The distinction you have to make, I suppose, is whether the mortgage is recourse or non-recourse. I see no moral obligation to continue with a non-recourse mortgage, I mean, I would generally not be a dick about it and make the repossession as easy as possible (keeping property in good repair, vacating on time, etc) for the other party, but if the terms were economically advantageous to me, well, maybe the bank should read the fine print of the contract next time.
If we make a contract saying that if you do not return the lawnmower I get to keep the $100 deposit, yes.
Do you think managers or coaches are immoral for breaking a contract to go to another team? How about teams that fire a manager or coach?
Gfactor, what I get from the last part of your post is that it might be beneficial for a lender if the borrower walks away as opposed to going through the lengthy foreclosure process. Am I right? It makes a lot of sense, since the borrower won’t be paying the bank, and the bank will not have the benefit of the proceeds of selling the house as quickly. I think you might be able to make the argument that given the fact someone can’t afford a mortgage, walking away is the moral thing to do.
Care to point out that incentive IN THE LEGAL CODE. Note Gfactors discussion above concerning efficient breach.
Wombat, you’re climbing on top of a mighty high horse there. I am not saying that it is OK to break promises. My word is as important to me as yours is to you. I don’t suggest that it is OK to break a promise to a corporation but not to a friend. What I am saying is that the typical business contract is not based on my promise to perform come hell or high water but rather to perform as long as it is economically feasible to do so. We enter into it together each agreeing to do certain things with it spelled out what happens if we fail to do those things. If we are stupid enough to fail to spell out the consequences of non performance then the courts have developed methods to determine what we owe each other. Be it benefit of the bargain, rescission or some other remedy. There are whole courses in law schools dedicated to the study of remedies. Interestingly none of the remedies take into account the evilness of one party simply for breaching.
Your attitude is not anachronistic it reflects rather a complete lack of understanding of business law.
Your lawnmower example describes theft not breach of contract. Yet another glaring example of you failure to understand business law.
I’d hate to have to go through life trying to figure out how to screw the other guy before he screws me. It seems devious and underhanded. I’d rather deal with people I can trust. It’s legal, of course, but that doesn’t mean I have to like it.
Like if Joe Coach signs a contract to go to work for the Braves and then backs out of the deal and goes to some other team instead? It’s unethical, certainly. I don’t know if I’d call it immoral or not.
I have no idea how employment contracts work for sports teams.
It’s not supposed to be a high horse. You said (and I quote): “If I take a personal loan from someone I know as an individual it will be a cold day in hell before I fail to pay it back, but if I enter into a secured home loan with a corporation that is nothing more than an arms length business transaction I will breach it in a hot second if it become economically advantageous as would the corporation.” How does that not say it’s okay to break a promise to a corporation but not a friend? Am I really misreading it?
No, it doesn’t. Believe me, I have entered into many, many contracts and I understand what you’re saying. But I’m not talking about business law. I never said that intentional breach of contract was illegal. I never even implied that it’s illegal for you to sign a contract with the intent to break it. I just said I think it’s discourteous and untrustworthy at the least; obnoxious and unethical at the most.
The bottom line is that if you look me in the eye and say, “you do X and I’ll do Y” then I expect exactly that. If the lawyers turn that into a 48-page contract and then you spend hours figuring out a way to get out of doing X, I’ll be pretty pissed–even if it’s 100% legal and the minister sprinkles holy water on it and calls it moral.
I’m having difficulty buying the idea that forseen = ethical.
Surely there are examples of contracts that spell out what happens when, say, a leased item is damaged by the lesee. That would, not, as I see it, make intentionally inflicting such damage ethical.
That’s a big part of the equation. Lenders will accept short sales (where the borrower sells the property for less than the amount owed on the mortgage) and deeds in lieu of foreclosure (where the borrower gives the property back to the lender as opposed to making them force borrower out) because there are costs associated with getting the property back (in both cases) case, rehabilitating it, maintaining it, marketing it, and selling it (in the short sale case) that either aren’t recoverable at all, or aren’t recoverable in a meaningful way.
I disagree. In both cases you are breaking the same promise: You promised to pay. In the non-recourse case, there’s a clause in the contract that says that the lender can’t look to assets other than those that secure the debt. But why is that morally relevant? The “recourse” contract also has a provision that talks about what happens if you don’t pay. In both cases you can argue that the parties contemplated the possibility that the borrower wouldn’t pay the debt. In a sense, both contracts say, “I promise to pay, but if I don’t . . .” If they considered it, and still entered into the contract why shouldn’t the borrower take advantage of the terms of the contract?
Here is a default provision from a standard form mortgage:
http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4165.1/41651x2HSGH.pdf
It doesn’t say, “borrower will be considered sleazy and evil for failing to pay,” it simply lays out what happens if the borrower defaults.
Mortgages come in two pieces. There is the security instrument (usually called a deed of trust or a mortgage), like the one I quoted above. There is also the debt instrument, called the note. Here is the default language from a standard note:
https://www.efanniemae.com/sf/formsdocs/documents/notes/pdf/3200.pdf
Again the opportunity for moral censure has been squandered in favor of boring commercial language spelling out the consequences of failure to pay.
The corporation sure would. The instant it’s more cost effective for them to violate the contract and suffer the stated penalty than it is to honor the contract, they will violate it. And so should you.
Which is why you have to be very, very thoughtful about the contracts you sign.
So what about if the guy whose eye you look into to enter the contract is not the guy who decides whether to breach or not? You are thinking about business between individuals. If I am an agent for a corp. and I enter into a contract with you and the corp breaches it, have I been a sleaze bag? What about the CEO who never looked into your eyes? I look at things being based on reciprocity, if I am dealing with an individual who is expecting a personal obligation on my part and who feels a personal obligation on their own part then I will treat that differently than if I am dealing with a faceless company who I FRICKEN KNOW feels no moral or ethical obligation to me and will act in its own economic best interest ethics be damned.
I just switched from Verizon to ATT because I got an iPhone. I still had a year left on my verizon contract. They charged me $175.00 for early termination and I paid it. Do you suggest that I acted unethically? That I should have put the iPhone in a closet for a year because I had to keep my promise to Verizon?
I am having a hard time believeing this wouldn’t affect their credit, at least if they wanted to buy another house.
Yeah, you’re right. I guess I automatically jumped on to the “pack up money in small bills and flee to a country with no extradition treaty” assumption, in the case of a non-recourse loan. It is true that this isn’t a given.
How sleazy does that make me? 
Well, until recently, that wasn’t really an issue, was it?
Repeat customers and future credit sound like very good consequentialist reasons for complying with most contracts. But nobody here seems to be arguing that there will be no consequences to failing to pay. We’re talking about whether it’s immoral not to. Suppose, for example, that everyone in town *wants * you to breach your contract? Or suppose the contract is with someone who is either too disenfranchised to publicize your breach or there are excellent practical advantages to breaching the contract that anyone would understand.
Here’s a hypothetical
You are in charge of a large hospital. You assign a subordinate to investigate contracts for in-room cable television services. He does so. But instead of making a recommendation to you based upon his investigation, he signs a 10-year exclusive contract with a vendor. The contract is terrible for the hospital; there isn’t any funding to pay for it; and it’s clear under local law that the hospital is bound by the agreement. You consult Gfactor, Esq., who tells you there’s no way to avoid the contract. On page 21 of his memorandum (it was actually probably closer to page 30 
) he notes that if you breach the contract, the damages awarded by a court will be half the amount that the hospital would pay to perform the contract (this is quite possible, by the way). You decide that the right thing to do is to comply with the contract, even though the payments will probably render the hospital insolvent. What do you tell the Board of Directors when they arrive with pitchforks and torches?
(a) No. You can’t predict what a corporation will do any more than you can predict what an individual will do. A corporation is a collection of individuals. Some have ethics. Some don’t. Some are ruled by a single individual whose sense of ethics guides the business (for good or ill). Some are amorphous blobs. But you can’t assume all corporations are unethical or evil. I don’t accept that overgeneralization and I won’t guide my life by it.
(b) Don’t tell me I should go back on my word and violate my personal ethics just because you think someone else will.
You can probably dream up a situation where I would go back on a contract. I’m not on the high horse that askeptic accused me of being on. I’m not perfect, and I don’t claim to be a shining example of how people are supposed to behave. I screw up, and I’m not always consistent.
But I don’t sign contracts that I intend to break; I don’t sign contracts if I think the other party intends to break them; and once I’ve signed a contract I do my best to do what I said I’d do.
Yeah, this has cost me money in the past, but I can live with my decision.
Just to make sure I’m clear here, even though the subordinate wasn’t authorized to write the contract, he did it anyway and the local courts will hold the corporation to it?
(a) I’d fire said subordinate so fast it would make his head spin.
(b) I can’t see any way that I’d consider the making the hospital insolvent “the best thing to do.” If the hospital goes under, it won’t be able to make payments anyway, so going insolvent would void the contract anyway.
(c) I’d explain to the vendor and their lawyers that the contract was signed illegally, since it would bankrupt the hospital they’re never going to get their money, and I want out of it right now with no lawsuits or breach awards. This would be another opportunity to appeal to their sense of reason (e.g., you drive my hospital out of business and no hospital will ever want to deal with you again).
(d) If I couldn’t resolve the issue without lawsuits or breaching a contract (which would probably cause lawsuits), then the matter would be out of my hands and the Board would have to make the decision. I’d probably lose my job no matter what I recommended, so it would probably be best just to throw myself on my proverbial sword.
You’ve laid out a really tough one, and it would probably end poorly for everyone.
Also, I’m distinguishing between immoral (which to me has religious overtones) and unethical (which doesn’t). I don’t pass judgment on your morals. That’s between you and whomever you choose to worship. I deal with people based on my perception of their ethics.
If I feel that you wouldn’t honor your word on a business deal, then I won’t waste time drawing up a contract. As you can see in this thread, contracts mean very little to people. It’s almost impossible to create a totally bulletproof contract, and I wouldn’t want to be in a position where it would cost me a ton of money to defend one in court. If I don’t trust you, we don’t do business. Period. If I do trust you, then the contract is just a reminder of what we agreed on in case one of us forgets the details later.
This is loosely based on a real case that I worked on. I think in that case I was simply told to assume the company was bound by the contract based on agency principals. But this is certainly a possibility. http://www.entrepreneur.com/management/legalissues/contractsandnegotiations/article175364-2.html For example, if the subordinate had negotiated and signed contracts with the vendor before, a private one-time limitation on his authority would probably not be effective with respect to third parties. Or suppose he was authorized to bind the company. What then? Either way we’re looking at one way that the company could get itself into a contract that it didn’t “intend” to perform: agency costs. And the interesting part to me from an ethical standpoint is what the company does about it.
Yes. But that solves a different ethical problem. 
Ok. What if the hospital *could * afford to pay and make it, but they’d have to stop providing some services, or what if the cable programming was the issue? You’re contractually bound to permit the company to install the cable and equip the rooms because part of the deal is that they sell cable services to patients through the hospital. The problem is that the programming is inappropriate. 
Gfactor reviews local contract law and determines that while the programming is unfortunate, it isn’t a defense to the contract because it’s neither illegal nor immoral (according to the relevant standards) it’s just, well, tacky. So you can’t simply pay the contract price and give the company the finger. In order to perform the contract, you’ve got to accept and sell the services. In effect the service will change the way the hospital does business and offend employees and patients alike. Nevertheless,
Willy Wonka & the Chocolate Factory - Wikiquote
Or make it a unilateral contract.
Wombat, what about my situation with Verizon? Furthermore whose eye are you going to look into when you need to make a contract with GM or AT&T or some other huge company? Whose honor are you going to rely on? What if your decision to stand by your word costs half your employees their jobs? In that case it would be both immoral and unethical not to breach. You are looking at the world too simplistically. It is not that we don’t believe in personal honor but we realize that that has nothing to do with business decisions. You are living in a dream world if you think business is done by appealing to someones innate goodness or sympathy. Corporations are obligated to maximize their profits if that means closing down your hospital they MUST do it or face shareholder lawsuits.
This should be an interesting link for you Wombat.
http://www.msnbc.msn.com/id/22248590/
Check it out then tell me about how honorable corporations are.
I can’t speak for Wombat, but I don’t believe he has ever stated corporations were honorable, and I guess I really don’t see that as having any bearing. Because someone else is dishonorable gives one freedom to do be dishonorable back? I may be misreading what you are stating here, but that seems the wrong slant to me–but I believe I am misreading your point.
In my opinion if you are willing to bear the price of breaking your contract–go for it. You did in your Verizon example and broke the contract. Personally I would not be willing to forfeit my good credit, but more importantly my good name and reputation by reneging on any substantial contract. My field is too small and your reputation proceeds you, and it wouldn’t be worth the risk, unless as you have stated the results make it worth it. I rarely have found that to be the case.
But then again if I have a client who doesn’t pay his bill, or violates some term of my contract, then I could see breaking a contract based on that dishonorable action–but I am using their breaking of the terms of the contract to reneg on the deal, not their being dishonorable. Hell some of my best clients are pretty scummy!
In these home situations, I am assuming this action by the homeowners has impact on their credit and future credit? Is this any different then running up a $10,000 credit card bill and not paying it? The bank make have to eat it, but they do get their revenge don’t they by reporting this loss on your credit report? But I have to assume that they carry these costs as the cost of doing business, and in the end we all end up paying more for these transgressions by others.
This has been a very interesting thread to me. I guess I too am fairly naive about this as this would not have even crossed my mind. But then again, no one has ever accused Architects of being good businessmen
If the method for deciding what’s ethical is to look around for the lowest behavior you can find and then match it, the concept of ethics will soon have no value at all.
Just because someone else would do something to you doesn’t mean you should do it to them. Nor does the fact that a corporation will do something mean that, ethically speaking, they should do it.
When a mortgage company declares bankruptcy (i.e., its debts exceed its assets) do you suppose the company feels an ethical obligation to pay its creditors anyway?
Since they are declaring bankruptcy, no, I don’t feel they have an ethical obligation as the company is no longer in existence–but what does that have to do with the main question in this thread? If the person who is defaulting on his home loan was declaring bankruptcy I don’t feel they have an ethical obligation either (although personally I would feel that obligation, but as I understand it, by declaring bankruptcy you are no longer obligated for that debt).
But my understanding of the issue presented by the OP was that these people HAVE money in the bank, but are choosing to default because the terms are no longer to their advantage. Isn’t that substantially different then a mortgage company declaring bankruptcy? I think the struggle I have with this question is that they have the means to pay this debt, but are choosing to walk away from it.