The way that college faculty and institutions are affected by financial exigency is examined through a study of case law. Selected cases demonstrate the legal principles involved when faculty are dismissed and seek relief in the courts. Cases concerning private colleges relate to tenured faculty, because nontenured faculty in private have legal standing unless their contract is breached. Financial exigency, even if the contract is silent on this possibility, appears to be a justifiable reason for dismissal of tenured faculty. Courts have ruled, according to the contract, that the financial exigency must be "bona fide" and must be the "bona fide" reason for the dismissal. The courts may require that the institution take reasonable efforts to find the dismissed faculty member another suitable position within the institution. Those who decide which faculty to dismiss must use fair and reasonable standards in making the determination. Public colleges base their relationship with faculty both on contract and constitutional provisions. Nontenured faculty must usually show that they have a property right to continued employment, that the dismissal violated their right of liberty, or that the dismissal violated other constitutionally protected rights, such as freedom of speech. For tenured faculty in public colleges, courts have ruled that financial exigency is a legitimate reason for dismissal. Affected tenured faculty must be accorded minimal due process procedures. A bibliography, including case citations, is included. (SW)