4.2.8 Estoppel and Waiver.

• Jurisdiction: Arizona

Although some jurisdictions preclude acceleration after a borrower makes late payments in justifiable reliance on a continued pattern of accepting prior late payments, the rule recognized in Arizona is that failure to foreclose on prior defaults is not a waiver of the right to foreclose due to subsequent defaults. Earlier acceptance of late payments does not amount to fraud, bad faith, or unconscionable behavior. First Fed. Sav. & Loan Ass’n v. Ram, 135 Ariz. 178, 659 P.2d 1323 (App. 1982). In Ram, the court also noted that although the supreme court has recognized unconscionable behavior as a defense to foreclosure. See Ariz. Coffee Shops v. Phoenix Downtown Parking Ass’n, 95 Ariz. 98, 387 P.2d 801 (1963). Arizona Coffee Shops does not stand for the proposition that prior acceptance of late payments followed by a foreclosure for a subsequent default constitutes unconscionable conduct. Id.; see also Ciavarelli v. Zimmerman, 122 Ariz. 143, 593 P.2d 697 (App. 1979).

In Sanson v. Gonzales, 142 Ariz. 30, 688 P.2d 676 (App.), vacated, 141 Ariz. 633, 688 P.2d 641 (1984), Division One of the Arizona Court of Appeals held that late payments on a note can constitute waiver of the right to accelerate without notice, but if the note contains a non-waiver clause, acceptance of late payments is not a waiver unless the payee’s conduct is such that it would invoke an estoppel. The supreme court granted review because of a potential conflict between Ram and Sanson, but dismissed the appeal and vacated the Sanson opinion because the Sanson case was settled.

In Miller v. Uhrick, 146 Ariz. 413, 706 P.2d 739 (App.), approved, 146 Ariz. 511, 707 P.2d 309 (1985), two prior payments had been made several weeks late and were accepted. A trustee’s sale proceeding was begun after the third payment was tendered several weeks late and was rejected. The court held that the trustee’s sale was not justified, even though the documents contained a non-waiver clause: “If a contract term is to be insisted upon, notwithstanding a commercial practice to the contrary [accepting late payments], some notice more pointed than contract boilerplate must be given.” Id. at 414.

The historical saga of the Arizona “time of the essence” cases, Ram, Sanson, and Uhrick, is analyzed at length in Dorn v. Robinson, 158 Ariz. 279, 762 P.2d 566 (App. 1988). Robinson purchased a mobile home and lot in Prescott in July of 1984. From July through December, no payment, collected by a title company agent, was late...