November 21, 2009
The Contracts Crisis Revisited
Posted by Erik Gerding

Christine had a really provocation post several months back on whether the financial crisis reflected a "Contracts Crisis" to rival the "Torts Crisis" we hear so much about. This merits continued discussion.

The basic question is whether the financial crisis is forcing us to rethink how basic contract principles apply to rigid mortgage contracts, indentures for asset-backed securities, and credit derivatives. When should contract law bend to allow the government to modify these agreements to grant relief to mortgage borrowers, investors, or financial institutions? If modifications are allowed, should they be emergency measures or do we need to rethink contract law?

Contract law enjoyed a brief 15 minutes of fame in the newspapers when the AIG bonuses became an issue.

Scholars thankfully have a longer attention span.  Anna Gelpern (American) and Adam Levitin (Georgetown) have contributed a fantastic paper on Rewriting Frankenstein Contracts, which has received deserved attention. Will contracts scholarship on these topics coalesce into a movement?

How have you Contracts teachers addressed the crisis in your first-year class? Personally, I've addressed it only in passing - touching on it when my class discussed adhesion contracts and unconscionability. And I talked briefly about the problem created by derivatives traders never exchanging confirmations in the context of contract formation, just to give students a flavor for how sloppy practices can plague even big money transactions. But I try to discipline myself from letting my research interests in the financial crisis take over my teaching.

Are we due for a Big Re-think in Contracts scholarship and teaching too?

Contracts, Financial Crisis, Legal Scholarship, Teaching | Bookmark

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