However, I do think that the belief that, absent good reason for breach,  contracts will be honored according to their terms is essential for "the wheels of commerce" to keep running smoothly (as was expressed in my UCC class).  One of the problems encountered in international transactions is the doubtful nature of enforceability of commercial transactions.  (Actually this is one of the reasons for letters of credit and other means of guarantying performance, like CDS).  

US Companies as trading partners have been seen to be reliable partners because of our array of disclosure laws and other regulations but also because other countries know that by and large the contracts will be enforceable and relatively free from arbitrary government action.  Abrogating contracts without good cause would be arbitrary government action.

The FP group has been in the process of unwinding transactions and shutting down for some time. Someone needs to be kept around to do this work.

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/20/AR2009022003304_pf.html

AIG committed fiduciary malfeasance by creating instruments guaranteeing the value of CDS's, even though calculating their risk, and their value, was admittedly impossible. What they created was a cross between a Ponzi scheme and the psychotic Tulip craze of the seventeenth century.

Either AIG is profitable, and the contracts are fully performed, or AIG has lost so much value due to the fraudulent contracts produced by these derivative traders that it had to be bailed out to the tune of 170B$. If you promise me a Kentucky Derby winner, but give me a shetland pony, I don't think you get to keep the 500,000$ commission on the 2.5M$ deal.

It is being reported today that the crappy division of AIG which brought the company down has contracts with "retention" bonuses.  But, that parts of this bonus pool are for employees from the very profitable divisions of the company and those are "performance" bonuses.

It seems rather convenient that it just kind of worked out that way.

   To them,  morality  is equivalent to whatever produces the most wealth. their idea of utopis would likely appall most people let alone most people here.

Fordham University School of Law
Fordham Law Review, Vol. 68, P. 1085, 2000

Abstract:      
Oliver Wendell Holmes' most notorious statement about contract law was that "the duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,-and nothing else." This has generally been interpreted to mean that a contracting party has a lawful option to perform or not. Holmes, however, was speaking of remedial limitations and did not espouse the belief that a contracting party had a right to breach. In other writings he equated a contractual breach with the commission of a tort. As a judge he labeled contract breaches as "wrongs."

  That though has no application to "efficient breach" as exists here. Where the contractual obligation of AIG is to pay its employees money, the payment of damages and specific performance are for practical purposes the same thing. To argue AIG should not be required to perfom but should pay damages instead is nonsensical.

  It's only when we get to the law and economics argument that a court should refrain from enforcing fully a contract when the net result is economically inefficient that any of these ideas come into play.

1. have any of you actually seen any of these employment contracts? they've been discussed, but i've yet to see a sample of one. anyone have a link?

2. according to the wp, the people who actually created and entered into the complex transactions at issue are long gone. yet, AIG claims only those who created and entered into these complex transactions understand them. these would not be the people whose retention bonuses are the subject of the current controversy.

on the other hand, if the people currently working to unwind these very, very complex transactions, that they neither originated or entered into, can understand them, that would give lie to the assertions made by AIG, with respect to the retention bonuses; they must be paid, to retain the only people capable of understand these transactions. clearly, other people do too.

3. the other possibility that crossed my mind: neither AIG or the wp has a clue what they're talking about.

   I contract with you to paint your house for $5000. I thn breach the contract because I got a job for $10,000. You sue me to make me paint the house. i argue i should not be forced to paint your house but only pay you damages. You then have to pay $6000 to get the job done and the court orders me to pay you $1000 damages.

  On the other hand, if after we execute the contract and I perform my  obligation by painting   your house you breach then contract by only paying me $3000 and I sue you, you will be ordered to perform the contract by paying the remaining balance. Your conception of "efficient breach" has absolutely no relation to any issue in the case.

You are the one who wrote:

"This is, in a word, nonsense. While I have argued here that, at first blush, the AIG bonuses agreements will be hard to break legally, it never would occur to me that there is some moral obligation to honor these contracts. Indeed, the "morality" of the situation, such as it is, would seem to militate towards not honoring the contract....

But the important point here is that any commercial lawyer can tell you that this idea of a "contract is a bond" has no connection to contract law. The standard remedy for a breach of contract is damages, not specific performance (for which you have to demonstrate the inadequacy of money damages.)"

________

In addition to the "moral" hogwash, it was chock full of fearmongering.  Why am I not surprised?  You'd think it may have even been written by a government propagandist.  (But we all know they don't have any of those at the old Grey Lady.)  Then again, Wall Street has their own breed of thugs too.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

...

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

...

Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work -- against taxpayers' interests.

I don't know if that provides an out but it should open up a couple of more avenues to consider when searching for an out.  What, if anything, do the documents underlying the federal bailout say about third parties?

If you ask me for money to stay in business and I give it to you can't I condition the grant of my money that that money be used only for certain purposes?  It seems to me those wanting to deny the use of federal taxpayer monies for bonuses need to also look at the conditions attendant to the grant of  federal money.  Uncle Sam does not generally give money without stringent conditions.

 is exactly the amount of performance. That's the whole point and wy you fail to grasp the situation.

  I hire you and as part of the contract I promise to pay you a bonus of $1000 on a future date certain if you are still in my employ. I then refuse to pay you the  $1000 even though you are in fact still working for me. Your damages are $1000 and there obviously is no way for me to argue that you had a duty to mitigate damages.

  If that isn't true, explain to me your theory as to how there is something you could have done to mitigate the damages from my refusing to pay you the $1000.

  No, you are getting a little closer, but still missing key points. In the abstract you conflate choice of remedy with absence of moral underpinning.

  I think most would agree it's more accurate to say that in many circumstances our system recognizes the payment of damages in lieu of performance as being adequate to satisfy moral requirements than it is to say moral considerations are ignored.

  Secondly, your conception ignores the obvious moral underpinnings of laws which state that certain classes of "immoral" contracts cannot be enforced at law or equity.  For instance many states and the Feds have laws which prohibit courts from enforcing contracts to pay certain classes of gambling debts, even if the debts were incurred in a jurisdiction where such gambling is legal. Now, that might be to some a somewhat perverse moral decision, but it's clearly based on someone's idea of morality.

  My basic point is that you should probably calm down and think things through before you decide to make broad and sweeping assertions when your blood gets hot.

And yet we're all absolutely certain the compelling reason for breaking them is what, now?  Other than perhaps soothing uninformed public outrage ginned up by equally uninformed media, breaking these contracts would solve what problem?

The comparison with the UAW contracts is a bitter sort of feel-good, but it's in no way actually comparable.  The UAW is not some helpless victim, it's a powerful force representing all the workers who produce the companies' products.  It did not have to enter into negotiations to change its contract terms, but it did so because it reluctantly became convinced it was necessary in order to keep the auto companies from going under altogether.

There's nothing even remotely similar with AIG and the employees (and presumably executives) of the financial products unit.  This is just knee-jerk scapegoating, and it's not even scapegoating the responsible parties.

Can we agree, at least, that legal contracts should not be broken absent some compelling reason to do so?  If we agree on that, then what's the compelling reason here?

I can see lots of potential risks in doing so (ah, yes, "scare tactics," just like the warnings about the risks of overleveraging were considered "scare tactics" by the executives) but I'm scratching my head to find any real benefits.

It would be nice, wouldn't it, if the financial world and Wall Street didn't structure its compensation packages in a way that's so alien to us working stiffs, but they do and have done for quite some time.  Whether they "should" or not and whether regularizing the way they pay people would be a useful thing to do is another matter.  But because it offends the sensibilities of folks who aren't familiar with it isn't sufficient reason.

"breaking a bond" on Wall Street
"trust and commitment" on Wall Street
"commitment to taxpayers" on Wall Street
"better off" on Wall Street
"honor the contracts" on Wall Street
"retain the best and brightest talent" on Wall Street

  I believe there are moral considerations underlying contracts law and it is wholly fallacious to argue that the fact courts will order payment of damages rather than performance means moral considerations are ignored.

  Requiring a person to provide facts proving unfair prejudice rather than relying on an arbitrary limit set by statute might strike many of us a a "better" moral approach in the abstract, but that doesn't mean that the reasoning behind establishing arbitrary time limits is entirely detached from morality.