Timmco Case Study – Final Paper

All businesses are required to operate within a specific legal and ethical framework. This
includes implementing fair business practices, correctly advertising and marketing their products,
prioritizing the welfare and safety of their employees, protecting the environment and
communities they operate in, and guaranteeing quality and safe products to consumers
(Langvardt et al., 2018). This is addition to securing the interests of stakeholders (profits and
share value) and ensuring the sustainability of the business. The US has one of the most
advanced and fair business standards, practices, and laws, with clearly-defined provisions that
stipulate the dos and don’ts for businesses. Businesses that fail to follow jurisdictional guidelines
and laws often face closure, license revocation, fines, or jail-term for owners, high-ranking
officials, and other key decision-makers. Therefore, understanding the legal and ethical
requirements is necessary for business owners and those tasked with running daily operations
and making big decisions.
This paper analyzes the ethical and legal issues presented by the Timmco scenario. The
analysis focuses on breach of contract and potential remedies, product liability, negligent torts,
the Foreign Corrupt Practices Act, and deceptive advertising. It also applies several ethical
theories from Chapter Four of the course book Business Law: The Ethical, Global, and E-
Commerce Environment.

Case Background

Timmco, Inc. is a leading American company headquartered in Denton, Texas. The firm
manufactures and sells all sorts of high-pressure spraying equipment for commercial liquid
spraying uses. The company has a long-standing tradition and history of producing top-quality
products and markets its items as “100% made in the United States of America.” Sales and

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revenues have been dwindling recently because of growing competition from low-priced rivals.
In response, Timmco is considering to source its high-pressure valves from a new supplier, as
one way to reduce its production costs and, subsequently, the cost of its products to compete with
the cheaper competitors.
These valves use complex systems and mechanisms, operating under “extremely” high
internal pressure, rendering them hazardous in case of a likely failure or burst. Bursting means
spraying metal pieces in all directions and posing a substantial health risk to people around,
including equipment operators. At present, Timmco has a standing contract with Blagg
Industries. Timmco is contracted to purchase about 1,000 valves annually at a fixed price of
$2500 per valve. Blagg is a local privately owned company headquartered in Boone, North
Carolina. Timmco-Blagg contract is now three years old and is planned to run for two more
years. Blagg has several employees on its payroll and Timmco is its main buyer. Thus, losing
Timmco might force Blagg to lay off dozens of workers or even being out of business.
Timmco’s plan is to outsource the valves contract to Sanco, a foreign firm in Slawrovia,
rather than purchasing them from Blagg. Sanco’s valves are twice cheaper, costing about $1000
each, although are of lower quality and can burst easily. Sanco supplies their valves at such a low
price because they pay their employees, including underage children, less than $5 dollars a day
and force them to work longer hours in dangerous, hot conditions. Slawrovia is a third-world
country, although has a lot of red tape and bureaucracy, making it extremely challenging to get
approval for exporting domestic products and goods. It may take over a year for Timmco and
Sanco to secure the necessary requirements. Fortunately, Sanco’s CEO is related to the
Slawrovia’s Commerce Minister and has informed Timmco that the required approvals can be
ready in less than a week if it pays $20,000 as a “gift” to the Minister.

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Besides locating a new, low-cost supplier of valves, Timmco’s strategy is to improve
sales and revenues by pitching a new marketing campaign centered on American-made quality
products. The firm’s campaign slogan will read “Made in the USA by Americans, for
Americans.”

Breach of Contract and Remedies

A business contract is a binding agreement that often requires both parties to fulfill their
end of the bargain under the agree-upon or stipulated conditions. In this scenario, the condition
for the contract was for Blagg Industries to supply Timmco 1,000 high-pressure valves at $2,500
each for five years, including the past three and the next two. Breaking these contractual terms
might result in “a breach of contract,” a situation that might lead to a legal lawsuit from the
Sanco, which might seek compensation from Timmco.
There are multiple remedies for a contract breach, although the appropriate intervention
may depend on contractual terms, the specific circumstance of the case, and the nature of the
breach. For the Timmco-Blagg breach, there are several potential implications and remedies for
both parties. Firstly, Blagg can seek a “specific performance” court order, requiring Timmco to
fulfill its part of the contract, including 1,000 valves yearly for the remaining two years at a cost
of $2,500. “Specific performance” is a breach of contract remedy wherein the court requests the
breaching party to fulfill their contractual terms or end of the bargain (Hoffman, 2021).
Blagg Industries can also seek “compensatory damages” from Timmco. Ideally,
compensatory damages are issued to compensate or remunerate the non-breaching party for all
the monetary losses shouldered because of the breach. The primary objective of compensatory
damages is to restore the non-breaching party to their initial “status” and helping it recover any
losses they might incurred through the contract. There are two types of compensatory damages

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that Blagg Industries might be entitled two: expectation and consequential. Expectation damages
are the “general damages” that directly stem from the contract breach. This might include all the
costs Blagg incurred manufacturing the valves yet to be delivered (inventory) but was part of the
order. It might also include other supply chain losses across the 5-year contract, including the
cost of purchasing materials sourced that are unused. Consequential damages refer to damages
incurred due to the breach. They usually comprise profits lost because of the breach. Blagg might
request that Timmco pays all the monies it will lose for the next two years.
Blagg may also be entitled to “liquidated damages,” a specific sum of money a breaching
party agrees to pay a non-breaching party as remuneration in case of a breach. Contracts usually
employ liquidated damages provisions when it is challenging to get an accurate estimate of
compensatory damages. However, the “liquidated damages” clause can only apply if the Timmco
and Blagg Industries included it in the initial contract.
The court can also issue the “nominal damages” remedy to Blagg Industries. Nominal
damages are remedies issued by the jury when the complainant or plaintiff cannot provide
adequate evidence to support their request for compensatory damages. The court acknowledges
that a breach has happened, but no damage or harm to the innocent party can be estimated. The
court, can also issue an injunction and a rescission. An injunction serves a similar role as a
specific performance. An injunction in this case means stopping Timmco from entering a new
contract with Sanco until the case filed by Blagg is determine.
Negligent Torts and Product Liability

A tort in common law refers to a civil wrong that causes unfair harm, loss, and injury,
causing legal liability to the offender. The victim or the “injured party” can seek restitution
through a lawsuit, but must proof the action or lack of it caused the injury, damage, or harm.

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Injury in this can be physical, emotional, reputational, economic, or violated constitutional,
property, or privacy rights. Product liability is one of the legal harms associated with torts.
Others may include environmental pollution, copyright infringement, defamation, false
imprisonment, and auto accidents. Although several torts are determined on the basis of
negligence or inattention, tort law also considers “intentional torts” wherein the plaintiff must
proof the “intentionality of action” as the cause of harm or injury.
In US law, product liability tort is a specific constitutional provision in which
distributors, sellers, and manufacturers are held liable and accountable for the harms and injuries
caused by their services or products. Like all other torts, product liability is determined using the
“theory of negligence.” Typically, negligence is an action that causes unintended or unintentional
damage. Over the years, the product liability tort has evolved to include “strict liability” clause.
Strict liability entails behavior that is inherently life-threatening and harmful. The injured party is
not required to prove negligence on the company’s side to win a damages claim lawsuit
(Geistfeld, 2021).
The Restatement of Torts: Product Liability (Section 2) establishes three categories of
product liability: marketing defects (failure to warn), design defects, and manufacturing defects
(Gold & Gordon, 2023). A plaintiff can, therefore, sue a company or supplier for injury or harm
based on these three provisions. Design defect happens when a product design is inherently used
or dangerous, regardless of how it was carefully manufactured. This can be proved in the court
by showing the product does not satisfy consumer expectations of a “safe product” or the
product’s risks outweigh its benefits. A manufacturing defect occurs during the production phase
and primarily involves shoddy workmanship or poor-quality materials. Finally, a failure-to-warn
defect involves products carrying non-obvious and inherent threat that can be avoided through

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issuing adequate warnings to users. These threats lurk regardless of how appropriately and
carefully the products are designed or manufactured for their target uses.
Based on these three provisions, both Timmco and Sanco, the new valve supplier from
Slawrovia, may be liable for “design” and “manufacturing” product liability lawsuits in case the
low-quality and defective valves in the spraying equipment burst and splatter metal chemicals to
operators and other people at the spraying site. Victims can file a product liability lawsuit against
Timmco and Sanco for designing and manufacturing defective and harmful products. Timmco
can also face a failure-to-warm lawsuit if it fails to adequately warm users of the lurking dangers
of using its spray pumps.

Foreign Corrupt Practices Act

Besides negligence and contract breach, the US Constitution stipulates clear guidelines
and laws for curbing dishonesty, including corruption (bribery) and other forms of financial and
non-financial unethical practices, such as money laundering, fraud, embezzlement, favoritism,
extortion, collusion, kickbacks, insider trading, and nepotism. Several laws have been passed to
prevent companies or individuals from bribing local or foreign entities or people. The Timmco
case ideally involves bribing a foreign state official. The company has been informed that it can
receive the necessary exportation approvals within a week by gifting the Slawrovia Minister of
Finance $20,000.
In 1977, Congress passed the Foreign Corrupt Practices Act (FCPA) to curb and prohibit
businesses like Timmco and citizens from bribing foreign state officers. The FCPA applies to all
countries and extends to private and publicly-traded entities, such as Sanco, and their employees,
including agents, shareholders, employees, directors, and executives. The 1988 Amendment
extended the law to foreign companies and individuals who, either through intermediaries or

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directly, carry out or facilitate corrupt transactions and payments within the US territory. FCPA
is enforced jointly by the Securities and Exchange Commission or SEC and the Department of
Justice or the DOJ.
Additionally, the FCPA requires firms whose securities are publicly traded and listed in
the US securities stock exchange markets to meet their accounting obligations. The accounting
provision was created to work in line with the anti-bribery provisions, requiring businesses
covered to make and keep records and books that fairly and accurately reflect the corporation’s
transactions. Companies must also create and keep sufficient and secure internal accounting
control systems (US Department of Justice, n.d.).

Deceptive Advertising

Deceptive or false advertising is another unethical business practice prohibited in the US.
Deceptive advertising or marketing involves the deliberate transmission, publishing, and
circulation of ads containing false statements or claims purposely intended to improve, boost, or
promote the sale of services, goods, or property. Deceptive advertising is intentionally crafted to
mislead, entice, persuade, seduce, coerce, lure, or dupe the consumer, rather than accidental or
unintentional mistakes (Ukaegbu, 2023; Law Offices of Stimmel, Stimmel, & Roeser, n.d.). It
can include manipulating photos or images in ads, hiding surcharges or fees, creating oversized
packages or fillers, falsifying origin and quality, puffery, inconsistent comparison, misleading
illustrations, false food coloring, manipulating terms, incomplete comparison, or printing
misleading health claims.
Timmco’s planned marketing and promotional ad (Made in the USA by Americans, for
Americans) is a classic type of false advertising. This statement is deceptive because Timmco
plans to export valves, a critical component of the spraying equipment, from Slawrovia. Labeling

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its products as “Made in the USA by Americans” is also mean to hoodwink, entice, seduce, and
coerce American consumers into appreciating and buying the firm’s products. In the US, parties
that successfully sue for deceptive or false marketing and advertising may get injunctive relief or
damages. For the case of Timmco, competitors and consumers might sue the company for false
advertising. However, they must prove that Timmco (the defendant) is guilty of printing
misleading or false information about their products.

Application of the Ethical Theories

There are multiple business ethics theories that can be used to explain and describe the
unethical business practices in the Timmco case. Rights theory is the first theoretical concept that
can best describe and address most of the company’s unethical behaviors. Rights theory entails
the various ethical philosophies holding that specific human rights are fundamental and must be
respected. This theory focuses on each human being and their rights, including the right to make
independent/autonomous choices, the right to knowledge, and the right of expression. In business
ethics, this right extends to the right of safe products and the right to work in secure
environments.
Rights theories are many. Kantian ethics is one of the few traditional and popular rights
theories described by Langvardt et al. (2018). It was proposed by Immanuel Kant in the 18 th
century. Kant perceived human beings as moral players with the inherent freedom to make
independent choices. He proposed the “categorical imperative” as a premise for judging right or
wrong actions. The categorical imperative requires people to “Act only on that maxim whereby
at the same time you can will that it shall become a universal law” (Langvardt et al., 2018). This
ideally implies that people must judge the rightness or wrongness of their action or behavior by
applying it universally. For the case of Timmco, the “categorical dogma” premise might

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disqualify several actions, including false advertising, contractual breach, bribery, and sourcing
valves from Sanco, especially considering that it is accused of employing children and exposing
their workers to low wages, long working hours, and dangerous working conditions. All these
actions are “universally” unacceptable.
Utilitarianism is another theory that best applies to Timmco’s case. Utilitarianism
requires people to make decisions that maximize utility and benefits for society as a whole.
Utility maximization means attaining the “highest level” of satisfaction or benefits for the larger
number of people than dissatisfactions or harm. For Timmco’s case, a utilitarian will only not
consider buying valves from Sanco because of its potential to harm many consumers in society.

Conclusion

This case study has examined some of the most critical ethical business practices that
guide organizational actions and behaviors. By breaching its contract with Blagg and opting for a
cheaper alternative in Sanco, Timmco is liable for potential product liability, deceptive
advertising, and negligent torts lawsuits. Getting into contract with Sanco, an overseas valve
supplier, also means Timmco is in breach of the Foreign Corrupt Practices Act that prohibits
American firms or individuals from bribing foreign state or company officers. Kantian ethics and
utilitarianism are the primary theories that can be used to judge Timmco’s actions.

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References
Geistfeld, M. (2021). Products liability law. Wolters Kluwer.
Gold, A. S., & Gordon, R. W. (2023). The American law institute: A central history. Oxford
University Press, Incorporated.
Hoffman, O. (2021). Breach of contract: An economic analysis of the efficient breach scenario.
Springer International Publishing.
Langvardt, A., Barnes, J. A., Prenkert, J. D., McCrory, M. A., & Perry, J. (2018). Business law:
The ethical, global, and e-commerce environment (17 th ed.). McGraw Hill.
Law Offices of Stimmel, Stimmel, & Roeser. (n.d.). False advertising or labeling – remedies
and risks. https://www.stimmel-law.com/en/articles/false-advertising-or-labeling-
remedies-and-risks
Ukaegbu, R. C. (2023). Deceptive advertising and consumer reaction: A study of Delta Soap
advertisement. Scientific Research, 7(3). https://www.scirp.org/html/98795_98795.htm
US Department of Justice. (n.d.). Foreign Corrupt Practices Act.
https://www.justice.gov/criminal/criminal-fraud/foreign-corrupt-practices-act