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Ethics in Law for Business

(wealth, security, freedom, opportunity). Next, what in a any complexity come with a “limited warranty,” which
given business situation would be ethical (virtuous behav- most commonly warrants parts and labor for one year.
ior), and does the law require or should the law require Also common these days are the sales of extended war-
ethical behavior? In the following paragraphs areas of ranties that extend the one-year warranty up to three or
business law that have ethical issues are considered. The even five years. This allows manufacturers and sellers to
reader is invited to examine the issues in light of the above write warranties in almost any fashion. The ethical ques-
ethical model. tions are: To what extent should a company stand behind
its products? At what point is it ethically correct for the
customer to accept the risk of a defective product?
CONTRACTS AND ETHICS
The way warranties are written can raise ethical prob-
Business is about making and selling products and
exchanging goods and services. When a contractor orders lems. In an automobile, tires and batteries wear out and
are subject to very limited warranties; however, a modern
a load of bricks to build a house and then in turn sells the
automobile consists of thousands of parts—any one of
house or hires a worker, it is a constant process of making
which may give out or be defective. Warranty descrip-
and fulfilling contracts. A contract is a promise to do
tions, even when plainly written, can be confusing as to
something. It may be to deliver goods, to perform a serv-
ice (say, to paint a house), or possibly to employ or be what is included and what is excluded. What, then, is an
employed by another. The very process of business is mak- ethical automobile warranty?
ing and fulfilling contracts. Without contracts, no busi-
ness would be possible. There are many ethical issues ADVERTISING
involved in making contracts. Everyone is aware that there is much criticism of the ethics
For most legal purposes, a person becomes an adult at of advertising. False advertising is against the law, and all
age eighteen. Before that, a minor may disaffirm an oth- would agree it is unethical. Famous cases involve a prod-
erwise legal agreement, a provision that exists to protect uct that was beneficial in many ways but was falsely
minors from abuse by overreaching adults. What should claimed to prevent colds. In another case, an aspirin com-
the rights and responsibilities of minors be? What about pany claimed its aspirin was more effective than others.
adults who are mentally incompetent or insane? If a store advertises “apples—5 pounds for $2.50,” it
What about adults of normal intelligence and capac- must have a reasonable quantity on hand; it is considered
ity? Suppose a loan is made on the following terms: “Here good business practice to give rain checks, but doing so is
is a loan of $20. You will give me $21 back in a week.” not legally required. It is also against the law to advertise
This is an interest rate of 5 percent a week, which is 5 per- a product at a very low price with the intention of trying
cent ¥ 52, or 260 percent a year. This contract is illegal in to talk customers into higher-priced products. This is
most states. Suppose a fast-talking but honest salesperson known as bait and switch.
sells goods on credit in the buyer’s home. Buyers must be The law allows what is known as sales puffery. This is
told in writing that they have three days to change their an emphasis on subjective qualities, such as that a car is
minds. Is this ethical? beautiful and will make you feel good, or that a high-fat
Under the law of contract, when a transaction is com- food tastes good without mentioning the health risks of
pleted, it is final. Suppose a person buys a set of green excess fat. It is easy to look at advertisements and identify
towels and then decides a couple of days later that red sales puffery and half-truths. What is the ethical line?
towels would look better. The store could legally say, “you It is against the law to advertise illegal products, such
bought them, there is nothing wrong with them; they are as controlled substances, but what about legal products
yours.” If a sign in the store said, “All returns must be that are harmful? Cigarettes may not now be advertised on
made within 30 days,” that sign becomes part of the con- television or on billboards. Should the ban be extended to
tract. Frequently signs warn, “No returns on prom and advertising in magazines?
party dresses.” This reinforces the contract. A good return Truthful advertising is part of freedom of speech.
policy is simply good business, but the law leaves the What other restrictions, if any, should be part of law?
ethics of returns up to the store. What return policy is the What about advertisements for alcohol?
most ethical for business?
EMPLOYMENT LAW
WARRANTIES Few areas of law mix law and ethics as much as employ-
A warranty is part of a business contract. It is essentially a ment law. Surely employment is critical to our welfare and
binding promise that the product is fit for its intended thus is of keen interest and subject to much emotional
purposes, is free of defects, and works. Most products of debate.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 273