When Financial Contracts Blow Up (SC)

Basic courses on contracts tend to assume that provisions among sophisticated commercial parties are rationally and perfectly designed, except maybe for a few contingencies that were so remote that they were not anticipated at the start. In the real world, things aren’t quite so perfect. This course exposes students to a set of those situations where contract provisions risk blowing up a deal (or actually do) and shows them how sophisticated practitioners worked to solve the problems. Indeed, sometimes, they even turned the potential blowups into solutions. Using a series of case studies from both M&A and Capital Markets deals, the course aims to show students how practitioners navigate what are sometimes imperfect, incomplete and even incomprehensible contracts that no one really understands. Among the techniques that are used is what we call contract paleontology, where lawyers try to gain an understanding of what on its face looks to be incomprehensible by working backwards through the contract fossil record. At the end of the course, students should leave with an understanding of how, when and if they face these situations in the future, they might approach them. Some illustrative scenarios are:• Do shareholders have a damages claim if a buyer breaches its obligation to buy a public company? You would think so, but the deal documents sometimes restrict claims of third party beneficiaries, which shareholders arguably are. What happens here? Zero damages?• Assume a merger contract says that the parties agree that a permissible remedy for a breach is specific performance, which is generally assumed to be an equitable remedy to be given at the judge’s discretion when monetary damages cannot be readily estimated. But what if, the contract, as an alternative to specific performance, also specifies a termination fee in the event that the deal was terminated? Does the fact of the termination fee negate the implicit factual basis for a request for specific performance?• A debt contract limits damages to $X million in the event of a breach, unless the breach was willful. But what does it mean to be "willful" in a contractual sense? What happens when high priced lawyers realize that they might not really know what it means? The final assignment for the class will involve working through a real world problem akin to the ones that the students have learned about through the term and preparing a short memo and doing a presentation on that proposed solution. Depending on enrollment, work in teams may be permitted.