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LetBennett v. Baxter Group, Inc. - 2/10/2010

Arizona Court of Appeals Division Two Holds That The Unauthorized Recording of a Valid Real Estate Purchase/Sale Agreement Does Not Constitute Grounds For Slander of Title Under A.R.S. § 33-420.


Buyer and Seller entered an agreement (the “Agreement”) for the sale of real property conditioned on Buyer obtaining required financing.  Buyer failed to obtain financing and Seller eventually accepted an offer to sell the property to another party.  Seller refused to return Buyer’s security deposit.  To attempt to force repayment of the security deposit, Buyer had the Agreement recorded before Seller’s new sale agreement had closed. 

Buyer sued Seller for breach of contract for failing to return the security deposit and for fraud.  Seller counterclaimed for fraud and for tortious interference with contract.  The trial court granted summary judgment to Buyer on the majority of Seller’s counterclaims, but denied summary judgment on Seller’s claims for interference with contract and slander of title.  After a bench trial, the court awarded Buyer the security deposit, but denied Buyer’s fraud claim.  The court ruled against Seller on its counterclaims for interference with contract and slander of title, and awarded Buyer its attorneys’ fees as well as costs and sanctions.   

Seller appealed.  The Court of Appeals affirmed dismissal of the slander of title claim, affirmed the finding of a breach of contract from the failure to return Buyer’s security deposit, and affirmed the award of sanctions.  The Court vacated and remanded for reconsideration the awards of attorneys’ fees and taxable costs.   

Seller based its slander of title claim on A.R.S. § 33-420(A), which imposes liability against a person who, claiming an interest in real property, causes a document asserting the claim to be recorded while “knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid.”  In addition, A.R.S. § 33-420(D) provides: “A document purporting to create an interest in, or a lien or encumbrance against, real property not authorized by statute, judgment or other specific legal authority is presumed to be groundless and invalid.” 

Seller argued that the A.R.S. § 33-420(D) presumption applied because no statute, judgment or other legal authority provided for the recording of the real estate sales agreement.  The Court of Appeals held, however, that A.R.S. § 33-420(A) focuses solely on whether the document is invalid or groundless, not on whether the recording of the document was authorized.  Because the Agreement itself was valid, the trial court did not err in dismissing the slander of title claim. 

Chief Judge Howard authored the opinion; Judges Espinosa and Vásquez concurred.

Posted By: Mark P. Hummels

Posted On: 2/17/2010