Legal & Ethical Considerations

Week 6 Final Paper

This assignment is an analysis of Timmco Inc. Timmco Inc is an organization that sells
spraying equipment. Timmco would like to reduce costs and is considering changing suppliers of
high-pressure valves. The paper, therefore, evaluates breach of contract and remedies, negligent
torts, product liability, Foreign Corrupt Practices Act, deceptive advertising, and discusses and
applies ethical theories applicable to the course. The paper uses the IRAC format to analyze the
legal issues

Breach of contract and Remedies

The Issue
Timmco Inc has a contract to purchase 1,000 high-pressure valves annually from Blagg
industries at $2500 per valve. The contract has been in force for 3 years and has 2 more years
left. Timmco is considering canceling its contract with Blagg to source from an overseas
supplier. Timmco is Blagg’s largest supplier, and cancellation of their contract would have
significant ramifications, including laying off workers and potentially going out of business.
Rule
The rule that this case follows is anticipatory repudiation. Anticipatory repudiation occurs when
the promisor in a contract expresses unwillingness or inability to carry out the contract before the
time for performance (Prenkert et al., 2019, p.18-13).
Analysis
The action by Timmco to give the contract to an overseas company Sanco amounts to a material
breach. Prenkert et al. (2019, p.18-9) define a material breach as the breach when the promisor’s

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performance fails to reach the level of performance that the promisee is justified in expecting
under the circumstances. There is significant materiality of a breach if Timmo purchases the
valves from Sanco. Such materiality should form the basis for Blagg’s damages suit. The specific
time for performance indicated in the contract is 5 years, three of which have already lapsed. In
the case of anticipatory repudiation, the promisee has several causes of action.
The breach by Timmco cannot be considered an excuse because it does not meet the
circumstances, which are an impossibility. The grounds for impossibility are the illness or death
of the promisor, enactment of supervening illegality, destruction of the subject matter of the
contract, or commercial impracticability.
Recovery
The non-breaching party may withhold performance and sue for damages. In this case,
Blagg would be able to recover the contract price for the remainder of the time for performance.
For the remainder of the 2 years, the damages would be 2 * 1000 valves * $ 2,500 per valve
totaling to $5,000,000 for the total breach of the contract. Such damages are computable due to
the divisible nature of the contract. Timmco has already performed part of the contract for 3
years. Purchasing the valves from Sanco amounts to a material breach, and as such, Blagg can
only recover the part of the contract that Timco did not perform.
In New York University v Continental Insurance, the courts argue that the damages
arising from a breach of contract are limited to contract damages that redress the private wrong.
However, the court also affirmed that punitive damages might be necessary to deter the
defendants and others from engaging in morally reprehensive behaviors.
Conclusion

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If Timmco terminated Blagg’s contract, they would have to pay the sum for the remaining
part of the contract, which is $5,000,000. The court could also look at its discretion to issue
additional punitive action to serve as a deterrent.

Negligent torts

Issue
The decision by Timmco to purchase the valves from Sanco expose Timmco to
negligence. The facts are that the lower quality valves from Sanco are likely to burst. In case of a
burst, the valve would spray metal particles in all directions and pose a significant hazard to
anyone close, including the machine’s operator.
Rule
The negligence law states that members of society should behave in a way that avoids
harm to others (Prenkert et al., 2021, p.7-16). Timmco must exercise reasonable care.
Analysis
In determining negligence, courts consider several factors. One of the factors is whether a
hypothetical person would act in the same way (Prenkert et al., 2019, p.7-17). Timmco changing
the supplier to a lower quality valve that puts the operator and those around them at risk is in no
way a reasonable act, a hypothetical person with ordinary prudence and sensibilities would toy
take such action under the given circumstances.
The courts also consider reasonable foreseeability of the harm (Prenkert et al., 2021, p. 7-17).
Timmco, in this case, ought to have reasonable foreseeability of the harm. Timmco must be

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aware that the valves operate under very high pressure and that the mechanisms for making the
valve are complex. The valves from Sanco are known to be of lower quality and may burst. As
such, if Timmco purchased the valves from Sanco and they burst under operation, Timmco
would be liable under negligence because they’d have reasonable foreseeability.
Timco would also be liable under special duties (Prenkert et al., 2021, p. 7-17). The
courts require that people who carry out professional duties should have knowledge skills and
care demonstrated by other members in the society. Since Timmco is in the business that deals
with valves, they are required to identify instances where the valve’s quality posse’s significant
danger to the operator.
Under the negligence tort, there are several causes of damages that are available. In the
case of Timmco, an exploding valve would send pieces of metal in every direction. This action is
likely to cause personal injury. An injured party would claim damages for any medical bills
incurred, lost wages, and pain and suffering that would ideally be determined by the judges.
In Greenman v Yuba Power Products Inc, the judges found that the retailer of the saw
was liable to pay damages since the purchaser of the power tool relied on the product brochure
that it had met all standards while purchasing it. The courts also affirm that the purpose of such
liability is to ensure that manufacturers of defective products bear the costs of the injuries that
may occur to persons who are powerless in protecting themselves.
Conclusion
Timmco may be held liable under the negligence law. In many cases, negligence is usually tied
to product liability and the courts may award damages as for physical injury, emotional distress

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and any other damages that the court may determine is punitive to act as a deterrent for
manufacturers who sell defective products.

Product liability

Issue
Timmco is considering purchasing some substandard valves from Sanco, an overseas
company. The valves are of lower quality and pose a significant threat to operators of the
spraying equipment. The valves are likely to burst and throw pieces of metal in every direction.
Rule
The product liability law is assessed under the Uniform Commercial Code (UCC). UCC §
2-313 – 315, where all claims must be settled on the basis of express warranty, implied warranty,
or implied warranty of merchantability.
Analysis
The conditions for product liability are determined by warranty as provided for in UCC
2-313 (1). Warranty may be express or implied. Express warranty is created through statements
of facts or promises. Express warranty is also created through descriptions of goods that become
a basis for a bargain or if the product conforms to a sample or model (Prenkert et al., 2021, p.20-
3). Under the above conditions, Timmco’s spraying equipment and advertising do not represent
any express warranty.
An implied warranty is created through operations rather than express statements in law.
Merchantability is implied if the seller is a merchant concerning goods of that kind. Timmco
deals with the sale of spraying equipment and is therefore considered a merchant in that respect.

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The UCC § 2-314(2) prescribes additional conditions for merchantability that are passing
without objection in the trade, being fit for ordinary use for the purpose of being of uniform
quality and quantity, well packaged and labeled, conform to any promises or facts.
The spraying equipment by Timmco may also be subject to the warranty of fitness of the
seller has reason to know a buyer’s particular reason for purchasing a product, or if the buyers of
the spraying equipment rely on Timmco’s skill for selecting suitable goods, or if Timmco knows
that buyers of the spraying equipment rely on Timmco’s skills when making the purchase.
In Carton J. Voss v Black & Decker Manufacturing, the courts argued that a person might
hold a manufacturer of a defective product liable under one or more theories of liability if the
product is used for the purpose and in the manner for which it is intended, that the injured person
would not have discovered the defect or danger by exercising reasonable care and therefore that
the person injured would not have averted the danger. In the case of Timmo, fitting low-quality
valves in their sprayers would amount to creating a defective product since Timmco are aware
that the valves operate under very high pressure.
Conclusion
Under the above conditions for implied warranty of fitness and warranty under
merchantability, and following the court’s pronouncement in Carton J. Voss v Black & Decker
Manufacturing, a buyer that purchases the spraying equipment made from the substandard valves
from Timmco may recover damages under product liability.
Foreign Corrupt Practices Act

Issue

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Timmo’s intent to purchase the valves from Sanco in Slawrovia requires dispensation of
certain permits. The permits may take a year to obtain. However, Timmco has been informed
that the process may be quickened if Timmco makes a gift to the Slawrovia Minister for
Commerce.
Rule
The Foreign Corrupt Practices Act of 1977 makes it unlawful for any class of individuals
to make payments to any foreign government officials to obtain or retain business.
Analysis
Timmco may consider giving a US 20,000 gift to the Slawrovia Minister for Commerce
to facilitate tracking of their license to allow Timmco to purchase the low-quality, low-cost
valves from Sanco. In this case, the US $ 20,000 gift may be considered a bribe. This
consideration may be considered a bribe because it influences the official to act in a certain
manner. The Foreign Corrupt Practices Act prescribes the penalties available to people who
violate the Foreign Control Practices Act. The Act prescribes a financial penalty amounting to
$250,000 and/or imprisonment for a maximum of 5 years. It is essential to note that the FCPA
act considers the prescribed penalties for offering as well as giving bribes (Prenkert et al., 2021,
p.5-38).
This gift to Slawrovia’s minister for commerce also raises another issue. Timmco would
need to find a method to account for the US 20,000 gift. Since Timmco is a publicly-traded
company, it is required to uphold certain standards when reporting financial performance in line
with the Securities Exchange Commission Act. In Doshi v General Cable Corp (2016), General
cable disclosed that some of its employees may have engaged in bribery practices in operations

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in Thailand, India, and Angola in Africa. This was done in order to gain business in those
countries and could have been as much as US 13 million. General Cable also admitted to filing
misleading information with SEC. General Cable Corp, therefore, entered into a settlement
arrangement with the Department of Justice (DOJ), the Securities Exchange Commission (SEC),
in fines that could reach as much as $75 million (SEC 2022). These actions also caused General
Cable Corp’s stocks to fall several times.
Conclusion
Timmco should not consider paying the gift to the minister of commerce in Slawrovia
since it would amount to a violation of FCPA. If Timmco was found guilty, the involved parties
would be penalized in monetary terms and jail term, depending on discretion of the courts. These
actions would expose Timmco to additional action from SEC, and this could negatively affect
their share prices.

Deceptive advertising

Issue
Timmo Inc is looking for ways to reduce its costs. It has identified an overseas company
Sanco, located in Slawrovia, to supply it with valves that are of lower quality than what Timmco
already uses. Timmo plans to increase sales by advertising its products as Made in the USA by
Americans for Americans.
Rule
The Federal Trade Commission (FTC) act describes that deceptive advertising should
meet the 3 determinants. The advertising must involve material misrepresentation, omission, or

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practice, must be likely to mislead a customer, and the customer acts reasonably under the given
circumstances.
Analysis
The actions by Timmco to purchase the valves from Sanco and market them as American
can be considered deceptive advertising under the provisions of the FTC act. Timmco, in its
business practices, plans to import the low quality and lower-priced valves from Sanco, which is
an overseas country. The second test is whether the advertising is likely to mislead a customer.
After fulfilling the test for materiality, deceptive advertising must be considered to be misleading
to a customer. This is essential because the courts consider a customer reasonable. This test is set
to protect businesses from the liability of foolish, ignorant, and outlandish thinking that some
customers might have (Prenkert et al., 2021p. 48-7).
The statement that Timmco’s products are made in America by the Americans for Americans is a
material misrepresentation of the facts. Materiality tests aim to confirm whether a customer
would make a decision to purchase given the facts. In Timmo’s case, customers who want to
purchase American products may be misled by the tagline that Timmco intends to use for their
product. In Committee on Children’s Television Inc v General foods (1983), General foods were
found guilty of deceptive advertising after packaging sugar candy and advertising it as cereals.
The court found that General foods Co. deliberately concealed the sugar content in their foods.
The advertisement also included statements that children who ate the products were stronger,
happier, and bigger. These were found to be a misrepresentation.
Conclusion

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The advertising that Timmco would be engaged in after importing the valves from Slawrovia
would be considered misleading, and Timmco could be held liable under the FTC act. The
statement that the valves are made in America for Americans is a material misrepresentation that
is meant to influence the customers to make the purchase.

Ethical Theories

This section is an analysis of shareholder theory, Rights theory, and virtue ethical theory in the
context of Timmco’s case scenario.
Stockholder theory
The stockholder/shareholder ethical theory suggests that an organization’s managers have
an obligation to use the resources available to a business to generate profits for the shareholders
(Castello, 2013). The intent of Timmco to reduce the costs is aligned with the stockholder’s
theory. However, the stockholder’s theory also states that organizations must act within the
confines of the law. Timmco may have to offer Slawrovia minister of commerce a gift in order to
fast track the processing of documents which would allow the organization to import the valves
from Slawrovia. Such an action would be in contravention of the provisions of the Foreign
Corrupt Practices Act. As such, the intent by Timmco to purchase valves from Sanco would not
be in line with the stockholder’s theory.
Rights theory
The rights theory advocates that fundamental human rights must be observed in business
practices (Prenkert et al., 2021). The case study reveals that Sanco is able to achieve such a low

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cost for its valves because it pays its workers really low wages, and its workers include children.
This is a demonstration of child labor which is in contravention of the provisions set out by The
International Labor Organization (ILO) and the United Nations Children’s Fund (UNICEF).
Timmco’s purchase of the valves from Sanco would encourage Sanco to continue their practices
that do not conform to the right’s ethical theory.
Virtual ethical theory
The virtual ethical theory requires that decisions are made in consideration of
commitment to integrity. The rights theory advocates that individual should strive to become
better through the cultivation of virtues (Prenkert et al., 2021). The decision by Timmo to reduce
costs does not show integrity in many ways. The decision to purchase the valves from Sanco,
which are of lower quality, compromises the quality of the spraying equipment. The decision to
breach the contract that Timmco has with Blagg in favor of a cheaper one and of lower quality
would potentially drive Blagg out of business without helping Timmco achieve any advantage or
proficiency in the business sense.

Conclusion

The above analysis demonstrates that Timmco’s decision to reduce costs is marred by
many legal and ethical issues. As a high-level executive at Timmco, I would recommend that the
organization finds other ways of reducing costs since sourcing from Sanco has many legal
ramifications. The analysis of the shareholder, rights and virtue ethical theories shows that the
decision to change valve suppliers does not conform to any ethical theory, as such should not be
considered.

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References

Castelo, B. M. (2013). Shareholder Theory. Encyclopedia of Corporate Social Responsibility,
2136–2141. https://doi.org/10.1007/978-3-642-28036-8_31
Comm. on Children’s Television v. General Foods Corp., 673 P.2d 660, 35 Cal. 3d 197, 197 Cal.
Rptr. 783 (1983).
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