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BUSINESS LAW

BUSINESS LAW INTRODUCTION TO INTRODUCTION TO

SE / Beatty/Samuelson/Abril / Intro to Business Law, 6e ISBN-13: 9781337404341 ©2019 Designer: Stratton Design Text & Cover printer: Quad Graphics Binding: PB Trim: 8.5” x 10” CMYK

IN TR

O D

U C

TIO N

TO BU

SIN ESS LAW

6th EDITION

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Jeffrey F. Beatty Boston University

Susan S. Samuelson Boston University

Patricia Sánchez Abril University of Miami

BUSINESS LAW

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Australia • Brazil • Mexico • Singapore • United Kingdom • United States

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Introduction to Business Law, 6th Edition Jeffrey F. Beatty, Susan S. Samuelson, and Patricia Sánchez Abril

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iii

C O N T E N T S : OV E RV I E W

Preface xv

U N I T 1 The Legal Environment 1 1 Introduction to Law 2 2 Ethics and Corporate Social Responsibility 15 3 International Law 39 4 Constitutional, Statutory, Administrative,

and Common Law 58 5 Dispute Resolution 79 6 Crime 101

U N I T 2 Torts 121 7 Intentional Torts and Business Torts 122 8 Negligence, Strict Liability, and Product

Liability 137 9 Privacy and Internet Law 156

U N I T 3 Contracts and the UCC 177 10 Forming a Contract 178 11 Requirements for a Contract 198 12 Performance of a Contract 220 13 Practical Contracts 242 14 Sales 261 15 Negotiable Instruments 278 16 Secured Transactions 295

U N I T 4 Agency and Employment Law 315 17 Agency 316 18 Employment and Labor Law 336 19 Employment Discrimination 356

U N I T 5 The Lifecycle of a Business 377 20 Starting a Business: LLCs and Other Options 378 21 Corporations 398 22 Bankruptcy 420

U N I T 6 Government Regulation 439 23 Securities and Antitrust 440 24 Consumer Protection 460 25 Environ mental Law 482 26 Accountants’ Liability 501

U N I T 7 Property 519 27 Intellectual Property 520 28 Real Property and Landlord–Tenant Law 538 29 Personal Property and Bailment 560 30 Estate Planning 576 31 Insurance 593

Appendix A The Constitution of the United States A1

Appendix B Uniform Commercial Code B1

Appendix C Answers to Selected End-of-Chapter Questions C1

Glossary G1 Table of Cases T1 Index I1

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C O N T E N T S

Preface xv

U N I T 1 The Legal Environment 1 Chapter 1 Introduction to Law 2 1-1 Exploring the Law 3

1-1a Sources of Contemporary Law 3 1-1b Classifications of Law 6

1-2 Working with the Book’s Features 7 1-2a Analyzing a Case 7 1-2b Analysis 8 1-2c Exam Strategy 9 1-2d You Be the Judge 9

Chapter Conclusion 10 Exam Review 11 Matching Questions 12 True/False Questions 12 Multiple-Choice Questions 12 Case Questions 13 Discussion Questions 14

Chapter 2 Ethics and Corporate Social Responsibility 15

2-1 Why Study Ethics? 16 2-1a Ethics in Business 17 2-1b Why Be Ethical? 17

2-2 Theories of Ethics 18 2-2a Utilitarian Ethics 19 2-2b Deontological Ethics 19 2-2c Rawlsian Justice 20 2-2d Front Page Test 20 2-2e Moral Universalism and Relativism 20

2-3 Ethics Traps 21 2-3a Money 21 2-3b Competition 22 2-3c Rationalization 22 2-3d We Can’t Be Objective about Ourselves 23 2-3e Moral Licensing 23 2-3f Conflicts of Interest 23 2-3g Conformity 23 2-3h Following Orders 24

2-3i Euphemisms and Reframing 24 2-3j Lost in a Crowd 24 2-3k Short-Term Perspective 25 2-3l Blind Spots 25 2-3m Lying: A Special Case 25 2-3n Ethics Case: Truth (?) in Borrowing 25 2-3o Avoiding Ethics Traps 26 2-3p Reacting to Unethical Behavior 27

2-4 Applying the Principles 27 2-4a Personal Ethics in the Workplace 27 2-4b Ethics Case: Weird Wierdsma 27 2-4c The Organization’s Responsibility

to Society 28 2-4d Ethics Case: Up in Smoke 28 2-4e The Organization’s Responsibility to

Its Employees 29 2-4f Ethics Case: The Storm after the Storm 29 2-4g The Organization’s Responsibility

to Its Customers 30 2-4h Ethics Case: Mickey Weighs In 30 2-4i The Organization’s Responsibility

to Overseas Workers 31 2-4j Ethics Case: A Worm in the Apple 31 2-4k Corporate Social Responsibility (CSR) 32 2-4l Ethics Case: The Beauty of a

Well-Fed Child 32

Chapter Conclusion 32 Exam Review 32 Matching Questions 34 True/False Questions 34 Multiple-Choice Questions 35 Case Questions 35 Discussion Questions 37

Chapter 3 International Law 39 3-1 International Law: Public versus Private 40 3-2 Actors in International Law 40

3-2a The United Nations 40 3-2b The International Court of Justice 41 3-2c International Chamber of Commerce 41 3-2d Sovereign Nations 41

3-3 The World’s Legal Systems 42 3-3a Common Law 42 3-3b Civil Law 42 3-3c Islamic Law 43

v

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vi CONTENTS

3-4 Sources and Applicability of International Law 44 3-4a Sources of International Law 44 3-4b Interaction of Foreign and

Domestic Laws 49

Chapter Conclusion 52 Exam Review 52 Matching Questions 54 True/False Questions 54 Multiple-Choice Questions 55 Case Questions 56 Discussion Questions 56

Chapter 4 Constitutional, Statutory, Administrative, and Common Law 58

4-1 Constitutional Law 59 4-1a Government Power 59 4-1b Power Granted 60 4-1c Protected Rights 63 4-1d Fifth Amendment: Due Process

and the Takings Clause 64 4-1e Fourteenth Amendment: Equal

Protection Clause 66 4-2 Statutory Law 66

4-2a Committee Work 67 4-3 Common Law 68

4-3a Stare Decisis 68 4-3b Bystander Cases 68

4-4 Administrative Law 70 4-4a Rule Making 70 4-4b Investigation 71 4-4c Adjudication 71

Chapter Conclusion 73 Exam Review 73 Matching Questions 75 True/False Questions 75 Multiple-Choice Questions 76 Case Questions 77 Discussion Questions 77

Chapter 5 Dispute Resolution 79 5-1 Court Systems 80

5-1a State Courts 80 5-1b Federal Courts 83

5-2 Litigation 84 5-2a Pleadings 84 5-2b The Discovery Process 87 5-2c Summary Judgment 89

5-3 Trial 90 5-3a Right to Jury Trial 91 5-3b Opening Statements 91 5-3c Burden of Proof 91 5-3d Plaintiff’s Case 92 5-3e Defendant’s Case 92 5-3f Closing Argument 92 5-3g Verdict 93

5-4 Appeals 93 5-4a Appeal Court Options 93

5-5 Alternative Dispute Resolution 94 5-5a Mediation 94 5-5b Arbitration 94

Chapter Conclusion 95 Exam Review 95 Matching Questions 97 True/False Questions 97 Multiple-Choice Questions 98 Case Questions 99 Discussion Questions 100

Chapter 6 Crime 101 6-1 Criminal Procedure 102

6-1a A Civil versus a Criminal Case 102 6-1b State of Mind 103 6-1c Gathering Evidence:

The Fourth Amendment 104 6-1d After Arrest 106

6-2 Crimes That Harm Businesses (and Their Customers) 109 6-2a Larceny 109 6-2b Embezzlement 109 6-2c Fraud 109 6-2d Arson 111 6-2e Hacking 111

6-3 Crimes Committed by Business 111 6-3a Making False Statements 111 6-3b RICO 112 6-3c Money Laundering 112 6-3d Hiring Illegal Workers 113 6-3e Foreign Corrupt Practices Act 113 6-3f Punishing a Corporation 113

Chapter Conclusion 114 Exam Review 114 Matching Questions 117 True/False Questions 117 Multiple-Choice Questions 117 Case Questions 118 Discussion Questions 119

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viiCONTENTS

U N I T 2 Torts 121 Chapter 7 Intentional Torts

and Business Torts 122 7-1 Intentional Torts 124

7-1a Defamation 124 7-1b False Imprisonment 125 7-1c Battery and Assault 125 7-1d Fraud 126 7-1e Intentional Infliction of Emotional

Distress 126 7-2 Damages 127

7-2a Compensatory Damages 127 7-2b Punitive Damages 129 7-2c Tort Reform and the Exxon Valdez 130 7-2d Business Torts 130

Chapter Conclusion 131 Exam Review 131 Matching Questions 133 True/False Questions 133 Multiple-Choice Questions 133 Case Questions 134 Discussion Questions 135

Chapter 8 Negligence, Strict Liability, and Product Liability 137

8-1 Negligence 138 8-1a Duty of Due Care 139 8-1b Special Duty: Landowners 140 8-1c Special Duty: Professionals 140 8-1d Breach of Duty 141 8-1e Causation 141 8-1f Damages 144 8-1g Defenses 145

8-2 Strict Liability and Product Liability 146 8-2a Strict Liability 146 8-2b Product Liability 147 8-2c Contemporary Trends 149

Chapter Conclusion 150 Exam Review 150 Matching Questions 152 True/False Questions 152 Multiple-Choice Questions 153 Case Questions 154 Discussion Questions 154

Chapter 9 Privacy and Internet Law 156 9-1 Privacy in a Digital World 157

9-1a How We Lose Our Privacy in the Digital World 157

9-2 The Law of Privacy 159 9-2a Constitutional Law:

The Fourth Amendment 159 9-2b Common Law: Privacy Torts 161 9-2c Privacy Statutes 163

9-3 Regulation in the Digital World 166 9-3a Regulation of User-Generated

Content 167 9-3b Online Speech 167 9-3c Liability of Internet Service

Providers 169 9-3d Consumer Protection 170

Chapter Conclusion 171 Exam Review 171 Multiple-Choice Questions 174 Case Questions 175 Discussion Questions 176

U N I T 3 Contracts and the UCC 177 Chapter 10 Forming a Contract 178 10-1 Contracts 179

10-1a Elements of a Contract 179 10-1b Types of Contracts 180 10-1c Sources of Contract Law 182

10-2 Enforcing Non-Contracts 183 10-2a Promissory Estoppel 184 10-2b Quasi-Contract 185

10-3 Agreement 186 10-3a Making an Offer 186 10-3b Termination of Offers 188 10-3c Acceptance 190 10-3d Communication of Acceptance 191

Chapter Conclusion 192 Exam Review 192 Matching Questions 194 True/False Questions 194 Multiple-Choice Questions 195 Case Questions 196 Discussion Questions 197

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viii CONTENTS

Chapter 11 Requirements for a Contract 198 11-1 Consideration 199

11-1a What Is Value? 199 11-1b What Constitutes Exchange? 200

11-2 Legality 201 11-2a Non-compete Agreements: Sale of

a Business 201 11-2b Non-compete Agreements:

Employment Contracts 202 11-2c Exculpatory Clauses 203

11-3 Capacity 205 11-3a Minors 205 11-3b Mentally Impaired Persons 206 11-3c Intoxication 206

11-4 Reality of Consent 206 11-4a Fraud 206 11-4b Mistake 208

11-5 Contracts in Writing 209 11-5a Contracts That Must Be in Writing 210 11-5b What the Writing Must Contain 212 11-5c Sale of Goods 213

Chapter Conclusion 213 Exam Review 214 Matching Questions 215 True/False Questions 216 Multiple-Choice Questions 216 Case Questions 217 Discussion Questions 218

Chapter 12 Performance of a Contract 220 12-1 Third Party Beneficiaries 221

12-1a Types of Beneficiaries 221 12-2 Assignment and Delegation 223

12-2a Assignment 223 12-2b Delegation of Duties 224

12-3 Performance and Discharge 225 12-3a Performance 225 12-3b Good Faith 227 12-3c Breach 228 12-3d Impossibility 228

12-4 Remedies 229 12-4a Expectation Interest 229 12-4b Reliance Interest 233 12-4c Restitution Interest 233 12-4d Other Equitable Interests 234 12-4e Mitigation of Damages 235

Chapter Conclusion 235 Exam Review 235

Matching Questions 237 True/False Questions 237 Multiple-Choice Questions 238 Case Questions 239 Discussion Questions 240

Chapter 13 Practical Contracts 242 13-1 Creating a Contract 243

13-1a The Lawyer 243 13-1b Who Drafts the Contract? 244 13-1c Mistakes 244

13-2 The Structure of a Contract 249 13-2a Terms That Vary by Contract 249 13-2b Boilerplate 252

Chapter Conclusion 255 Exam Review 256 Matching Questions 257 True/False Questions 258 Multiple-Choice Questions 258 Case Questions 259 Discussion Questions 260

Chapter 14 Sales 261 14-1 Sales 262

14-1a Development of the UCC 262 14-1b Contract Formation 263 14-1c Performance and Remedies 267

14-2 Warranties 268 14-2a Express Warranties 268 14-2b Implied Warranties 269

Chapter Conclusion 272 Exam Review 272 Matching Questions 274 True/False Questions 274 Multiple-Choice Questions 275 Case Questions 276 Discussion Questions 277

Chapter 15 Negotiable Instruments 278 15-1 Negotiable Instruments 279

15-1a Commercial Paper 279 15-1b Types of Negotiable Instruments 279 15-1c Negotiation 280

15-2 Holder in Due Course 285 15-2a Requirements for Being a

Holder in Due Course 285

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ixCONTENTS

15-2b Defenses against a Holder in Due Course 287

15-2c Consumer Exception 288

Chapter Conclusion 289 Exam Review 289 Matching Questions 291 True/False Questions 291 Multiple-Choice Questions 291 Case Questions 292 Discussion Questions 293

Chapter 16 Secured Transactions 295 16-1 Article 9: Terms and Scope 296

16-1a Scope of Article 9 298 16-2 Attachment of a Security Interest 298

16-2a Agreement 298 16-2b Possession 299 16-2c Value 299 16-2d Debtor Rights in the Collateral 299 16-2e Attachment to Future Property 300

16-3 Perfection 300 16-3a Perfection by Filing 300 16-3b Perfection by Possession 302 16-3c Perfection of Consumer Goods 302

16-4 Protection of Buyers 304 16-4a Buyers in Ordinary Course

of Business 304 16-5 Priorities among Creditors 306 16-6 Default and Termination 307

16-6a Default 307 16-6b Termination 309

Chapter Conclusion 310 Exam Review 310 Matching Questions 311 True/False Questions 312 Multiple-Choice Questions 312 Case Questions 313 Discussion Questions 314

U N I T 4 Agency and Employment Law 315 Chapter 17 Agency 316 17-1 The Agency Relationship 317

17-1a Creating an Agency Relationship 317 17-1b Duties of Agents to Principals 318

17-1c Duties of Principals to Agents 320 17-1d Terminating an Agency Relationship 321

17-2 Liability to Third Parties 321 17-2a Principal’s Liability for Contracts 321 17-2b Agent’s Liability for Contracts 322 17-2c Principal’s Liability for

Negligent Physical Torts 324 17-2d Principal’s Liability for Intentional

Physical Torts 328 17-2e Principal’s Liability for

Nonphysical Torts 328 17-2f Agent’s Liability for Torts 329

Chapter Conclusion 329 Exam Review 329 Matching Questions 332 True/False Questions 332 Multiple-Choice Questions 332 Case Questions 334 Discussion Questions 334

Chapter 18 Employment and Labor Law 336

18-1 Employment at Will 337 18-2 Employment Security 337

18-2a Common Law Protections 337 18-2b Family and Medical Leave Act 341 18-2c Whistleblowing 341

18-3 Workplace Freedom and Safety 342 18-3a Off-Duty Activities 342 18-3b The Right to Free Speech 343 18-3c Lie Detector Tests 344 18-3d OSHA 345 18-3e Employee Data 345 18-3f Guns 345

18-4 Financial Protection 346 18-4a Fair Labor Standards Act 346 18-4b Workers’ Compensation 346 18-4c Health Insurance 346 18-4d Social Security 346

18-5 Labor Unions 347 18-5a Organizing a Union 347 18-5b Collective Bargaining 348 18-5c Concerted Action 348

Chapter Conclusion 350 Exam Review 350 Matching Questions 352 True/False Questions 352

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x CONTENTS

Multiple-Choice Questions 353 Case Questions 354 Discussion Questions 355

Chapter 19 Employment Discrimination 356

19-1 Equal Pay Act of 1963 357 19-2 The Civil Rights Act of 1964 357

19-2a Prohibited Activities 357 19-2b Religion 362 19-2c Family Responsibility

Discrimination 362 19-2d Sexual Orientation 362 19-2e Gender Identity and Expression 362 19-2f Immigration 363 19-2g Reverse Discrimination 363 19-2h Defenses to Charges of

Discrimination 364 19-3 Pregnancy Discrimination Act 365 19-4 Age Discrimination 365 19-5 The Americans with Disabilities Act 366

19-5a The Hiring Process 367 19-5b Relationship with a Disabled Person 367 19-5c Obesity 367 19-5d Mental Disabilities 367

19-6 Genetic Information Nondiscrimination Act 367 19-7 Hiring Practices 368

19-7a Interviews 368 19-7b Social Media 368

19-8 Enforcement 369

Chapter Conclusion 370 Exam Review 370 Matching Questions 372 True/False Questions 372 Multiple-Choice Questions 373 Case Questions 374 Discussion Questions 375

U N I T 5 The Lifecycle of a Business 377 Chapter 20 Starting a Business: LLCs

and Other Options 378 20-1 Sole Proprietorships 379 20-2 Corporations 379

20-2a Corporations in General 380 20-2b Special Types of Corporations 382

20-3 Limited Liability Companies 383 20-3a Limited Liability 383 20-3b Formation 384 20-3c Flexibility 385 20-3d Transferability of Interests 385 20-3e Duration 385 20-3f Going Public 386 20-3g Piercing the Company Veil 386 20-3h Legal Uncertainty 387 20-3i Choices: LLC versus Corporation 387

20-4 Social Enterprises 388 20-5 General Partnerships 388

20-5a Tax Status 388 20-5b Liability 388 20-5c Formation 388 20-5d Raising Capital 389 20-5e Management 389 20-5f Transfer of Ownership 389 20-5g Terminating a Partnership:

Dissociation 389 20-6 Limited Liability Partnerships 390 20-7 Professional Corporations 390 20-8 Franchises 391

Chapter Conclusion 392 Exam Review 392 Matching Questions 393 True/False Questions 394 Multiple-Choice Questions 394 Case Questions 395 Discussion Questions 397

Chapter 21 Corporations 398 21-1 Promoter’s Liability 399 21-2 Incorporation Process 399

21-2a Where to Incorporate? 399 21-2b The Charter 400

21-3 After Incorporation 401 21-4 Death of the Corporation 402

21-4a Voluntary Termination by the Shareholders 402

21-4b Termination by the State 403 21-4c Piercing the Corporate Ve