General Report on the Effects of Financial Crises on the Binding Force of Contracts: Renegotiation, Rescission or Revision

Abstract

Upon the outbreak of financial crises, financial assets suddenly lose a large part of their value. The collapse of financial institutions, insolvencies of companies, liquidity bottlenecks, not repaid credits, immensely rising interest rates cause severe difficulties for persons to fulfill their contractual obligations and destroy the equilibrium of the mutual obligations established initially in the contract. The frequency and intensity of financial crises and their negative repercussions on the traditional binding force of contracts are really immense. They evidently motivate the search for juridical solutions of the problem. While the economists search for economic precautions against and solutions for the financial crisis, the jurists look after juridical precautions and solutions. There are two dominant respective golden rules on the legal ground to be applied during financial crises. These rules are “pacta sunt servanda” and “nominalism”. The difficult mission of the jurist is to find the ideal proportion between two extreme poles. The options are whether to stick on the principles of “pacta sunt servanda” and “nominalism” or to respect the principle of loyalty (fairness), which is also considered as sacred. This chapter aims to analyze 20 impressive national reports from Argentina, Brazil, Canada (Québec), Croatia, the Czech Republic, Denmark, France, Germany, Greece, Italy, Japan, Poland, Portugal, Romania, Russia, Singapore, Taiwan, the United Kingdom, the United States and Turkey with regard to the effects of financial crises on the binding force of contracts: renegotiation, rescission or revision.

This article is also published in the book “Turkish National Reports to the XIXth Congress of the International Academy of Comparative Law” edited by Rona Serozan and Başak Başoğlu, and published by Vedat Kitapçılık upon whose approval, was updated later by the author.