The opinion of the court was delivered by: VINCENT L. BRODERICK
VINCENT L. BRODERICK, U.S.D.J.
In the case at hand, the commitment letter states expressly that the agreement to lend and to borrow $ 55,000,000 on terms partially but not entirely set forth in the letter is binding: "Upon receipt by TIAA of an accepted counterpart of this letter, our agreement to purchase from you and your agreement to issue, sell and deliver to us, or at our request to our wholly-owned subsidiary, the captioned securities, shall become a binding agreement between us."
The commitment letter constitutes an agreement which binds both parties. Both parties were sophisticated business entities operating with advice of counsel. Lack of understanding of the provisions set forth in the commitment letter by equally knowledgeable parties is neither plausible nor claimed. See generally Northwestern National Insurance Co. v. Donovan, 916 F.2d 372 (7th Cir. 1990).
The purpose of this memorandum order is to advise the parties concerning some aspects of the charge to be given to the jury and concerning arguments which can be made in the parties' summations to the jury.
As noted above, based on the quoted unequivocal language and the mutual assent of both parties to such terms as set forth in the letter, the commitment letter in this case constitutes a bilaterally binding agreement. Since the commitment letter provides for no prepayments during the first five years, defendant may not argue to the jury that insistence on a five-year prepayment ban (no-call provision) is unreasonable or contrary to common industry practice. Nor may defendant argue that the post-five year prepayment premium set forth in the commitment letter is unreasonable or contrary to industry practice. Moreover, I will instruct the jury that TIAA was not required to modify the commitment letter provisions in the subsequent negotiations.
Given the inherent risks to both parties involved in large, long-term non-prepayable financial transactions, it may well be that industry practice suggests a recognition that provisions for such so-called call protection are unwise from the perspective of a borrowing entity. Conversely, from the point of view of the lender, it may be better business practice to preserve a degree of flexibility rather than to insist upon adherence to rigid no-call provisions. A transaction seemingly secure at the time it is entered into may in fact turn out to be hazardous. Where a borrower retains lent funds involuntarily, risks may be especially great, since the lender may face the very real possibility that an unwilling borrower may be unable to repay the loan or may engage in complex corporate transactions giving rise to a risk of invocation of non-insolvency bankruptcy under Chapter 11 of the Bankruptcy Code.
However, absent a clear violation of public policy it is important to preserve the freedom of parties to contract. It is not for a fact-finder to second-guess the wisdom of their choices. Both parties elected to sign the commitment letter as written despite the risks, and defendant cannot now be heard to seek to avoid its contract because of regrets on its side about a strategic business decision.
One of the contested issues in this case is the proper theory on which to calculate any damages. I find that the appropriate measure of damages is set forth in Judge Kimba Wood's decision in Teachers Ins. & Annuity Ass'n v. Ormesa Geothermal, 791 F. Supp. 401, 1991 U.S. Dist. LEXIS 14473, (S.D.N.Y.):
The critical aspect of this damage calculation is that the substitute investment have similar characteristics, measured by the factors listed by Judge Wood or their surrogate, the interest ...