Cision university program final exam answers

Business Law Final Exams

S M I T H & R O B E R S O N ’ S

Business Law S E V E N T E E N T H E D I T I O N

R I C H A R D A . M A N N Professor of Business Law

The University of North Carolina at Chapel Hill Member of the North Carolina Bar

B A R R Y S . R O B E R T S Professor of Business Law

The University of North Carolina at Chapel Hill Member of the North Carolina and Pennsylvania Bars

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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Smith & Roberson’s Business Law, Seventeenth Edition Richard A. Mann and Barry S. Roberts

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About the Authors

Richard A. Mann received a B.S. in mathematics from the University of North Carolina at Chapel Hill and a J.D. from Yale Law School. He is professor emeritus of business law at the Kenan-Flagler School of Business, University of North Carolina at Chapel Hill, and is past president of the Southeastern Regional Business Law Association. He is a member of Who’s Who in America, Who’s Who in American Law, and the North Carolina Bar.

Professor Mann has written extensively on a number of legal topics, including bankruptcy, sales, secured transac- tions, real property, insurance law, and business associa- tions. He has received the American Business Law Journal’s award both for the best article and for the best comment and has served as a reviewer and staff editor for the publica- tion. Professor Mann is a coauthor of Business Law and the Regulation of Business (Twelfth Edition), Essentials of Business Law and the Legal Environment (Twelfth Edition), and Contemporary Business Law.

Barry S. Roberts received a B.S. in business administration from Pennsylvania State University, a J.D. from the Uni- versity of Pennsylvania, and an LL.M. from Harvard Law School. He served as a judicial clerk for the Pennsylvania Supreme Court prior to practicing law in Pittsburgh. Barry Roberts is professor of business law at the Kenan-Flagler School of Business, University of North Carolina at Chapel Hill, and is a member of Who’s Who in American Law and the North Carolina and Pennsylvania Bars.

Professor Roberts has written numerous articles on such topics as antitrust, products liability, constitutional law, banking law, employment law, and business asso- ciations. He has been a reviewer and staff editor for the American Business Law Journal. He is coauthor of Business Law and the Regulation of Business (Twelfth Edition), Essentials of Business Law and the Legal Envi- ronment (Twelfth Edition), and Contemporary Business Law.

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Contents in Brief

Preface xiv

Table of Cases xviii

Table of Illustrations xxii

P A R T 1

The Legal Environment of Business 1 1 Introduction to Law 2 2 Business Ethics and the Social Responsibility

of Business 14 3 Civil Dispute Resolution 42 4 Constitutional Law 67 5 Administrative Law 90 6 Criminal Law 107 7 Intentional Torts 126 8 Negligence and Strict Liability 147

P A R T 2

Contracts 171 9 Introduction to Contracts 172 10 Mutual Assent 189 11 Conduct Invalidating Assent 211 12 Consideration 231 13 Illegal Bargains 250 14 Contractual Capacity 269 15 Contracts in Writing 284 16 Third Parties to Contracts 309 17 Performance, Breach, and Discharge 327 18 Contract Remedies 345

P A R T 3

Agency 365 19 Relationship of Principal and Agent 366 20 Relationship with Third Parties 389

P A R T 4

Sales 415 21 Introduction to Sales and Leases 416 22 Performance 438 23 Transfer of Title and Risk of Loss 459 24 Products Liability: Warranties and Strict

Liability in Tort 477 25 Sales Remedies 504

P A R T 5

Negotiable Instruments 529 26 Form and Content 530 27 Transfer and Holder in Due Course 546 28 Liability of Parties 577 29 Bank Deposits, Collections, and Funds

Transfers 597

P A R T 6

Unincorporated Business Associations 619 30 Formation and Internal Relations of

General Partnerships 620 31 Operation and Dissolution of General

Partnerships 644 32 Limited Partnerships and Limited Liability

Companies 671

iv

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P A R T 7

Corporations 697 33 Nature, Formation, and Powers 698 34 Financial Structure 722 35 Management Structure 745 36 Fundamental Changes 776

P A R T 8

Debtor and Creditor Relations 795 37 Secured Transactions and Suretyship 796 38 Bankruptcy 829

P A R T 9

Regulation of Business 859 39 Protection of Intellectual Property 860 40 Antitrust 882 41 Consumer Protection 905 42 Employment Law 931 43 Securities Regulation 964 44 Accountants’ Legal Liability 1001 45 Environmental Law 1015 46 International Business Law 1034

P A R T 1 0

Property 1051 47 Introduction to Property, Property

Insurance, Bailments, and Documents of Title 1052

48 Interests in Real Property 1079 49 Transfer and Control of Real Property 1099 50 Trusts and Decedents’ Estates 1116

Appendices A-1 A The Constitution of the United States

of America A-2 B Uniform Commercial Code

(Selected Provisions) B-1 C Dictionary of Legal Terms C-1

Index I-1

CONTENTS IN BRIEF v

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Contents

Preface xiv

Table of Cases xviii

Table of Illustrations xxii

P A R T 1

The Legal Environment of Business 1

1 Introduction to Law 2 Nature of Law 2 Classification of Law 4 Sources of Law 5 Legal Analysis 9 Chapter Summary 11 Cases 12

2 Business Ethics and the Social Responsibility of Business 14 Law Versus Ethics 15 Ethical Theories 15 Ethical Standards in Business 18 Ethical Responsibilities of Business 19 Corporate Governance 20 Chapter Summary 23 Cases 24 Questions 24 Business Ethics Cases 26

3 Civil Dispute Resolution 42 The Court System 42 The Federal Courts 42 State Courts 44 Jurisdiction 45 Subject Matter Jurisdiction 45 Jurisdiction Over the Parties 47 Civil Dispute Resolution 49 Civil Procedure 50

Alternative Dispute Resolution 53 Chapter Summary 56 Cases 58 Questions 63 Case Problems 64 Taking Sides 66

4 Constitutional Law 67 Basic Principles of Constitutional Law 68 Powers of Government 69 Limitations on Government 72 Chapter Summary 77 Cases 78 Questions 86 Case Problems 87 Taking Sides 89

5 Administrative Law 90 Operation of Administrative Agencies 91 Limits on Administrative Agencies 94 Chapter Summary 96 Cases 97 Case Problems 103 Taking Sides 106

6 Criminal Law 107 Nature of Crimes 107 White-Collar Crime 110 Crimes Against Business 111 Defenses to Crimes 114 Criminal Procedure 115 Chapter Summary 117 Cases 118 Questions 123 Case Problems 124 Taking Sides 125

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CONTENTS vii

7 Intentional Torts 126 Intent 127 Harm to the Person 128 Harm to the Right of Dignity 130 Harm to Property 132 Harm to Economic Interests 133 Defenses to Intentional Torts 134 Chapter Summary 136 Cases 137 Questions 143 Case Problems 144 Taking Sides 146

8 Negligence and Strict Liability 147 Negligence 148 Breach of Duty of Care 148 Factual Cause 153 Scope of Liability (Proximate Cause) 153 Harm 154 Defenses to Negligence 155 Strict Liability 156 Activities Giving Rise to Strict Liability 157 Defenses to Strict Liability 158 Chapter Summary 158 Cases 160 Questions 167 Case Problems 168 Taking Sides 170

P A R T 2

Contracts 171

9 Introduction to Contracts 172 Development of the Law of Contracts 172 Definition of a Contract 174 Requirements of a Contract 174 Classification of Contracts 175 Promissory Estoppel 178 Quasi Contracts or Restitution 178 Chapter Summary 179 Cases 180 Questions 186 Case Problems 186 Taking Sides 188

10 Mutual Assent 189 Offer 189 Essentials of an Offer 190 Duration of Offers 192

Acceptance of Offer 195 Communication of Acceptance 196 Variant Acceptances 197 Chapter Summary 199 Cases 200 Questions 206 Case Problems 208 Taking Sides 210

11 Conduct Invalidating Assent 211 Duress 211 Undue Influence 212 Fraud 212 Nonfraudulent Misrepresentation 215 Mistake 216 Chapter Summary 218 Cases 219 Questions 226 Case Problems 227 Taking Sides 230

12 Consideration 231 Legal Sufficiency 231 Bargained-For Exchange 236 Contracts without Consideration 237 Chapter Summary 240 Cases 241 Questions 246 Case Problems 248 Taking Sides 249

13 Illegal Bargains 250 Violations of Statutes 250 Violations of Public Policy 252 Effect of Illegality 254 Chapter Summary 255 Cases 256 Questions 264 Case Problems 265 Taking Sides 267

14 Contractual Capacity 269 Minors 269 Incompetent Persons 272 Intoxicated Persons 272 Chapter Summary 273 Cases 273 Questions 279 Case Problems 281 Taking Sides 283

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15 Contracts in Writing 284 Statute of Frauds 284 Contracts within the Statute of Frauds 285 Compliance with the Statute of Frauds 290 Effect of Noncompliance 291 Parol Evidence Rule 292 The Rule 292 Situations to Which the Rule Does Not Apply 292 Supplemental Evidence 293 Interpretation of Contracts 293 Chapter Summary 295 Cases 297 Questions 304 Case Problems 305 Taking Sides 308

16 Third Parties to Contracts 309 Assignment of Rights 309 Delegation of Duties 313 Third-Party Beneficiary Contracts 314 Chapter Summary 316 Cases 318 Questions 323 Case Problems 324 Taking Sides 326

17 Performance, Breach, and Discharge 327 Conditions 327 Discharge by Performance 329 Discharge by Breach 329 Discharge by Agreement of the Parties 331 Discharge by Operation of Law 332 Chapter Summary 334 Cases 336 Questions 340 Case Problems 342 Taking Sides 344

18 Contract Remedies 345 Interests Protected by Contract Remedies 345 Monetary Damages 345 Remedies in Equity 349 Restitution 350 Limitations on Remedies 352 Remedies for Misrepresentation 353 Chapter Summary 354 Cases 355

Questions 361 Case Problems 362 Taking Sides 363

P A R T 3

Agency 365

19 Relationship of Principal and Agent 366 Nature of Agency 366 Creation of Agency 368 Duties of Agent to Principal 369 Duties of Principal to Agent 372 Termination of Agency 374 Chapter Summary 376 Cases 378 Questions 385 Case Problems 386 Taking Sides 388

20 Relationship with Third Parties 389 Relationship of Principal and Third Persons 389 Contract Liability of Principal 389 Tort Liability of Principal 396 Criminal Liability of Principal 398 Relationship of Agent and Third Persons 399 Contract Liability of Agent 399 Tort of Liability of Agent 401 Rights of Agent Against Third Person 401 Chapter Summary 401 Cases 403 Questions 410 Case Problems 411 Taking Sides 413

P A R T 4

Sales 415

21 Introduction to Sales and Leases 416 Nature of Sales and Leases 417 Definitions 417 Fundamental Principles of Article 2 and Article 2A 418 Formation of Sales and Lease Contracts 421 Manifestation of Mutual Assent 421 Consideration 424 Form of the Contract 425 Chapter Summary 427 Cases 428

CON TEN TSv i i i

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Questions 434 Case Problems 435 Taking Sides 437

22 Performance 438 Performance by the Seller 438 Performance by the Buyer 443 Obligations of Both Parties 445 Chapter Summary 448 Cases 449 Questions 454 Case Problems 455 Taking Sides 458

23 Transfer of Title and Risk of Loss 459 Transfer of Title 459 Risk of Loss 463 Sales of Goods in Bulk 466 Chapter Summary 468 Cases 469 Questions 473 Case Problems 475 Taking Sides 476

24 Products Liability: Warranties and Strict Liability in Tort 477 Warranties 477 Types of Warranties 478 Obstacles to Warranty Actions 480 Strict Liability in Tort 483 Requirements of Strict Liability 484 Obstacles to Recovery 486 Restatement of Torts (Third): Products Liability 487 Chapter Summary 489 Cases 491 Questions 498 Case Problems 500 Taking Sides 503

25 Sales Remedies 504 Remedies of the Seller 504 Remedies of the Buyer 509 Contractual Provisions Affecting Remedies 513 Chapter Summary 515 Cases 517 Questions 523 Case Problems 525 Taking Sides 527

P A R T 5

Negotiable Instruments 529

26 Form and Content 530 Negotiability 531 Types of Negotiable Instruments 532 Formal Requirements of Negotiable Instruments 534 Chapter Summary 539 Cases 540 Questions 543 Case Problems 544 Taking Sides 545

27 Transfer and Holder in Due Course 546 Transfer 546 Negotiation 546 Indorsements 549 Holder in Due Course 553 Requirements of a Holder in Due Course 553 Holder in Due Course Status 557 The Preferred Position of a Holder in Due Course 557 Limitations Upon Holder in Due Course Rights 560 Chapter Summary 563 Cases 565 Questions 572 Case Problems 574 Taking Sides 576

28 Liability of Parties 577 Contractual Liability 577 Signature 578 Liability of Primary Parties 579 Liability of Secondary Parties 579 Termination of Liability 583 Liability Based on Warranty 583 Warranties on Transfer 583 Warranties on Presentment 584 Chapter Summary 587 Cases 588 Questions 594 Case Problems 596 Taking Sides 596

29 Bank Deposits, Collections, and Funds Transfers 597 Bank Deposits and Collections 597 Collection of Items 598 Relationship between Payor Bank and its Customer 601

CONTENTS ix

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Electronic Fund Transfer 604 Types of Electronic Funds Transfers 604 Consumer Funds Transfers 605 Wholesale Funds Transfers 606 Chapter Summary 609 Cases 610 Questions 614 Case Problems 616 Taking Sides 617

P A R T 6

Unincorporated Business Associations 619

30 Formation and Internal Relations of General Partnerships 620 Choosing a Business Association 620 Factors Affecting the Choice 621 Forms of Business Associations 622 Formation of General Partnerships 624 Nature of Partnership 624 Formation of a Partnership 625 Relationships Among Partners 628 Duties Among Partners 629 Rights Among Partners 630 Chapter Summary 634 Cases 636 Questions 641 Case Problems 642 Taking Sides 643

31 Operation and Dissolution of General Partnerships 644 Relationship of Partnership and Partners with Third Parties 644 Contracts of Partnership 644 Torts and Crimes of Partnership 647 Notice to a Partner 648 Liability of Incoming Partner 648 Dissociation and Dissolution of General Partnerships under the RUPA 648 Dissociation 648 Dissolution 649 Dissociation Without Dissolution 651 Dissolution of General Partnerships under the UPA 653 Dissolution 654 Winding Up 654

Continuation After Dissolution 655 Chapter Summary 655 Cases 658 Questions 666 Case Problems 668 Taking Sides 670

32 Limited Partnerships and Limited Liability Companies 671 Limited Partnerships 671 Limited Liability Companies 676 Other Types of Unincorporated Business Associations 682 Chapter Summary 683 Cases 686 Questions 693 Case Problems 695 Taking Sides 696

P A R T 7

Corporations 697

33 Nature, Formation, and Powers 698 Nature of Corporations 699 Corporate Attributes 699 Classification of Corporations 700 Formation of a Corporation 702 Organizing the Corporation 702 Formalities of Incorporation 704 Recognition or Disregard of Corporateness 705 Defective Incorporation 706 Piercing the Corporate Veil 707 Corporate Powers 708 Sources of Corporate Powers 708 Ultra Vires Acts 709 Liability for Torts and Crimes 709 Chapter Summary 709 Cases 712 Questions 717 Case Problems 718 Taking Sides 721

34 Financial Structure 722 Debt Securities 723 Authority to Issue Debt Securities 723 Types of Debt Securities 723 Equity Securities 724 Issuance of Shares 724 Classes of Shares 727

CON TEN TSx

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Dividends and Other Distributions 728 Types of Dividends and Other Distributions 729 Legal Restrictions on Dividends and Other Distributions 730 Declaration and Payment of Distributions 733 Liability for Improper Dividends and Distributions 733 Chapter Summary 734 Cases 736 Questions 741 Case Problems 743 Taking Sides 744

35 Management Structure 745 Corporate Governance 745 Role of Shareholders 748 Voting Rights of Shareholders 748 Enforcement Rights of Shareholders 751 Role of Directors and Officers 753 Function of the Board of Directors 753 Election and Tenure of Directors 755 Exercise of Directors’ Functions 755 Officers 757 Duties of Directors and Officers 757 Chapter Summary 761 Cases 763 Questions 772 Case Problems 774 Taking Sides 775

36 Fundamental Changes 776 Charter Amendments 776 Combinations 777 Dissolution 781 Chapter Summary 783 Cases 784 Questions 790 Case Problems 791 Taking Sides 793

P A R T 8

Debtor and Creditor Relations 795

37 Secured Transactions and Suretyship 796 Secured Transactions in Personal Property 796 Essentials of Secured Transactions 797 Classification of Collateral 797 Attachment 799 Perfection 801

Priorities among Competing Interests 804 Default 808 Suretyship 810 Nature and Formation 810 Duties of Surety 812 Rights of Surety 813 Defenses of Surety and Principal Debtor 813 Chapter Summary 816 Cases 819 Questions 824 Case Problems 826 Taking Sides 828

38 Bankruptcy 829 Federal Bankruptcy Law 829 Case Administration—Chapter 3 830 Creditors, the Debtor, and the Estate—Chapter 5 832 Liquidation—Chapter 7 837 Reorganization—Chapter 11 841 Adjustment of Debts of Individuals—Chapter 13 843 Creditors’ Rights and Debtor’s Relief Outside of Bankruptcy 845 Creditors’ Rights 845 Debtor’s Relief 846 Chapter Summary 847 Cases 849 Questions 855 Case Problems 856 Taking Sides 858

P A R T 9

Regulation of Business 859

39 Protection of Intellectual Property 860 Trade Secrets 860 Trade Symbols 862 Trade Names 865 Copyrights 865 Patents 868 Chapter Summary 870 Cases 871 Questions 878 Case Problems 879 Taking Sides 881

40 Antitrust 882 Sherman Act 882 Clayton Act 887 Robinson-Patman Act 890

CONTENTS xi

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Federal Trade Commission Act 891 Chapter Summary 892 Cases 893 Questions 901 Case Problems 902 Taking Sides 904

41 Consumer Protection 905 State and Federal Consumer Protection Agencies 905 Consumer Purchases 909 Consumer Credit Transactions 912 Creditors’ Remedies 917 Chapter Summary 918 Cases 920 Questions 927 Case Problems 928 Taking Sides 930

42 Employment Law 931 Labor Law 931 Employment Discrimination Law 933 Employee Protection 939 Chapter Summary 942 Cases 944 Questions 958 Case Problems 959 Taking Sides 963

43 Securities Regulation 964 Securities Act of 1933 965 Definition of a Security 966 Registration of Securities 966 Exempt Securities 968 Exempt Transactions for Issuers 969 Exempt Transactions for Nonissuers 973 Liability 975 Securities Exchange Act of 1934 976 Disclosure 977 Liability 982 Chapter Summary 987 Cases 989 Questions 998 Case Problems 999 Taking Sides 1000

44 Accountants’ Legal Liability 1001 Common Law 1001 Federal Securities Law 1004

Chapter Summary 1007 Cases 1008 Questions 1012 Case Problems 1013 Taking Sides 1014

45 Environmental Law 1015 Common Law Actions for Environmental Damage 1015 Nuisance 1015 Trespass to Land 1016 Strict Liability for Abnormally Dangerous Activities 1016 Problems Common to Private Causes of Action 1016 Federal Regulation of the Environment 1016 The National Environmental Policy Act 1017 The Clean Air Act 1018 The Clean Water Act 1020 Hazardous Substances 1022 International Protection of the Ozone Layer 1024 Chapter Summary 1026 Cases 1028 Questions 1031 Case Problems 1032 Taking Sides 1033

46 International Business Law 1034 The International Environment 1034 Jurisdiction Over Actions of Foreign Governments 1036 Transacting Business Abroad 1037 Forms of Multinational Enterprises 1042 Chapter Summary 1043 Cases 1044 Questions 1047 Case Problems 1048 Taking Sides 1050

P A R T 1 0

Property 1051

47 Introduction to Property, Property Insurance, Bailments, and Documents of Title 1052 Introduction to Property and Personal Property 1052 Kinds of Property 1053 Transfer of Title to Personal Property 1054 Property Insurance 1056 Fire and Property Insurance 1056

CON TEN TSx i i

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Nature of Insurance Contracts 1057 Bailments and Documents of Title 1059 Bailments 1059 Documents of Title 1062 Chapter Summary 1065 Cases 1068 Questions 1073 Case Problems 1076 Taking Sides 1077

48 Interests in Real Property 1079 Freehold Estates 1079 Leasehold Estates 1081 Concurrent Ownership 1085 Nonpossessory Interests 1087 Chapter Summary 1090 Cases 1091 Questions 1096 Case Problems 1097 Taking Sides 1098

49 Transfer and Control of Real Property 1099 Transfer of Real Property 1099 Contract of Sale 1099 Deeds 1101 Secured Transactions 1102 Adverse Possession 1104 Public and Private Controls 1104 Zoning 1104 Eminent Domain 1105

Private Restrictions Upon Land Use 1106 Chapter Summary 1107 Cases 1109 Questions 1113 Case Problems 1114 Taking Sides 1115

50 Trusts and Decedents’ Estates 1116 Trusts 1116 Types of Trusts 1116 Creation of Trusts 1118 Decedents’ Estates 1120 Wills 1120 Intestate Succession 1123 Administration of Estates 1124 Chapter Summary 1125 Cases 1126 Questions 1132 Case Problems 1133 Taking Sides 1134

Appendices A-1 Appendix A: The Constitution of the United States of America A-2

Appendix B: Uniform Commercial Code (Selected Provisions) B-1

Appendix C: Dictionary of Legal Terms C-1

Index I-1

CONTENTS xiii

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Preface

The format of the Seventeenth Edition follows the tra-dition established by prior editions, in that chapterscontain narrative text, illustrations, cases consisting of selected court decisions, chapter summaries, and end-of- chapter questions and case problems.

Topical Coverage

This text is designed for use in business law and legal environment of business courses generally offered in univer- sities, colleges, schools of business and commerce, commu- nity colleges, and junior colleges. By reason of the text’s broad and deep coverage, instructors may readily adapt this text to specially designed courses in business law or the legal environment of business by assigning and emphasizing dif- ferent combinations of chapters.

Furthermore, this text covers the following parts of the CPA Exam: (1) the business law area and the legal duties and responsibilities of accountants area of the Regulation Section and (2) the corporate governance area of the Busi- ness Environment and Concepts Section.

Emphasis has been placed upon the regulatory environ- ment of business law: the first eight chapters introduce the legal environment of business, and Part 9 (Chapters 39 through 46) addresses government regulation of business.

Up-to-Date

The constitutional law chapter (Chapter 4) discusses recent U.S. Supreme Court decisions in cases challenging the constitutionality of (1) a Federal statute restricting how much money an individual donor may contribute in total to all candidates or committees during a political cycle, (2) Michigan’s constitutional amendment banning affirma- tive action in admissions to the State’s public universities, and (3) States’ refusal to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state. The Administrative Law chapter (Chapter 5) discusses the recent U.S. Supreme Court

case making the Patient Protection and Affordable Care Act’s tax credits available in those States that have a Federal Exchange. The new Restatement (Third) of Torts: Liability for Economic Harm is covered in Chapters 7, 8, 11, 18, and 44. The new Restatement (Third) of Restitution and Unjust Enrichment is covered in Chapters 9, 11, 13, 14, 15, 17, 18, 19, and 50. Coverage of limited liability companies has been updated and expanded in Chapter 32. Coverage of benefit corporations has been added in Chapter 33. Coverage of suretyship in Chapter 37 has been updated and expanded. The Intellectual Property chapter (Chapter 39) includes the new Defend Trades Secrets Act of 2016 and the 2016 amend- ments to the Economic Espionage Act of 1996. The Consumer Protection chapter (Chapter 41) covers the FCC’s net-neutrality rule. The Employment Law chapter (Chapter 42) covers the Genetic Information Nondiscrimination Act and the U.S. Supreme Court case holding that in disparate-treatment claims, an employer may not make an applicant’s religious practice a factor in employment decisions. The chapter on Securities Reg- ulation (Chapter 43) covers the U.S. Securities and Exchange Commission’s new Regulation A and Regulation Crowdfunding exemptions. The Environmental Law chapter (Chapter 45) includes coverage of the EPA’s regulation of greenhouse gases and the 2016 amendments to the Toxic Substances Control Act. The International Business Law chapter (Chapter 46) covers the United Nations Convention on the Law of the Sea (UNCLOS).

Readability of Narrative Text

To make the text as readable as possible, all unnecessary “legalese” has been omitted, and necessary legal terms have been printed in boldface and clearly defined, explained, and illustrated. Each chapter is carefully organized with sufficient levels of subordination to enhance the accessibility of the material. The text is enriched by numerous illustrative hypo- thetical and case examples, which help students relate the material to real-life experiences. The end-of-chapter cases are cross-referenced in the text, as are related topics covered in other chapters.

xiv

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PREFACE xv

Chapter Objectives

Each chapter begins with a list of learning objectives for students.

Applying the Law

The Applying the Law feature provides a systematic legal anal- ysis of a realistic situation that focuses on a specific concept presented in the chapter. It consists of (1) the facts of a hypo- thetical case, (2) an identification of the broad legal issue pre- sented by those facts, (3) a statement of the applicable rule, (4) the application of the rule to the facts, and (5) a legal con- clusion in the case. The Applying the Law feature appears in fourteen chapters. We wish to acknowledge and thank Profes- sor Ann Olaz�abal, University of Miami, for her contribution in preparing this feature.

Practical Advice

Each chapter has a number of statements that illustrate how legal concepts covered in the chapter can be applied to com- mon business situations.

Case Treatment

All the cases have been edited carefully to preserve the actual language of the court and to show the essential facts of the case, the issue or issues involved, the decision of the court, and the reason for its decision. We have retained the landmark cases from the prior edition. In addition, we have incorporated twenty-seven recent cases, including the following U.S. Supreme Court cases: DIRECTV, Inc. v. Imburgia; Perez v. Mortgage Bankers Ass’n.; Omnicare, Inc. v. Laborers District Council Con- struction Industry Pension Fund; Husky International Electron- ics, Inc., v. Ritz; Harris v. Viegelahn; Young v. United Parcel Service, Inc.; Environmental Protection Agency v. EME Homer City Generation, L. P; and OBB Personenverkehr Ag v. Sachs.

Illustrations

We have used more than 210 classroom-tested figures, dia- grams, charts, tables, and chapter summaries. The figures and diagrams help students conceptualize the many abstract concepts in the law; the charts and tables not only summa- rize prior discussions but also help to illustrate relationships among legal rules. Moreover, each chapter has a summary in the form of an annotated outline of the entire chapter, including key terms.

End-of-Chapter Questions and Case Problems

Classroom-proven questions and case problems appear at the end of chapters to test the student’s understanding of

major concepts. Almost all of the chapters include one or more new questions and/or case problems. We have used the questions (based on hypothetical situations) and the case problems (taken from reported court decisions) in our own classrooms and consider them excellent stimulants to class- room discussion. Students, in turn, have found the questions and case problems helpful in enabling them to apply the basic rules of law to factual situations.

Taking Sides

Each chapter—except for Chapters 1 and 2—has an end-of- chapter feature that requires students to apply critical-think- ing skills to a case-based fact situation. Students are asked to identify the relevant legal rules and develop arguments for both parties to the dispute. In addition, students are asked to explain how they think a court would resolve the dispute.

Appendices

The appendices include the Constitution of the United States (Appendix A), the Uniform Commercial Code (Appendix B), and a comprehensive Dictionary of Legal Terms (Appendix C).

Pedagogical Benefits

Classroom use and study of this book should provide students with the following benefits and skills:

1. Perception and appreciation of the scope, extent, and im- portance of the law.

2. Basic knowledge of the fundamental concepts, principles, and rules of law that apply to business transactions.

3. Knowledge of the function and operation of courts and government administrative agencies.

4. Ability to recognize the potential legal problems which may arise in a doubtful or complicated situation and the necessity of consulting a lawyer and obtaining competent professional legal advice.

5. Development of analytical skills and reasoning power.

Additional Course Tools

MINDTAP

New for Smith and Roberson’s Business Law, 17th edition, MindTap is a personalized teaching experience with relevant assignments that guide students to analyze, apply, and improve thinking, allowing instructors to measure skills and outcomes with ease. Teaching becomes personalized through a pre-built Learning Path designed with key student objectives and the instructor syllabus in mind. Applicable

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PREF ACExv i

reading, multimedia, and activities within the learning path intuitively guide students up the levels of learning to (1) Pre- pare, (2) Engage, (3) Apply, and (4) Analyze business law content. These activities are organized in a logical progres- sion to help elevate learning, promote critical-thinking skills and produce better outcomes.

This customizable online course gives instructors the ability to add their own content in the Learning Path as well as modify authoritative Cengage Learning content and learning tools using apps that integrate seamlessly with Learning Management Sys- tems (LMS). Analytics and reports provide a snapshot of class progress, time in course, engagement, and completion rates.

INSTRUCTOR RESOURCES

Instructors can access these resources by going to login.cen- gage.com, logging in with a faculty account username and password, and searching by ISBN 9781337094757.

• Instructor’s Manual The Instructor’s Manual, prepared by Richard A. Mann, Barry S. Roberts, and Beth D. Woods, contains opening ethics questions, suggested activities, and research projects; chapter outlines; teaching notes; answers to the Questions and Case Problems; briefs to cases; and suggested case questions for students.

• PowerPointVR Slides These slides clarify course content and guide student note-taking during lectures.

• Test Bank The Test Bank contains thousands of true/false, multiple-choice, and essay questions. The questions vary in level of difficulty and meet a full range of tagging require- ments so that instructors can tailor their testing to meet their specific needs.

• Cognero Cengage Learning Testing Powered by Cognero is a flexible, online system that allows you to

• author, edit, and manage test bank content from multiple Cengage Learning solutions

• create multiple test versions in an instant

• deliver tests from your LMS, your classroom, or wherever you want

Start right away! Cengage Learning Testing Powered by Cognero works on any operating system or browser.

• No special installs or downloads needed

• Create tests from school, home, the coffee shop— anywhere with Internet access

What will you find?

• Simplicity at every step. A desktop-inspired interface features drop-down menus and familiar, intuitive tools that take you through content creation and management with ease.

• Full-featured test generator. Create ideal assessments with your choice of fifteen question types (including true/false, multiple choice, opinion scale/Likert, and essay). Multi- language support, an equation editor, and unlimited meta- data help ensure your tests are complete and compliant.

• Cross-compatible capability. Import and export content into other systems.

Acknowledgments

We are grateful to those who provided us with comments for previous editions of the book: Miriam R. Albert, Fordham University; Mark Altieri, Cleveland State University; Wm. Dennis Ames, Indiana University of Pennsylvania; Albert Anderson, Mount Aloysius College; Albert Andrews, Jr., Uni- versity of Minnesota; Michael Balsamo, SUNY–Old Westbury; Denise A. Bartles, Missouri Western State College; Lois Yoder Beier, Kent State University; Monika Lovewell Bellows, SUNY–Canton; Robert Bing, William Paterson College; Joell Bjorke, Winona State University; William N. Bockanic, John Carroll University; Andrea Boggio, Bryant University; Donald Boren, Bowling Green State University; Joyce Boland- DeVito, Esq., St. John’s University; Joe Boucher, University of Wisconsin–Madison; L. Brooks, Nichols College; Nicolaus Bruns, Jr., Lake Forest Graduate School of Management; Mark A. Buchanan, Boise State University; Deborah Lynn Bundy, Marquette University; Michael Burg, University of St. Thomas; Debra Burke, Western Carolina University; Thomas J. Canavan, Long Island University–C. W. Post Campus; Regina W. Cannon, University of Georgia; Donald Cantwell, University of Texas–Arlington; John P. Carnasiotis, University of Missouri; Albert L. Carter, Jr., University of the District of Columbia; Thomas D. Cavenagh, North Central College; Jennifer Chapman, Georgia Gwinnett College; Jeff Charles, Bowling Green State University; John Cirace, CUNY– Lehman College; Richard R. Clark, University of the District of Columbia; Arlen Coyle, University of Mississippi; Mitchell F. Crusto, Washington University–St. Louis; Richard Daleb- out, Brigham Young University; Arthur S. Davis, Long Island University; John Davis, Ashland Community & Technical College; Kenneth R. Davis, Fordham School of Business; William Day, Cleveland State University; Alex DeVience, Jr., DePaul University; Craig Disbrow, Plymouth State College, New Hampshire; Robert H. Doud, Adelphi University; William G. Elliott, Saginaw Valley State University; Edward Eramus, State University of New York–Brockport; Kurt Erickson, South West Michigan College; Jay Ersling, Uni- versity of St. Thomas, Minnesota; Robert Evans, Rockford College; Alfred E. Fabian, Ivy Tech Community College; J. Royce Fichtner, Drake University; Thomas Fitzpatrick, Assump- tion College; Joe W. Fowler, Oklahoma State University– Stillwater; Karla H. Fox, University of Connecticut; Stanley

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PREFACE xvii

Fuchs, Fordham University; Samuel B. Garber, DePaul University; Nathan T. Garrett, Esq., North Carolina Central University; Michael J. Garrison, North Dakota State Univer- sity; Daniel Gillespie, DePaul University; Dr. Roy Girasa, Pace University; Marvin Gordon, Loyola Chicago University; Sue Gragiano, Bowling Green State University; James Granito, Youngstown State University; John Gray, Faulkner University; Sally Terry Green, Texas Southern University; Dale A. Grossman, Cornell University; Donald Haley, Cleveland State University; Marc Hall, Auburn University Montgomery; Brian Hanlon, North Central College; Dr. Ivan Harber, Indian River State College; James V. Harrison, St. Peter’s State College; Lori K. Harris-Ransom, Caldwell College; Edward J. Hartman, St. Ambrose University; Frances J. Hill, University of Wisconsin–Whitewater; Telford F. Hollman, University of Northern Iowa–Cedar Falls; Georgia L. Holmes, Mankato State University; James Holzinger, Muhlenberg College; Norman Hope, Tabor College; Sarah H. Hudwig, Mary Baldwin College; Velma Jesser, Lane Commu- nity College; Theresa Johnson, Cleveland State University; Marilee Jones-Confield, California State University–Long Beach; Al Joyner, Eastern Illinois University; Mary C. Keifer, Ohio University; Randall Kilbourne, Northwestern State University; Barbara Kirkpatrick, Virginia Intermont College; Edward M. Kissling, Ocean County College, New Jersey; Robert Klepa, UCLA Extension; Louise Knight, Bucknell University; William J. Koval, Jr., Notre Dame College; Duane R. Lambert, California State University–Hayward; Joseph F. Lenius, Northeastern Illinois University; Andrew Liput, Felician College; Avi Liveson, Hunter College; Romain Lorentz, University of St. Thomas; Sarah H. Ludwig, Mary Baldwin College; Richard Luke, Ricks College; Tanya M. Marcum, Bradley University; Pat Maroney, Florida State University; Sharon Martin, Empire State College–Brooklyn Unit; Bruce Marx, SUNY–Old Westbury; Michael A. Mass, American University; Cheryl Massingale, University of Tennessee–Knoxville; Greg K. McCann, Stetson University; Bruce McClain, Cleveland State University; Ann L. McClure, Fort Hays State University; James McGee, College of West- chester; Charles R. McGuire, Illinois State University; Herbert McLaughlin, Bryant College; James Molloy, University of Wisconsin–Whitewater; Sebrena R. Moten, Troy University; Donald Nelson, University of Denver; Carol L. Nielsen, Bemidji State University; Christopher J. Nyhus, University of Mary; L. K. O’Drudy, Jr., University of Virginia; Ann Morales Olazabal, University of Miami; David Oliveiri, University of Rochester; Richard Paxton, San Diego Community College; Gail P. Petravick, Bradley University; Jim Pingel, Everest University–Brandon; Jonathan Politi, Columbus College of

Art & Design; James L. Porter, University of New Mexico; Lisa Rackley, Rich Mountain Community College; Elinor Rahm, Central Missouri State University; Samuel H. Ramsay, Jr., Bryant College; Decateur Reed, Boise State University; Richard E. Regan, St. John Fisher College; Roger Reinsch, Emporia State University; L. Reppert, Marymount University; Caroline Rider, Marist College; Roland W. Riggs, Marietta College; George Roe, University of Illinois–Chicago; Stanford Rosenberg, La Roche College; Alan Ross, University of California–Berkeley; Mark Rossi, Briar Cliff University; Tim Rueth, Marquette University; Stuart Schafer, University of Mississippi; Eric D Schwartz, LaRoche College; Donald H. Shoop, North Dakota State University; Carol Wahle Smith, Central Florida Community College; Peter Smithfield, Argyle Academy; Michael J. Sovansky, Saginaw Valley State Uni- versity; Janis Stamm, Edinboro University of Pennsylvania; Beverly E. Stanis, Oakton Community College; James Staruck, DePaul University; Al Stauber, Florida State University; David Steele, University of Wisconsin–Eau Claire; Lowell E. Stockstill, Wittenberg University; Peter Strohm, Georgian Court College; Al Talarczyk, Edgewood College; James D. Taylor, Claremont McKenna College; Kevin M. Teeven, Bradley University; Robert J. Tepper, University of New Mexico; Dale B. Thompson, University of St. Thomas; Leonard Tripodi, St. Joseph’s College; Alix Valenti, Univer- sity of Houston–Clear Lake; Karen Vitori, Schoolcraft Col- lege; Nancy A. Wainwright, Eastern Washington University; Charles H. Walker, University of Mississippi; Michael G. Walsh, Villanova University; Daniel Warner, Western Wash- ington University; Peter M. Wasemiller, Fresno Pacific Col- lege; David Webster, University of South Florida–Tampa; Scott A. White, University of Wisconsin; E. Marshall Wick, Gallaudet University; John G. Williams, Northwestern State University; Amy Wilson, Zane State College; Wells J. Wright, University of Minnesota; Rizvana Zameeruddin, University of Wisconsin–Parkside; and James B. Zimarowski, University of Notre Dame.

We express our thanks and deep appreciation to Debra Corvey for administrative assistance. For their support we extend our thanks to Karlene Fogelin Knebel and Joanne Erwick Roberts. And we are grateful to Vicky True-Baker, Amanda White, and Rebecca von Gillern of South-Western for their invaluable assistance and cooperation in connection with the preparation of this text.

This text is dedicated to our children Lilli-Marie Knebel Mann, Justin Erwick Roberts, and Matthew Charles Roberts.

Richard A. Mann Barry S. Roberts

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Table of Cases

Cases in italic are the principal cases included at the ends of the chapters. Reference numbers are to pages.

Abrams v. United States, 73 A.E. Robinson Oil Co., Inc. v. County Forest Products,

Inc., 409 Alcoa Concrete & Masonry v. Stalker Bros., 256 Aldana v. Colonial Palms Plaza, Inc., 318 Alexander v. Fedex Ground Package System, Inc., 378 Alpert v. 28 Williams St. Corp., 784 Alzado v. Blinder, Robinson & Co., Inc., 686 American Manufacturing Mutual Insurance Company v.

Tison Hog Market, Inc., 823 American Needle, Inc. v. National Football League, 893 American Tobacco Co. v. United States, 884 Anderson v. McOskar Enterprises, Inc., 260 Any Kind Checks Cashed, Inc. v. Talcott, 569 Apodaca v. Oregon, 117 Arrowhead School District No. 75, Park County,

Montana, v. Klyap, 357 Aspen Skiing Co. v. Aspen Highlands Skiing

Corp, 887 Association For Molecular Pathology v. Myriad Genetics,

Inc., 876 AT&T Mobility LLC v. Concepcion, 55, 62 Austin v. Michigan Chamber of Commerce, 73

Bagley V. Mt. Bachelor, Inc., 261 Beam v. Stewart, 770 Bear’s Adm’x v. Bear, 277 Beatty v. Guggenheim Exploration Co., 1118 Beckman v. Dunn, 130 Belden Inc. v. American Electronic Components, Inc., 491 Berardi v. Meadowbrook Mall Company, 219 Berg v. Traylor, 273 Bigelow-Sanford, Inc. v. Gunny Corp., 518 Bily v. Arthur Young & Co., 1009 Border State Bank of Greenbush v. Bagley Livestock

Exchange, Inc., 819 Borton v. Forest Hills Country Club, 1095

Bouton v. Byers, 183 Brehm v. Eisner, 768 Brentwood Academy v. Tennessee Secondary School

Athletic Association, 80 Brown v. Board of Education of Topeka, 76, 85 Brown v. Entertainment Merchants Association, 83 Brown v. Jones, 10 Broz v. Cellular Information Systems, Inc., 771 Burlington Industries, Inc. v. Ellerth, 946, 952 Burlington N. & S. F. R. Co. v. White, 944 Burningham v. Westgate Resorts, Ltd., 225

Cappo v. Suda, 1111 Carson v. Here’s Johnny Portable Toilets, Inc., 142 Carter v. Tokai Financial Services, Inc., 428 Catalano, Inc. v. Target Sales, Inc., 885 Catamount Slate Products, Inc. v. Sheldon, 200 Central Hudson Gas and Electric Corp. v. Public Service

Commission, 74 Chapa v. Traciers & Associates, 822 Chevron [USA Inc. v. Natural Resources Defense

Council, Inc.], 98 Chicago Board of Trade v. United States, 883 Christy v. Pilkinton, 332 Citizens United v. Federal Election Commission, 73 Coastal Leasing Corporation v. T-Bar S Corporation, 522 Cohen v. Kipnes, 596 Commerce & Industry Insurance Company v. Bayer

Corporation, 432 Commonwealth v. Brown., 10 Conklin Farm v. Doris Leibowitz, 659 Connes v. Molalla Transport System, Inc., 407 Consolidated Edison Co. v. NLRB, 95 Conway v. Cutler Group, Inc., 1109 Cooke v. Fresh Express Foods Corporation, Inc., 788 Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. v.

Bailey, 542

xvii i

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Coopers & Lybrand v. Fox, 713 Copperwald Corp. v. Independence Tube Corp., 884 County of Washington v. Gunther, 936 Cox Enterprises, Inc. v. Pension Benefit Guaranty