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FIFTH EDITION

ESSENTIALS of BUSINESS LAW

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

Jeffrey F. Beatty Boston University

Susan S. Samuelson Boston UniversityPet

e r P e a rs o n /S to ck b y te /G

e tt y

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Essentials of Business Law, Fifth Edition Jeffrey F. Beatty, Susan S. Samuelson

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C o p y r i g h t 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e c o p i e d , s c a n n e d , o r d u p l i c a t e d , i n w h o l e o r i n p a r t . D u e t o e l e c t r o n i c r i g h t s , s o m e t h i r d p a r t y c o n t e n t m a y b e s u p p r e s s e d f r o m t h e e B o o k a n d / o r e C h a p t e r ( s ) . E d i t o r i a l r e v i e w h a s d e e m e d t h a t a n y s u p p r e s s e d c o n t e n t d o e s n o t m a t e r i a l l y a f f e c t t h e o v e r a l l l e a r n i n g e x p e r i e n c e . C e n g a g e L e a r n i n g r e s e r v e s t h e r i g h t t o r e m o v e a d d i t i o n a l c o n t e n t a t a n y t i m e i f s u b s e q u e n t r i g h t s r e s t r i c t i o n s r e q u i r e i t .

WCN: 02-200-206

CONTENTS: OVERVIEW

Preface xix

UNIT 1 The Legal Environment 1

1 Introduction to Law 2

2 Ethics and Corporate Social Responsibility 23

3 Dispute Resolution 51

4 Common Law, Statutory Law, and

Administrative Law 83

5 Constitutional Law 109

6 Torts and Product Liability 134

7 Crime 164

8 International Law 190

UNIT 2 Contracts 213

9 Introduction to Contracts 214

10 Agreement 234

11 Consideration 256

12 Legality 276

13 Capacity and Consent 295

14 Written Contracts 316

15 Third Parties 337

16 Performance and Discharge 356

17 Remedies 377

18 Practical Contracts 400

UNIT 3 Commercial Transactions 423

19 Introduction to Sales 424

20 Ownership, Risk, and Warranties 450

21 Performance and Remedies 477

22 Negotiable Instruments 501

23 Secured Transactions 528

24 Bankruptcy 562

25 Agency Law 587

UNIT 4 Employment, Business Organizations and Property 615

26 Employment and Labor Law 616

27 Employment Discrimination 644

28 Starting a Business: LLCs and

Other Options 673

29 Corporations 699

30 Government Regulation: Securities and

Antitrust 732

31 Consumer Protection 754

32 Cyberlaw 782

33 Intellectual Property 805

34 Real and Personal Property 832

Appendix A The Constitution of the United States A1

Appendix B Uniform Commercial Code (Selected Provisions) B1

Glossary G1

Table of Cases T1

Index I1

iii

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CONTENTS

Preface xix

UNIT 1 The Legal Environment 1

Chapter 1 Introduction to Law 2 1-1 The Role of Law in Society 3

1-1a Power 3

1-1b Importance 3

1-1c Fascination 3

1-2 Origins of Our Law 4

1-2a English Roots 4

Case Summary: The Oculist’s Case (1329) 5

1-2b Law in the United States 6

1-3 Sources of Contemporary Law 6

1-3a United States Constitution 7

1-3b Statutes 9

1-3c Common Law 9

1-3d Court Orders 10

1-3e Administrative Law 10

1-3f Treaties 10

1-4 Classifications 10

1-4a Criminal and Civil Law 10

1-4b Law and Morality 11

1-5 Jurisprudence 11

1-5a Legal Positivism 11

1-5b Natural Law 12

1-5c Legal Realism 12

1-6 Working with the Book’s Features 13

1-6a Analyzing a Case 13

Case Summary: Kuehn v. Pub Zone 13

1-6b Devil’s Advocate 15

1-6c Exam Strategy 16

1-6d You Be the Judge 16

You Be the Judge: Soldano v. O’Daniels 17

Chapter Conclusion 17

Exam Review 18

Multiple-Choice Questions 19

Essay Questions 20

Discussion Questions 21

Chapter 2 Ethics and Corporate Social Responsibility 23

2-1 Introduction 24

2-2 The Role of Business in Society 26

2-3 Why Be Ethical? 27

2-3a Society as a Whole Benefits from

Ethical Behavior 27

2-3b People Feel Better When They

Behave Ethically 27

2-3c Unethical Behavior Can Be Very Costly 28

2-4 Theories of Ethics 28

2-4a Utilitarian Ethics 29

2-4b Deontological Ethics 29

2-4c Rawlsian Justice 30

2-4d Front Page Test 30

2-5 Ethics Traps 31

2-5a Money 31

2-5b Rationalization 32

2-5c Conformity 33

2-5d Following Orders 33

2-5e Euphemisms 34

2-5f Lost in a Crowd 34

2-5g Blind Spots 35

2-5h Avoiding Ethics Traps 35

2-6 Lying: A Special Case 36

2-7 Applying the Principles 37

2-7a Personal Ethics in the Workplace 37

2-7b The Organization’s Responsibility

to Society 38

2-7c The Organization’s Responsibility

to Its Employees 39

2-7d An Organization’s Responsibility

to Its Customers 40

2-7e Organization’s Responsibility

to Overseas Contract Workers 41

2-8 When the Going Gets Tough 42

2-8a Loyalty 42

2-8b Exit 43

2-8c Voice 43

2-9 Corporate Social Responsibility (CSR) 43

Chapter Conclusion 44

Exam Review 44

Multiple-Choice Questions 46

Essay Questions 47

Discussion Questions 48

Chapter 3 Dispute Resolution 51 3-1 Three Fundamental Areas of Law 52

3-1a Litigation versus Alternative Dispute

Resolution 52

v

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3-2 Court Systems 52

3-2a State Courts 52

Landmark Case: International Shoe Co. v.

State of Washington 55

3-2b Federal Courts 56

3-3 Litigation 60

3-3a Pleadings 60

Case Summary: Stinton v. Robin’s Wood, Inc. 65

Case Summary: Jones v. Clinton 67

3-4 Trial 69

3-4a Adversary System 69

3-4b Right to Jury Trial 69

3-4c Voir Dire 69

Case Summary: Pereda v. Parajon 70

3-4d Opening Statements 71

3-4e Burden of Proof 71

3-4f Plaintiff ’s Case 71

3-4g Rules of Evidence 72

3-4h Motion for Directed Verdict 72

3-4i Defendant’s Case 73

3-4j Closing Arguments 73

3-4k Jury Instructions 73

3-4l Verdict 73

3-4m Motions after the Verdict 74

3-5 Appeals 74

3-5a Appeals Court Options 74

3-6 Alternative Dispute Resolution 75

3-6a Negotiation 75

3-6b Mediation 76

3-6c Arbitration 76

Chapter Conclusion 77

Exam Review 78

Multiple-Choice Questions 80

Essay Questions 81

Discussion Questions 82

Chapter 4 Common Law, Statutory Law, and Administrative Law 83

4-1 Common Law 84

4-1a Stare Decisis 84

4-1b Bystander Cases 84

Case Summary: Tarasoff v. Regents of the

University of California 85

4-2 Statutory Law 87

4-2a Bills 87

4-2b Discrimination: Congress and the Courts 88

4-2c Debate 89

4-2d Statutory Interpretation 91

Landmark Case: Griggs v. Duke Power Co. 92

4-2e Changing Times 93

4-2f Voters’ Role 93

4-2g Congressional Override 93

4-3 Administrative Law 95

4-3a Background 95

4-3b Classification of Agencies 96

4-4 Power of Agencies 96

4-4a Rulemaking 96

4-4b Investigation 98

Landmark Case: United States v. Biswell 99

4-4c Adjudication 99

4-5 Limits on Agency Power 100

4-5a Statutory Control 100

4-5b Political Control 100

4-5c Judicial Review 100

Case Summary: Federal Communications

Commission v. Fox Television Stations, Inc. 101

4-5d Informational Control and the Public 102

Chapter Conclusion 103

Exam Review 104

Multiple-Choice Questions 106

Essay Questions 107

Discussion Questions 108

Chapter 5 Constitutional Law 109 5-1 Government Power 110

5-1a One in a Million 110

5-2 Overview 110

5-2a Separation of Powers 111

5-2b Individual Rights 111

5-3 Power Granted 111

5-3a Congressional Power 111

5-3b Executive Power 115

5-3c Judicial Power 115

Case Summary: Kennedy v. Louisiana 116

5-4 Protected Rights 117

5-4a Incorporation 118

5-4b First Amendment: Free Speech 118

Case Summary: Texas v. Johnson 119

Case Summary: Citizens United v. Federal

Election Commission 120

Case Summary: Salib v. City of Mesa 121

5-4c Fifth Amendment: Due Process and

the Takings Clause 122

Case Summary: Kelo v. City of New London,

Connecticut 125

5-4d Fourteenth Amendment: Equal

Protection Clause 126

vi CONTENTS

C o p y r i g h t 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e c o p i e d , s c a n n e d , o r d u p l i c a t e d , i n w h o l e o r i n p a r t . D u e t o e l e c t r o n i c r i g h t s , s o m e t h i r d p a r t y c o n t e n t m a y b e s u p p r e s s e d f r o m t h e e B o o k a n d / o r e C h a p t e r ( s ) . E d i t o r i a l r e v i e w h a s d e e m e d t h a t a n y s u p p r e s s e d c o n t e n t d o e s n o t m a t e r i a l l y a f f e c t t h e o v e r a l l l e a r n i n g e x p e r i e n c e . C e n g a g e L e a r n i n g r e s e r v e s t h e r i g h t t o r e m o v e a d d i t i o n a l c o n t e n t a t a n y t i m e i f s u b s e q u e n t r i g h t s r e s t r i c t i o n s r e q u i r e i t .

Chapter Conclusion 129

Exam Review 129

Multiple-Choice Questions 131

Essay Questions 132

Discussion Questions 133

Chapter 6 Torts and Product Liability 134 6-1 Intentional Torts 136

6-1a Defamation 136

6-1b False Imprisonment 139

6-1c Intentional Infliction of Emotional

Distress 139

Case Summary: Jane Doe and Nancy Roe v.

Lynn Mills 140

6-1d Additional Intentional Torts 140

6-2 Damages 140

6-2a Compensatory Damages 140

6-2b Punitive Damages 142

Landmark Case: State Farm v. Campbell 143

6-3 Business Torts 144

6-3a Tortious Interference with Business

Relations 144

6-3b Privacy and Publicity 145

6-4 Negligence 146

6-4a Duty of Due Care 146

Case Summary: Hernandez v. Arizona Board

of Regents 147

6-4b Breach of Duty 149

6-4c Causation 149

6-4d Damages 151

6-5 Defenses 152

6-5a Contributory and Comparative

Negligence 152

6-5b Assumption of the Risk 153

Case Summary: Truong v. Nguyen 154

6-6 Strict Liability 154

6-6a Ultrahazardous Activity 155

6-6b Product Liability 155

Chapter Conclusion 157

Exam Review 157

Multiple-Choice Questions 160

Essay Questions 161

Discussion Questions 162

Chapter 7 Crime 164 7-1 The Differences between a Civil and Criminal

Case 165

7-1a Prosecution 165

7-1b Burden of Proof 166

7-1c Right to a Jury 166

7-1d Felony/Misdemeanor 166

7-2 Criminal Procedure 166

7-2a Conduct Outlawed 166

7-2b State of Mind 167

7-2c Gathering Evidence: The Fourth

Amendment 167

You Be the Judge: Ohio v. Smith 169

7-2d The Case Begins 171

Landmark Case: Miranda v. Arizona 172

7-2e Right to a Lawyer 173

7-2f After Arrest 173

Case Summary: Ewing v. California 174

7-3 Crimes that Harm Business 176

7-3a Larceny 176

7-3b Fraud 176

Case Summary: Skilling v. United States 177

7-3c Arson 179

7-3d Embezzlement 179

7-4 Crimes Committed by Business 179

Case Summary: Commonwealth v. Angelo

Todesca Corp. 179

7-4a Selected Crimes Committed by

Business 180

7-4b Punishing a Corporation 183

Chapter Conclusion 184

Exam Review 184

Multiple-Choice Questions 186

Essay Questions 187

Discussion Questions 188

Chapter 8 International Law 190 8-1 Trade Regulation: The Big Picture 191

8-1a Export Controls 191

8-1b Import Controls 192

You Be the Judge: Totes-Isotoner Co. v.

United States 192

8-1c Treaties 193

Case Summary: United States—Import

Prohibition of Certain Shrimp and Shrimp

Products 194

8-2 International Sales Agreements 197

8-2a The Sales Contract 197

Case Summary: Centrifugal Casting

Machine Co., Inc. v. American Bank &

Trust Co. 200

8-3 International Trade Issues 201

8-3a Repatriation of Profits 201

CONTENTS vii

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8-3b Expropriation 201

8-3c Foreign Corrupt Practices Act 202

Case Summary: United States v. King 203

8-3d Extraterritoriality 205

You Be the Judge: Carnero v. Boston

Scientific Corporation 205

Chapter Conclusion 206

Exam Review 207

Multiple-Choice Questions 209

Essay Questions 210

Discussion Questions 211

UNIT 2 Contracts 213

Chapter 9 Introduction to Contracts 214 9-1 Contracts 215

9-1a Elements of a Contract 215

9-1b Other Important Issues 215

9-1c All Shapes and Sizes 216

9-1d Contracts Defined 216

9-1e Development of Contract Law 217

Case Summary: Davis v. Mason 217

9-2 Types of Contracts 218

9-2a Bilateral and Unilateral Contracts 218

9-2b Executory and Executed Contracts 219

9-2c Valid, Unenforceable, Voidable, and

Void Agreements 219

Case Summary: Mr. W Fireworks, Inc. v.

Ozuna 220

9-2d Express and Implied Contracts 220

You Be the Judge: DeMasse v. ITT

Corporation 221

9-2e Promissory Estoppel and Quasi-

Contracts 222

Case Summary: Norton v. Hoyt 223

9-3 Sources of Contract Law 225

9-3a Common Law 225

9-3b Uniform Commercial Code 225

Case Summary: Fallsview Glatt Kosher

Caterers, Inc. v. Rosenfeld 226

Chapter Conclusion 227

Exam Review 227

Multiple-Choice Questions 230

Essay Questions 231

Discussion Questions 233

Chapter 10 Agreement 234 10-1 Meeting of the Minds 235

10-2 Offer 236

10-2a Statements That Usually Do Not

Amount to Offers 236

Landmark Case: Carlill v. Carbolic Smoke

Ball Company 238

10-2b Problems with Definiteness 239

Case Summary: Baer v. Chase 240

10-2c The UCC and Open Terms 241

10-2d Termination of Offers 242

Case Summary: Nadel v. Tom Cat Bakery 242

10-3 Acceptance 244

10-3a Mirror Image Rule 244

10-3b UCC and the Battle of Forms 245

10-3c Clickwraps and Shrinkwraps 247

Case Summary: Specht v. Netscape

Communications Corporation 247

10-3d Communication of Acceptance 249

Case Summary: Soldau v. Organon, Inc. 250

Chapter Conclusion 250

Exam Review 250

Multiple-Choice Questions 253

Essay Questions 254

Discussion Questions 255

Chapter 11 Consideration 256 11-1 What Is Consideration? 257

11-1a What Is Value? 257

Landmark Case: Hamer v. Sidway 258

You Be the Judge: Kim v. Son 259

11-1b Adequacy of Consideration 259

11-1c Illusory Promises 260

11-2 Applications of Consideration 261

11-2a The UCC: Consideration in

Requirements and Output Contracts 261

11-2b Preexisting Duty 262

YouBetheJudge:CitizensTrustBankv.White 263

11-3 Settlement of Debts 265

11-3a Liquidated Debt 265

11-3b Unliquidated Debt: Accord and

Satisfaction 265

Case Summary: Henches v. Taylor 266

11-4 Consideration: Trends 267

11-4a Employment Agreements 267

Case Summary: Snider Bolt & Screw v.

Quality Screw & Nut 268

11-4b Promissory Estoppel and “Moral

Consideration” 268

viii CONTENTS

C o p y r i g h t 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e c o p i e d , s c a n n e d , o r d u p l i c a t e d , i n w h o l e o r i n p a r t . D u e t o e l e c t r o n i c r i g h t s , s o m e t h i r d p a r t y c o n t e n t m a y b e s u p p r e s s e d f r o m t h e e B o o k a n d / o r e C h a p t e r ( s ) . E d i t o r i a l r e v i e w h a s d e e m e d t h a t a n y s u p p r e s s e d c o n t e n t d o e s n o t m a t e r i a l l y a f f e c t t h e o v e r a l l l e a r n i n g e x p e r i e n c e . C e n g a g e L e a r n i n g r e s e r v e s t h e r i g h t t o r e m o v e a d d i t i o n a l c o n t e n t a t a n y t i m e i f s u b s e q u e n t r i g h t s r e s t r i c t i o n s r e q u i r e i t .

Chapter Conclusion 269

Exam Review 269

Multiple-Choice Questions 272

Essay Questions 273

Discussion Questions 274

Chapter 12 Legality 276 12-1 Contracts That Violate a Statute 277

12-1a Wagers 277

12-1b Insurance 278

12-1c Licensing Statutes 278

Case Summary: Authentic Home

Improvements v. Mayo 279

12-1d Usury 279

Case Summary: American Express Travel

Related Services Company, Inc. v. Assih 280

12-2 Contracts That Violate Public Policy 281

12-2a Restraint of Trade: Noncompete

Agreements 281

Case Summary: King v. Head Start Family

Hair Salons, Inc. 281

12-2b The Legality of Noncompetition

Clauses (Noncompetes) 283

12-2c Exculpatory Clauses 284

You Be the Judge: Ransburg v. Richards 285

12-2d Unconscionable Contracts 287

Case Summary: Worldwide Insurance v.

Klopp 288

Chapter Conclusion 289

Exam Review 289

Multiple-Choice Questions 291

Essay Questions 292

Discussion Questions 294

Chapter 13 Capacity and Consent 295 13-1 Capacity 296

13-1a Minors 296

13-1b Mentally Impaired Persons 298

Landmark Case: Babcock v. Engel 299

13-2 Reality of Consent 300

13-2a Fraud 300

Case Summary: Hess v. Chase Manhattan

Bank, USA, N.A. 304

13-2b Mistake 305

Case Summary: Donovan v. RRL Corporation 306

13-2c Duress 307

You Be the Judge: In Re RLS Legal

Solutions, LLC 308

13-2d Undue Influence 309

Case Summary: Sepulveda v. Aviles 310

Chapter Conclusion 310

Exam Review 311

Multiple-Choice Questions 313

Essay Questions 314

Discussion Questions 315

Chapter 14 Written Contracts 316 Landmark Case: The Lessee of Richardson

v. Campbell 317

14-1 Common Law Statute of Frauds: Contracts

That Must Be in Writing 319

14-1a Agreements for an Interest in Land 319

14-1b Agreements That Cannot Be

Performed within One Year 321

You Be the Judge: Sawyer v. Mills 321

14-1c Promise to Pay the Debt of Another 322

14-1d Promise Made by an Executor of an

Estate 323

14-1e Promise Made in Consideration of

Marriage 323

14-2 The Common Law Statute of Frauds: What

the Writing Must Contain 323

14-2a Signature 324

14-2b Reasonable Certainty 324

14-2c Electronic Contracts and Signatures 326

14-3 The UCC’s Statute of Frauds 326

14-3a UCC §2-201(1)—The Basic Rule 326

14-3b UCC §2-201(2)—The Merchants’

Exception 327

Case Summary: Seton Co. v. Lear Corp. 328

14-3c UCC §2-201(3)—Special

Circumstances 328

14-4 Parol Evidence 329

Case Summary: Mayo v. North Carolina

State University 330

14-4a Exception: An Incomplete or Ambiguous

Contract 331

14-4b Fraud, Misrepresentation, or Duress 331

Chapter Conclusion 331

Exam Review 332

Multiple-Choice Questions 334

Essay Questions 335

Discussion Questions 336

CONTENTS ix

Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Chapter 15 Third Parties 337 15-1 Third Party Beneficiary 338

15-1a Intended Beneficiaries 338

Case Summary: Schauer v. Mandarin Gems

of California, Inc. 339

15-1b Incidental Beneficiaries 340

Case Summary: Unite Here Local 30 v.

California Department of Parks and

Recreation 340

15-2 Assignment and Delegation 341

15-2a Assignment 341

Case Summary: Tenet HealthSystem

Surgical, L.L.C. v. Jefferson Parish

Hospital Service District No. 1 343

You Be the Judge: Wells Fargo Bank

Minnesota v. BrooksAmerica Mortgage

Corporation 346

15-2b Delegation of Duties 347

Case Summary: Rosenberg v. Son, Inc. 349

Chapter Conclusion 350

Exam Review 350

Multiple-Choice Questions 352

Essay Questions 353

Discussion Questions 355

Chapter 16 Performance and Discharge 356 16-1 Conditions 358

16-1a How Conditions Are Created 358

16-1b Types of Conditions 359

Case Summary: American Electronic

Components, Inc. v. Agere Systems, Inc. 359

You Be The Judge: Anderson v. Country

Life Insurance Co. 361

16-2 Performance 362

16-2a Strict Performance and Substantial

Performance 363

16-2b Personal Satisfaction Contracts 364

16-2c Good Faith 365

Case Summary: Brunswick Hills Racquet

Club Inc. v. Route 18 Shopping Center

Associates 365

16-2d Time of the Essence Clauses 367

16-3 Breach 367

16-3a Material Breach 367

Case Summary: O’Brien v. Ohio State

University 368

16-3b Anticipatory Breach 368

16-3c Statute of Limitations 369

16-4 Impossibility 369

16-4a True Impossibility 369

16-4b Commercial Impracticability and

Frustration of Purpose 370

Chapter Conclusion 371

Exam Review 371

Multiple-Choice Questions 373

Essay Questions 374

Discussion Questions 376

Chapter 17 Remedies 377 17-1 Breaching a Contract 378

17-1a Identifying the “Interest” to Be

Protected 378

17-2 Expectation Interest 379

Landmark Case: Hawkins v. McGee 379

17-2a Direct Damages 381

17-2b Consequential Damages 381

Case Summary: Hadley v. Baxendale 381

You Be the Judge: Bi-Economy Market, Inc.

v. Harleysville Ins. Co. of New York 382

17-2c Incidental Damages 383

17-2d The UCC and Damages 383

17-3 Reliance Interest 385

17-3a Promissory Estoppel 386

Case Summary: Toscano v. Greene Music 386

17-4 Restitution Interest 387

17-4a Restitution in Cases of a Voidable

Contract 388

Case Summary: Putnam Construction &

Realty Co. v. Byrd 388

17-4b Restitution in Cases of a

Quasi-Contract 389

17-5 Other Remedies 389

17-5a Specific Performance 389

17-5b Injunction 390

Case Summary: Milicic v. Basketball

Marketing Company, Inc. 391

17-5c Reformation 392

17-6 Special Issues 392

17-6a Mitigation of Damages 392

17-6b Nominal Damages 392

17-6c Liquidated Damages 392

Chapter Conclusion 394

Exam Review 394

Multiple-Choice Questions 396

Essay Questions 397

Discussion Questions 399

x CONTENTS

C o p y r i g h t 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e c o p i e d , s c a n n e d , o r d u p l i c a t e d , i n w h o l e o r i n p a r t . D u e t o e l e c t r o n i c r i g h t s , s o m e t h i r d p a r t y c o n t e n t m a y b e s u p p r e s s e d f r o m t h e e B o o k a n d / o r e C h a p t e r ( s ) . E d i t o r i a l r e v i e w h a s d e e m e d t h a t a n y s u p p r e s s e d c o n t e n t d o e s n o t m a t e r i a l l y a f f e c t t h e o v e r a l l l e a r n i n g e x p e r i e n c e . C e n g a g e L e a r n i n g r e s e r v e s t h e r i g h t t o r e m o v e a d d i t i o n a l c o n t e n t a t a n y t i m e i f s u b s e q u e n t r i g h t s r e s t r i c t i o n s r e q u i r e i t .

Chapter 18 Practical Contracts 400 18-1 The Lawyer 401

18-1a Lawyers and Clients 402

18-1b Hiring a Lawyer 402

18-2 The Contract 403

18-2a Who Drafts It? 403

18-2b How to Read a Contract 403

18-2c Mistakes 403

You Be the Judge: Quake Construction, Inc.

v. American Airlines, Inc. 404

Case Summary: Cipriano v. Patrons Mutual

Insurance Company of Connecticut 406

You Be the Judge: Heritage Technologies v.

Phibro-Tech 408

18-2d The Structure of a Contract 409

Case Summary: Lemond Cycling, Inc. v.

PTI Holding, Inc. 413

Chapter Conclusion 418

Exam Review 419

Multiple-Choice Questions 421

Essay Questions 421

Discussion Questions 422

UNIT 3 Commercial Transactions 423

Chapter 19 Introduction to Sales 424 19-1 Development of Commercial Law 425

19-1a Harold and Maude, Revisited 427

19-1b This Unit and This Chapter 427

19-2 UCC Basics 428

19-2a Code’s Purpose 428

19-2b Scope of Article 2 428

19-2c Mixed Contracts 429

19-2d Merchants 429

19-2e Good Faith and Unconscionability 429

19-3 Contract Formation 430

19-3a Formation Basics: §2-204 430

Case Summary: Jannusch v. Naffziger 431

19-3b Statute of Frauds 431

Case Summary: Delta Star, Inc. v. Michael’s

Carpet World 433

19-3c Added Terms: §2-207 433

Case Summary: Superior Boiler Works, Inc.

v. R. J. Sanders, Inc. 436

19-3d Open Terms: §§2-305 and 2-306 437

Case Summary: Mathis v. Exxon

Corporation 438

You Be the Judge: Lohman v. Wagner 440

19-3e Modification 441

Chapter Conclusion 444

Exam Review 444

Multiple-Choice Questions 447

Essay Questions 448

Discussion Questions 449

Chapter 20 Ownership, Risk, and Warranties 450

20-1 Legal Interest 451

20-2 Identification, Title, and Insurable Interest 452

20-2a Existence and Identification 452

20-2b Passing of Title 453

20-2c Insurable Interest 454

Case Summary: Valley Forge Insurance Co.

v. Great American Insurance Co. 455

20-3 Imperfect Title 455

20-3a Bona Fide Purchaser 455

Case Summary: Bakalar v. Vavra 457

20-3b Entrustment 457

20-4 Risk of Loss 458

20-4a Shipping Terms 459

20-4b When the Parties Fail to Allocate the

Risk 459

Case Summary: Harmon v. Dunn 463

20-5 Warranties 463

20-6 Express Warranties 464

20-6a Affirmation of Fact or Promise 464

20-6b Description of Goods 464

20-6c Sample or Model 465

20-6d Basis of Bargain 465

20-7 Implied Warranties 465

20-7a Implied Warranty of Merchantability 465

CaseSummary:Goodmanv.WencoFoods,Inc. 466

20-7b Implied Warranty of Fitness for a

Particular Purpose 467

20-7c Warranty of Title 467

20-8 Disclaimers and Defenses 468

20-8a Disclaimers 468

20-8b Remedy Limitations 469

20-8c Privity 470

Case Summary: Reed v. City of Chicago 471

20-8d Buyer’s Misuse 472

CONTENTS xi

Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Chapter Conclusion 472

Exam Review 472

Multiple-Choice Questions 473

Essay Questions 474

Discussion Questions 476

Chapter 21 Performance and Remedies 477 21-1 Obligation on All Parties: Good Faith 478

21-2 Seller’s Rights and Obligations 478

21-2a Perfect Tender Rule 479

21-2b Restrictions on the Perfect Tender

Rule 479

Case Summary: Zion Temple First

Pentecostal Church of Cincinnati, Ohio,

Inc. v. Brighter Day Bookstore & Gifts

& Murphy Cap & Gown Co. 481

You Be the Judge: United Aluminum

Corporation v. Linde, Inc. 483

21-3 Buyer’s Rights and Obligations 485

21-3a Inspection and Acceptance 485

Case Summary: Lile v. Kiesel 486

21-4 Seller’s Remedies 487

21-4a Stop Delivery 487

21-4b Identify Goods to the Contract 487

21-4c Resale 487

21-4d Damages for Non-Acceptance 488

21-4e Action for the Price 489

21-5 Buyer’s Remedies 489

21-5a Incidental Damages and

Consequential Damages 490

Case Summary: Smith v. Penbridge

Associates, Inc. 490

21-5b Specific Performance 491

21-5c Cover 491

Case Summary: Hessler v. Crystal Lake

Chrysler-Plymouth, Inc. 492

21-5d Non-Delivery 493

21-5e Acceptance of Non-Conforming Goods 493

21-5f Liquidated Damages 493

Chapter Conclusion 494

Exam Review 494

Multiple-Choice Questions 498

Essay Questions 499

Discussion Questions 500

Chapter 22 Negotiable Instruments 501 22-1 Commercial Paper 502

22-2 Types of Negotiable Instruments 502

22-3 The Fundamental “Rule” of Commercial

Paper 503

22-3a Negotiable 503

You Be the Judge: Blasco v. Money

Services Center 506

22-3b Negotiated 506

22-3c Holder in Due Course 507

Case Summary: Buckeye Check Cashing,

Inc. v. Camp 508

22-3d Defenses against a Holder in Due

Course 509

22-3e Consumer Exception 510

Case Summary: Antuna v. Nescor, Inc. 510

22-4 Liability for Negotiable Instruments 511

22-4a Primary versus Secondary Liability 511

22-5 Signature Liability 511

22-5a Maker 511

22-5b Drawer 511

22-5c Drawee 512

22-5d Indorser 513

22-5e Accommodation Party 513

22-6 Warranty Liability 514

22-6a Basic Rules of Warranty Liability 514

22-6b Transfer Warranties 515

You Be the Judge: Quimby v. Bank of

America 516

22-6c Comparison of Signature Liability

and Transfer Warranties 517

22-6d Presentment Warranties 517

22-7 Other Liability Rules 518

22-7a Conversion Liability 518

22-7b Impostor Rule 519

22-7c Fictitious Payee Rule 519

22-7d Employee Indorsement Rule 519

22-7e Negligence 520

Chapter Conclusion 521

Exam Review 521

Multiple-Choice Questions 525

Essay Questions 526

Discussion Questions 527

Chapter 23 Secured Transactions 528 23-1 Article 9: Terms and Scope 529

23-1a Article 9 Vocabulary 529

23-1b Scope of Article 9 530

23-2 Attachment of a Security Interest 532

23-2a Agreement 533

23-2b Control and Possession 533

xii CONTENTS

C o p y r i g h t 2 0 1 3 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e c o p i e d , s c a n n e d , o r d u p l i c a t e d , i n w h o l e o r i n p a r t . D u e t o e l e c t r o n i c r i g h t s , s o m e t h i r d p a r t y c o n t e n t m a y b e s u p p r e s s e d f r o m t h e e B o o k a n d / o r e C h a p t e r ( s ) . E d i t o r i a l r e v i e w h a s d e e m e d t h a t a n y s u p p r e s s e d c o n t e n t d o e s n o t m a t e r i a l l y a f f e c t t h e o v e r a l l l e a r n i n g e x p e r i e n c e . C e n g a g e L e a r n i n g r e s e r v e s t h e r i g h t t o r e m o v e a d d i t i o n a l c o n t e n t a t a n y t i m e i f s u b s e q u e n t r i g h t s r e s t r i c t i o n s r e q u i r e i t .

Case Summary: In Re CFLC, Inc. 534 23-2c Value 535

23-2d Debtor Rights in the Collateral 535

23-2e Attachment to Future Property 535

23-3 Perfection 536

23-3a Nothing Less than Perfection 536

23-3b Perfection by Filing 536

Case Summary: Corona Fruits & Veggies,

Inc. v. Frozsun Foods, Inc. 538

23-3c Perfection by Possession or Control 540

Case Summary: Layne v. Bank One 541

23-3d Perfection of Consumer Goods 542

23-3e Perfection of Movable Collateral

and Fixtures 544

23-4 Protection of Buyers 545

23-4a Buyers in Ordinary Course of Business 546

You Be the Judge: Conseco Finance

Servicing Corp. v. Lee 547

23-4b Buyers of Consumer Goods 547

23-4c Buyers of Chattel Paper, Instruments,

and Documents 548

23-4d Liens 549

23-5 Priorities Among Creditors 550

23-5a Filing versus Control or Possession 551

23-5b Priority Involving a Purchase Money

Security Interest 552

Case Summary: In Re Roser 553 23-6 Default and Termination 553

23-6a Default 553

23-6b Termination 556

Chapter Conclusion 556

Exam Review 556

Multiple-Choice Questions 559

Essay Questions 560

Discussion Questions 561

Chapter 24 Bankruptcy 562 24-1 Overview of the Bankruptcy Code 563

24-1a Rehabilitation 563

24-1b Liquidation 564

24-1c Chapter Description 564

24-1d Goals 564

24-2 Chapter 7 Liquidation 564

24-2a Filing a Petition 565

24-2b Trustee 566

24-2c Creditors 566

24-2d Automatic Stay 567

Case Summary: Jackson v. Holiday Furniture 567

24-2e Bankruptcy Estate 568

24-2f Payment of Claims 570

24-2g Discharge 572

Case Summary: In Re Stern 573 Case Summary: In Re Grisham 575

24-3 Chapter 11 Reorganization 576

24-3a Debtor in Possession 576

24-3b Creditors’ Committee 576

24-3c Plan of Reorganization 577

24-3d Confirmation of the Plan 577

Case Summary: In Re Fox 577 24-3e Discharge 578

24-3f Small-Business Bankruptcy 579

24-4 Chapter 13 Consumer Reorganizations 579

You Be the Judge: Marrama v. Citizens

Bank of Massachusetts 579

24-4a Beginning a Chapter 13 Case 580

24-4b Plan of Payment 580

24-4c Discharge 581

Chapter Conclusion 581

Exam Review 582

Multiple-Choice Questions 583

Essay Questions 584

Discussion Questions 585

Chapter 25 Agency Law 587 25-1 Creating an Agency Relationship 588

25-1a Consent 588

25-1b Control 589

25-1c Fiduciary Relationship 589

25-1d Elements Not Required for an

Agency Relationship 589

25-2 Duties of Agents to Principals 590

25-2a Duty of Loyalty 590

Case Summary: Otsuka v. Polo Ralph

Lauren Corporation 590

Case Summary: Abkco Music, Inc. v.

Harrisongs Music, Ltd. 591

25-2b Other Duties of an Agent 593

25-2c Principal’s Remedies When the

Agent Breaches a Duty 594

25-3 Duties of Principals to Agents 595

25-3a Duty to Cooperate 596

25-4 Terminating an Agency Relationship 596

25-4a Termination by Agent or Principal 596

25-4b Principal or Agent Can No Longer

Perform Required Duties 597

25-4c Change in Circumstances 598

25-4d Effect of Termination 598

25-5 Liability 599

CONTENTS xiii

Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

25-6 Principal’s Liability for Contracts 599

25-6a Authority 599

25-6b Ratification 600

25-6c Subagents 601

25-7 Agent’s Liability for Contracts 601

25-7a Fully Disclosed Principal 601

25-7b Unidentified Principal 602

25-7c Undisclosed Principal 602

25-7d Unauthorized Agent 603

25-8 Principal’s Liability for Torts 604

25-8a Employee 604

25-8b Scope of Employment 605

You Be the Judge: Zankel v. United States

of America 606

25-8c Intentional Torts 607

Case Summary: Doe v. Liberatore 607

25-8d Physical or Nonphysical Harm 608

25-9 Agent’s Liability for Torts 609

Chapter Conclusion 609

Exam Review 609

Multiple-Choice Questions 612

Essay Questions 613

Discussion Questions 614

UNIT 4 Employment, Business Organizations and Property 615

Chapter 26 Employment and Labor Law 616 26-1 Introduction 617

26-2 Employment Security 618

26-2a Family and Medical Leave Act 618

Case Summary: Peterson v. Exide

Technologies 618

26-2b Health Insurance 619

26-2c Common Law Protections 619

Case Summary: Kozloski v. American Tissue

Services Foundation 621

26-2d Whistleblowing 624

26-3 Privacy in the Workplace 626

26-3a Lifestyle Laws 626

You Be the Judge: Rodrigues v. Scotts

Lawnservice 627

26-4 Workplace Safety 630

26-5 Financial Protection 630

26-5a Fair Labor Standards Act: Minimum

Wage, Overtime, and Child Labor 631

26-5b Workers’ Compensation 631

26-5c Social Security 631

26-5d Pension Benefits 632

26-6 Labor Law and Collective Bargaining 632

26-6a Key Pro-Union Statutes 632

26-6b Labor Unions Today 633

26-6c Organizing a Union 633

26-6d Collective Bargaining 635

Landmark Case: NLRB v. Truitt