Business law text and case legal ethical global an ecomercer environment 12e

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Visit the Companion Web Site for Business Law, Eleventh Edition at

academic.cengage.com/blaw/clarkson

This text’s Web site has a wealth of supporting material for students:

• Video clips from Business Law Digital Video Library tied to the in-text Video Questions

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• And much more!

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study and review tool It contains the following helpful chapter-by-chapter features:

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

Kenneth W Clarkson

University of Miami

Roger LeRoy Miller

Institute for University Studies Arlington, Texas

Gaylord A Jentz

Herbert D Kelleher Emeritus Professor in Business Law University of Texas at Austin

Frank B Cross

Herbert D Kelleher Centennial Professor in Business Law University of Texas at Austin

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iii

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U N I T S E V E N AGENCY AND EMPLOYMENT 637

A P P E N D I C E S

B The Constitution of the United States A–4

D The United Nations Convention on Contracts for the International Sale of Goods (Excerpts) A–176

G L O S S A R Y G–1

T A B L E O F C A S E S TC–1

I N D E X I–1

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The Legal Environment

of Business 1

Chapter 1

Introduction to Law and Legal Reasoning 2

Schools of Jurisprudential Thought 2

Business Activities and the Legal Environment 4

Sources of American Law 6

The Common Law Tradition 7

The Common Law Today 13

Classifications of Law 14

How to Find Primary Sources of Law 15

How to Read and Understand Case Law 21

R EVIEWING : I NTRODUCTION TO L AW AND L EGAL R EASONING 27

T ERMS AND C ONCEPTS 27

Q UESTIONS AND C ASE P ROBLEMS 28

L AW ON THE W EB 29

L EGAL R ESEARCH E XERCISES ON THE W EB 29

Chapter 2

Courts and Alternative Dispute Resolution 30

The Judiciary’s Role in American Government 30

Basic Judicial Requirements 31

CASE 2.1 Mastondrea v Occidental Hotels

Management S.A 32

The State and Federal Court Systems 37

Alternative Dispute Resolution 41

CASE 2.2 Buckeye Check Cashing, Inc v.

Cardegna 44

EXTENDED CASE 2.3 Morrison v Circuit City Stores,

Inc 46

International Dispute Resolution 48

R EVIEWING : C OURTS AND A LTERNATIVE D ISPUTE

R ESOLUTION 49

EXTENDED CASE 3.1 Cruz v Fagor America, Inc 58

C ASE 3.2 Computer Task Group, Inc v Brotby 62

The Trial 66

CASE 3.3 Novak v.Tucows, Inc. 68

Posttrial Motions 70The Appeal 71Enforcing the Judgment 72

R EVIEWING : C OURT P ROCEDURES 73

S PECIAL C ASE A NALYSIS: C RUZ V F AGOR A MERICA , I NC 75

The Constitutional Powers of Government 77

CASE 4.1 Granholm v Heald 80

Business and the Bill of Rights 83

CASE 4.2 Bad Frog Brewery, Inc v New York State

Liquor Authority 87

EXTENDED CASE 4.3 Lott v Levitt 88

Due Process and Equal Protection 92Privacy Rights 94

R EVIEWING : C ONSTITUTIONAL A UTHORITY TO R EGULATE

B USINESS 95

S PECIAL C ASE A NALYSIS: L OTT V L EVITT 97

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EXTENDED CASE 5.1 Baum v Blue Moon Ventures,

LLC 101

Approaches to Ethical Reasoning 103

CASE 5.2 Fog Cutter Capital Group, Inc v Securities

and Exchange Commission 104

How the Law Influences Business Ethics 106

CASE 5.3 Guin v Brazos Higher Education Service

Corp 109

Making Ethical Business Decisions 110

Business Ethics on a Global Level 111

R EVIEWING : E THICS AND B USINESS D ECISION M AKING 113

F OCUS ON E THICS : E THICS AND THE

L EGAL E NVIRONMENT OF B USINESS 117

Torts and Crimes 121

Chapter 6

Intentional Torts 122

The Basis of Tort Law 122

Intentional Torts against Persons 123

CASE 6.1 Anderson v Mergenhagen 128

Business Torts 131

Intentional Torts against Property 133

EXTENDED CASE 6.2 Register.com, Inc v.

Verio, Inc 134

Cyber Torts 136

CASE 6.3 Fair Housing Council of San Fernando

Valley v Roommate.com, LLC 137

R EVIEWING : I NTENTIONAL T ORTS 140

CASE 7.1 Izquierdo v Gyroscope, Inc. 145

CASE 7.2 Palsgraf v Long Island Railroad Co. 148

R EVIEWING : N EGLIGENCE AND S TRICT L IABILITY 154

S PECIAL C ASE A NALYSIS: S UTTON V E ASTERN N EW Y ORK Y OUTH

S OCCER A SSOCIATION , I NC 156

Chapter 8

Intellectual Property and Internet Law 157

Trademarks and Related Property 157

CASE 8.1 The Coca-Cola Co v.The Koke Co of

America 158

CASE 8.2 Menashe v.V Secret Catalogue, Inc. 161

Cyber Marks 164Patents 167

EXTENDED CASE 8.3 KSR International Co v.

Teleflex Inc 168

Copyrights 171Copyrights in Digital Information 172

CASE 8.4 Sony BMG Music Entertainment v.

Villarreal 176

Trade Secrets 178International Protection for Intellectual Property 179

R EVIEWING : I NTELLECTUAL P ROPERTY AND I NTERNET L AW 180

Chapter 9

Criminal Law and Cyber Crime 184

Civil Law and Criminal Law 184Classification of Crimes 185Criminal Liability 186Types of Crimes 188

CASE 9.1 United States v Lyons 190

Defenses to Criminal Liability 193Criminal Procedures 198

EXTENDED CASE 9.2 Fellers v United States 198

CASE 9.3 Miranda v.Arizona 200

Cyber Crime 204

R EVIEWING : C RIMINAL L AW AND C YBER C RIME 207

F OCUS ON E THICS : E THICS AND

T ORTS AND C RIMES 211

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Contracts and

E-Contracts 215

Chapter 10

Nature and Terminology 216

An Overview of Contract Law 216

Elements of a Contract 217

Types of Contracts 218

CASE 10.1 Ardito v City of Providence 219

CASE 10.2 Gar y Porter Construction v Fox

R EVIEWING : N ATURE AND T ERMINOLOGY 228

S PECIAL C ASE A NALYSIS: W AGNER V C OLUMBIA P ICTURES

Requirements of the Offer 232

CASE 11.1 Lucy v Zehmer 233

CASE 11.2 Trell v American Association of the

Advancement of Science 235

EXTENDED CASE 11.3 Baer v Chase 237

Termination of the Offer 239

Acceptance 242

Technology and Acceptance Rules 246

R EVIEWING : A GREEMENT 246

CASE 12.1 Hamer v Sidway 250

CASE 12.2 Barfield v Commerce Bank, N.A. 252

Adequacy of Consideration 253

Agreements That Lack Consideration 254

EXTENDED CASE 12.3 Blackmon v Iverson 255

Settlement of Claims 257Exceptions to the Consideration Requirement 259

R EVIEWING : C ONSIDERATION 261

Legality 271

CASE 13.2 Stultz v Safety and Compliance

Management, Inc 274

CASE 13.3 Thibodeau v Comcast Corp. 277

R EVIEWING : C APACITY AND L EGALITY 282

Adhesion Contracts and Unconscionability 296

CASE 14.3 Simpson v MSA of Myrtle Beach,

Inc 297

R EVIEWING : M ISTAKES , F RAUD , AND V OLUNTARY C ONSENT 299

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CASE 15.2 School-Link Technologies, Inc v.

Applied Resources, Inc 309

Sufficiency of the Writing 310

The Parole Evidence Rule 312

CASE 15.3 Yocca v Pittsburgh Steelers Sports,

Chapter 16

Third Party Rights 321

Assignments and Delegations 321

CASE 16.1 Martha Graham School and Dance

Foundation, Inc v Martha Graham

Center of Contemporar y Dance,

Inc 323

Third Party Beneficiaries 328

EXTENDED CASE 16.2 Midwestern Indemnity

Co v Systems Builders, Inc 329

CASE 16.3 Revels v Miss America

Organization 331

R EVIEWING : T HIRD P ARTY R IGHTS 333

Discharge by Operation of Law 345

CASE 17.3 Facto v Pantagis 347

R EVIEWING : P ERFORMANCE AND D ISCHARGE 349

CASE 18.1 Hadley v Baxendale 355

EXTENDED CASE 18.2 Hanson v Boeder 357

Rescission and Restitution 359Specific Performance 360

CASE 18.3 Stainbrook v Low 360

Reformation 362Recovery Based on Quasi Contract 362Election of Remedies 363

Waiver of Breach 364Contract Provisions Limiting Remedies 365

R EVIEWING : B REACH OF C ONTRACT AND R EMEDIES 366

Chapter 19

E-Contracts and E-Signatures 370

Online Contract Formation 370

CASE 19.1 Feldman v Google, Inc. 371

CASE 19.2 Mortgage Plus, Inc v DocMagic,

Inc 374

E-Signatures 376

EXTENDED CASE 19.3 Amber Chemical, Inc v.

Reilly Industries, Inc 378

The Uniform Electronic Transactions Act 381

R EVIEWING : E-C ONTRACTS AND E-S IGNATURES 383

F OCUS ON E THICS : C ONTRACT L AW AND THE A PPLICATION OF E THICS 387

Domestic and International Sales and Lease Contracts 391

Chapter 20

The Formation of Sales and Lease Contracts 392

The Uniform Commercial Code 392The Scope of Article 2—The Sale of Goods 393

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CASE 20.1 Hammer v Thompson 396

The Scope of Article 2A—Leases 398

The Formation of Sales and Lease Contracts 398

CASE 20.2 Sun Coast Merchandise Corp v.

Myron Corp 402

EXTENDED CASE 20.3 Jones v Star Credit

Corp 408

Contracts for the International Sale of Goods 410

R EVIEWING : T HE F ORMATION OF S ALES AND L EASE

C ONTRACTS 413

Appendix to Chapter 20: An Example of a Contract

for the International Sale of Coffee 417

Chapter 21

Title, Risk, and Insurable Interest 421

Identification 421

When Title Passes 422

CASE 21.1 Empire Fire and Marine Insurance

Co v Banc Auto, Inc 423

CASE 21.2 Lindholm v Brant 425

Risk of Loss 427

EXTENDED CASE 21.3 Spray-Tek, Inc v Robbins

Motor Transportation, Inc 428

Insurable Interest 433

R EVIEWING : T ITLE , R ISK , AND I NSURABLE I NTEREST 434

S PECIAL C ASE A NALYSIS: S PRAY -T EK , I NC V R OBBINS M OTOR

T RANSPORTATION , I NC 436

Chapter 22

Performance and Breach of

Sales and Lease Contracts 437

Performance Obligations 437

Obligations of the Seller or Lessor 438

CASE 22.1 Maple Farms, Inc v City School

District of Elmira 441

Obligations of the Buyer or Lessee 443

Anticipatory Repudiation 443

Remedies of the Seller or Lessor 445

Remedies of the Buyer or Lessee 447

CASE 22.2 Jauregui v Bobb’s Piano Sales &

Service, Inc 448

EXTENDED CASE 22.3 Fitl v Strek 450

Additional Provisions Affecting Remedies 452Dealing with International Contracts 452

R EVIEWING : P ERFORMANCE AND B REACH OF S ALES AND L EASE

C ONTRACTS 454

CASE 23.1 Shoop v DaimlerChr ysler Corp. 461

CASE 23.2 Webster v Blue Ship Tea Room,

Inc 463

Overlapping Warranties 465Warranty Disclaimers and Limitations on Liability 467

Product Liability 468Strict Product Liability 469

EXTENDED CASE 23.3 Crosswhite v Jumpking,

Inc 472

Defenses to Product Liability 475

R EVIEWING : W ARRANTIES AND P RODUCT L IABILITY 477

F OCUS ON E THICS : D OMESTIC AND I NTERNATIONAL

S ALES AND L EASE C ONTRACTS 481

Negotiable Instruments 485

EXTENDED CASE 24.1 Gowin v Granite Depot,

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R EVIEWING : T HE F UNCTION AND C REATION OF N EGOTIABLE

I NSTRUMENTS 500

Miscellaneous Indorsement Problems 508

EXTENDED CASE 25.1 Hyatt Corp v Palm Beach

National Bank 509

CASE 25.2 Graves v Johnson 511

Holder versus Holder in Due Course 512

Requirements for HDC Status 513

CASE 25.3 Mid Wisconsin Bank v Forsgard

Trading, Inc 514

Holder through an HDC 518

R EVIEWING : T RANSFERABILITY AND H OLDER IN

D UE C OURSE 519

R EVIEWING : L IABILITY , D EFENSES , AND D ISCHARGE 540

CASE 27.2 Bank One, N.A v Dunn 557

EXTENDED CASE 27.3 NBT Bank, N.A v First

National Community Bank 559

Electronic Fund Transfers 562E-Money and Online Banking 563

R EVIEWING : C HECKS AND B ANKING IN THE D IGITAL A GE 566

S PECIAL C ASE A NALYSIS: NBT B ANK , N.A V F IRST N ATIONAL

C OMMUNITY B ANK 568

F OCUS ON E THICS : N EGOTIABLE I NSTRUMENTS 570

Creditors’ Rights and Bankruptcy 573

Chapter 28

Creditors’ Rights and Remedies 574

Laws Assisting Creditors 574

CASE 28.1 Indiana Surgical Specialists v.

Griffin 576

Suretyship and Guaranty 578

EXTENDED CASE 28.2 JSV, Inc v Hene Meat

Co., Inc 580

Protection for Debtors 582

R EVIEWING : C REDITORS ’ R IGHTS AND R EMEDIES 582

Perfecting a Security Interest 588

EXTENDED CASE 29.1 Corona Fruits & Veggies, Inc.

v Frozsun Foods, Inc 592

The Scope of a Security Interest 595Priorities 597

CASE 29.2 Heartland Bank v National City

Bank 598

Rights and Duties of Debtors and Creditors 602Default 602

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CASE 29.3 Layne v Bank One, Kentucky,

N.A 604

R EVIEWING : S ECURED T RANSACTIONS 607

S PECIAL C ASE A NALYSIS: C ORONA F RUITS & V EGGIES , I NC V

F OCUS ON E THICS : C REDITORS ’

R IGHTS AND B ANKRUPTCY 635

Formation of the Agency Relationship 642

CASE 31.2 Motorsport Marketing, Inc v.

Wiedmaier, Inc 643

Duties of Agents and Principals 645

EXTENDED CASE 31.3 Gossels v Fleet National

Bank 646

Rights and Remedies of Agents and Principals 648

R EVIEWING : A GENCY F ORMATION AND D UTIES 650

Chapter 32

Liability to Third Parties and Termination 653

Scope of Agent’s Authority 653

CASE 32.1 Ermoian v Desert Hospital 655

Liability for Contracts 657Liability for Torts and Crimes 659

CASE 32.2 In re Selheimer & Co. 660

EXTENDED CASE 32.3 Galvao v G R Robert

Construction Co 664

Termination of an Agency 666

R EVIEWING : L IABILITY TO T HIRD P ARTIES AND

T ERMINATION 669

Wage and Hour Laws 676

CASE 33.2 Mims v Starbucks Corp. 678

Labor Unions 681Worker Health and Safety 683Income Security, Pension, and Health Plans 685Family and Medical Leave 687

EXTENDED CASE 33.3 Nevada Department

of Human Resources

v Hibbs 688

Employee Privacy Rights 689Employment-Related Immigration Laws 692

R EVIEWING : E MPLOYMENT AND L ABOR L AW 692

Chapter 34

Employment Discrimination 696

Title VII of the Civil Rights Act of 1964 696

CASE 34.1 Arbaugh v.Y & H Corp. 697

EXTENDED CASE 34.2 Burlington Northern and

Santa Fe Railway Co v White 703

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Discrimination Based on Age 705

CASE 34.3 Cash Distributing Co v Neely 707

Discrimination Based on Disability 710

Defenses to Employment Discrimination 712

Affirmative Action 713

State Laws Prohibiting Discrimination 715

R EVIEWING : E MPLOYMENT D ISCRIMINATION 715

S PECIAL C ASE A NALYSIS: B URLINGTON N ORTHERN AND S ANTA F E

R AILWAY C O V W HITE 718

F OCUS ON E THICS : A GENCY AND E MPLOYMENT 720

CASE 35.3 Chic Miller’s Chevrolet, Inc v.

General Motors Corp 731

R EVIEWING : S OLE P ROPRIETORSHIPS AND F RANCHISES 733

Chapter 36

Partnerships and

Limited Liability Partnerships 737

Basic Partnership Concepts 737

EXTENDED CASE 36.3 In re Dissolution of

Midnight Star Enterprises, L.P 753

R EVIEWING : P ARTNERSHIPS AND L IMITED L IABILITY

P ARTNERSHIPS 755

Limited Liability Companies 759

CASE 37.1 McFarland v.Virginia Retirement

Services of Chesterfield, L.L.C 760

CASE 37.2 Kuhn v Tumminelli 763

Management of an LLC 764Dissociation and Dissolution of an LLC 765Special Business Forms 765

EXTENDED CASE 37.3 SPW Associates, LLP v.

Anderson 766

R EVIEWING : L IMITED L IABILITY C OMPANIES AND S PECIAL B USINESS F ORMS 768

Chapter 38

CORPORATIONS—

Formation and Financing 773

The Nature and Classification of Corporations 773

CASE 38.1 Commonwealth v Angelo Todesca

Corp 775

EXTENDED CASE 38.2 Salt Lake Tribune

Publishing Co v AT&T Corp 778

Corporate Formation 781Defects in Formation and Corporate Status 785Corporate Powers 786

Piercing the Corporate Veil 786

CASE 38.3 In re Aqua Clear Technologies,

Inc 787

Corporate Financing 789

R EVIEWING : CORPORATIONS—

F ORMATION AND F INANCING 792

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Officers, and Shareholders 796

Roles of Directors and Officers 796

EXTENDED CASE 39.1 Relational Investors, LLC

v Sovereign Bancorp, Inc 797

Duties and Liabilities of Directors and Officers 801

CASE 39.2 Guth v Loft, Inc. 803

The Role of Shareholders 805

Rights of Shareholders 809

Liability of Shareholders 812

CASE 39.3 Kaplan v First Hartford Corp. 813

R EVIEWING : CORPORATIONS—D IRECTORS ,

O FFICERS , AND S HAREHOLDERS 815

Chapter 40

CORPORATIONS—Merger,

Consolidation, and Termination 819

Merger and Consolidation 819

CASE 40.1 Rodriguez v Tech Credit Union

CASE 40.3 Sartori v S & S Trucking, Inc. 829

Major Business Forms Compared 830

R EVIEWING : CORPORATIONS—M ERGER ,

C ONSOLIDATION , AND T ERMINATION 833

Chapter 41

CORPORATIONS—Securities Law

and Corporate Governance 836

The Securities and Exchange Commission 836

The Securities Act of 1933 837

The Securities Exchange Act of 1934 845

CASE 41.1 SEC v Texas Gulf Sulphur Co. 846

EXTENDED CASE 41.2 Merrill Lynch, Pierce,

Fenner & Smith, Inc v Dabit 847

CASE 41.3 United States v Berger 851

Corporate Governance 853State Securities Laws 855Online Securities Fraud 857

R EVIEWING : CORPORATIONS—S ECURITIES L AW AND

C ORPORATE G OVERNANCE 858

S PECIAL C ASE A NALYSIS: M ERRILL L YNCH , P IERCE , F ENNER &

S MITH , I NC V D OBIT 860

Chapter 42

Law for Small Business 862

The Importance of Legal Counsel 862Selecting an Appropriate Business Form 863The Limited Liability Company 866

EXTENDED CASE 42.1 Mixon v Iberia Surgical,

L.L.C 867

Creating the Business Entity 868Intellectual Property 869Raising Financial Capital 871

CASE 42.2 InfoSAGE, Inc v Mellon Ventures,

R EVIEWING : L AW FOR S MALL B USINESS 878

F OCUS ON E THICS : B USINESS O RGANIZATIONS 882

Government Regulation 885

Chapter 43

Administrative Law 886

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The Practical Significance of Administrative

Law 886

Agency Creation and Powers 887

The Administrative Procedure Act 888

EXTENDED CASE 43.1 Fox Television Stations,

Inc v Federal Communications Commission 888

CASE 43.2 Hemp Industries Association v Drug

Enforcement Administration 892

Judicial Deference to Agency Decisions 894

CASE 43.3 United States v Mead

Corporation 895

Agency Enforcement and Adjudication 896

Limitations on Agency Powers 898

Public Accountability 900

R EVIEWING : A DMINISTRATIVE L AW 901

Labeling and Packaging Laws 909

Sales 909

Credit Protection 910

CASE 44.2 Saunders v Equifax Information

Services, L.L.C 912

Consumer Health and Safety 914

CASE 44.3 Abigail Alliance for Better Access to

Developmental Drugs v von

Eschenbach 915

R EVIEWING : C ONSUMER L AW 917

Chapter 45

Environmental Law 921

Common Law Actions 921

Federal, State, and Local Regulation 922

Air Pollution 923

EXTENDED CASE 45.1 Environmental Defense v.

Duke Energy Corp 926

Section 2 of the Sherman Act 944The Clayton Act 946

CASE 46.3 Illinois Tool Works, Inc v.

Independent Ink, Inc 948

Enforcement of Antitrust Laws 950Exemptions from Antitrust Law 951U.S.Antitrust Laws in the Global Context 952

R EVIEWING : A NTITRUST L AW 953

S PECIAL C ASE A NALYSIS: L EEGIN C REATIVE L EATHER P RODUCTS ,

I NC V PSKS, I NC 955

F OCUS ON E THICS : G OVERNMENT R EGULATION 957

Property 959

Chapter 47

Personal Property and Bailments 960

Personal Property versus Real Property 960Fixtures 961

Acquiring Ownership of Personal Property 962

CASE 47.1 In re Estate of Piper 963

Mislaid, Lost, and Abandoned Property 965

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EXTENDED CASE 47.2 United States v One

Hundred Sixty-Five Thousand Five Hundred Eighty Dollars

($165,580) in U.S.

Currency 967

Bailments 969

Ordinary Bailments 970

Special Types of Bailments 973

CASE 47.3 Treiber & Straub, Inc v United Parcel

Service, Inc 974

R EVIEWING : P ERSONAL P ROPERTY AND B AILMENTS 977

The Nature of Real Property 980

Ownership and Other Interests in Real Property 981

CASE 48.1 Biglane v Under the Hill Corp. 982

Transfer of Ownership 986

CASE 48.2 Whitehead v Humphrey 989

CASE 48.3 Otwell v Diversified Timber Services,

Inc 993

Limitations on the Rights of Property Owners 994

EXTENDED CASE 48.4 Kelo v City of New

London, Connecticut 995

Landlord-Tenant Relationships 997

R EVIEWING : R EAL P ROPERTY AND L ANDLORD -T ENANT

R ELATIONSHIPS 1000

S PECIAL C ASE A NALYSIS: K ELO V C ITY OF N EW L ONDON ,

C ONNECTICUT 1002

F OCUS ON E THICS : P ROPERTY 1004

Special Topics 1007

Chapter 49

Insurance 1008

Insurance Terminology and Concepts 1008

EXTENDED CASE 49.1 Zurich American

Insurance Co v AMB Industries, Inc 1011

The Insurance Contract 1012

CASE 49.2 Car y v United of Omaha Life

EXTENDED CASE 50.3 Cinquemani v Lazio

1039

Other Estate-Planning Issues 1043

R EVIEWING : W ILLS AND T RUSTS 1044

Chapter 51

Professional Liability and Accountability 1048

Potential Liability to Clients 1048

EXTENDED CASE 51.1 In re Disciplinar y

Proceedings Against Inglimo 1050

Potential Liability to Third Parties 1052

CASE 51.2 Reznor v J Artist Management,

Inc 1053

The Sarbanes-Oxley Act of 2002 1055Potential Liability of Accountants under SecuritiesLaws 1058

Potential Criminal Liability of Accountants 1061Confidentiality and Privilege 1062

R EVIEWING : P ROFESSIONAL L IABILITY AND

A CCOUNTABILITY 1063

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Doing Business Internationally 1071

Regulation of Specific Business Activities 1072

CASE 52.1 Fuji Photo Film Co v International

Trade Commission 1073

U.S Laws in a Global Context 1076

CASE 52.2 Carnero v Boston Scientific

Corp 1076

EXTENDED 52.3 Khulumani v Barclay National

Bank, Ltd 1078

R EVIEWING : I NTERNATIONAL L AW IN A G LOBAL E CONOMY 1080

S PECIAL C ASE A NALYSIS: K HULUMANI V B ARCLAY N ATIONAL

B ANK , L TD 1082

F OCUS ON E THICS : S PECIAL T OPICS 1083

Appendices

Appendix A How to Brief Cases and

Analyze Case Problems A–1

Appendix B The Constitution of the

United States A–4 Appendix C The Uniform Commercial

Code A–12 Appendix D The United Nations Convention

on Contracts for the International Sale of Goods (Excerpts) A–176 Appendix E The Uniform Partnership Act

(Excerpts) A–180 Appendix F The Revised Uniform Limited

Partnership Act (Excerpts) A–190 Appendix G The Revised Model Business

Corporation Act (Excerpts) A–200

Appendix H The Sarbanes-Oxley Act of 2002

(Excerpts and Explanatory Comments) A–210 Appendix I Sample Answers for End-of-Chapter

Questions with Sample Answer A–218

Glossary G–1 Table of Cases TC–1 Index I–1

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1.1 Schools of Jurisdprudential Thought 4

1.2 Sources of American Law 8

1.3 The Common Law Tradition 13

6.1 Intentional Torts against Persons 132

6.2 Intentional Torts against Property 136

13.2 Contracts by Intoxicated Persons 270

13.3 Contracts by Mentally Incompetent

24.1 Requirements for Negotiability 499

25.1 Types of Indorsements and Their

27.1 Honoring Checks 554

28.1 Remedies Available to Creditors 578

29.1 Creating and Perfecting a Security Interest 596

29.2 Remedies of the Secured Party on the Debtor’s Default 606

30.1 Forms of Bankruptcy Relief Compared 630

31.1 Formation of the Agency Relationship 645

32.1 Authority of an Agent to Bind the Principal and a Third Party 658

32.2 Termination of an Agency 668

38.1 Classification of Corporations 781

39.1 Roles of Directors and Officers 801

39.2 Duties and Liabilities of Directors and Officers 805

39.3 Role of Shareholders 813

40.1 Methods of Expanding Corporate Operations and Interests 826

47.1 Acquisition of Personal Property 966

47.2 Mislaid, Lost, and Abandoned Property 968

47.3 Rights and Duties of the Bailee and the Bailor 976

48.1 Interests in Real Property 987

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1–1 Areas of the Law That May Affect

Business Decision Making 5

1–2 Equitable Maxims 9

1–3 Procedural Differences between an Action

at Law and an Action in Equity 10

1–4 West’s National Reporter System—

Regional/Federal 17

1–5 How to Read Citations 18

1–6 A Sample Court Case 24

2–1 The State and Federal Court Systems 37

2–2 Geographic Boundaries of the U.S Courts

of Appeals and U.S District Courts

2–3 Basic Differences in the Traditional

8–1 Forms of Intellectual Property 160

8–2 Existing Generic Top Level Domain

Names 165

9–1 Key Differences between Civil Law and

Criminal Law 185

9–2 Civil (Tort) Lawsuit and Criminal

Prosecution for the Same Act 186

9–3 Major Procedural Steps in a Criminal

Case 203

10–1 Classifications Based on Contract

Formation 218

10–2 Enforceable, Voidable, Unenforceable,

and Void Contracts 223

10–3 Rules of Contract Interpretation 225

18–2 Remedies for Breach of Contract 363

19–1 A Click-On Agreement 373

19–2 The E-SIGN Act and the UETA 382

20–1 The 2003 Amendments to UCC Article 2: Selected Provisions 394

20–2 The Law Governing Contracts 395

20–3 Major Differences between Contract Law and Sales Law 407

21–1 Contract Terms–Definitions 428

22–1 A Letter-of-Credit Transaction 453

24–1 Basic Types of Negotiable Instruments 487

24–2 A Typical Time Draft 488

24–3 A Typical Trade Acceptance 489

24–4 A Typical Promissory Note 491

24–5 A Typical Small Certificate of Deposit 491

25–5 Trust (Agency) Indorsements 507

25–6 Converting an Order Instrument to a Bearer Instrument and Vice Versa 508

25–7 Taking for Value 514

26–1 Time for Proper Presentment 525

26–2 Defenses against Liability on Negotiable Instruments 534

27–1 A Cashier’s Check 545

27–2 An American Express Traveler’s Check 546

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27–3 A Stop-Payment Order 548

27–4 A Poorly Filled-Out Check 553

27–5 The Traditional Check-Collection

Process 556

28–1 Suretyship and Guaranty Parties 579

29–1 Secured Transactions—Concept and

Terminology 587

29–2 Types of Collateral and Methods of

Perfection 589

29–3 The Uniform Financing Statement 591

29–4 Priority of Claims to a Debtor’s

Collateral 601

30–1 Collection and Distribution of Property in

Most Voluntary Bankruptcies 620

32–1 A Sample General Power of Attorney 654

36–1 Terms Commonly Included in a

Partnership Agreement 740

36–2 A Comparison of General Partnerships

and Limited Partnerships 752

38–1 Offshore Low-Tax Jurisdictions 774

38–2 Articles of Incorporation 783

38–3 Types of Corporate Bonds 789

38–4 How Do Stocks and Bonds Differ? 790

40–4 Major Forms of Business Compared 831

41–1 Basic Functions of the SEC 836

41–2 Exemptions under the 1933 Act 841

41–3 A Sample Restricted Stock

Certificate 844

41–4 Comparison of Coverage, Application, and Liability under SEC Rule 10b-5 and Section 16(b) 850

41–5 Some Key Provisions of the Oxley Act of 2002 Relating to Corporate Accountability 856

Sarbanes-42–1 Average Attorneys’ Fees for Selected Small-Business Transactions 863

42–2 Venture Capital Issues 873

43–1 Costs of Regulation to Businesses 887

43–2 Executive Departments and Important Subagencies 891

43–3 Selected Independent Regulatory Agencies 892

43–4 The Process of Formal Administrative Adjudication 898

44–1 Selected Areas of Consumer Law Regulated by Statutes 905

45–1 Major Federal Environmental Statutes 923

47–1 Degree of Care Required of a Bailee 972

48–1 Steps Involved in the Sale of Real Estate 988

49–1 Insurance Classifications 1009

49–2 Insurance Contract Provisions and Clauses 1014

49–3 Typical Fire Insurance Policies 1020

50–1 Excerpts from the Will of Diana, Princess

of Wales 1028

50–2 Per Stirpes Distribution 1037

50–3 Per Capita Distribution 1038

50–4 A Revocable Living Trust Arrangement 1039

51–1 Key Provisions of the Sarbanes-Oxley Act

of 2002 Relating to Public Accounting Firms 1057

52–1 The Legal Systems of Selected Nations 1070

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Chapter 3 E-Discovery and Cost-Shifting 66

Chapter 9 Stand-Your-Ground Laws 196

Chapter 23 Removing Class-Action Lawsuits to

the Federal Court 470

Chapter 27 Using Digital Cash Facilitates

Chapter 4 Does State Regulation of Internet

Prescription Transactions Violate

the Dormant Commerce Clause? 84

Chapter 6 Tort Reform 124

Chapter 12 Promissory Estoppel and

Chapter 39 A Shareholder Access Rule 808

Chapter 45 Should the EPA Take the Threat of

Global Warming into Account? 924

Chapter 1 How the Internet Is Expanding

Chapter 2 Implications of an Increasingly

Private Justice System 38

Chapter 14 Internet Click Fraud 292

Chapter 51 An Auditor’s Duty to Correct

Certified Opinions 1060

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The study of business law and, more generally, the

legal environment of business has universal

applica-bility.A student entering virtually any field of business

must have at least a passing understanding of

busi-ness law in order to function in the real world

Additionally, students preparing for a career in

accounting, government and political science,

eco-nomics,and even medicine can use much of the

infor-mation they learn in a business law and legal

environment course In fact, every individual

through-out his or her lifetime can benefit from a knowledge

of contracts, real property law, landlord-tenant

rela-tionships, and other topics Consequently, we have

fashioned this text as a useful “tool for living” for all of

your students (including those taking the CPA exam)

For the Eleventh Edition,we have spent a great deal

of effort making this book more contemporary,

excit-ing, and visually appealing than ever before to

encour-age your students to learn the law We have also

designed many new features and special pedagogical

devices that focus on the legal, ethical, global, and

e-commerce environments, while addressing core

cur-riculum requirements

What Is New in the Eleventh Edition

Instructors have come to rely on the coverage,

accu-racy, and applicability of Business Law To make sure

that our text engages your students’ interests, solidifies

their understanding of the legal concepts presented,

and provides the best teaching tools available, we now

offer the following items either in the text or in

con-junction with the text

New Insight Features

For the Eleventh Edition,we have created three special

new Insight features—Insight into E-Commerce,

Insight into Ethics, and Insight into the Global Environment These features, which appear in

selected chapters, provide valuable insights into howthe courts and the law are dealing with specific contem-porary issues Each of these features ends with a critical-thinking question that explores some cultural,environmental, political, social, or technological aspect

of the issue

1.Insight into E-Commerce—When the topic

involves some new technology or how theInternet is affecting a particular area of law, we

include an Insight into E-Commerce feature For example, Chapter 1 contains an Insight into

E-Commerce feature on How the Internet Is Expanding Precedent, Chapter 8 has a feature on Search Engines Versus Copyrights, and Chapter 41

includes a feature on Moving Company

Information to the Internet.

2.Insight into Ethics—When the topic has ethical

implications, we include an Insight into Ethics ture For example, Chapter 2’s Insight into Ethics feature is entitled Implications of an Increasingly

fea-Private Justice System, Chapter 14’s feature

addresses Internet Click Fraud, and Chapter 51’s feature covers An Auditor’s Duty to Correct Certified

Opinions.

3.Insight into the Global Environment—

Because business transactions today are ingly global, we have also included a feature thatdiscusses global implications or explains how for-eign nations deal with a particular topic For exam-

increas-ple, there is an Insight into the Global Environment feature in Chapter 5 titled Breach of Trust Issues Hit

Major German Corporations, one in Chapter 19 on International Use and Regulation of the Internet,and

one in Chapter 42 on Moving Your Small Business

Online: Seller Beware.

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Two Critical-Thinking Questions at the

End of Every Case Presented in This Text

In every chapter of the Tenth Edition of West’s Business

Law, we included one longer case excerpt followed by

two case-ending questions designed to guide students’

analysis of the case and help build their legal

reason-ing skills.For the Eleventh Edition,we continue to offer

one longer excerpt—now labeled an Extended

Case—with two critical-thinking questions in every

chapter These extended cases may be used for

case-briefing assignments and are also tied to the Special

Case Analysis questions found in every unit of the text.

Because of the popularity of the case-ending

tions, for this edition, we’ve also included two

ques-tions for all cases In addition to the What If the Facts

Were Different? questions and Impact of This Case on

Today’s Law sections that appeared in the Tenth

Edition,we’ve devised an entirely new set of questions

These new Dimension questions focus on meeting

aspects of your curriculum requirements, including:

• The Ethical Dimension

• The E-Commerce Dimension

• The Global Dimension

• The Legal Environment Dimension

Suggested answers to all questions following

cases can be found in both the Instructor’s

Manual and the Answers Manual that

accom-pany this text (The full title of this manual is Answers

to Questions and Case Problems and Alternate Problem

Sets with Answers.)

Greater Emphasis on

Critical Thinking and Legal Reasoning

Today’s business leaders are often required to think

“outside the box”when making business decisions.For

this reason,we have added a number of

critical-thinking elements for the Eleventh Edition that

are designed to challenge students’ understanding of

the materials beyond simple retention.Your students’

critical-thinking and legal reasoning skills will be

increased as they work through the numerous

peda-gogical devices within the book Almost every feature

and every case presented in the text conclude with

some type of critical-thinking question These

ques-tions include For Critical Analysis,What If the Facts Were

Different? and the Ethical, E-Commerce, Global, and

Legal Environment Dimension questions discussed

previously They also include the new Special Case

Analysis questions and the questions in the Reviewing

features, which are described next

New Special Case Analysis Questions

Through the years, instructors have frequentlyrequested that we teach their business law studentshow to analyze case law We discuss the fundamentaltopic of how to read and understand case law inChapter 1 and cover How to Brief Cases and AnalyzeCase Problems in Appendix A.For this edition,we havegone one step further: in selected chapters of the text,

we provide a Special Case Analysis question that is based on the Extended Case excerpt in that chapter The Special Case Analysis questions are part of the

Questions and Case Problems that appear at the end of

the chapter We offer one of these special questions forevery unit in the text to build students’ analytical skills

The Special Case Analysis questions test students’

abil-ity to perform IRAC (Issue, Rule, Application, andConclusion) case analysis Students must identify thelegal issue presented in the chapter’s extended case,understand the rule of law, determine how the ruleapplies to the facts of the case,and describe the court’sconclusion Instructors can assign these questions ashomework or can use them in class to elicit studentparticipation and teach case analysis

Reviewing Features in Every Chapter

For the Eleventh Edition of Business Law, we have

included a new and improved feature at the end ofevery chapter that helps solidify students’ understand-ing of the chapter materials The feature appears just

before the Terms and Concepts and is entitled

Reviewing [chapter topic] Each of these features

pres-ents a hypothetical scenario and then asks a series ofquestions that require students to identify the issuesand apply the legal concepts discussed in the chapter.These features are designed to help students reviewthe chapter topics in a simple and interesting way andsee how the legal principles discussed in the chapteraffect the world in which they live An instructor canuse these features as the basis for in-class discussion orencourage students to use them for self-study prior tocompleting homework assignments Suggested

answers to the questions posed in the Reviewing features can be found in both the Instructor’s Manual and the Answers Manual that accom-

pany this text.

The Reviewing features are also tied to a new set of

questions for each chapter in the Web-based

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CengageNOW system, to be discussed next Students

can read through the scenario in the text and then

answer the four Applications and Analysis questions

online.By using the CengageNOW system,

stu-dents will receive instant feedback on their

answers to these questions, and instructors will

obtain automatically graded assignments that

enable them to assess students’ understanding of

the materials.

Improved Content and Features

on CengageNOW for Business Law:

Interactive Assignment System

For those instructors who want their students to learn

how to identify and apply the legal principles they

study in this text, we have created new content and

improved the features of our Web-based product for this

edition The system provides interactive, automatically

graded assignments for every chapter and unit in this

text For each of the fifty-two chapters, we have devised

different categories of multiple-choice questions that

stress different aspects of learning the chapter

materi-als By using the optional CengageNOW system,

stu-dents can complete the assignments from any location

via the Internet and can receive instant feedback on

why their answers to questions were incorrect or

cor-rect (if the instructor wishes to allow feedback)

Instructors can customize the system to meet their own

specifications and can track students’ progress

1.Chapter Review Questions—The first set of ten

to fifteen questions reviews the basic concepts and

principles discussed in the chapter These

ques-tions often include quesques-tions based on the cases

presented in the text

2.Brief Hypotheticals—The next group of seven to

ten questions emphasizes spotting the issue and

identifying the rule of law that applies in the

con-text of a short factual scenario

3.Legal Reasoning—The third category includes

five questions that require students to analyze the

factual situation provided and apply the rules of

law discussed in the chapter to arrive at an answer

4.IRAC Case Analysis—The next set of four

ques-tions for each chapter requires students to perform

all the basic elements of legal reasoning (identify

the issue, determine the rule of law, apply the rule

to the facts presented, and arrive at a conclusion).

These questions are based on the Extended Case

excerpts that appear in each chapter

5.Application and Analysis—The final set of four

questions for each chapter is new and is linked to

the Reviewing features (discussed previously) that

appear in every chapter of the text The student isrequired to read through the hypothetical scenario,analyze the facts presented, identify the issues indispute, and apply the rules discussed in the chap-ter to answer the questions

6.Essay Questions—In addition to the

multiple-choice questions available on CengageNOW, wenow also provide essay questions that allow stu-dents to compose and submit essays online.Students’ essays are automatically recorded to thegradebook, which permits instructors to quicklyand easily evaluate the essays and record grades

7.Video Questions—CengageNOW also now

includes links to the Digital Video Library for

Business Law so that students can access and view

the video clips and answer questions related to thetopics in the chapter

8.Cumulative Questions for Each Unit—In

addi-tion to the quesaddi-tions relating to each chapter, theCengageNOW system provides a set of cumulativequestions, entitled “Synthesizing Legal Concepts,”for each of the eleven units in the text

9. Additional Advantages of CengageNOW—

Instructors can utilize the system to upload theircourse syllabi, create and customize homeworkassignments, keep track of their students’ progress,communicate with their students about assignmentsand due dates, and create reports summarizing thedata for an individual student or for the whole class

Expanded Ethics Coverage and New Questions of Ethics in Every Chapter

sig-nificantly revised and updated the chapter on ethicsand business decision making (Chapter 5) The chap-ter now presents a more practical, realistic, case-studyapproach to business ethics and the dilemmas facingbusinesspersons today The emphasis on ethics is reit-erated in materials throughout the text,particularly the

Focus on Ethics features that conclude every unit, the Insight into Ethics features, and the pedagogy that

accompanies selected cases and features.We also cuss corporate governance issues as appropriate

dis-within the ethics chapter, the corporations chapters,

and the Focus on Ethics feature that concludes Unit

Eight on business organizations

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For this edition,we have also added A Question of

Ethics based on a case from 2006 or 2007 to

every chapter of the text These problems provide

modern-day examples of the kinds of ethical issues

faced by businesspersons and the ways courts

typi-cally resolve them

More on the Sarbanes-Oxley Act of 2002

In a number of places in this text, we discuss the

Sarbanes-Oxley Act of 2002 and the corporate

scan-dals that led to the passage of that legislation For

example, Chapter 5 contains a section examining the

requirements of the Sarbanes-Oxley Act relating to

confidential reporting systems In Chapter 41, we

dis-cuss this act in the context of securities law and

pre-sent an exhibit (Exhibit 41–4) containing some of the

key provisions of the act relating to corporate

account-ability with respect to securities transactions Finally, in

Chapter 51, we again look at provisions of the

Sarbanes-Oxley Act as they relate to public accounting

firms and accounting practices

Because the act is a topic of significant concern in

today’s business climate, we also include excerpts and

explanatory comments on the Sarbanes-Oxley Act of

2002 as Appendix H Students and instructors alike will

find it useful to have the provisions of the act

immedi-ately available for reference

Business Law on the Web

redesigned and streamlined the text’s Web site so

that users can easily locate the resources they seek

When you visit our Web site at academic.cengage.

com/blaw/clarkson, you will find a broad array of

teaching/learning resources, including the following:

• Relevant Web sites for all of the Emerging Trends

features that are presented in this text

• Sample answers to the Case Problem with

Sample Answer, which appears in the Questions

and Case Problems at the end of every chapter This

problem/answer set is designed to help your

stu-dents learn how to answer case problems by

acquainting them with model answers to selected

problems In addition, we offer the answers to the

hypothetical Questions with Sample Answers on the

Web site as well as in the text (Appendix I)

• Videos referenced in the new Video Questions

(dis-cussed shortly) that appear in selected chapters of

this edition of Business Law.

• Internet exercises for every chapter in the text (at

least two per chapter) These exercises have beenrefocused to provide more practical information tobusiness law students on topics covered in thechapters and to acquaint students with the legalresources that are available online

• Interactive quizzes for every chapter in this text.

• Glossary terms for every chapter in the text.

• Flashcards that provide students with an optional

study tool to review the key terms in every chapter

• PowerPoint slides that have been revised for this

edition

• Legal reference materials including a “Statutes”

page that offers links to the full text of selectedstatutes referenced in the text, a Spanish glossary,and links to other important legal resources avail-able for free on the Web

• Law on the Web features that provide links to

the URLs that appear at the end of every chapter inthe text

• Link to CengageNOW for Business Law: Interactive Assignment System with different

types of questions related to every chapter in thetext and one set of cumulative questions for eachunit in the text

• Link to our Digital Video Library that offers a

compendium of more than sixty-five video ios and explanations

scenar-• Online Legal Research Guide that offers

com-plete yet brief guidance to using the Internet andevaluating information obtained from the Internet

As an online resource, it now includes hyperlinks

to the Web sites discussed for click-throughconvenience

• Court case updates that present summaries of

new cases from various West legal publications, arecontinually updated, and are specifically keyed tochapters in this text

A Comprehensive Digital Video Library

For this edition of Business Law, we have included special Video Questions at the end of selected chap-

ters Each of these questions directs students to thetext’s Web site (at academic.cengage.com/blaw/ clarkson) to view a video relevant to a topic covered

in the chapter This is followed by a series of

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tions based on the video The questions are again

repeated on the Web site, when the student accesses

the video An access code for the videos can be

packaged with each new copy of this textbook for no

additional charge If Digital Video Library access did

not come packaged with the textbook, students can

purchase it online at academic.cengage.com/

blaw/dvl.

These videos can be used for homework

assign-ments, discussion starters, or classroom

demonstra-tions and are useful for generating student interest

Some of the videos are clips from actual movies,

such as The Jerk and Bowfinger By watching a video

and answering the questions, students will gain an

understanding of how the legal concepts they have

studied in the chapter apply to the real-life situation

portrayed in the video.Suggested answers for all

of the Video Questions are given in both the

Instructor’s Manual and the Answers Manual

that accompany this text The videos are part of

our Digital Video Library, a compendium of more

than sixty-five video scenarios and explanations

Additional Special

Features of This Text

We have included in Business Law, Eleventh Edition, a

number of pedagogical devices and special features,

including those discussed here

Emerging Trends

Presented throughout this text are a number of

fea-tures titled Emerging Trends These feafea-tures examine

new developments in business law and the legal

envi-ronment and their potential effect on

businessper-sons Here are some examples of these features:

• E-Discovery and Cost-Shifting (Chapter 3).

• Stand-Your-Ground Laws (Chapter 9).

• Removing Class-Action Lawsuits to the Federal

Courts (Chapter 23).

• New Issues in Online Privacy and Employment

Discrimination (Chapter 34).

Contemporary Legal Debates

Contemporary Legal Debates features are also

inter-spersed throughout this edition of Business Law These

features introduce the student to a controversial issue

that is now being debated within the legal community

A Where Do You Stand? section concluding each

fea-ture asks the student to identify her or his position onthe issue Some examples of these features are:

• Tort Reform (Chapter 6).

• Are Online Fantasy Sports Gambling? (Chapter 13).

• A Shareholder Access Rule (Chapter 39).

• Should the EPA Take the Threat of Global Warming into Account? (Chapter 45).

Concept Summaries

Whenever key areas of the law need additional

emphasis, we provide a Concept Summary These

sum-maries have always been a popular pedagogical tool

in this text There are now more than fifty of these maries, many of which have been modified to achievegreater clarity

sum-Exhibits

When appropriate, we also illustrate important aspects

of the law in graphic form in exhibits In all, more than

one hundred exhibits are featured in Business Law,

Eleventh Edition For this edition, we have added eightnew exhibits, and we have modified existing exhibits

to achieve better clarity Some examples of the newexhibits are:

• Exhibit 2–3 Basic Differences in the TraditionalForms of ADR

• Exhibit 8–2 Existing Generic Top Level DomainNames

• Exhibit 26–2 Defenses against Liability on NegotiableInstruments

• Exhibit 38–1 Offshore Low-Tax Jurisdictions

• Exhibit 39–1 Directors’ Management Responsibilities

• Exhibit 41–1 Basic Functions of the SEC

An Effective Case Format

For this edition, we have carefully selected recentcases that not only provide on-point illustrations ofthe legal principles discussed in the chapter but alsoare of high interest to students In all, more than 70percent of the cases in the Eleventh Edition are from

2006 or 2007

As mentioned, for this edition we have included

one Extended Case per chapter that is presented

entirely in the court’s language and does not includeany paraphrased section on the case’s backgroundand facts or the decision and remedy The remaining

cases in each chapter appear in our usual Business

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Law format, which now includes two case-ending

questions for every case in this edition of the text.We

also provide bracketed definitions for any terms in the

opinion that might be difficult for students to

under-stand Cases may include one or more of the following

sections, a few of which have already been described:

• Company Profiles—Certain cases include a

pro-file describing the history of the company involved

to give students an awareness of the context of the

case before the court Some profiles include the

URL for the company’s Web site

• What If the Facts Were Different?—One case

in each chapter concludes with this special

sec-tion.The student is asked to decide whether a

spec-ified change in the facts of the case would alter its

outcome Suggested answers to these

ques-tions are included in both the Instructor’s

Manual and the Answers Manual that

accompany this text.

• The Ethical [E- Commerce, Global, or Legal

Environment] Dimension—As discussed

previ-ously, these special new questions ask students to

explore different aspects of the issues of the case

and help instructors meet core curriculum

require-ments for business law Suggested answers to

these questions are included in both the

Instructor’s Manual and the Answers

Manual that accompany this text.

• International Considerations—These sections

let your students know how the particular issue

before the court is treated in other countries

• Impact of This Case on Today’s Law—

Because many students are unclear about how

some of the older cases presented in this text affect

today’s court rulings,we include a special section at

the end of landmark and classic cases that clarifies

the relevance of the particular case to modern law

Two Test Banks Available

To provide instructors with even greater flexibility in

teaching, we offer two separate test banks, each with a

complete set of questions for every chapter of Business

Law, Eleventh Edition.These two test banks have been

significantly revised and many new questions added

Those instructors who would like to alternate the tests

they give their students each semester can now do so

without having to create additional testing materials.In

addition, instructors who would like to pick and

choose from the questions offered have twice as many

options for questions in each category tiple choice, essay)

(true/false,mul-Questions and Case Problems with Sample Answers

In response to those instructors who would like dents to have sample answers available for some ofthe questions and case problems, we have includedtwo questions with sample answers in each chapter

stu-The Question with Sample Answer is a hypothetical

question for which students can access a sampleanswer in Appendix I at the end of the text Every

chapter also has one Case Problem with Sample

Answer that is based on an actual case and answered

on the text’s Web site (located at academic cengage.com/blaw/clarkson) Students can com-

pare the answers provided to their own answers todetermine whether they have done a good job ofresponding to the question and to learn what should

be included when answering the end-of-chapter tions and case problems

ques-The Most Complete Supplements Package Available Today

This edition of Business Law is accompanied by a vast

number of teaching and learning supplements Wehave already mentioned the CengageNOW for

Business Law: Interactive Assignment System and the

supplemental resources available on the text’s Website at academic.cengage.com/blaw/clarkson In

addition, there are numerous other supplements,including those listed below, that make up the com-plete teaching/learning package for the Eleventh

Edition For further information on the Business Law

teaching/learning package, contact your local sales

representative or visit the Business Law Web site.

Printed Supplements

• Instructor’s Manual—Includes case synopses,

additional cases addressing the issue for selectedcases, background information, teaching sugges-tions, and lecture enhancements, as well as sug-gested answers to all the case-ending andfeature-ending questions, the questions in the

Reviewing features at the end of each chapter,

and additional materials on the Focus on Ethics

sections at the end of each unit (Also available on

the Instructor’s Resource CD, or IRCD.)

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• Study Guide—Includes essay questions and

sam-ple CPA exam questions

• Two comprehensive Test Banks—Test Bank 1

and Test Bank 2 each contain approximately 1,040

multiple-choice questions with answers, more

than 1,040 true/false questions with answers, and

two short essay questions per chapter (104 in each

Test Bank) Additionally, there is one question for

every Emerging Trends and Contemporary Legal

Debates feature, and two multiple-choice

ques-tions for each Focus on Ethics section (Also

avail-able on the IRCD.)

• Answers to Questions and Case Problems

and Alternate Problem Sets with Answers—

Provides answers to all the questions and case

problems presented in the text, including the new

Special Case Analysis questions, A Question of

Ethics, and Video Questions, as well as suggested

answers to all the case-ending questions,

feature-ending questions, and the questions in the

Reviewing features at the end of each chapter.

(Also available on the IRCD.)

Software, Video,

and Multimedia Supplements

• Instructor’s Resource CD-ROM ( IRCD)—The

IRCD includes the following supplements:

Instructor’s Manual, Answers Manual, Test Bank 1

and Test Bank 2, Case-Problem Cases, Case

Printouts, Lecture Outline System, PowerPoint

slides, ExamView, Instructor’s Manual for the Drama

of the Law video series, Handbook of Landmark

Cases and Statutes in Business Law and the Legal

Environment, Handbook on Critical Thinking and

Writing in Business Law and the Legal Environment,

and A Guide to Personal Law.

• ExamView Testing Software (also available on

the IRCD)

• Lecture Outline System (also available on the

IRCD)

• PowerPoint slides (also available on the IRCD).

• WebTutor—Feature chat,discussion groups,testing,

student progress tracking, and business law course

materials

• Case-Problem Cases (available only on the IRCD).

• Transparencies (available only on the IRCD).

• Westlaw ® —Ten free hours for qualified adopters.

• Digital Video Library—Provides access to more

than sixty-five videos, including the Drama of the

Law videos and video clips from actual Hollywood

movies Access to our Digital Video Library is able in an optional package with each new text at

avail-no additional cost If the Digital Video Libraryaccess did not come packaged with the textbook,your students can purchase it online at academic cengage.com/blaw/dvl.

• Videos—Qualified adopters using this text have

access to the entire library of videos in VHS format,

a vast selection covering most business law issues.For more information about these videotapes, visit

academic.cengage.com/blaw/vl.

For Users of the Tenth Edition

First of all, we want to thank you for helping make

Business Law the best-selling business law text in

America today Second, we want to make you aware ofthe numerous additions and changes that we havemade in this edition—many in response to commentsfrom reviewers For example, we have added moreexamples and incorporated the latest United StatesSupreme Court decisions throughout the text as appro-priate We have substantially revised and reorganizedthe business organizations unit (Unit Eight), particu-larly the chapters on corporations (Chapter 38 through40), which have been changed to be more in line withthe reality of modern corporate law We have simpli-fied and streamlined the chapter on securities law(Chapter 41), and we have revised and reorganizedthe property chapters (Chapters 47 and 48)

Significantly Revised Chapters

Every chapter of the Eleventh Edition has been revised

as necessary to incorporate new developments in thelaw or to streamline the presentations A number ofnew trends in business law are also addressed in thecases and special features of the Eleventh Edition.Other major changes and additions made for this edi-tion include the following:

• Chapter 2 (Courts and Alternative DisputeResolution)—To provide greater clarity on impor-tant foundational issues, many parts of this chapterwere reworked, including the discussions of per-sonal jurisdiction, Internet jurisdiction, standing tosue, and appellate review A chart was added toillustrate the differences among various methods ofalternative dispute resolution, and we present a

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2006 United States Supreme Court decision on

arbi-tration clauses In addition, the discussion of

elec-tronic filing systems and online dispute resolution

was updated An Insight into Ethics feature was

added to discuss how the use of private judges is

affecting the justice system

• Chapter 3 (Court Procedures)—The section on

electronic evidence and discovery issues has been

updated to include the federal rules that took effect

in 2006

• Chapter 4 (Constitutional Authority to Regulate

Business)—The chapter has been thoroughly

revised and updated to incorporate recent United

States Supreme Court decisions,such as the case on

Internet wine shipments and the dormant

com-merce clause New examples have been added

throughout, and the materials reworked to focus on

business context The chapter includes discussions

of the USA Patriot Act’s effect on constitutional

rights and recent decisions on preemption,

unpro-tected speech, freedom of religion, and privacy

rights A Contemporary Legal Debates feature

addresses whether State Regulation of Internet

Prescription Transactions Violates the Dormant

Commerce Clause.

• Chapter 5 (Ethics and Business Decision Making)—

This chapter has been significantly revised and now

includes a new section that provides step-by-step

guidance on making ethical business decisions

Several new cases were added, and an Insight into

the Global Environment feature addresses ethical

issues faced by German corporations

• Chapter 6 (Intentional Torts)—A discussion of the

compensatory and punitive damages available in

tort actions was added, and a Contemporary Legal

Debates feature addresses Tort Reform Two cases

from 2007 are included, one on the scope of an

Internet service provider’s immunity for online

defamation and the other on invasion of privacy

New subsections discuss trends in appropriation

(right of publicity) claims and abusive or frivolous

litigation

• Chapter 8 (Intellectual Property and Internet

Law)—The materials on intellectual property

rights have been thoroughly revised and updated

to reflect the most current laws and trends Several

recent United States Supreme Court cases are

pre-sented (the 2007 patent decision, KSR International

Co v Teleflex, Inc., is the Extended Case, and the

2006 trademark decision in Menashe v V Secret

Catalogue, Inc is also included) A subsection

on counterfeit goods and a 2006 law addressingcounterfeit goods has been added to the trade-mark section The materials on domain names,cybersquatting,and licensing have been revamped.The section on patents was expanded and newexamples were added The discussion of file-sharing was updated, and a 2007 case is presented

in which Sony Corporation brought a successfulsuit for copyright infringement against an individ-ual who had downloaded eight songs The chapteralso includes updated information on internationaltreaties protecting intellectual property and an

Insight into E-Commerce feature on Search Engines versus Copyright Owners.

• Chapter 9 (Criminal Law and Cyber Crime)—Newmaterials on identity theft and criminal spamminglaws were added, and the existing materials werestreamlined to focus more on corporate criminalliability An updated discussion of sentencingguidelines is included, and the discussion ofdefenses to criminal charges was revised An

Emerging Trends feature covers Stand-Your-Ground Laws (state laws allowing the use of deadly force in

homes and vehicles to thwart violent crimes such

as robbery, carjacking, and sexual assault)

• Chapters 10 through 19 (the Contracts unit)—Throughout this unit, we have added more exam-ples to clarify and enhance our already impressivecontract law coverage We have also included more up-to-date information and new features

on topics likely to generate student interest, such

as the Contemporary Legal Debates feature entitled Are Online Fantasy Sports Gambling? (in Chapter 13) and the feature on Internet Click Fraud

(in Chapter 14) We have changed the titles ofChapters 14 and 15 to clearly describe the contents

of each chapter in plain English (for example, thetitle “Mistakes, Fraud, and Voluntary Consent”replaces the former title “Genuineness of Assent”)

We have chosen cases, problems, and examples forthis unit that garner student interest, such as theMike Tyson example in Chapter 16, and haverevised the text to improve clarity and reducelegalese

• Chapters 20 through 23 (the unit on Domestic andInternational Sales and Lease Contracts)—We havestreamlined and simplified our coverage of theUniform Commercial Code.We have added numer-

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ous new examples throughout the unit to increase

student comprehension Because no state has

adopted the 2003 amendments to Articles 2 and 2A,

we eliminated references to these amendments

throughout the chapters

• Chapters 24 through 27 (the unit on Negotiable

Instruments)—We have updated this unit

through-out to accommodate the reality of digital banking

and funds transfers In Chapter 24, we added an

Insight into the Global Environment feature

explor-ing the negotiability of checks in other nations.We

added a new Concept Summary in Chapter 25 and

replaced the Concept Summary on defenses in

Chapter 26 with a more visually appealing exhibit

on the same topic In Chapter 27, we revised the

materials to incorporate the Check-Clearing in the

21st Century Act (Check 21 Act) and included an

Emerging Trends feature discussing how Using

Digital Cash Facilities Money Laundering.

• Chapters 28 through 30 (the unit on Creditors’

Rights and Bankruptcy)—This unit has been

revised to be more up to date and comprehensible

Chapter 29 (Secured Transactions) was

substan-tially reorganized to clarify the general rules of

pri-ority and the exceptions to those rules The

bankruptcy law chapter (Chapter 30) is based on

law after the 2005 Reform Act and includes

updated dollar amounts of various provisions of the

Bankruptcy Code

• Chapter 33 (Employment and Labor Law) and

Chapter 34 (Employment Discrimination)—These

two chapters covering employment law have been

thoroughly updated to include discussions of legal

issues facing employers today Chapter 33 includes

updated minimum wage figures and Social Security

and Medicare percentages It also discusses

over-time rules and provides the most current

informa-tion on unionizainforma-tion, strikes, and employment

monitoring Chapter 34 now includes the latest

developments and United States Supreme Court

decisions,such as a decision that applied Title VII of

the Civil Rights Act of 1964 to an employer with

fewer than fifteen employees and another that set

the standard of proof for retaliation claims.The text

discussion of burden of proof in unintentional

dis-crimination cases has been revised and clarified.A

feature examines New Issues in Online Privacy and

Employment Discrimination.

• Chapters 35 through 42 (the Business Organizations

unit)—This unit has been substantially reorganized

and updated to improve the flow and clarity, andprovide more practical information and recentexamples In Chapter 35 (Sole Proprietorships andFranchises), we added a section on the FranchiseRule that includes the 2007 amendments to therule In Chapter 36 (Partnerships and LimitedLiability Partnerships), we added several examples,reworked the section on fiduciary duties, and clari-fied the materials on dissociation The most signifi-cant changes to the unit were made in thecorporations chapters (Chapters 38 through 40).Chapter 38 now includes a more updated discus-sion of promotional activities, and the materials onincorporation procedures were completely revised

to reflect current state laws New sections wereadded on offshore low-tax jurisdictions, venturecapital, and private equity financing In Chapter 39,

we added coverage of the landmark case Guth v.

Loft (on the duty of loyalty), a new exhibit, and

updated materials on Sarbanes-Oxley We alsoadded discussions of various committees of theboard of directors, corporate sentencing guide-lines, and proxies, including new e-proxy rules Thetopic of shareholder voting concerning executive

pay is discussed,and a Contemporary Legal Debates feature explores the possibility of A Shareholder

Access Rule Chapter 40 has been revised to include

share exchanges, clarify successor liability, improvecoverage of appraisal rights, and rework the mate-rial on tender offers We include discussion oftakeover defenses and directors’ fiduciary duties.The chapter on securities law (Chapter 41) wasrevamped to make this difficult topic more under-standable to students The chapter now includes

a new exhibit and overview of the functions of the Securities and Exchange Commission and a

practical explanation of the Howey test We also

provide a simplified list of contents of a registrationstatements and an updated discussion of the regis-tration process that clarifies current rules on a freewriting prospectus The final chapter in this unit(Chapter 42 on Law for Small Businesses) has alsobeen considerably revised to address practical con-siderations, such as choosing to do business as alimited liability company, protecting trademarks,and avoiding liability It also includes a feature onwhat businesspersons should consider before mov-ing their small business online

• Chapter 43 (Administrative Law)—This chapter hasbeen reworked to focus on the practical signifi-cance of administrative law for businesspersons A

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new section was added on the Administrative

Procedures Act,and another section addresses how

the courts give Chevron deference to agency rules.

Informal agency actions are covered, and a new

subsection discusses the exhaustion doctrine

• Chapter 45 (Environmental Law)—The materials

on air pollution and the subsection on wetlands

have been updated All of the cases in the chapter

are from the United States Supreme Court, and a

Contemporary Legal Debates feature discusses the

2007 Supreme Court decision in Massachusetts v.

Environmental Protection Agency relating to global

warming

• Chapter 46 (Antitrust Law)—We added new

exam-ples and coverage of leading cases throughout the

chapter, particularly in the discussions of price

fix-ing, relevant product market, and relevant graphic market

geo-• Chapters 47 and 48 (the Property unit)—We ganized and reworked the materials in the two prop-erty chapters as reviewers requested Chapter 47now begins with a section discussing the differ-ences between personal and real property, and whythe law makes this distinction The materials onforms of property ownership (such as fee simpleand joint tenancy) were moved from the personalproperty chapter (Chapter 47 ) to the real propertychapter (48) The coverage of bailments wasupdated and simplified Chapter 48 also includesmore information on real estate sales contracts,including listing agreements, escrow agreements,marketable title, title searches, and title insurance

reor-Acknowledgments for Previous Editions

Since we began this project many years ago,a sizable number of business law professors and others have helped

us in various phases of the undertaking.The following reviewers offered numerous constructive criticisms, ments, and suggestions during the preparation of all previous editions

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Southwest Missouri State College

Peter A Karl III

SUNY Institute of Technology

Karen Kay Matson

University of Texas at Austin

Melinda Ann Mora

Bob Morgan

Eastern Michigan University

Joan Ann Mrava

Los Angeles Southwest College

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Dana Blair Smith

University of Nevada at Las Vegas

Raymond Mason Taylor

North Carolina State University

Santa Barbara City College

Norman Gregory Young

California State Polytechnic University, Pomona

Ronald C Young

Kalamazoo Valley Community College, Michigan

We would also like to give credit to the following reviewers for their useful input during development of the

CengageNOW for Business Law: Interactive Assignment System.

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Acknowledgments for the Eleventh Edition

In preparing the Eleventh Edition of Business Law, we worked closely with the following reviewers, each of

whom offered us valuable suggestions for how to improve the text:

Maria Kathleen Boss

California State University,

Sam Houston State University

Melanie Stallings Williams

California State University– Northridge

As in all past editions, we owe a debt of extreme

gratitude to the numerous individuals who worked

directly with us or at Cengage Learning In particular,

we wish to thank Rob Dewey for his helpful advice

and guidance during all of the stages of this new

edi-tion.We extend our thanks to Jan Lamar, our longtime

developmental editor, for her many useful suggestions

and for her efforts in coordinating reviews and

ensur-ing the timely and accurate publication of all

supple-mental materials We are also indebted to Lisa Lysne

for her support and excellent marketing advice, and to

Brian Courter and Rob Ellington for their skills in

man-aging the Web site

Our production manager and designer, Bill Stryker,

made sure that we came out with an error-free,visually

attractive Eleventh Edition We appreciate his efforts

more than he can ever imagine.We are also indebted

to the staff at Parkwood Composition, our compositor

Their ability to generate the pages for this text quickly

and accurately made it possible for us to meet our

ambitious printing schedule

We especially wish to thank Katherine Marie

Silsbee for her management of the entire project, as

well as for the application of her superb research and

editorial skills We also wish to thank Lavina Leed

Miller for her significant contributions to this project,

and William Eric Hollowell, who co-authored the

Instructor’s Manual, the Study Guide, and the two Test

Banks, for his excellent research efforts.We were nate enough to have the copyediting of Pat Lewis andthe proofreading services of Lorretta Palagi andBeverly Peavler We also thank Vickie Reierson andRoxanna Lee for their proofreading and other assis-tance,which helped to ensure an error-free text.Finally,

fortu-we thank Suzanne Jasin of K & M Consulting for hermany special efforts on this project

In addition, we would like to give special thanks toall of the individuals who were instrumental in devel-oping and implementing the new CengageNOW for

Business Law: Interactive Assignment System These

include Rob Dewey, Jan Lamar, Lisa Lysne, andChristine Wittmer at Cengage, and Katherine MarieSilsbee, Roger Meiners, Lavina Leed Miller,William EricHollowell, Kimberly Wallan, and Kristi Wiswell whohelped develop the content for this unique Web-basedproduct

Through the years,we have enjoyed an ongoing respondence with many of you who have found points

cor-on which you wish to comment We ccor-ontinue to come all comments and promise to respond promptly

wel-By incorporating your ideas, we can continue to write

a business law text that is best for you and best for yourstudents

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Welcome to the world of business law and the legal

environment.You are about to embark on the study of

one of the most important topics you should master in

today’s changing world.A solid understanding of

busi-ness law can, of course, help you if you are going into

the world of business If you decide on a career in

accounting, economics, finance, political science, or

history, understanding how the legal environment

works is crucial Moreover, in your role as a consumer,

you will be faced with some legal issues throughout

your lifetime—renting an apartment, buying a house,

obtaining a mortgage, and leasing a car, to mention

only a few In your role as an employee (if you don’t go

into business for yourself ), you will need to know what

rights you have and what rights you don’t have Even

when you contemplate marriage, you will be faced

with legal issues

What You Will Find in This Text

As you will see as you thumb through the pages in this

text, we have tried to make your study of business law

and the legal environment as efficient and enjoyable

as possible.To this end,you will find the following aids:

1.Mastering Terminology—through key terms

that are boldfaced,listed at the end of each chapter,

and explained fully in the Glossary at the end of

the book

2.Understanding Concepts—through numerous

Concept Summaries and exhibits.

3.Observing the Law in the Context of the Real

World—through a Reviewing feature at the end

of every chapter

4.Seeing How Legal Issues Can Arise—through

Video Questions based on Web-available short

videos, many from actual Hollywood movies

5.Figuring Out How the Law Is Evolving—

through a feature called Emerging Trends

6.Determining Today’s Legal Controversies—

through a feature called Contemporary Legal

Debates.

7.Gaining Insights into How the Law Affects or

Is Affected by Other Issues—through three new

Insight features called Insight into E-Commerce, Insight into Ethics, and Insight into the Global Environment.

The above list, of course, is representative only You willunderstand much more of what the law is about as you

read through the court cases presented in this book, including extended case excerpts, which will give

you a feel for how the courts really decide cases,in thecourts’ language

Improving Your Ability to Perform Legal Reasoning and Analysis

Although business law may seem to be a mass of facts,your goal in taking this course should also be anincreased ability to use legal reasoning and analysis tofigure out how legal situations will be resolved.To thisend,you will find the following key learning features toassist you in mastering legal reasoning and analysis:

• Finding and Analyzing Case Law—In Chapter 1,

you will find a section with this title that explains:

1. Legal citations

2. The standard elements of a case

3. The different types of opinions a court can issue

4. How to read and understand cases

• Briefing a Case—In Appendix A, you will see how

to brief and analyze case problems This tion teaches you how to break down the elements

explana-of a case and will improve your ability to answer

the Case Problems in each chapter.

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• Questions with Sample Answers—At the end of

each chapter, there is one hypothetical factual

sce-nario that presents a legal question for which you

can access a sample answer in Appendix I (and

also on the text’s Web site).This allows you to

prac-tice and to see if you are answering the

hypotheti-cal problems correctly

• Case Problems with Sample Answers—Each

chapter has a series of chapter-ending Case

Problems You can find an answer to one

prob-lem in each chapter on this book’s student

com-panion Web site at academic.cengage.com/

blaw/clarkson You can easily compare your

answer to the court’s answer in the actual case

• Impact of This Case on Today’s Law—Each

landmark classic case concludes with a short

sec-tion that explains the relevance of older case law to

the way courts reason today

• What If the Facts Were Different?—This section,

found at the end of selected cases, encourages you

to think about how the outcome of a case might be

different if the facts were altered

• The Ethical [E-Commerce, Global, or Legal

Environment] Dimension—Every case in this

text concludes with two critical-thinking questions,

which may include What If the Facts Were Different?

questions, as discussed above For this edition,

we’ve included several new possibilities—(The

Ethical Dimension, The E-Commerce Dimension,

The Global Dimension, and The Legal Environment

Dimension.) These questions ask you to explore

the law in a variety of contexts to help you meet the

specific curriculum requirements for business law

students

The Companion Student Web Site

As already mentioned, the companion student Web

site at academic.cengage.com/blaw/clarkson

pro-vides you with short videos on various legal topics and

with sample answers to one case problem per chapter

In addition, you will find the following:

• Interactive quizzes for every chapter.

• A glossary of terms for every chapter in the text.

• Flashcards that provide an optional study tool for

reviewing the key terms in every chapter

• Appendix A: How to Brief and Analyze Case

Problems that will help you analyze cases This

useful appendix for the book is also provided on

the Web site and can be downloaded

• Legal reference materials including a “Statutes”

page that offers links to the full text of selectedstatutes referenced in the text, a Spanish glossary,and links to other important legal resources avail-able for free on the Web

• Internet exercises for every chapter in the text (at

least two per chapter) that introduce you to how toresearch the law online

• Relevant Web sites for additional research for

Emerging Trends features as well as links to the

URLs listed in the Law on the Web section at the end

of each chapter

• Online Legal Research Guide that offers

com-plete yet brief guidance to using the Internet andevaluating information obtained from theInternet As an online resource, it now includeshyperlinks to the Web sites discussed for click-through convenience

• Court case updates for follow-up research on

topics covered in the text

• Link to CengageNOW for Business Law: Interactive Assignment System with different

types of questions related to every chapter in thetext and one set of cumulative questions for eachunit in the text (Available on an instructor’srequest, see below.)

Interactive Assignments on the Web

Some of you may have instructors who provide ments using our world-class interactive Web-based sys-tem, called CengageNOW for Business Law:

assign-Interactive Assignment System.

CengageNOW for Business Law: InteractiveAssignment System allows you to improve your mas-tery of legal concepts and terminology,legal reasoningand analysis, and much more.Your instructor will giveyou further information if she or he decides to use thisWeb-based system

Of course, whether or not you are using theCengageNOW system,you will wish to consider purchas-

ing the Study Guide, which can help you get a better

grade in your course (see the inside cover for details).The law is all around you—and will be for the rest

of your life.We hope that you begin your first course inbusiness law and the legal environment with the samehigh degree of excitement that we, the authors, alwayshave when we work on improving this text, now in its

Eleventh Edition Business Law has withstood the test

of time—several million students before you havealready used and benefited by it

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To John Meisenbach,

You are truly one of the

world’s good guys

Thanks for your friendship

and your professionalism

R.L.M

To my wife, Joann; my children, Kathy,Gary, Lori, and Rory; and my grandchildren,Erin, Megan, Eric, Emily, Michelle, Javier,Carmen, and Steve

G.A.J

To my parents and sisters

F B.C

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Business law text and case legal ethical global an ecomercer environment 12e

Formation and Construction of Lease

Collection of Items: Depositary and Collecting Banks