15 September 2014

It's Only Money, Isn't It?

More details on the settlement between Syncora and the city of Detroit that will go far (but not necessarily all the way) toward confirmation of Detroit's plan of adjustment. Financial Guaranty Insurance Corporation (FGIC) and others remain opposed, and the issue of feasibility remains a large speed bump (download and read my articles about feasibility here, here, and here), but the skids have been greased and the car given a giant push.

The title of this post is a point I regularly mention to my students in Contracts. Sufferers of a breach of contract, especially the institutional sorts I regularly represented, are not interested in abstract vindication of their moral rectitude. Sure, a few paid me to battle with breachers far beyond any likely improvement in the litigation return because they deemed a reputation for a hard-nosed strategy in their long-term benefit. But that was only one or two. The balance of my clients wanted to get as much as they could for as little as they could pay (me) and call it a day.

So too Syncora and, one assume FGIC and the other objectors to Detroit's plan. The problem Detroit's holdouts face, however, is that bankruptcy is a zero-sum game. In other words, every additional dollar paid to one creditor must come from either another creditor (which would only create another objector) or the future taxpayers or the recipients of the city's services. In Detroit's case, the current city has apparently come to believe that its future iteration will have "just a little bit more" than previously thought and so be able to pay Syncora more than originally offered.

All the newly-discovered future income renders the success of the city as it operates for years into the future under the plan less and less likely. Hence, with every settlement, the "feasibility" of Detroit's plan is called into greater question. And, of particular interest to me, the report and opinion of Martha Kopacz, the court-appointed expert who has opined that Detroit's plan is feasible, becomes less and less relevant. After all, the plan on which she opined has changed and not for the "better" in terms of feasibility. (I must admit that I'm partial to her report because in it she quoted from one of my articles. But I digress.)

All of this is to raise a question larger than Detroit's bankruptcy: Why is it that Western culture in general and Americans in particular don't take breach of contract more seriously? Indeed, why do we as a culture say "It's only money"? Such is not historically the case. For hundreds if not thousands of years, failure to pay one's debts was a mark of dishonor and the one thus dishonored would treat it as such, a duel or at least imprisonment representing the way of "honorably" treating one's debtors.

I established in Principled Pluralism and Contract Remedies (download here) that a civil polity may offer recourse for breach of contract in the form of expectation damages but I did not address why a lawsuit for damages should be the preferred remedy. The answer to the why question would take me far afield but suffice it to say that the transposition of money for honor is one aspect of the secularization of Western culture. For my elaborations on that topic you can read my comments on an article about the market by Nate Oman here or simply search my blog for my multiple entries on Charles Taylor's "A Secular Age." (You can start here.)

Before not reading any of those links note that I am not opposed to the process of secularization. Secularism is a problem as the folks at Trinity Western University can tell you but I am certainly not one to denigrate the advances Western culture has made since the desacralization of society beginning in the Middle Ages.

In any event, the growth of political liberalism (not to be confused with so-called progressivism) and a market economy have brought many blessings. And both (indeed, all three) find their roots in the pluralizing Christianized society of the medieval era.

None of this is to say there are no moral aspects to contract law. I have previously addressed them in connection with the mortgagor's moral obligation to pay even on a mortgage where the value of mortgaged property has fallen below the amount of the debt. (Check here and here.) But even there, I made a point that the mortgagee has a reciprocal duty of forgiveness, one that the market has spun off into bankruptcy law. And more to the point, failure to perform a moral duty is not equivalent to an affront to honor.

In any event, the balance has clearly and decisively shifted in favor of money over honor. Thus, when it comes to contract law, indeed, it's only money.

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