Opinion ID: 2171473
Heading Depth: 1
Heading Rank: 2

Heading: The Option Exercise.

Text: As previously noted, the pivotal issue is whether Gateway effectively exercised its option to repurchase the completed facility, and it is on this point primarily that we disagree with the district court. The option itself has been set out above. The key requirement is that the notice of exercise be accompanied with letters of credit or firm commitments from lenders that funds for such repurchase will be available at closing. Gateway did not submit letters of credit with the notice of exercise; the question thus is whether the accompanying documents were firm commitments under the meaning of the option. The option itself did not define firm commitments, however, a pretrial stipulation by the parties provided this definition of the term: A Unilateral offer to loan money on definitely ascertainable terms, not subject to change, which is accepted by the borrowers complying with the lender's terms, at which point the lender is bound to lend. While Gateway has since disassociated itself from this definition, we believe it is accurate and reflects the basic legal requirements for any contract. See, e.g., A. Corbin, Contracts § 95, at 393-410 (1963). Gateway's firm commitments for financing were from four potential lenders: Prudential, Central National Bank, Farmers Home Administration (FmHA), and an entity related to Gateway called Coal Limited Partnership. In order for Gateway to repurchase, the combined funds from all of these sources would have been required. In our view, it is doubtful that the commitments from any of them were sufficient to comply with the requirements of the option. That the most important commitment, that from Prudential, for up to $25 million, did not comply is obvious. Prudential's letter of April 25, 1979, which Gateway submitted as a commitment, stated in part: Consummation of this financing will be subject to: (a) The execution by Iowa Gateway, Coal Gateway, and Prudential of a mutually satisfactory Note Agreement; (b) the execution of an amendment to the Coal Contract between Iowa Gateway and Interstate Power Company in a form consistent with that proposed in the Preliminary Outline of Loan Terms [POLT] dated April 4, 1979; (c) Prudential's receipt of certain opinions from Interstate Power Company outlined in Condition 8 of the same Preliminary Outline of Loan Terms; (d) Prudential's receipt of a satisfactory opinion of Prudential's Special Counsel; and (e) the satisfaction of all other conditions contained in the Preliminary Outline of Loan Terms. As we have previously discussed, the form and substance of all such legal documentation and opinions must be satisfactory to Prudential's Law Department and Prudential's Special Counsel. It is clear from this language and from the testimony at trial that Prudential would not lend unless Interstate agreed to the POLT. This Interstate had consistently refused to do. Interstate repeatedly refused to enter into a third addendum to the Coal Contract (as outlined by Prudential) or any other agreement amounting to a guarantee requiring regulatory approval. As previously noted, under Gateway's attempted exercise, it was necessary to show binding commitments from all four potential lenders; if funds from one or more source did not materialize, Gateway's financing package would fall apart. There are other problems with those commitments, which the defendants have raised, but which we need not discuss. In our view, the problems with the Prudential loan which we have discussed were sufficient to render their commitments unenforceable by Gateway and not in compliance with the requirements of the option. For this reason, it is unnecessary to discuss the claimed inadequacy of the Central National, FmHA and Coal Limited Partnership commitments. It was error to conclude, as the district court did, that the attempted exercise of the option was sufficient. We conclude that, by its failure to provide evidence of firm commitments for financing, Gateway lost its right to repurchase, and we therefore reverse the district court's ruling in favor of Gateway under count IV of its petition. The question remaining is whether this conclusion necessarily disposes of all of the other issues, as Interstate and Orba-Johnson argue.