Great Western Bank v. LJC Development, LLC
238 Ariz. 470
| Ariz. Ct. App. | 2015Background
- Great Western Bank (successor to TierOne) entered two loans with Cedar Ridge Investments: an acquisition & development (A&D) loan and a separate January 2008 construction "Loan Agreement" for lot-specific construction financing; Appellees guaranteed the A&D loan.
- The Loan Agreement (titled "Loan Agreement" and signed by bank officials) stated Lender "agrees to make the Loans" and described lot-specific advances subject to terms and case-by-case approval; it was effective through Dec. 1, 2008.
- In July 2008 Great Western internally decided to cease construction financing in Arizona and withdrew from the Loan Agreement; Cedar Ridge then slowed work, failed to obtain alternate financing, defaulted on the A&D loan, and Great Western foreclosed and sought the deficiency from the guarantors.
- Guarantors conceded liability on the A&D loan but counterclaimed for offset/damages for lost profits caused by Great Western’s anticipatory repudiation and breach of the implied covenant of good faith and fair dealing.
- The trial court found Great Western breached the Loan Agreement and the implied covenant, awarded lost profits to Borrower ($2.808M–$3.5M), reduced guarantors’ liability to zero, and awarded attorneys’ fees and costs; Great Western appealed.
Issues
| Issue | Plaintiff's Argument (Great Western) | Defendant's Argument (Guarantors/Borrower) | Held |
|---|---|---|---|
| Contract interpretation — was the Loan Agreement a binding obligation to make loans or merely an uncommitted "guidance line"/outline? | Agreement was an uncommitted facility; bank retained discretion and only made loans after case-by-case review. | The document is a "Loan Agreement" that "agrees to make the Loans" and creates an obligation to consider and make lot-specific advances subject to conditions. | Court: Agreement is a binding loan agreement obligating Lender to make loans and to consider requests case-by-case; bank's post-execution recharacterization rejected. |
| Termination/anticipatory repudiation — could Great Western unilaterally withdraw before expiration? | Bank had discretion to withdraw and was permitted to decline funding. | Withdrawal violated express contract terms (termination only on Borrower default); unilateral withdrawal was breach. | Court: Withdrawal was a breach; contract did not authorize unilateral termination absent default. |
| Implied covenant of good faith and fair dealing — barred by statute of frauds or D’Oench? | Claim relies on promise to lend not in writing; barred by A.R.S. §44-101(9) and D’Oench/FDIC doctrine. | Claim arises from written Agreement and written repudiation; covenant implied in every contract and breach may be shown without extra oral promises. | Court: Statute of frauds and D’Oench inapplicable; claim for breach of implied covenant viable because premised on written Agreement and written withdrawal. |
| Lost-profits damages — proved with reasonable certainty and attributable to breach? | Lost-profits award speculative, causation could be the market downturn; damages should be limited to short remaining term or minimal. | Borrower presented evidence (market, appraiser, bank’s own witness) and formulated a reasonable method; lost profits were caused by bank’s breach and proven within reasonable certainty. | Court: Findings supported by substantial evidence; formula produced an approximately accurate estimate; award affirmed. |
Key Cases Cited
- Colo. Cas. Ins. v. Safety Control, 230 Ariz. 560 (discussing de novo review of contract interpretation)
- Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83 (contract interpretation principles)
- ELM Retirement Ctr., L.P. v. Callaway, 226 Ariz. 287 (plain-meaning/context approach to contracts)
- Taylor v. State Farm Mut. Auto. Ins., 175 Ariz. 148 (purpose of contract interpretation: parties' intent)
- United California Bank v. Prudential Ins., 140 Ariz. 238 (performance readiness for anticipatory repudiation remedies)
- Shattuck v. Precision-Toyota, Inc., 115 Ariz. 586 (illusory contract / mutuality of obligation)
- Wells Fargo Bank v. Ariz. Laborers Local No. 395 Pension Trust Fund, 201 Ariz. 474 (implied covenant of good faith and fair dealing scope)
- Bike Fashion Corp. v. Kramer, 202 Ariz. 420 (protecting reasonable expectations; covenant breach standard)
- FDIC v. Adams, 187 Ariz. 585 (D’Oench doctrine explained as barring unwritten side agreements against failed banks)