## Facts

- Tribune Co., owner of the New York Daily News, sought long-term financing to support a transaction tied to the sale of the New York Daily News Building, structured to obtain installment tax deferral.
- After other financing efforts failed, Tribune negotiated with Teachers Insurance and Annuity Association of America for a 14-year loan of $76 million at 15.25% interest.
- The parties executed and accepted a commitment letter stating they had made a “binding agreement” to borrow and lend on specified terms, while also providing that the deal was subject to preparation and execution of final documents satisfactory to both sides and to approval by Tribune’s board of directors.
- The commitment fixed core economic terms but left certain documentation and closing terms to be worked out in final loan documents.
- After interest rates fell, Tribune sought cheaper financing and terminated negotiations unless the loan could be treated using “off-balance-sheet offset” accounting; the written commitment letter did not include this condition.
- Teachers refused to add the offset-accounting condition and sued, alleging breach of the commitment letter.

## Issues

1. Whether the commitment letter, despite open terms, contemplated final documentation, and a board-approval clause, created an enforceable contractual obligation.
2. If enforceable, whether the commitment bound Tribune to consummate the loan or at least obligated both parties to negotiate in good faith toward final loan documents within the agreed framework.
3. Whether Tribune breached any such obligation by insisting on an offset-accounting condition not contained in the commitment and by terminating negotiations after interest rates declined.

## Decision

- The court held the commitment letter was an enforceable preliminary agreement reflecting an intent to create legal obligation.
- The court found the agreement bound the parties at minimum to negotiate in good faith toward final documentation consistent with the agreed terms.
- Tribune’s refusal to proceed unless a new, material condition (offset accounting) was added, and its withdrawal from the deal, breached that obligation.
- Judgment was entered for Teachers.

## Legal Principles

- Enforceability of a preliminary agreement turns primarily on the parties’ manifested intent, assessed from the writing, the commercial context, and the role of the document in the relevant market.
- There is a strong presumption against binding effect where an agreement leaves open terms, anticipates future documentation, and requires future approvals, but the presumption can be overcome by clear language and context indicating intent to be bound.
- A preliminary agreement may either (a) bind parties to the ultimate transaction where essential terms are agreed, or (b) bind parties to negotiate in good faith toward a final contract within an agreed framework even if the ultimate transaction is not yet mandatory.
- Open terms and a board-approval condition do not automatically negate obligation; they may instead define the matters left for good-faith negotiation and the manner in which approval must be pursued and exercised.
- A party breaches a binding preliminary agreement by abandoning negotiations for reasons inconsistent with the agreed framework or by demanding new, fundamental conditions not reflected in the preliminary commitment.

## Conclusion

The court enforced the loan commitment letter as a binding preliminary agreement and held that Tribune could not abandon the deal or impose a new offset-accounting condition; its withdrawal violated its duty to negotiate and proceed in good faith toward final loan documents on the agreed terms.


Teachers Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F. Supp. 491 (S.D.N.Y. 1987)