Friday, February 20, 2009

Impossibility of performance - thoughts?

You may have heard that Younan Properties did not close on the acquisition of 180 North LaSalle in Chicago. There had already been three months of extensions granted and apparently Prime Group Realty Trust had had enough.

In anticipation of being unable to meet the latest deadline Younan filed an action in the Chancery Division of the Cook County Circuit Court apparently seeking the return of its $6 million in earnest money. The case is 2009-CH-06451 if you want to see the docket.

According to Crain's,

Mr. Younan filed the lawsuit Feb. 13, claiming he was unable to close the $124-million deal after the global recession and frozen credit markets prompted a key lender to back out of talks to finance the purchase. Prime Group issued a statement Thursday saying the deal, due to close by Feb. 18, was terminated and that the Chicago-based REIT was entitled to keep the earnest money. Mr. Younan’s lawsuit says the credit freeze means the “doctrine of impossibility and the impracticability of performance” should void the purchase contract and therefore the $6 million should be returned.
Impossibility and impracticability are two of those contract defenses you read about in the first year of law school and while preparing for the bar exam. In short, there has to be no way for the contract to be completed for performance to be excused. As I recall the growing trend is to excuse performance if it is objectively impossible to perform and not just impossible for a given party to perform.

Presumably Younan's argument will be that no one can do this deal right now with the credit markets frozen. And with a lot of money on the line, I'm sure Neal Gerber (Younan's counsel, and where I have a few former colleagues) will fight hard to get that money back or work out a settlement and Prime's lawyers will fight equally hard to keep it. (No title company was listed as a defendant or real party in interest, so perhaps the money was at some point paid to Prime as a deposit. I have seen many deals where that happens.) This could be an interesting case, and I will try to monitor the developments.

Have a good weekend!

UPDATE: With thanks to Doug Cornelius, I should have pointed out the striking similarity between this case and the Donald Trump defense over at Trump Tower Chicago. Thanks again, Doug.


Doug Cornelius said...

David -

It will be interesting to see how this compares to Trump's use of Force Majuere. Similar strategies, trying to do the same thing. We can't get capital and nobody else can get capital. So we should be able to walk.

Unfortunately, I doubt either will get very far in the court system to give us an answer.

David Stejkowski said...

That's exactly right, Doug. This defense is very similar to the Trump case and that may well be where NGE got the idea.

While this is Cook County, where anything can happen, your prediction is probably correct. (The Trump case is in NY, if I recall correctly.) I do not have any familiarity with the judge assigned to this case.

britney said...

It's interesting to see the comparisons!!!
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max said...

Very well said,It will be really interesting and to watch how this compares to Trump's use of force.Every one will be keeping an eye as in this financial crisis period its very tough to get money back.And as you said that the credit market is frozen and lots of money on line it will be really an interesting case.