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Webster Bank, N.A. v. GFI Groton, LLC

Appellate Court of Connecticut

May 26, 2015

WEBSTER BANK, N.A.
v.
GFI GROTON, LLC, ET AL

Argued January 20, 2015.

Action to foreclose a mortgage on certain of the named defendant's real property, and for other relief, brought to the Superior Court in the judicial district of New London, where the named defendant et al. filed a counterclaim; thereafter, the plaintiff filed an amended complaint to recover damages for, inter alia, breach of contract, and for other relief; subsequently, the matter was tried to the court, Hon. Joseph Q. Koletsky, judge trial referee; judgment for the plaintiff on the complaint and counterclaim, from which the named defendant et al. appealed to this court; thereafter, the court, Hon. Joseph Q. Koletski, judge trial referee, issued an articulation of its decision.

Affirmed.

SYLLABUS

The plaintiff bank sought to recover damages from the defendant developer, G Co., and its defendant guarantors, for breach of contract with respect to the development of a condominium and townhouse complex consisting of three buildings. G Co. and the bank had entered into an acquisition and development loan agreement to purchase the land and perform site work, and a revolving loan agreement to finance the construction of the buildings. Pursuant to the loan agreements, G Co. gave the bank notes, which were secured by a mortgage on the land that G Co. subsequently acquired, and the other defendants executed corresponding guaranty agreements. The revolving loan agreement detailed that G Co. could access funding by submitting its construction costs to the bank, which would disburse funds based on a percentage of the submitted construction costs, up to a certain maximum amount. G Co. constructed the first building, submitting the construction costs per condominium unit to the bank, which disbursed funds according to the revolving loan agreement. Thereafter, G Co. began construction on the second building, and increased the construction costs per condominium unit that it submitted to the bank, which continued to disburse funds accordingly. Subsequently, the bank and G Co. entered into a modification agreement increasing the principal balance of the revolving loan and eliminating the maximum amount that could be disbursed. G Co. was still obligated to submit requests to the bank to receive funds, which would still be disbursed based on a percentage of the construction costs. Despite the elimination of the maximum amount, G Co. continued to submit to the bank construction costs in the same amount as it did prior to when the parties entered into the modification agreement. Shortly before the loans matured, the bank fully funded G Co.'s final submission of construction costs, which was submitted to pay for the installation of drywall. After the loans matured, the drywall on the project remained uncompleted, and G Co. was not permitted under the loan agreements to draw more funds from the revolving loan until the bank agreed to new maturity dates on the loans. Subsequently, the bank and G Co. entered into a second modification agreement extending the maturity dates, and the parties agreed that additional funding under the second modification agreement would be available only after G Co. finished the drywall installation. The drywall was never installed, G Co. never submitted any additional requests for funding, and G Co. stopped making payments on the loans. After the bank notified the defendants that the loans were in default, the defendants made certain proposals to the bank, seeking an additional loan, in an effort to save the project. The bank rejected those proposals as well as the defendants' offers to purchase the notes at a discount. The town in which the project was located brought an action to foreclose certain tax liens on the property. The bank then commenced an action initially to foreclose the mortgages. After the loans were partially satisfied from the proceeds of the foreclosure sale, the bank amended its complaint to collect damages for, inter alia, breach of the terms of the notes and guarantee agreements. The defendants filed a counterclaim alleging, inter alia, that the bank had breached the loan agreements by failing to provide sufficient funding. The trial court rendered judgment in favor of the bank on all of the breach of contract claims, concluding that, after the revolving loan initially matured and the parties had entered into the second modification agreement, additional funds were available, but G Co. did not submit any more requests for funding because the drywall was not completed. The court also rejected the defendants' claim that the bank did not adequately mitigate its damages because it had not accepted either the defendants' proposals for an additional loan or their offers to buy the notes. On appeal, the defendants claim that the trial court improperly determined that the bank had complied with its funding obligations pursuant to the revolving loan agreement because the actual construction costs were higher than the costs G Co. submitted to the bank, which misinterpreted the maximum amounts allowable under the loan documents, and, therefore, the bank failed to provide sufficient funding to install the drywall. Additionally, the defendants claim that the trial court improperly concluded that the bank made reasonable efforts to mitigate its damages following the default on the notes because the bank had refused to provide an additional loan and had rejected the defendants' offers to buy the notes.

Held:

1. The trial court's conclusion that the bank had complied with its obligations under the revolving loan agreement was not clearly erroneous, the bank having complied with its contractual obligations by fulfilling G Co.'s requests for funding based on the construction costs that G Co. had submitted: notwithstanding the first modification agreement eliminating the maximum amount that the bank would disburse, G Co. was still required to submit requests for funding to the bank, and the bank had no reason or basis to fund G Co.'s construction costs in excess of the amount requested; furthermore, the defendants' claim that the bank should have been aware that G Co.'s actual costs of construction were higher than the costs G Co. had submitted failed, as the plain language of the loan documents provided that the amount of funding to which G Co. was entitled was determined by the construction costs that G Co. submitted, and there was no provision in the loan documents that required the bank to fund construction costs that were not properly submitted, or to divine G Co.'s actual construction costs and advance to it additional funds without G Co. having submitted those costs.

2. The evidence in the record supported the trial court's conclusion that the bank did not fail to mitigate its damages; the defendants' mere promise to repay the additional loan did not guarantee that the bank would minimize its loses, and the bank, which had the legal right to accelerate payment on the notes and collect on the debt, was under no obligation to disregard its own interests by forgoing its right to recover its losses and selling the notes to the defendants at a discount.

Jeffery O. McDonald, with whom, on the brief, was Louis N. George, for the appellants (named defendant et al.).

George A. Dagon, Jr., with whom was Eric B. Miller, for the appellee (plaintiff).

Sheldon, Mullins and Schaller, Js. MULLINS, J. In this opinion the other judges concurred.

OPINION

Page 377

[157 Conn.App. 411] MULLINS, J.

In this breach of contract action, the defendants, GFI Groton, LLC (developer), Steven E. [157 Conn.App. 412] Goodman, John DeLiso, GFI Investments V Groton, LLC, and CAT Developers, LLC, appeal from the judgment of the trial court, rendered after a bench trial, in favor of the plaintiff, Webster Bank, N.A. (bank). The defendants claim that the court improperly (1) determined that the bank had complied with its funding obligations under an agreement to finance a building project and (2) concluded that the bank had made reasonable efforts to mitigate its damages. We affirm the judgment of the trial court.

The following facts, which the court reasonably could have found, and procedural history are relevant to our resolution of this appeal. The developer undertook a project to acquire land and develop a condominium and townhouse complex in Groton (project). The project entailed constructing and selling the units of three condominium buildings on a parcel of land (property). The three buildings, respectively, would consist of twelve, sixteen and sixteen condominium units. On or about

Page 378

September 27, 2004, the developer entered into an agreement with the bank to finance the project.

Under the terms of the parties' agreement, the bank agreed to fund the project in the form of two loans: (1) an acquisition and development loan totaling $2,044,500; and (2) a revolving loan totaling $1,600,000 (loans). The acquisition and development loan would be used to purchase the property and perform site work outside of the building construction. The revolving loan would be used to fund the construction of the condominium units. The loans were made pursuant to corresponding loan agreements that set forth the obligations of the developer and the bank with respect to each loan. Additionally, the loans were secured by respective promissory notes executed by the developer (notes), as well as four " Payment and Completion Guaranty Agreements" (guaranties) that separately were executed by Goodman, DeLiso, GFI Investments V Groton, [157 Conn.App. 413] LLC, and CAT Developers, LLC (guarantors). The developer also executed a mortgage on the property in favor of the bank.[1]

The notes provided that the developer would initially pay only the monthly interest on the loans. The revolving loan agreement specified an " absorption rate" at which the developer was required to construct and sell a specified number of units every year.[2] Pursuant to the acquisition and development loan agreement, the developer was to repay the bank $44,450 of that loan upon the sale of each condominium unit and the bank, in turn, was to issue a release of a corresponding portion of the mortgage.

The revolving loan agreement provided a procedure by which the developer was to draw funds for the project as construction progressed. To receive disbursements from the revolving loan, the developer was required to submit to the bank its construction costs, which, in turn, would determine the amount of funding to which the developer was entitled. Specifically, to receive funding under terms of the revolving loan agreement, the developer was required to submit to the bank a letter " requesting the amount of the particular disbursement" along with various supporting documents. Section 4.02 (a) of the revolving loan agreement provided that the developer was permitted to draw up to 90 percent " of the actual vertical hard and soft costs of construction," but not more than $117,000 per condominium unit.[3]

[157 Conn.App. 414] During the construction of the first building, the developer submitted construction costs to the bank of $85,000 per unit. Pursuant to the terms of the revolving loan agreement, the bank disbursed to the developer $76,500 per unit, which was 90 percent of the developer's submitted construction costs. By May, 2006, the developer had completed construction on the first building, and sold its twelve units. The developer repaid the bank pursuant to the loan agreements for each unit sold in the first building.

Page 379

In 2005, the developer commenced construction on the second building and increased the construction costs that it submitted to the bank to $113,750 per unit. As a result, the bank disbursed to the developer ...


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