The credit crisis that resulted from, among other events, the bankruptcy of Lehman Brothers in 2008 greatly intensified the recession and became incredibly detrimental to real estate developers. For example, in an extremely high profile lawsuit in November 2008, Trump International Hotel brought litigation against Deutsche Bank and other lenders stating a right to an extension of the maturity date on the mortgage loan until after the crisis had ended. Although both sides suspended the litigation, Trump was claiming Commercial Impracticability due to:
1) An unexpected occurrence
2) The risk of the crisis not being assigned by the contract and
3) The occurrence of the crisis rendering the performance impracticable.
Although I think this could be interpreted as a valid argument, I believe signing a mortgage loan has an inherent risk of the possibility of a recession and a severe market crash and therefore I believe it is more likely the courts would not have ruled in Trump's favor.
Liz McKernan
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Here is another link related to the case above:
ReplyDeletehttp://www.iowabankinglawblog.com/2009/06/the-credit-crisis-and-commercial-impracticability.html
Basically, because of the credit crisis, commercial impracticability may be an excuse for unfilled contracts.
Right after the crash, banks became much more strict in terms of which companies they regularly extended credit to. This could not have been reasonable foreseen and created an extreme burden (or difficulty).
If a company had habitually borrowed and repaid money over the course of it's life, and then borrowing money suddenly and unexpectedly became nearly impossible, and borrowing money was necessary for the fulfillment of a contract, then commercial impracticability would reasonable apply (while perhaps not the doctrine of impossibility).