Legal doctrines are typically pushed to their logical extremes in times of crisis. The litigation surrounding Donald Trump’s 92-story condo project in Chicago offers a prime example.
As reported last week in Chicago Business Today, Trump and one of the project’s main lenders, Deutsche Bank, have filed countervailing lawsuits over Trump’s failure to timely pay off the remaining $334.2 million on a construction loan. In support of his claim that the lender has undermined his ability to finish the development, Trump has invoked the loan’s force majeure clause, alleging that “the world financial crisis is an extraordinary event” justifying his failure to pay.
Generally speaking, the legal term “force majeure,” which translates from French to “greater force,” means a superior or overpowering force or unexpected or uncontrollable event which can excuse performance under a pre-existing contract. Without examining the particular clause at issue in Trump’s loan or the cases from the relevant controlling law, it is safe to say that Trump’s position is a stretch. Judicial findings of force majeure are ordinarily reserved for unforeseeable and catastrophic events, such as hurricanes, earthquakes, or civil war. The conventional wisdom is that market downturns, however severe, are foreseeable events that are within the realm of acceptable risk for contracting parties, and therefore cannot constitute force majeure.
Legal precedent is, of course, an issue separate from the policy desirability of the force majeure claim advanced by Trump, and whether the economic crisis can be fit within the legal concept . Courts interpret the concept narrowly out of a concern for enforcing the settled expectations of parties to a contract, thereby upholding the predictability of markets, but some flexibility must be granted to account for the truly extraordinary and unforeseen. And surely, the unparalleled government bailout of Wall Street financial institutions functions as some degree of “precedent” establishing that the latest financial crisis is truly extraordinary in scope.
In fact, if Trump were to prevail on his theory, he would have many grateful fellow developers presently experiencing difficulties finishing projects owing to the credit crisis. Also grateful would be legions of real estate buyers who, either unable to obtain financing or unable to pay off their mortgages, could benefit from an expanded notion of force majeure to recover down payments or stave off foreclosure proceedings.
This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.
Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation, as well as pursuing the rights and remedies of consumers and investors. A significant portion of Mr. Beck’s practice is devoted to issues arising under purchase contracts for real estate, including condominiums, condo-hotels, single-family homes, and commercial property. He can be reached at 305-789-0072 or email@example.com