Ethical implications in contracts

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When creating a contract, a negotiator is not only doing so to reach an agreement between two or more parties, but to create an agreement that is durable; whereby parties of the contract are legally bound and committed to its promises (Wade and Honeyman 2005, 7). A legally binding contract is defined as an exchange of promises or an agreement between parties that the law will enforce, and there is an underlying presumption for commercial agreements that parties intend to be legally bound (Contracts 2007).

In order to be a legally binding contract, most contracts must contain two elements:

• All parties must agree about an offer made by one party and accepted by the other.
• Something of value must be exchanged for something else of value. This can include goods, cash, services, or a pledge to exchange these items.

In addition, certain contracts are required by state law to be in writing (real estate transactions, for example), while others are not.^[1]

Wade and Honeyman (2007, 7) describe a ‘durable’ contract as one in which all parties substantially perform without abandonment and without resorting to legal proceedings. With only anecdotal evidence, it is difficult to know what percentages of contracts are in fact breached. It is probable that the statistics vary greatly over differing class, culture, wealth and type of transaction (Wade and Honeyman 2005, 7). The reasons for a breach of contract are also varying, and ethical issues can emerge in some situations.

Some ethical considerations which may become apparent in the durability of contracts are cultural relativism and moral relativism.

Grace and Cohen (2005, 200) describe cultural relativism as the extent to which different societies and cultures have different values and ethical standards in the fields of business and organisational life. Those who embrace cultural relativism believe that all beliefs (religious, ethical, aesthetic, and political) are relative to the individual within a culture. Types of relativism include moral (where ethics depend on the social assembly), situational (where right or wrong is dependent on the situation), and cognitive (where truth itself has no objective standard). The legislative system is having a harder time defining laws with the diminishing set of standards, and our court system is having a harder time interpreting them (Cultural Relativism – Illogical Standard 2006).

Moral relativism views ethical standards, morality, and positions of right or wrong as being culturally based. This therefore subjects these views as being an individual's choice. While modern society was previously governed by a "Judeo-Christian" standard, this view has increasingly been acknowledged as the chief moral philosophy of modern society (Moral Relativism – Neutral Thinking?. 2006). However, these "Judeo-Christian" standards continue to be the foundation for civil law, as most people believe that right and wrong are not absolutes, but are determined by the individual.

Following are reasons for breaches in contracts and the way in which these ethical considerations may impact upon them. In most of these situations, the law may not agree with moral or cultural relativism and award in favour of what people generally view as being ‘right’ or ‘wrong’. It is therefore imperative that contracts are created to be as durable as possible so parties are unable to find legal ‘loopholes’ and use their power, wealth, ignorance or cultural differences in setting contracts aside. Following these descriptions is a list of ways on which contracts can be made more durable.