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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
er P ea
rs o n /S to ck b yt e/ G et ty
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Essentials of Business Law, Fifth Edition Jeffrey F. Beatty, Susan S. Samuelson
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Printed in the United States of America 1 2 3 4 5 6 7 17 16 15 14 13
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: OVERV IEW
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
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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 YouBe the Judge: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
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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 orAmbiguous 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
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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
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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
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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
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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
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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 Manufacturing Co. 636
26-6e Concerted Action 636
Chapter Conclusion 638 Exam Review 638 Multiple-Choice Questions 641 Essay Questions 642 Discussion Questions 643
Chapter 27 Employment Discrimination 644 27-1 Introduction 645 27-2 The United States Constitution 646 27-3 Civil Rights Act of 1866 646 27-4 Title VII of the Civil Rights Act of 1964 646
27-4a Prohibited Activities 646 You Be the Judge: Jespersen v. Harrah’s 647 Landmark Case: Griggs v. Duke Power Co. 648 Case Summary: Teresa Harris v. Forklift Systems, Inc. 650
27-4b Religion 652 27-4c Sex 652 27-4d Family Responsibility Discrimination 653 27-4e Sexual Orientation 653 27-4f Gender Identity 653 27-4g Defenses to Charges of Discrimination 654
27-5 Equal Pay Act of 1963 656 27-6 Pregnancy Discrimination Act 656 27-7 Age Discrimination in Employment Act 656
27-7a Disparate Treatment 657 Case Summary: Reid v. Google, Inc. 657 27-7b Disparate Impact 658 27-7c Hostile Work Environment 658 27-7d Bona Fide Occupational Qualification 659
27-8 Discrimination on the Basis of Disability 659 27-8a The Rehabilitation Act of 1973 659 27-8b Americans with Disabilities Act 660 Case Summary: Allen v. SouthCrest Hospital 660
27-9 Genetic Information Nondiscrimination Act 664 27-10 Enforcement 664
27-10a Constitutional Claims 664
xiv CONTENTS
Copyr igh t 2013 Cengage Lea rn ing . A l l R igh t s Rese rved . May no t be cop ied , s canned , o r dup l i ca t ed , i n who le o r i n pa r t . Due to e l ec t ron i c r i gh t s , some th i rd pa r ty con ten t may be suppre s sed f rom the eBook and /o r eChap te r ( s ) . Ed i to r i a l r ev i ew has deemed tha t any suppre s sed con ten t does no t ma te r i a l l y a ff ec t t he ove ra l l l e a rn ing expe r i ence . Cengage Lea rn ing r e se rves t he r i gh t t o r emove add i t i ona l con ten t a t any t ime i f subsequen t r i gh t s r e s t r i c t i ons r equ i r e i t .
27-10b The Civil Rights Act of 1866 664 27-10c The Rehabilitation Act of 1973 664 27-10d Other Statutory Claims 664
Chapter Conclusion 666 Exam Review 666 Multiple-Choice Questions 669 Essay Questions 671 Discussion Questions 671
Chapter 28 Starting a Business: LLCs and Other Options 673
28-1 Sole Proprietorships 674 28-2 Corporations 675
28-2a Corporations in General 675 28-2b S Corporations 677 28-2c Close Corporations 678
28-3 Limited Liability Companies 679 You Be the Judge: Ridgaway v. Silk 680 Case Summary: Wyoming.com, LLC v. Lieberman 681
Case Summary: BLD Products, Ltd. v. Technical Plastics of Oregon, LLC 682
Case Summary: Tzolis v. Wolff 683 28-4 Socially Conscious Organizations 685 28-5 General Partnerships 685
Case Summary: Marsh v. Gentry 687 28-6 Limited Liability Partnerships 688 28-7 Limited Partnerships and Limited Liability
Limited Partnerships 689 28-8 Professional Corporations 690 28-9 Joint Ventures 691
28-10 Franchises 691 Case Summary: National Franchisee Association v. Burger King Corporation 693
Chapter Conclusion 693 Exam Review 694 Multiple-Choice Questions 695 Essay Questions 696 Discussion Questions 697
Chapter 29 Corporations 699 29-1 Promoter’s Liability 700 29-2 Incorporation Process 700
29-2a Where to Incorporate? 700 29-2b The Charter 701
29-3 After Incorporation 704 29-3a Directors and Officers 704
29-3b Bylaws 705 29-3c Issuing Debt 705
29-4 Death of the Corporation 705 29-4a Piercing the Corporate Veil 706 Case Summary: Brooks v. Becker 706 29-4b Termination 707
29-5 The Role of Corporate Management 707 29-6 The Business Judgment Rule 708
29-6a Duty of Loyalty 709 29-6b Corporate Opportunity 709 Case Summary: Anderson v. Bellino 710 29-6c Duty of Care 712
29-7 The Role of Shareholders 713 29-7a Rights of Shareholders 714 Case Summary: Brehm v. Eisner 722 You Be the Judge: eBay Domestic Holdings, Inc. v. Newmark 723
29-8 Enforcing Shareholder Rights 724 29-8a Derivative Lawsuits 724 29-8b Direct Lawsuits 725
Chapter Conclusion 725 Exam Review 725 Multiple-Choice Questions 728 Essay Questions 729 Discussion Questions 730
Chapter 30 Government Regulation: Securities and Antitrust 732
30-1 Securities Laws 733 30-1a What Is a Security? 733 30-1b Securities Act of 1933 733 30-1c Securities Exchange Act of 1934 735 Case Summary: Matrixx Initiatives, Inc. v. Siracusano 736
30-1d Short-Swing Trading—Section 16 737 30-1e Insider Trading 737 Case Summary: Securities and Exchange Commission v. Steffes 739
30-1f Blue Sky Laws 740 30-2 Antitrust Law 740
30-2a The Sherman Act 741 Landmark Case: United States v. Trenton Potteries Company 741
Case Summary: Leegin Creative Leather Products, Inc. v. PSKS, Inc. 742
30-2b The Clayton Act 745 Landmark Case: United States v. Waste Management, Inc. 745
30-2c The Robinson-Patman Act 747
CONTENTS xv
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Chapter Conclusion 748 Exam Review 748 Multiple-Choice Questions 751 Essay Questions 752 Discussion Questions 752
Chapter 31 Consumer Protection 754 31-1 Introduction 755
31-1a Federal Trade Commission 755 31-1b Consumer Financial Protection Bureau 756
31-2 Sales 756 31-2a Deceptive Acts or Practices 756 Case Summary: Federal Trade Commission v. Direct Marketing Concepts, Inc. 756
31-2b Unfair Practices 757 31-2c Additional Sales Rules 758
31-3 Consumer Credit 759 31-3a Truth in Lending Act—General Provisions 760
31-3b Home Loans 761 31-3c Credit Cards 763 Case Summary: Gray v. American Express Co. 766
31-3d Debit Cards 766 31-3e Credit Reports 767 31-3f Debt Collection 769 You Be the Judge: Brown v. Card Service Center 770
31-3g Equal Credit Opportunity Act 771 Case Summary: Treadway v. Gateway Chevrolet Oldsmobile Inc. 771
31-3h Consumer Leasing Act 772 31-4 Magnuson-Moss Warranty Act 773 31-5 Consumer Product Safety 774
Chapter Conclusion 774 Exam Review 774 Multiple-Choice Questions 778 Essay Questions 779 Discussion Questions 781
Chapter 32 Cyberlaw 782 32-1 Privacy 784
32-1a Tracking Tools 784 32-1b Regulation of Online Privacy 785 You Be the Judge: Juzwiak v. John/Jane Doe 786 Case Summary: United States of America v. Angevine 787
Case Summary: United States of America v. Warshak 788
You Be the Judge: Scott v. Beth Israel Medical Center Inc. 791
32-2 Spam 792 32-3 Internet Service Providers and Web Hosts:
Communications Decency Act of 1996 793 Case Summary: Carafano v. Metrosplash .com, Inc. 794
32-4 Crime on the Internet 795 32-4a Hacking 795 32-4b Fraud 797
Chapter Conclusion 799 Exam Review 800 Multiple-Choice Questions 802 Essay Questions 803 Discussion Questions 804
Chapter 33 Intellectual Property 805 33-1 Introduction 806 33-2 Patents 806
33-2a Types of Patents 806 33-2b Requirements for a Patent 808 33-2c Patent Application and Issuance 809
33-3 Copyrights 812 Case Summary: Lapine v. Seinfeld 813 33-3a Copyright Term 813 33-3b Infringement 813 33-3c First Sale Doctrine 814 33-3d Fair Use 814 33-3e Digital Music and Movies 815 Case Summary: Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. 816
33-3f International Copyright Treaties 818 33-4 Trademarks 818
33-4a Types of Marks 819 33-4b Ownership and Registration 819 33-4c Valid Trademarks 819 33-4d Infringement 821 You Be the Judge: Network Automation, Inc. v. Advanced Systems Concepts, Inc. 822
33-4e Federal Trademark Dilution Act of 1995 823 33-4f Domain Names 823 33-4g International Trademark Treaties 824
33-5 Trade Secrets 825 Case Summary: Pollack v. Skinsmart Dermatology and Aesthetic Center P.C. 826
xvi CONTENTS
Copyr igh t 2013 Cengage Lea rn ing . A l l R igh t s Rese rved . May no t be cop ied , s canned , o r dup l i ca t ed , i n who le o r i n pa r t . Due to e l ec t ron i c r i gh t s , some th i rd pa r ty con ten t may be suppre s sed f rom the eBook and /o r eChap te r ( s ) . Ed i to r i a l r ev i ew has deemed tha t any suppre s sed con ten t does no t ma te r i a l l y a ff ec t t he ove ra l l l e a rn ing expe r i ence . Cengage Lea rn ing r e se rves t he r i gh t t o r emove add i t i ona l con ten t a t any t ime i f subsequen t r i gh t s r e s t r i c t i ons r equ i r e i t .
Chapter Conclusion 827 Exam Review 827 Multiple-Choice Questions 828 Essay Questions 829 Discussion Questions 831
Chapter 34 Real and Personal Property 832 34-1 Nature of Real Property 833
Case Summary: Freeman v. Barrs 833 34-2 Estates in Real Property 834
34-2a Concurrent Estates 834 Case Summary: Jackson v. Estate of Green 835
34-3 Nonpossessory Interests 837 34-3a Easements 837 34-3b Profit 837 34-3c License 837 34-3d Mortgage 838
34-4 Land Use Regulation 838 34-4a Nuisance Law 838 34-4b Zoning 839 34-4c Eminent Domain 839
34-5 Landlord-Tenant Law 840 34-5a Three Legal Areas Combined 840 34-5b Lease 840
34-6 Types of Tenancy 840 34-6a Tenancy for Years 841 34-6b Periodic Tenancy 841 34-6c Tenancy at Will 841 34-6d Tenancy at Sufferance 841
34-7 Landlord’s Duties 841 34-7a Duty to Deliver Possession 841 34-7b Quiet Enjoyment 842 34-7c Duty to Maintain Premises 842 Case Summary: Mishkin v. Young 844
34-8 Tenant’s Duties 845 34-8a Duty to Pay Rent 845
34-8b Duty to Use Premises for Proper Purpose 846
34-8c Duty Not to Damage Premises 846 34-8d Duty Not to Disturb Other Tenants 846
34-9 Injuries 847 34-9a Tenant’s Liability 847 34-9b Landlord’s Liability 847
34-10 Personal Property 848 34-11 Gifts 848
34-11a Intention to Transfer Ownership 848 34-11b Delivery 849 34-11c Inter Vivos Gifts and Gifts Causa Mortis 849
34-11d Acceptance 850 You Be the Judge: Albinger v. Harris 850
34-12 Bailment 852 34-12a Control 852 34-12b Rights of the Bailee 852 34-12c Duties of the Bailee 853 You Be the Judge: Johnson v. Weedman 854 34-12d Rights and Duties of the Bailor 854
Chapter Conclusion 854 Exam Review 855 Multiple-Choice Questions 857 Essay Questions 858 Discussion Questions 860
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
CONTENTS xvii
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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.
PREFACE
Looking for more examples for class? Do you want the latest develop- ments? Visit our blog at bizlawupdate.com or our Facebook page at Beatty Business Law. To be notified when we post updates, follow us on Twitter @bizlawupdate.
NOTE FROM THE AUTHORS New to This Edition
A NEW CHAPTER: PRACTICAL CONTRACTS In this textbook, as well as other business law texts, contracts chapters focus on the theory of contract law. And that theory is important. But our students tell us that theory, by itself, is not enough. They need to know how these abstract rules operate in practice. They want to understand the structure and content of a standard agreement. They have questions such as:
• Do I need a written agreement?
• What do these legal terms really mean?
• Are any important provisions missing?
• What happens if a term is unclear?
• Do I need to hire a lawyer? How can I use a lawyer most effectively?
We answer all these questions in Chapter 18, “Practical Contracts,” which is new to this edition. As an illustration throughout the chapter, we use a real-life contract between a movie studio and an actor.
A NEW CHAPTER: EMPLOYMENT DISCRIMINATION We have heard from faculty and students alike that employment law plays an increasingly important role in the life of a businessperson. At the same time, fewer and fewer workers belong to labor unions. Therefore, we have rewritten the labor law and employment law chapters from the previous edition. Instead of one chapter on labor law and one on employ- ment law, we now have a new Chapter 26, “Employment and Labor Law,” which covers both common law employment issues and labor law. In addition, Chapter 27, “Employment Discrimination,” focuses solely on employment discrimination and includes, among other things, an expanded discussion of disparate impact cases, which have become increasingly common and important.
NEW MATERIAL: ETHICS CHAPTER The Ethics chapter has been completely revised and is full of up-to-date examples, all either from the news or true stories provided by executives. The section on the Theories of Ethics has been enhanced and now includes, among others, John Rawls’ theory of justice. This chapter also includes a discussion of the latest research on the ethics traps that prevent us from doing what we know to be right. Students are asked to develop their own list of Life
xix
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Principles that they can use to make ethical decisions and avoid ethics traps. The chapter also discusses the options that employees face when confronted with unethical behavior in the workplace. And, finally, the chapter concludes with a discussion of Corporate Social Responsibility—should companies practice it and, if so, how should they evaluate success?
LANDMARK CASES As a general rule, we want our cases to be as current as possible, reporting on the world as it is now. However, sometimes students can benefit from reading vintage cases that are still good law and provide a deep understanding of how and why the law has developed as it has. Thus, for example, we have added a discussion about the famous Supreme Court case Miranda v. Arizona. Reading this case provides students with a much better understanding of why the Supreme Court created Miranda rights, and this context helps students follow the recent Supreme Court rulings on Miranda. Other landmark cases include Hawkins v. McGee (the case of the hairy hand), and Griggs v. Duke Power Co.
REORGANIZED AND REVISED MATERIAL In response to requests from faculty, product liability is now covered in Chapter 6, “Torts and Product Liability.” It seems that most people like to teach these two subjects together. The discussion of warranties is now found in the chapter on ownership and risk.
The new CPA exam no longer includes questions about banks and their customers, and much of that material (such as how long it takes checks to clear) is not very relevant to our students. Therefore we have deleted the chapter on Banks and Their Customers, and combined the remaining material on Negotiable Instruments into one chapter, which now covers how to create a negotiable instrument and liability.
The chapter on Securities Regulation has been expanded to include coverage of antitrust law, under the title, “Government Regulation.” As the Justice Department increases its oversight of mergers and with price-fixing violations increasingly common, it is more important than ever for students to understand the basics of antitrust law.
In response to faculty requests, we have added a chapter on Consumer Protection. This material is critical for all of us—everyone from the experienced executive to the young adult with increasing financial responsibilities.
END OF CHAPTER MATERIAL To facilitate class discussion and student learning, we have overhauled the study questions at the end of the chapters. They are now divided into three parts:
1. Multiple-choice questions. Because many instructors use this format in their tests, it seemed appropriate to provide practice questions. The answers to these multiple- choice questions are available to students online at www.cengagebrain.com.
2. Essay questions. Students can use these as study questions, and professors can also assign them as written homework problems.
3. Discussion questions. Instructors can use these questions to enhance class discussion. If assigned in advance, students will have a chance to think about the answers before class. This approach is similar to business cases, which often provide discussion questions in advance.
OTHER NEW MATERIAL We have, of course, added substantial new material, with a particular focus on the Internet and social media. Chapter 26, “Employment and Labor Law,” includes a section on social media. Chapter 29, “Corporations,” uses Facebook as an example of how to organize a corporation. There are also new cases involving eBay and craigslist. In addition,
xx PREFACE
Copyr igh t 2013 Cengage Lea rn ing . A l l R igh t s Rese rved . May no t be cop i ed , s canned , o r dup l i ca t ed , i n who le o r i n pa r t . Due t o e l ec t ron i c r i gh t s , some th i rd pa r ty con t en t may be supp re s sed f rom the eBook and /o r eChap te r ( s ) . Ed i to r i a l r ev i ew has deemed tha t any supp re s sed con t en t does no t ma te r i a l l y a ff ec t t he ove ra l l l e a rn ing expe r i ence . Cengage Lea rn ing r e se rves t he r i gh t t o r emove add i t i ona l con t en t a t any t ime i f subsequen t r i gh t s r e s t r i c t i ons r equ i r e i t .
Chapter 28, “Starting a Business: LLCs and Other Options,” includes a new section about socially conscious organizations.
STAYING CURRENT: OUR BLOG, FACEBOOK, AND TWITTER To find out about new developments in business law, visit our blog at Bizlawupdate.com or our Facebook page at Beatty Business Law. If you follow us on Twitter @bizlawupdate, you will receive a notification automatically whenever we post to the blog.
The Beatty/Samuelson Difference When we began work on the first edition of this textbook, our publisher warned us that our undertaking was risky because there were already so many law texts. Despite these warnings, we were convinced that there was a market for an Essentials book that was different from all the others. Our goal was to capture the passion and excitement—the sheer enjoyment—of the law. Business law is notoriously complex, and as authors we are obsessed with accuracy. Yet this intriguing subject also abounds with human conflict and hard-earned wisdom, forces that can make a law book sparkle.
Now, as this fifth edition goes to press, we look back over the intervening years and are touched by the many unsolicited comments from students, such as these posted on Amazon:
• “Glad I purchased this. It really helps put the law into perspective and allows me as a leader to make intelligent decisions. Thanks.”
• “I enjoyed learning business law and was happy my college wanted this book. THUMBS UP!”
We think of the students who have emailed us to say, “In terms of clarity, comprehen- siveness, and vividness of style, I think it’s probably the best textbook I’ve ever used in any subject,” and “I had no idea business law could be so interesting.” Or the professor who said, “With your book, we have great class discussions.” Comments such as these never cease to thrill us and to make us grateful that we persisted in writing an Essentials text like no other—a book that is precise and authoritative, yet a pleasure to read.
Comprehensive Staying comprehensive means staying current. This fifth edition contains over 25 new cases. Almost all were reported within the last two or three years. We never include a new court opinion merely because it is recent, but the law evolves continually, and our willingness to toss out old cases and add important new ones ensures that this book—and its readers—remain on the frontier of legal developments.
Look, for example, at the important field of corporate governance. All texts cover par value, and so do we. Yet a future executive is far likelier to face conflicts over Sarbanes-Oxley (SOX), executive compensation, and shareholder proposals. We present a clear path through this thicket of new issues. In Chapter 29, for example, read the section about the election and removal of directors. Typically, students (even those who are high-level executives) have a basic misconception about the process of removing a director from office. They think that it is easy. Once they understand the complexity of this process, their whole view of corporate governance—and compensation—changes. We want tomorrow’s business leaders to anticipate the challenges that await them and then use their knowledge to avert problems.
Strong Narrative The law is full of great stories, and we use them. Your students and ours should come to class excited. Look at Chapter 3, “Dispute Resolution.” No tedious list of next steps in litigation, this chapter teaches the subject by tracking a double-indemnity lawsuit. An executive is dead. Did he drown accidentally, obligating the insurance company to pay? Or did the businessman commit suicide, voiding the policy? The student follows the action from the discovery of the body, through each step of the lawsuit, to the final appeal.
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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.
Students read stories and remember them. Strong narratives provide a rich context for the remarkable quantity of legal material presented. When students care about the material they are reading, they persevere. We have been delighted to find that they also arrive in class eager to question, discuss, and learn more about issues.
Precise The great joy of using English accurately is the power it gives us to attack and dissect difficult issues, rendering them comprehensible to any lay reader. This text takes on the most complex legal topics of the day, yet it is appropriate for all college and graduate-level students. Accessible prose goes hand in hand with legal precision. We take great pride in walking our readers through the most serpentine mazes this tough subject can offer.
As we explore this extraordinary discipline, we lure readers along with quirky anecdotes and colorful diagrams. (Notice that the chart on page 713 clarifies the complex rules of the duty of care in the business judgment rule.) However, before the trip is over, we insist that students:
• Gauge policy and political considerations,
• Grapple with legal and social history,
• Spot the nexus between disparate doctrines, and
• Confront tough moral choices.
Authoritative We insist, as you do, on a law book that is indisputably accurate. A professor must teach with assurance, confident that every paragraph is the result of exhaustive research and meticulous presentation. Dozens of tough-minded people spent thousands of hours reviewing this book, and we are delighted with the stamp of approval we have received from trial and appellate judges, working attorneys, scholars, and teachers.
We reject the cloudy definitions and fuzzy explanations that can invade judicial opinions and legal scholarship. To highlight the most important rules, we use bold print, and then follow with vivacious examples written in clear, forceful English. (See, for example, the discussion of factual cause on page 149.) We cheerfully venture into con- tentious areas, relying on very recent appellate decisions. Can a creditor pierce the veil of an LLC? What are the rights of an LLC member in the absence of an operating agreement? (See pages 679–684.) Where there is doubt about the current (or future) status of a doctrine, we say so. In areas of particularly heated debate, we footnote our work: we want you to have absolute trust in this book.
A Book for Students We have written this book as if we were speaking directly to our students. We provide black letter law, but we also explain concepts in terms that hook students. Over the years, we have learned how much more successfully we can teach when our students are intrigued. No matter what kind of a show we put on in class, they are only learning when they want to learn.
Every chapter begins with a story, either fictional or real, to illustrate the issues in the chapter and provide context. Chapter 32, “Cyberlaw,” begins with the true story of a college student who discovers nude pictures of himself online. These photos had been taken in the locker room without his knowledge. What privacy rights do any of us have? Does the Internet jeopardize them? Students want to know—right away.
Many of our students were not yet born when Bill Clinton was elected president. They come to college with varying levels of preparation; many now arrive from other countries. We have found that to teach business law most effectively, we must provide its context. Chapter 26, on employment law, provides the historical setting for the employment-at-will doctrine. Chapter 33, on intellectual property, explains the difference between intellectual and other types of property.
At the same time, we enjoy offering “nuts-and-bolts” information that grabs students. For example, in Chapter 31, “Consumer Protection,” we offer advice about how students can obtain a free credit report (page 768).
xxii PREFACE
Copyr igh t 2013 Cengage Lea rn ing . A l l R igh t s Rese rved . May no t be cop i ed , s canned , o r dup l i ca t ed , i n who le o r i n pa r t . Due t o e l ec t ron i c r i gh t s , some th i rd pa r ty con t en t may be supp re s sed f rom the eBook and /o r eChap te r ( s ) . Ed i to r i a l r ev i ew has deemed tha t any supp re s sed con t en t does no t ma te r i a l l y a ff ec t t he ove ra l l l e a rn ing expe r i ence . Cengage Lea rn ing r e se rves t he r i gh t t o r emove add i t i ona l con t en t a t any t ime i f subsequen t r i gh t s r e s t r i c t i ons r equ i r e i t .
Students respond enthusiastically to this approach. One professor asked a student to compare our book with the one that the class was then using. This was the student’s reaction: “I really enjoy reading the [Beatty & Samuelson] textbook and I have decided that I will give you this memo ASAP, but I am keeping the book until Wednesday so that I may continue reading. Thanks! :-).”
Along with other professors, we have used this text in courses for undergraduates, MBAs, and Executive MBAs, with the students ranging in age from 18 to 55. The book works, as some unsolicited comments indicate:
• An undergraduate wrote, “This is the best textbook I have had in college, on any subject.”
• A business law professor stated that the “clarity of presentation is superlative. I have never seen the complexity of contract law made this readable.”
• An MBA student commented, “I think the textbook is great. The book is relevant, easy to understand, and interesting.”
• A state supreme court justice wrote that the book is “a valuable blend of rich scholarship and easy readability. Students and professors should rejoice with this publication.”
• A Fortune 500 vice president, enrolled in an Executive MBA program, commented, “I really liked the chapters. They were crisp, organized and current. The information was easy to understand and enjoyable.”
• An undergraduate wrote, “The textbook is awesome. A lot of the time I read more than what is assigned—I just don’t want to stop.”
Humor Throughout the text, we use humor—judiciously—to lighten and enlighten. Not surprisingly, students have applauded—but is it appropriate? How dare we employ levity in this venerable discipline? We offer humor because we take the law seriously. We revere the law for its ancient traditions; its dazzling intricacy; its relentless, though imperfect, attempt to give order and decency to our world. Because we are confident of our respect for the law, we are not afraid to employ some levity. Leaden prose masquerading as legal scholarship does no honor to the field.
Humor also helps retention. Research shows that the funnier or more bizarre the example, the longer students will remember it. Students are more likely to remember a contract problem described in a fanciful setting, and from that setting recall the underlying principle. By contrast, one widget is hard to distinguish from another.
Features We chose the features for our book with great care. Each one supports an essential pedagogical goal. Here are some of those goals and the matching feature.
EXAM STRATEGY GOAL: To help students learn more effectively and to prepare for exams. In preparing this fifth edition, we asked ourselves: What do students want? The short answer is—a good grade in the course. How many times a semester does a student ask you, “What can I do to study for the exam?” We are happy to help them study and earn a good grade because that means they are learning.
About six times per chapter, we stop the action and give students a two-minute quiz. In the body of the text, again in the end-of-chapter review, and also in the Instructor’s Manual, we present a typical exam question. Here lies the innovation: We guide the
PREFACE xxiii
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.
student in analyzing the issue. We teach the reader—over and over—how to approach a question: To start with the overarching principle, examine the fine point raised in the question, apply the analysis that courts use, and deduce the right answer. This skill is second nature to lawyers, but not to students. Without practice, too many students panic, jumping at a convenient answer and leaving aside the tools that they have spent the course acquiring. Let’s change that. Students tell us that they love the Exam Strategy feature.