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Yavapai Title Agency, Inc. v. Pace Preparatory Academy

Court of Appeals of Arizona, First Division, Department T

July 2, 2013

YAVAPAI TITLE AGENCY, INC., an Arizona corporation, Plaintiff/Counterdefendant/ Appellee,
v.
PACE PREPARATORY ACADEMY, an Arizona nonprofit corporation, Defendant/Counterclaimant/ Appellant.

(Not for Publication-Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Yavapai County Cause No. P1300CV201000484 The Honorable Anna C. Young, Judge

Linda Wallace, PLLC Sedona by Linda Wallace Attorney for Defendant/Counterclaimant/Appellant.

Roberts & Carver, PLLC Prescott by Jerry P. Carver Attorney for Plaintiff/Counterdefendant/Appellee

MEMORANDUM DECISION

MAURICE PORTLEY, Presiding Judge

¶1 Pace Preparatory Academy ("Pace") appeals the summary judgment entered in favor of Yavapai Title Agency, Inc. ("YTA") and the denial of its summary judgment motion. Because we find no error, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 In 2003, Pace borrowed $253, 959 from Bank One ("Lender")[1] to build a charter high school. To memorialize the transaction, the president of Pace, Holly Stiles, signed a promissory note ("Note") on behalf of the non-profit corporation. She secured the Note by signing a deed of trust ("Pace Deed of Trust"), which encumbered the property ("the Dewey Property"). Stiles also signed a personal guarantee obligating her to pay the sums due under the Note.

¶3 Two years later, Pace and Stiles' Colorado consulting business, Stiles Educational Services, LLC ("SES"), entered into a consulting agreement. The collaboration ended in June 2007 when the parties agreed to terminate that agreement. As part of the agreement, SES and Pace, by Richard B. Thelander, entered into a Lease/Option to Purchase Real Property ("Lease/Option"); Pace would lease the Dewey Property to SES for twenty months and SES would pay rent each month, which was equal to the monthly Note payment, directly to the Lender as Pace's mortgage payment. The agreement also gave SES the option to buy the Dewey Property at any time before the lease term ended on February 15, 2009, the date the last payment was due under the Note.

¶4 The same day that Thelander executed the Lease/Option for Pace, Pace also quit claimed the Dewey Property to SES. Concurrently, the parties hired YTA to open an escrow pursuant to the Lease/Option. YTA, however, discovered the recorded quit claim deed in August 2007 and informed both parties that the escrow would be cancelled unless it received different instructions. YTA heard nothing and canceled the escrow.

¶5 SES sold the Dewey Property in April 2008 to Christopher Fannin dba Cross Point Free Will Baptist Church of Prescott by special warranty deed. Fannin borrowed $350, 000 from the Free Will Baptist Home Missions Extension Loan Fund, Inc. ("FWB") and his note was secured by a deed of trust. SES, however, did not disclose the Pace Deed of Trust in its Commercial Seller's Property Disclosure Statement, and YTA, the escrow agent and title insurer, did not discover or list the Pace Deed of Trust in the title insurance policy. The YTA policy insured that FWB's deed of trust was in a first lien position.

¶6 Although Pace believed that SES had paid off the Note pursuant to the Lease/Option, SES had in fact stopped paying the lease payments and the Lender initiated a trustee's sale on the Dewey Property in August 2009. To settle Fannin's title insurance claim, YTA paid the Lender the remaining indebtedness and was given a general assignment from the Lender.

¶7 YTA then sued Pace, Stiles, and SES to recover the sums it paid to the Lender. Pace filed an answer, counterclaim and cross-claims. In its counterclaim, Pace alleged that YTA was negligent by failing to discover the existence of the Pace Deed of Trust.

¶8 YTA secured summary judgments against Stiles, SES, and Pace on its complaint.[2] Because the counterclaim could impact YTA's judgment, the court allowed Pace to file a motion for summary judgment. In its motion, Pace argued that YTA breached its duty to Pace. YTA filed a response and cross-motion for summary judgment claiming it did not owe a duty to Pace, with whom YTA had no contractual relationship. The court subsequently denied Pace's motion and granted ...


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