject to pre-approval by North Ironwood. Callaway
agreed to purchase the property for $885,000 at the conclusion of the lease
term, with the close of escrow to take place on or before January 31, 2019.
Callaway deposited $10,000 in earnest money, which was to be applied to
the purchase price at closing. The parties agreed that if Callaway breached
the Purchase Agreement, the earnest money was to be paid to North
Ironwood as liquidated damages.

¶3 Callaway took possession of the property, the initial
construction plans were approved by North Ironwood, and she began
making improvements. In the first part of 2018, Callaway emailed revised
plans to North Ironwood, and requested the approval of a permit to
construct a guest house. However, North Ironwood did not approve the
construction of a guest house and did not authorize Callaway to request
permits for one. North Ironwood informed Callaway she could build the
guest house after she purchased the property, and that she could accelerate
the closing date for the purchase if she so desired. Callaway did not
respond to that communication.

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¶4 In the four months leading up to the closing date, North
Ironwood wrote Callaway to remind her of the January 31, 2019 closing
date and that there were steps that needed to be taken prior to then.
Callaway did not respond. A final notice was sent January 10, 2019, in
which North Ironwood made clear it was expecting Callaway to close on
the property, and it would seek all available remedies if she did not do so.

¶5 Shortly after, Callaway gave written notice to North
Ironwood, stating North Ironwood breached the parties’ contract, in part
because it refused to approve the construction of the guest house. Callaway
stated she was choosing not to exercise her “option” to purchase the
property, and she requested $35,000 in damages for the improvements she
had made on the property. She also sought a return of the earnest money.
North Ironwood refused Callaway’s demands and they both made
competing demands to the escrow title agent for the $10,000 earnest money.

¶6 As pertinent here, Callaway sued North Ironwood for breach
of contract and breach of good faith and fair dealing. Callaway alleged
damages in the amount of the $10,000 earnest money deposit and another
$85,000 she allegedly incurred while making improvements on the
property.

¶7 After a bench trial, the superior court found in favor of North
Ironwood on Callaway’s contract claims. Because Callaway did not close
on the sale of the property, the superior court found that Callaway was in
breach, and under the terms of the Purchase Agreement, she forfeited the
return of the earnest money. The superior court awarded North Ironwood
its attorneys’ fees and costs.

¶8 Callaway timely appealed. We have jurisdiction pursuant to
Arizona Revised Statutes section 12-120.21(A)(1).

DISCUSSION

¶9 Callaway argues the court erred in finding the parties entered
a binding Purchase Agreement rather than a lease with an option to
purchase. Callaway further argues she was within her contractual rights
when she decided not to purchase the property at the end of the lease term
and her earnest money deposit should have been returned to her.

¶10 Matters of contract interpretation present issues of law we
review de novo. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003). In
interpreting a contract, our purpose is to determine and enforce the parties’
intent. Taylor v. State Farm Mut. Auto Ins. Co., 175 Ariz. 148, 152 (1993). In

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determining the parties’ intent, we “look to the plain meaning of the words
as viewed in the context of the contract as a whole.” United Cal. Bank v.
Prudential Ins. Co. of Am., 140 Ariz. 238, 259 (App. 1983). “A contract must
be construed so that every part is given effect, and each section of an
agreement must be read in relation to each other to bring harmony, if
possible, between all parts of the writing.” Chandler Med. Bldg. Partners v.
Chandler Dental Grp., 175 Ariz. 273, 277 (App. 1993). Determinations of fact,
however, are reviewed applying a clearly erroneous standard. In re Johnson,
231 Ariz. 556, 557, ¶ 1 (2013). The meaning of ambiguous language in a
negotiated contract turns on what the parties intended, and to the extent
credibility determinations must be made, the intent of the parties is a
question of fact. Taylor, 175 Ariz. at 154, 159.

¶11 The superior court considered the fact that the document’s
title is “Real Estate Purchase Agreement with Escrow Instructions,”
highlighting the terms Purchase Agreement as a basis for its finding that
the language in the Lease and Purchase Agreements demonstrates the
parties’ intent to enter into a purchase agreement and not an option to
purchase. That the contract included a clause stating that section headings
and captions “in no way define, limit, construe or describe the meaning,
scope or intent of such sections, nor in any way affect this Agreement,” is
of no consequence, because “Real Estate Purchase Agreement with Escrow
Instructions” is the name of the document, not a section heading or caption.
Moreover, the Purchase Agreement referred to the period during which
Callaway leased the property as an “extended escrow period.” The
Purchase Agreement also contains several provisions that make it clear
Callaway was obligated to purchase the property: (1) “Buyer agrees to
purchase the Property from Seller”; (2) “Buyer hereby agrees to purchase
the Property from Seller, and Seller hereby agrees to sell to Buyer the
Property for the Purchase Price as defined below in this Agreement”; and
(3) The closing “shall occur on or before 31st January, 2019.” (Emphasis
added.)

¶12 Additionally, the Purchase Agreement contains language
pertaining to a ten-day “inspection period” during which Callaway had
“the right to immediately cancel” the contract. As North Ironwood notes,
if the parties had intended to enter into an option to purchase, an inspection
period would be unnecessary; Callaway would have the opportunity to
refuse to exercise the option, and thereby not purchase the property, until
the date of closing.

¶13 The Purchase Agreement provides that “[t]he Earnest Money
shall be applied to the Purchase Price at Closing.” But because Callaway

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failed to close on the property, she was in breach, and the Purchase
Agreement provides that in those circumstances, North Ironwood “shall
retain the Earnest Money as its damages and, thereafter, neither party shall
have any further obligations to the other under this Agreement.”
Accordingly, given Callaway’s material breach, North Ironwood is entitled
to the $10,000 earnest money deposit.

¶14 Callaway, however, cites to one phrase in a provision in the
Lease Agreement she contends evidences the parties’ intent to enter into an
option agreement:

Tenants are leasing the Property for the purpose of taking
possession and constructing a residential structure and
improvements to the Property during the term of the Lease,
with the right to purchase the Property subject to and pursuant
to the terms and conditions of that separate Purchase
Agreement entered into between Tenant and Landlord.

¶15 However, there is no express language in either contract that
indicates the parties agreed to an option to purchase; there is no use of the
word “option,” there was no requirement of an “option fee” to be paid by
Callaway, nor did the Agreements contain any other language typically
found in an option to purchase, like the manner in which the option had to
be exercised. The provision Callaway cites does not necessitate a finding
that the parties entered into an option agreement. Moreover, if that single
provision in the Lease Agreement was construed as an option, it would
render the language in the Purchase Agreement explicitly outlining the
terms of the sale as meaningless, inconsistent, and contradictory. See supra
¶¶ 11-12; see also Chandler Med. Bldg. Partners, 175 Ariz. at 277 (“[T]he court
will not construe one provision in a contract so as to render another
provision meaningless.”). Further, if the Agreements were interpreted as
constituting an option, they would be silent and ambiguous as to what
happens to the earnest money if Callaway did not exercise the option.

¶16 Callaway also points to a provision in the Lease Agreement
that states at the termination of the lease, the options are (a) “Tenant shall
return all keys and vacate the Premises, or (b) the successful closing of
escrow under that separate Purchase Agreement.” But these are the terms
under which the lease necessarily comes to an end, nothing more. Option
(a) is not inconsistent with finding Callaway was under an obligation to
close escrow, and it did not foreclose North Ironwood’s ability to seek
remedies if she failed to do so. The Lease Agreement and Purchase
Agreement expressly provide that they are to be read together, and the

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Purchase Agreement contains the mandatory purchase language and North
Ironwood’s remedies in the event of a breach. Looking at the contract as a
whole, and not solely two isolated provisions within the Lease Agreement,
the evidence supports the superior court’s finding that the parties’ intent
was to enter into a purchase agreement.

¶17 Additionally, interpreting the Agreements as an option
would lead to an absurd result where North Ironwood would gain nothing
if Callaway had the ability to cancel the Purchase Agreement at any time
before closing without incurring any financial penalty. That is, under
Callaway’s interpretation of the Agreements, she could withdraw from the
Purchase Agreement at any time before the closing date and nonetheless be
entitled to the return of the $10,000 earnest money. Callaway argues the
consideration for entering into the option was that North Ironwood would
keep any improvements and fixtures she made to the property during the
two-year lease term. But such benefits are illusory. Under Callaway’s
interpretation of the contract, there would be no guarantee she would
actually make any improvements to the property before cancelling the
Agreements, let alone improvements that would enhance the property’s
value. See Roe v. Austin, 246 Ariz. 21, 27, ¶ 17 (App. 2018) (“[C]ourts must
avoid an interpretation of a contract that leads to an absurd result.”); see also
Chandler Med. Bldg. Partners, 175 Ariz. at 277 (“The court must apply a
standard of reasonableness in contract interpretation.”) (citation omitted).

¶18 Callaway also looks to extrinsic evidence to support her
argument that the parties intended to enter into an option, including emails
between the two parties that took place a year after the Agreements were
entered. In the email conversation, North Ironwood’s representative
notified Callaway that it was not interested in approving the construction
of a guest house before closing “should [Callaway] not be able to exercise
the purchase.” He again stated the seller was not interested in approving
the construction “should [Callaway] not exercise the option.”

¶19 Extrinsic evidence is inadmissible if it “would actually vary
or contradict the meaning of the written words.” Long v. City of Glendale,
208 Ariz. 319, 328, ¶ 29 (App. 2004). But even assuming arguendo this
evidence is admissible, the superior court was not required to find it
persuasive evidence that the parties entered into an option agreement. The
representative uses the word “option” only once, and at trial, he testified
that he was not using the word as a legal term of art in that context. The
representative testified that he had only meant to say the seller was not
interested in Callaway building a guest house in case she did not end up
closing on the property, but he did not mean to imply she would not be in

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breach if she decided not to close. He further testified that it was always
his understanding the parties entered into a purchase agreement. The
superior court found his testimony credible.

¶20 Further, North Ironwood sent notices to Callaway in October
and December 2018 regarding the upcoming closing date, which make clear
the seller believed Callaway was obligated to close. A January 2019 notice
sent shortly before the closing date informed Callaway that North
Ironwood was insisting “upon strict performance” and it would “exercise
all rights and remedies available under the Agreement and the Lease.”
North Ironwood acted consistent with that intent when it demanded the
release of the earnest money from the escrow title agent after Callaway
refused to close.

¶21 Callaway additionally contends the parties’ intention to
execute an option to purchase is evidenced by the fact North Ironwood did
not send a notice of default to Callaway. Callaway argues that North
Ironwood would have sent a notice of default if it believed she was
obligated to purchase the property. However, even assuming arguendo
that North Ironwood’s written communications fell short of the requisite
language in a notice of default, a few weeks before the closing date,
Callaway sent a letter informing North Ironwood she would not be closing
on the property. “A party anticipatorily repudiates a contract when he or
she provides a positive and unequivocal manifestation that the party will
not perform when his or her duty to perform arises.” Ratliff v. Hardison, 219
Ariz. 441, 443, ¶ 9 (App. 2008) (citation and internal quotation marks
omitted). Callaway’s anticipatory repudiation excused North Ironwood
from further performance under the Agreements. See Thomas v. Montelucia
Villas, LLC, 232 Ariz. 92, 96, ¶ 12 (2013); see also Ariz. Prop. & Cas. Ins. Guar.
Fund v. Helme, 153 Ariz. 129, 137 (1987) (noting “a party which repudiates
its contract obligations on the basis of an incorrect interpretation of a
contract has committed an anticipatory breach”).

¶22 Finally, Callaway argues that even if she did breach the
Agreements by failing to close, North Ironwood waived an alleged breach
by failing to send the required notice of default and giving her an
opportunity to cure. Callaway has waived this argument by failing to raise
it in the superior court. Orfaly v. Tucson Symphony Soc’y, 209 Ariz. 260, 265,
¶ 15 (App. 2004). In fact, at trial, Callaway specifically confirmed to the
superior court that “[Callaway] is not making the argument that [North
Ironwood] waived its right to keep the $10,000 earnest money by failing to
provide notice and an opportunity to cure.” Regardless, as noted above,
North Ironwood was excused from further performance after Callaway’s

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anticipatory repudiation, and so it was under no obligation to send a notice
of default. See Thomas, 232 Ariz. at 96, ¶ 12.

¶23 Callaway argues that should we vacate any portion of the
judgment, the attorneys’ fees awarded to North Ironwood should be
vacated, as well. Because the superior court did not err in finding in favor
of North Ironwood on Callaway’s contract claims, we affirm the superior
court’s award of attorneys’ fees.

CONCLUSION

¶24 For the foregoing reasons, we affirm. Both parties request
their attorneys’ fees and costs on appeal. Pursuant to the terms of the
parties’ Purchase Agreement, we award North Ironwood its reasonable
attorneys’ fees and costs upon compliance with ARCAP 21.

AMY M. WOOD • Clerk of the Court
FILED: JT

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