Great Western Bank v. LJC Development, LLC

362 P.3d 1037, 238 Ariz. 470 (2015)

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Great Western Bank v. LJC Development, LLC

Arizona Court of Appeals
362 P.3d 1037, 238 Ariz. 470 (2015)

  • Written by Whitney Kamerzel , JD

Facts

In early 2007, Cedar Ridge Investments, LLC (the borrower) entered into contracts for two loans from Great Western Bank (the Bank) (plaintiff) to develop a neighborhood in Flagstaff, Arizona. LJC Development, LLC (LJC) (defendant) was the borrower’s guarantor for the loans. The first loan was obtained to fund the acquisition and development of the neighborhood’s infrastructure, and the second loan was obtained to construct the homes. Although the Bank internally referred to the second contract as a line of credit, the agreement expressly labeled the contract a loan agreement. As the acquisition and development phase was nearing completion, the Bank ceased funding construction projects in Arizona and told the borrower it was canceling the second construction loan. Even though the borrower stopped construction to save money and tried to find other financing, the borrower could not build the homes or sell them to pay for the first loan. The Bank foreclosed on the first loan, sold the property, and sued LJC for the remaining balance on the first loan. LJC sought an offset for the profits the borrower lost because of the Bank’s breach of the second loan contract. The trial court agreed with LJC and reduced its liability to zero dollars. The Bank appealed and argued that the second contract, despite being labeled a loan agreement, was merely a line of credit allowing for future loans and that the borrower’s lost profits were due to a failing economy and not the Bank’s breach of contract.

Rule of Law

Issue

Holding and Reasoning (Jones, J.)

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