BSL 212 University of Miami The Inventor Out for Blood in Silicon Valley Paper

BSL 212 – INTRODUCTION TO BUSINESS LAWSPRING SEMESTER 2020
Analytical Paper: Ethics
After reading Chapter 2 of the textbook, watch the HBO documentary, The Inventor: Out for Blood in Silicon
Valley, directed by Alex Gibney. There will be a public screening of the film at 3:30PM on Tuesday, February, 18
in Storer Auditorium, followed by a panel discussion lead by Business School faculty. Plan ahead to ensure you
have time to view the film at least once before beginning your paper.
Essay Prompt:
There are numerous examples of ethically ambiguous practices featured in the film. These practices may include
actions, affirmative statements, omissions and/or schemes. Identify and explain one specific ethically ambiguous
practice, including a brief description of the parties involved and how the practice worked. Then, utilizing the
ethics material discussed in class and Chapter 2 of the textbook, analyze the ethics of the one specific practice
you are focusing on. Your analysis should:
(1) Include two of the “Theories of Ethics” (you must choose from Utilitarianism, Deontology, and Justice)
and two of the “Ethics Traps” presented in Chapter 2.
(2) Define and explain the theories and traps you are utilizing.
(3) Apply the theories and traps to analyze the ethics of the one specific practice you are focusing on.
(4) Use specific conversations and evidence from the film to assist in your analysis.
Your paper must be written in essay format; in other words, it should not be divided into individual answers to the
above questions. Your paper must include an introduction and a conclusion, and the bulk of your paper should
focus on analysis, not recitation of facts. There is no need to consult sources beyond your textbook, your class
notes, and the film itself (outside research is, in fact, discouraged). Your paper must be a minimum of 1000 and a
maximum of 1200 words, and must be double-spaced, utilizing Times Roman 12-point font and 1 inch
margins. In the upper left-hand corner of the first page of your paper, list your name, your instructor’s name,
the course (BSL 212), the date, and the exact word count of your paper. Direct quotes from the film or the
textbook must be placed in quotation marks and the source should be noted in parentheses directly after the quote
(The Inventor for the film, and Mann, Roberts, followed by the page number, for the textbook). Failure to comply
with these specific instructions will negatively impact your grade, as reflected in the Analytical Paper Grading
Rubric posted on Blackboard. You are to turn in a hard copy of your Analytical Paper, no later than the start of
class on March 4, 2020. Your Analytical Paper must also be submitted in Word format on Blackboard under the
designated “Assignments” tab by the same date and time as the hard copy. Please note that the papers will be run
through Safe Assignment, which will compare them against the entire Internet and our internal database to help detect
plagiarism. There is no makeup for this Analytical Paper; it is not subject to the quiz make up policy articulated
in the course syllabus.
BSL 212 Analytical Paper Grading Rubric
90 – 100
Complies with Analytical Paper Instructions; Contains no or minor
grammatical or spelling errors.
Identifies and explains an ethically ambiguous business
practice/action; Correctly explains two ethical theories and two
ethical traps; Provides in-depth sophisticated analysis of the
practice/action utilizing the ethical theories and ethical traps.
Analysis is bolstered by the use of all relevant facts as well as apt
analogies.
80 – 89
Complies with Analytical Paper Instructions; Contains minor
grammatical or spelling errors.
Identifies and explains an ethically ambiguous business
practice/action; Correctly explains two ethical theories and two
ethical traps; Accurately but mechanically analyzes the
practice/action utilizing the ethical theories and traps. Analysis lacks
depth and breadth of the “exceptional” response in terms of
application of the ethical theories and traps or the use of
relevant facts.
70 – 79
Fails to fully comply with Analytical Paper Instructions; Contains
significant grammatical and spelling errors.
Identifies an ethically ambiguous business practice/action, Correctly
explains at least one of the ethical theories and one of the ethical
traps; Provides only a cursory analysis of the practice/action.
60 – 69
Fails to comply with Analytical Paper Instructions; Contains
numerous major grammatical and spelling errors.
Identifies an ethically ambiguous business practice/action, but is
unable to explain an ethical theory or trap required to analyze
the practice/action. Analysis of the practice/action, if any, is based on
common sense or (inapt) legal concepts learned in the course.
0 – 59
Fails to comply with Analytical Paper Instructions; Contains
numerous major grammatical and spelling errors.
Fails to identify an ethically ambiguous business practice or action.
Fails to explain any ethical theory or trap; Fails to provide any ethical
analysis.
Film Screening and Faculty Q & A
Tuesday, February 18th, 3:30-6:15PM
@ Storer Auditorium
Visionary.
Billionaire.
Fraud?
TWELFTH EDITION
BUSINESS LAW
and the
REGULATION
of BUSINESS
Richard A . Mann
Professor of Business Law
The University of North Carolina at Chapel Hill
Member of the North Carolina Bar
Barry S . R oberts
Professor of Business Law
The University of North Carolina at Chapel Hill
Member of the North Carolina and Pennsylvania Bars
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
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Business Law and the Regulation of Business,
12th Edition
Richard A. Mann
Barry S. Roberts
VP for Social Science and Qualitative
Business: Erin Joyner
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Library of Congress Control Number: 2015949710
Student Edition ISBN: 978-1-305-50955-9
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Printed in the United States of America
Print Number: 01
Print Year: 2015
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ABOUT
THE
Richard A. Mann received a B.S. in mathematics from
the University of North Carolina at Chapel Hill and a J.D.
from Yale Law School. He is professor emeritus of Business Law at the Kenan-Flagler Business School, University
of North Carolina at Chapel Hill, and is past president of
the Southeastern Regional Business Law Association. He
is a member of Who’s Who in America, Who’s Who in
American Law, and the North Carolina Bar (inactive).
Professor Mann has written extensively on a number
of legal topics, including bankruptcy, sales, secured
transactions, real property, insurance law, and business
associations. He has received the American Business
Law Journal’s award both for the best article and for
the best comment and, in addition, has served as a
reviewer and staff editor for the publication. Professor
Mann is a co-author of Smith and Roberson’s Business
Law (sixteenth edition), as well as Essentials of Business Law and the Legal Environment (twelfth edition)
and Contemporary Business Law.
AUTHORS
Barry S. Roberts received a B.S. in business administration from Pennsylvania State University, a J.D. from
the University of Pennsylvania, and an LL.M. from
Harvard Law School. He served as a judicial clerk for
the Pennsylvania Supreme Court prior to practicing
law in Pittsburgh. He is professor of Business Law at
the Kenan-Flagler Business School, University of North
Carolina at Chapel Hill, and is a member of Who’s
Who in American Law and the North Carolina and
Pennsylvania Bars (inactive).
Professor Roberts has written numerous articles on
such topics as antitrust, products liability, constitutional
law, banking law, employment law, and business associations. He has been a reviewer and staff editor for the
American Business Law Journal. He is a co-author of
Smith and Roberson’s Business Law (sixteenth edition),
as well as Essentials of Business Law and the Legal
Environment (twelfth edition) and Contemporary
Business Law.
iii
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
BRIEF CONTENTS
PART I
INTRODUCTION
TO
LAW
AND
ETHICS 1
1 Introduction to Law 2
2 Business Ethics 15
PART V
PART II
THE LEGAL ENVIRONMENT
3
4
5
6
7
8
OF
BUSINESS 45
Civil Dispute Resolution 46
Constitutional Law 73
Administrative Law 95
Criminal Law 113
Intentional Torts 133
Negligence and Strict Liability 155
PART III
CONTRACTS 183
9
10
11
12
13
14
15
16
17
18
20 Performance 407
21 Transfer of Title and Risk of Loss 429
22 Product Liability: Warranties and Strict
Liability 446
23 Sales Remedies 475
Introduction to Contracts 184
Mutual Assent 202
Conduct Invalidating Assent 225
Consideration 245
Illegal Bargains 265
Contractual Capacity 285
Contracts in Writing 302
Third Parties to Contracts 328
Performance, Breach, and Discharge 347
Contract Remedies 365
PART IV
SALES 385
19 Introduction to Sales and Leases 386
NEGOTIABLE INSTRUMENTS 499
24
25
26
27
Form and Content 500
Transfer and Holder in Due Course 517
Liability of Parties 549
Bank Deposits, Collections, and Funds
Transfers 569
PART VI
AGENCY 595
28 Relationship of Principal and Agent 596
29 Relationship with Third Parties 619
PART VII
BUSINESS ASSOCIATIONS 647
30 Formation and Internal Relations of General
Partnerships 648
31 Operation and Dissolution of General
Partnerships 675
32 Limited Partnerships and Limited Liability
Companies 703
33 Nature and Formation of Corporations 728
34 Financial Structure of Corporations 752
35 Management Structure of Corporations 774
36 Fundamental Changes of Corporations 808
iv
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
v
Brief Contents
PART VIII
APPENDICES
DEBTOR
Appendix A
CREDITOR RELATIONS 831
AND
37 Secured Transactions and Suretyship 832
38 Bankruptcy 867
Appendix B
PART IX
REGULATION
39
40
41
42
43
44
45
46
OF
The Constitution of the United States
of America A-2
BUSINESS 897
Securities Regulation 898
Intellectual Property 937
Employment Law 960
Antitrust 992
Accountants’ Legal Liability 1016
Consumer Protection 1029
Environmental Law 1054
International Business Law 1077
Uniform Commercial Code
(Selected Provisions) B-1
Appendix C
Dictionary of Legal Terms C-1
Index I-1
PART X
PROPERTY 1099
47 Introduction to Property, Property Insurance,
Bailments, and Documents of Title 1100
48 Interests in Real Property 1130
49 Transfer and Control of Real Property 1150
50 Trusts and Wills 1168
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
TABLE
OF
PART I
Introduction to Law and Ethics 1
1 Introduction to Law 2
Nature of Law 3
Classification of Law 4
Concept Review: Comparison of Civil and Criminal
Law 5
Sources of Law 5
Concept Review: Comparison of Law and Equity 8
Going Global: What is the WTO? 9
Legal Analysis 10
Applying the Law: Introduction to Law 13
2 Business Ethics 15
Law Versus Ethics 16
Ethical Theories 16
Ethical Standards in Business 19
Ethical Responsibilities of Business 20
BUSINESS ETHICS CASES 27
Pharmakon Drug Company 27
Mykon’s Dilemma 28
Oliver Winery, Inc. 33
JLM, Inc. 34
Sword Technology, Inc. 37
Vulcan, Inc. 40
PART II
The Legal Environment of Business 45
3 Civil Dispute Resolution 46
THE COURT SYSTEM 46
The Federal Courts 47
State Courts 49
JURISDICTION 49
Subject Matter Jurisdiction 50
Concept Review: Subject Matter Jurisdiction 53
Jurisdiction over the Parties 53
CIVIL DISPUTE RESOLUTION 56
Civil Procedure 56
Alternative Dispute Resolution 62
CONTENTS
Concept Review: Comparison of Court Adjudication,
Arbitration, and Mediation/Conciliation 64
Business Law in Action 66
Going Global: What about international dispute
resolution? 67
4 Constitutional Law 73
Basic Principles 74
Powers of Government 78
Limitations on Government 83
Concept Review: Limitations on Government 83
Ethical Dilemma: Who Is Responsible for Commercial
Speech? 90
5 Administrative Law 95
Operation of Administrative Agencies 96
Concept Review: Administrative Rulemaking 101
Limits on Administrative Agencies 103
Ethical Dilemma: Should the Terminally Ill Be Asked
to Await FDA Approval of Last-Chance
Treatments? 109
6 Criminal Law 113
Nature of Crimes 114
Classification 115
Concept Review: Degrees of Mental Fault 115
White-Collar Crime 116
Crimes Against Business 120
Applying the Law: Criminal Law 120
Going Global: What about international
bribery? 124
Defenses to Crimes 126
Criminal Procedure 126
Concept Review: Constitutional Protection for
the Criminal Defendant 129
7 Intentional Torts 133
Harm to the Person 137
Harm to the Right of Dignity 140
Business Law in Action 142
Concept Review: Privacy 146
Harm to Property 146
Harm to Economic Interests 147
Concept Review: Intentional Torts 149
Ethical Dilemma: What May One Do to Attract Clients
from a Previous Employer? 150
vi
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
vii
Table of Contents
8 Negligence and Strict Liability 155
NEGLIGENCE 156
Breach of Duty of Care 156
Factual Cause 165
Scope of Liability (Proximate Cause) 165
Harm 168
Defenses to Negligence 169
STRICT LIABILITY 172
Activities Giving Rise to Strict Liability 172
Defenses to Strict Liability 175
Ethical Dilemma: What Are the Obligations of
a Bartender to His Patrons? 176
PART III
Contracts 183
9 Introduction to Contracts 184
Development of the Law of Contracts 185
Going Global: What about international
contracts? 186
Definition of Contract 186
Requirements of a Contract 187
Classification of Contracts 190
Promissory Estoppel 193
Quasi Contracts or Restitution 195
Concept Review: Contracts, Promissory Estoppel,
and Quasi Contracts (Restitution) 195
Business Law in Action 197
10 Mutual Assent 202
OFFER 203
Essentials of an Offer 203
Duration of Offers 208
Applying the Law: Mutual Assent 211
ACCEPTANCE OF OFFER 213
Communication of Acceptance 213
Variant Acceptances 217
Business Law in Action 218
Concept Review: Offer and Acceptance 219
11 Conduct Invalidating Assent 225
Duress 225
Undue Influence 228
Fraud 230
Concept Review: Misrepresentation 234
Nonfraudulent Misrepresentation 234
Mistake 235
Applying the Law: Conduct Invalidating Assent 235
Concept Review: Conduct Invalidating Assent 238
12 Consideration 245
Legal Sufficiency 245
Concept Review: Consideration in Unilateral and
Bilateral Contracts 247
Bargained-for Exchange 254
Contracts Without Consideration 255
Business Law in Action 258
Ethical Dilemma: Should a Spouse’s Promise Be
Legally Binding? 260
13 Illegal Bargains 265
Violations of Statutes 265
Violations of Public Policy 269
Effect of Illegality 278
Business Law in Action 279
Ethical Dilemma: When Is a Bargain Too Hard? 280
14 Contractual Capacity 285
Minors 285
Business Law in Action 289
Incompetent Persons 294
Ethical Dilemma: Should a Merchant Sell to One Who
Lacks Capacity? 297
15 Contracts in Writing 302
STATUTE OF FRAUDS 303
Contracts Within the Statute of Frauds 303
Going Global: What about electronic commerce and
electronic signatures in international contracts? 305
Concept Review: The Statute of Frauds 312
Compliance with the Statute of Frauds 313
Effect of Noncompliance 315
Business Law in Action 315
PAROL EVIDENCE RULE 316
The Rule 316
Situations to Which the Rule Does Not Apply 318
Supplemental Evidence 319
INTERPRETATION OF CONTRACTS 320
Ethical Dilemma: What’s (Wrong) in a Contract? 321
16 Third Parties to Contracts 328
Assignment of Rights 328
Delegation of Duties 335
Third-Party Beneficiary Contracts 338
Applying the Law: Third Parties to Contracts 338
17 Performance, Breach, and Discharge 347
Conditions 347
Discharge by Performance 350
Discharge by Breach 351
Applying the Law: Performance, Breach, and
Discharge 352
Discharge by Agreement of the Parties 353
Discharge by Operation of Law 355
18 Contract Remedies 365
Monetary Damages 366
Business Law in Action 367
Remedies in Equity 372
Restitution 376
Limitations on Remedies 376
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
viii
Table of Contents
PART IV
PART V
Sales 385
Negotiable Instruments 499
19 Introduction to Sales and Leases 386
24 Form and Content 500
NATURE OF SALES AND LEASES 387
Definitions 387
Going Global: What law governs international sales? 389
Fundamental Principles of Article 2 and
Article 2A 391
FORMATION OF SALES AND LEASE
CONTRACTS 394
Manifestation of Mutual Assent 394
Consideration 399
Form of the Contract 399
Business Law in Action 400
Concept Review: Contract Law Compared with Law
of Sales 401
Ethical Dilemma: What Constitutes Unconscionability
in a Business? 402
20 Performance 407
Performance by the Seller 408
Performance by the Buyer 413
Obligations of Both Parties 418
Going Global: What about letters of credit? 419
Ethical Dilemma: Should a Buyer Refuse to Perform a
Contract Because a Legal Product May Be Unsafe? 423
21 Transfer of Title and Risk of Loss 429
Transfer of Title 429
Risk of Loss 435
Bulk Sales 441
Ethical Dilemma: Who Should Bear the Loss? 441
22 Product Liability: Warranties and Strict
Liability 446
WARRANTIES 447
Types of Warranties 447
Obstacles to Warranty Actions 453
Concept Review: Warranties 456
STRICT LIABILITY IN TORT 457
Requirements of Strict Liability in Tort 457
Obstacles to Recovery 462
Concept Review: Product Liability 464
Business Law in Action 465
Restatement (Third) of Torts: Products Liability 466
Ethical Dilemma: When Should a Company Order
a Product Recall? 467
23 Sales Remedies 475
Remedies of the Seller 476
Remedies of the Buyer 481
Concept Review: Remedies of the Seller 482
Applying the Law: Sales Remedies 483
Concept Review: Remedies of the Buyer 488
Contractual Provisions Affecting Remedies 488
Negotiability 501
Concept Review: Use of Negotiable Instruments 501
Types of Negotiable Instruments 502
Formal Requirements of Negotiable Instruments 505
25 Transfer and Holder in Due Course 517
TRANSFER 517
Negotiation 518
Indorsements 521
Concept Review: Indorsements 525
Applying the Law: Transfer of Negotiable
Instruments 525
HOLDER IN DUE COURSE 527
Requirements of a Holder in Due Course 527
Holder in Due Course Status 533
The Preferred Position of a Holder in Due
Course 536
Limitations upon Holder in Due Course Rights 539
Ethical Dilemma: What Responsibility Does
a Holder Have in Negotiating Commercial
Paper? 542
26 Liability of Parties 549
CONTRACTUAL LIABILITY 549
Signature 550
Liability of Primary Parties 553
Liability of Secondary Parties 553
Concept Review: Contractual Liability 557
Business Law in Action 558
Termination of Liability 558
LIABILITY BASED ON WARRANTY 559
Warranties on Transfer 559
Warranties on Presentment 560
Ethical Dilemma: Who Gets to Pass the Buck on
a Forged Indorsement? 564
27 Bank Deposits, Collections, and Funds
Transfers 569
BANK DEPOSITS AND COLLECTIONS 570
Collection of Items 570
Going Global: What about letters of credit? 571
Relationship Between Payor Bank and Its
Customer 575
ELECTRONIC FUNDS TRANSFER 581
Types of Electronic Funds Transfer 582
Business Law in Action 583
Consumer Funds Transfers 584
Wholesale Funds Transfers 585
Concept Review: Parties to a Funds Transfer 588
Ethical Dilemma: Can Embezzlement Ever Be
a Loan? 588
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
ix
Table of Contents
PART VI
Agency 595
28 Relationship of Principal and Agent 596
Nature of Agency 597
Creation of Agency 599
Duties of Agent to Principal 603
Duties of Principal to Agent 607
Termination of Agency 608
Applying the Law: Relationship of Principal and
Agent 612
Ethical Dilemma: Is Medicaid Designed to Protect
Inheritances? 613
29 Relationship with Third Parties 619
RELATIONSHIP OF PRINCIPAL AND THIRD
PERSONS 620
Contract Liability of the Principal 620
Business Law in Action 624
Business Law in Action 625
Tort Liability of Principal 630
Criminal Liability of the Principal 635
RELATIONSHIP OF AGENT AND THIRD
PERSONS 636
Contract Liability of Agent 636
Tort Liability of Agent 639
Rights of Agent Against Third Person 639
Ethical Dilemma: When Should an Agent’s
Power to Bind His Principal Terminate? 640
PART VII
Business Associations 647
30 Formation and Internal Relations of General
Partnerships 648
CHOOSING A BUSINESS ASSOCIATION 648
Factors Affecting the Choice 649
Forms of Business Associations 650
Concept Review: General Partnership, Limited
Partnership, Limited Liability Company, and
Corporation 652
Going Global: What about multinational
enterprises? 653
FORMATION OF GENERAL
PARTNERSHIPS 653
Nature of Partnership 653
Formation of a Partnership 654
RELATIONSHIPS AMONG PARTNERS 663
Duties Among Partners 663
Rights Among Partners 666
Concept Review: Partnership Property Compared with
Partner’s Interest 667
Ethical Dilemma: When Is an Opportunity a
Partnership Opportunity? 670
31 Operation and Dissolution of General
Partnerships 675
RELATIONSHIP OF PARTNERSHIP AND
PARTNERS WITH THIRD PARTIES 675
Contracts of Partnership 676
Business Law in Action 680
Torts and Crimes of Partnership 680
Notice to a Partner 681
Liability of Incoming Partner 681
DISSOCIATION AND DISSOLUTION OF
GENERAL PARTNERSHIPS UNDER THE
RUPA 683
Dissociation 683
Dissolution 684
Concept Review: Dissociation and Dissolution Under
the RUPA 687
Dissociation Without Dissolution 689
DISSOLUTION OF GENERAL PARTNERSHIPS
UNDER THE UPA 693
Dissolution 693
Winding Up 693
Continuation After Dissolution 694
Ethical Dilemma: What Duty of Disclosure Is Owed to
Incoming Partners? 695
32 Limited Partnerships and Limited Liability
Companies 703
Limited Partnerships 703
Concept Review: Comparison of General and Limited
Partners 709
Limited Liability Companies 710
Concept Review: Comparison of Member-Managed and
Manager-Managed LLCs 714
Applying the Law: Limited Partnerships and Limited
Liability Companies 715
Other Unincorporated Business Associations 720
Concept Review: Liability Limitations in LLPs 721
33 Nature and Formation of Corporations 728
NATURE OF CORPORATIONS 729
Corporate Attributes 729
Classification of Corporations 730
Business Law in Action 733
Business Law in Action 734
FORMATION OF A CORPORATION 734
Organizing the Corporation 734
Formalities of Incorporation 737
Concept Review: Comparison of Charter and
Bylaws 738
RECOGNITION OR DISREGARD OF
CORPORATENESS 738
Defective Incorporation 738
Piercing the Corporate Veil 741
CORPORATE POWERS 744
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x
Table of Contents
Sources of Corporate Powers 744
Ultra Vires Acts 744
Liability for Torts and Crimes 744
34 Financial Structure of Corporations 752
DEBT SECURITIES 753
Going Global: What about foreign investment? 753
Authority to Issue Debt Securities 754
Types of Debt Securities 754
Business Law in Action 756
EQUITY SECURITIES 756
Issuance of Shares 756
Classes of Shares 760
Concept Review: Debt and Equity Securities 761
DIVIDENDS AND OTHER DISTRIBUTIONS 761
Types of Dividends and Other Distributions 761
Legal Restrictions on Dividends and Other
Distributions 762
Applying the Law: Financial Structure of
Corporations 764
Declaration and Payment of Distributions 766
Concept Review: Liability For Improper
Distributions 768
Liability for Improper Dividends and Distributions 768
35 Management Structure of Corporations 774
CORPORATE GOVERNANCE 774
ROLE OF SHAREHOLDERS 777
Voting Rights of Shareholders 777
Concept Review: Concentrations of Voting Power 782
Enforcement Rights of Shareholders 782
ROLE OF DIRECTORS AND OFFICERS 787
Function of the Board of Directors 789
Election and Tenure of Directors 790
Exercise of Directors’ Functions 791
Officers 792
Duties of Directors and Officers 793
Business Law in Action 801
Ethical Dilemma: Whom Does a Director Represent?
What Are a Director’s Duties? 802
Essentials of Secured Transactions 833
Classification of Collateral 834
Attachment 836
Perfection 839
Priorities Among Competing Interests 843
Concept Review: Applicable Method of Perfection 843
Concept Review: Requisites for Enforceability
of Security Interests 844
Concept Review: Priorities 848
Default 848
Business Law in Action 849
SURETYSHIP 852
Nature and Formation 852
Duties of Surety 854
Rights of Surety 854
Defenses of Surety and Principal Debtor 855
Ethical Dilemma: What Price Is ‘‘Reasonable’’
in Terms of Repossession? 859
38 Bankruptcy 867
FEDERAL BANKRUPTCY LAW 868
Going Global: What about transnational
bankruptcies? 869
Case Administration—Chapter 3 869
Creditors, the Debtor, and the Estate—
Chapter 5 871
Liquidation—Chapter 7 876
Applying the Law: Bankruptcy 878
Reorganization—Chapter 11 879
Adjustment of Debts of Individuals—
Chapter 13 883
Concept Review: Comparison of Bankruptcy
Proceedings 889
CREDITORS’ RIGHTS AND DEBTORS’ RELIEF
OUTSIDE OF BANKRUPTCY 889
Creditors’ Rights 890
Debtors’ Relief 890
Ethical Dilemma: For a Company Contemplating
Bankruptcy, When Is Disclosure the Best
Policy? 892
36 Fundamental Changes of Corporations 808
Charter Amendments 809
Combinations 809
Dissolution 821
Concept Review: Fundamental Changes Under
Pre-1999 RMBCA 821
Ethical Dilemma: What Rights Do Minority
Shareholders Have? 825
PART VIII
Debtor and Creditor Relations 831
37 Secured Transactions and Suretyship 832
SECURED TRANSACTIONS IN PERSONAL
PROPERTY 833
PART IX
Regulation of Business 897
39 Securities Regulation 898
THE SECURITIES ACT OF 1933 900
Definition of a Security 900
Registration of Securities 902
Exempt Securities 904
Exempt Transactions for Issuers 904
Exempt Transactions for Nonissuers 908
Concept Review: Exempt Transactions for Issuers
Under the 1933 Act 909
Liability 910
THE SECURITIES EXCHANGE ACT OF 1934 914
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xi
Table of Contents
Disclosure 915
Concept Review: Disclosure Under the 1934 Act 919
Business Law in Action 920
Liability 920
Going Global: What about international securities
regulation? 928
Concept Review: Civil Liability Under the 1933 and
1934 Acts 931
Ethical Dilemma: What Information May a Corporate
Employee Disclose? 932
40 Intellectual Property 937
Trade Secrets 937
Trade Symbols 940
Trade Names 945
Copyrights 945
Patents 950
Going Global: How is intellectual property protected
internationally? 951
Concept Review: Intellectual Property 953
Ethical Dilemma: Who Holds the Copyright on Lecture
Notes? 954
41 Employment Law 960
Labor Law 961
Concept Review: Unfair Labor Practices 962
Employment Discrimination Law 962
Concept Review: Federal Employment Discrimination
Laws 977
Business Law in Action 978
Going Global: Do the antidiscrimination laws apply
outside the United States? 979
Employee Protection 979
Ethical Dilemma: What (Unwritten) Right to
a Job Does an Employee Have? 985
Concept Review: Consumer Rescission Rights 1037
Consumer Credit Transactions 1037
Business Law in Action 1044
Creditors’ Remedies 1045
Ethical Dilemma: Should Some Be
Protected from High-Pressure Sales? 1048
45 Environmental Law 1054
COMMON LAW ACTIONS FOR
ENVIRONMENTAL DAMAGE 1054
Nuisance 1055
Trespass to Land 1055
Strict Liability for Abnormally Dangerous
Activities 1055
Problems Common to Private Causes of Action 1056
FEDERAL REGULATION OF THE
ENVIRONMENT 1056
The National Environmental Policy Act 1056
The Clean Air Act 1057
The Clean Water Act 1061
Hazardous Substances 1065
International Protection of the Ozone Layer 1070
Concept Review: Major Federal Environmental
Statutes 1071
Ethical Dilemma: Distant Concerns 1072
46 International Business Law 1077
The International Environment 1078
Jurisdiction over Actions of Foreign Governments 1080
Transacting Business Abroad 1083
Business Law in Action 1085
Forms of Multinational Enterprises 1091
Ethical Dilemma: Who May Seek Economic
Shelter Under U.S. Trade Law? 1094
42 Antitrust 992
Sherman Antitrust Act 993
Going Global: Do the antitrust laws apply outside the
United States? 994
Concept Review: Restraints of Trade Under Sherman
Act 1002
Clayton Act 1005
Robinson-Patman Act 1008
Federal Trade Commission Act 1010
Ethical Dilemma: When Is an Agreement
Anticompetitive? 1011
43 Accountants’ Legal Liability 1016
Common Law 1016
Federal Securities Law 1020
Applying the Law: Accountants’ Legal Liability 1023
Concept Review: Accountants’ Liability Under Federal
Securities Law 1024
44 Consumer Protection 1029
State and Federal Consumer Protection Agencies 1030
Consumer Purchases 1035
PART X
Property 1099
47 Introduction to Property, Property Insurance,
Bailments, and Documents of Title 1100
INTRODUCTION TO PROPERTY AND PERSONAL
PROPERTY 1101
Kinds of Property 1101
Concept Review: Kinds of Property 1104
Transfer of Title to Personal Property 1105
PROPERTY INSURANCE 1108
Fire and Property Insurance 1108
Nature of Insurance Contracts 1109
Business Law in Action 1110
BAILMENTS AND DOCUMENTS OF TITLE
BAILMENTS 1113
Bailments 1113
Concept Review: Duties in a Bailment 1117
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xii
Table of Contents
Documents of Title 1118
Ethical Dilemma: Who Is Responsible for the
Operation of Rental Property? 1121
48 Interests in Real Property 1130
Freehold Estates 1130
Leasehold Estates 1132
Concept Review: Freehold Estates 1133
Concurrent Ownership 1139
Nonpossessory Interests 1141
Concept Review: Rights of Concurrent Owners 1142
Applying the Law: Interests in Real Property 1144
49 Transfer and Control of Real Property 1150
TRANSFER OF REAL PROPERTY 1151
Contract of Sale 1151
Deeds 1153
Secured Transactions 1154
Adverse Possession 1156
PUBLIC AND PRIVATE CONTROLS 1156
Zoning 1156
Eminent Domain 1157
Private Restrictions on Land Use 1159
Ethical Dilemma: Where Should Cities House
the Disadvantaged? 1162
APPENDICES
Appendix A
The Constitution of the United States
of America A-2
Appendix B
Uniform Commercial Code
(Selected Provisions) B-1
Appendix C
Dictionary of Legal Terms C-1
Index I-1
50 Trusts and Wills 1168
TRUSTS 1168
Types of Trusts 1169
Creation of Trusts 1171
Concept Review: Allocation of Principal and
Income 1174
Termination of a Trust 1175
DECEDENT’S ESTATES 1175
Wills 1175
Business Law in Action 1180
Intestate Succession 1181
Administration of Estates 1182
Ethical Dilemma: When Should Life Support
Cease? 1182
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TABLE
OF
Cases shown in red are new to this edition.
A
A.E. Robinson Oil Co., Inc. v. County Forest Products,
Inc., 638
Alcoa Concrete & Masonry v. Stalker Bros., 266
Aldana v. Colonial Palms Plaza, Inc., 332
Alexander v. FedEx Ground Package System, Inc., 598
Alpert v. 28 Williams St. Corp., 814
Alzado v. Blinder, Robinson & Company, Inc., 705
American Manufacturing Mutual Insurance Company
v. Tison Hog Market, Inc., 856
American Needle, Inc. v. National Football League,
995
Anderson v. McOskar Enterprises, Inc., 273
Any Kind Checks Cashed, Inc. v. Talcott, 530
Arrowhead School District No. 75, Park County,
Montana v. Klyap, 369
Association for Molecular Pathology v. Myriad
Genetics, Inc., 951
B
Bagley v. Mt. Bachelor, Inc., 275
Beam v. Stewart, 799
Belden, Inc. v. American Electronic Components, Inc.,
448
Berardi v. Meadowbrook Mall Company, 226
Berg v. Traylor, 287
Bigelow-Sanford, Inc. v. Gunny Corp., 484
Border State Bank of Greenbush v. Bagley Livestock
Exchange, Inc., 836
Borton v. Forest Hills Country Club, 1142
Bouton v. Byers, 193
Brehm v. Eisner, 795
Brentwood Academy v. Tennessee Secondary School
Athletic Association, 77
Brown v. Board of Education of Topeka, 89
Brown v. Entertainment Merchants Association, 84
Bulova Watch Company, Inc. v. K. Hattori & Co., 1092
CASES
Burlington Northern & Santa Fe Railway Company
v. White, 963
Burningham v. Westgate Resorts, Ltd., 236
C
Caldwell v. Bechtel, Inc., 12
Cappo v. Suda, 1161
Carter v. Tokai Financial Services, Inc., 388
Catamount Slate Products, Inc. v. Sheldon, 204
Chapa v. Traciers & Associates, 849
Christy v. Pilkinton, 356
Coastal Leasing Corporation v. T-Bar S Corporation,
489
Cohen v. Mirage Resorts, Inc., 819
Commerce & Industry Insurance Company v. Bayer
Corporation, 397
Conklin Farm v. Leibowitz, 682
Connes v. Molalla Transport System, Inc., 631
Construction Associates, Inc. v. Fargo Water
Equipment Co., 392
Conway v. Cutler Group, Inc., 1152
Cooke v. Fresh Express Foods Corporation, Inc., 822
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.
v. Bailey, 511
Coopers & Lybrand v. Fox, 736
Cox Enterprises, Inc. v. Pension Benefit Guaranty
Corporation, 765
D
Dahan v. Weiss, 313
Davis v. Watson Brothers Plumbing, Inc., 554
Denney v. Reppert, 250
Department of Revenue of Kentucky, et al. v. Davis, 79
Detroit Lions, Inc. v. Argovitz, 606
DiLorenzo v. Valve & Primer Corporation, 256
Dixon, Laukitis and Downing v. Busey Bank, 572
Dodge v. Ford Motor Co., 766
Donahue v. Rodd Electrotype Co., Inc., 787
Dunnam v. Burns, 268
xiii
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xiv
Table of Cases
E
Eastman Kodak Co. v. Image Technical Services, Inc.,
1001
Ed Nowogroski Insurance, Inc. v. Rucker, 938
Edmonson v. Leesville Concrete Company, Inc., 59
Enea v. The Superior Court of Monterey County, 664
Environmental Protection Agency v. EME Homer City
Generation, L. P., 1058
Ernst & Ernst v. Hochfelder, 1021
Estate of Countryman v. Farmers Coop. Ass’n, 716
F
F. Hoffmann-La Roche Ltd v. Empagran S.A., 1086
Faragher v. City of Boca Raton, 971
FCC v. Fox Television Stations, Inc., 105
Federal Ins. Co. v. Winters, 337
Federal Trade Commission v. Cyberspace.com LLC, 1031
Ferrell v. Mikula, 138
First State Bank of Sinai v. Hyland, 296
Fox v. Mountain West Electric, Inc., 190
Frank B. Hall & Co., Inc. v. Buck, 140
Freeman v. Quicken Loans, Inc., 1042
Furlong v. Alpha Chi Omega Sorority, 414
G
Gaddy v. Douglass, 610
Galler v. Galler, 780
Greene v. Boddie-Noell Enterprises, Inc., 461
H
Hadfield v. Gilchrist, 1114
Hamilton v. Lanning, 886
Harold Lang Jewelers, Inc. v. Johnson, 731
Harris v. Looney, 740
Harris v. Viegelahn, 884
Heinrich v. Titus-Will Sales, Inc., 433
Heritage Bank v. Bruha, 507
Herron v. Barnard, 1102
Hessler v. Crystal Lake Chrysler-Plymouth, Inc., 421
Hochster v. De La Tour, 353
Home Rentals Corp. v. Curtis, 1136
Hospital Corp. of America v. FTC, 1006
Household Credit Services, Inc. v. Pfennig, 1039
I
In re KeyTronics, 657
In re L. B. Trucking, Inc., 451
In re Magness, 331
In re The Score Board, Inc., 289
In the Matter of 1545 Ocean Ave., LLC, 718
In the Matter of the Estate of Rowe, 1172
Inter-Tel Technologies, Inc. v. Linn Station Properties,
LLC, 742
J
Jasdip Properties SC, LLC v. Estate of Richardson, 196
Jasper v. H. Nizam, Inc., 980
Jenkins v. Eckerd Corporation, 317
Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich
LPA, 1046
K
Kalas v. Cook, 311
Keeney v. Keeney, 1170
Kelo v. City of New London, 1158
Kelso v. Bayer Corporation, 460
Kenco Homes, Inc. v. Williams, 478
Keser v. Chagnon, 293
Kimbrell’s of Sanford, Inc. v. KPS, Inc., 842
King v. VeriFone Holdings, Inc., 782
Kirtsaeng v. John Wiley & Sons, Inc., 947
Klein v. Pyrodyne Corporation, 173
Korzenik v. Supreme Radio, Inc., 528
L
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 998
Lefkowitz v. Great Minneapolis Surplus Store, Inc., 206
Leibling, P.C. v. Mellon PSFS (NJ) National
Association, 576
Louisiana v. Hamed, 124
Love v. Hardee’s Food Systems, Inc., 163
M
Mackay v. Four Rivers Packing Co., 308
Madison Square Garden Corp., Ill. v. Carnera, 375
Mark Line Industries, Inc. v. Murillo Modular Group,
Ltd., 551
Maroun v. Wyreless Systems, Inc., 232
Martin v. Melland’s Inc., 439
Matrixx Initiatives, Inc. v. Siracusano, 921
Mayo Foundation for Medical Education and Research
v. United States, 97
McDowell Welding & Pipefitting, Inc. v. United States
Gypsum Co., 354
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xv
Table of Cases
Merritt v. Craig, 378
Metropolitan Life Insurance Company v. RJR Nabisco,
Inc., 754
Michael Silvestri v. Optus Software, Inc., 348
Midwest Hatchery v. Doorenbos Poultry, 491
Miller v. McDonald’s Corporation, 600
Mims v. Arrow Financial Services, LLC, 51
Mirvish v. Mott, 1106
Montana Food, LLC v. Todosijevic, 712
Moore v. Kitsmiller, 170
Morrison v. National Australia Bank Ltd., 1088
Moulton Cavity & Mold Inc. v. Lyn-Flex Ind., 410
Mountain Peaks Financial Services, Inc. v. Roth-Steffen,
333
Murphy v. BDO Seidman, LLP, 1018
R
N
S
NationsBank of Virginia, N.A. v. Barnes, 509
Neugebauer v. Neugebauer, 228
New England Rock Services, Inc. v. Empire Paving,
Inc., 251
Nitro-Lift Technologies, L.L.C. v. Howard, 65
Northern Corporation v. Chugach Electrical
Association, 357
O
Omnicare, Inc. v. Laborers District Council
Construction Industry Pension Fund, 911
O’Neil v. Crane Co., 458
Osprey L.L.C. v. Kelly-Moore Paint Co., Inc., 216
P
Palsgraf v. Long Island Railroad Co., 166
Palumbo v. Nikirk, 175
Parker v. Twentieth Century-Fox Film Corp., 58, 371
Parlato v. Equitable Life Assurance Society of the
United States, 626
Payroll Advance, Inc. v. Yates, 271
People v. Farell, 117
Perez v. Mortgage Bankers Ass’n., 99
Petition of Kinsman Transit Co., 167
Philip Morris USA v. Williams, 134
Pittsley v. Houser, 390
Prestenbach v. Collins, 373
Prine v. Blanton, 1176
RadLAX Gateway Hotel, LLC v. Amalgamated Bank,
882
Ray v. Alad Corporation, 810
Reed v. King, 233
Republic of Argentina v. NML Capital, Ltd., 1081
Ricci v. Destefano, 968
RNR Investments Limited Partnership v. Peoples First
Community Bank, 678
Robertson v. Jacobs Cattle Co., 685
Robinson v. Durham, 432
Rosewood Care Center, Inc., v. Caterpillar, Inc., 306
Rubin v. Yellow Cab Company, 634
Ryan v. Friesenhahn, 158
Sackett v. Environmental Protection Agency, 104
Schoenberger v. Chicago Transit Authority, 628
Schreiber v. Burlington Northern, Inc., 929
Securities and Exchange Commission v. Edwards, 901
Seigel v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
578
Shawnee Telecom Resources, Inc. v. Brown, 816
Sherrod v. Kidd, 208
Soldano v. O’Daniels, 160
South Florida Water Management District v.
Miccosukee Tribe of Indians, 1062
Speelman v. Pascal, 329
State of Qatar v. First American Bank of Virginia, 523
State of South Dakota v. Morse, 121
Steinberg v. Chicago Medical School, 188
Stine v. Stewart, 339
Strougo v. Bassini, 784
T
Texaco, Inc. v. Pennzoil, Co., 147
The Hyatt Corporation v. Palm Beach National Bank,
519
Thomas v. Lloyd, 661
Thor Properties v. Willspring Holdings LLC, 212
Toyota Motor Manufacturing, Kentucky, Inc. v.
Williams, 974
Travelers Indemnity Co. v. Stedman, 562
Triffin v. Cigna Insurance Co., 536
Tucker v. Hayford, 1137
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xvi
Table of Cases
U
Union Planters Bank, National Association v. Rogers, 580
United States v. Bestfoods, 1068
United States v. E. I. du Pont de Nemours & Co., 1003
United States v. O’Hagan, 925
V
Vance v. Ball State University, 965
Vanegas v. American Energy Services, 248
W
Waddell v. L.V.R.V. Inc., 416
Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 942
Watson Coatings, Inc. v. American Express Travel
Related Services, Inc., 534
Whatley v. Estate of McDougal, 1178
White v. Samsung Electronics, 143
Williamson v. Mazda Motor of America, Inc., 74
Windows, Inc. v. Jordan Panel Systems Corp., 437
Womco, Inc. v. Navistar International Corporation,
454
Wood v. Pavlin, 1140
World-Wide Volkswagen Corp. v. Woodson, 54
Wyler v. Feuer, 708
Z
Zelnick v. Adams, 291
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TABLE
OF
FIGURES
1-1
Law and Morals, 4
10-2
Mutual Assent, 215
1-2
Classification of Law, 4
12-1
Modification of a Preexisting Contract, 253
1-3
Hierarchy of Law, 6
12-2
Consideration, 259
2-1
Kohlberg’s Stages of Moral Development, 19
14-1
2-2
The Stakeholder Model, 23
Incapacity: Minors, Nonadjudicated
Incompetents, and Intoxicated, 295
2-3
Pharmakon Employment, 27
15-1
Parol Evidence Rule, 319
2-4
Pharmakon Affirmative Action Program, 28
17-1
Discharge of Contracts, 359
2-5
Mykon R&D Expenditures, 30
18-1
Contract Remedies, 377
2-6
Global Summary of the AIDS Epidemic, 31
19-1
Battle of the Forms, 396
Regional Statistics for HIV and AIDS End
of 2013, 32
20-1
Tender of Performance by the Seller, 410
20-2
Performance by the Buyer, 418
2-8
Stock Price of Vulcan, Inc. (note irregular
intervals on time axis), 41
21-1
Void Title, 431
21-2
Voidable Title, 432
2-9
Average Daily Volume of Vulcan, Inc., Stock for
Week (in 1,000s), 42
21-3
Passage of Risk of Loss in Absence of Breach,
440
2-10
Purchases of Vulcan Stock by Selected
Executives, 42
24-1
Order to Pay: Draft or Check, 503
3-1
Federal Judicial System, 47
24-2
Draft, 503
3-2
Circuit Courts of the United States, 48
24-3
Check, 503
3-3
State Court System, 49
24-4
Promise to Pay: Promissory Note or Certificate
of Deposit, 504
3-4
Federal and State Jurisdiction, 52
24-5
Note, 504
3-5
Stare Decisis in the Dual Court System, 53
24-6
Certificate of Deposit, 504
3-6
Jurisdiction, 56
25-1
Bearer Paper, 518
3-7
Stages in Civil Procedure, 63
25-2
Negotiation of Bearer and Order Paper, 519
4-1
Separation of Powers: Checks and Balances, 76
25-3
Stolen Order Paper, 519
4-2
Powers of Government, 82
25-4
Placement of Indorsement, 526
5-1
Limits on Administrative Agencies, 103
25-5
Rights of Transferees, 528
7-1
Intent, 136
25-6
Effects of Alterations, 539
8-1
Negligence and Negligence Per Se, 158
25-7
Alteration, 540
8-2
Defenses to a Negligence Action, 170
25-8
9-1
Law Governing Contracts, 186
Availability of Defenses Against Holders and
Holders in Due Course, 541
9-2
Contractual and Noncontractual Promises, 187
25-9
9-3
Validity of Agreements, 188
Rights of Holder in Due Course Under the
Federal Trade Commission Rule, 541
10-1
Duration of Revocable Offers, 214
26-1
Liability on Transfer, 561
2-7
xvii
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xviii
Table of Figures
26-2
Liability Based on Warranty, 562
37-2
Suretyship Relationship, 852
27-1
Bank Collections, 571
37-3
Assumption of Mortgage, 853
27-2
Credit Transaction, 587
37-4
Defenses of Surety and Principal Debtor, 855
28-1
Duties of Principal and Agent, 607
38-1
29-1
Contract Liability of Disclosed Principal, 621
Collection and Distribution of the Debtor’s
Estate, 879
29-2
Contract Liability of Unidentified Principal, 622
39-1
29-3
Contract Liability of Undisclosed Principal, 623
Registration and Exemptions Under the 1933
Act, 905
29-4
Tort Liability, 630
39-2
30-1
Business Entities, 649
Registration and Liability Provisions of the 1933
Act, 914
30-2
Tests for Existence of a Partnership, 657
39-3
Applicability of the 1934 Act, 915
31-1
Contract Liability, 676
39-4
Parties Forbidden to Trade on Inside Information,
924
31-2
Tort Liability, 681
41-1
Charges Filed with the EEOC in 2008–2014, 978
33-1
Promoters’ Preincorporation Contracts Made in
the Corporation’s Name, 735
42-1
Sherman Act Violations Yielding a Corporate
Fine of $300 Million or More, 993
34-1
Issuance of Shares, 759
42-2
Meeting Competition Defense, 1010
34-2
Key Concepts in Legal Restrictions upon
Distributions, 763
43-1
Accountants’ Liability to Third Parties for
Negligent Misrepresentation, 1018
35-1
Management Structure of Corporations:
The Statutory Model, 776
44-1
Magnuson-Moss Warranty Act, 1036
35-2
Management Structure of Typical Closely Held
Corporation, 776
48-1
Assignment Compared with Sublease, 1134
49-1
35-3
Management Structure of Typical Publicly Held
Corporation, 776
Fundamental Rights of Mortgagor and
Mortgagee, 1155
49-2
Eminent Domain, 1160
35-4
Shareholder Suits, 786
50-1
Trusts, 1169
36-1
Purchase of Shares, 812
50-2
Per Stirpes and Per Capita, 1181
37-1
Fundamental Rights of Secured Party and
Debtor, 834
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PREFACE
THE TRADITION CONTINUES
The twelfth edition of Business Law and the Regulation
of Business continues the tradition of accuracy, comprehensiveness, and authoritativeness associated with
its earlier editions. This text covers its subject material
in a succinct, nontechnical but authoritative manner,
and provides depth sufficient to ensure easy comprehension by today’s students.
Certified Public Accountant
Preparation
This text is designed for use in business law and legal environment of business courses generally offered in universities, colleges, and schools of business and management.
Because of its broad and deep coverage, this text may be
readily adapted to specially designed courses in business
law or the legal environment of business by assigning and
emphasizing different combinations of chapters.
Furthermore, this text covers the following parts of
the CPA Exam: (1) the legal responsibilities and liabilities of accountants section and (2) the corporate governance portion of the business environment and
concepts section. See the inside back cover of this text
for a listing of the CPA Exam topics covered in this
text as well as the chapters covering each topic.
Uniform CPA Examination
Content Specifications
The American Institute of CPAs (AICPA) Board of
Examiners has approved and adopted content specification outlines (CSOs) for the four sections of the new
computer-based Uniform CPA Examination: Auditing
and Attestation, Financial Accounting and Reporting,
Regulation, and Business Environment and Concepts. As
updated, effective January 1, 2016, the CSOs include the
following topics, which are covered in this textbook:
Regulation Section
I. Ethics, Professional, and Legal Responsibilities
A. Legal Duties and Responsibilities [of Accountants]
1. Common law duties and liability to clients
and third parties
2. Federal statutory liability
3. Privileged communications, confidentiality, and
privacy acts
II. Business Law
A. Agency
1. Formation and termination
2. Authority of agents and principals
3. Duties and liabilities of agents and principals
B. Contracts
1. Formation
2. Performance
3. Third-party assignments
4. Discharge, breach, and remedies
C. Uniform Commercial Code
1. Sales contracts
2. Negotiable instruments
3. Secured transactions
4. Documents of title and title transfer
D. Debtor-Creditor Relationships
1. Rights, duties, and liabilities of debtors, creditors, and guarantors
2. Bankruptcy and insolvency
E. Government Regulation of Business
1. Federal securities regulation
2. Other federal laws and regulations (antitrust,
copyright, patents, labor, and employment)
F. Business Structure (Selection of a Business Entity)
1. Advantages, disadvantages, implications, and
constraints
2. Formation, operation, and termination
3. Financial structure, capitalization, profit and
loss allocation, and distributions
4. Rights, duties, legal obligations, and authority
of owners and management
xix
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xx
Preface
Business Environment and Concepts
Section
Regulation A and new disclosure rules clarifying how
companies can use social media to disseminate information. The Intellectual Property chapter (Chapter
40) includes the changes made by the Foreign and
Economic Espionage Penalty Enhancement Act of
2012 to the Economic Espionage Act of 1996. The
Environmental Law chapter (Chapter 45) includes
coverage of the EPA’s regulation of greenhouse gases.
The International Business Law chapter (Chapter 46)
covers the United Nations Convention on the Law of
the Sea (UNCLOS).
I. Corporate Governance
A. Rights, Duties, Responsibilities, Authority, and
Ethics of the Board of Directors, Officers, and
Other Employees
For more information, visit www.cpa-exam.org.
Business Ethics Emphasis
The Chapter 2 Business Ethics case studies require students to make the value trade-offs that confront businesspeople in their professional lives. (We gratefully
acknowledge the assistance of James Leis in writing the
Mykon’s Dilemma case.) Two-thirds of the chapters also
contain an Ethical Dilemma, which presents a managerial situation involving ethical issues. A series of questions leads students to explore the ethical dimensions of
each situation. We wish to acknowledge and thank the
following professors for their contributions in preparing
the Ethical Dilemmas: Sandra K. Miller, professor of
accounting, taxation, and business law, Widener University, and Gregory P. Cermignano, associate professor of
accounting and business law, Widener University. In
addition, to provide further application of ethics in different business contexts, an ethics question follows many
cases. These questions are designed to encourage students to consider the ethical dimensions of the facts in
the case or of the legal issue invoked by the facts.
NEW
TO
•
•
THIS EDITION
•
Going Global. A Going Global feature has been
added to fifteen chapters (Chapters 1, 3, 6, 9, 15, 19,
20, 27, 30, 34, 38, 39, 40, 41, and 42), thus integrating international business law content throughout the
text. This feature enables students to consider the
international aspects of legal issues as they are covered. The International Business Law chapter (Chapter 46) has been retained in its entirety.
•
Up-to-Date and Expanded Coverage. The 2012
amendments to Uniform Commercial Code (UCC) Article 4A has been added to Chapter 27. Coverage of
limited liability companies has been updated and
expanded in Chapter 32. Coverage of benefit corporations has been added in Chapter 33. Coverage of suretyship in Chapter 37 has been updated and expanded.
The Employment Law chapter (Chapter 41) covers
the Genetic Information Nondiscrimination Act. The
chapter on Securities Regulation (Chapter 39) covers
the U.S. Securities and Exchange Commission’s new
•
•
New Cases. Twenty-nine legal cases are new to
this edition. (See Table of Cases.) The new cases
include recent U.S. Supreme Court decisions such as
Nitro-Lift Technologies, L.L.C. v. Howard; Perez v.
Mortgage Bankers Ass’n.; Omnicare, Inc. v. Laborers
District Council Construction Industry Pension Fund;
Harris v. Viegelahn; Association for Molecular
Pathology v. Myriad Genetics, Inc.; Vance v. Ball
State University; Environmental Protection Agency v.
EME Homer City Generation, L. P.; and Republic of
Argentina v. NML Capital, Ltd.
Coverage of Recent U.S. Supreme Court Decisions.
The Constitutional Law chapter (Chapter 4) discusses
recent U.S. Supreme Court’s decisions in the cases
challenging the constitutionality of (1) the Defense of
Marriage Act, (2) a federal statute restricting how
much money an individual donor may contribute in
total to all candidates or committees during a political cycle, (3) Michigan’s constitutional amendment
banning affirmative action in admissions to the
state’s public universities, and (4) states’ refusal to
license a marriage between two people of the same
sex and to recognize a marriage between two people
of the same sex when their marriage was lawfully licensed and performed out of state. The Administrative Law chapter (Chapter 5) discusses the Supreme
Court case making the Patient Protection and Affordable Care Act’s tax credits available in those states
that have a Federal Exchange. The Employment Law
chapter (Chapter 41) covers the Supreme Court case
holding that in disparate-treatment claims, an
employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment
decisions.
Coverage of Restatement of Restitution. Chapters 9,
11, 13, 14, 15, 17, 18, and 50 cover the new Restatement (Third) of Restitution and Unjust Enrichment.
Additional End-of-Chapter Question and Case
Problems. Almost all of the chapters include one or
more new questions and/or case problems.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xxi
Preface
KEY FEATURES
versity of Miami, for her contribution in preparing this
feature.
Excerpted Cases
Practical Advice
From our long classroom experience, we are of the opinion that fundamental legal principles can be learned more
effectively from text and case materials having at least a
degree of human interest. Accordingly, we have included
a large number of recent cases, as well as earlier landmark cases. All of the cases have the facts and decisions
summarized for clarity and the opinions edited to preserve the language of the court. Each case is followed by
an interpretation, which explains the significance of the
case and how it relates to the textual material.
Case Critical Thinking Questions
Each case is also followed by a critical thinking question to encourage students to examine the legal policy
or reasoning behind the legal principle of the case or to
apply it in a real-world context.
Ample Illustrations
We have incorporated more than 220 classroom-tested
figures, tables, diagrams, concept reviews, and chapter
summaries. The figures, tables, and diagrams help students conceptualize the many abstract concepts in the
law. The Concept Reviews not only summarize prior
discussions but also indicate relationships between different legal rules. Moreover, each chapter ends with a
summary in the form of an annotated outline of the
entire chapter, including key terms.
Applying the Law
In a number of chapters, we have included a feature
that provides a systematic legal analysis of a single concept presented in that chapter. It begins with the facts
of a hypothetical case, followed by an identification of
the broad legal issue presented by those facts. We then
state the rule—or applicable legal principles, including
definitions, which aid in resolving the legal issue—and
apply it to the facts. Finally we state a legal conclusion
or decision in the case. We wish to acknowledge and
thank Professor Ann Olaz!abal, University of Miami,
for her contribution in preparing this feature.
Business Law in Action
A number of chapters include a scenario that illustrates
the application of legal concepts in the chapter to business situations that commonly arise. We wish to
acknowledge and thank Professor Ann Olaz!abal, Uni-
Each chapter contains a number of statements that
illustrate how legal concepts covered in that chapter
can be applied to common business situations.
Chapter Outcomes
Each chapter begins with a list of learning objectives
for students.
Enhanced Readability
To improve readability throughout the text, all
unnecessary “legalese” has been eliminated, while necessary legal terms have been printed in boldface and
clearly defined, explained, and illustrated. Each chapter
is carefully organized with sufficient levels of subordination to enhance the accessibility of the material. The
text is enriched by numerous illustrative hypothetical
and case examples that help students relate material to
real-life experiences.
Classroom-Proven End-ofChapter Materials
Classroom-proven questions and case problems appear
at the end of the chapters to test students’ understanding of major concepts. We have used the questions
(based on hypothetical situations) and the case problems (taken from reported court decisions) in our own
classrooms and consider them excellent stimulants to
classroom discussion. Students, in turn, have found the
questions and case problems helpful in enabling them
to apply the basic rules of law to factual situations.
Taking Sides
Each chapter—except Chapters 1 and 2—has an end-ofchapter feature that requires students to apply critical
thinking skills to a case-based fact situation. Students
are asked to identify the relevant legal rules and develop
arguments for both parties to the dispute. In addition,
students are asked to explain how they think a court
would resolve the dispute.
Pedagogical Benefits
Classroom use and study of this book should provide
students with the following benefits and skills:
1. Perception and appreciation of the scope, extent,
and importance of the law.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xxii
Preface
2. Basic knowledge of the fundamental concepts, principles,
and rules of law that apply to business transactions.
3. Knowledge of the function and operation of courts
and government administrative agencies.
4. Ability to recognize the potential legal problems that
may arise in a doubtful or complicated situation and
the necessity of consulting a lawyer and obtaining
competent professional legal advice.
5. Development of analytical skills and reasoning power.
ADDITIONAL COURSE TOOLS
MindTap
New for Business Law and the Regulation of Business,
Twelfth Edition, MindTap is a personalized teaching experience with relevant assignments that guide students
to analyze, apply, and improve thinking, allowing you
to measure skills and outcomes with ease. Personalized
teaching becomes yours through a pre-built Learning Path
designed with key student objectives and your syllabus in
mind. The customizable online course allows you to control what students see and when they see it. Relevant readings, multimedia, and activities within the learning path
intuitively guide students up the levels of learning to (1)
Prepare, (2) Engage, (3) Apply and (4) Analyze business
law content. These activities are organized in a logical progression to help elevate learning, promote critical thinking
skills and produce better outcomes. Analytics and reports
provide a snapshot of class progress, time in course,
engagement and completion rates.
Instructors can personalize the experience by customizing authoritative Cengage Learning content and learning tools. MindTap offers instructors the ability to add
their own content in the Learning Path with apps that
integrate into the MindTap framework seamlessly with
Learning Management Systems (LMS).
Instructor’s Resources
Access instructor resources by going to login.cengage.
com, logging in with your faculty account username
and password, and searching ISBN 9781305509559 to
add instructor resources to your account “Bookshelf.”
•
The Instructor’s Manual prepared by Richard A.
Mann, Barry S. Roberts, and Beth D. Woods contains chapter outlines; teaching notes; answers to the
Questions and Case Problems, and Taking Sides;
and part openers that provide suggested research
and outside activities for students.
•
PowerPoint Slides clarify course content and guide
student note-taking during lectures.
•
The Test Bank contains thousands of true/false,
multiple-choice, and essay questions. The questions
vary in levels of difficulty and meet a full range of
tagging requirements so that instructors can tailor
their testing to meet their specific needs.
•
Cengage Learning Testing Powered by Cognero is
a flexible, online system that allows you to:
R
V
•
author, edit, and manage test bank content
from multiple Cengage Learning solutions
•
create multiple test versions in an instant
•
deliver tests from your LMS, your classroom
or wherever you want
Business Law Digital Video
Library
Featuring more than ninety video clips that spark class
discussion and clarify core legal principles, the Business
Law Digital Video Library is organized into five series:
Legal Conflicts in Business (includes specific modern
business and e-commerce scenarios); Ask the Instructor
(presents straightforward explanations of concepts for
student review); Drama of the Law (features classic
business scenarios that spark classroom participation);
Real-World Legal (presents legal scenarios encountered
in real businesses); and Business Ethics in Action
(presents ethical dilemmas in business scenarios). For
more information about the Digital Video Library, visit
www.cengage.com/blaw/dvl.
ACKNOWLEDGMENTS
We express our gratitude to the following professors
for their helpful comments on this edition of the book:
Larry Cohen, Oakton Community College
Larry DiMatteo, University of Florida
J. Royce Fichtner, Drake University
Shara Galloway, Maryville College
Matthew S. Geimer, University of Wisconsin–Green Bay
Kyle Kaplan, Carson-Newman University
Dianne McDonald, Bucknell University
Jeff Nielsen, University of Utah
Virginia Rich, Caldwell College
Harold Silverman, Bridgewater State University
Samantha Sindles, Oakton Community College
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xxiii
Preface
Roscoe B. Stephenson, III, Virginia Military Institute
Dale Thompson, University of St. Thomas
Patricia Wall, Middle Tennessee State University
We also are grateful to those who provided us with
comments regarding earlier editions of the book:
William Dennis Ames, Indiana University–Purdue;
Denise Bartles, Missouri Western State College; Joseph
Boucher, University of Wisconsin–Madison; J. Lenora
Bresler, University of South Florida; Susan Cabral,
Salisbury State University; Elizabeth A. Cameron, Alma
College; Harriet Caplan, Fort Hays State University;
Ronald R. Caplette, Western Piedmont Community
College; Theresa Clark, Methodist College; David
Cooper, Fullerton College; Patricia DeFrain, Glendale
College; James Doering, University of Wisconsin–Green
Bay; Bruce Farrel Dorn, Oakton Community College;
Kurt E. Erickson, Southwestern Michigan College;
Vincent A. Errante, University of North Dakota;
J. Royce Fichtner, Drake University; Robert A. Fidrych,
University of Wisconsin–Platteville; Robert Freer, The
Citadel; Steven J. Green, University of California–
Berkeley; Walter Griggs, Virginia Commonwealth University; Gary A. Hanson, Pepperdine University; Bruce
L. Harms, University of Wisconsin–Madison; Charles
Hartmann, Wright State University; Gregory T. Hinton,
Fairmont State College; Clay Hipp, New Mexico State
University; Georgia L. Holmes, Mankato State University; Robert J. Hotopp, Indiana University–Southeast;
Neely S. Inlow, Lynchburg College; Uldis E. Inveiss,
Carroll College; Susan S. Jarvis, Pan American University; Susan Glatthorn Johnson, University of South
Florida; Catherine Jones-Rikkers, Grand Valley State
University; John R. Jozwiak, Loyola University of Chicago; Jack E. Karns, East Carolina University; Robert
H. Kieserman, Philadelphia College of Textiles and Science; Karl H. Kline, Lafayette College; Frank J. Kolb,
Jr., Quinnipiac University; Ruth B. Kraft, Audrey
Cohen College; Richard G. Kunkel, University of
St. Thomas; Logan Langwith, College of St. Thomas;
Vonda Laughlin, Carson-Newman College; Anne
Lawton, Miami University; Michael Magasin, Pepperdine University; Stephen M. Maple, University of Indianapolis; Keith A. Maxwell, University of Puget Sound;
Douglas E. McClelland, Montana State University;
Brad McDonald, Northern Illinois University; Sharlene
McEvoy, Fairfield University; Russell A. Meade, Virginia Tidewater Community College; Radlyn Mendoza,
Old Dominion University; Debbie L. Mescon, Salisbury
State University; D. Lynn Morison, Michigan State University; Gregory C. Mosier, Oklahoma State University;
Megan Mowrey, Clemson University; Darwin H.
Mueller, Tacoma Community College; Lee J. Ness,
University of North Dakota; Ann M. Olaz!abal, University of Miami; Robert L. Peace, North Carolina State
University; Neal A. Phillips, University of Delaware;
James L. Porter, University of New Mexico; Frank Primiani, Green River Community College; Michael
Rainey, Pepperdine University; Daniel L. Reynolds, Middle Tennessee State University; Rhonda Ross, Saginaw
Valley State University; Ellen Blumberg Rubert, College
of Lake County; Linda B. Samuels, George Mason University; Kurt Saunders, California State University–Northridge; Pamella A. Seay, Edison Community College;
Harold Silverman, Bridgewater State College; Kirke
Snyder, Regis University; Beverly Stanis, Oakton Community College; Dorothy L. Steele, Montclair State College;
Stanley E. Stettz, Lafayette College; Rene Thomas, Holyoke
Community College; Edward L. Welsh, Jr., Mesa Community College; John T. Wendt, University of St. Thomas;
Keith E. Werner, Wesleyan College; Scott White, University
of Wisconsin–Platteville; John G. Williams, Northwestern
State University; Raymond Wyrsch, Catholic University;
Joseph Zavaglia, Jr., Brookdale Community College; and
Raymond C. Zumoff, Camden County College.
We express our thanks and appreciation to Debra
Corvey for administrative assistance. For their support,
we extend our thanks to Karlene Fogelin Knebel and
Joanne Erwick Roberts. And we are grateful to Vicky
True-Baker, Sarah Blasco, and Ann Borman of Cengage
Learning for their invaluable assistance and cooperation
in connection with the preparation of this text.
This text is dedicated also to our children Lilli-Marie
Knebel Mann, Justin Erwick Roberts, and Matthew
Charles Roberts.
Richard A. Mann
Barry S. Roberts
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
PART I
INTRODUCTION
TO LAW
AND ETHICS
CISG
CHAPTER 1
Introduction to Law
CHAPTER 2
Business Ethics
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHAPTER 1
INTRODUCTION
TO
LAW
The life of the law has not been logic; it has been experience.
OLIVER WENDELL HOLMES, THE COMMON LAW (1881)
CHAPTER OUTCOMES
After reading and studying this chapter, you should be able to:
1. Identify and describe the basic functions of law.
4. Identify and describe the sources of law.
2. Distinguish between (a) law and justice and
(b) law and morals.
5. Explain the principle of stare decisis.
3. Distinguish between (a) substantive and
procedural law, (b) public and private law,
and (c) civil and criminal law.
L
aw concerns the relations between individuals as
such relations affect the social and economic order.
It is both the product of civilization and the means
by which civilization is maintained. As such, law reflects
the social, economic, political, religious, and moral philosophy of society.
Law is an instrument of social control. Its function is
to regulate, within certain limitations, human conduct
and human relations. Accordingly, the laws of the
United States affect the life of every U.S. citizen. At the
same time, the laws of each state influence the life of
each of its citizens and the lives of many noncitizens as
well. The rights and duties of all individuals, as well as
the safety and security of all people and their property,
depend on the law.
The law is pervasive. It permits, forbids, or regulates
practically every human activity and affects all persons
either directly or indirectly. Law is, in part, prohibitory:
certain acts must not be committed. For example, one
must not steal; one must not murder. Law is also partly
mandatory: certain acts must be done or be done in a
prescribed way. Thus, taxes must be paid; corporations
must make and file certain reports with state or federal
authorities; traffic must keep to the right. Finally, law
is permissive: certain acts may be done. For instance,
one may or may not enter into a contract; one may or
may not dispose of one’s estate by will.
Because the areas of law are so highly interrelated,
you will find it helpful to begin the study of the different areas of business law by first considering the nature, classification, and sources of law. This will enable
you not only to understand each specific area of law
better but also to understand its relationship to other
areas of law.
2
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1
NATURE
3
Introduction to Law
OF
LAW [1-1]
The law has evolved slowly, and it will continue to
change. It is not a pure science based on unchanging
and universal truths. Rather, it results from a continuous striving to develop a workable set of rules that balance the individual and group rights of a society.
Definition of Law [1-1a]
Scholars and citizens in general often ask a fundamental but difficult question regarding law: what is it?
Numerous philosophers and jurists (legal scholars) have
attempted to define it. American jurists and Supreme
Court Justices Oliver Wendell Holmes and Benjamin
Cardozo defined law as predictions of the way in which
a court will decide specific legal questions. The English
jurist William Blackstone, on the other hand, defined
law as “a rule of civil conduct prescribed by the
supreme power in a state, commanding what is right,
and prohibiting what is wrong.”
Because of its great complexity, many legal scholars
have attempted to explain the law by outlining its
essential characteristics. Roscoe Pound, a distinguished
American jurist and former dean of the Harvard Law
School, described law as having multiple meanings:
First we may mean the legal order, that is, the r!egime of
ordering human activities and relations through systematic
application of the force of politically organized society, or
through social pressure in such a society backed by such
force. We use the term “law” in this sense when we speak
of “respect for law” or for the “end of law.”
Second we may mean the aggregate of laws or legal
precepts; the body of authoritative grounds of judicial and
administrative action established in such a society. We
may mean the body of received and established materials
on which judicial and administrative determinations proceed. We use the term in this sense when we speak of
“systems of law” or of “justice according to law.”
Third we may mean what Justice Cardozo has happily
styled “the judicial process.” We may mean the process of
determining controversies, whether as it actually takes
place, or as the public, the jurists, and the practitioners in
the courts hold it ought to take place.
Functions of Law [1-1b]
At a general level the primary function of law is to
maintain stability in the social, political, and economic
system while simultaneously permitting change. The
law accomplishes this basic function by performing
a number of specific functions, among them dispute
resolution, protection of property, and preservation of
the state.
Disputes, which arise inevitably in any modern society, may involve criminal matters, such as theft, or noncriminal matters, such as an automobile accident.
Because disputes threaten social stability, the law has
established an elaborate and evolving set of rules to
resolve them. In addition, the legal system has instituted
societal remedies, usually administered by the courts, in
place of private remedies such as revenge.
A second crucial function of law is to protect the
private ownership of property and to assist in the making of voluntary agreements (called contracts) regarding
exchanges of property and services. Accordingly, a significant portion of law, as well as this text, involves
property and its disposition, including the law of property, contracts, sales, commercial paper, and business
associations.
A third essential function of the law is preservation
of the state. In our system, law ensures that changes in
political structure and leadership are brought about by
political action, such as elections, legislation, and referenda, rather than by revolution, sedition, and rebellion.
Law and Morals [1-1c]
Although moral concepts greatly influence the law,
morals and law are not the same. You might think of
them as two intersecting circles (see Figure 1-1). The
area common to both circles includes the vast body of
ideas that are both moral and legal. For instance, “Thou
shall not kill” and “Thou shall not steal” are both
moral precepts and legal constraints.
On the other hand, the part of the legal circle that does
not intersect the morality circle includes many rules of law
that are completely unrelated to morals, such as the rules
stating that you must drive on the right side of the road
and that you must register before you can vote. Likewise,
the part of the morality circle that does not intersect the
legal circle includes moral precepts not enforced by legal
sanctions, such as the idea that you should not silently
stand by and watch a blind man walk off a cliff or that
you should provide food to a starving child.
Law and Justice [1-1d]
Law and justice represent separate and distinct concepts. Without law, however, there can be no justice.
Although defining justice is at least as difficult as defining law, justice generally may be defined as the fair,
equitable, and impartial treatment of the competing
interests and desires of individuals and groups with due
regard for the common good.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4
Introduction to Law and Ethics
Part I
FIGURE 1-1
Law and Morals
Law
“You must drive
on the right side
of the road”
On the other hand, law is no guarantee of justice.
Some of history’s most monstrous acts have been committed pursuant to “law.” Examples include the actions
of Nazi Germany during the 1930s and 1940s and the
actions of the South African government under apartheid from 1948 until 1994. Totalitarian societies often
have shaped formal legal systems around the atrocities
they have sanctioned.
CLASSIFICATION
OF
LAW [1-2]
Because the subject is vast, classifying the law into categories is helpful. Though a number of categories are
possible, the most useful ones are (1) substantive and
procedural, (2) public and private, and (3) civil and
FIGURE 1-2
Classification of Law
“Thou shall
not kill”
Morals
“You should not
silently stand by and
watch a blind man
walk off a cliff”
criminal. See Figure 1-2, which illustrates a classification of law.
Basic to understanding these classifications are the
terms right and duty. A right is the capacity of a person, with the aid of the law, to require another person
or persons to perform, or to refrain from performing,
a certain act. Thus, if Alice sells and delivers goods to
Bob for the agreed price of $500 payable at a certain
date, Alice is capable, with the aid of the courts, of
enforcing the payment by Bob of the $500. A duty is
the obligation the law imposes upon a person to perform, or to refrain from performing, a certain act.
Duty and right are correlatives: no right can rest upon
one person without a corresponding duty resting upon
some other person, or in some cases upon all other
persons.
Public Law
Constitutional Law
Criminal Law
Administrative Law
Substantive Law
Private Law
Law
Procedural Law
Torts
Contracts
Sales
Commercial Paper
Agency
Partnerships
Corporations
Property
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1
5
Introduction to Law
Substantive and Procedural
Law [1-2a]
Substantive law creates, defines, and regulates legal
rights and duties. Thus, the rules of contract law that
determine a binding contract are rules of substantive
law. On the other hand, procedural law sets forth the
rules for enforcing those rights that exist by reason of
the substantive law. Thus, procedural law defines the
method by which to obtain a remedy in court.
Public and Private Law [1-2b]
Public law is the branch of substantive law that deals
with the government’s rights and powers and its relationship to individuals or groups. Public law consists of
constitutional, administrative, and criminal law. Private
law is that part of substantive law governing individuals and legal entities (such as corporations) in their relationships with one another. Business law is primarily
private law.
Civil and Criminal Law [1-2c]
The civil law defines duties, the violation of which constitutes a wrong against the party injured by the violation. In contrast, the criminal law establishes duties, the
violation of which is a wrong against the whole community. Civil law is a part of private law, whereas criminal
law is a part of public law. (The term civil law should
be distinguished from the concept of a civil law system,
which is discussed later in this chapter.) In a civil action
the injured party sues to recover compensation for the
damage and injury sustained as a result of the defendant’s wrongful conduct. The party bringing a civil action
(the plaintiff) has the burden of proof, which the plaintiff must sustain by a preponderance (greater weight) of
the evidence. The purpose of the civil law is to compensate the injured party, not, as in the case of criminal
law, to punish the wrongdoer. The principal forms of
relief the civil law affords are a judgment for money
damages and a decree ordering the defendant to perform
a specified act or to desist from specified conduct.
A crime is any act prohibited or omission required by
public law in the interest of protecting the public and
made punishable by the government in a judicial proceeding brought (prosecuted) by it. The government must
prove criminal guilt beyond a reasonable doubt, which is
a significantly higher burden of proof than that required
in a civil action. Crimes are prohibited and punished on
the grounds of public policy, which may include the safeguarding of government, human life, or private property.
Additional purposes of criminal law include deterrence
and rehabilitation. See Concept Review 1-1 for a comparison of civil and criminal law.
SOURCES
OF
LAW [1-3]
The sources of law in the U.S. legal system are the federal and state constitutions, federal treaties, interstate
compacts, federal and state statutes and executive
orders, the ordinances of countless local municipal governments, the rules and regulations of federal and state
administrative agencies, and an ever-increasing volume
of reported federal and state court decisions.
The supreme law of the land is the U.S. Constitution,
which provides in turn that federal statutes and treaties
shall be paramount to state constitutions and statutes.
CONCEPT REVIEW 1-1
COMPARISON
OF
CIVIL
AND
CRIMINAL LAW
Civil Law
Criminal Law
Commencement of Action
Aggrieved individual (plaintiff) sues
State or federal government prosecutes
Purpose
Compensation
Deterrence
Punishment
Deterrence
Rehabilitation
Preservation of peace
Burden of Proof
Preponderance of the evidence
Beyond a reasonable doubt
Principal Sanctions
Monetary damages
Equitable remedies
Capital punishment
Imprisonment
Fines
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6
Introduction to Law and Ethics
Federal legislation is of great significance as a source of
law. Other federal actions having the force of law are
executive orders by the President and rules and regulations set by federal administrative officials, agencies, and
commissions. The federal courts also contribute considerably to the body of law in the United States.
The same pattern exists in every state. The paramount law of each state is contained in its written constitution. (Although a state constitution cannot deprive
citizens of federal constitutional rights, it can guarantee
rights beyond those provided in the U.S. Constitution.)
State constitutions tend to be more specific than the
U.S. Constitution and, generally, have been amended
more frequently. Subordinate to the state constitution
are the statutes enacted by the state’s legislature and
FIGURE 1-3
Hierarchy of Law
Part I
the case law developed by its judiciary. Likewise, rules
and regulations of state administrative agencies have
the force of law, as do executive orders issued by the
governors of most states. In addition, cities, towns, and
villages have limited legislative powers to pass ordinances and resolutions within their respective municipal
areas. See Figure 1-3, which illustrates this hierarchy.
Constitutional Law [1-3a]
A constitution—the fundamental law of a particular level
of government—establishes the governmental structure
and allocates power among governmental levels, thereby
defining political relationships. One of the fundamental
principles on which our government is founded is that of
U.S. Constitution
Treaties
Federal Statutes
Federal
Administrative Law
Federal
Common Law
State
Constitution
State
Statutes
State
Administrative Law
State
Common Law
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1
7
Introduction to Law
separation of powers. As incorporated into the U.S. Constitution, this means that government consists of three distinct and independent branches—the federal judiciary, the
Congress, and the executive branch.
A constitution also restricts the powers of government
and specifies the rights and liberties of the people. For
example, the Constitution of the United States not only
specifically states what rights and authority are vested in
the national government but also specifically enumerates
certain rights and liberties of the people. Moreover, the
Ninth Amendment to the U.S. Constitution makes it
clear that this enumeration of rights does not in any
way deny or limit other rights that the people retain.
All other law in the United States is subordinate to
the federal Constitution. No law, federal or state, is
valid if it violates the federal Constitution. Under the
principle of judicial review, the Supreme Court of the
United States determines the constitutionality of all laws.
Judicial Law [1-3b]
The U.S. legal system, a common law system like the system first developed in England, relies heavily on the judiciary as a source of law and on the adversary system for
settling disputes. In an adversary system the parties, not
the court, must initiate and conduct litigation. This
approach is based on the belief that the truth is more
likely to emerge from the investigation and presentation
of evidence by two opposing parties, both motivated by
self-interest, than from judicial investigation motivated
only by official duty. In addition to the United States and
England, the common law system is used in other English-speaking countries, including Canada and Australia.
In distinct contrast to the common law system are
civil law systems, which are based on Roman law. Civil
law systems depend on comprehensive legislative enactments (called codes) and an inquisitorial system of
determining disputes. In the inquisitorial system, the judiciary initiates litigation, investigates pertinent facts,
and conducts the presentation of evidence. The civil
law system prevails in most of Europe, Scotland, the
state of Louisiana, the province of Quebec, Latin America, and parts of Africa and Asia.
Common Law The courts in common law systems
have developed a body of law that serves as precedent
for determining later controversies. In this sense, common
law, also called case law or judge-made law, is distinguished from other sources of law, such as legislation
and administrative rulings.
To evolve in a stable and predictable manner, the common law has developed by application of stare decisis
(“to stand by the decisions”). Under the principle of stare
decisis, courts adhere to and rely on rules of law that
they or superior courts relied on and applied in prior similar decisions. Judicial decisions thus have two uses: (1) to
determine with finality the case currently being decided
and (2) to indicate how the court will decide similar cases
in the future. Stare decisis does not, however, preclude
courts from correcting erroneous decisions or from choosing among conflicting precedents. Thus, the doctrine
allows sufficient flexibility for the common law to change.
The strength of the common law is its ability to adapt to
change without losing its sense of direction.
Equity As the common law developed in England, it
became overly rigid and beset with technicalities. As a
consequence, in many cases no remedies were provided
because the judges insisted that a claim must fall within
one of the recognized forms of action. Moreover,
courts of common law could provide only limited remedies; the principal type of relief obtainable was a monetary judgment. Consequently, individuals who could
not obtain adequate relief from monetary awards began
to petition the king directly for justice. He, in turn,
came to delegate these petitions to his chancellor.
Gradually, there evolved what was in effect a new
and supplementary system of needed judicial relief for
those who could not receive adequate remedies through
the common law. This new system, called equity, was
administered by a court of chancery presided over by
the chancellor. The chancellor, deciding cases on “equity
and good conscience,” regularly provided relief where
common law judges had refused to act or where the
remedy at law was inadequate. Thus, there grew up, side
by side, two systems of law administered by different tribunals, the common law courts and the courts of equity.
An important difference between common law and equity is that the chancellor could issue a decree, or order,
compelling a defendant to do, or refrain from doing, a
specified act. A defendant wh…