Debt Nullified on Creditor’s Death in Arizona

When a couple buys property, they usually pay the mortgage month by month until the entire sum is paid. Is it legal for a real estate contract to provide that no further payments need be made if the sellers die?
In Valenzuela v. Anchonda, 527 P. 2d 109 (1974), the Arizona Court of Appeals considered this issue.

Facts of the Case

On February 20, 1970, two couples entered into an agreement for the sale of real property. Mr. Anchonda and Mrs. Silva de Dominguez agreed to buy the property from Mr. and Mrs. Gallegos.

Creditor Debt in Probate.

The purchase price was $9,500. The cash down payment of $2,000 was paid at the time of purchase. The buyers agreed to pay the balance of $7,500 at the rate of $125 per month. The contract provided that payment would stop when both of the two sellers died. No further payments would be owing.

Both sellers died. First Mrs. Gallegos died, then Mr. Gallegos died on October 1, 1972. On that date, there was an outstanding balance of $3,750.

The executor of Mr. Gallegos’s estate, S. Valenzuela, sued for the unpaid balance. Mr. Anchonda and Mrs. Silva de Dominguez counterclaimed for slander of title, seeking damages and attorneys’ fees. Both parties moved for summary judgment.

The court entered summary judgment in favor of Mr. Anchonda and Mrs. Silva de Dominguez . S. Valenzuela appealed.

Validity of Agreement Cancelling Debt

S. Valenzuela argues that the provision waiving the debt if the sellers died was invalid. He claims it was an attempt to “effect a testamentary disposition of property through a document that is not a valid will.” Mr. Anchonda and Mrs. Silva de Dominguez claim that the provision is a valid contractual provision. They point out that nearly 30 jurisdictions have upheld the validity of this type of provision.

The Court agreed with Manual and Mrs. Silva de Dominguez . It held that the provision is a valid and enforceable part of the contract. The provision set a term within which payments were to be made. The contract set out a maximum term for payments in the event both sellers survived. It set out a lesser term in the event of their deaths. Since the sellers died, no claim remains for the estate.

Disposition

The Arizona Court of Appeals affirmed the decision of the lower court.

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