Unit ThreeFocus on Ethics:Contract Law andthe Application of EthicsSee Separate Lecture Outline SystemINTRODUCTIONThis Focus on Ethics highlights some ethical issues that have emerged in the application of contractlaw. Many areas of contract law lend themselves to ethical analysis. For instance, a court generally will notinquire into the adequacy of consideration. A businessperson could knowingly arrange an exchange in whichconsideration was far less than value received and successfully argue in court that the consideration was ad-equate to make the contract legally enforceable. Nonetheless, that person may still be violating the ethics ofsociety.FOCUS OUTLINE123
124 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, ELEVENTH EDITIONI.Freedom of Contract and Freedom from ContractIf, in contracting, an individual fails to look after his or her own interest, should the party with whomhe or she contracts do so? For instance, if a seller unknowingly offers goods at less than half theirmarket price, does a buyer have an ethical responsibility to tell the seller (i.e., not to harm the seller bytaking advantage of the circumstance)? Not saying anything about the true value of the goods could bejustified by the principle of freedom of contract.
UNIT THREE: FOCUS ON ETHICS—CONTRACT LAW & THE APPLICATION OF ETHICS 125A.IMPOSSIBILITYOF PERFORMANCEOne hundred years ago, holding a party in breach when performance was impossible through nofault of the party asserting the defense coincided with society's notions of fairness. Today, a partyis absolved of liability for nonperformance when the parties did not consciously assume the risk ofthe events that rendered performance impossible. This doctrine assumes that the party assertingthe defense acted ethically (a party cannot arrange events intentionally to make performance im-possible).B.UNCONSCIONABILITYThe doctrine of unconscionability represents a good example of how the law attempts to enforceethical behavior. Unconscionability is not defined precisely, however. It is left to the courts, bothat common law and under the UCC, to determine when a contract is so one-sided and unfair to oneparty as to be unconscionable (which is only in extreme situations).C.EXCULPATORY CLAUSESSometimes, the law permits parties to assume by express agreement the risks inherent in certainactivities. An exculpatory clause may be held unconscionable or contrary to public policy and thusvoid, however, when there is disparity in bargaining power. For this reason, such clauses in