13.7 Ethics Pabagold, Inc. (Pabagold), a manufacturer anddistributor of suntan lotions, hired Mediasmith, an advertisingagency, to develop an advertising campaign for Pabagold’s HawaiianGold Pabatan suntan lotion. In the contract, Pabagold authorizedMediasmith to enter into agreements with third parties to placePabagold advertisements for the campaign and to make payments tothese third parties for the Pabagold account. Pabagold agreed topay Mediasmith for its services and to reimburse it for expensesincurred on behalf of Pabagold. The Pabagold–Mediasmith contractprovided 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 placePabagold ads on billboards owned by Outdoor Services. OutdoorServices provided the agreed- upon work and billed Mediasmith$8,545 for its services. Mediasmith requested payment of thisamount from Pabagold so it could pay Outdoor Services. WhenPabagold
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 moneybecause 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 Servicesand Pabagold were not in privity of con- tract? Who wins? OutdoorServices, Inc. v. Pabagold, Inc., 185 Cal.App.3d 676, 230 Cal.Rptr.73, Web 1986 Cal.App. Lexis 2030 (Court of Appeal ofCalifornia)

Please put in IRAC format.