## Facts

- A developer group (the Butler group) sought long-term financing for an office-building project.
- A lender (Teachers Insurance and Annuity Association of America) issued, and the Butler group accepted, a written loan commitment for $20 million.
- The commitment set core economic terms, including a 35-year term, a fixed 14.25% interest rate, and a contingent “kicker” giving the lender participation in rental returns.
- The commitment included yield-protection terms: no prepayment for 17 years, and thereafter prepayment only with a 6% premium.
- Before closing, market interest rates fell and alternative financing became available at lower rates and without a kicker.
- After accepting the commitment, the Butler group sought better financing and attempted to avoid closing on the agreed terms.
- As closing approached, the lender tendered a deed of trust containing a “no acceleration by default” provision intended to prevent the borrower from intentionally defaulting to force acceleration as an indirect prepayment device.
- Four days before the scheduled closing, the Butler group refused to execute the deed of trust, claiming the disputed clause was an unauthorized, material new term.
- The transaction did not close; the lender sued for breach of the commitment, and the borrower asserted counterclaims alleging the lender breached by insisting on the clause.

## Issues

1. Whether the accepted loan commitment letter constituted a binding, enforceable contract obligating the parties to proceed toward closing in good faith.
2. Whether the borrower breached the commitment by attempting to escape the transaction after market rates fell and by refusing to execute loan documents containing the “no acceleration by default” clause.
3. Whether the lender breached the commitment by requiring the disputed clause as part of the deed of trust, allegedly adding a material term not contained in the commitment.

## Decision

- The court held the commitment letter was a binding and enforceable contract, not merely an agreement to agree.
- The court found the borrower breached its obligations by refusing to proceed to closing and by failing to cooperate in good faith to consummate the transaction.
- The court rejected the borrower’s argument that the “no acceleration by default” clause was an impermissible, material alteration.
- The court held the lender did not breach by insisting on the clause because it implemented and protected the bargain reflected in the commitment’s economic terms.
- Liability was resolved in favor of the lender; the borrower’s counterclaims were dismissed or failed on the merits (with damages/remedy addressed separately).

## Legal Principles

- An accepted loan commitment letter with sufficiently definite, bargained-for terms can constitute an enforceable contract obligating both sides to proceed in good faith toward documentation and closing.
- A party may not repudiate a financing commitment based on post-contract market changes by using the documentation process as a pretext to avoid performance.
- A lender may require customary or protective provisions in final security instruments when those provisions reasonably implement and safeguard the commitment’s agreed economic protections (including yield and no-prepayment terms).
- A borrower cannot treat a documentation clause as a “new term” when its function is to prevent intentional conduct (such as strategic default to force acceleration) that would defeat express prepayment restrictions in the commitment.

## Conclusion

The court enforced the loan commitment as a binding contract and held the borrower liable for breach after it refused to close in response to changing market rates; the lender’s requirement of a clause preventing intentional default to evade no-prepayment protections was permissible as an implementing term consistent with the agreed economic package.


Teachers Ins. & Annuity Ass'n of Am. v. Butler, 626 F. Supp. 1229 (S.D.N.Y. 1986)