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Teachers Ins. & Annuity Asso. v. Butler

United States District Court for the Southern District of New York

January 28, 1986

No. 84 Civ. 3211 (EW)

Opinion

 [*1229]  EDWARD WEINFELD, D.J.

Plaintiff, Teachers Insurance and Annuity Association of America ("Teachers"), is a New York nonprofit corporation which provides annuities and insurance programs to colleges, independent schools and other educational institutions, and derives income for such programs from various investments, including long-term loans on commercial real estate.

The defendant, One City Centre Associates ("OCCA"), is a California limited partnership which undertook the development and construction of a high rise office building, One City Centre, in Sacramento, California. It has three general partners, David L. Butler, James E. Kassis and James L. Grauer, also named as defendants (collectively "defendants" or "the Butler group").

In connection with the development of the building, OCCA needed temporary or construction financing for the period during which the [**2]  building was under construction  [*1230]  and upon completion "permanent financing," which would be applied to the repayment of the construction financing. Bank of America made the construction loan.

Teachers, after extended negotiations with representatives of Sonnenblick-Goldman Corp., mortgage bankers and realtors who acted as the defendants' agents, and with Butler and Kassis on behalf of OCCA, issued on September 9, 1982 a Commitment Letter which was accepted by the individual defendants on behalf of OCCA. Under the Commitment Letter, which the parties acknowledge constituted a binding agreement between them, Teachers agreed to lend and OCCA agreed to borrow $20,000,000 for a thirty-five year term at a fixed interest rate of 14.25% per annum, to be secured by a first deed of trust on the building. 1 The Commitment Letter, among other matters, granted Teachers a contingent interest in the rental returns over the life of the loan, referred to as a "kicker." One provision precluded the defendants from prepayment of the mortgage during the first seventeen years (the "Lock-in Period") and another permitted prepayment during the remainder of the loan upon payment of a premium ("Prepayment [**3]  Premium") at 6% in the eighteenth year and in reduced amounts thereafter until the expiration date of the loan. These provisions, to be discussed hereafter, are at the heart of this litigation.

In October 1982, Teachers, OCCA and Bank of America, the construction lender, executed a related agreement called a Take-Out Agreement. It provided that Teachers would "take out" (i.e., purchase) Bank of America's construction loan or repay it the sums it advanced for construction of the building and succeed to its rights.

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626 F. Supp. 1229 *; 1986 U.S. Dist. LEXIS 29979 **

TEACHERS INSURANCE & ANNUITY ASSOCIATION OF AMERICA, Plaintiff, v. DAVID L. BUTLER, JAMES L. GRAUER, JAMES E. KASSIS, and ONE CITY CENTRE ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, Defendants

CORE TERMS

Prepayment, Default, commitment letter, documents, interest rate, negotiate, lenders, good faith, financing, defendants', parties, damages, provisions, permanent, premium, borrow, terms, trust deed, communicating, pre-leasing, inclusion, breached, insisted, kicker, loans

Contracts Law, Contract Interpretation, Good Faith & Fair Dealing, Types of Damages, Compensatory Damages, General Overview