Watson v. Cal-Three, LLC

254 P.3d 1189 (2011)

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Nature of the Case

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Facts

Brandon Park borrowed money from First United Bank (FUB) to develop and construct townhomes in the project. Watson (P) agreed to guarantee repayment of the loan in exchange for a fee to be paid from the project's proceeds. Gordon Calahan (D) was the general contractor for the first phase of the project. Brandon Park began having problems paying D initiated an action against it. A settlement was reached and Cal-Three (D) became the new developer. Gordon Calahan (D) owned Cal-Three (D). P accepted a smaller fee. In August 2002, P sent a notice to Cal-Three (D) asserting that it was in default of the new agreements for failing to pay the outstanding balance on the FUB loan, failing to pay real estate taxes and homeowners association dues, failing to cure and resolve mechanics' liens, failing to obtain a construction loan, and failing to preserve and maintain the premises. D did not respond to this notice. In December 2002, having paid the remaining balance owed to FUB, P filed an action pursuant to C.R.C.P. 120 to foreclose the deed of trust. D did not appear in the C.R.C.P. 120 action. P successfully bid on the property. The redemption period expired, and title to the property was transferred to P, who sold the remaining three completed townhome units in the project for $414,326.55 and the remaining raw land for $783,000. D eventually filed an answer and counterclaims in this, the receivership action, including claims for tortious interference with contract, breach of contract, and breach of the covenant of good faith and fair dealing. P responded to the counterclaims and included an affirmative defense of failure to mitigate damages. The court ruled in favor of D on its breach of contract and covenant of good faith claims. The court found that D had been damaged in the amount of the profits realized by P -- $414,326.55 resulting from the sales of the three existing townhomes, and $783,000 resulting from P's sale of the remaining raw land. The trial court also awarded D $50,000 in punitive damages for what it found to be P's willful and wanton behavior. Watson (P) and Local Service Corporation filed petitions in bankruptcy.