Business Ethics and Contracts: Key Concepts

Posted on Mar 9, 2025 in Law & Jurisprudence

Ethics and Business Ethics

Ethics is the study of right and wrong behavior; whether an action is fair, right, or just.

Business Ethics involves applying moral and ethical principles to the marketplace and workplace. Ethical decisions are crucial in business.

The Moral Minimum

The “Moral Minimum” is normally considered mere compliance with the law.

Importance of Ethics in Business Decision Making

Good ethics can help increase corporate citizenship and profit maximization.

Contract Law Fundamentals

Oral Agreements

Oral agreements are enforceable by law but hard to prove in court. For practical reasons, it is important to put important contracts in writing.

Objective Theory of Contracts

A party’s intention to enter a contract is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions. Contract law looks for an objective viewpoint.

Signing Documents

If you sign a document, the assumption is that you have read and understood it.

Offer Made in Jest

An offer made in jest (joking) is not a valid offer.

Three Elements of an Offer

  1. Must have objective intent.
  2. Be sufficiently definite.
  3. Be communicated to the offeree.

Directors and Officers

Directors and officers owe a complex set of ethical duties to their stakeholders (internal and external).

Contract Classification and Enforceability

Categorized Contracts by Enforceability

  • Valid: A contract that is legally binding and enforceable.
  • Void: A contract that has no legal effect.
  • Voidable: A contract that may be avoided or voided by one or both parties.
  • Unenforceable: An otherwise valid contract that courts will not enforce due to a specific legal reason.

Three Examples of Unenforceability

  • Statute of limitations
  • Statute of frauds
  • Bankruptcy

Executory Contract

An executory contract is a contract that has not yet been fully performed or fully executed.

Essential Terms of a Contract

The essential terms of a contract include subject matter, quantity, price, and parties.

Offeror

The offeror is the master of the offer.

Silence as Acceptance

General rule: Silence is not acceptance.

Statute of Frauds and Contract Types

Statute of Frauds

The Statute of Frauds requires written evidence for some contracts. It doesn’t have to be the full agreement, just sufficient evidence that a contract existed.

MYLEGS

The Statute of Frauds requires some evidence for certain forms of contracts (MYLEGS):

  • Marriage
  • Year-long-plus contracts
  • Land
  • Executors
  • Goods
  • Securities

Anticipatory Breach

If one party states they cannot perform as agreed, the other party does not have to wait for the due date before declaring a breach. It must be definite, not probable, that the other side will breach.

Damages

  • Punitive Damages: Awarded to punish and make an example of outrageous, malicious, and oppressive conduct. Almost never used in breach of contract cases.
  • Compensatory/Consequential Damages:
    • Compensatory: Awarded to compensate the plaintiff, making them “whole”.
    • Consequential: Cover indirect injuries, such as lost profits.
    Most common in breach of contract cases.

Bilateral and Unilateral Contracts

  • Bilateral Contracts: Involve two promises (a promise for a promise). Most business deals, written agreements, and typical executory contracts are bilateral.
  • Unilateral Contracts: Involve one promise, action, or forbearance (e.g., “I won’t sue you”) for a promise. Reward scenarios are unilateral.

Quasi Contract

A quasi-contract is implied in law; it is like a contract but not a real contract.

UCC and CISG

Uniform Commercial Code (UCC)

The Uniform Commercial Code (UCC) covers a wide range of business transactions, from negotiable instruments to securities to the lease or sale of goods.

Corporation by Estoppel

Most state courts would hold that a corporation not yet in existence when a contract was signed may nevertheless establish its status as a party to that contract under the doctrine of corporation by estoppel.

UCC Article 2

UCC Article 2 only applies to sales of goods. It is important to determine if a contract is predominantly for services or goods.

Sales

In sales, ownership passes from one person to another.

CISG

The Convention on Contracts for the International Sale of Goods (CISG) applies only to business-to-business contracts for the sale of goods between businesses in different countries that are signatories to the CISG.