Canadian Lawyer

June 2009

The most widely read magazine for Canadian lawyers

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LE GAL E THICS BY PHILIP SLAYTON c The collapse of ontracts The view that lawyers should not advise clients to break contracts is old-fashioned in this new economy. C ontracts are sacrosanct. This prin- ciple has been pounded into law students' heads since legal educa- tion began. Professors pontificate as follows: provided certain formalities are met, and public policy is not offended, individuals (including juridical persons, corporations being the most important of these) are free to create private law between themselves. If necessary, courts will enforce this private law. Our free- dom, our economy — gosh, our very way of life — depend upon this being so. (Full disclosure: I taught the law of contracts over many years in several law schools, and always toed this traditional line.) Until fairly recently, law graduates have reverently carried the principle of pacta sunt servanda into the prac- tice of law. Clients beyond count have been told that the terms of a contract are mighty important. Sign nothing, they have been instructed, until you have read and agreed with every word. Once you have agreed, you will be bound to do what you have promised; you'll be punished if you don't. In my two decades of legal practice, I always dutifully said all of this. After all, we advocates intoned dolefully, respect for contracts is the rock upon which our society is built. It was only after I left the law that I decided the whole contract thing was overrated, and was prepared to sign just about anything if I liked and trusted the person on the other side. But that's another story. . . . Now, we are suffering a sea change. Prompted by the corrosive effect of the current economic climate, traditional ethical precepts about the law of con- tract are being tossed out the window. The New York Times lately published an article with the headline, "Contracts now seen as being rewritable." The arti- cle began, "Contracts everywhere are under assault." Employment contracts 24 JUNE 2009 www. C ANADIAN Law ye rmag.com are thought to be particularly vulner- able, but other types of agreements may also be in doubt. For example, U.S. Treasury Secretary Timothy Geitner is apparently working on an initiative to give the federal government wide power to modify the contracts of finan- cial institutions it takes over. The flashpoint for the collapse of contracts seems to have been the con- troversy over $165 million in bonus- es for senior executives of AIG, the insurance giant that was run into the ground by the very same executives who collected the bonus money. The AIG collapse famously almost took down the world financial system, and the company had to be rescued by the STEPHEN BOYCHUCK

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