2008 global credit crisis and the impossibility of performance doctrine.
On July 19, 2010, the Appellate Court of Illinois, First District, upheld a section 2-615 motion to dismiss from the Circuit Court of Cook County, finding that the 2008 global credit crisis was not adequate grounds to rescind a contract under the doctrine of impossibility of performance.
On August 12, 2008, defendant 180 N. LaSalle II, LLC, as seller, and Younan Properties, Inc. (Younan), as purchaser, entered into a contract for the sale of commercial property in downtown Chicago. On October 9, 2008, Younan assigned all of its rights, title and interest in the contract to plaintiff, LaSalle Owner, LLC. It was also during this time that Allied Irish Bank, one of Younan's primary mortgage brokers for the sale, was forced to withdraw its financing due to Ireland's economic condition. Nevertheless, between August 12, 2008, and December 9, 2008, the parties amended the contract six times to either modify terms of the agreement or extend the closing date. The final closing date was set for no later than February 18,2009.
When Younan and plaintiff were unable to secure the necessary financing and failed to close on the purchase of the commercial property, defendant terminated the contract and retained the $6 million of earnest money as its sole remedy for breach of contract. Shortly thereafter, plaintiff filed a complaint seeking to rescind the contract and recover the $6 million in earnest money. Plaintiff argued that the 2008 global credit crisis, which it claimed prevented Younan from obtaining commercially practicable financing, excused it from performing under the contract pursuant to the doctrine of impossibility of performance. Following a hearing, the trial court dismissed the complaint and this appeal followed.
To render a decision in this case, the court focused upon two issues. First, does plaintiff, as an assignee of the contract, have a right to rescind the contract? Second, even if plaintiff does have the right to rescind, does the 2008 global financial crisis serve as an adequate basis for rescission pursuant to the impossibility of performance doctrine?
On the first issue, defendant contends that Younan, the assignor of the contract, waived its right to seek rescission and that therefore plaintiff, as assignee of the contract, lacks standing to seek rescission. In essence, after Younan entered the contract and learned of the 2008 global economic crisis, Younan nevertheless reaffirmed the contract by assigning the contract to plaintiff and executing further amendments to the contract. By reaffirming the contract, Younan and plaintiff, as the assignee, waived their rights to seek rescission.
The right to rescind "must be exercised promptly on discovery of facts that confer the right to rescind, otherwise the right is waived." Id at *3. However, at the time amendments to the contract were executed, there is nothing in the record that suggests that either Younan or plaintiff possessed knowledge of the 2008 global economic crisis sufficient to justify rescission. Thus, plaintiff, as assignee of the contract, does have standing and the right to rescind the contract.
Although plaintiff may have the right to rescind, the question of whether the global economic crisis of 2008 serves as a ground for rescission remains. In this case, plaintiff argues that its performance under the contract, i.e. purchasing the property, was made impossible due to the 2008 global credit crisis, which plaintiff claims made it impossible to obtain commercially practicable financing. The doctrine of impossibility of performance "excuses performance where performance is rendered objectively impossible due to destruction of the subject matter of the contract or by operation of law." Id. Furthermore, the doctrine is narrowly applied and does not apply to those events or circumstances that were reasonably foreseeable at the time of contracting.
In this case, even if the global credit crisis made it difficult, if not impossible, to procure commercial financing, that is not the relevant issue. The relevant issue is "whether it was foreseeable that a commercial lender might not provide Younan and [plaintiff] with the financing they sought." Id at "'4. Even without the global credit crisis, it was foreseeable that a commercial lender might not finance the sale. Furthermore, if inability to obtain commercial financing was sufficient to excuse performance, the law of contracts would be of no consequence. Thus, the trial court was proper when it granted defendant's motion to dismiss.
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|Title Annotation:||cases: Illinois Appellate Court|
|Publication:||Illinois Bar Journal|
|Date:||Oct 1, 2010|
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