Business Law and Ethics: Contracts, Court System, Enron Fraud Scandal

This report discusses the concepts of contract law, court system in relation to English legal system, and the Enron fraud scandal. It explores the importance of business ethics and corporate governance. The report also provides insights into the remedies available for breach of contract.

BUSINESS LAW AND
ETHICS

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1 Define contract law and describes all blue prints of contract..................................................3
2. Explain court system in the relation to English legal system and advise parties about the
court actions to pursue................................................................................................................5
3. Advising Hillary as to whether binding contract are existing between herself and each of
the people....................................................................................................................................6
4. Explanation and discussion over the remedies available to parties........................................6
TASK 2............................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business laws or the commercial laws is body of the law which is related to the trade and the
banking, commerce, investments contracts, advertising and marketing, corporate structure and
incorporation, collections and finance. The business laws and ethics are different from one
another. Business takes actions which are legal but are not ethical. Business law talks about law
which is applicable towards the commerce components. Business laws direct commerce and
assure it towards pursuing existing strategies of the commercial world. Business ethics go
beyond legality. It describes about how business should be behaving for the obligations of the
business. Present report is based over business laws and ethics. It is divided into two projects
which is project one about the individual essay and project two as individual report on the Enron
corporation based over ethical corporate governance.
TASK 1
1 Define contract law and describes all blue prints of contract.
Contract could be defined as legal binding written or oral agreement that exchanges the
combination of different goods, services, property and money. It is the common misconception
that contracts could be made only in written form, as conduct or oral agreements could be as
credible in the contract formation. Contract is the legal document which bestows upon special
rights on party and the obligations which are introduced, agreed and defined over the parties of
contract. Contract law is enforceable by law. Contractual relations are created between the
individuals and contract therefore is civil law. Dominant source of the contract law is mainly
common law where previous decisions of courts form the part of current law.
Contract law provides effective framework for the contracting parties for resolving the
disputes and for regulating contractual obligations (Cherry, 2017). Law of the contract is self
regulatory where majority of the contracts does not require intervention. Courts does not make
considerations for whether contracts are fair or not, if they are agreed they are to be enforced.
Contract is the agreement that give rise to the obligations that are enforced or is recognised
by the law. There are mainly three essential for the creation of contract that are agreement,
contractual theories and the consideration. First requisite of the contract is that parties should
reach the agreement. Agreement is said to reached where offer is made by one party makes offer

that is accepted by the other party. Objective test is conducted by the parties to decide whether
the objective test has been reached or not.
The main elements for the formation of the contract are offer, acceptance, consideration,
contractual intention and form.
 Offer which provides specific details about what is provided in offer
 Acceptance that is agreement by other parties for the offer presented.
 Consideration or something of interests must be exchanged between two parties
 Capacity of parties in the terms of mental ability and mortgage
 Intent of the both parties must be for carrying out the promise
 Terms & conditions are legally enforceable are called object of contract.
Contract becomes enforceable when the parties agree over something, backing up promise with
something of value or the money, both parties are of sound mind and have the intention of
carrying out promise and the promise made for doing things is within law.
There are mainly two types of contract which are express contract and implied contract.
Express Contract
Express contracts are common type of contact in which all the elements are stated
specifically. It could be either oral or written agreement (Howells, 2017). Offer, acceptance as
well as consideration must be binding parties legally together. Parties should clearly understand
terms and conditions of the contract.
Implied contract
Every contract is not transparent as the express contract. Implied contract bind parties
together by mutual intentions based over facts and the circumstances and reasonable assumptions
from circumstances and the relation between parties. Implied contract for enforceable is required
to have below elements to be present
 Ambiguous offer & acceptance
 Mutual acceptance between parties for binding into contract
 Consideration.
Elements are determined mainly by behaviours of parties.
2. Explain court system in the relation to English legal system and advise parties about the court
actions to pursue
The court structure of the UK is quite complex. Court structure of UK is as follows

Supreme Court
It is the top court that replaced House of lords as final court for appeal in UK for civil and
criminal cases from the England and Wales (Hanretty, 2020). Judges are called justices of
Supreme court which are led by president and by Deputy president.
Privy Council
Judicial committee of Privy council occupy same building as Supreme court and same
judges are there. Appeals are heard from the territories of UK overseas and the Crown
dependencies, also common wealth countries which have retained appeal to Majesty in the
council or in case of the Republics to Judicial Committee
Courts of Appeal
Court of Appeals of the England & Wales sit in 2 divisions
 Criminal Division that hear appeals from Crown Court, and
 Civil division that hear appeals in the civil & family matter from high court, senior
tribunals, family courts and the county courts
Criminal Courts
Crown Court
 Hold trial of the major serious criminal cases
 Deals with the sentencing in offences where defendant has pleaded guilty or have been
convicted and also referred for sentences by magistrate courts due to relative seriousness
of offence.
 Hear appeals from the magistrate courts.
Crown court is single entity sitting over number of locations.
Magistrate Courts
It deals with around 90% of the criminal cases. Jurisdiction consists of
 Deciding lesser serious cases
 Deciding offences that are medium serious, referred as triable either way and unless
defendant insists for right for trial in Crown Court
 Dealing with the pre-trial issues related to most serious offences like the bail, reporting of
restrictions etc.,
 Sending cases where defendant is found guilty or has pleaded to Crown courts for
sentencing if sentencing power is insufficient.

High courts
It deals with the general civil disputes that include cases like breach of contract,
negligence, defamation and breach of the statutory duties (Collins, 2017). It also deals with
specialist areas related with companies such as real property, insolvency, tax, trusts and wills.
3. Advising Hillary as to whether binding contract are existing between herself and each of the
people.
From the cases on the study given Hilary was not binding to the contract existed between all the
other parties.
With Eleanor- in case of Eleanor, Hilary first wished to sell at 15000 but Eleanor was ready to
purchase if at 10000 and in return of it Hilary wrote that she would purchase it for 13000.
Eleanor didn’t replied and then again Hilary wrote that she will sell it at 10000 but now Eleanor
now didn’t want to purchase it. So the contract is not binding as there was only the offer and not
any acceptance.
With Amy- in the case of Amy the contract is binding over Amy as Hilary offered Amy the sale
of computer and Amy agreed to purchase it for 1000. But before the computer was delivered to
Amy she changed her mind and sent Hilary fax that ignores the earlier letter. Thus, here was both
offer and acceptance and due to this is a breach of contract from side of Amy.
With Olivia- in this case Hilary is binding towards the contract as se has only invited all the
people to visit the sale and get the painting for 1 if they fulfil the criteria. But when Olivia came
first Hilary refused to give the painting which was not good and affected the contract between
them.
4. Explanation and discussion over the remedies available to parties.
The first and foremost remedy for the breach of the contract is the providing of the monetary
compensation to the damage being caused by the breach of contract. This is the major remedy as
whatever the loss will be for the company or the person then this can be compensate by paying
the equivalent money.
Another major remedy is the specific performance of contract. This is a remedy because of the
fact that in some cases the contract is breached because of non performance of some event and in
case these specific performance will be made then this will encourage and result in the
performance of the contract instead of breach of contract.

TASK 2
Introduction
The business law is very essential for the companies to follow and abide by. This is
majorly because of the fact that if the companies will not follow the rules and regulations then
the company will not be able to work in proper and effective manner (Sulkowski, 2017). Thus,
for this it is essential for the company to follow all the different types of laws so that the business
can be followed in effective and successful manner. The present report will discuss about the
case of Enron Fraud scandal and the relation to the ethical and corporate governance and the
application of Sabane – Oxley act of 2002.
Case study of Enron Corporation
The Enron Corporation was an American company dealing in energy industry and was
based in Houston in Texas. The company was founded by Kenneth Lay in the year 1985 in US
and become dysfunctional in the year 2001. The company Enron was cited as the biggest failure
in the field of auditing as the major reason behind the disfunctioning of the company was the
accounting and the corporate fraud which the company and shareholders of the company did.
The shareholders of the company lost $74 billion during the timeframe of four years and this
resulted in the bankruptcy of the company. The prices of the shares of the company Enron was
highest at $90.75 and during the time of bankruptcy the share price of the company reduced to
$0.26 which is a huge difference.
After the formation of the company there was deregulation of the energy market and this
allowed the companies to bet over the future prices and Enron thought of taking advantage of
this and created Enron Finance Corporation and hired Jeffrey Skilling. After his joining by the
end of 1990 the revolutionary internet stock were being valued at outrageous and unbelievable
rates. As a result of this the most of the investor and the regulator within the company and spiked
the prices of the share as the new normal prices of share (Thompson, 2017). One of the major
contribution of Skilling was the developing of the accounting practices and techniques based on
traditional methods to the mark- to- market (MTM) accounting method. The MTM method of
accounting is not based upon the actual cost of the transaction rather it is based over the fair
value. This method was not appropriate as this can be manipulated any time and is very easier to
be moulded in any of the situation. With the use of the MTM technique many of the people
believed that the beginning of the MTM method was the ending of the Enron as this influenced

the company in estimating the profits as the actual profit even in actual the company was not
having any profit (Haugh, 2019).
In addition to this the Enron also created the Enron Online (EOL) in the year 1999 in
October as an electronic trading website which majorly focused over the commodities. In this
company the Enron was the counterparty in every transaction whether it was buying or the
selling. For encouraging more of the participant the company offered all its capital, reputation,
expertise, and credit within the energy sector. For this the company was praised a lot and this
was named as the America’s most innovative company by the Fortune Six.
Further in the year 2000 the Enron broadband services and the blockbuster entered in the
partnership for the burgeoning VOD market. This VOD market is a sensible market but at this
time Enron started logging its expected earning which was based on the expected growth of the
VOD market and this vastly inflated the number. By the middle of 2000 the company was
executing the $350 billion in the trade of EOL and then the dot- cum bubble began to burst and
expand the Enron decided to make a high speed broadband telecom network with hundred of
million being spent on this project. But in the end the company ended with the business which
had almost no return against the money which they have invested. Further the when there was
the situation of recession in 2000 then at that time Enron had a significant exposure to the
volatility of the market. With the result of this most of the creditors and the investors and other
suppliers found themselves losing the company and this resulted in huge loss for the company in
the market.
By the ending of 2000 the company was under its own weight and this affected the level
of the company to a great extent. Jeffrey Skilling hides the financial losses of the company and
the trading business and other operation as well by making the use of mark- to- market
accounting principles (Roessing and El-Jourbagy, 2018). This assisted Skilling as this method is
mostly based over the principle which records the value of the security based over the market
value and not the book value at which it was purchased. The company used this for making the
fraudulent use like for instance the company purchased the asset like power plant and with the
immediate action they claim the projected profit in the book even if the company is not making
the asset profitable. Also, if the income from the plant was less then also the company projected
higher amount and in this way even the company was suffering with loss but they showed it as

profit and this made the company go on the path of fraud and corruption and unethical practices
of business (Dove, 2016).
Further in addition to this the Fastow and others at Enron stated that the company was
using the scheme of using the off balance- sheet that is Special Purpose Vehicle (SPV) in order
to hide all its best and other assets from the investors and the other supplier’s and creditors. This
was majorly because of the reason that when the company was not having enough money then
the investor and suppliers and creditors will not ask for the money. Thus, because of this reason
the company did not show the asset and the sources of income in the special purpose vehicle
balance sheet. This is due to the reason that if this entire item will not be within the balance sheet
then the investor will not demand for the money which they have invested within the company.
The main reason of the company behind the use of SPV balance sheet was to cover all the
realities relating to the accounting that is the loss and other operating result from the investors
and the stakeholders of the company.
With the help of the SPV transaction the company would have transferred some of the
increasing stock in the SPV in place of cash and this in turn would result in hedging of the asset
which was listed on the balance sheet. Thus, as a result of this the counterparty risk will be
reduced. Though the aim of the company was to hide the reality of the amounting but the SPV
was not illegal. After all this the company believed that the stock price of the company will
appreciate as a belief of Long Term Capital Management which is a large fund being created by
hedging the fund before its loss in the year 1998. But eventually the market share of the company
decreased and this resulted in the decline in the stock value of the company.
In addition to this the Andrew Fastow was the major player in the scandal of Enron
accounting firm Arthur Andersen LLP and another partner David B. Duncan who viewed and
examined the accounts of Enron. In spite of the poor practices of accounting of Enron the
Andersen offered approval for the stamp by way of signing off on the corporate reports of the
company (Fort and Haugh, 2020). With the year 2001 Enron started falling and the CEO Lay
retired handling over all the powers to Skilling. In august 2001 Skilling also resigned and at the
same time the company and its stock started to downgrade itself and the value of the stock
reduced to a great extent.
With this whole study of the case of Enron scandal it was seen that there was lack of corporate
governance and ethical principles. This is due to the fact that the ethical principles are the

principles which guide the company that what things are right and which are wrong on the basis
of moral values. Thus, in this whole study there was not any use of ethical principles and the
corporate governance. Due to this reason only the company was not able to survive and it
become dysfunctional resulting in heavy loss for the company (Clarkson and Miller, 2020).
As a result of this the company could have abided by the law of Sarbanes – Oxley act
2002. This is majorly because of the reason that this law is related with the protection of the
investors from all the fraudulent financial accounting and reporting. In addition to this the
Corporate Responsibility act of 2002 is also mandatory for the company to follow in order to
control the working of the company and the maintenance of the society and the working of the
company over the society.
CONCLUSION
In the end it can be said that abiding and complying by the laws and the rules and
regulation is very essential for the company. This is majorly because of the reason that when the
company will abide by all the laws and regulation then the working of the company will be more
good and effective.

REFERENCES
Books and Journals
Cherry, M.A., 2017. The Sharing Economy and the Edges of Contract Law: Comparing US and
UK Approaches. Geo. Wash. L. Rev.. 85. p.1804.
Clarkson, K.W. and Miller, R.L., 2020. Business law: Text and cases. Cengage Learning.
Collins, D.A., 2017. The UK Should Include Investor State Dispute Settlement (ISDS) in Its
Post-Brexit International Investment Agreements. Available at SSRN 2924051.
Dove, L.R., 2016. Introducing the Moral Foundations of Capitalism in Undergraduate Business
Law and Ethics Courses Using Kelo v. City of New London. Journal of Private
Enterprise. 31(2).
Fort, T.L. and Haugh, T., 2020. Cultural Foundations of Peace: How Business, Law, Ethics, and
Music Can Provide Infrastructure for Social Harmony. Berkeley Bus. LJ. 17. p.194.
Hanretty, C., 2020. A Court of Specialists: Judicial Behavior on the UK Supreme Court. Oxford
University Press, USA.
Haugh, T., 2019. Modeling the Message: Closing the Knowledge Gap in Business Law and
Ethics Classes. Journal of Legal Studies Education. 36(2). pp.159-188.
Howells, G.G., 2017. The European Union's Influence on English Consumer Contract Law. Geo.
Wash. L. Rev.. 85. p.1904.
Roessing, M. and El-Jourbagy, J., 2018. Toward a More Perfect Pedagogy: Developing
Constitution Week Activities to Support a Business Law and Ethics
Curriculum. Journal of Legal Studies Education. 35(2). pp.255-275.
Sulkowski, A.J., 2017. Rodolfo's Casa Caribe in Cuba: Business, Law, and Ethics of Investing in
a Start‐up in Havana. Journal of Legal Studies Education. 34(1). pp.127-162.
Thompson, D.B., 2017. Teaching the Business Law and Ethics of Arbitration After
Concepcion. Journal of Legal Studies Education. 34(1). pp.63-88.