When a Financial Crisis Triggers a Force-Majeure Event

In 2008, Donald Trump sought declaratory relief from a $40M personal guarantee to Deutsche Bank.1 In his complaint, filed in the Supreme Court of New York, Trump raised the defense that the once in a lifetime economic downturn, was an economic tsunami, which indemnified his performance of the guarantee under the contract’s Force Majeure clause.2 In the ensuing litigation, Deutsche Bank filed its own complaint and moved for summary judgement.3 The case was settled prior to adjudication on the merits.4 While Trump’s argument that the credit tsunami qualified as a force-majeure event5 appears meager on its face, he may have been on to something.

The doctrine of impossibility holds that a party should be excused from performance of a contract when the performance is made impracticable.6 This doctrine is usually expressly contracted into a force-majeure clause. The term “Force-Majeure” is French and directly translates to “a superior force.”7 In a legal sense, Force Majeure is an affirmative defense that encompasses events which can neither be anticipated nor controlled to the extent that it prevents a party from performing their obligations.8 The events which constitute a force-majeure event depend on the wording of the clause within the contract.9 Generally, economic hardship does not constitute a force-majeure event.10 In addition, a party may not invoke a force-majeure clause to excuse performance when it could have been prevented by the exercise of prudence or due care.11

The financial crisis of 2008 is the most serious recession since the Great Depression of the 1930s.12 As a result, many loans defaulted.13 The affirmative defense that the financial crisis made performance impossible, and qualified as a force-majeure event, was used by several defendants. While the affirmative defense has never reached the appellate level, several district courts have analyzed whether the financial crisis was a force-majeure event. Surprisingly, their results were mixed.

When defendants in Michigan defaulted on a construction loan and argued the economic downturn of 2008 prevented compliance with the terms of their loans and guarantees, the District Court for the Eastern District of Michigan disallowed the force-majeure defense.14 The court reasoned the clause was not applicable to financial hardships—the market is something both parties are gambling on when they contract with one another.15 A similar result was reached in Georgia when a bank breached its contract with a credit card charge processing system.16 In his opinion, the district court judge held that, while the banking crisis may or may not have been a force-majeure event, no external force actually prevented the defendant from continuing to perform its contract.17

Conversely, in 2010 the United States Bankruptcy Court for the Southern District of New York found that invoking the force majeure clause was proper in a bankruptcy proceeding regarding the breach of a liquidation trust administered as a result of a Chapter 11 bankruptcy proceeding.18 The court did not find that the 2008 financial crisis qualified as a de facto force-majeure event.19 And while acknowledging financial difficulty does not excuse performance by way of a force-majeure clause, the court held that the performance was excused because the term “change of economic conditions” was expressed in the force-majeure clause.20 The court reasoned that, based on the agreement, the “change in economic terms” provision should excuse performance.21

While a longshot, it is possible to prove a financial crisis is a force-majeure event. In order for the defense to be successful, the financial crisis must be extreme and beyond the defendants control. Further, the terms “change in economic conditions” or something to the like, must be included in the force-majeure clause. Donald Trump’s 321-word force-majeure clause did not explicitly state indemnification from “economic conditions.”22 As such, any hope of indemnification would probably fail.


1. Trump v. Deutsche Bank Trust Co. Americas, No. 403022009, 2009 WL 7027043, (N.Y.Sup. Nov. 3, 2008). In addition to seeking declaratory relief of the $40M guarantee, Trump also sought $3B in damages alleging that Deutsche Bank contributed to the economic collapse. See id.

2. Complaint at 88, Trump v. Deutsche Bank Trust Co. Americas, 2009 WL 7027043 (2008).

3. See Complaint, Deutsche Bank Trust Co. Americas v. Trump, No. 603483, 2008 WL 5326450, (N.Y.Sup. Nov. 26, 2008).

4. Deutsche Bank Trust Co. Americas v. Trump, 2008 WL 5326450, (2008).

5. See Trump v. Deutsche Bank Trust Co. Americas, 2009 WL 7027043 (2008).

6. 17 Am. Jur. 2d Contracts § 643 (2017).

7. Force Majeure, Black’s Law Dictionary (10th ed. 2014).

8. Id.

9. See Entzel v. Moritz Sport and Marine, 841 N.W.2d 774, 776 (N.D. 2014). A common component in force-majeure clauses is an Act of God provision. In 2002, the definition under Title 42 was expanded to include natural phenomenon of “exceptional, inevitable, and irresistible character” which could not have been prevented by due care. See 42 U.S.C.A. § 9601(1) (West 2002).

10. Force-Majeure, Willison on Contracts § 77:31 (2012).

11. Great Lakes Gas Transmission LP v. Essar Steel Minn., LLC, 871 F.Supp.2d 843, 849-50 (Minn. 2012).

12. Randall D. Guynn, The Financial Panic of 2008 and Financial Regulatory Reform, Harvard Law School Forum on Corporate Governance and Financial Regulation, (Nov. 20, 2010), https://corpgov.law.harvard.edu/2010/11/20/the-financial-panic-of-2008-and-financial-regulatory-reform/.

13. See Id.

14. Flathead-Michigan I, LLC v. The Penninsula Development, LLC, No. 09-14043, 2011 WL 940048 (E.D.Mich. 2011).

15. Id. Citing Restatement (Second) Contracts, § 265 (Am. Law Int. 1983).

16. Elavon, Inc. v. Wachovia Bank, National Assoc., et al., 841 F.Supp.2d 1298, 1307 (N.D.Ga. 2011).

17. Id. at 1307-1308.

18. In re Old Carco, LLC, 452 B.R. 100, 119 (S.D.N.Y. 2011).

19. Id.

20. See id. at 119-120.

21. Id. at 121. The court provided a two-part test whereby performance is excused if: (a) the performance of the contract was caused by the change in economic conditions; and (b) the economic conditions were beyond the defendant’s control

22. Complaint at 88, Trump v. Deutsche Bank Trust Co. Americas, 2009 WL 7027043 (2008).

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