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Law School Case Brief

Teachers Ins. & Annuity Asso. v. Tribune Co. - 670 F. Supp. 491 (S.D.N.Y. 1987)


A primary concern for courts in contract disputes is to avoid trapping parties in surprise contractual obligations that they never intended. Ordinarily in contract negotiation, enforceable legal rights do not arise until either the expression of mutual consent to be bound, or some equivalent event that marks acceptance of offer. Contractual liability, unlike tort liability, arises from consent to be bound, or in any event from the manifestation of consent. It is fundamental to contract law that mere participation in negotiations and discussions does not create binding obligation, even if agreement is reached on all disputed terms. More is needed than agreement on each detail, which is overall agreement, or offer and acceptance, to enter into the binding contract. Nor is this principle altered by the fact that negotiating parties may have entered into letters of intent or preliminary agreements if those were made with the understanding that neither side would be bound until final agreement was reached. Case law has stressed the importance of recognizing the freedom of negotiating parties from binding obligations, notwithstanding their having entered into various forms of non-binding preliminary assent. Various indicia can be helpful in making the determination whether a manifestation of preliminary assent amounted to a legally binding agreement.


Defendant borrower, the Tribune Company, sought a loan under terms which it believed would permit it to employ offset accounting, by which certain assets and liabilities would not appear directly on its balance sheets. An anticipated stock offering would thus appear more attractive. Plaintiff lender, the Teachers Insurance And Annuity Association of America (TIAA), sent a letter that set forth the basic economic terms of the proposed loan but which made no reference to offset accounting. It invited Tribune to send a counterpart of the letter, upon which time the agreement would become binding upon the parties. When advisers to Tribune expressed doubt that the Securities and Exchange Commission would accept the offset accounting, the Tribune refused to consumate the loan. In response to TIAA's complaint, the Tribune argued that TIAA had understood the loan to be contingent upon the Tribune's ability to employ offset accounting.


Did a binding agreement exist between the borrower and the lender?




The court held that the agreement became binding when the borrower responded to the lender's letter with an acceptance letter that made no mention of offset accounting. While there were still open terms, they were not basic terms of prime importance and were subject only to good-faith negotiation.

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