Ethics Pabagold, Inc. (Pabagold), a manufacturer and distributor of suntan lotions, hired Mediasmith, an advertising agency, to develop an advertising campaign for Pabagold’s Hawaiian Gold Pabatan suntan lotion. In the contract, Pabagold authorized Mediasmith to enter into agreements with third parties to place Pabagold advertisements for the campaign and to make payments to these third parties for the Pabagold account. Pabagold agreed to pay Mediasmith for its services and to reimburse it for expenses incurred on behalf of Pabagold. The Pabagold–Mediasmith contract provided for arbitration of any dispute arising under the contract. Mediasmith entered into a contract with Outdoor Services, Inc. (Outdoor Services), an outdoor advertising company, to place Pabagold ads on billboards owned by Outdoor Services. Outdoor Services provided the agreed- upon work and billed Mediasmith $8,545 for its services. Mediasmith requested payment of this amount from Pabagold so it could pay Outdoor Services. When Pabagold refused to pay, Outdoor Services filed a demand for arbitra- tion, as provided in the Pabagold–Mediasmith contract. Pabagold defended, asserting that Outdoor Services could not try to recover the money because it was not in privity of contract with Pabagold.

Did Pabagold act ethically in refusing to pay Outdoor Services? From an ethical perspective, does it matter that Outdoor Services and Pabagold were not in privity of contract? Who wins? Outdoor Services, Inc. v. Pabagold, Inc., 185 Cal.App.3d 676, 230 Cal.Rptr. 73, Web 1986 Cal.App. Lexis 2030 (Court of Appeal of California)

Please put in IRAC format.