Fundamentals of business law 8th MIller gaylord jentz

We have included at the end of the book the following set of appendices: A How to Brief Cases and Analyze Case Problems also now available on the Web site B The Constitution of the Unit

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Herbert D KelleherEmeritus Professor in Business LawUniversity of Texas at Austin

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C H A P T E R I The Legal and

Constitutional Environment

of Business 2

C H A P T E R 2 Traditional and Online

Dispute Resolution 33

C H A P T E R 3 Ethics and

Business Decision Making 61

C H A P T E R 4 Torts and Cyber Torts 80

C H A P T E R 5 Intellectual Property

and Internet Law 102

C H A P T E R 6 Criminal Law and Cyber Crime 124

C H A P T E R 7 Nature and

Classification 152

C H A P T E R 8 Agreement and

Consideration 167

C H A P T E R 9 Capacity and Legality 185

C H A P T E R 10 Defenses to Contract Enforceability 203

C H A P T E R 11 Third Party Rights and Discharge 222

C H A P T E R 12 Breach and Remedies 242

C H A P T E R 13 E-Contracts and E-Signatures 256

TORTS AND CRIMES 79

UNIT FIVE

DEBTOR-CREDITOR RELATIONSHIPS 397

UNIT SIX

iii

C H A P T E R 14 The Formation of Sales

and Lease Contracts 272

C H A P T E R 15 Title and

Risk of Loss 292

C H A P T E R 16 Performance and Breach of

Sales and Lease Contracts 305

C H A P T E R 17 Warranties and Product Liability 323

C H A P T E R 18 Negotiability,

Transferability, and Liability 346

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BUSINESS ORGANIZATIONS 499

UNIT EIGHT

PROPERTY AND ITS PROTECTION 589

UNIT NINE

SPECIAL TOPICS 643

UNIT TEN

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

(Excerpts) A–12 APPENDIX D The Sarbanes-Oxley Act of 2002

(Excerpts and Explanatory Comments) A–125 APPENDIX E Sample Answers for End-of-Chapter

Hypothetical Questions with Sample Answers A–132 GLOSSARY G–1

TABLE OF CASES TC–1 INDEX I-1

Financing, and Termination 520

C H A P T E R 2 6 Corporate Directors, Officers,

and Shareholders 545

C H A P T E R 2 7 Investor Protection, Insider Trading,

and Corporate Governance 565

C H A P T E R 2 8 Personal Property

and Bailments 590

C H A P T E R 2 9 Real Property and

Landlord-Tenant Law 606

C H A P T E R 3 0 Insurance, Wills, and Trusts 622

C H A P T E R 31 Liability of Accountants

and Other Professionals 644

C H A P T E R 3 2 International Law in a

Global Economy 660

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ADAPTING THE LAW TO THE ONLINE ENVIRONMENT:

How the Internet Is Expanding Precedent 8

LANDMARK AND CLASSIC CASES: Heart of Atlanta Motel

T ERMS AND C ONCEPTS • C HAPTER S UMMARY • F OR R EVIEW • Q UESTIONS AND

C ASE P ROBLEMS • A CCESSING THE I NTERNET

A P P E N D I X T O C H A P T E R O N E 2 4

Reading and Underst anding Case Law 25

PREVENTING LEGAL DISPUTES

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Mastondrea v Occidental Hotels Management S.A.

(2007) 35

37

Electronic Discovery and Cost-Shifting 44

Evans v Eaton Corp Long Term Disability Plan

(2008) 47

NCR Corp v Korala Associates, Ltd (2008) 51

MANAGEMENT PERSPECTIVE: Arbitration Clauses in

R E V I E W I N G : Tr a d i t i o n a l a n d

O n l i n e D i s p u t e R e s o l u t i o n 5 4

Ethics and Business Decision Making 61

Baum v Blue Moon Ventures, LLC (2008) 63

Fog Cutter Capital Group, Inc v Securities and Exchange Commission (2007) 66

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How the Law Influences Business Ethics 67

Guin v Brazos Higher Education Service Corp

(2006) 69

R E V I E W I N G : E t h i c s a n d

B u s i n e s s D e c i s i o n M a k i n g 7 2

U N I T O N E : E x t e n d e d C a s e S t u d y :

Vo v City of Garden Grove 77

Torts and Cyber Torts 80

Buell-Wilson v Ford Motor Co (2008) 81

Lott v Levitt (2007) 84

Intellectual Property and Internet Law 102

LANDMARK AND CLASSIC CASES: The Coca-Cola Co v.

Koke Co of America (1920) 103

Leadsinger, Inc v BMG Music Publishing (2008) 111

Search Engines versus Copyright Owners 114

Criminal Law and Cyber Crime 124

Constitutional Safeguards and Criminal

R E V I E W I N G : C r i m i n a l L a w a n d C y b e r C r i m e 14 3

U N I T T W O : E x t e n d e d C a s e S t u d y :

MedImmune, Inc v Genentech, Inc. 14 8

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Nature and Classification 152

Types of Contracts 154

Ardito v City of Providence (2003) 155

Uhrhahn Construction & Design, Inc v Hopkins

Agreement and Consideration 167

Access Organics, Inc v Hernandez (2008) 177

R E V I E W I N G : A g r e e m e n t a n d C o n s i d e r a t i o n 17 9

Are Online Fantasy Sports Just Another Form of

Stultz v Safety and Compliance Management, Inc.

(2007) 192

MANAGEMENT PERSPECTIVE:

Covenants Not to Compete

in the Internet Context 193

Speedway SuperAmerica, LLC v Erwin (2008) 195

The Effect of Illegality 195

R E V I E W I N G : C a p a c i t y a n d L e g a l i t y 197

Defenses to Contract Enforceability 203

Inkel v Pride Chevrolet-Pontiac, Inc (2008) 205

Online Personals—Fraud and Misrepresentation Issues 206

Yocca v Pittsburgh Steelers Sports, Inc (2004) 214

R E V I E W I N G : D e f e n s e s t o

C o n t r a c t E n f o r c e a b i l i t y 216

Third Party Rights and Discharge 222

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Revels v Miss America Organization (2007) 229

Facto v Pantagis (2007) 236

R E V I E W I N G : T h i r d Pa r t y R i g h t s a n d D i s c h a r g e 2 37

Breach and Remedies 242

Lucier v Williams (2004) 249

R E V I E W I N G : B r e a c h a n d R e m e d i e s 2 5 0

E- Contracts and E-Signatures 256

Feldman v Google, Inc (2007) 257

Mortgage Plus, Inc v DocMagic, Inc (2004) 258

Specht v Netscape Communications Corp (2002) 260

Jannusch v Naffziger (2008) 274

277

Sun Coast Merchandise Corp v Myron Corp

(2007) 279

Applying the Statute of Frauds to E-Mail

LANDMARK AND CLASSIC CASES:

Jones v Star Credit Corp (1969) 284

Contracts for the International Sale of

R E V I E W I N G : T h e F o r m a t i o n o f

S a l e s a n d L e a s e C o n t r a c t s 2 8 6

Title and Risk of Loss 292

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Performance and Breach

of Sales and Lease Contracts 305

MANAGEMENT PERSPECTIVE:

Good Faith and Fair Dealing 306

LANDMARK AND CLASSIC CASES: Maple Farms,

Inc v City School District of Elmira (1974) 309

310

Jauregui v Bobb’s Piano Sales & Service, Inc

Warranties and Product Liability 323

324

Shoop v DaimlerChrysler Corp (2007) 325

Webster v Blue Ship Tea Room, Inc (1964) 326

Strict Product Liability 331

Bullock v Philip Morris USA, Inc (2008) 333

R E V I E W I N G : W a r r a n t i e s a n d

P r o d u c t L i a b i l i t y 3 3 6

Georg v Metro Fixtures Contractors, Inc (2008) 357

Keesling v T.E.K Partners, LLC (2007) 364

R E V I E W I N G : N e g o t i a b i l i t y , Tr a n s f e r a b i l i t y , a n d

L i a b i l i t y 3 6 6

Checks and Banking

in the Digital Age 373

Auto-Owners Insurance Co v Bank One (2008) 378

379

Bank One, N.A v Dunn (2006) 382

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Electronic Fund Transfers 385

R E V I E W I N G : C h e c k s a n d B a n k i n g

i n t h e D i g i t a l A g e 3 8 8

U N I T F I V E : E x t e n d e d C a s e S t u d y :

Prestridge v Bank of Jena 3 9 4

Security Interests

in Personal Property 398

Perfecting a Security Interest 400

Creditors’ Rights and Bankruptcy 417

Capital Color Printing, Inc v Ahern (2008) 421

Motorsport Marketing, Inc v Wiedmaier, Inc

(2006) 450

452

Ermoian v Desert Hospital (2007) 454

Warner v Southwest Desert Images, LLC (2008) 457

R E V I E W I N G : A g e n c y R e l a t i o n s h i p s 4 61

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CHAPTE R 22

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Employment and Immigration Law 467

Mims v Starbucks Corp (2007) 469

Overtime Issues in the Virtual Workplace 471

Darst v Interstate Brands Corp (2008) 475

U N I T S E V E N : E x t e n d e d C a s e S t u d y : Batte-Holmgren

v Commissioner of Public Health 4 9 5

Sole Proprietorships, Partnerships, and Limited Liability Companies 500

02 Development, LLC v 607 South Park, LLC

(2008) 511

R E V I E W I N G : S o l e P r o p r i e t o r s h i p s , P a r t n e r s h i p s ,

a n d L i m i t e d L i a b i l i t y C o m p a n i e s 514

Corporate Formation, Financing, and Termination 520

Commonwealth v Angelo Todesca Corp (2006) 523 Williams v Stanford (2008) 525

Corporate Directors, Officers, and Shareholders 545

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Guth v Loft, Inc (1939) 549

Moving Company Information to the Internet 552

Portnoy v Cryo-Cell International, Inc (2008) 554

R E V I E W I N G : C o r p o r a t e D i r e c t o r s , O f f i c e r s , a n d

S h a r e h o l d e r s 5 6 0

Investor Protection, Insider Trading, and Corporate

567

SEC v Texas Gulf Sulphur Co (1968) 572

Stoneridge Investment Partners, LLC v Scientific-Atlanta,

Inc (2008) 574

United States v Berger (2007) 576

St ate Securities Laws 577

R E V I E W I N G : I n v e s t o r P r o t e c t i o n , I n s i d e r Tr a d i n g ,

a n d C o r p o r a t e G o v e r n a n c e 5 8 2

U N I T E I G H T : E x t e n d e d C a s e S t u d y :

United States v Bhagat 5 8 7

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CHAPTE R 27

Personal Property and Bailments 590

Real Property and Landlord-Tenant Law 606

607

Biglane v Under the Hill Corp (2007) 608 Roman Catholic Church of Our Lady of Sorrows v Prince Realty Management, LLC (2008) 610

Potential Problems When Real Estate Is Advertised Online 612

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Insurance, Wills, and Trusts 622

U N I T N I N E : E x t e n d e d C a s e S t u d y :

In re Estate of Robertson 6 4 0

Liability of Accountants and Other Professionals 644

In re Disciplinary Proceedings Against Inglimo

(2007) 646

Potential Liability to Third Parties 647

Potential St atutory Liability of Account ants 649

651

Overton v Todman & Co., CPAs (2007) 652

R E V I E W I N G : L i a b i l i t y o f A c c o u n t a n t s

a n d O t h e r P r o f e s s i o n a l s 6 5 4

Fuji Photo Film Co v International Trade Commission

(2007) 665 Commercial Contracts in an International

666

Payment Methods for International

Khulumani v Barclay National Bank, Ltd (2007) 669

R E V I E W I N G : I n t e r n a t i o n a l L a w

i n a G l o b a l E c o n o m y 6 6 9

U N I T T E N : E x t e n d e d C a s e S t u d y :

Dole Food Co v Patrickson 6 74

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

(Excerpts) A–12 APPENDIX D The Sarbanes-Oxley Act of 2002

(Excerpts and Explanatory Comments) A–125 APPENDIX E Sample Answers for End-of-Chapter

Hypothetical Questions with Sample Answers A–132 GLOSSARY G–1

TABLE OF CASES TC–1 INDEX I-1

A P P E N D I C E S

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CHAPTE R 32

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N one contemplating a career in business.

Consequently, we have written Fundamentals of Business

Law: Summarized Cases, Eighth Edition, with this goal in

mind: to present a clear and comprehensive treatment of

what every student should know about commercial law.

While some of this may change, the fundamentals rarely

do—and that’s what students reading this text will acquire.

Instructors have come to rely on the up-to-date coverage,

accu-racy, and applicability of Fundamentals of Business Law:

Summarized Cases To make sure that our text engages your

students’ interests, solidifes their understanding of the legal

concepts presented, and provides the best teaching tools

avail-able, we now offer the following items in the text

Practical Elements in Every Chapter

We have added a special new feature entitled Preventing

Legal Disputes These brief features offer practical guidance

on steps that businesspersons can take in their daily transactions

to avoid legal disputes and litigation These features are

inte-grated throughout the text in selected chapters as appropriate to

the topics being discussed

We have also revised the Internet exercises that conclude

each chapter to focus on the practical aspects of doing

busi-ness in today’s global legal environment.

Reviewing Features in Every Chapter

For the Eighth Edition of Fundamentals of Business Law:

Summarized Cases, we have included a special feature at

the end of every chapter that helps solidify students’

under-standing of the chapter materials Each of these Reviewing

[chapter topic] features presents a hypothetical scenario and

chapter These features are designed to help students review the chapter topics in a simple and interesting way and see how the legal principles discussed in the chapter affect the world in which they live An instructor can use these features as the basis for in-class discussion or encourage students to use them for self-study before completing home-

work 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.

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 Eighth Edition that are designed to challenge students’

understanding of the materials beyond simple retention Nearly every feature and every case presented in the text concludes with some type of critical-thinking question These

questions include For Critical Analysis, What If the Facts Were Different? and Why Is This Case Important?

New Streamlined Organization for the

Chapter-Ending Questions and Case Problems

We have completely reorganized and streamlined the

Questions and Case Problems that conclude each chapter To

facilitate assessment, the problems are now divided by headings into the following two categories:

sub-1 Hypothetical Scenarios and Case Problems—We begin

with a few hypothetical scenarios, which present simple situations and ask students to apply the legal concepts from the chapter Included in this group of questions is

the new Hypothetical Question with Sample Answer,

WHAT’S NEW IN THE EIGHTH EDITION

xv

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(for which a sample answer is available in Appendix E of

the text and on the Web site) Next are the case problems,

which present the facts of recent cases and ask students to

analyze how the law applies These problems include a

Case Problem with Sample Answer (that is based on an

actual case and answered on the text’s Web site) and A

Question of Ethics, most of which are new to this

edition

2 Critical Thinking and Writing Assignments—The

second subsection consists of the critical thinking and

writing assignments, which are designed to enhance

critical-thinking skills and include several types of

questions that are new to this edition

• Selected chapters include a Critical Legal Thinking

question that requires students to think critically about

some aspect of the law discussed in the chapter

• A number of chapters include a Critical Thinking

and Writing Assignment for Business question that

focuses on critical thinking in a business-oriented

context.

• Many chapters also include a special Video Question

that directs students to the text’s Web site (at www.

cengage.com/blaw/fbl) to access a video relevant to a

topic covered in the chapter (a passcode is required—

see the discussion of the Business Law Digital Video

Library later in this preface) The students view the

video clip and then answer a series of questions on

how the law applies to the situation depicted in the

video.

More on the Sarbanes- Oxley Act of 2002

In a number of places in this text, we refer to the

Sarbanes-Oxley Act of 2002 and the corporate scandals that led to the

passage of that legislation For example, Chapter 3 mentions

how the requirements of the Sarbanes-Oxley Act were

intended to deter unethical corporate conduct and make

cer-tain corporate acts illegal In Chapter 27, we discuss this act in

the context of securities law and corporate governance and

present an exhibit (Exhibit 27–4) containing some of the key

provisions of the act relating to corporate accountability in

securities transactions In Chapter 31, we look at provisions of

the Sarbanes-Oxley Act as they relate to public accounting

firms and accounting practices.

Because the Sarbanes-Oxley Act is a topic of significant

concern in today’s business climate, for the Eighth Edition,

we have added excerpts and explanatory comments on the

Sarbanes-Oxley Act of 2002 as Appendix D Students and

instructors alike will find it useful to have the provisions of

the act immediately available for reference and explained in

plain language

For this edition of Fundamentals of Business Law: Summarized Cases, we have 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 www.cengage.com/blaw/fbl, you will

find a broad array of teaching/learning resources, including the following:

Relevant Web sites for all of the Landmark and Classic

Cases that are presented in this text.

Sample Answers to the Case Problems with Sample

Answers, which appear at the end of all the chapters, are

posted on the student companion Web site This answer set is designed to help your students learn how to answer case problems by giving them model answers to selected problems In addition, we post the answers to the

problem-Hypothetical Questions with Sample Answers on the Web

site as well as in the text (Appendix E).

Videos referenced in the Video Questions that appear at the

ends of selected chapters (available only with a passcode)

Practical Internet Exercises for every chapter in the text

(at least two per chapter) The Internet exercises have been refocused to provide more practical information to business law students on topics covered in the chapters and to acquaint students with the legal resources that are available online.

Interactive quizzes for every chapter in this text that

include a number of questions related to each chapter’s contents.

Terms and Concepts for every chapter in the text Flashcards that provide students with an optional study

tool to review the key terms in every chapter

Appendix A: How to Brief Cases and Analyze Case Problems This useful appendix for the book is also

posted on the Web site.

PowerPoint slides for this edition.

Legal reference materials including a “Statutes” page

that offers links to the full text of selected statutes enced in the text, a Spanish glossary, the text of the appendices that were removed for the Eighth Edition, and links to other important legal resources available for free on the Web.

refer-Online Legal Research Guide that offers complete yet

brief guidance to using the Internet and evaluating mation obtained from the Internet As an online resource,

infor-it now includes hyperlinks to the Web sinfor-ites discussed for click-through convenience

FUNDAMENTALS OF

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Court case updates that present summaries of new cases

from around the country that specifically relate to the

top-ics covered in chapters of this text.

Business Law Digital Video Library

For this edition of Fundamentals of Business Law:

Summarized Cases, we have included special Video

Questions at the ends of selected chapters Each of these

questions directs students to the text’s Web site at www.

cengage.com/blaw/fbl Once there, to view the specific

video referenced in the Video Question, students click on

the “Digital Video Library” link and type in their access

code After viewing the video online, students can return to

the text’s Web site and click on the relevant chapter’s

“Video Questions” link to view the series of questions

based on the video they have just viewed (An access code

for the videos can be packaged with each new copy of this

textbook for no additional charge If Business Law Digital

Video Library access did not come packaged with the

text-book, it can be purchased online at www.cengage.com/

blaw/dvl.)

These videos can be used as homework assignments,

dis-cussion starters, or classroom demonstrations 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

Business Law Digital Video Library, a compendium of more

than sixty video scenarios and explanations

In addition to the components of the Fundamentals of Business

Law: Summarized Cases teaching/learning package described

above, the Eighth Edition offers a number of special features

and pedagogical devices, including those described here.

Adapting the Law to the Online Environment

Several chapters in the Eighth Edition contain one of these

special features, which examine cutting-edge cyberlaw issues

coming before today’s courts Here are some examples of

these features:

How the Internet Is Expanding Precedent (Chapter 1)

Search Engines versus Copyright Owners (Chapter 5)

When Spamming Is a Crime (Chapter 6)

Are Online Fantasy Sports Just Another Form of Real-Life

Gambling? (Chapter 9)

SPECIAL FEATURES AND PEDAGOGY

Online Personals—Fraud and Misrepresentation Issues (Chapter 10)

Each feature concludes with a For Critical Analysis

sec-tion that asks the student to think critically about some facet

of the issues discussed in the feature Suggested answers to

these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text.

Management Perspective

Each of these features begins with a section titled

Management Faces a Legal Issue that describes a practical

issue facing management (such as whether to include tion clauses in employment contracts) Next comes a section

arbitra-titled What the Courts Say that discusses what the courts

have concluded with respect to this issue The feature

con-cludes with Implications for Managers, a section indicating

the importance of the courts’ decisions for business ment and offering some practical guidance Some examples

manage-of these features in the Eighth Edition include:

Protecting Trade Secrets (Chapter 5) Covenants Not to Compete in the Internet Context (Chapter 9)

Independent-Contractor Negligence (Chapter 22) Interviewing Job Applicants with Disabilities (Chapter 23)

Preventing Legal Disputes

As already discussed, these new features provide practical mation to future businesspersons on how to avoid legal prob-

infor-lems Each chapter includes a Preventing Legal Disputes

fea-ture, integrated as appropriate with the topics being discussed.

Reviewing Features

As discussed previously, these features present a cal scenario and ask a series of questions that require students to identify the issues and apply the legal concepts discussed in the chapter Each chapter concludes with one of these features, which are intended to help students review the chapter materials in a simple and interesting way.

hypotheti-Case Presentation and Format

For this edition, we have carefully selected recent cases for each chapter that not only provide on-point illustrations of the legal principles discussed in the chapter but also are

of high interest to students The cases are numbered tially for easy referencing in class discussions, homework assignments, and examinations The vast majority of cases in this text are new to the Eighth Edition

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sequen-Each case is presented in a special format, which begins

with the case title and citation (including parallel citations).

Whenever possible, we also include a URL, just below the

case citation, that can be used to access the case online (a

footnote to the URL explains how to find the specific case at

that Web site) We then briefly outline the facts of the

dis-pute, the legal issue presented, and the court’s decision To

enhance student understanding, we paraphrase the reason

for the court’s decision

Each case concludes with one of the following:

For Critical Analysis These questions require students to

think about the court’s holding from a variety of different

perspectives For instance, a student might be asked to

consider the ethical or global ramifications of a particular

ruling Suggested answers to these questions are

included in both the Instructor’s Manual and the

Answers Manual that accompany this text.

What If the Facts Were Different? These questions ask

the student to decide whether and how a specified

change in the facts of the case would alter the outcome

of the case Suggested answers to these questions are

included in both the Instructor’s Manual and the

Answers Manual that accompany this text.

Why Is This Case Important? These discussions,

which follow selected cases and are answered in the

text, clearly set forth the importance of the court’s

deci-sion in the specific case in today’s legal environment.

Some of these features focus specifically on why

busi-nesspersons today should heed the court’s ruling in a

particular case.

Impact of This Case on Today’s Law For Landmark

and Classic Cases, we include these sections to clarify the

relevance of the case to modern law As mentioned

ear-lier, we also have a section titled Relevant Web Sites at the

conclusion of each Landmark and Classic Case that

directs students to the Web site for additional online

resources.

Other Pedagogical

Devices within Each Chapter

Learning Objectives (a series of brief questions at the

beginning of each chapter designed to provide a framework

for the student as he or she reads through the chapter).

Highlighted and numbered examples illustrating legal

principles (we have added more for this edition to better

clarify legal concepts).

For Review (the questions set forth in the chapter-opening

Learning Objectives section are presented again to aid the

student in reviewing the chapter Answers to the numbered questions for each chapter are provided on the text’s Web site).

even-Questions and Case Problems (including two new

subsec-tions—Hypothetical Scenarios and Case Problems and Critical Thinking and Writing Assignments).

Hypothetical Question with Sample Answer (as discussed

earlier, each chapter contains one hypothetical factual situation, and we provide a sample answer for students in Appendix E of the text and on the Web site).

Case Problem with Sample Answer (as discussed earlier,

each chapter contains one of these case problems, for which the answer has been provided on the text’s Web

site at www.cengage.com/blaw/fbl).

A Question of Ethics.

Critical Legal Thinking (in selected chapters).

Critical Thinking and Writing Assignment for Business

(in selected chapters).

Video Question (in selected chapters).

Accessing the Internet (including a list of related Web sites,

Practical Internet Exercises, and Interactive Quizzes for

each chapter).

At the end of each unit is a two-page feature entitled Extended Case Study This feature focuses on a recent court case relating

to a topic covered in the unit Each feature opens with an ductory section, which discusses the background and signifi- cance of the case being presented Then we present excerpts

intro-from the court’s majority opinion and intro-from a dissenting

opin-ion in the case as well The feature concludes with Questopin-ions for

Analysis—a series of questions that prompt the student to think

critically about the legal, ethical, economic, global, or general

business implications of the case Suggested answers to these

questions are included in both the Instructor’s Manual and the Answers Manual.

Appendices

To help students learn how to find and analyze case law, we have included a special appendix at the end of Chapter 1.

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There, your students will find information, including an

exhibit, on how to read case citations, how to locate cases in

case reporters, and what the different components of URLs

(Internet addresses) mean The appendix to Chapter 1 also

presents an annotated sample court case to help your

stu-dents understand how to read and understand the cases

pre-sented within this text.

We have included at the end of the book the following set

of appendices:

A How to Brief Cases and Analyze Case Problems (also now

available on the Web site)

B The Constitution of the United States

C The Uniform Commercial Code (Excerpts)

D The Sarbanes-Oxley Act of 2002 (Excerpts and

Explanatory Comments)

E Sample Answers for End-of-Chapter Hypothetical

Questions with Sample Answers

Those appendices from the Seventh Edition that we did

not include in this edition are now posted on the text’s Web

site (located at www.cengage.com/blaw/fbl).

This edition of Fundamentals of Business Law: Summarized

Cases is accompanied by an expansive number of teaching

and learning supplements Individually and in conjunction

with a number of our colleagues, we have developed

supple-mentary teaching materials that we believe are the best

avail-able today Each component of the supplements package is

listed below.

Printed Supplements

Instructor’s Manual (Includes additional cases on point

with at least one such case summary per chapter, answers

to all For Critical Analysis questions in the features,

answers for the Video Questions at the ends of selected

chapters, and answers to the Extended Case Study that

concludes each unit Also available on the Instructor’s

Resource CD-ROM, or IRCD, described below.)

Study Guide.

A comprehensive Test Bank (also available on the IRCD).

Answers Manual (Includes answers to the Questions and

Case Problems, answers to the For Critical Analysis

ques-tions in the features and all case-ending quesques-tions,

answers for the Video Questions that conclude selected

chapters, and alternate problem sets with answers Also

available on the IRCD.)

SUPPLEMENTAL TEACHING MATERIALS

Software, Video, and Multimedia Supplements

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

includes the following supplements: Instructor’s Manual, Answers Manual, Test Bank, Case-Problem Cases, Case Printouts, ExamView, PowerPoint Slides, Online Legal Research Guide, transparency masters, 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 (available only on the IRCD) WebTutor—Features chat, discussion groups, testing,

student progress tracking, and business law course rials (available for WebCT and Blackboard).

mate-PowerPoint Slides—Many of which have been revised

for the Eighth Edition.

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

Business Law Digital Video Library—This dynamic

video library features more than sixty video clips that spark class discussion and clarify core legal principles Access is available for free as an optional package item with each

new text If Business Law Digital Video Library access did

not come packaged with the textbook, your students can

purchase it online at www.cengage.com/blaw/dvl.

We thought that those of you who have been using

Fundamentals of Business Law: Summarized Cases would like

to know some of the major changes that have been made for the Eighth Edition.

New Features and Special Pedagogy

We have added the following entirely new elements for the Eighth Edition:

Preventing Legal Disputes Reviewing features Reorganized and streamlined chapter-ending Questions and Case Problems with labels for different categories and

more focus on critical thinking and legal reasoning

Hypothetical Question with Sample Answer (in the Questions and Case Problems section)

Critical Thinking and Writing Assignments for Business in

selected chapters

FOR USERS OF THE SEVENTH EDITION

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Significantly Revised Chapters

Every chapter of the Eighth Edition has been revised as

nec-essary to incorporate new developments in the law or to

streamline the presentations A number of new trends in

business law are also addressed in the cases and special

fea-tures of the Eighth Edition Other major changes and

addi-tions made for this edition include the following:

Chapter 2 (Traditional and Online Dispute

Resolution)—The section on electronic evidence and

discovery issues has been updated to include federal rules

that became effective in 2006 To provide greater clarity

on important foundational issues, many parts of this

chapter were reworked, including the discussions of

per-sonal jurisdiction, Internet jurisdiction, standing to sue,

and appellate review A chart was added to illustrate the

differences among various methods of alternative dispute

resolution, and the discussion of electronic filing systems

and online dispute resolution was updated Features were

added to discuss the use of private judges and judicial

review in other nations

Chapter 3 (Ethics and Business Decision Making)—At

the request of reviewers, we have supplemented our

ethics coverage with even more practical elements

throughout and have included a section that deals with

corporate social responsibility and profit maximization.

Recent case examples are provided.

Chapter 4 (Torts and Cyber Torts)—The discussion of

damages was expanded and enhanced, and the

subsec-tions on defamation and privacy were thoroughly

updated The negligence coverage has been simplified

for clarity For this edition, we added a high-interest case

involving an online roommate-matching service’s

immu-nity under the Communications Decency Act The

sec-tion on cyber torts in this chapter now includes a feature

discussing cross-border spam and the U.S Safe Web Act,

which was enacted in 2006 to address the problem

Chapter 5 (Intellectual Property and Internet Law)—The

materials on intellectual property rights in the online

envi-ronment have been thoroughly revised and updated with a

feature included on search engines and copyright owners.

Several recent Supreme Court cases are discussed The

section on patents was expanded, and new examples were

added The discussion of file-sharing was updated A 2008

United States Supreme Court case is presented on the

obviousness requirement and patents In addition, an

entirely new subsection on counterfeit goods was added.

Chapters 7 through 13 (the Contracts unit)—

Throughout this unit, we have added more examples to

clarify and enhance our already superb contract law

cov-erage We have also included more up-to-date

informa-tion and new features on topics likely to gain student interest, such as on online gambling (see Chapter 9) and online personals (see Chapter 10)

Chapters 14 through 17 (the unit on Sales and Lease Contracts)—We have streamlined and simplified our coverage of the Uniform Commercial Code We have added numerous new numbered examples throughout the unit to increase student comprehension Because no state has adopted the 2003 amendments to Articles 2 and 2A, we eliminated the references to these amendments throughout the chapters We have included a new concept summary to clarify delivery without movement of the goods and have added several new features, such as the one discussing the Statute of Frauds and e-mail con- firmations in Chapter 14

Chapter 18 (Negotiability, Transferability, and Liability) and Chapter 19 (Checks and Banking in the Digital Age)—

We have updated these chapters to accommodate the reality of digital banking and funds transfers We have also provided additional numbered examples and exhibits to improve the comprehensibility of the materials.

Chapter 21 (Creditor’s Rights and Bankruptcy)—This chapter has been completely revamped in light of the passage of bankruptcy reform legislation and includes updated dollar amounts for various provisions of the Bankruptcy Code.

Chapter 23 (Employment and Immigration Law)—The materials covering employment law have been thoroughly updated to include discussions of legal issues facing employers today The chapter now includes an entirely new section on immigration law, a topic of increasing importance to employers A feature discusses how overtime regulations apply to telecommuters We also cover the latest developments and United States Supreme Court decisions on constructive discharge and affirmative action The text discussion of burden of proof

in unintentional discrimination cases has been revised and clarified

Chapter 24 (Sole Proprietorships, Partnerships, and Limited Liability Companies)—We have revised and updated this chapter in light of the fact that a majority of states have adopted the revised Uniform Partnership Act The concept of dissociation is covered, and we clarify how

it has replaced dissolution when a partner dies or withdraws from a partnership

Chapters 25 and 26 (covering corporate law)—Chapter 25 now provides an updated and streamlined presentation of issues surrounding corporation formation and termination.

We have included several new and updated examples, additional key terms, and a new exhibit The preincorpora-

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tion materials have been significantly revised to reflect

modern practices, as have the materials on fiduciary duties

Chapter 27 (Investor Protection, Insider Trading, and

Corporate Governance)—This chapter now includes

more discussion of insider trading, a revised section on

registration statements, and new numbered examples.

The requirement of an intent to deceive (scienter) is

explored in the text An entirely new section on corporate

governance has been added, with references to the

Sarbanes-Oxley Act We have updated the material on

online securities offerings and fraud as well

New Cases and Case Problems

In addition to the changes noted above, you will find that most

of the cases in this edition are new Nearly every chapter has two

new cases, and some chapters have three new cases We have

selected these cases with care, choosing topics that are engaging

for today’s students We have also added numerous new Case

Problems and Questions of Ethics based on recent cases We

were also able to add many new 2008 case problems.

Numerous careful and conscientious users of

Fundamentals of Business Law: Summaried Cases were kind

enough to help us revise the book In addition, the staff at

Cengage/ South-Western went out of its way to make sure

that this edition came out early and in accurate form In

ACKNOWLEDGMENTS

particular, we wish to thank Rob Dewey and Vicky True for their countless new ideas, many of which have been incorporated into the Eighth Edition We also extend special thanks to Jan Lamar, our longtime developmental editor, for her many useful suggestions and for her efforts in coor- dinating reviews and ensuring the timely and accurate publication of all supplemental materials We are particularly indebted to Jennifer Garamy for her support and excellent marketing advice

Our production manager and designer, Bill Stryker, made sure that we came out with an error-free, visually attractive edition We will always be in his debt We are also indebted to the staff at Parkwood Composition, our compos- itor Their ability to generate the pages for this text quickly and accurately made it possible for us to meet our ambitious printing schedule.

We must especially thank Katherine Marie Silsbee and Vickie Reierson for their management of the project, as well

as for the application of their superb research and editorial skills We also wish to thank William Eric Hollowell, co-

author of the Instructor’s Manual, Study Guide, Test Bank, and Online Legal Research Guide, for his excellent research

efforts The proofreading by Pat Lewis and Ann Whetstone will not go unnoticed Thank you to Stephanie Reymann for her indexing expertise We also thank Lavina Leed Miller and Roxanna Lee for their proofreading and other assistance, which helped to ensure an error-free text Finally, our appre- ciation goes to Suzanne Jasin for her many special efforts on the projects

ACKNOWLEDGMENTS FOR PREVIOUS EDITIONS

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SUNY Rockland Community College

Acknowledgments for the Eighth Edition

We know that we are not perfect If you or your students find something you don’t like or want us to change, write to us

or let us know via e-mail, using the “Talk to Us” feature on this text’s Web site That is how we can make Fundamentals of Business Law: Summarized Cases an even better book in the future.

Roger LeRoy Miller Gaylord A Jentz

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Traditional and Online Dispute Resolution

Ethics and Business Decision Making

3

2

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he law is of interest to all persons, not just to lawyers.

Those entering the world of business will find

them-selves subject to numerous laws and government regulations.

A basic knowledge of these laws and regulations is beneficial—

if not essential—to anyone contemplating a successful career

in today’s business world.

Although the law has had and will continue to have

differ-ent definitions, they all are based on the general observation

that, at a minimum, law consists of enforceable rules governing

relationships among individuals and between individuals and

their society These “enforceable rules” may consist of

unwrit-ten principles of behavior established by a nomadic tribe They

may be set forth in an ancient or a contemporary law code.

They may consist of written laws and court decisions created

by modern legislative and judicial bodies, as in the United

States Regardless of how such rules are created, they all have

one thing in common: they establish rights, duties, and

privi-leges that are consistent with the values and beliefs of their

society or its ruling group

In this introductory chapter, we first look at an important

question for any student reading this text: How does the legal

environment affect business decision making? We next

describe the basic sources of American law, the common law

tradition, and some general classifications of law We

con-clude the chapter with a discussion of the U.S Constitution

as it affects business.

As those entering the world of business will learn, laws and government regulations affect virtually all business activities—hiring and firing decisions, workplace safety, the man- ufacturing and marketing of products, and business financing, to name just a few To make good business decisions, a basic knowledge of the laws and regulations governing these activities is beneficial, if not essential In today’s world, though, a knowledge of “black-letter” law is not enough Businesspersons are also pressured to make ethical decisions Thus, the study of business law necessarily involves

an ethical dimension.

Many Different Laws May Affect a Single Business Transaction

As you will note, each chapter in this text covers a specific area

of the law and shows how the legal rules in that area affect ness activities Although compartmentalizing the law in this fashion facilitates learning, it does not indicate the extent to which many different laws may apply to just one transaction.

busi-Suppose that you are the president of NetSys, Inc., a company that creates and maintains computer network systems for its clients, including business firms NetSys also

■EXAMPLE 1.1

BUSINESS ACTIVITIES AND THE LEGAL ENVIRONMENT T

2

1 What is the Uniform Commercial Code?

2 What is the common law tradition?

3 What is a precedent? When might a court depart from precedent?

4 What are some important differences between civil law and criminal law?

5 How does the U.S Constitution affect business activities in the United States?

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markets software for customers who require an internal

com-puter network One day, Janet Hernandez, an operations

offi-cer for Southwest Distribution Corporation (SDC), contacts

you by e-mail about a possible contract involving SDC’s

com-puter network In deciding whether to enter into a contract

with SDC, you need to consider, among other things, the legal

requirements for an enforceable contract Are the

require-ments different for a contract for services and a contract for

products? What are your options if SDC breaches (breaks, or

fails to perform) the contract? The answers to these questions

are part of contract law and sales law.

Other questions might concern payment under the contract.

How can you guarantee that NetSys will be paid? For example,

if SDC pays with a check that is returned for insufficient funds,

what are your options? Answers to these questions can be found

in the laws that relate to negotiable instruments (such as

checks) and creditors’ rights Also, a dispute may arise over the

rights to NetSys’s software, or there may be a question of

liabil-ity if the software is defective There may be an issue as to

whether you and Hernandez had the authority to make the deal

in the first place, or an accountant’s evaluation of the contract

may lead to a dispute Resolutions of these questions may

be found in the laws that relate to intellectual property,

e-commerce, torts, product liability, agency, business

organiza-tions, or professional liability.

Finally, if any dispute cannot be resolved amicably, then the laws and the rules concerning courts and court procedures spell out the steps of a lawsuit Exhibit 1–1 illustrates the various areas of the law that may influence business decision making.

To prevent potential legal disputes, businesspersons need to be aware

of the many different laws that may apply to a single business transaction.

It is equally important for persons to understand enough about the law to know when to turn to an expert for advice

business-Ethics and Business Decision Making

Merely knowing the areas of law that may affect a business decision is not sufficient in today’s business world Businesspersons must also take ethics into account As you

will learn in Chapter 3, ethics is generally defined as the

study of what constitutes right or wrong behavior Today, business decision makers need to consider not just whether a decision is legal, but also whether it is ethical

■

Areas of the Law That May Affect Business Decision Making

EXHIBIT 1–1

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Throughout this text, you will learn about the relationship

between the law and ethics, as well as about some of the types

of ethical questions that often arise in the business context Not

only is Chapter 3 devoted solely to an examination of the

importance of ethical considerations in business decision

mak-ing, but various other elements in every chapter of this text are

designed to help you become aware of the ethical aspects of

questions that businesspersons may face For example, the

Ethical Consideration questions that follow selected cases in

this text explore the ethical dimensions of the case In addition,

the case problems at the end of each chapter include A

Question of Ethics designed to introduce you to the ethical

aspects of a specific case involving a real-life situation

There are numerous sources of American law Primary

sources of law, or sources that establish the law, include the

3 Regulations created by administrative agencies, such as

the federal Food and Drug Administration.

4 Case law (court decisions).

We describe each of these important primary sources of law

in the following pages (See the appendix at the end of this

chapter for a discussion of how to find statutes, regulations,

and case law.)

Secondary sources of law are books and articles that

sum-marize and clarify the primary sources of law Legal

encyclo-pedias, compilations (such as Restatements of the Law, which

summarize court decisions on a particular topic), official

comments to statutes, treatises, articles in law reviews

pub-lished by law schools, and articles in other legal journals are

examples of secondary sources of law Courts often refer to

secondary sources of law for guidance in interpreting and

applying the primary sources of law discussed here.

Constitutional Law

The federal government and the states have separate written

constitutions that set forth the general organization, powers,

and limits of their respective governments Constitutional

law is the law as expressed in these constitutions.

The U.S Constitution is the supreme law of the land As

such, it is the basis of all law in the United States A law in

violation of the Constitution, if challenged, will be declared

unconstitutional and will not be enforced no matter what its source Because of its paramount importance in the American legal system, we discuss the U.S Constitution at length later in this chapter and present the complete text of the Constitution in Appendix B.

The Tenth Amendment to the U.S Constitution reserves

to the states all powers not granted to the federal government Each state in the union has its own constitution.

Statutory Law

Laws enacted by legislative bodies at any level of government, such as the statutes passed by Congress or by state legislatures,

make up the body of law generally referred to as statutory law.

When a legislature passes a statute, that statute ultimately is included in the federal code of laws or the relevant state code

of laws Whenever a particular statute is mentioned in this text,

we usually provide a footnote showing its citation (a reference

to a publication in which a legal authority—such as a statute

or a court decision—or other source can be found) In the appendix following this chapter, we explain how you can use these citations to find statutory law

Statutory law also includes local ordinances—statutes

(laws, rules, or orders) passed by municipal or county ing units to govern matters not covered by federal or state law Ordinances commonly have to do with city or county land use (zoning ordinances), building and safety codes, and other matters affecting the local governing unit

govern-A federal statute, of course, applies to all states govern-A state statute, in contrast, applies only within the state’s borders State laws thus may vary from state to state No federal statute may violate the U.S Constitution, and no state statute or local ordinance may violate the U.S Constitution or the relevant state constitution.

Uniform Laws During the 1800s, the differences among state laws frequently created difficulties for businesspersons conducting trade and commerce among the states To counter these problems, a group of legal scholars, judges, and lawyers formed the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1892

to draft uniform laws (“model statutes”) for the states to

con-sider adopting The NCCUSL still exists today and ues to issue new uniform laws and periodic revisions of earlier laws

contin-Each state has the option of adopting or rejecting a

uni-form law Only if a state legislature adopts a uniuni-form law does that law become part of the statutory law of that state.

Note that a state legislature may adopt all or part of a form law as it is written, or the legislature may rewrite the law however the legislature wishes Hence, even though

uni-SOURCES OF AMERICAN LAW

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many states may have adopted a uniform law, those states’

laws may not be entirely “uniform.”

The earliest uniform law, the Uniform Negotiable

Instruments Law, was completed by 1896 and was adopted in

every state by the early 1920s (although not all states used

exactly the same wording) Over the following decades, other

acts were drawn up in a similar manner In all, the NCCUSL

has issued more than two hundred uniform acts since its

incep-tion The most ambitious uniform act of all, however, was the

Uniform Commercial Code.

The Uniform Commercial Code (UCC) The Uniform

Commercial Code (UCC), which was created through the

joint efforts of the NCCUSL and the American Law

Institute,1 was first issued in 1952 The UCC has been

adopted in all fifty states,2the District of Columbia, and the

Virgin Islands The UCC facilitates commerce among the

states by providing a uniform, yet flexible, set of rules

gov-erning commercial transactions The UCC assures

busi-nesspersons that their contracts, if validly entered into,

normally will be enforced Because of its importance in the

area of commercial law, we cite the UCC frequently in this

text We also present excerpts of the UCC in Appendix C

Administrative Law

An increasingly important source of American law is

admin-istrative law, which consists of the rules, orders, and

deci-sions of administrative agencies An administrative agency is

a federal, state, or local government agency established to

perform a specific function Rules issued by various

adminis-trative agencies now affect virtually every aspect of a

busi-ness’s operations, including the firm’s capital structure and

financing, its hiring and firing procedures, its relations with

employees and unions, and the way it manufactures and

mar-kets its products.

Federal Agencies At the national level, numerous

executive agencies exist within the cabinet departments of

the executive branch For example, the Food and Drug

Administration is within the U.S Department of Health and

Human Services Executive agencies are subject to the

authority of the president, who has the power to appoint and

remove officers of federal agencies There are also many

independent regulatory agencies at the federal level,

includ-ing the Federal Trade Commission, the Securities and

Exchange Commission, and the Federal Communications

Commission The president’s power is less pronounced in

regard to independent agencies, whose officers serve for fixed terms and cannot be removed without just cause.

State and Local Agencies There are administrative

agen-cies at the state and local levels as well Commonly, a state agency (such as a state pollution-control agency) is created as

a parallel to a federal agency (such as the Environmental Protection Agency) Just as federal statutes take precedence over conflicting state statutes, so do federal agency regulations take precedence over conflicting state regulations Because the rules of state and local agencies vary widely, we focus here exclusively on federal administrative law.

Agency Creation Because Congress cannot possibly

over-see the actual implementation of all the laws it enacts, it must delegate such tasks to agencies, especially when the legislation involves highly technical matters, such as air and water pollution Congress creates an administrative agency by enact-

ing enabling legislation, which specifies the name,

composi-tion, purpose, and powers of the agency being created.

The Federal Trade Commission (FTC) was created in 1914 by the Federal Trade Commission Act.3This act prohibits unfair and deceptive trade practices It also describes the procedures the agency must follow to charge persons or organizations with violations of the act, and it provides for judicial review (review by the courts) of agency orders Other portions of the act grant the agency powers to

“make rules and regulations for the purpose of carrying out the Act,” to conduct investigations of business practices, to obtain reports from interstate corporations concerning their business practices, to investigate possible violations of the act,

to publish findings of its investigations, and to recommend new legislation The act also empowers the FTC to hold trial-

like hearings and to adjudicate (resolve judicially) certain

kinds of disputes that involve FTC regulations.

Note that the powers granted to the FTC incorporate tions associated with the legislative branch of government (rulemaking), the executive branch (investigation and enforcement), and the judicial branch (adjudication) Taken together,

func-these functions constitute administrative process, which is the

administration of law by administrative agencies.

Case Law and Common Law Doctrines

The rules of law announced in court decisions constitute another basic source of American law These rules of law include interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies Today, this body of judge-made law is referred

to as case law Case law—the doctrines and principles

■

■EXAMPLE 1.2

1 This institute was formed in the 1920s and consists of practicing attorneys,

legal scholars, and judges.

2 Louisiana has adopted only Articles 1, 3, 4, 5, 7, 8, and 9 3 15 U.S.C Sections 45–58.

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announced in cases—governs all areas not covered by statutory

law or administrative law and is part of our common law

tradi-tion We look at the origins and characteristics of the common

law tradition in some detail in the pages that follow

Because of our colonial heritage, much of American law is

based on the English legal system A knowledge of this

tradi-tion is crucial to understanding our legal system today because

judges in the United States still apply common law principles

when deciding cases.

Early English Courts

After the Normans conquered England in 1066, William

the Conqueror and his successors began the process of

uni-fying the country under their rule One of the means they

used to do this was the establishment of the king’s courts, or

curiae regis Before the Norman Conquest, disputes had

been settled according to the local legal customs and

tradi-tions in various regions of the country The king’s courts

sought to establish a uniform set of rules for the country as

a whole What evolved in these courts was the beginning of

the common law—a body of general rules that applied

throughout the entire English realm Eventually, the

com-mon law tradition became part of the heritage of all nations

that were once British colonies, including the United

States

Courts developed the common law rules from the

princi-ples underlying judges’ decisions in actual legal

controver-sies Judges attempted to be consistent, and whenever

possible, they based their decisions on the principles

sug-gested by earlier cases They sought to decide similar cases in

a similar way and considered new cases with care, because

they knew that their decisions would make new law Each

interpretation became part of the law on the subject and

served as a legal precedent—that is, a decision that furnished

an example or authority for deciding subsequent cases

involv-ing similar legal principles or facts.

In the early years of the common law, there was no single

place or publication where court opinions, or written

deci-sions, could be found Beginning in the late thirteenth and

early fourteenth centuries, however, each year portions of

sig-nificant decisions of that year were gathered together and

recorded in Year Books The Year Books were useful

refer-ences for lawyers and judges In the sixteenth century, the

Year Books were discontinued, and other reports of cases

became available (See the appendix to this chapter for a

dis-cussion of how cases are reported, or published, in the

United States today.)

Stare Decisis

The practice of deciding new cases with reference to former decisions, or precedents, eventually became a cornerstone of the English and U.S judicial systems The practice forms a

doctrine called stare decisis4(“to stand on decided cases”)

The Importance of Precedents in Judicial Decision

Making Under the doctrine of stare decisis, once a court

has set forth a principle of law as being applicable to a certain set of facts, that court and courts of lower rank must adhere

to that principle and apply it in future cases involving similar

fact patterns Stare decisis has two aspects: first, that decisions

made by a higher court are binding on lower courts; and ond, that a court should not overturn its own precedents unless there is a strong reason to do so.

sec-Controlling precedents in a jurisdiction (an area in which a

court or courts have the power to apply the law—see Chapter 2)

are referred to as binding authorities A binding authority is any

source of law that a court must follow when deciding a case Binding authorities include constitutions, statutes, and regulations that govern the issue being decided, as well as court decisions that are controlling precedents within the jurisdiction United States Supreme Court case decisions, no matter how old, remain controlling until they are overruled by a subsequent decision of the Supreme Court, by a constitutional amendment,

or by congressional legislation.

Stare Decisis and Legal Stability The doctrine of stare

decisis helps the courts to be more efficient because if other

courts have carefully reasoned through a similar case, their

legal reasoning and opinions can serve as guides Stare decisis also makes the law more stable and predictable If the

law on a given subject is well settled, someone bringing

a case to court can usually rely on the court to make a sion based on what the law has been.

deci-Departures from Precedent Although courts are obligated

to follow precedents, sometimes a court will depart from the rule of precedent if it decides that a given precedent should

no longer be followed If a court decides that a precedent is simply incorrect or that technological or social changes have rendered the precedent inapplicable, the court might rule contrary to the precedent Cases that overturn precedent often receive a great deal of publicity.

In Brown v Board of Education of Topeka,5the United States Supreme Court expressly overturned precedent when it concluded that separate educational facilities for

■EXAMPLE 1.3

THE COMMON LAW TRADITION

4 Pronounced stahr-ee dih-si-sis.

5 347 U.S 483, 74 S.Ct 686, 98 L.Ed 873 (1954) See the appendix at the end

of this chapter for an explanation of how to read legal citations.

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whites and blacks, which had been upheld as constitutional in

numerous previous cases,6 were inherently unequal The

Supreme Court’s departure from precedent in Brown received

a tremendous amount of publicity as people began to realize

the ramifications of this change in the law.

When There Is No Precedent At times, a court hears a

case for which there are no precedents within its jurisdiction

on which to base its decision When hearing such cases,

called “cases of first impression,” courts often look at

prece-dents established in other jurisdictions for guidance.

Precedents from other jurisdictions, because they are

not binding on the court, are referred to as persuasive

authorities A court may also consider various other factors,

including legal principles and policies underlying previous

court decisions or existing statutes, fairness, social values and

customs, public policy, and data and concepts drawn from

the social sciences

Can a court consider unpublished decisions as persuasive

precedent? See this chapter’s Adapting the Law to the Online

Environment feature on the following page for a discussion of

this issue.

Equitable Remedies and Courts of Equity

A remedy is the means given to a party to enforce a right or

Shem is injured because of Rowan’s wrongdoing, a court

may order Rowan to compensate Shem for the harm by

pay-ing him a certain amount.

In the early king’s courts of England, the kinds of remedies

that could be granted were severely restricted If one person

wronged another, the king’s courts could award as

compensa-tion either money or property, including land These courts

became known as courts of law, and the remedies were called

remedies at law Even though this system introduced

unifor-mity in the settling of disputes, when plaintiffs wanted a

rem-edy other than economic compensation, the courts of law

could do nothing, so “no remedy, no right.”

Remedies in Equity Equity refers to a branch of the law,

founded in justice and fair dealing, that seeks to supply a fair

and adequate remedy when no remedy is available at law In

medieval England, when individuals could not obtain an

adequate remedy in a court of law, they petitioned the king

for relief Most of these petitions were decided by an adviser

to the king called the chancellor The chancellor was said to

be the “keeper of the king’s conscience.” When the

chancel-lor thought that the claim was a fair one, new and unique

remedies were granted In this way, a new body of rules and

remedies came into being, and eventually formal chancery courts, or courts of equity, were established The remedies granted by these courts were called remedies in equity Thus,

two distinct court systems were created, each having its own set of judges and its own set of remedies.

Plaintiffs (those bringing lawsuits) had to specify whether

they were bringing an “action at law” or an “action in equity,”

plaintiff might ask a court of equity to order a defendant (a

person against whom a lawsuit is brought) to perform within the terms of a contract A court of law could not issue such

an order because its remedies were limited to payment of money as compensation for damages A court of equity, how-

ever, could issue a decree for specific performance—an order

to perform what was promised A court of equity could also

issue an injunction, directing a party to do or refrain from

doing a particular act In certain cases, a court of equity

could allow for the rescission (cancellation) of the contract,

thereby returning the parties to the positions that they held prior to the contract’s formation Equitable remedies will

be discussed in greater detail in Chapter 12.

The Merging of Law and Equity Today, in most states, the

courts of law and equity have merged, and thus the distinction between the two courts has largely disappeared A plaintiff may now request both legal and equitable remedies in the same action, and the trial court judge may grant either form—or both forms—of relief The merging of law and equity, however, does not diminish the importance of distinguishing legal remedies from equitable remedies To request the proper remedy, a businessperson (or her or his attorney) must know what remedies are available for the specific kinds of harms suffered Today,

as a rule, courts will grant an equitable remedy only when the remedy at law (money damages) is inadequate Exhibit 1–2 on page 9 summarizes the procedural differences (applicable in most states) between an action at law and an action in equity.

The huge body of the law may be broken down according to several classification systems For example, one classification

system divides law into substantive law (all laws that define,

describe, regulate, and create legal rights and obligations)

and procedural law (all laws that establish the methods of

enforcing the rights established by substantive law) Other classification systems divide law into federal law and state law

or private law (dealing with relationships between persons) and public law (addressing the relationship between persons and their governments).

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he notion that courts

should rely on

prece-dents to decide the

out-come of similar cases has

long been a cornerstone of

U.S law Nevertheless, the

availability of

“unpub-lished opinions” over the

Internet is changing what the law considers to be precedent

An unpublished opinion is a decision made by an appellate

court that is not intended for publication in a reporter (the

bound books that contain court opinions).aCourts

tradition-ally have not considered unpublished opinions to be

“precedent,” binding or persuasive, and attorneys were often

not allowed to refer to these decisions in their arguments

An Increasing Number of Decisions Are Not

Published in Case Reporters but Are Available Online

The number of court decisions not published in printed

books has risen dramatically in recent years By some

esti-mates, nearly 80 percent of the decisions of the federal

appel-late courts are unpublished The number is equally high in

some state court systems California’s intermediate appellate

courts, for example, publish only about 7 percent of their

decisions

Even though certain decisions are not intended for

publi-cation, they are posted (“published”) almost immediately on

online legal databases, such as Westlaw and Lexis With the

proliferation of free legal databases and court Web sites, the

general public also has almost instant access to the

unpub-lished decisions of most courts This situation has caused a

substantial amount of debate over whether unpublished

opinions should be given the same precedential effect as

published opinions

Should Unpublished Decisions Establish Precedent?

Prior to the Internet, one might have been able to justify not

considering unpublished decisions to be precedent on the

grounds of fairness How could courts and lawyers be

expected to consider the reasoning in unpublished decisions

if they were not printed in the case reporters? Now that

opin-ions are so readily available on the Web, however, this cation is no longer valid Moreover, it now seems unfair not

justifi-to consider these decisions as precedent justifi-to some extentbecause they are so publicly accessible

Another argument against allowing unpublished decisions

to be precedent concerns the quality of the legal reasoningset forth in these decisions Staff attorneys and law clerks fre-quently write unpublished opinions so that judges can spendmore time on the opinions intended for publication

Consequently, some claim that allowing unpublished sions to establish precedent could result in bad precedentsbecause the reasoning may not be up to par If the decision isregarded merely as persuasive precedent, however, thenjudges who disagree with the reasoning are free to reject theconclusion

deci-The United States Supreme Court Changes Federal Rules on Unpublished Opinions as of 2007

In spite of objections from several hundred judges andlawyers, the United States Supreme Court made history in

2006 when it announced that it would allow lawyers to refer

to (cite) unpublished decisions in all federal courts The newrule, Rule 32.1 of the Federal Rules of Appellate Procedure,states that federal courts may not prohibit or restrict the cita-tion of federal judicial opinions that have been designated as

“not for publication,” “non-precedential,” or “not precedent.”The rule applies only to federal courts and only to unpub-lished opinions issued after January 1, 2007 It does not spec-ify the effect that a court must give to one of its unpublishedopinions or to an unpublished opinion from another court.Basically, the rule simply makes all the federal courts follow

a uniform rule that allows attorneys to cite—and judges toconsider as persuasive precedent—unpublished decisionsbeginning in 2007

The impact of this new rule remains to be seen At ent, the majority of states do not allow their state courts toconsider the rulings in unpublished cases as persuasiveprecedent, and this rule does not affect the states TheSupreme Court’s decision, however, provides an example ofhow technology—the availability of unpublished opinionsover the Internet—has affected the law

pres-F O R C R I T I C A L A N A LY S I S Now that the Supreme Court is allowing unpublished decisions

to be used as persuasive precedent in federal courts, should state courts follow? Why or why not?

T

a Recently decided cases that are not yet published are also

some-times called unpublished opinions, but because these decisions will

eventually be printed in reporters, we do not include them here

How the Internet Is Expanding Precedent

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Frequently, people use the term cyberlaw to refer to the

emerging body of law that governs transactions conducted via

the Internet Cyberlaw is not really a classification of law, nor

is it a new type of law Rather, it is an informal term used to

describe traditional legal principles that have been modified

and adapted to fit situations that are unique to the online

world Of course, in some areas new statutes have been

enacted, at both the federal and the state levels, to cover

spe-cific types of problems stemming from online

communica-tions Throughout this book, you will read how the law in a

given area is evolving to govern specific legal issues that arise

in the online context

Civil Law and Criminal Law

Civil law spells out the rights and duties that exist between

persons and between persons and their governments, and

the relief available when a person’s rights are violated.

Typically, in a civil case, a private party sues another private

party (although the government can also sue a party for a

civil law violation) to make that other party comply with a

duty or pay for the damage caused by the failure to comply

con-tract with a buyer, the buyer may bring a lawsuit against the

seller The purpose of the lawsuit will be either to compel

the seller to perform as promised or, more commonly, to

obtain money damages for the seller’s failure to perform

Much of the law that we discuss in this text is civil law.

Contract law, for example, which we discuss in Chapters 7

through 13, is civil law The whole body of tort law (see

Chapter 4) is civil law Note that civil law is not the same as

a civil law system As you will read shortly, a civil law system

is a legal system based on a written code of laws.

Criminal law has to do with wrongs committed against

society for which society demands redress Criminal acts are

proscribed by local, state, or federal government statutes.

Thus, criminal defendants are prosecuted by public

offi-cials, such as a district attorney (D.A.), on behalf of the

state, not by their victims or other private parties Whereas

in a civil case the object is to obtain remedies (such as

money damages) to compensate the injured party, in a

criminal case the object is to punish the wrongdoer in an attempt to deter others from similar actions Penalties for violations of criminal statutes consist of fines and/or impris- onment—and, in some cases, death We will discuss the differences between civil and criminal law in greater detail in Chapter 6.

National and International Law

Although the focus of this book is U.S business law, ingly businesspersons in this country engage in transactions that extend beyond our national borders In these situations, the laws of other nations or the laws governing relationships among nations may come into play For this reason, those who pursue a career in business today should have an understanding of the global legal environment.

increas-National Law The law of a particular nation, such as the

United States or Sweden, is national law National law, of

course, varies from country to country because each country’s law reflects the interests, customs, activities, and values that are unique to that nation’s culture Even though the laws and legal systems of various countries differ substantially, broad similarities do exist.

Two types of legal systems predominate around the globe today One is the common law system of England and the United States, which we have already discussed The other system is based on Roman civil law, or “code law.”7 The

term civil law, as used here, refers not to civil as opposed to

criminal law but to codified law—an ordered grouping of legal principles enacted into law by a legislature or governing body In a civil law system, the primary source of law is

a statutory code, and case precedents are not judicially binding, as they normally are in a common law system Although judges in a civil law system commonly refer to

■

■EXAMPLE 1.6

Initiation of lawsuit By filing a complaint By filing a petition

Remedy Monetary damages Injunction, specific performance, or rescission

Procedural Differences between an Action at Law and an Action in Equity

EXHIBIT 1–2

7 A third, less prevalent, legal system is common in Islamic countries, where

the law is often influenced by sharia, the religious law of Islam Although sharia

affects the legal codes of many Muslim countries, the extent of its impact and its interpretation vary widely.

Trang 35

previous decisions as sources of legal guidance, they are not

bound by precedent; in other words, the doctrine of stare

decisis does not apply Exhibit 1–3 lists some countries that

today follow either the common law system or the civil law

system.

International Law In contrast to national law, international

law applies to more than one nation International law can

be defined as a body of written and unwritten laws observed

by independent nations and governing the acts of individuals

as well as governments International law is an intermingling

of rules and constraints derived from a variety of sources,

including the laws of individual nations, the customs that

have evolved among nations in their relations with one

another, and treaties and international organizations In

essence, international law is the result of centuries-old

attempts to reconcile the traditional need of each nation to

be the final authority over its own affairs with the desire of

nations to benefit economically from trade and harmonious

relations with one another

The key difference between national law and international

law is that government authorities can enforce national law If a

nation violates an international law, however, the most that

other countries or international organizations can do (if

persua-sive tactics fail) is to resort to coercive actions against the

violat-ing nation (See Chapter 32 for a more detailed treatment of

international law.)

Each of the sources of law discussed earlier helps to frame the

legal environment of business Because laws that govern

busi-ness have their origin in the lawmaking authority granted by

the U.S Constitution, we examine that document more

closely here We focus on two areas of the Constitution of

particular concern to business—the commerce clause and

the Bill of Rights As mentioned earlier, the Constitution

pro-vides the legal basis for both state and federal (national) ers It is the supreme law in this country, and any law that conflicts with the Constitution, if challenged in court, will be declared invalid by the court.

pow-The Commerce Clause

To prevent states from establishing laws and regulations that would interfere with trade and commerce among the states, the Constitution expressly delegated to the national government the power to regulate interstate commerce Article I, Section 8,

of the U.S Constitution expressly permits Congress “[t]o late Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” This clause, referred to as

regu-the commerce clause, has had a greater impact on business

than any other provision in the Constitution

Initially, the commerce power was interpreted as being

limited to interstate commerce (commerce among the states) and not applicable to intrastate commerce (commerce

within a state) In 1824, however, in the landmark case

Gibbons v Ogden,8the United States Supreme Court held that commerce within a state could also be regulated by the

national government as long as the commerce substantially affected commerce involving more than one state.

The Commerce Clause and the Expansion of National

Powers In Gibbons v Ogden, the commerce clause was

expanded to regulate activities that “substantially affect state commerce.” As the nation grew and faced new kinds of problems, the commerce clause became a vehicle for the additional expansion of the national government’s regulatory powers Even activities that seemed purely local came under the regulatory reach of the national government if those activities were deemed to substantially affect interstate commerce. ■EXAMPLE 1.7 In 1942, in Wickard v Filburn,9the

inter-THE CONSTITUTION AS IT AFFECTS BUSINESS

8 22 U.S (9 Wheat.) 1, 6 L.Ed 23 (1824).

9 317 U.S 111, 63 S.Ct 82, 87 L.Ed 122 (1942).

ArgentinaAustriaBrazilChileChinaEgyptFinlandFranceGermanyGreece

IndonesiaIranItalyJapanMexicoPolandSouth KoreaSwedenTunisiaVenezuela

AustraliaBangladeshCanadaGhanaIndiaIsraelJamaicaKenyaMalaysiaNew Zealand

NigeriaSingaporeUnited KingdomUnited StatesZambia

The Legal Systems of Selected Nations EXHIBIT 1–3

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Supreme Court held that wheat production by an individual

farmer intended wholly for consumption on his own farm

was subject to federal regulation The Court reasoned that

the home consumption of wheat reduced the market

demand for wheat and thus could have a substantial effect on

interstate commerce

The following landmark case involved a challenge to the scope of the national government’s constitutional authority to regulate local activities.

■

FAC TS The owner of the Heart

of Atlanta Motel, in violation ofthe Civil Rights Act of 1964, refused to rent rooms to African

Americans The motel owner brought an action in a federal

district court to have the Civil Rights Act declared

unconstitutional, alleging that Congress had exceeded its

constitutional authority to regulate commerce by enacting

the act The owner argued that his motel was not engaged

in interstate commerce but was “of a purely local character.”

The motel, however, was accessible to state and interstate

highways The owner advertised nationally, maintained

billboards throughout the state, and accepted convention

trade from outside the state (75 percent of the guests were

residents of other states) The court ruled that the act did not

violate the Constitution and enjoined (prohibited) the owner

from discriminating on the basis of race The owner appealed

The case ultimately went to the United States Supreme Court

I S S U E Did Congress exceed its constitutional power to

regulate interstate commerce by enacting the Civil Rights Act

of 1964?

DECI S ION No The United States Supreme Court upheld the

constitutionality of the act

R EASON The Court noted that the act was passed to correct

“the deprivation of personal dignity” accompanying the denial

of equal access to “public establishments.” Testimony before

Congress leading to the passage of the act indicated thatAfrican Americans in particular experienced substantialdiscrimination in attempting to secure lodging while traveling.This discrimination impeded interstate travel and thusimpeded interstate commerce As for the owner’s argumentthat his motel was “of a purely local character,” the Court said that even if this was true, the motel affected interstatecommerce According to the Court, “if it is interstate commercethat feels the pinch, it does not matter how local the

operation that applies the squeeze.” Therefore, under thecommerce clause, “the power of Congress to promoteinterstate commerce also includes the power to regulate thelocal incidents thereof, including local activities.”

I M PA C T O F T H I S C A S E O N T O D AY ’ S L A W If the United States Supreme Court had invalidated the Civil Rights Act of 1964, the legal landscape of the United States would be much different today The act prohibits discrimination based on race, color, national origin, religion, or gender in all “public accommodations,” including hotels and restaurants The act also prohibits discrimination in employment based on these criteria Although state laws now prohibit many of these forms

of discrimination as well, the protections available vary from state to state—and it is not certain when (and if) such laws would have been passed had the 1964 federal Civil Rights Act been deemed unconstitutional.

R E L E VA N T W E B S I T E S To locate information on the Web concerning the Heart of Atlanta Motel decision, go to

this text’s Web site at www.cengage.com/blaw/fbl, select

“Chapter 1,” and click on “URLs for Landmarks.”

a.Under “Citation Search,” type in “379” before “U.S.” and then “241.” Click

“Search” to access this court opinion

Heart of Atlanta Motel v United States

The Commerce Power Today Today, at least theoretically,

the power over commerce authorizes the national

govern-ment to regulate every commercial enterprise in the United

States Federal (national) legislation governs virtually every

major activity conducted by businesses—from hiring and

fir-ing decisions to workplace safety, competitive practices, and

financing In the last fifteen years, however, the Supreme

Court has begun to curb somewhat the national ment’s regulatory authority under the commerce clause In

govern-1995, the Court held—for the first time in sixty years—that Congress had exceeded its regulatory authority under the commerce clause The Court struck down an act that banned the possession of guns within one thousand feet of any school because the act attempted to regulate an area that

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had “nothing to do with commerce.”10 Subsequently, the

Court invalidated key portions of two other federal acts on

the ground that they exceeded Congress’s commerce clause

authority.11

In one notable case, however, the Supreme Court did

allow the federal government to regulate noncommercial

activities taking place wholly within a state’s borders.

Eleven states, including California, have

adopted “medical marijuana” laws that legalize marijuana for

medical purposes Marijuana possession, however, is illegal

under the federal Controlled Substances Act (CSA).12After

the federal government seized the marijuana that two

seri-ously ill California women were using on the advice of their

physicians, the women argued that it was unconstitutional for

the federal act to prohibit them from using marijuana for

medical purposes that were legal within the state In 2003,

the U.S Court of Appeals for the Ninth Circuit agreed,

deciding the case on commerce clause grounds In 2005,

however, the United States Supreme Court held that

Congress has the authority to prohibit the intrastate

posses-sion and noncommercial cultivation of marijuana as part of

a larger regulatory scheme (the CSA).13In other words, state

medical marijuana laws do not pose barriers to federal drug

enforcement.

The Regulatory Powers of the States As part of their inherent

sovereignty, state governments have the authority to regulate

affairs within their borders This authority stems in part from

the Tenth Amendment to the Constitution, which reserves to

the states all powers not delegated to the national government.

State regulatory powers are often referred to as police powers.

The term encompasses not only the enforcement of criminal

law but also the right of state governments to regulate private

activities to protect or promote the public order, health, safety,

morals, and general welfare Fire and building codes,

antidis-crimination laws, parking regulations, zoning restrictions,

licensing requirements, and thousands of other state statutes

covering virtually every aspect of life have been enacted

pur-suant to a state’s police powers Local governments, including

cities, also exercise police powers Generally, state laws enacted

pursuant to a state’s police powers carry a strong presumption of

validity

The “Dormant” Commerce Clause The United States

Supreme Court has interpreted the commerce clause to

mean that the national government has the exclusive

author-ity to regulate commerce that substantially affects trade and commerce among the states This express grant of authority

to the national government, which is often referred to as the

“positive” aspect of the commerce clause, implies a negative

aspect—that the states do not have the authority to regulate

interstate commerce This negative aspect of the commerce clause is often referred to as the “dormant” (implied) commerce clause.

The dormant commerce clause comes into play when state regulations affect interstate commerce In this situation, the courts normally weigh the state’s interest in regulating a certain matter against the burden that the state’s regulation imposes on interstate commerce Because courts balance the interests involved, it can be extremely difficult to predict the outcome in a particular case.

At one time, many states regulated the sale

of alcoholic beverages, including wine, through a “three-tier” system This system required separate licenses for producers, wholesalers, and retailers, subject to a complex set of overlap- ping regulations that effectively banned direct sales to consumers from out-of-state wineries In-state wineries, in contrast, could obtain a license for direct sales to consumers.

In 2005, the United States Supreme Court ruled that these laws violated the dormant commerce clause The Court reasoned that by mandating different treatment of in-state and out-of-state economic interests, these laws deprived “citizens

of their right to have access to the markets of other states on equal terms.”14

Business and the Bill of Rights

The importance of having a written declaration of the rights

of individuals eventually caused the first Congress of the United States to enact twelve amendments to the Constitution and submit them to the states for approval The

first ten of these amendments, commonly known as the Bill

of Rights, were adopted in 1791 and embody a series of

pro-tections for the individual against various types of ence by the federal government.15 Some constitutional protections apply to business entities as well For example, corporations exist as separate legal entities, or legal persons, and enjoy many of the same rights and privileges as natural persons do Summarized here are the protections guaranteed

interfer-■

■EXAMPLE 1.9

■

■EXAMPLE 1.8

10 The United States Supreme Court held the Gun-Free School Zones Act of

1990 to be unconstitutional in United States v Lopez, 514 U.S 549, 115 S.Ct.

1624, 131 L.Ed.2d 626 (1995).

11 See, for example, Printz v United States, 521 U.S 898, 117 S.Ct 2365, 138

L.Ed.2d 914 (1997), involving the Brady Handgun Violence Prevention Act of

1993; and United States v Morrison, 529 U.S 598, 120 S.Ct 1740, 146 L.Ed.2d

658 (2000), concerning the federal Violence Against Women Act of 1994.

12 21 U.S.C Sections 801 et seq.

13 Gonzales v Raich, 545 U.S 1, 125 S.Ct 2195, 162 L.Ed.2d 1 (2005).

14 Granholm v Heald, 544 U.S 460, 125 S.Ct 1885, 161 L.Ed.2d 796 (2005); see also Cherry Hill Vineyard, LLC v Baldacci, 505 F.3d 28 (1st Cir 2007).

15 One of these proposed amendments was ratified more than two hundred years later (in 1992) and became the Twenty-seventh Amendment to the U.S Constitution See Appendix B.

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by these ten amendments (see the Constitution in Appendix

B for the complete text of each amendment):

1 The First Amendment guarantees the freedoms of

religion, speech, and the press and the rights to assemble

peaceably and to petition the government.

2 The Second Amendment concerns a well-regulated

mili-tia and the right of the people to keep and bear arms.

3 The Third Amendment prohibits, in peacetime, the

lodging of soldiers in any house without the owner’s

consent.

4 The Fourth Amendment prohibits unreasonable

searches and seizures of persons or property.

5 The Fifth Amendment guarantees the rights to

indictment16 (formal accusation—see Chapter 6) by

grand jury, to due process of law, and to fair payment

when private property is taken for public use The Fifth

Amendment also prohibits compulsory self-incrimination

and double jeopardy (trial for the same crime twice).

6 The Sixth Amendment guarantees the accused in a

crim-inal case the right to a speedy and public trial by an

impartial jury and with counsel The accused has the

right to cross-examine witnesses against him or her and to

solicit testimony from witnesses in his or her favor.

7 The Seventh Amendment guarantees the right to a trial by

jury in a civil (noncriminal) case involving at least twenty

dollars.17

8 The Eighth Amendment prohibits excessive bail and

fines, as well as cruel and unusual punishment.

9 The Ninth Amendment establishes that the people have

rights in addition to those specified in the Constitution.

10 The Tenth Amendment establishes that those powers

neither delegated to the federal government nor denied

to the states are reserved for the states.

As originally intended, the Bill of Rights limited only the

powers of the national government Over time, however,

the Supreme Court “incorporated” most of these rights into

the protections against state actions afforded by the

Fourteenth Amendment to the Constitution That

amend-ment, passed in 1868 after the Civil War, provides in part

that “[n]o State shall deprive any person of life, liberty,

or property, without due process of law.” Starting in 1925,

the Supreme Court began to define various rights and

lib-erties guaranteed in the national Constitution as

constitut-ing “due process of law,” which was required of state

governments under the Fourteenth Amendment Today, most

of the rights and liberties set forth in the Bill of Rights apply

to state governments as well as the national government.

We will look closely at several of the amendments in the above list in Chapter 6, in the context of criminal law and procedures Here, we examine two important guarantees of the First Amendment—freedom of speech and freedom

of religion—and the Fourth Amendment’s prohibition of

unreasonable searches and seizures These protections have

all been applied to the states through the due process clause

of the Fourteenth Amendment As you read through the lowing pages, keep in mind that none of these (or other) constitutional freedoms confers an absolute right Ultimately, it is the United States Supreme Court, as the final interpreter of the Constitution, that gives meaning to these rights and determines their boundaries

fol-The First Amendment—Freedom of Speech Freedom of

speech is the most prized freedom that Americans have Indeed, it is essential to our democratic form of government, which could not exist if people were not allowed to express their political opinions freely and criticize government actions

or policies Because of its importance, the courts traditionally have protected this right to the fullest extent possible.

Speech often includes not only what we say, but also what

we do to express our political, social, and religious views The

courts generally protect symbolic speech—gestures,

move-ments, articles of clothing, and other forms of nonverbal

American flag to protest government policies is a tionally protected form of expression Similarly, participating

constitu-in a hunger strike or wearconstitu-ing a black armband would be tected as symbolic speech

pro-Reasonable Restrictions. Expression—oral, written, or symbolized by conduct—is subject to reasonable restrictions.

A balance must be struck between a government’s obligation

to protect its citizens and those citizens’ exercise of their rights Reasonableness is analyzed on a case-by-case basis If

a restriction imposed by the government is content neutral, then a court may allow it To be content neutral, the restriction must be aimed at combating some societal problem, such as crime, and not be aimed at suppressing the expressive

protected nude dancing as a form of symbolic expression Nevertheless, the courts have also allowed content-neutral laws that ban all public nudity, not just erotic dancing.18 ■

■EXAMPLE 1.11

■

■EXAMPLE 1.10

16 Pronounced in-dyte-ment.

17 Twenty dollars was forty days’ pay for the average person when the Bill of

Rights was written.

18 See, for example, Rameses, Inc v County of Orange, 481 F.Supp.2d 1305 (M.D.Fla 2007); and City of Erie v Pap’s A.M., 529 U.S 277, 120 S.Ct 1382,

146 L.Ed.2d 265 (2000).

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tional The Court found that these provisions constituted unlawful restraints on corporate political speech.22

Commercial Speech The courts also give substantial

pro-tection to “commercial” speech, which consists of cations—primarily advertising and marketing—made by business firms that involve only their commercial interests The protection given to commercial speech under the First Amendment is not as extensive as that afforded to noncommercial speech, however A state may restrict certain kinds of advertising, for example, in the interest of protecting consumers from being misled by the advertising practices States also have a legitimate interest in the beautification of road- sides, and this interest allows states to place restraints on bill-

nude-dancing establishment, sued the state after being denied a permit to erect a billboard along an interstate highway in Florida The state appellate court decided that because the law directly advanced a substantial government interest in highway beautification and safety, it was not an unconstitutional restraint on commercial speech.23

Generally, a restriction on commercial speech will be sidered valid as long as it meets three criteria: (1) it must seek

con-to implement a substantial government interest, (2) it must directly advance that interest, and (3) it must go no further than necessary to accomplish its objective At issue in the following case was whether a government agency had unconsti- tutionally restricted commercial speech when it prohibited the inclusion of a certain illustration on beer labels.

■

■EXAMPLE 1.14

■

The United States Supreme Court has also held that

schools may restrict students’ free speech rights at school

involv-ing a high school student who had held up a banner sayinvolv-ing

“Bong Hits 4 Jesus” at an off-campus but school-sanctioned

event In a split decision, the majority of the Court ruled that

school officials did not violate the student’s free speech rights

when they confiscated the banner and suspended the student

for ten days Because the banner could reasonably be

inter-preted as promoting the use of marijuana, and because the

school had a written policy against illegal drugs, the majority

concluded that the school’s actions were justified Several

jus-tices disagreed, however, noting that the majority’s holding

cre-ates a special exception that will allow schools to censor any

student speech that mentions drugs.19

Corporate Political Speech Political speech by

corpora-tions also falls within the protection of the First Amendment.

Many years ago, the United States Supreme Court ruled that

a Massachusetts statute, which prohibited corporations from

making political contributions or expenditures that

individu-als were permitted to make, was unconstitutional.20Although

the Supreme Court has reversed this trend somewhat,21

cor-porate political speech continues to be given significant

and again in 2007, the Supreme Court struck down portions

of bipartisan campaign-finance reform laws as

unconstitu-■EXAMPLE 1.13

■

■EXAMPLE 1.12

19 Morse v Frederick, _ U.S _, 127 S.Ct 2618, 168 L.Ed.2d 290 (2007)

20 First National Bank of Boston v Bellotti, 435 U.S 765, 98 S.Ct 1407, 55

L.Ed.2d 707 (1978).

21 See Austin v Michigan Chamber of Commerce, 494 U.S 652, 110 S.Ct.

1391, 108 L.Ed.2d 652 (1990), in which the Supreme Court upheld a state law

prohibiting corporations from using general corporate funds for independent

expenditures in state political campaigns.

22 McConnell v Federal Election Commission, 540 U.S 93, 124 S.Ct 619, 157 L.Ed.2d 491 (2003); and Federal Election Commission v Wisconsin Right to Life, Inc., _U.S _, 127 S.Ct 2652, 168 L.Ed.2d 329 (2007).

23 Café Erotica v Florida Department of Transportation, 830 So.2d 181 (Fla.App 1 Dist 2002); review denied, Café Erotica/We Dare to Bare v Florida Department of Transportation, 845 So.2d 888 (Fla 2003).

FA C T S Bad Frog Brewery, Inc.,makes and sells alcoholicbeverages Some of the beverages feature labels that display a

drawing of a frog making the gesture generally known as

“giving the finger.” Bad Frog’s authorized New York distributor,

Renaissance Beer Company, applied to the New York State

Liquor Authority (NYSLA) for brand label approval, as required

by state law before the beer could be sold in New York TheNYSLA denied the application, in part, because “the labelcould appear in grocery and convenience stores, with obviousexposure on the shelf to children of tender age.” Bad Frog filed

a suit in a federal district court against the NYSLA, asking for,among other things, an injunction against the denial of theapplication The court granted summary judgment in favor ofthe NYSLA Bad Frog appealed to the U.S Court of Appeals forthe Second Circuit

a.Under the heading “US Court of Appeals,” click on “2nd.” Enter “Bad Frog

Brewery” in the “Party Name Search” box and click on “search.” On the

result-ing page, click on the case name to access the opinion

United States Court of Appeals, Second Circuit, 134 F.3d 87 (1998).

www.findlaw.com/casecode/index.htmla

CASE 1.2 Bad Frog Brewery, Inc v New York State Liquor Authority

Trang 40

Unprotected Speech The United States Supreme Court

has made it clear that certain types of speech will not be

given any protection under the First Amendment Speech

that harms the good reputation of another, or defamatory

speech (see Chapter 4), will not be protected Speech that

violates criminal laws (such as threatening speech) is not

con-stitutionally protected Other unprotected speech includes

“fighting words,” or words that are likely to incite others to

respond violently.

The First Amendment, as interpreted by the Supreme

Court, also does not protect obscene speech Establishing an

objective definition of obscene speech has proved difficult,

however, and the Court has grappled from time to time with

this problem In a 1973 case, Miller v California,24 the

Supreme Court created a test for legal obscenity, which

involved a set of requirements that must be met for material

to be legally obscene Under this test, material is obscene if

(1) the average person finds that it violates contemporary

community standards; (2) the work taken as a whole appeals

to a prurient (arousing or obsessive) interest in sex; (3) the

work shows patently offensive sexual conduct; and (4) the

work lacks serious redeeming literary, artistic, political, or

sci-entific merit.

Because community standards vary widely, the Miller test

has had inconsistent application, and obscenity remains a

constitutionally unsettled issue Numerous state and federal

statutes make it a crime to disseminate obscene materials, however, and the Supreme Court has often upheld such laws, including laws prohibiting the sale and possession of child pornography.

Online Obscenity. Congress first attempted to protect minors from pornographic materials on the Internet by pass- ing the Communications Decency Act (CDA) of 1996 The CDA declared it a crime to make available to minors online any “obscene or indecent” message that “depicts or describes,

in terms patently offensive as measured by contemporary community standards, sexual or excretory activities or organs.”25 Civil rights groups challenged the act, and ultimately the United States Supreme Court ruled that portions

of the act were unconstitutional The Court held that the

terms indecent and patently offensive covered large amounts

of nonpornographic material with serious educational or other value.26

A second attempt to protect children from online obscenity, the Child Online Protection Act (COPA) of 1998,27met with

a similar fate Although the COPA was more narrowly tailored than its predecessor, the CDA, it still used “contemporary community standards” to define which material was obscene

24 413 U.S 15, 93 S.Ct 2607, 37 L.Ed.2d 419 (1973).

25 47 U.S.C Section 223(a)(1)(B)(ii).

26 Reno v American Civil Liberties Union, 521 U.S 844, 117 S.Ct 2329, 138

L.Ed.2d 874 (1997).

27 47 U.S.C Section 231.

I S S U E Was the New York State Liquor Authority’s ban of

Bad Frog’s beer labels a reasonable restriction on commercial

speech?

D E C I S I O N No The U.S Court of Appeals for the Second

Circuit reversed the judgment of the district court and

remanded the case for judgment to be entered in favor of

Bad Frog

R E A S O N The appellate court held that the NYSLA’s denial

of Bad Frog’s application violated the First Amendment The

ban on the use of the labels lacked a “reasonable fit” with the

state’s interest in shielding minors from vulgarity, and the

NYSLA did not adequately consider alternatives to the ban The

court acknowledged that the NYSLA’s interest “in protecting

children from vulgar and profane advertising” was

“substantial.” The question was whether banning Bad Frog’s

labels “directly advanced” that interest “In view of the wide

currency of vulgar displays throughout contemporary society,

including comic books targeted directly at children, barring

such displays from labels for alcoholic beverages cannotrealistically be expected to reduce children’s exposure to suchdisplays to any significant degree.” The court concluded that a

“commercial speech limitation” must be “part of a substantialeffort to advance a valid state interest, not merely the removal

of a few grains of offensive sand from a beach of vulgarity.”Finally, as to whether the ban on the labels was moreextensive than necessary to serve this interest, the courtpointed out that there were “numerous less intrusivealternatives.” For example, the NYSLA’s “concern could be lessintrusively dealt with by placing restrictions on the permissiblelocations where the appellant’s products may be displayedwithin * * * stores.”

W H AT I F T H E FA C T S W E R E D I F F E R E N T ?

If Bad Frog had sought to use the offensive label to market toys instead of beer, would the court’s ruling likely have been the same? Explain your answer.

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