Great Western Bank v. LJC Development, LLC

IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

GREAT WESTERN BANK, a bank chartered under the laws of the State of

South Dakota, successor-in-interest to the loans of TierOne Bank, a

federally chartered savings bank, by acquisition of assets from the FDIC,

as Receiver of TierOne Bank, which was closed by the Office of Thrift

Supervisor on June 4, 2010, Plaintiff/Appellant,

v.

LJC DEVELOPMENT, LLC, an Arizona limited liability company; JAMES

LEO CROWLEY and JANE DOE CROWLEY, husband and wife; JOHN

CROWLEY and JENNI CROWLEY, husband and wife,

Defendants/Appellees.

No. 1 CA-CV 14-0252

FILED 11-10-2015

Appeal from the Superior Court in Maricopa County

No. CV2009-032530

The Honorable Katherine M. Cooper, Judge

AFFIRMED

COUNSEL

Quarles & Brady LLP, Phoenix

By William Scott Jenkins, Jr., Alissa A. Brice

Counsel for Plaintiff/Appellant

Aspey Watkins & Diesel, PLLC, Flagstaff

By Whitney Cunningham, Jennifer M. Mott

Counsel for Defendants/Appellees

GREAT WESTERN v. LJC, et al.

Opinion of the Court

OPINION

Presiding Judge Kenton D. Jones delivered the opinion of the Court, in

which Judge Randall M. Howe and Judge Peter B. Swann joined.

J O N E S, Judge:

¶1 Great Western Bank (Great Western) appeals a judgment

entered in favor of Appellees on its claim and counterclaim following a

bench trial. For the following reasons, we affirm.

FACTS1 AND PROCEDURAL HISTORY

¶2 This appeal arises from two construction loan agreements

between Great Western’s predecessor2 and Cedar Ridge Investments,

L.L.C. (Borrower). Appellees are the guarantors of Borrower.

¶3 In early 2007, Borrower sought funding to develop a fifty-

home subdivision in Flagstaff to be known as Cedar Ridge. Borrower first

obtained a loan from Great Western to acquire and develop infrastructure

(the A&D Loan) in May 2007. Appellees agreed to guarantee the A&D Loan

in an amount up to but not exceeding Borrower’s total principal

indebtedness to Great Western. In January 2008, Borrower entered into a

second agreement with Great Western to fund the actual construction of

homes (the Agreement). The Agreement required Appellees to execute a

guaranty separate from that securing the A&D Loan and was signed by

eight bank officials. By its terms, the Agreement expired on December 1,

2008.

1 We view the facts in the light most favorable to upholding the trial

court’s judgment. Bennett v. Baxter Grp., Inc., 223 Ariz. 414, 417, ¶ 2 (App.

2010) (citing Sabino Town & Country Estates Ass’n v. Carr, 186 Ariz. 146, 148

(App. 1996)).

2 Great Western’s predecessor in interest, TierOne Bank, was closed

by the Office of Thrift Supervision and its interest in the loan and litigation

was purchased from the FDIC by Great Western in June 2010. For ease of

reference, we refer to both Great Western and its predecessor in interest as

Great Western.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

¶4 In July 2008, as acquisition and development of the

infrastructure was nearing completion and Borrower was preparing to

obtain permits for the construction of model homes, Great Western made

an internal decision to cease construction financing in Arizona and advised

Borrower it was withdrawing from the Agreement. When notified of this

decision, Borrower immediately expressed to Great Western its concern

regarding the continued viability of the project without the financing

agreement in place, slowed construction in an effort to save money, and

attempted to secure alternate financing. Borrower’s efforts were ultimately

unsuccessful, and without financing to build model homes, Borrower could

not sell homes in Cedar Ridge and was therefore unable to generate revenue

through which to service the A&D Loan.

¶5 Great Western then foreclosed on the A&D Loan, sold the

property to another developer, and sued Appellees for the balance of

approximately $2.6 million.3 Appellees conceded they, as guarantors, failed

to repay the A&D Loan but sought offset and affirmative relief for profits

Borrower lost as a result of Great Western’s termination of the Agreement,

which they contend constituted anticipatory repudiation and breach of the

implied covenant of good faith and fair dealing. The case proceeded to trial

for determination of the merit and value, if any, of Appellees’ claims and

counterclaims which might offset the deficiency owed to Great Western.

Great Western submitted a timely request for findings of fact and

conclusions of law.

¶6 At trial, Great Western argued it was not required under the

Agreement to actually finance construction within Cedar Ridge, asserting

the Agreement was merely a “guidance line” or an outline of proposed

future loans, and Great Western retained complete discretion to decline

funding. The trial court disagreed, noting the Agreement was titled “Loan

Agreement,” contained express language obligating Great Western to

“make the Loans to Borrower,” and required Borrower to “accept such

Loans,” subject to various terms and conditions. And, according to the

Agreement’s terms, the only basis upon which Great Western was entitled

to withdraw its participation was Borrower’s default — an event never

alleged by Great Western.

3 Although they are named in the caption, John and Jenni Crowley

sought bankruptcy protection during the litigation and are not parties to

this appeal.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

¶7 The trial court concluded Great Western breached the

Agreement by unilaterally terminating its obligation to extend financing

without conducting case-by-case review of individual loan requests. The

court determined Great Western’s breach had prevented Borrower from

receiving the benefit of the contract — namely, financing it required to build

and market homes within Cedar Ridge, which would have, in turn,

provided Borrower revenues through which it would be able to repay the

A&D Loan. The court found Great Western had no valid excuse for doing

so because Borrower had the ability to begin construction and was not in

default of the Agreement. Finally, the court determined Borrower had

proven with reasonable certainty it would have profited between $2,808,000

and $3,500,000 had Great Western not terminated the Agreement. Because

the lost profits exceeded the outstanding balance on the A&D Loan, the

court found Appellees’ liability under the guaranty was reduced to zero.

The trial court determined Appellees were the prevailing parties, having

“effectively recovered $3.1 million, absolving them of their liability” to

Great Western, and awarded Appellees their attorneys’ fees and double

their taxable costs pursuant to Arizona Revised Statutes (A.R.S.) sections

12-3414 and -341.01 and Arizona Rules of Civil Procedure 54(f) and 68.

¶8 The trial court denied Great Western’s motions to amend the

findings of fact and conclusions of law and for reconsideration. Great

Western timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-

120.21(A)(1) and -2101(A)(1).

DISCUSSION

I. Interpretation of the Agreement

¶9 In its opening brief, Great Western characterizes the

Agreement as “an agreement between Borrower and [Great Western] under

which Borrower could request loans after satisfying certain terms and

conditions, and subject to an individual case-by-case review by [Great

Western].” Upon this premise, Great Western argues the trial court erred

in concluding that “[b]y entering into the [Agreement], [Great Western]

agreed to make loans, on a case-by-case basis, provided Borrower complied

with the terms and conditions set forth [there]in,” re-advancing its theory

that the documents were simply an “outline” for future financing. The

interpretation of a contract is a question of law which we review de novo.

Colo. Cas. Ins. v. Safety Control, 230 Ariz. 560, 565, ¶ 7 (App. 2012) (citing

4 Absent material revisions from the relevant date, we cite a statute’s

current version.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12

(App. 2006)). In doing so, our primary purpose is to discover and enforce

the parties’ intent at the time the contract was made, Taylor v. State Farm

Mut. Auto. Ins., 175 Ariz. 148, 152 (1993), looking first to “‘the plain meaning

of the words as viewed in the context of the contract as a whole,’” ELM

Retirement Ctr., L.P. v. Callaway, 226 Ariz. 287, 290-91, ¶ 15 (App. 2010)

(quoting United Cal. Bank v. Prudential Ins., 140 Ariz. 238, 259 (App. 1983)).

¶10 Setting aside that Great Western’s own description of the

purpose of the Agreement is nearly identical to the trial court’s finding, we

find no error. Although Great Western refers to the Agreement as a

“guidance line,” these words have no legal significance and appear

nowhere within the provisions of the Agreement. The contract itself is

specifically titled “Loan Agreement.”

¶11 Great Western’s internal communications and writings to

Borrower refer to the Agreement inconsistently as a “commitment,” a “line

of credit,” a “guidance line of credit,” and a “loan agreement.” However,

in correspondence to Borrower dated the day prior to the execution of the

Agreement, Great Western explained the term “guidance line,” stating:

The line of credit that has been approved is a “guidance line,”

which is an indication of the maximum allowable amount of

loans outstanding that you may have with [Great Western]

during the term of the guidance line. Even though this is a

commitment, each individual housing start and lot purchase

is subject to [Great Western]’s individual case-by-case

approval. . . . The guidance line amount is $3,600,000.00.

Marlin Hupka, a vice president of both Great Western and its predecessor,

provided the same explanation at trial.

¶12 Great Western’s explanation is inconsistent with the actual

terms of the Agreement, which identifies Great Western as “Lender” and

begins with an “Agreement to Make and Take Loan,” stating:

Subject to the terms and conditions set forth in this

Agreement, Lender agrees to make the Loans to Borrower, each

such Loan to be used by Borrower for the acquisition of a Lot

and for subsequent construction by Borrower of

Improvements thereon, and Borrower agrees to accept such

Loans from Lender as hereinafter described.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

(Emphasis added). The Agreement continues: “Lender will, from time to

time, make Lot Specific Advances to Borrower under the Loan for the

purchase of the Related Lot and construction of Improvements thereon.”

(Emphasis added). It was only after Great Western withdrew from the

Agreement that it informed Borrower it considered the Agreement an

“uncommitted credit facility” or described the Agreement as “not a

commitment” but “a set of terms” by which to make future loans. To accept

this explanation would render the language within the “Agreement to

Make and Take Loan” meaningless. We decline to adopt such a

construction. See ELM Retirement, 226 Ariz. at 291 (“In interpreting a

contract, we do not construe one term in a way that renders another

meaningless.”).

¶13 Great Western relies upon language within the Agreement

that “[t]he Loans are not a line of credit” and each lot-specific loan “is

subject to Lender’s individual, case-by-case approval and Borrower’s

satisfaction of all terms and conditions contained in this Agreement with

respect thereto.” These statements are not, however, dispositive of the issue

before us because, within the Agreement, “Loans” is defined as “one or

more of the Loans which Lender agrees to make to Borrower pursuant to this

Agreement.” (Emphasis added). The Agreement thus states only that the

lot-specific loans were not a line of credit; it is silent as to whether the

financing structure contemplated by the Agreement as a whole operated as

a line of credit. The existence of a defined maximum amount which the

Borrower could request certainly suggests otherwise.5

¶14 By requiring Borrower to follow a specified procedure and

furnish additional information to obtain each lot-specific loan, the lending

arrangement is distinguished from a traditional line of credit where a

certain sum is available to the borrower as he deems appropriate without

any further explanation to the lender or qualification by the borrower. But

the fact that individual loans were “subject to the terms and conditions” set

forth within the Agreement does not change Great Western’s express

agreement to “make loans” to Borrower upon its compliance with those

terms, particularly in light of the agreed upon purpose of the arrangement

“to insure that a lender will be available for construction financing.”

Additionally, that approval of individual lot-specific loans could be given

without further input from the full lending committee, who had already

signed off on the Agreement, suggests the process to obtain a lot-specific

5 A “line of credit” is “[t]he maximum amount of borrowing power

extended to a borrower by a given lender, to be drawn on by the borrower

as needed.” Black’s Law Dictionary (10th ed. 2014).

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

loan was more ministerial than substantive. Effectively, the Agreement was

as much a loan agreement, i.e., a contract binding its signatories to the

lending and borrowing of money, as any loan agreement ever written,

notwithstanding Borrower’s obligation to provide certain information to

Great Western before it could make a draw.

¶15 Great Western argues that, as a matter of public policy,

affirming the trial court’s ruling “would discourage lenders from offering

uncommitted loan facilities such as the Guidance Line, for fear that

exercising their discretion to withdraw the same will result in a judgment

against them.” We are not persuaded that a sophisticated financial

institution capable of lending monies on a scale allowing for the

construction of residential subdivisions would be incapable of drafting a

document evidencing an uncommitted loan facility in a manner that clearly

and accurately describes the rights and obligations of the parties involved

if it so intended. And if, as here, the financial institution introduces the

term “guidance line” into the transaction, defines the term as a “line of

credit” and “a commitment,” and subsequently executes a “loan

agreement” to memorialize the parties’ rights and obligations, we find no

offense in holding the financial institution to the terms of those instruments.

¶16 Further, to accept Great Western’s position would place the

court’s imprimatur upon what has commonly been deemed an illusory

contract. “[T]o agree to do something and to reserve the right to terminate

the agreement at will is no agreement at all” — executory or otherwise.

Shattuck v. Precision-Toyota, Inc., 115 Ariz. 586, 588 (1977) (“[A]n illusory

contract is unenforceable for lack of mutuality. . . . [A] contract must have

mutuality of obligation, and an agreement which permits one party to

withdraw at his pleasure is void.”) (internal quotations omitted).

¶17 Here, both the language of the Agreement and its context

reflect the parties’ intent that it would operate, effectively, as a line of credit,

subject to certain limitations and preconditions. We agree with Great

Western that it was not committed to grant any particular request for a lot-

specific loan; however, Great Western agreed to be available and was

required under the terms of the Agreement to at least consider Borrower’s

requests on a case-by-case basis. As discussed below, the trial court acted

well within its discretion in finding Great Western breached the Agreement

by refusing to honor these terms.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

II. Viability of Claim for Breach of the Implied Covenant of Good

Faith and Fair Dealing

¶18 Great Western next argues Appellees’ claim for breach of the

implied covenant of good faith and fair dealing is barred as a matter of law

because it “relies on a promise to lend money not evidenced in writing,” and

therefore violates Arizona’s statute of frauds and federal law. The

application of statutes presents a question of law which we review de novo.

See Gomez v. Maricopa Cnty., 175 Ariz. 469, 471 (App. 1993) (citing Gary

Outdoor Advert. Co. v. Sun Lodge, Inc., 133 Ariz. 240, 242 (1982)).

¶19 Arizona’s statute of frauds provides:

No action shall be brought in any court in the following cases

unless the promise or agreement upon which the action is

brought, or some memorandum thereof, is in writing and

signed by the party to be charged . . . Upon a contract,

promise, undertaking or commitment to loan money or to

grant or extend credit . . . involving both an amount greater

than two hundred fifty thousand dollars and not made or

extended primarily for personal, family or household

purposes.

A.R.S. § 44-101(9). Great Western also asserts the D’Oench doctrine likewise

prohibits a borrower from asserting defenses or claims against a failed bank

based upon unwritten agreements.6 See 12 U.S.C. § 1823(e)(1); Adams, 187

Ariz. at 589-90 (citing D’Oench, 315 U.S. at 457, and Resolution Trust Corp. v.

Foust, 177 Ariz. 507, 517 (App. 1993)).

¶20 Great Western’s reliance upon this authority is misplaced and

appears to arise from its mischaracterization of the Agreement and the

nature of the underlying claim. Here, the claim for breach of the implied

covenant of good faith and fair dealing is premised upon Great Western’s

6 The D’Oench doctrine is a form of estoppel designed to protect the

FDIC from fraudulent practices by “enabl[ing it] to enforce agreements

between failed banks and their borrowers in strict accordance with the

terms of the loan documents,” and not an unwritten “secret agreement”

between the borrower and a representative of a defunct financial

institution. FDIC v. Adams, 187 Ariz. 585, 590 (App. 1996) (citing D’Oench,

Duhme & Co. v. FDIC, 315 U.S. 447, 459-62 (1942)).

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

withdrawal from the Agreement, which is clearly evidenced in writing. As

alleged here, it is not a tort claim7 and is not based upon any oral or “secret”

arrangement to extend the contract past its natural expiration of December

2008. Therefore, neither the statute of frauds, nor the D’Oench doctrine, has

any application.

¶21 The covenant of good faith and fair dealing is implied in every

contract, including the Agreement at issue here, and can be breached even

where the express terms are not violated. Wells Fargo, 201 Ariz. at 490, ¶ 59;

Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 424, ¶ 17 (App. 2002). Here,

Appellees properly alleged Great Western acted in a manner that denied

Borrower the reasonably anticipated benefit of the Agreement, see Bike

Fashion, 202 Ariz. at 424-25, ¶¶ 17-18, when it unilaterally withdrew from

that agreement, and Appellees were properly permitted to proceed upon

that theory.8

III. Evaluation of the Evidence

¶22 The remainder of Great Western’s arguments concern the

sufficiency of evidence to support the findings of fact upon which the trial

court’s conclusions are based. We review the trial court’s findings of fact

for an abuse of discretion. Myers v. W. Realty & Constr., Inc., 130 Ariz. 274,

277 (App. 1981) (citing Lawrence v. Valley Nat’l Bank, 12 Ariz. App. 51, 57

7 Arizona recognizes a tort claim for breach of the implied covenant of

good faith and fair dealing “but only where there is a ‘special relationship

between the parties arising from elements of public interest, adhesion, and

fiduciary responsibility.’” Wells Fargo Bank v. Ariz. Laborers Local No. 395

Pension Trust Fund, 201 Ariz. 474, 491, ¶ 60 (2002) (quoting Burkons v. Ticor

Title Ins. Co. of Cal., 168 Ariz. 345, 355 (1991)). Our courts have generally

declined to recognize any special relationship between a debtor and

creditor, see McAlister v. Citibank, 171 Ariz. 207, 212 (App. 1992) (holding

bank owed no fiduciary duty to borrower); cf. Stewart v. Phx. Nat’l Bank, 49

Ariz. 34, 44 (1937) (finding special relationship between debtor and creditor

existed only because bank officers and directors had been debtor’s financial

advisors for twenty-three years), and Appellees here do not allege

otherwise.

8 The trial court ruled before trial that Appellees, as guarantors, were

entitled to pursue an offset for the amount of any of Borrower’s claims

against Great Western. See Restatement (First) of Security § 133 (1941) (cited

favorably by Great Am. Ins. v. Fred J. Gallagher Constr. Co., 16 Ariz. App. 479,

480-81 (1972)). Neither party challenges this ruling on appeal.

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

(1970)). Where there is conflicting evidence, we do not substitute our

judgment for the trial court’s and will reverse only where the findings are

clearly erroneous. Id.; Ariz. R. Civ. P. 52(a) (“Findings of fact, whether

based on oral or documentary evidence, shall not be set aside unless clearly

erroneous, and due regard shall be given to the opportunity of the trial

court to judge the credibility of witnesses.”). We therefore review each

contention to determine whether it is supported by substantial evidence in

the record. Visco v. Universal Refuse Removal Co., 11 Ariz. App. 73, 75 (1969)

(citing Bohmfalk v. Vaughan, 89 Ariz. 33, 38 (1960), and Reliable Elec. Co. v.

Clinton Campbell Contractor, Inc., 10 Ariz. App. 371, 374 (1969)).

A. Termination of the Agreement

¶23 Great Western argues the trial court abused its discretion in

finding Great Western breached the Agreement by unilaterally terminating

its obligation to extend financing. Great Western does not dispute it

withdrew from the Agreement, but argues instead it was within its

discretion to do so. Whether a party has breached a contract is a question

of fact. Maleki v. Desert Palms Prof’l Props., L.L.C., 222 Ariz. 327, 333, ¶ 28

(App. 2009) (citing Wells Fargo, 201 Ariz. at 493, ¶¶ 69-70).

¶24 The language of the Agreement authorizes termination only

upon Borrower’s default. It does not grant Great Western authority to

unilaterally withdraw from the Agreement. Great Western did not assert

Borrower had defaulted, and its termination of the Agreement was a direct

violation of its written terms. By definition, Great Western’s actions

constitute a breach of contract, and we find no error.

B. Borrower’s Ability to Perform

¶25 Great Western next argues the trial court erred in finding

Borrower was capable of performing under the Agreement, a necessary

precursor to its conclusion that Great Western committed anticipatory

breach. See Thomas v. Montelucia Villas, L.L.C., 232 Ariz. 92, 95, ¶ 9 (2013)

(requiring the non-breaching party show “‘that he would have been ready

and willing to have performed the contract, if the repudiation had not

occurred’” in order to recover damages for anticipatory repudiation)

(quoting United Cal. Bank, 140 Ariz. at 288-89). Specifically, Great Western

contends that because Borrower had yet to obtain permits for any vertical

construction or to construct an access road required by the City of Flagstaff,

it “was never in a position to build” and was therefore unable to perform.

¶26 The trial court’s finding that Borrower had the ability to

perform its obligations when Great Western breached the Agreement is

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Opinion of the Court

supported by the record. Great Western withdrew from the Agreement in

early July 2008. It is uncontested that Borrower was current on its payments

for the A&D Loan at least through October 2008. The court was advised

that Great Western’s own construction inspection, undertaken in August

2008, rated Borrower’s progress as “acceptable.” In fact, prior to being

notified of Great Western’s repudiation of the contract, Borrower had

planned to start obtaining building permits toward vertical construction

that same month.

¶27 Great Western points to evidence that the preconditions to

financing were not actually completed until after the Agreement would

have expired. That the project was ultimately delayed when Borrower

purposefully slowed construction in an effort to conserve funds while it

searched for alternate financing does not conclusively establish Borrower

was unable to perform at the time of Great Western’s breach; “the law does

not require the nonbreaching party to do a futile or useless act.” United Cal.

Bank, 140 Ariz. at 283 (citing Kammert Bros. Enters., Inc. v. Tanque Verde Plaza

Co., 102 Ariz. 301, 306 (1967), and Lee v. Nichols, 81 Ariz. 106, 111-12 (1956)).

And, Borrower still had six months before the Agreement expired to

complete any infrastructure required prior to requesting lot-specific loans.

See Kammert Bros., 102 Ariz. at 306 (noting a party generally has the right to

perform at any time during the contract period). Additionally, any

purported concern over Borrower’s ability to perform is belied by the

testimony of Great Western’s vice president, Hupka, who, within the

purview of his task “to manage the risk” for Great Western in its Arizona

market, recommended reinstating the Agreement and extending additional

loans to Borrower immediately post-repudiation and through mid-2009,

believing “[l]ong term, . . . [Borrower] has a good product and location for

the project and should be able to sell enough homes to settle the debt.”

¶28 In light of the conflicting evidence, the trial court acted within

its discretion in concluding Borrower was able to perform at the time of

Great Western’s breach.

C. Extension of the Agreement

¶29 Great Western argues the trial court erred in finding it would

“[m]ore probably than not” have extended the Agreement beyond its stated

term. Great Western contends this finding is merely speculative and

untenable in light of Arizona’s statute of frauds, which prohibits an oral

contract for the extension, renewal, or modification of a loan. See A.R.S.

§ 44-101(9). However, the finding does not “suggest[] there was an oral

agreement or understanding that such an extension would have been

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Opinion of the Court

granted” as Great Western contends; rather, it reflects the court’s resolution

of the factual issue of what, more probably than not, would have occurred

in the absence of a breach. This fact is relevant to calculating the extent of

Borrower’s damages and properly within the scope of the findings required

of the trial court. See Miller v. Bd. of Supervisors of Pinal Cnty., 175 Ariz. 296,

299 (1993) (noting findings of fact required under Rule 52(a) must be

sufficiently specific and address all pertinent issues).

¶30 The finding is also supported by the evidence. Great Western

acknowledged the opportunity existed to extend the Agreement if it made

business sense to do so. Market reports indicated the Cedar Ridge

development would be successful and profitable and would allow

Borrower to repay its obligations to Great Western. Hupka testified that, if

the development was building and selling homes, “[i]t would make

business sense” to extend the Agreement, and he actively encouraged Great

Western to reinstate the Agreement or offer alternate financing to construct

model homes at Cedar Ridge, even after the Agreement would have

otherwise expired by its own terms in December 2008. From this evidence,

the trial court could reasonably conclude Great Western would have

continued its arrangement with Borrower.

D. Breach of Implied Covenant of Good Faith and Fair Dealing

¶31 Great Western argues the trial court abused its discretion in

finding it breached the implied covenant of good faith and fair dealing by

withdrawing from the Agreement because Borrower could not have had a

reasonable expectation it would receive funding from Great Western in the

absence of a binding obligation to make loans.9 See Bike Fashion, 202 Ariz.

at 423, ¶ 13 (noting the “basic purpose” of contract law and the implied

covenant of good faith and fair dealing is to protect the parties’ reasonable

expectations) (citing 3A Corbin on Contracts § 654 (Lawrence A.

Cunningham & Arthur J. Jacobson eds., Supp. 1999)). “Issues of

reasonableness are generally questions of fact.” In re Estate of Jung, 210 Ariz.

202, 207, ¶ 28 (App. 2005) (citing Trustmark Ins. v. Bank One, Ariz., N.A., 202

Ariz. 535, 541, ¶ 25 (App. 2002)).

9 Although not expressly contained in the record, we presume the trial

court made all findings necessary to sustain the judgment if they are

“reasonably supported by the evidence, and not in conflict with the

[court’s] express findings.” Coronado Co. v. Jacome’s Dep’t Store, Inc., 129

Ariz. 137, 139 (App. 1981).

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¶32 To accept this argument requires us to accept Great Western’s

overarching premise that when it wrote the Agreement, it did not do so for

the purpose of memorializing an agreement to loan money — a position

belied by the specific language of the Agreement and one which we have

rejected. See Part I supra. Contrary to Great Western’s assertions otherwise,

that Borrower was unable to obtain alternate financing does not illustrate

Great Western’s decision to terminate the agreement to provide financing

was made in good faith. Indeed, by unilaterally terminating the Agreement

six months before it was to expire and depriving Borrower of the ability to

construct homes within the development, Great Western stripped Borrower

of the precise benefit for which it contracted and violated the covenant of

good faith and fair dealing.

¶33 We likewise reject Great Western’s suggestions that: (1) it

acted in a commercially reasonable manner and with Borrower’s best

interest in mind when it terminated the Agreement given the declining

economic conditions and its general concerns regarding the success of then-

existing real estate development projects, and (2) it was authorized to

terminate the Agreement at its pleasure so long as it had a good faith

intention, at the time of execution, to make loans to Borrower. Beyond

being both an incorrect statement of the law, see Wells Fargo, 201 Ariz. at

490, ¶ 59 (stating the “implied covenant of good faith and fair dealing

prohibits a party from doing anything to prevent other parties to the

contract from receiving the benefits and entitlements of the agreement,”

without limiting the obligation to execution of the contract) (emphasis

added), and contrary to the specific language of the agreement, these claims

were raised in this Court for the first time at oral argument and were thus

waived, see Santa Fe Ridge Homeowners’ Ass’n v. Bartschi, 219 Ariz. 391, 398

n.3, ¶ 22 (App. 2008) (citing Mitchell v. Gamble, 207 Ariz. 364, 369-70, ¶ 16

(App. 2004)).

¶34 Alternatively, Great Western argued at oral argument that

since it had decided not to loan Borrower the contracted-for monies, it was

more efficient to repudiate the entire contract at once rather than process,

and reject, applications for funding as they were received. In doing so,

Great Western conflates the issue of whether it would have approved a lot-

specific loan request with that actually presented here — its obligation to

consider requests for funding on a case-by-case basis. The Agreement

specified it was effective until December 2008, and the only basis for

termination was an event of default by Borrower. Hupka agreed it would

be reasonable for Borrower to expect the Agreement to continue until at

least the stated expiration date. That Borrower had not yet requested a loan

under the Agreement is irrelevant; it had an additional six months,

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according to the express terms of the contract, to do so. Great Western’s

arguments that Borrower would not have satisfied the preconditions to

approval are rejected for the same reasons set forth in Part III(B), supra.

And, it can reasonably be inferred, based upon Hupka’s personal and

repeated requests to Great Western to either reinstate the Agreement or

issue new loans to Borrower, that, had Borrower submitted one or more

loan requests, they would have been approved by Great Western had it

dealt with Borrower in good faith.

¶35 In sum, substantial evidence supports the trial court’s implicit

finding that Borrower reasonably expected Great Western to provide

construction financing and its conclusion that Great Western’s failure to do

so violated the implied covenant of good faith and fair dealing.

E. Lost Profits

¶36 Finally, Great Western contends Appellees failed to establish

with reasonable certainty that Borrower lost profits of $2.8 to $3.5 million

as a result of Great Western’s breach of the Agreement. Generally, the non-

breaching party to a loan agreement is entitled to recover an amount that

will reasonably and fairly compensate him for losses resulting from the

breach — the amount that would place him in the same position in which

he would have been had the contract been performed. See Higgins v. Ariz.

Sav. & Loan Ass’n, 90 Ariz. 55, 63-64 (1961) (noting where one party has

broken a contract, damages may amount to what “‘may reasonably be

supposed to have been in the contemplation of both parties at the time they

made the contract’”) (quoting Shurtleff v. Occidental Bldg. & Loan Ass’n, 181

N.W. 374, 376 (Neb. 1921)); Rev. Ariz. Jury Instr. (Civil) Contract 17 (5th ed.

2013). Both the existence and amount of lost profits present questions of

fact which must be proven with reasonable certainty. See Harris Cattle Co.

v. Paradise Motors, Inc., 104 Ariz. 66, 67 (1968); Earle M. Jorgensen Co. v. Tesmer

Mfg. Co., 10 Ariz. App. 445, 450 (1969).

¶37 Regarding lost profits, the trial court concluded:

Had [Great Western] not breached, after payment of the A&D

loan, Borrower would have realized an estimated net profit in

the range of $2,808,000 to $3,500,000. The Court concludes

that the 50 homes would have sold eventually. At a

minimum, Borrower would have been able to sell

approximately half of the homes based on the original

projection of $70,000 net profit per home and the remainder

for at least the revised projection of $42,320 net profit per

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

home. More likely, with Borrower’s ability to reduce

construction costs to lower price, profits would have been on

the higher end of that range.

¶38 Great Western first argues the award of lost profits was

inappropriate because, it contends, the loss was more likely caused by a

declining economy rather than breach of the Agreement. Although this is

a possible explanation, it is one which the trial court rejected in favor of

evidence from Great Western’s own appraiser that home sales in Flagstaff

remained largely consistent through 2009. The record also reflects that

demand for housing in Flagstaff was significant given the limited

availability of land in the area and the lower-cost housing proposed for

Cedar Ridge would fill an underserved niche in the community even in the

down economy. Great Western’s appraiser also concluded Borrower

would have been able to sell at least one home per month in 2009 which

would have been sufficient to service the loans with Great Western. And,

even if Great Western had decided not to extend the Agreement beyond its

expiration in December 2008, Borrower would have been able to build

several model homes in the meantime and enhance its chances of obtaining

alternate financing, thereby mitigating its damages.

¶39 We will not second-guess the trial court’s resolution of

disputed questions of fact where its findings are supported by the record.

See Gen. Elec. Capital Corp. v. Osterkamp, 172 Ariz. 185, 188 (App. 1992) (citing

City of Phx. v. Geyler, 144 Ariz. 323, 329 (1985)). We will certainly not do so

where the findings of the court were based upon the testimony of the

objecting party’s own witnesses.

¶40 Great Western also disputes the trial court’s calculation of lost

profits, arguing: (1) Appellees did not prove Great Western would have

extended the Agreement past its expiration, and therefore, damages should

have been calculated based only upon the number of homes Borrower

could have built between July and December 2008, and (2) Appellees did

not present sufficient evidence for the court to determine how many homes

Borrower would have constructed between July and December 2008. It

contends the court’s conclusion is “wildly speculative,” and that using the

words “eventually” and “more likely” “emphasize[s] the uncertainty of the

situation.”10

10 Great Western also takes issue with the trial court’s use of the words

“would have.” We are unable to discern any meaning from the phrase

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GREAT WESTERN v. LJC, et al.

Opinion of the Court

¶41 This position is untenable in light of the trial court’s factual

findings, as supported by the record and affirmed in ¶¶ 29-30, 38-39, supra,

that Borrower would have been able to sell the homes at a profit in the

favorable Flagstaff market, and Great Western would have acted in its own

best interest by continuing the financing arrangement through to

completion of the project. Moreover, we have long-recognized that

absolute certainty in the amount of damages is not necessary where the fact

of damage is proven, with doubts to be resolved in favor of the non-

breaching party. See Gilmore v. Cohen, 95 Ariz. 34, 36 (1963) (citing Story

Parchment Co. v. Patterson Parchment Paper Co., 272 U.S. 555, 563-64 (1931);

Grummel v. Hollenstein, 90 Ariz. 356, 360 (1962); and Brear v. Klinker Sand &

Gravel Co., 374 P.2d 370, 374 (Wash. 1962)); Restatement (Second) of

Contracts § 352 (1981) (“Doubts are generally resolved against the party in

breach. A party who has, by his breach, forced the injured party to seek

compensation in damages should not be allowed to profit from his breach

where it is established that a significant loss has occurred.”). Reasonable

certainty is therefore provided where there is “some reasonable method of

computing [the] net loss.” Lininger v. Dine Out Corp., 131 Ariz. 160, 163

(App. 1981) (citing Irish v. Mountain States Tel. & Tel. Co., 500 P.2d 151, 154

(Colo. App. 1972)); see also Gilmore, 95 Ariz. at 36 (“[T]he evidence must

make an ‘approximately accurate estimate’ possible.”) (quoting Martin v.

LaFon, 55 Ariz. 196, 199-200 (1940)).

¶42 Again, although there was conflicting evidence presented at

trial as to these issues, we defer to the trial court’s superior position to

weigh the evidence, make credibility determinations, and resolve conflicts

in facts and expert opinions. In re Estate of Pouser, 193 Ariz. 574, 579, ¶ 13

(1999). After making relevant findings of fact, the court articulated a

formula, the use of which Great Western does not dispute, that makes an

“approximately accurate estimate” of the lost profits.11 Nothing more is

required.

other than an affirmative declaration that the events described would, in

fact, have occurred absent Great Western’s breach.

11 To reach the lower end of the range, the trial court added twenty-

five homes multiplied by an anticipated profit of $70,000, to twenty-five

homes multiplied by an anticipated profit of $42,320, for a total of

$2,807,900. To reach the higher end of the range, the court multiplied fifty

homes by an anticipated profit of $70,000, for a total of $3,500,000.

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Opinion of the Court

CONCLUSION

¶43 The judgment of the trial court is affirmed.

¶44 Both parties request an award of attorneys’ fees on appeal

pursuant to the terms of the A&D Loan and A.R.S. § 12-341.01. As the

prevailing party, Appellees are awarded their reasonable attorneys’ fees

and costs incurred on appeal upon compliance with ARCAP 21(b).

:ama

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