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Jonathan Lipson on “Relational Reorganization”

posted by Jean Braucher

Prof. Jonathan Lipson of Temple University School of Law has an interesting post today on the idea of “Relational Reorganization.”   Find it over at the ContractsProf blog. He advocates more attention by scholars and lawyers working on debtor-creditor issues to the relational perspective of Stewart Macaulay, a leading contracts scholar in the law-in-action tradition.  Macaulay has studied, among other contracts phenomena, the ways that business do and don’t use contracts, including that they typically readjust relationships in light of business realities rather than formal contracts entitlements.

Lipson points out that when business debtors struggle to meet their many obligations, workouts are the norm, and formal contracts give way, no matter the care with which they were entered.  Even bankruptcy reorganization is typically mostly consensual.  What is different in the debtor-creditor world is that multiple relationships often have to be adjusted or abandoned in a reorganization process.  Lipson suggests that more attention to relational thinking could help us better understand various bankruptcy practices, particularly those used in close-knit groups of repeat players, including bankruptcy lawyers, claims traders, and professional distress investors.

Lipson’s post is part of a virtual symposium marking the publication of the contracts volume, Revisiting the Contracts Scholarship of Stewart Macaulay—On the Empirical and the Lyrical (Hart Publishing 2013) (edited by me along with William Whitford and the late John Kidwell).   The book includes Macaulay’s seminal article, Non-Contractual Relations in Business--A Preliminary Study, first published 50 years ago in the American Sociological Review, the same year as the March on Washington, whose anniversary is being celebrated today.  That paper has had major influence in the social sciences, particularly economics and sociology, as well as in the field of contracts.


The argument can be made (rather easily, actually) that contracts are ONLY honored in the breach. However formally the relationship may have begun, informal modifications stack up fast and deep, and many of those modifications resolve significant disputes. Only when the parties reach an impasse does the original contract get trotted out, frequently bearing no resemblance to the current relationship. Nevertheless, it is Exhibit A in the Complaint. Just another aspect of Through the Looking Glass Law.

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