Business Law and Ethics Project: Contract Law and Corporate Governance

This project on Business Law and Ethics explores several key areas, including contract law, corporate governance, and the Sarbanes-Oxley Act of 2002. The first part defines contract law, outlining its blueprints, and analyzes a case study involving potential contract formation issues between Hilary and Eleanor, Amy, and Olivia, evaluating the existence of binding contracts and discussing available remedies for breach. The second part delves into a case study of the Enron scandal, examining corporate governance failures, accounting fraud, and the impact of the Sarbanes-Oxley Act. The project highlights the importance of ethical practices and legal compliance within the business environment, addressing issues such as financial reporting, executive responsibility, and the consequences of corporate misconduct.

Business Law and Ethics

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Project 1...........................................................................................................................................3
Q1. Define contract law and describe all the blue prints of a contract.......................................3
Q2 Explain the court system in relation to the English legal system and advice the parties
above which court(s) action to pursue........................................................................................4
Q3 Advise Hilary as to whether binding contracts exist between herself and each of the
following people: Eleanor, Amy and Olivia. .............................................................................4
Q4 Explain and discuss the various remedies available to the parties........................................5
PROJECT 2......................................................................................................................................6
LOOPHOLES THAT RESULTED IN SCANDAL...................................................................9
CORPORATE GOVERNANCE................................................................................................9
SARBANES-OXLEY ACT OF 2002.......................................................................................10
CONCLUSION..............................................................................................................................10
REFRENCES ................................................................................................................................11

INTRODUCTION
Business laws are the laws that has been helping in formation of business that has made
establishment possible of an business organization in an country. It consists of various rules and
regulations that has been helping in making establishing of organization possible according to
the legal framework existing within an organization. Laws related to this parts makes
establishment of business organization possible in legal form. Ethics are those kind of law that
are there for defining steps and rules for maintaining discipline within work place. These kind of
laws also seeks benefits for making behaviour of individual to be monitored and creating healthy
work environment possible. Scope of such laws has been is wider and covers various aspects
regarding the laws. This file is based on contract law, corporate governance and Sabane-Oxley
Act of 2002. Further in this file in first part case scenario is given and questions related to
contract has to be answered. Then in second part a case study is given that is based on financial
scandal and has to be explained in relation to corporate governance and SOX Act 2002.
MAIN BODY
Project 1
Q1. Define contract law and describe all the blue prints of a contract.
Contract law are the laws that is based on agreement that gives rise to legal obligation
that is recognized under law. An contract is established only when offer is being made by one
person and is acceptable by other person. As per this communicating of offer is done in order to
begin a contract (Silver, 2020). It contains four elements that is offer, acceptance, consideration
and intention of creating legal relation between the parties. Further these elements are explained
as follows:
Offer: In this the basis of contract is been explained to a group or whole of the world.
Termination of offer can be done in following manner like withdrawal, rejection, lapse of time,
failure of condition and death.
Acceptance: Acceptance is been done over the offer that has been presented by the other party.
The express of words can be conducted under following terms and they are as follows:
 offerer waives communication of acceptance.
 parties agree that silence of offerer is acceptance.
 acceptance made under postal rule.

Consideration: This is one of the most required elements that has been paving way for forming
a contract in legal manner. Without consideration no contract is considered to be a valid contract.
Intention: Agreement is not going to be considered binding till intention to form an contract is
not an legal activity.
Q2 Explain the court system in relation to the English legal system and advice the parties above
which court(s) action to pursue.
In England judiciary has been given jurisdiction through courts over various kinds of
issues that are been described as follows:
The subordinate courts Magistrate courts hear minor criminal cases, youth courts hears case of
offenders to the age of 10-17 years. Family proceeding courts deal with family matters and is
presided over by magistrate's court. County courts deal with civil cases and it is presided over by
District judge.
The senior courts High court is appellant court that deals with civil and criminal cases from
subordinate courts. It also has three divisions namely Queen's Bench, Chancery and family
division. Crown court has both original and appellate jurisdiction of criminal cases and certain
civil cases of first instance (Sewu, 2019).
The Supreme Court is the final court of appeal for civil cases and criminal cases. Civil procedure
has an extensive reform in recent years. A new set of rules and new legislation for modernising
the courts and legal services were framed and put in operation from 1999.
Under the case scenario contract law is considered to be main law for consideration. So,
the parties are advised to seek County Courts and for aggrieved decision subordinate. In this
Court of appeal holds jurisdiction over it.
Q3 Advise Hilary as to whether binding contracts exist between herself and each of the
following people: Eleanor, Amy and Olivia.
Contract between Hilary and Eleanor -
At first instance Eleanor offered Hilary to purchase printing press for £10,000 and then
Hilary instead of accepting the offer gave counter offer to sell the printing press for £13,000.
Eleanor did not respond to the offer of Hilary that leads to no acceptance from Eleanor's side and
Hilary has offered her price of £10,000 but Eleanor rejected the offer so there is no acceptance.
Without acceptance to the offer there is no binding obligation on the parties and there is no such
contract between the parties. In Hyde v. Wrency, the court held that Making a counter offer

amounts to a rejection of the original offer which cannot subsequently be restored or accepted.
To constitute a valid contract there must be offer, acceptance, consideration and intention to
create legal relation. Here only offer is there, other conditions are not fulfilled so it is not a valid
contract and hence not binding.
Contract between Hilary and Amy -
Hilary offered Amy to sale an office computer for £1000 through letter. The morning she
received it, Amy accepted the offer at asking price and wrote to Hilary agreeing to buy it. After
she has posted but before delivery, she changed her mind and sent a fax to Hilary asking her to
ignore the acceptance when it arrived. Here the contract between Hilary and Amy is not binding
because the mail rejecting the offer was received first, even though Amy sent the acceptance
first, the fact that rejection was received first, there is no binding contract.
Contract between Hilary and Olivia -
In this it can be easily observed that grand summer sale has been put up by Hillary in her
art gallery and a notice has been put by her that states that valuable paintings by Trumpeter that
is available for sale for £1 to the customer approaching first for commencing of sale with an free
signed painting. Olivia waited for the sale to commence outside the gallery since 2 days for
making sure. When sale has commenced Hillary told her that painting is not for sale any more.
Relevant case law that can make the condition better understood is Partridge v Crittenden.
Under this court held that invitation to treat has been including and it is not considered to be a
valid in any manner. So, binding contract is not applied in this case scenario.
The parties that are present within the case does not amounts to have binding contract in
any manner (Poff, 2020).
Q4 Explain and discuss the various remedies available to the parties.
Remedies that is available to an party that has done breach of contract and they way in
which claims can be made by party. These remedies is helpful in providing claims and various
kinds of remedies is available to them which are explained as follows:
Damages this is the kind of compensation that is been given to make injured parties
suffered for the breach of contract that has been done by them. In order to attain substantial
damage injured parties should have breach of contract and actual loss that has been caused, loss
should be recognized and remoteness should not be there in loss. Nominal damages can only be
given when aggrieved party is entitled to it.

Specific performance Court is required to show specific performance under the damage
that has been inadequate that has been compelling party over the breach of contract. Relevant
case law related to this is Stickney v Keeble it was held by court that specific performance that is
justified and is equitable to do it. In claiming remedy should be available over the equity and
claimant must comply with clean hands (Jenlink and Jenlink, 2018).
Injunction remedy that has to be claimed by the restraining party in committing breach
of contract. Various kinds of injunction that has been explained as follows: Interlocutory in this type of injunction designing of regulation is required to be claimed
during the hearing of case. Permanent under such kind of jurisdiction nature and claim has been used for disposing
the case. Prohibitory in this prohibition of defendant has to be acting towards making breach of
contract.
 Mandatory requiring an defendant reverse effect is there for an breach that has taken
place.
Repudiation Ending of contract is available over the breach of obligation. Under this
remedy is required to be claimed over aggrieved through breach of contract.
Rescission Remedies that has been taken by parties in an contractual position in this
remedy is available over vitiating factors that has been creating influence, through
misrepresentation over duties. This is there to make discretion of judge. Parties are contracted to
parties.
PROJECT 2
CASE SCENARIO
In the history of United States, Enron corporation, which held more than $60 billion assets was
eventually led in biggest bankruptcy case. In October 2001, it was surfaced that America's
seventh largest company was involved in accounting fraud and corporate corruption. Enron's
shareholders lost $74 billion and many lost their jobs. This scandal also led to dissolution of the
auditing company, Arther Andersen, CEO of Enron Corporation.
Enron corporation was formed in July 1985 with merger of two companies, that is Houston
Natural Gas and Inter North. The CEO of the Enron was Kenneth Lay. In the process of
acquiring huge debts, Enron expanded its business plan and started dealing in commodities and

services like electricity papers, natural gas, freight, communication technology and water to
generate cash flow and profits by appointing Mckinsey & Co. who assigned Jeff Skilling to this
project in 1990. Enron corporation was named as “America's Most Innovative Company” for its
innovative business model by Fortune Magazine for six consecutive years from 1996-2001.
in 2001, Jeff Skilling was appointed as CEO and Kenneth Lay as chairman of the Enron
Corporation.
Andrew Fastow became Chief Financial Officer in 1998 .
When Enron was formed, electricity and natural gas were under state monopolies . Enron
started trading online due to deregulation of energy market which free the companies to operate
free from US government scrutiny. The first global commodity trading website was launched as
EnronOnline in November 1999.
However with the growth of huge debts inside the corporation, executives were able to hide it
by setting partnerships which generate imaginative revenues and losses were buried. It
misrepresented the balance sheet to keep huge debts off. Creative accounting was done which
could inflate profits and assets. The corporation showed fraudulent earnings to the investors
which resulted in bringing new investors who were eager to make money and new investment
from current shareholders.
The corporation also made artificial energy crisis in California so that there are chances of
manipulating power supplies and thereby charging excessive prices for the same.
Kenneth Lay in February 2001 retained the position of chairman but gave resignation from
CEO and named Jeff Skilling as CEO and President of Enron. After few months Jeff Skilling
suddenly gave resignation from post of CEO and cited 'personal reasons' as reason for
resignation and also sold its shares. This prompted to question health of the company by Wall
Street and stock prices suddenly began to drop. The Enron executives started selling their stocks
as price fell from a high of $83 per share to less than a dollar. In August 2001, Kenneth Lay
joined as CEO and called executive meeting and Sherron Watkins, the new Vice President of
Corporate Development alerted CEO of irregularities in financial reports and Kenneth Lay
assured to address her concerns (Hühn, 2018).
In October 2001, US Securities and Exchange Commission started formal investigation and a
special committee was for formed to examine financial transactions of the Enron Corporation.
Enron Corporation's quarterly earning report did not show the drop of over one billion dollars in

equity shares which clearly shows that it was hiding losses. On 24th October 2001, Andrew
Fastow was sacked.
In November 2001, Enron admitted that it has overstated profits in 1997 by $600 million and
in November 2001, US Securities and Exchange Commission extended its investigation to
Arther Andersen LLP. And on 2nd December 2001, case was filed for bankruptcy against Enron
Corporation.
Criminal investigation began on 9th January 2002 as confirmed by Justice Department and on
the same day Kenneth Lay sought help from 2 cabinet members was disclosed by The White
House and then Kenneth Lay resigned as CEO and Chairman and it was also admitted by the
company's auditor Arthur Andersen about destroying tons of Enron documents. In February
2002, Cliff Baxter, former head of Enron trading unit and later Vice President agreed to testify
before congressional committee but was found dead of a gunshot wound on 25th January 2002.
WHAT WAS HELD ?
Arther Andersen LLP was convicted although conviction was later reversed by Supreme
Court.On 78 counts including fraud, money laundering and conspiracy, Andrew Fastow was
indicated by grand jury and was later on senInterlocutory, which are designed to regulate
position of parties it may be claimed during the pendency of full hearing of case.
 Permanent, which are permanent in nature and is claimed after final disposal of the case.
 prohibitory, which means prohibiting the defendant from doing any act in breach of
contract
mandatory, which means requiring a defendant to reverse the effects of an existing breach.tenced
to 6 years imprisonment with 2 years of probation.
Kenneth Lay was charged with 11 counts of wire fraud, security fraud and making false and
misleading statement. In May 2006 he was found guilty but died due to heart attack on 5th July
2006 (Goodarzi, Salamzadeh and Salamzadeh, 2018).
Jeff Skilling was charged with 36 counts relating to Enron Scandal and agreed to become
informant regarding Enron executives for reduced sentenced.
At the time of scandal, Enron Corporation became biggest corporate bankruptcy which led
Congress to pass Sarbanes- Oxley Act 2002 to protect the interest of investors from corporation's
fraudulent accounting activity.

LOOPHOLES THAT RESULTED IN SCANDAL
Enron Corporation acted against the system that they created in defiance. It showed the
imaginary health of the corporation. There was lack of checks and balances for accountability
and decision making structure. There were many unethical standards that became legal issues in
the later days and essential ingredients of leadership was absent that affects the behaviour and
internal practises. The company was internally hiding the losses and showing imaginative profits
which led to big scandal and heavy loss to then investors lack of review process led to
bankruptcy and heavy losses and there were problems to comply with regular review process.
Lack of laws to protect the interest of investors as well as no proper mechanism for independent
audit was missing which gave rise to scandal.
The middle and senior management failed to maintain the environment that was
conducive to include goals and objectives of organisation. Enron was a massive fail and greed
because of its size, complexity etc. due to multiple failure like auditor failure, analyst failed,
creditors failed which sent a signal of management structure.
CORPORATE GOVERNANCE
Corporate governance is a set of rules, process and laws from which businesses are
controlled, managed and regulated. There are many internal and external factors that affect the
interest of company's shareholders, suppliers, government regulators and management. It
includes action plans, performance measurement, dividend policies, disclosure practises,
contracts between company and stakeholders. It is a central and dynamic aspect of business. It
governs the relationship between corporation and investors (Feldman, 2017). Corporate
governance attracts the attention during the early 2000s US corporate scandal like Enron. Due to
Enron's wreckage, several corporate governance problems emerged like lack of moral character
of board of directors which gave rise to their willingness to engage in fraudulent activity.
Unfettered power to CEO which results in unethical management. In order to protect the interest
of shareholders, it was the role of company's board of directors to oversee corporate
management. There was conflict of interest which resulted to allow chief financial officer to
create private partnerships to do business. This resulted in concealed debts and liabilities that
had serious impact on profits of the corporation.

SARBANES-OXLEY ACT OF 2002
The Sarbanes Oxley Act,200 also known as 'Public Company Accounting Reform and
Investor Protection Act' and 'Corporate and Auditing Accountability, Responsibility and
Transparemcy Act' is a US federal law for public company boards, management and public
accounting firms. Some provisions also apply to private companies. The bill was enacted as a
reaction to number to scandals including Enron. It covers the responsibility of Board of Directors
for any fraudulent activity, add penalties for misconduct and also create regulations to be
complied by Securities and Exchange Commission as to how companies have to comply with
law. There are many reasons for the enactment of this act such as auditor's conflict of interest,
boardroom failures etc (Boatright, 2017)(Brenkert, 2019).
The Enron's officers and employees committed various misdeeds and crimes that were
extensive and ongoing. Misrepresentation in earning reports for shareholders due to which many
suffered heavy loss, frauds, dishonesty in corporate funds, illegal manipulations o energy market,
all these factors led to enforcement of Sarbane Oxley Act, 2002 so that there can be independent
audits, interest of investors are protected, true and fair disclosure of financial health of the
company.
CONCLUSION
From the above file it can be concluded that business laws and ethics considered to be
one of the most important part of an organization which makes in establishment of organization
possible with maintaining discipline at work place. Further this file is divided into two parts first
part contains contract law and questions regarding it. Second part consists of case study that is
related to corporate governance and SOX Act 2002.

REFRENCES
Books and journals
Boatright, J.R., 2017. Ethics and corporate governance: Justifying the role of shareholder. The
Blackwell guide to business ethics. pp.38-60.
Brenkert, G.G., 2019. Mind the gap! The challenges and limits of (Global) business
ethics. Journal of Business Ethics. 155(4). pp.917-930.
Feldman, Y., 2017. Using behavioral ethics to curb corruption. Behavioral Science &
Policy, 3(2), pp.86-99.
Goodarzi, S.M., Salamzadeh, Y. and Salamzadeh, A., 2018. The Impact of Business Ethics on
Entrepreneurial Attitude of Manager. In Competitiveness in Emerging Markets (pp.
503-539). Springer, Cham.
Hühn, M.P., 2018. CSR-the Cuckoo’s Egg in the Business Ethics Nest. Humanistic Management
Journal. 3(2). pp.279-298.
Jenlink, P.M. and Jenlink, K.E., 2018. Education, Ethics, and the Law: Examining the Legal
Consequences of Unethical Judgment. In The Palgrave handbook of education law for
schools (pp. 105-139). Palgrave Macmillan, Cham.
Poff, D.C., 2020. Business Ethics Research and Research Ethics in Business
Research. Handbook of Research Ethics and Scientific Integrity. pp.999-1011.
Sewu, P.L.S., 2019. Good Faith as a Key Principle of Business Ethics to Franchise Agreement
and Development in Indonesia. Journal of Legal, Ethical and Regulatory Issues. 22(1).
pp.1-7.
Silver, D., 2020. Democratic Governance and the Ethics of Market Compliance. Journal of
Business Ethics. pp.1-13.
Surdam, D.G., 2020. Medieval Business Ethics. In Business Ethics from Antiquity to the 19th
Century (pp. 181-203). Palgrave Macmillan, Cham.
Suresh, A. and Rakesh, R., 2019. Relationship between Consumerism and Business Ethics in
India. Journal of Marketing & Management. 10(2).
Windsor, D., 2016. Economic rationality and a moral science of business ethics. Philosophy of
Management. 15(2). pp.135-149.