Force Majeure. Force What?

Mortgage and Lending with Canopy Mortgage, LLC NMLS 124492

The Art of the DealI was reading an interesting article published in the NY Times about Donald Trump's latest legal battle against Deustche Bank today titled "Trump Sees Act of God in Recession."

Here are the facts that have lead up to the headline. Deutsche Bank is seeking a payment of $40 million that Trump personally guaranteed for a construction loan for his International Trump Hotel & Tower project in downtown Chicago. Trump requested an extension of his payment and Deustche Bank kindly denied his request. Coincidentally, Trump filed a lawsuit days before teh November 7th deadline against the German bank for $3 billion for tarnishing his reputation and undermining the project

With the liquidity crunch so pervasive on the credit markets, it is understandable why Trump asked and Deutsche Bank denied.

The most intriguing aspect of the lawsuit stems from a clause that Trump required to be a part of the construction loan...the FORCE MAJEURE clause. What is that you ask? According to Unabridged (v1.1) the word force majeure is defined as an unexpected and disruptive event that may operate to excuse a party from a contract.

In order to legally apply this French phrase, there are essentially three criteria that have to be met in order to invoke this clause. The three criteria are as follows:

  1. Externality - The defendant must have nothing to do with the event's happening.
  2. Unpredictability - If the event could be foreseen, the defendant is obligated to have prepared for it. Being unprepared for a foreseeable event leaves the defendant culpable. This standard is very strictly applied.
  3. Irresistibility - The consequences of the event must have been unpreventable.

Is it no wonder that Donald Trump has a best-selling book called The Art of the Deal! For all you Donald Trump haters, this force majeure clause is more common than you think.

This clause is most readily utilized in purchase contracts for new construction homes. It is the primary reason that a buyer can not force a builder to comply to a completion date pursuant to a ratified contract with any legal enforcement.

Don't you wish you had the right to implement a force majeure clause into your life?

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