Is the action legal?
The action by Enron Corporation was illegal. Enron and its close allies conspired against committing a corporate fraud. Every year Enron paid a certain fee to Arthur Andersen which was an auditing and a consultation fee. Enron was as well involved in a conspiracy to commit security fraud and not forgetting the corruption menace that surrounded the entire saga. This was articulated by involvement of credit rating agencies, banks and firms acting as security brokers to constantly finance its operations. Enron Corporation could sometimes borrow a loan from an institution and instead of indicating it as a loan in its books; it would indicate it as equity this is a method it used to unlawfully disguise its debts. There were also agencies acting on behalf of the government and mandated with the task of limiting the credit worthiness of firms that are indebted. Where were these agencies? Enron had already won their hearts by grants they offered such agencies to become a main player in the system. According to the accounting specialists Enron committed a lot of fraud and misrepresentations not only to the stakeholders but also to the general public. It resulted in a lot of investors buying shares without exactly knowing what they were.
Would it Maximize shareholder’s value?
Once an organization finances its debts through sale of bonds bills or issuance of promissory notes whether as per the accounting principles or against the principles, there is a cash inflow in the accounting statements. This will result into a positive dividend figure in the final books of account. In instances where an organization indicates a loan as equity in its books of account, this becomes a lesser burden to the shareholders. Since an equity does not have a fixed rate of repayment. Also, making a loan appear as equity further empowers the shareholder in that it increases his or her ownership interest on the company’s assets. Every time Enron Corporation sold its assets to its partners with an aim of raising immediate profit, the same profit would further be split amongst its shareholders since retained earnings are a part of the contributed capital. Therefore the act of hiding the debts from the financial statements did empower the shareholder in the short-run but not in the long run.
Is the Action Ethical? What is Ethical? discuss and define teleological v. deontological / and comparative ethical theories
Deontological theory would somehow agree to the action being ethical but teleological theory would not. Deontological theory argues that the ethical good can be determined by determining the motivation plus the principles an individual applied in doing an action. On the other hand, teleological theory suggests that we can only measure ethical good of an action from its effect it has on other individuals. In this case, Enron’s action was unethical in that it was only meant to benefit the few close allies of the company involved in the entire fraud saga and not the shareholders and the public who were the major losers in the end though the biggest contributors. An action is ethical if the acts in the best interest of everybody not just a certain group of individuals. Comparative ethical theories revolve around people’s belief on what is right or wrong.
CASE 7.1 Copeland v. Baskin Robbins (2002). Is an “agreement to agree” an enforceable contract without any reliance damages? Discuss the relevant contract rule.
An agreement to agree is an introduction to the actual contract. It is therefore incomplete and alone is an unenforceable agreement since the parties to a contract are in the process of forming a legal binding can be in a position to prove its certainty and its completeness in a court of law. This is because as at the moment of breakdown of talks between Copeland and Baskin Robbins, there was no legal binding established. It was therefore hard for Copeland to claim reliance damages. The only thing that is there is a mere promise to shed more light on the necessary terms of contracting at a future date. The relevant contract rule argues that under whatever circumstance, a contract cannot impose duties to a stranger-person who are not parties to a contract. For a person to be a party to a contract must be involved in reaching an agreement.
CASE 7.2 Kurashige v Indian dunes, Inc. (1988). Why did the court rule in the favour of the defendant, holding the contract enforceable? Discuss the entire law of contract and apply to this case
The court ruled in favor of the defendant because the plaintiff had already entered into a valid legal binding with the defendant. In that, at the time of signing the documents releasing the undersigned of any compensation by the defendant, both parties were in their right mind and there were no forceful means whatsoever involved in getting the undersigned to sign the documents. He did it at his own will. Before entering into a legal binding, the two parties are expected to carefully review all the terms and conditions of the contract before signing it since availing the signature would mean that one fully agrees with the terms and conditions of the contract and if anything goes wrong the other party is not liable for it if it was a term of agreement on the contract. A party is only supposed to sue the other for damages if there is breach of the contract; one party acted outside the agreed terms of the contract. In such a situation, the court may rule that the damaged party is to be equally compensated for the breach of terms.