In the first episode of The Bad Batch, Admiral Tarkin implies that Palpatine is reconsidering the Kaminoan contracts, which “stipulate the continued production” of a clone army, according to Lama Su, the Kamino Prime Minister. Tarkin brushes aside the enforceability of those prior agreements, observing with his characteristic menace that the Kaminoans’ contracts were “with the Republic, which no longer exists.”
Obviously, a fascist autocracy is not governed by the rule of law, so the Emperor can probably get away with breaching any obligations he wants to by virtue of his overwhelming firepower. But the Kaminoans’ distress raises the interesting real-world legal problems of a party to a contract when the other party to the agreement ceases to exist, leaving behind unfulfilled expectations.
Death-defying Contracts
To begin with, a person’s death generally does not relieve the decedent of their contractual obligations. Thanks to sixteenth-century English contract principles, which endure in modern U.S. law, the executor of the decedent’s estate or another successor ordinarily must make good on the decedent’s obligations. Hyde v. Windsor, 78 Eng. Rep. 798, 798 (Q.B. 1597) (holding a decedent’s contractual obligation survives “unless [the promise was] to be performed by the person of the testator . . . [and the executor] cannot perform”). In other words, courts have enforced so-called “impersonal” contracts, which do not necessarily require the decedent to perform the obligation, after the death of a contracting party. Thus, a decedent’s executor will use the estate’s assets to make good on promises involving things like purchases of property, shareholder agreements, and guarantee contracts.
There is an exception to this general rule for personal services contracts, which require the decedent specifically to perform the contract, and which are discharged if one party dies. For example, suppose you commissioned your favorite artist to paint a family portrait, but the artist regrettably passed away before starting the painting. A court would not enforce that agreement since that contract contemplated the unique skills and abilities of the artist, who no longer exists to perform the obligation. (And anyway, would you really want a family portrait that was painted by the artist’s executor?)
The analogy of Palpatine’s Empire as some sort of legal successor to the Republic probably does not hold much water. The Empire would not simply assume the obligations of the Republic to the extent those obligations were inconsistent with Palpatine’s designs. As mentioned previously, no rule of law plus overwhelming firepower generally means that all bets are off.
Commercial Transactions
The agreements between the Republic and the Kaminoans may alternatively be described as a commercial contract. Although commercial entities are not ordinarily overthrown by an evil dark lord of the Sith, a business may simply become insolvent and “die” in the sense that it can no longer perform its end of a commercial transaction. Generally, parties to a commercial contract anticipate and manage, to the best of their lawyers’ abilities, the risk of a counterparty’s inability to perform the contractual obligations, but this is where federal bankruptcy law comes in.
Once an entity becomes insolvent and files for bankruptcy protection, the bankruptcy court assumes control over all of the entity’s property and contractual obligations. The court then determines which contracts can and will be honored, rejected, or otherwise terminated. And in particular, the Bankruptcy Code renders unenforceable common clauses in commercial contracts that purport to terminate contractual obligations upon the insolvency or bankruptcy of either party, known as ipso facto clauses. 11 U.S.C. § 365(e)(1)(A) (a creditor’s contract may not be terminated by a provision that is “conditioned on the insolvency or financial condition of the debtor”); 11 U.S.C. § 541(a) & (c) (defining bankruptcy estate to include any property in which the debtor has an interest notwithstanding “any provision in an agreement . . . that is conditioned on the insolvency or financial condition of the debtor”).
There are other ways to structure transactions to mitigate a vendor’s risk and the uncertainty of bankruptcy proceedings, such as with letters of credit or guarantees. But otherwise, the holder of an unfulfilled (or executory) contract at the time an entity files for bankruptcy becomes an unsecured creditor whose claims go into the bankruptcy estate for the trustee and the court to sort out. While the Kaminoans have slim chances of having their prior contracts honored by the evil Empire, at least they are not unsecured creditors in galactic bankruptcy proceedings.
Government Contracts
Lastly, the Kaminoans’ situation highlights a nettlesome problem when contracting with government entities, which may completely change from one election to the next. Specifically, in the real world, vendors who contract with government entities are exposed to a risk that a subsequent change in administrations or policy will undermine the government’s obligation. For example, suppose your company produces widgets that the more liberal party likes, and while the liberal party controls the legislature, it contracts with your company to produce a bunch of those widgets. Sometime later, the more conservative party wins legislative control in an election and the incumbent legislators decide that they do not want all of your liberal widgets. May the conservative government repudiate the contract that the liberal legislature signed?
The U.S. Supreme Court has held that the federal government is liable for breach of contract if the government reneges on previous promises, notwithstanding the government’s authority to alter previous regulatory positions. United States v. Winstar Corp., 518 U.S. 839, 910 (1996) (holding United States liable for breach of contract where congressional legislation had effect of breaching prior agreements with financial institutions regarding accounting methods).
That said, a state government contract is not enforceable to the extent that the contract limits the sovereign authority of succeeding state legislatures to change policy over time. U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1, 23 (“[T]he Contract Clause does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty.”); see Maryland State Tchrs. Ass’n, Inc. v. Hughes, 594 F. Supp. 1353, 1362 (D. Md. 1984) (holding that contract setting compensation of state employees was invalid as it improperly bound subsequent legislatures with respect to core legislative authority). However, local governments may be bound to honor proprietary or business contracts signed by previous administrations even if the contract requires enforcement of a regulatory scheme that the incumbent administration does not like. E.g. Town of Graham v. Karpark Corp., 194 F.2d 616, 619 (4th Cir. 1952) (municipality’s contract with parking meter company enforceable since government contracts relating to government’s proprietary or business powers are binding “even though they extend beyond the term of office of those entering into them”).
These nuanced distinctions are difficult to navigate, but they demonstrate the important ways that a democratic government tries to predictably and rationally regulate its contractual obligations with private parties. This scheme stands in stark contrast to the lamentable situation of the Kaminoans, who are entirely at the mercy of an evil tyrant’s caprice. In any event, the question of whether a contractual obligation is enforceable across a peaceful transition of power in a democracy has little bearing on a situation where an autocratic regime entirely overthrows a democracy. A transactional advocate for the Kaminoans will have to be very strong in the Force to overcome that kind of disruption to the client’s contractual expectations.
