Global Financial Crisis As “Force Majeure”: A Trump Card For Donald Trump?

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.

By Jared H. Beck, Esq.

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 jared@beckandlee.com

About these ads

3 Comments

Filed under Beck & Lee Business Trial Lawyers, Credit Crisis, Florida Condo Contract, Florida Condo Law, Florida Condo Lawyer, Florida Condo Market, Global Financial Crisis, Litigation, Miami Condo Contract Lawyer, Miami Deposit Recovery Lawyer, Real Estate Litigation, U.S. Housing Market, World Financial Crisis

3 responses to “Global Financial Crisis As “Force Majeure”: A Trump Card For Donald Trump?

  1. Rey I. Madrono

    This is the first time I have encountered “world financial crisis” used as defense or argument on failure by the obligor to perform contractual obligation. Thanks to your blog.

    Advancing a proposition that “world financial crisis” is an extraordinary event within the exculpatory contract clause of “force majeure” cannot be given judicial concurrence.

    Firstly, “world financial crisis” is too subjective and broad to be afforded probative weight in courts. Donald Turmp will have to prove, among others, that the crisis is global or has affected the whole world and has in the process rendered him incapable of performing his obligations under contract. I cannot see how Mr. Trump’s lawyers would connect “world financial crisis” to his incapability to perform. This is too tideous a process and his legal team will have to draw and adduce so much documentary exhibits to sustain this view. “Public knowledge” approach will not suffice since courts must define and set parameters on “world financial crisis” so that this may be sustained by the appellate courts.

    Secondly, sustaining “world financial crisis” within the definition of “force majeure” will have great impact on the entire business community probably not only in the US but in all civil and common law jurisdictions. Judicial statemanship would lean towards the interest of the greater majority than on the interest of Mr. trump. Along this line, denial of Mr. Trump’s proposition is highly possible.

    The only sustainable position would have been to insert a contractual clause on “extra-ordinary inflation or deflation” and defining therein acceptable economic parameters. Courts might sustain this clause based on the principle of “Pacta Sunt Servanda”.

    (this writer is a litigation/contracts lawyer especializing in Engineering Construction Disputes in Gulf Countries and has keen interest on “force majeure issues” affecting construction projects)

  2. Thanks for an engaging post. It’ll be interesting to see what sway Mr Trump’s celebrity may or may not have on proceedings.

    All the best from the UK.

  3. b greene

    Does anyone know if this defense was actually ruled on by the court? It is my understanding that the matter settled before any such ruling, but I really do not know that for sure.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s