Ted Babiy builds houses one at a time. On acre-plus lots off the old dairy and mill roads of eastern Chester County, with wide windows and sweeping stairs, they are the kind that sell for $2 million or $3 million each.

Babiy, 56, a former banker, set up Diamond Development Group 18 years ago with his wife, Anne Marie Quinn. They work, live, and raise their kids in a cozy updated farm compound on a sunny meadow near Devon.

The high-end market is coming back - other builders, such as Bentley Homes, have hung signs for teardowns nearby. But this market is still coping with the 2008 financial crisis, and a long-running fight with his bank has drained Babiy's savings, and, he expects, will cost his family their home.

In 2008, Babiy's contractors were finishing a $2.55 million high-chimneyed house on Dorset Road in Devon and preparing for another on nearby Fairfield Road. Continental Bank, which financed the Dorset house, agreed to lend $1.8 million toward the Fairfield project, and advanced $725,000 to buy the property. Babiy told his Continental loan officer he expected he would take a six-month extension, as he had on the home on Dorset. No objection.

Six months later, in December, Babiy was summoned to meet Continental president Wayne Greist, who said he was canceling the loan. Continental, founded in 2005, had sought Babiy's business after his previous banks vanished in mergers. Now his banker told him he could ask for a new loan - with higher interest, and after posting a six-figure deposit.

Babiy didn't have the cash. He knew other banks were also toughening terms. But he had a contract. He sued in Chester County Common Pleas Court to enforce it.

This kind of fight was breaking out all over. In 2009, Citizens Bank won a $61 million court judgment against developer Brian O'Neill for defaulting on terms at his Uptown Worthington project near Malvern. O'Neill countered with an $8 billion lawsuit that claimed Citizens "defamed and disparaged" him. The legal bills increased, and the economy improved. Banker and builder settled out of court. Work at Uptown resumed.

Also in 2009, the former Harleysville Bank pushed to replace a $12.5 million loan for a stores-and-office project in New Britain Township with tougher terms. A Bucks County jury later told the bank to pay the developers $3.6 million for the canceled loan, the Legal Intelligencer reported.

Continental said Babiy's delay broke the loan contract. Babiy said the bank hadn't objected. Judge Edward Griffith ruled Continental's loan cancellation was "arbitrary, unreasonable and reckless" - but he also ordered Babiy to pay back all the money Continental had advanced, minus $50,000, which the judge said was the extra cost of a replacement loan. He didn't force Continental to fund the rest of the loan.

To Babiy, this was defeat: He lacked cash for the new house, other banks weren't lending, and he'd lose the site. He appealed to state Superior Court.

Federal bank regulators showed the pressure Continental had been under: They issued a cease-and-desist order, declaring the bank had made too many risky loans, and they demanded fiscal improvement. But as Babiy's lawyer, James Sargent of Lamb McErlane P.C. in West Chester, noted, the banking climate was Continental's problem, not Babiy's fault.

Superior Court gave Babiy no relief. It upheld the repayment order - and voided the $50,000 payback. Babiy is awaiting a state Supreme Court appeal.

Continental's lawyer, Mary Kay Brown of Brown Stone Nimeroff L.L.C. in Philadelphia, noted in her Supreme Court filing that the lower court ruling set no new precedent.

Babiy's lawyer said the ruling, if it stands, encourages banks to stiff small businesses. "If they have any basis for breaching their loan agreements, they can now afford to do so," said Sargent. "It's a small percentage of people who can afford to challenge this."

Continental has passed its crisis. Federal data show it's been profitable in each of the last eight quarters.

Babiy is building another house, funded by the buyer this time. He'll need such wealthy clients. It'll be a long time before his credit recovers from the fight with the bank that canceled his loan.

Contact Joseph N. DiStefano at 215-854-5194 or JoeD@phillynews.com.