157 Conn. App. 409
Conn. App. Ct.2015Background
- Developer (GFI Groton, LLC) entered loan agreements with Webster Bank to finance a three‑building condominium project: an acquisition/development loan ($2,044,500) and a revolving construction loan (initially $1,600,000, later increased).
- Loans were secured by notes, mortgage, and four guaranties from Goodman, DeLiso, and related entities; revolving draws paid 90% of submitted vertical hard/soft costs (initial per‑unit cap $117,000 removed by 2006 amendment).
- Bank disbursed according to the developer’s submitted budgets ($85,000/unit for Bldg 1, $113,750/unit for Bldgs 2–3), and funded a September 23, 2007 draw ($62,400) for drywall; after loan maturity later extended, no further draws were submitted for unfinished drywall.
- Developer stopped interest payments April 2008; bank accelerated, refused several proposals to advance more funds or sell notes at discounts, and later bought the property at tax foreclosure sale; bank sued for breach of notes and guaranties.
- Trial court found for bank after bench trial, awarding unpaid revolving principal, unpaid interest, taxes, and fees; defendants appealed arguing bank breached funding obligations and failed to mitigate damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bank breached funding duties under loan documents | Bank funded all properly submitted draw requests (90% of developer’s submitted costs) and complied with contractual procedures | Bank should have funded more (at least $117,000/unit or actual higher costs) and thus breached, excusing developer’s defaults | Bank complied: funding was tied to developer’s submitted budgets; bank had no duty to advance funds not requested or submitted |
| Whether bank had duty to infer/cover developer’s actual construction costs | Bank reasonably relied on submitted itemized costs and disbursed per contract terms | Bank should have known actual costs exceeded submissions and advanced additional funds under ‘‘actual costs’’ language | Court rejected defendants’ inference; developer could—and had before—submitted higher budgets; bank not required to divine unsubmitted costs |
| Whether bank failed to mitigate damages by refusing additional advances to complete project | Bank reasonably refused to inject >$500,000 into a defaulted, litigious project; plaintiff need not sacrifice substantial rights | Refusal to fund caused project failure and larger damages; bank should have funded to enable sales proceeds | No failure to mitigate: refusal was reasonable; plaintiff not required to assume substantial risk or spend to minimize defendants’ losses |
| Whether bank failed to mitigate by rejecting offers to buy notes at discounts | Bank was entitled to collect on defaulted notes and pursue guaranties; offers were substantially below what bank could recover | Bank should have accepted defendants’ offers ($1.0–1.25M) to reduce damages | Court held offers were below value; bank reasonably declined and had right to collect full debt; no mitigation breach |
Key Cases Cited
- Hawley Avenue Associates, LLC v. Robert D. Russo, M.D. & Associates Radiology, P.C., 130 Conn. App. 823 (Conn. App. 2011) (elements of breach of contract)
- De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424 (Conn. 2004) (breach determinations are factual and reviewed for clear error)
- Gordon v. Tobias, 262 Conn. 844 (Conn. 2003) (standard for clearly erroneous factual findings)
- Shah v. Cover‑It, Inc., 86 Conn. App. 71 (Conn. App. 2004) (total breach by one party may relieve other party’s duties)
- Vanliner Ins. Co. v. Fay, 98 Conn. App. 125 (Conn. App. 2006) (duty to mitigate damages and burden on breaching party to prove failure to mitigate)
- Preston v. Keith, 217 Conn. 12 (Conn. 1991) (elements to prove failure to mitigate damages)
- Camp v. Cohn, 151 Conn. 623 (Conn. 1964) (plaintiff not required to sacrifice substantial rights to mitigate)
- Raff Co. v. Murphy, 110 Conn. 234 (Conn. 1929) (plaintiff may protect its own interests and need not accept substantial sacrifice to minimize defendant’s loss)