Business Law and Ethics Report: Contract Law and Corporate Governance

This report on Business Law and Ethics explores contract law, its essentials, and the court system within the English legal framework. It analyzes fact-based scenarios to determine the existence of binding contracts and discusses available legal remedies. The report further delves into corporate governance, referencing the Enron scandal as a case study of governance failure and its impact on the company's image, leading to the Sarbanes-Oxley Act of 2002. The report highlights the relationship between ethical corporate governance and the Act, providing a comprehensive overview of the subject matter.

BUSINESS LAW AND
ETHICS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
1. Define Law of Contract & Explain all the Essentials of a Valid Contracting....................3
2. Explain the Court System in Relation to the English Legal System and Advise the Parties
Which Court to Approach.....................................................................................................5
3. Advise Hilary as to Whether Binding Contracts Exist Between Herself and Each of the
Following People: Eleanor,Amy and Olivia..........................................................................6
4. Explain and discuss the various remedies available to the parties.....................................6
TASK 2............................................................................................................................................7
Introduction to the case..........................................................................................................7
Facts of the Case.....................................................................................................................7
Ethical Corporate Governance and Overview of Sarbane-Oxley Act 2002...........................7
Relationship Between Ethical Corporate Governance and the Sabrane-Oxley Act 2002......9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Every business has to follow certain laws and regulations which helps them for the
smooth functioning of the business. These laws makes significant impact upon the business in
many ways and leads in protecting the rights of all the parties who are doing business. Contract
law is one such law which is widely used by business in doing their day to day transactions. This
law has been framed in such a way so that both the parties respect the terms and condition of the
contract and if either of the parties breaches it, they will be liable to pay compensation to the
sufferer party. Also every company should follow certain ethics which will ensure the strong
corporate governance. Having a strong corporate governance ensures that there will be no illegal
activities taking place in the company. The most important principles of a strong corporate
governance is that to follow the ethical principles by the company by doing business. In this
report it will be seen that how failure of corporate governance hamper the image of a company
by referring a case of Enron in which it will be discussed that how this failure has affected the
company in a negative manner which lead to the passing of a new act.
There are also certain essentials of a contract which need to be present while examining
an agreement as a valid contract or not which will be discussed further. Also certain fact based
problems will be examined and it will be discussed whether the valid contract was formed or not
between the parties. Also various legal remedies available to the parties after breach of the
contract will be explained.
MAIN BODY
TASK 1
1. Define Law of Contract & Explain all the Essentials of a Valid Contracting
A contract can be defined as “a legally binding agreement” in which all the prescribed
essential elements of a valid contract are present. Anybody can make an agreement but whether
that agreement amounts to a legally valid contract or not is the most common question which
comes before the court. In these types of cases where one party states that there was no valid
contract present, the court will examine whether the essentials of the contract are present or not
in the agreement which is in question. A contract agreement identifies the various rights and
duties of the contracting parties and if these parties violates any of the terms of the contract it
will amount to the breach of that contract and the party who has breached the contract will be

liable to pay compensation to the other party whose rights has been violated because of such
breach(Bayern, 2016).
The various essentials which has been enumerated under the English Contractual Law
helps the courts while determining the validity of the contract. While determining the validity the
courts must consider the following things:
(I) “There was an Agreement Between the Parties”: The court will see whether
any agreement was made between the parties or not. It is the basic essential to
find out about the existence of the valid contract. The agreement can be either
“Written” or “Oral”.
(II) Intention of the Parties: It is also an essential that parties who are entering into
the agreement are having an intention to enter into a legal relationship with each
other and they are serious about this contract. The most important case regarding
this is of Balfour Vs Balfour in which there was an agreement between husband
and wife and both of them did not intended to enter into a legal relationship.
When the husband breached the agreement and the matter came before the court,
the court stated that there was no intention of the parties to enter into a contract,
thus no legally binding contract exist.
(III) Consideration: To enforce any of the agreement as contract it is
necessary that there must be some sort of consideration present. Consideration is
nothing but an agreed price or some promise which both the parties agrees to each
other(Corbin, 2018).
While entering into an agreement it is must that one party makes an “Offer” while the
party to whom the offer has been made must “Accept” that offer and the “Acceptance of the
Offer” must be communicated to the offeror in the prescribed manner if any. The acceptance can
be given either expressly or through any conduct which is known as implied acceptance. For
Example if Mr John has made an offer to Mr Fredrick that if Mr Fredrick give his wrist watch to
Mr John, he will give $10 to him. Here in this case Mr Fredrick has sent his to Mr John without
giving his express acceptance regarding the offer. This conduct of Mr Fredrick will amount to
acceptance by conduct.
There is a huge difference between the offer and an “Invitation to Offer”. Generally
people get confused between these two. The court has distinguished these two in the celebrated

judgement of Fisher Vs Bell(1960) in which the honourable court has stated that any item
displayed in any shop or showroom will be considered as an invitation to offer and it is the
customer who will make the offer to the shopkeeper and then it is the choice of the shopkeeper
whether he accepts that offer or not. It can be understood that invitation to offer is the pre stage
of an offer(Craswell, 2019).
Also in the famous case of Carlill vs Carbolic Smoke Ball Case(1893) in which the
manufacturing company invented a medicine for curing influenza for lifetime. The company also
stated that if after taking medicines in the prescribed manner also if any person suffers through
influenza the company will give £100. One person took the medicines but after that also suffered
with influenza and demanded the compensatory reward from the company. The company here
stated that it was just an invitation to offer and not an offer so the company is not liable to pay
any reward. The court here stated that it was an offer and everybody who takes medicines
deemed to be accepted that offer, thus company is liable to pay the compensation upon its
breach.
While determining the validity of the contract it must be seen that there must be some
“Consideration” present. As the consideration has been defined above, it must be noted that
having some sort of consideration is required whether it is adequate or not. For example if Mr
Donald wants to sell his house to Mrs Maria for $1, the contract will be held valid and there will
be no question regarding the fact that the amount of consideration is too low for selling the
house. Under the English law the consideration either must be in present or future. The past
consideration will not be deemed to be valid consideration(Eisenberg, 2016).
2. Explain the Court System in Relation to the English Legal System and Advise the Parties
Which Court to Approach
There are various courts which are established in United Kingdom. By Constitutional
Reform Act 2005, the Supreme Court of UK was established. In UK generally the civil matters
are dealt by County Court. There are various other courts such as “Court of Appeal”, High
Court of Justice” and “Crown Court” which are all senior courts. The subordinate courts
includes “Family Courts”,”Magistrate Courts” and “Youth Courts”.
The parties are advised to approach the County court as this court deals with civil matters
and will determine the rights and duties of the contracting parties. Also the Queen's bench
division of High Court also deals with Contractual matters. If any of the parties wants to appeal

against the decision, they can approach Court of Appeal and then Supreme Court (Zysow,
2017).
3. Advise Hilary as to Whether Binding Contracts Exist Between Herself and Each of the
Following People: Eleanor,Amy and Olivia
Case 1: Contract law prescribes that there should not be any counter offer to an existing
offer. In case of counter offer the acceptance shall come from the original offeror. Here in the
given facts also when Hilary has offered the price of printing press the Eleanor has countered the
offer by reducing the price. The Hilary's act will be act as invitation to offer as it was an
advertisement. This principle has been laid down in the case of Partridge Vs Crittenden(1968).
The Acceptance was now required from the side of Hilary but again the different price
was quoted for which the acceptance of Eleanor did not come. When again the offer was made
by Hilary it was rejected by the Eleanor. Thus no contract has been formed between both the
parties.
Case2: In the landmark judgement of Entores Vs Miles Far East Corporation(1955),
the court has stated that the acceptance must come into the knowledge of the offeror. There is an
exception to this general rule when the acceptance is communicated through postal
method(Llewellyn, 2018). In that when the acceptor puts his acceptance letter in the mode of
transmission the acceptance will be deemed complete against the offeror. From this time the
contract will be binding upon the offeror and the offer can't be revoked after it. By applying the
same principle in the given facts it can be said that now the offer can't be revoked and there
exists a valid contract between both the parties.
Case 3: In the given facts the invitation to offer was there which was given by Hilary and
for that Olivia has Given her the offer which has been later rejected by Hilary. Thus no
contractual relationship exist between both the parties.
4. Explain and discuss the various remedies available to the parties
Damages: Whenever any of the parties suffers any loss due to the branch of contract the
court can award them with the damages. While awarding damages the court will see that the loss
has been caused by the breach and the loss was foreseeable(Winfield, 2019).
Specific Performance: Where the compensation will be not adequate to recover the loss
the court can order regarding the specific performance of the contract which has been breached.

Injunction: The court can also pass either interlocutory, prohibitory or mandatory
injunction by restricting the parties to not breach the contract.
TASK 2
Introduction to the case
This report is related to the scandal which popularly known as Enron Scandal in which
various irregularities were disclosed in the accounts of the company which was a case of failure
of corporate governance. Due to which one act namely Sarbane-Oxley Act 2002 was passed by
the parliament in order to prevent these types of failures in the future as these failures leads in
losing the trust of the investors in the market which negatively impacts the economy of a nation.
Facts of the Case
Enron Corporation was a company who was showing outstanding growth in its profit.
This Company was incorporated in the year 1985 by merging two companies who were working
in the field of transmission of natural gases. It has showed its growth in such an extraordinary
manner that it got the title of “America's Most Innovative Company” from the year 1996 to
2001(McWeeney, 2016). Because its upper management was doing the business fraudulently in
order to satisfy their hunger for money, the company's shares fell drastically because of the
financial fraud. The value of the shares of Enron fell from $90.75 each to $0.67 each when the
company declared itself as bankrupt. This failure of the big company such as Enron has affected
the life of its employees as well as its stakeholders and transformed the way of presentation of
the financial statements and accounts of the company. The Enron has fooled its investors by
manipulating the financial statements of the company by creating the image that they are the best
company to invest. This financial fraud has lead to the demise of this company.
Ethical Corporate Governance and Overview of Sarbane-Oxley Act 2002
Ethical Corporate Governance: In today's era every company is focussing upon the
ethical corporate governance as it is considered as one of the best way to ensure the growth of
the company. The Ethical Corporate Governance generally means all those policies which a
company adopts for the administration of day to day activities of the business(Petrick and
Scherer, 2016). As it is a fact that company's are formed to make certain profit but by following
this ethical corporate governance the policies should be framed in such a way that while making
the profit certain principles of the ethics should be followed. Many a times a situation has arose

that many powerful companies has misused their position in the market by implementing anti
competitive policies and doing frauds in their accounting statements. This ethical corporate
governance ensures that business is working in such a manner in which its investors and
stakeholders are not getting exploited(Azibi, Tondeur and Rajhi, 2017).
Implementing a strong corporate governance is a challenge for any company as it
involves various complexities such as accountability and proper system of auditing the financial
accounts. Following are the main principles upon which the policies of Corporate Governance
must be framed:
Accountability: It means that the CEO and the other directors of the company are
directly accountable to the stakeholders and public and corporate governance must framed in
such a way so that all these higher officials must be monitored.
Fairness: There must be a redressing authority so that grievances of the shareholders
must be resolved. Also the company must ensure the equal treatment of all the shareholders
while protecting their rights.
Transparency: The policies of the corporate governance in the company must be framed
in such a way so that there exists a transparency regarding the financial statements of the
company.
The Sabarne-Oxley Act, 2002 was enacted for the purpose so that the corporate frauds
and failure of corporate governance does not take place in the future. In the year 2000-2001 there
were many cases of corporate fraud has happened and the Enron Scandal was one of them. The
act was enacted by the Public Company Accounting Oversight Board in order to ensure that
the loans of organisations should be banned in order to getting executed. Also the aim of this act
was to protect the rights of the person who has disclosed the scandal who is generally known as
whistle blower. The above mentioned act has strengthened the financial literacy of the company
and also ensured that the executive directors of the company can be held liable if any frauds are
committed in the accounts of the company. This act was also enacted to achieve the purpose
regarding the audit of all the public companies of United States. It has enacted such provisions
which have assured that there must be an unique and quasi public institution which will oversee
and regulate the auditing process in the company(Baker, 2019).

Relationship Between Ethical Corporate Governance and the Sabrane-Oxley Act 2002
The above mentioned act was enacted for the purpose so that a proper and strong Ethical
Corporate Governance must be ensured so that the rights of the investors and the stakeholders
can be protected. The Enron Scandal has made such a negative impact upon the corporate world,
here was a need of a strong law which prevents such scandals to happen in the future(Panikkar,
2016). There were also other corporate scandals with took place contemporary to this Enron
Scandal due to which Paul Sarbanes and Michel Oxley framed this law. This fraud which has
been happened in Enron has not only impacted the lives of its employees but also lead to a major
change in the world of accounting and how auditing will be done in the companies. This SOX
has enacted so that to diminish the loopholes in the accounting practices and to strengthen the
rules related to corporate governance. Also it has increased the penalties which would be
imposed upon the companies it any of the corporation is found indulged in any such corporate
fraud. The provisions of this act also ensured that there should not be any collusion between the
directors of the company and its auditing officers(Mustafa, 2020).
This act has also ensured the independence among its auditors & upper management of
the company.
CONCLUSION
After doing the above study the conclusion can be drawn that while determining the
legality of a contract it should be seen whether essential elements of contracts are there or not.
The essential elements are Offer,Acceptance and Consideration. If any of the parties breach the
contract there are courts in which parties can file suit and claim damages as the parties are
having various remedies to avail. Various landmark cases and fact based problems were
examined which has clarified that how the court has taken different approach towards various
aspects of contract law in England.
Also it can be concluded that a company should follow the principles of ethics while
doing the business. This study was done to see that how failure of corporate governance in many
companies from 1990-2000 has given the birth to a new act to prevent these types of failures
which has changed the most of the accounting system. It is recommended that with the aim of
increasing their profit the companies should also focus upon the protection of the rights of ints
investors. The Corporate governance policies should be made in such a manner which not only

cover the employees of the company but also the directors and the higher officials as it is a fact
that in majority of these scandals somebody from the upper management remains involved.

REFERENCES
Bayern, S., 2016. Offer and Acceptance in Modern Contract Law: A Needles Concept. Calif. L.
Rev. 103. p.67.
Corbin, A. L., 2018. Offer and Acceptance, and Some of the Resulting Legal Relations. The Yale
Law Journal. 26(3), pp.169-206.
Craswell, R., 2019. Offer, acceptance, and efficient reliance. Stanford Law Review, pp.481-553.
Eisenberg, M. A., 2016. Expression Rules in Contract Law and Problems of Offer and
Acceptance. Cal L. Rev. 82. p.1127.
Llewellyn, K. N.,2018 . On Our Case-Law of Contract: Offer and Acceptance, I. The Yale Law
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Baker, C.R., 2019. Investigating Enron as a public private partnership. Accounting, Auditing &
Accountability Journal.
Mustafa, R. M., 2020. Case analysis: Enron; Ethics, social responsibility, and ethical accounting
as inferior goods?.
Panikkar, M. M., 2016. Scandal: An Ethics Game on the Importance of Accurate GAAP and
FASB Reporting for Public Corporations.