Honor your word. If you make a promise, keep it. Look someone in the eye, shake his or her hand, and then stick with the deal you made.
This is a philosophy instilled in many of us from childhood. Keep your promises. Be true to your word. But what happens to this principle in the world of the entrepreneur?
Over the past several years, as the housing crisis found many a homeowner “under water” on her mortgage, we had high rates of foreclosures, some from an inability to pay, but others from an unwillingness to pay. Commentators from various media sources lamented the lack of commitment by homeowners to pay what they borrowed to buy their homes. Even if a mortgage balance of $400,000 was owed on a home now worth $250,000, the proper conduct expected was to remit the monthly payments on time. It was considered responsible and the right moral and ethical thing to do. Those walking away from their properties were looked upon with disdain.
Contrast this with a basic tenet of contract law. If one party to a contract decides to breach it, the aggrieved party can sue for damages. But the allowable damages are typically only economic loss. In other words, most often contract law does not punish someone for breaking an agreement. Why? The policy argument is that we live in a capitalist society. If it makes economic sense for one party to breach a contract he or she should do so. This in theory promotes efficiency in the market, and allows businesses to choose to follow the more advantageous and profitable path.
If you’re an entrepreneur, and are stuck with a “bad contract”, should you always abide by it? If it makes more sense to break the contract and move into another arrangement where you believe you can make more money, is this morally wrong?
An interesting point to ponder. . .