When you sign a deal, you ought to keep it. A man is only as good as his word, right?

Normally that’s true - but sometimes things change. Unexpected events occur that neither side imagined possible. People can’t keep the bargain no matter how sincerely they try.

Those situations are why we have bankruptcy courts. A judge sorts out the mess and tries to make the best of it. Even Donald Trump has used this system, and rightly so.

An interesting dispute is brewing in Europe. The question: What happens to a variable rate mortgage when the agreed-upon interest rate goes below zero?

In Spain and Portugal, banks commonly use a benchmark called Euribor to set mortgage rates. The borrower pays the Euribor rate, whatever it is, plus a small fixed premium.

This worked fine until recently. Now Euribor is below zero and some mortgages are, too, even with the added premium.

Mathematically, that means the bank owes interest to the borrower. The banks implicitly admit it by the fact they are modifying newer mortgage contracts to rule out the possibility.

Thousands of existing loan contracts leave the possibility open, though.

So what do the banks want to do? Ignore the contracts, of course.

In Portugal, banks are fighting tooth and nail against a proposed law that simply confirms banks must do what they already agreed they would do. Similar efforts are underway in Spain.

Carlos Torres Vila, the CEO of Spanish giant Banco Bilbao Vizcaya Argentaria, told the Wall Street Journal interest that payments to borrowers are absurd. They go against the nature of a loan, he says.

He’s wrong on that. Interest payments to borrowers may go against the nature of new loans, now that he has amended the contracts. But they are perfectly consistent with the older loans, the ones in which his own lawyers failed to protect him from the possibility of negative interest rates.

Whose fault is that? Not the borrowers. They are meeting their contractual obligations.

Don’t think such logic is safely isolated in Europe. Senor Torres Vila’s firm has a large U.S. subsidiary: BBVA Compass Bank. I have personal and business accounts there. Their people seem nice enough, but then again, we don’t have negative interest rates here… yet.

The U.S. megabanks will no doubt try the same maneuvers if our interest rates go negative. If so, it will be highly ironic.

When widespread bank fraud set off the last recession and millions of Americans fell behind on their mortgage payments, those same banks had no sympathy. “We’re bound by the contracts,” they said to borrowers who sought relief.

Since the banks think their contracts are so sacred, I say we give them what they want.

Everyone keep the deals as written, wherever they lead.

My guess: the banks won’t like it at all.

Patrick Watson is an Austin-based financial writer. Follow him on Twitter @PatrickW

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