Teachers Insurance & Annuity Association v. Ormesa Geothermal

Ormesa Geothermal (Ormesa) (defendant) needed multiple loans to finance construction of its new multimillion-dollar power plant. Even with government guarantees, only a few major banks and institutional investors could afford to take the risks involved in so large a project. Ormesa and one such investor, Teachers Insurance & Annuity Association (TIAA) (plaintiff), commenced high-stakes, time-sensitive negotiations for a long-term loan of $25 million. The parties came to agreement on all of the deal's key financial details, including a high interest rate. TIAA wanted to lock in those details so, as was customary in such situations, it listed them in a signed, self-described "binding" commitment letter and sent the letter to Ormesa. The letter omitted the deal's nonfinancial elements because, as was also customary in such situations, the parties had left them unresolved until all the financial issues could be worked out. Ormesa signaled its acceptance of the letter's enumerated financial terms and conditions by returning a cosigned copy of the letter, at which point TIAA began the process of releasing the $25 million. Before the deal closed, the bond market fell, and interest rates tumbled. Ormesa scuttled the TIAA deal in hopes of saving a lot of money by obtaining a lower-interest loan, even if it had to spend some money to defend or settle the lawsuit for breach of contract that, inevitably, TIAA filed in federal district court.