Business Ethics Principles and Contract Law Fundamentals

Ethics and Business Principles

Ethics Defined

Ethics: Moral principles, as of an individual.

Business Ethics: Balancing the goal of profits with the values of individuals and society.

Legal and Ethical Foundations

• Positive Law: Legal framework
• Natural Law: Ethical framework

Categories of Ethical Behavior

• Integrity and truthfulness
• Promise keeping
• Fairness
• Loyalty
• Doing no harm
• Confidentiality

Resolving Ethical Dilemmas (The Three Questions)

1. Is it legal?
2. Is it balanced (considering the value of fairness)?
3. How does it make me feel?

Ethical Models

Warren Buffett's perspective is often cited in ethical discussions.

The Laura Nash Model

1. Identify the problem.
2. Look at the other perspective.
3. Determine what happened.
4. Who did your decision or action injure?
5. Could you discuss your decision with your supervisor, coworkers, officers, board, friends, and family?

The Wall Street Journal Model

This model focuses on three key areas:

1. Compliance: Is the action in compliance with the law?
2. Contribution: Does it contribute positively (to shareholders, the community, employees)?
3. Consequences: What are the potential consequences?

The Rule of Law

The Rule of Law serves several fundamental purposes:

• Protect the state
• Protect people
• Protect public health, safety, and morals
• Protect property and personal rights
• Enforce contracts
• Provide protection from exploitation, fraud, and oppression
• Furtherance of trade
• Protection of creditors and rehabilitation of debtors
• Ensure stability and flexibility

Contract Law Fundamentals

Governing Law

• Contracts are typically governed by national law or specific contract law (in common law systems).
• In the EU, while every country has its own laws, they must adhere to certain EU rules and regulations.

The Life Cycle of a Contract

1. Contract Formation:
   • Can be either written (formal: marriage, long-term agreements, land, debt; or informal: email) or oral.
   • Formation depends on jurisdiction (the right of a court to hear a particular case, based on its authority, the case itself, and the parties).
   • In Civil Law jurisdictions, formal writing often requires a notarial act.
2. Contract Performance
3. Contract Breach: Damages are normally stated in the contract (monetary compensation or specific performance).

Types of Contracts (Based on Formation)

• Express Contract: Formed with words (written or oral).
• Implied Contract: Formed by conduct (e.g., visiting a barber shop implies agreement to pay).

Essential Elements of a Contract (Common Law)

• Mutual Assent: (Offer + Acceptance). A contract is formed when there is a “meeting of the minds.” An offer is accepted when the offeree (the one who accepts it) starts to perform.
• Consideration / Intent / Cause: Consideration is anything of value promised to another when making a contract (money, service, physical object). Cause/Intent refers to the promises of both parties (e.g., selling a painting).
• No Defenses to Formation: The contract must be valid and not subject to defenses such as lack of capacity or illegality (no crimes involved).

Elements of a Valid Contract (French Civil Code)

• The consent of the parties.
• The capacity of the parties.
• Well-defined and legal subject matter.

Contract Definition

A Contract is a legally binding agreement among two or more parties that is enforceable by the courts. Each party involved in the contract must exchange considerations.

Types of Contracts (Based on Obligation and Status)

• Bilateral Contract: Involves two promises (promise for a promise).
• Unilateral Contract: Involves one promise (e.g., a reward offer).
• Executed Contract: A contract that has been completely fulfilled by all parties.
• Executory Contract: A contract that has not yet been fully fulfilled.