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Kenneth W. Clarkson
University of Miami

Roger LeRoy Miller
Institute for University Studies
Arlington, Texas

Gaylord A. Jentz
Herbert D. Kelleher
Emeritus Professor in Business Law
University of Texas at Austin

Frank B. Cross
Herbert D. Kelleher
Centennial Professor in Business Law
University of Texas at Austin

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BUSINESS LAW, 11th Edition
TEXT & CASES
Legal, Ethical, Global,
and E-Commerce Environments
Kenneth W. Clarkson
Roger LeRoy Miller
Gaylord A. Jentz
Frank B. Cross

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UNIT ONE

THE LEGAL ENVIRONMENT OF BUSINESS

Chapter
Chapter
Chapter
Chapter
Chapter


Introduction to Law and Legal Reasoning 2
Courts and Alternative Dispute Resolution 30
Court Procedures 53
Constitutional Authority to Regulate Business 77
Ethics and Business Decision Making 99

1
2
3
4
5

UNIT TWO

TORTS AND CRIMES

Chapter
Chapter
Chapter
Chapter

Intentional Torts 122
Negligence and Strict Liability 144
Intellectual Property and Internet Law
Criminal Law and Cyber Crime 184

6
7
8

9

121

U N I T T H R E E CONTRACTS AND E-CONTRACTS
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter

10
11
12
13
14
15
16
17
18
19

1

157


215

Nature and Terminology 216
Agreement 232
Consideration 250
Capacity and Legality 265
Mistakes, Fraud, and Voluntary Consent 286
The Statute of Frauds—Writing Requirement 303
Third Party Rights 321
Performance and Discharge 337
Breach of Contract and Remedies 353
E-Contracts and E-Signatures 370

UNIT FOUR

DOMESTIC AND INTERNATIONAL SALES AND LEASE CONTRACTS

Chapter
Chapter
Chapter
Chapter

The Formation of Sales and Lease Contracts 392
Title, Risk, and Insurable Interest 421
Performance and Breach of Sales and Lease Contracts
Warranties and Product Liability 458

20
21

22
23

UNIT FIVE

NEGOTIABLE INSTRUMENTS

Chapter
Chapter
Chapter
Chapter

The Function and Creation of Negotiable Instruments
Transferability and Holder in Due Course 504
Liability, Defenses, and Discharge 523
Checks and Banking in the Digital Age 544

24
25
26
27

391

437

485

UNIT SIX


CREDITORS’ RIGHTS AND BANKRUPTCY

Chapter 28
Chapter 29
Chapter 30

Creditors’ Rights and Remedies
Secured Transactions 586
Bankruptcy Law 611

486

573

574

iii


iv

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

31
32
33

34

Agency Formation and Duties 638
Liability to Third Parties and Termination 653
Employment and Labor Law 673
Employment Discrimination 696

U N I T E I G H T BUSINESS ORGANIZATIONS
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter
Chapter

637

35
36
37
38
39
40
41
42

723


Sole Proprietorships and Franchises 724
Partnerships and Limited Liability Partnerships 737
Limited Liability Companies and Special Business Forms 759
CORPORATIONS—Formation and Financing 773
CORPORATIONS—Directors, Officers, and Shareholders 796
CORPORATIONS—Merger, Consolidation, and Termination 819
CORPORATIONS—Securities Law and Corporate Governance 836
Law for Small Businesses 862

UNIT NINE

GOVERNMENT REGULATION

Chapter
Chapter
Chapter
Chapter

Administrative Law 886
Consumer Law 905
Environmental Law 921
Antitrust Law 938

43
44
45
46

885


UNIT TEN

PROPERTY

Chapter 47
Chapter 48

Personal Property and Bailments 960
Real Property and Landlord-Tenant Relationships

UNIT ELEVEN

SPECIAL TOPICS

Chapter
Chapter
Chapter
Chapter

Insurance 1008
Wills and Trusts 1027
Professional Liability and Accountability 1048
International Law in a Global Economy 1068

49
50
51
52

959

980

1007

APPENDICES
A
B
C
D
E
F
G
H
I

How to Brief Cases and Analyze Case Problems A–1
The Constitution of the United States A–4
The Uniform Commercial Code A–12
The United Nations Convention on Contracts for the International Sale of Goods (Excerpts) A–176
The Uniform Partnership Act (Excerpts) A–180
The Revised Uniform Limited Partnership Act (Excerpts) A–190
The Revised Model Business Corporation Act (Excerpts) A–200
The Sarbanes-Oxley Act of 2002 (Excerpts and Explanatory Comments) A–210
Sample Answers for End-of-Chapter Questions with Sample Answer A–218

G L O S S A RY

G–1

TA B L E O F C A S E S

INDEX

I–1

TC–1


Chapter 3
Court Procedures 53

The Legal Environment
of Business 1
Chapter 1
Introduction to Law and Legal Reasoning

2

Schools of Jurisprudential Thought 2
Business Activities and the Legal Environment 4
Sources of American Law 6
The Common Law Tradition 7
The Common Law Today 13
Classifications of Law 14
How to Find Primary Sources of Law 15
How to Read and Understand Case Law 21
REVIEWING: INTRODUCTION TO LAW AND LEGAL REASONING 27
TERMS AND CONCEPTS 27
QUESTIONS AND CASE PROBLEMS 28
LAW ON THE WEB 29
LEGAL RESEARCH EXERCISES ON THE WEB 29


Chapter 2
Courts and Alternative Dispute Resolution 30
The Judiciary’s Role in American Government 30
Basic Judicial Requirements 31
C ASE 2.1 Mastondrea v. Occidental Hotels
Management S.A. 32
The State and Federal Court Systems 37
Alternative Dispute Resolution 41
C ASE 2.2 Buckeye Check Cashing, Inc. v.
Cardegna 44
E XTENDED C ASE 2.3 Morrison v. Circuit City Stores,
Inc. 46
International Dispute Resolution 48
REVIEWING: COURTS AND ALTERNATIVE DISPUTE
RESOLUTION 49
TERMS AND CONCEPTS 49
QUESTIONS AND CASE PROBLEMS 50
LAW ON THE WEB 52
LEGAL RESEARCH EXERCISES ON THE WEB 52

Procedural Rules 53
Pretrial Procedures 55
E XTENDED C ASE 3.1 Cruz v. Fagor America, Inc. 58
C ASE 3.2 Computer Task Group, Inc. v. Brotby 62
The Trial 66
C ASE 3.3 Novak v.Tucows, Inc. 68
Posttrial Motions 70
The Appeal 71
Enforcing the Judgment 72

REVIEWING: COURT PROCEDURES 73
TERMS AND CONCEPTS 73
QUESTIONS AND CASE PROBLEMS 74
SPECIAL CASE ANALYSIS: CRUZ V. FAGOR AMERICA, INC. 75
LAW ON THE WEB 76
LEGAL RESEARCH EXERCISES ON THE WEB 76

Chapter 4
Constitutional Authority
to Regulate Business 77
The Constitutional Powers of Government 77
C ASE 4.1 Granholm v. Heald 80
Business and the Bill of Rights 83
C ASE 4.2 Bad Frog Brewery, Inc. v. New York State
Liquor Authority 87
E XTENDED C ASE 4.3 Lott v. Levitt 88
Due Process and Equal Protection 92
Privacy Rights 94
REVIEWING: CONSTITUTIONAL AUTHORITY TO REGULATE
BUSINESS 95
TERMS AND CONCEPTS 95
QUESTIONS AND CASE PROBLEMS 96
SPECIAL CASE ANALYSIS: LOTT V. LEVITT 97
LAW ON THE WEB 98
LEGAL RESEARCH EXERCISES ON THE WEB 98

Chapter 5
Ethics and Business Decision Making 99
Business Ethics 99
v



vi

E XTENDED C ASE 5.1

Baum v. Blue Moon Ventures,
LLC 101
Approaches to Ethical Reasoning 103
C ASE 5.2 Fog Cutter Capital Group, Inc. v. Securities
and Exchange Commission 104
How the Law Influences Business Ethics 106
C ASE 5.3 Guin v. Brazos Higher Education Service
Corp. 109
Making Ethical Business Decisions 110
Business Ethics on a Global Level 111
REVIEWING: ETHICS AND BUSINESS DECISION MAKING 113
TERMS AND CONCEPTS 113
QUESTIONS AND CASE PROBLEMS 114
LAW ON THE WEB 116
LEGAL RESEARCH EXERCISES ON THE WEB 116
FOCUS ON ETHICS: ETHICS AND THE
LEGAL ENVIRONMENT OF BUSINESS 117

Torts and Crimes 121
Chapter 6
Intentional Torts 122
The Basis of Tort Law 122
Intentional Torts against Persons 123
C ASE 6.1 Anderson v. Mergenhagen 128

Business Torts 131
Intentional Torts against Property 133
E XTENDED C ASE 6.2 Register.com, Inc. v.
Verio, Inc. 134
Cyber Torts 136
C ASE 6.3 Fair Housing Council of San Fernando
Valley v. Roommate.com, LLC 137
REVIEWING: INTENTIONAL TORTS 140
TERMS AND CONCEPTS 140
QUESTIONS AND CASE PROBLEMS 141
LAW ON THE WEB 143
LEGAL RESEARCH EXERCISES ON THE WEB 143

Chapter 7
Negligence and Strict Liability 144
Negligence 144
C ASE 7.1 Izquierdo v. Gyroscope, Inc. 145
C ASE 7.2 Palsgraf v. Long Island Railroad Co. 148
Defenses to Negligence 149
E XTENDED C ASE 7.3 Sutton v.Eastern New York Youth
Soccer Association,Inc. 150
Special Negligence Doctrines and Statutes 152

Strict Liability 153
REVIEWING: NEGLIGENCE AND STRICT LIABILITY 154
TERMS AND CONCEPTS 154
QUESTIONS AND CASE PROBLEMS 155
SPECIAL CASE ANALYSIS: SUTTON V. EASTERN NEW YORK YOUTH
SOCCER ASSOCIATION, INC. 156
LAW ON THE WEB 156

LEGAL RESEARCH EXERCISES ON THE WEB 156

Chapter 8
Intellectual Property and Internet Law 157
Trademarks and Related Property 157
C ASE 8.1 The Coca-Cola Co. v.The Koke Co. of
America 158
C ASE 8.2 Menashe v.V Secret Catalogue, Inc. 161
Cyber Marks 164
Patents 167
E XTENDED C ASE 8.3 KSR International Co. v.
Teleflex Inc. 168
Copyrights 171
Copyrights in Digital Information 172
C ASE 8.4 Sony BMG Music Entertainment v.
Villarreal 176
Trade Secrets 178
International Protection for Intellectual
Property 179
REVIEWING: INTELLECTUAL PROPERTY AND INTERNET LAW 180
TERMS AND CONCEPTS 180
QUESTIONS AND CASE PROBLEMS 181
LAW ON THE WEB 183
LEGAL RESEARCH EXERCISES ON THE WEB 183

Chapter 9
Criminal Law and Cyber Crime 184
Civil Law and Criminal Law 184
Classification of Crimes 185
Criminal Liability 186

Types of Crimes 188
C ASE 9.1 United States v. Lyons 190
Defenses to Criminal Liability 193
Criminal Procedures 198
E XTENDED C ASE 9.2 Fellers v. United States 198
C ASE 9.3 Miranda v.Arizona 200
Cyber Crime 204
REVIEWING: CRIMINAL LAW AND CYBER CRIME 207
TERMS AND CONCEPTS 207
QUESTIONS AND CASE PROBLEMS 208
LAW ON THE WEB 210
LEGAL RESEARCH EXERCISES ON THE WEB 210
FOCUS ON ETHICS: ETHICS AND
TORTS AND CRIMES 211


vii

E XTENDED C ASE 12.3 Blackmon v. Iverson 255
Settlement of Claims 257
Exceptions to the Consideration Requirement 259
REVIEWING: CONSIDERATION 261
TERMS AND CONCEPTS 262
QUESTIONS AND CASE PROBLEMS 262
LAW ON THE WEB 264
LEGAL RESEARCH EXERCISES ON THE WEB 264

Contracts and
E-Contracts 215
Chapter 10

Nature and Terminology 216
An Overview of Contract Law 216
Elements of a Contract 217
Types of Contracts 218
C ASE 10.1 Ardito v. City of Providence 219
C ASE 10.2 Gar y Porter Construction v. Fox
Construction, Inc. 221
Quasi Contracts 224
Interpretation of Contracts 225
E XTENDED C ASE 10.3 Wagner v. Columbia
Pictures Industries,
Inc. 226
REVIEWING: NATURE AND TERMINOLOGY 228
TERMS AND CONCEPTS 229
QUESTIONS AND CASE PROBLEMS 229
SPECIAL CASE ANALYSIS: WAGNER V. COLUMBIA PICTURES
INDUSTRIES, INC. 231
LAW ON THE WEB 231
LEGAL RESEARCH EXERCISES ON THE WEB 231

Chapter 13
Capacity and Legality 265
Contractual Capacity 265
E XTENDED C ASE 13.1 Yale Diagnostic
Radiology v. Estate of
Harun Fountain 267
Legality 271
C ASE 13.2 Stultz v. Safety and Compliance
Management, Inc. 274
C ASE 13.3 Thibodeau v. Comcast Corp. 277

REVIEWING: CAPACITY AND LEGALITY 282
TERMS AND CONCEPTS 282
QUESTIONS AND CASE PROBLEMS 283
LAW ON THE WEB 285
LEGAL RESEARCH EXERCISES ON THE WEB 285

Chapter 14
Mistakes, Fraud, and Voluntary Consent 286

Chapter 11
Agreement 232
Requirements of the Offer 232
C ASE 11.1 Lucy v. Zehmer 233
C ASE 11.2 Trell v. American Association of the
Advancement of Science 235
E XTENDED C ASE 11.3 Baer v. Chase 237
Termination of the Offer 239
Acceptance 242
Technology and Acceptance Rules 246
REVIEWING: AGREEMENT 246
TERMS AND CONCEPTS 246
QUESTIONS AND CASE PROBLEMS 247
LAW ON THE WEB 249
LEGAL RESEARCH EXERCISES ON THE WEB 249

Chapter 12
Consideration 250
Elements of Consideration 250
C ASE 12.1 Hamer v. Sidway 250
C ASE 12.2 Barfield v. Commerce Bank, N.A.

Adequacy of Consideration 253
Agreements That Lack Consideration 254

Mistakes 286
E XTENDED C ASE 14.1

Roberts v. Centur y
Contractors, Inc. 287
Fraudulent Misrepresentation 290
C ASE 14.2 Vokes v. Arthur Murray, Inc. 290
Undue Influence 295
Duress 296
Adhesion Contracts and Unconscionability 296
C ASE 14.3 Simpson v. MSA of Myrtle Beach,
Inc. 297
REVIEWING: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 299
TERMS AND CONCEPTS 300
QUESTIONS AND CASE PROBLEMS 300
LAW ON THE WEB 302
LEGAL RESEARCH EXERCISES ON THE WEB 302

Chapter 15
The Statute of Frauds—
Writing Requirement 303
252

The Origins of the Statute of Frauds 303
Contracts That Fall within the Statute of Frauds 303
E XTENDED C ASE 15.1 Sawyer v. Mills 305



viii

C ASE 15.2 School-Link Technologies, Inc. v.
Applied Resources, Inc. 309
Sufficiency of the Writing 310
The Parole Evidence Rule 312
C ASE 15.3 Yocca v. Pittsburgh Steelers Sports,
Inc. 313
The Statute of Frauds in the International
Context 316
REVIEWING: THE STATUTE OF FRAUDS—WRITING
REQUIREMENT 317
TERMS AND CONCEPTS 318
QUESTIONS AND CASE PROBLEMS 318
LAW ON THE WEB 320
LEGAL RESEARCH EXERCISES ON THE WEB 320

Chapter 16
Third Party Rights 321
Assignments and Delegations 321
C ASE 16.1 Martha Graham School and Dance
Foundation, Inc. v. Martha Graham
Center of Contemporar y Dance,
Inc. 323
Third Party Beneficiaries 328
E XTENDED C ASE 16.2 Midwestern Indemnity
Co. v. Systems Builders,
Inc. 329
C ASE 16.3 Revels v. Miss America

Organization 331
REVIEWING: THIRD PARTY RIGHTS 333
TERMS AND CONCEPTS 333
QUESTIONS AND CASE PROBLEMS 334
LAW ON THE WEB 336
LEGAL RESEARCH EXERCISES ON THE WEB 336

Chapter 17
Performance and Discharge 337
Conditions 337
Discharge by Performance 338
E XTENDED C ASE 17.1 Jacob & Youngs v.
Kent 339
C ASE 17.2 Shah v. Cover-It, Inc. 341
Discharge by Agreement 344
Discharge by Operation of Law 345
C ASE 17.3 Facto v. Pantagis 347
REVIEWING: PERFORMANCE AND DISCHARGE 349
TERMS AND CONCEPTS 350
QUESTIONS AND CASE PROBLEMS 350
LAW ON THE WEB 352
LEGAL RESEARCH EXERCISES ON THE WEB 352

Chapter 18
Breach of Contract and Remedies 353
Damages 353
C ASE 18.1 Hadley v. Baxendale 355
E XTENDED C ASE 18.2 Hanson v. Boeder 357
Rescission and Restitution 359
Specific Performance 360

C ASE 18.3 Stainbrook v. Low 360
Reformation 362
Recovery Based on Quasi Contract 362
Election of Remedies 363
Waiver of Breach 364
Contract Provisions Limiting Remedies 365
REVIEWING: BREACH OF CONTRACT AND REMEDIES 366
TERMS AND CONCEPTS 366
QUESTIONS AND CASE PROBLEMS 366
LAW ON THE WEB 369
LEGAL RESEARCH EXERCISES ON THE WEB 369

Chapter 19
E-Contracts and E-Signatures 370
Online Contract Formation 370
C ASE 19.1 Feldman v. Google, Inc. 371
C ASE 19.2 Mortgage Plus, Inc. v. DocMagic,
Inc. 374
E-Signatures 376
E XTENDED C ASE 19.3 Amber Chemical, Inc. v.
Reilly Industries,
Inc. 378
The Uniform Electronic Transactions Act 381
REVIEWING: E-CONTRACTS AND E-SIGNATURES 383
TERMS AND CONCEPTS 383
QUESTIONS AND CASE PROBLEMS 384
LAW ON THE WEB 386
LEGAL RESEARCH EXERCISES ON THE WEB 386
FOCUS ON ETHICS: CONTRACT LAW
AND THE APPLICATION OF ETHICS 387


Domestic and
International Sales
and Lease Contracts 391
Chapter 20
The Formation of Sales and Lease Contracts 392
The Uniform Commercial Code 392
The Scope of Article 2—The Sale of Goods 393


ix

C ASE 20.1 Hammer v. Thompson 396
The Scope of Article 2A—Leases 398
The Formation of Sales and Lease Contracts 398
C ASE 20.2 Sun Coast Merchandise Corp. v.
Myron Corp. 402
E XTENDED C ASE 20.3 Jones v. Star Credit
Corp. 408
Contracts for the International Sale of Goods 410
REVIEWING: THE FORMATION OF SALES AND LEASE
CONTRACTS 413
TERMS AND CONCEPTS 413
QUESTIONS AND CASE PROBLEMS 414
LAW ON THE WEB 416
LEGAL RESEARCH EXERCISES ON THE WEB 416
Appendix to Chapter 20: An Example of a Contract
for the International Sale of Coffee 417

Chapter 21

Title, Risk, and Insurable Interest 421
Identification 421
When Title Passes 422
C ASE 21.1 Empire Fire and Marine Insurance
Co. v. Banc Auto, Inc. 423
C ASE 21.2 Lindholm v. Brant 425
Risk of Loss 427
E XTENDED C ASE 21.3 Spray-Tek, Inc. v. Robbins
Motor Transportation,
Inc. 428
Insurable Interest 433
REVIEWING: TITLE, RISK, AND INSURABLE INTEREST 434
TERMS AND CONCEPTS 434
QUESTIONS AND CASE PROBLEMS 434
SPECIAL CASE ANALYSIS: SPRAY-TEK, INC. V. ROBBINS MOTOR
TRANSPORTATION, INC. 436
LAW ON THE WEB 436
LEGAL RESEARCH EXERCISES ON THE WEB 436

Chapter 22
Performance and Breach of
Sales and Lease Contracts 437
Performance Obligations 437
Obligations of the Seller or Lessor 438
C ASE 22.1 Maple Farms, Inc. v. City School
District of Elmira 441
Obligations of the Buyer or Lessee 443
Anticipatory Repudiation 443
Remedies of the Seller or Lessor 445
Remedies of the Buyer or Lessee 447

C ASE 22.2 Jauregui v. Bobb’s Piano Sales &
Service, Inc. 448

E XTENDED C ASE 22.3 Fitl v. Strek 450
Additional Provisions Affecting Remedies 452
Dealing with International Contracts 452
REVIEWING: PERFORMANCE AND BREACH OF SALES AND LEASE
CONTRACTS 454
TERMS AND CONCEPTS 455
QUESTIONS AND CASE PROBLEMS 455
LAW ON THE WEB 457
LEGAL RESEARCH EXERCISES ON THE WEB 457

Chapter 23
Warranties and Product Liability 458
Types of Warranties 458
C ASE 23.1 Shoop v. DaimlerChrysler Corp. 461
C ASE 23.2 Webster v. Blue Ship Tea Room,
Inc. 463
Overlapping Warranties 465
Warranty Disclaimers and Limitations on
Liability 467
Product Liability 468
Strict Product Liability 469
E XTENDED C ASE 23.3 Crosswhite v. Jumpking,
Inc. 472
Defenses to Product Liability 475
REVIEWING: WARRANTIES AND PRODUCT LIABILITY 477
TERMS AND CONCEPTS 477
QUESTIONS AND CASE PROBLEMS 477

LAW ON THE WEB 480
LEGAL RESEARCH EXERCISES ON THE WEB 480
FOCUS ON ETHICS: DOMESTIC AND INTERNATIONAL
SALES AND LEASE CONTRACTS 481

Negotiable
Instruments 485
Chapter 24
The Function and Creation
of Negotiable Instruments 486
Articles 3 and 4 of the UCC 486
Types of Negotiable Instruments 487
Requirements for Negotiability 490
E XTENDED C ASE 24.1 Gowin v. Granite Depot,
LLC 494
C ASE 24.2 Foundation Property Investments,
LLC v. CTP, LLC 496
Factors Not Affecting Negotiability 500


x

REVIEWING: THE FUNCTION AND CREATION OF NEGOTIABLE
INSTRUMENTS 500
TERMS AND CONCEPTS 501
QUESTIONS AND CASE PROBLEMS 501
LAW ON THE WEB 503
LEGAL RESEARCH EXERCISES ON THE WEB 503

Chapter 25

Transferability and Holder in Due Course 504
Negotiation 504
Indorsements 505
Miscellaneous Indorsement Problems 508
E XTENDED C ASE 25.1 Hyatt Corp. v. Palm Beach
National Bank 509
C ASE 25.2 Graves v. Johnson 511
Holder versus Holder in Due Course 512
Requirements for HDC Status 513
C ASE 25.3 Mid Wisconsin Bank v. Forsgard
Trading, Inc. 514
Holder through an HDC 518
REVIEWING: TRANSFERABILITY AND HOLDER IN
DUE COURSE 519
TERMS AND CONCEPTS 520
QUESTIONS AND CASE PROBLEMS 520
LAW ON THE WEB 522
LEGAL RESEARCH EXERCISES ON THE WEB 522

Chapter 26
Liability, Defenses, and Discharge 523
Signature Liability 523
Warranty Liability 530
C ASE 26.1 Wachovia Bank, N.A. v. Foster
Bancshares, Inc. 532
Defenses 533
E XTENDED C ASE 26.2 Keesling v. T.E.K. Partners,
LLC 535
Discharge 539
REVIEWING: LIABILITY, DEFENSES, AND DISCHARGE 540

TERMS AND CONCEPTS 541
QUESTIONS AND CASE PROBLEMS 541
LAW ON THE WEB 543
LEGAL RESEARCH EXERCISES ON THE WEB 543

Chapter 27
Checks and Banking in the Digital Age 544
Checks 544
The Bank-Customer Relationship 546
Honoring Checks 546
C ASE 27.1 Nesper v. Bank of America
Accepting Deposits 554

549

C ASE 27.2 Bank One, N.A. v. Dunn 557
E XTENDED C ASE 27.3 NBT Bank, N.A. v. First
National Community
Bank 559
Electronic Fund Transfers 562
E-Money and Online Banking 563
REVIEWING: CHECKS AND BANKING IN THE DIGITAL AGE 566
TERMS AND CONCEPTS 567
QUESTIONS AND CASE PROBLEMS 567
SPECIAL CASE ANALYSIS: NBT BANK, N.A. V. FIRST NATIONAL
COMMUNITY BANK 568
LAW ON THE WEB 569
LEGAL RESEARCH EXERCISES ON THE WEB 569
FOCUS ON ETHICS: NEGOTIABLE INSTRUMENTS 570


Creditors’ Rights
and Bankruptcy 573
Chapter 28
Creditors’ Rights and Remedies 574
Laws Assisting Creditors 574
C ASE 28.1 Indiana Surgical Specialists v.
Griffin 576
Suretyship and Guaranty 578
E XTENDED C ASE 28.2 JSV, Inc. v. Hene Meat
Co., Inc. 580
Protection for Debtors 582
REVIEWING: CREDITORS’ RIGHTS AND REMEDIES 582
TERMS AND CONCEPTS 583
QUESTIONS AND CASE PROBLEMS 583
LAW ON THE WEB 585
LEGAL RESEARCH EXERCISES ON THE WEB 585

Chapter 29
Secured Transactions 586
The Terminology of Secured Transactions 586
Creating a Security Interest 587
Perfecting a Security Interest 588
E XTENDED C ASE 29.1 Corona Fruits & Veggies, Inc.
v. Frozsun Foods, Inc. 592
The Scope of a Security Interest 595
Priorities 597
C ASE 29.2 Heartland Bank v. National City
Bank 598
Rights and Duties of Debtors and Creditors 602
Default 602



xi

C ASE 29.3 Layne v. Bank One, Kentucky,
N.A. 604
REVIEWING: SECURED TRANSACTIONS 607
TERMS AND CONCEPTS 608
QUESTIONS AND CASE PROBLEMS 608
SPECIAL CASE ANALYSIS: CORONA FRUITS & VEGGIES, INC. V.
FROZSUN FOODS, INC. 609
LAW ON THE WEB 610
LEGAL RESEARCH EXERCISES ON THE WEB 610

Chapter 30
Bankruptcy Law 611
Bankruptcy Proceedings 611
Liquidation Proceedings 612
E XTENDED C ASE 30.1 Hebbring v.
U.S. Trustee 614
C ASE 30.2 In re Mosley 621
Reorganizations 624
Bankruptcy Relief under Chapter 13 and
Chapter 12 626
C ASE 30.3 In re Buis 626
REVIEWING: BANKRUPTCY LAW 631
TERMS AND CONCEPTS 631
QUESTIONS AND CASE PROBLEMS 631
LAW ON THE WEB 634
LEGAL RESEARCH EXERCISES ON THE WEB 634

FOCUS ON ETHICS: CREDITORS’
RIGHTS AND BANKRUPTCY 635

Agency and
Employment 637
Chapter 31
Agency Formation and Duties 638
Agency Relationships 638
C ASE 31.1 Alberty-Vélez Corporación de Puerto
Rico 640
Formation of the Agency Relationship 642
C ASE 31.2 Motorsport Marketing, Inc. v.
Wiedmaier, Inc. 643
Duties of Agents and Principals 645
E XTENDED C ASE 31.3 Gossels v. Fleet National
Bank 646
Rights and Remedies of Agents and Principals 648
REVIEWING: AGENCY FORMATION AND DUTIES 650
TERMS AND CONCEPTS 650
QUESTIONS AND CASE PROBLEMS 650

LAW ON THE WEB 652
LEGAL RESEARCH EXERCISES ON THE WEB 652

Chapter 32
Liability to Third Parties and Termination 653
Scope of Agent’s Authority 653
C ASE 32.1 Ermoian v. Desert Hospital 655
Liability for Contracts 657
Liability for Torts and Crimes 659

C ASE 32.2 In re Selheimer & Co. 660
E XTENDED C ASE 32.3 Galvao v. G. R. Robert
Construction Co. 664
Termination of an Agency 666
REVIEWING: LIABILITY TO THIRD PARTIES AND
TERMINATION 669
TERMS AND CONCEPTS 669
QUESTIONS AND CASE PROBLEMS 669
LAW ON THE WEB 672
LEGAL RESEARCH EXERCISES ON THE WEB 672

Chapter 33
Employment and Labor Law 673
Employment at Will 673
C ASE 33.1 Wendeln v. The Beatrice Manor,
Inc. 675
Wage and Hour Laws 676
C ASE 33.2 Mims v. Starbucks Corp. 678
Labor Unions 681
Worker Health and Safety 683
Income Security, Pension, and Health Plans 685
Family and Medical Leave 687
E XTENDED C ASE 33.3 Nevada Department
of Human Resources
v. Hibbs 688
Employee Privacy Rights 689
Employment-Related Immigration Laws 692
REVIEWING: EMPLOYMENT AND LABOR LAW 692
TERMS AND CONCEPTS 693
QUESTIONS AND CASE PROBLEMS 693

LAW ON THE WEB 695
LEGAL RESEARCH EXERCISES ON THE WEB 695

Chapter 34
Employment Discrimination 696
Title VII of the Civil Rights Act of 1964 696
C ASE 34.1 Arbaugh v.Y & H Corp. 697
E XTENDED C ASE 34.2 Burlington Northern and
Santa Fe Railway Co. v.
White 703


xii

Discrimination Based on Age 705
C ASE 34.3 Cash Distributing Co. v. Neely 707
Discrimination Based on Disability 710
Defenses to Employment Discrimination 712
Affirmative Action 713
State Laws Prohibiting Discrimination 715
REVIEWING: EMPLOYMENT DISCRIMINATION 715
TERMS AND CONCEPTS 716
QUESTIONS AND CASE PROBLEMS 716
SPECIAL CASE ANALYSIS: BURLINGTON NORTHERN AND SANTA FE
RAILWAY CO. V. WHITE 718
LAW ON THE WEB 718
LEGAL RESEARCH EXERCISES ON THE WEB 719
FOCUS ON ETHICS: AGENCY AND EMPLOYMENT 720

Business

Organizations 723
Chapter 35
Sole Proprietorships and Franchises 724
Sole Proprietorships 724
C ASE 35.1 Garden City Boxing Club, Inc. v.
Dominguez 725
Franchises 726
E XTENDED C ASE 35.2 Kerl v. Dennis
Rasmussen, Inc. 729
Franchise Termination 731
C ASE 35.3 Chic Miller’s Chevrolet, Inc. v.
General Motors Corp. 731
REVIEWING: SOLE PROPRIETORSHIPS AND FRANCHISES 733
TERMS AND CONCEPTS 733
QUESTIONS AND CASE PROBLEMS 734
LAW ON THE WEB 736
LEGAL RESEARCH EXERCISES ON THE WEB 736

Chapter 36
Partnerships and
Limited Liability Partnerships 737
Basic Partnership Concepts 737
Partnership Formation 739
Partnership Operation 740
C ASE 36.1 Moren v. Jax Restaurant 744
Dissociation of a Partner 746
C ASE 36.2 Warnick v. Warnick 747
Partnership Termination 748
Limited Liability Partnerships 750


Limited Partnerships 751
E XTENDED C ASE 36.3 In re Dissolution of
Midnight Star Enterprises,
L.P. 753
REVIEWING: PARTNERSHIPS AND LIMITED LIABILITY
PARTNERSHIPS 755
TERMS AND CONCEPTS 756
QUESTIONS AND CASE PROBLEMS 756
LAW ON THE WEB 758
LEGAL RESEARCH EXERCISES ON THE WEB 758

Chapter 37
Limited Liability Companies
and Special Business Forms 759
Limited Liability Companies 759
C ASE 37.1 McFarland v.Virginia Retirement
Services of Chesterfield, L.L.C. 760
C ASE 37.2 Kuhn v. Tumminelli 763
Management of an LLC 764
Dissociation and Dissolution of an LLC 765
Special Business Forms 765
E XTENDED C ASE 37.3 SPW Associates, LLP v.
Anderson 766
REVIEWING: LIMITED LIABILITY COMPANIES
AND SPECIAL BUSINESS FORMS 768
TERMS AND CONCEPTS 769
QUESTIONS AND CASE PROBLEMS 769
LAW ON THE WEB 772
LEGAL RESEARCH EXERCISES ON THE WEB 772


Chapter 38
CORPORATIONS—
Formation and Financing 773
The Nature and Classification of Corporations 773
C ASE 38.1 Commonwealth v. Angelo Todesca
Corp. 775
E XTENDED C ASE 38.2 Salt Lake Tribune
Publishing Co. v. AT&T
Corp. 778
Corporate Formation 781
Defects in Formation and Corporate Status 785
Corporate Powers 786
Piercing the Corporate Veil 786
C ASE 38.3 In re Aqua Clear Technologies,
Inc. 787
Corporate Financing 789
REVIEWING: CORPORATIONS—
FORMATION AND FINANCING 792
TERMS AND CONCEPTS 792
QUESTIONS AND CASE PROBLEMS 793


xiii

LAW ON THE WEB 795
LEGAL RESEARCH EXERCISES ON THE WEB 795

Chapter 39
CORPORATIONS—Directors,
Officers, and Shareholders 796

Roles of Directors and Officers 796
E XTENDED C ASE 39.1 Relational Investors, LLC
v. Sovereign Bancorp,
Inc. 797
Duties and Liabilities of Directors and Officers 801
C ASE 39.2 Guth v. Loft, Inc. 803
The Role of Shareholders 805
Rights of Shareholders 809
Liability of Shareholders 812
C ASE 39.3 Kaplan v. First Hartford Corp. 813
REVIEWING: CORPORATIONS—DIRECTORS,
OFFICERS, AND SHAREHOLDERS 815
TERMS AND CONCEPTS 815
QUESTIONS AND CASE PROBLEMS 816
LAW ON THE WEB 818
LEGAL RESEARCH EXERCISES ON THE WEB 818

Chapter 40
CORPORATIONS—Merger,
Consolidation, and Termination 819
Merger and Consolidation 819
C ASE 40.1 Rodriguez v. Tech Credit Union
Corp. 820
Purchase of Assets 823
Purchase of Stock 824
Termination 827
E XTENDED C ASE 40.2 Parent v. Amity
Autoworld, Ltd. 827
C ASE 40.3 Sartori v. S & S Trucking, Inc. 829
Major Business Forms Compared 830

REVIEWING: CORPORATIONS—MERGER,
CONSOLIDATION, AND TERMINATION 833
TERMS AND CONCEPTS 833
QUESTIONS AND CASE PROBLEMS 833
LAW ON THE WEB 835
LEGAL RESEARCH EXERCISES ON THE WEB 835

Chapter 41
CORPORATIONS—Securities Law
and Corporate Governance 836
The Securities and Exchange Commission 836
The Securities Act of 1933 837
The Securities Exchange Act of 1934 845

C ASE 41.1 SEC v. Texas Gulf Sulphur Co. 846
E XTENDED C ASE 41.2 Merrill Lynch, Pierce,
Fenner & Smith, Inc. v.
Dabit 847
C ASE 41.3 United States v. Berger 851
Corporate Governance 853
State Securities Laws 855
Online Securities Fraud 857
REVIEWING: CORPORATIONS—SECURITIES LAW AND
CORPORATE GOVERNANCE 858
TERMS AND CONCEPTS 859
QUESTIONS AND CASE PROBLEMS 859
SPECIAL CASE ANALYSIS: MERRILL LYNCH, PIERCE, FENNER &
SMITH, INC. V. DOBIT 860
LAW ON THE WEB 861
LEGAL RESEARCH EXERCISES ON THE WEB 861


Chapter 42
Law for Small Business 862
The Importance of Legal Counsel 862
Selecting an Appropriate Business Form 863
The Limited Liability Company 866
E XTENDED C ASE 42.1 Mixon v. Iberia Surgical,
L.L.C. 867
Creating the Business Entity 868
Intellectual Property 869
Raising Financial Capital 871
C ASE 42.2 InfoSAGE, Inc. v. Mellon Ventures,
L.P. 872
Buy-Sell Agreements and Key-Person Insurance 873
Contract Law and Small Businesses 874
C ASE 42.3 DBL Distributing, Inc. v. 1 Cache,
L.L.C. 875
Employment Issues 876
REVIEWING: LAW FOR SMALL BUSINESS 878
TERMS AND CONCEPTS 878
QUESTIONS AND CASE PROBLEMS 879
LAW ON THE WEB 881
LEGAL RESEARCH EXERCISES ON THE WEB 881
FOCUS ON ETHICS: BUSINESS ORGANIZATIONS 882

Government
Regulation 885
Chapter 43
Administrative Law 886



xiv

The Practical Significance of Administrative
Law 886
Agency Creation and Powers 887
The Administrative Procedure Act 888
E XTENDED C ASE 43.1 Fox Television Stations,
Inc. v. Federal
Communications
Commission 888
C ASE 43.2 Hemp Industries Association v. Drug
Enforcement Administration 892
Judicial Deference to Agency Decisions 894
C ASE 43.3 United States v. Mead
Corporation 895
Agency Enforcement and Adjudication 896
Limitations on Agency Powers 898
Public Accountability 900
REVIEWING: ADMINISTRATIVE LAW 901
TERMS AND CONCEPTS 901
QUESTIONS AND CASE PROBLEMS 902
LAW ON THE WEB 904
LEGAL RESEARCH EXERCISES ON THE WEB 904

Chapter 44
Consumer Law 905
Deceptive Advertising 905
E XTENDED C ASE 44.1 Federal Trade
Commission v.Verity

International, Ltd. 907
Labeling and Packaging Laws 909
Sales 909
Credit Protection 910
C ASE 44.2 Saunders v. Equifax Information
Services, L.L.C. 912
Consumer Health and Safety 914
C ASE 44.3 Abigail Alliance for Better Access to
Developmental Drugs v. von
Eschenbach 915
REVIEWING: CONSUMER LAW 917
TERMS AND CONCEPTS 918
QUESTIONS AND CASE PROBLEMS 918
LAW ON THE WEB 920
LEGAL RESEARCH EXERCISES ON THE WEB 920

Chapter 45
Environmental Law

921

Common Law Actions 921
Federal, State, and Local Regulation 922
Air Pollution
923
E XTENDED C ASE 45.1 Environmental Defense v.
Duke Energy Corp. 926

Water Pollution 928
C ASE 45.2 S. D. Warren Co. v. Maine Board of

Environmental Protection 928
Toxic Chemicals 931
C ASE 45.3 Bates v. Dow Agrosciences, LLC 932
Hazardous Wastes 933
REVIEWING: ENVIRONMENTAL LAW 934
TERMS AND CONCEPTS 935
QUESTIONS AND CASE PROBLEMS 935
LAW ON THE WEB 937
LEGAL RESEARCH EXERCISES ON THE WEB 937

Chapter 46
Antitrust Law 938
The Sherman Antitrust Act 938
Section 1 of the Sherman Act 939
C ASE 46.1 Continental T.V., Inc. v. GTE Sylvania,
Inc. 941
E XTENDED C ASE 46.2 Leegin Creative Leather
Products, Inc. v. PSKS,
Inc. 942
Section 2 of the Sherman Act 944
The Clayton Act 946
C ASE 46.3 Illinois Tool Works, Inc. v.
Independent Ink, Inc. 948
Enforcement of Antitrust Laws 950
Exemptions from Antitrust Law 951
U.S.Antitrust Laws in the Global Context 952
REVIEWING: ANTITRUST LAW 953
TERMS AND CONCEPTS 953
QUESTIONS AND CASE PROBLEMS 954
SPECIAL CASE ANALYSIS: LEEGIN CREATIVE LEATHER PRODUCTS,

INC. V. PSKS, INC. 955
LAW ON THE WEB 956
LEGAL RESEARCH EXERCISES ON THE WEB 956
FOCUS ON ETHICS: GOVERNMENT REGULATION 957

Property 959
Chapter 47
Personal Property and Bailments 960
Personal Property versus Real Property 960
Fixtures 961
Acquiring Ownership of Personal Property 962
C ASE 47.1 In re Estate of Piper 963
Mislaid, Lost, and Abandoned Property 965


xv

E XTENDED C ASE 47.2

United States v. One
Hundred Sixty-Five
Thousand Five Hundred
Eighty Dollars
($165,580) in U.S.
Currency 967

Bailments 969
Ordinary Bailments 970
Special Types of Bailments 973
C ASE 47.3 Treiber & Straub, Inc. v. United Parcel

Service, Inc. 974
REVIEWING: PERSONAL PROPERTY AND BAILMENTS 977
TERMS AND CONCEPTS 977
QUESTIONS AND CASE PROBLEMS 977
LAW ON THE WEB 979
LEGAL RESEARCH EXERCISES ON THE WEB 979

Chapter 48
Real Property and Landlord-Tenant
Relationships 980
The Nature of Real Property 980
Ownership and Other Interests in Real Property 981
C ASE 48.1 Biglane v. Under the Hill Corp. 982
Transfer of Ownership 986
C ASE 48.2 Whitehead v. Humphrey 989
C ASE 48.3 Otwell v. Diversified Timber Services,
Inc. 993
Limitations on the Rights of Property Owners 994
E XTENDED C ASE 48.4 Kelo v. City of New
London, Connecticut 995
Landlord-Tenant Relationships 997
REVIEWING: REAL PROPERTY AND LANDLORD-TENANT
RELATIONSHIPS 1000
TERMS AND CONCEPTS 1000
QUESTIONS AND CASE PROBLEMS 1001
SPECIAL CASE ANALYSIS: KELO V. CITY OF NEW LONDON,
CONNECTICUT 1002
LAW ON THE WEB 1003
LEGAL RESEARCH EXERCISES ON THE WEB 1003
FOCUS ON ETHICS: PROPERTY 1004


Special Topics 1007
Chapter 49
Insurance 1008
Insurance Terminology and Concepts 1008

E XTENDED C ASE 49.1

Zurich American
Insurance Co. v. AMB
Industries, Inc. 1011
The Insurance Contract 1012
C ASE 49.2 Car y v. United of Omaha Life
Insurance Co. 1015
C ASE 49.3 Woo v. Fireman’s Fund Insurance
Co. 1017
Types of Insurance 1018
REVIEWING: INSURANCE 1023
TERMS AND CONCEPTS 1023
QUESTIONS AND CASE PROBLEMS 1023
LAW ON THE WEB 1026
LEGAL RESEARCH EXERCISES ON THE WEB 1026

Chapter 50
Wills and Trusts 1027
Wills 1027
C ASE 50.1 Shaw Family Archives, Ltd. v. CMG
Worldwide, Inc. 1029
C ASE 50.2 In re Estate of Pallister 1032
Intestacy Laws 1035

Trusts 1037
E XTENDED C ASE 50.3 Cinquemani v. Lazio
1039
Other Estate-Planning Issues 1043
REVIEWING: WILLS AND TRUSTS 1044
TERMS AND CONCEPTS 1044
QUESTIONS AND CASE PROBLEMS 1045
LAW ON THE WEB 1047
LEGAL RESEARCH EXERCISES ON THE WEB 1047

Chapter 51
Professional Liability and Accountability 1048
Potential Liability to Clients 1048
E XTENDED C ASE 51.1 In re Disciplinar y
Proceedings Against
Inglimo 1050
Potential Liability to Third Parties 1052
C ASE 51.2 Reznor v. J. Artist Management,
Inc. 1053
The Sarbanes-Oxley Act of 2002 1055
Potential Liability of Accountants under Securities
Laws 1058
Potential Criminal Liability of Accountants 1061
Confidentiality and Privilege 1062
REVIEWING: PROFESSIONAL LIABILITY AND
ACCOUNTABILITY 1063
TERMS AND CONCEPTS 1064
QUESTIONS AND CASE PROBLEMS 1064



xvi

LAW ON THE WEB 1067
LEGAL RESEARCH EXERCISES ON THE WEB 1067

Appendix B The Constitution of the
United States A–4

Chapter 52
International Law in a Global Economy 1068

Appendix C The Uniform Commercial
Code A–12

International Law 1068
Doing Business Internationally 1071
Regulation of Specific Business Activities 1072
C ASE 52.1 Fuji Photo Film Co. v. International
Trade Commission 1073
U.S. Laws in a Global Context 1076
C ASE 52.2 Carnero v. Boston Scientific
Corp. 1076
E XTENDED 52.3 Khulumani v. Barclay National
Bank, Ltd. 1078
REVIEWING: INTERNATIONAL LAW IN A GLOBAL ECONOMY 1080
TERMS AND CONCEPTS 1080
QUESTIONS AND CASE PROBLEMS 1080
SPECIAL CASE ANALYSIS: KHULUMANI V. BARCLAY NATIONAL
BANK, LTD. 1082
LAW ON THE WEB 1082

LEGAL RESEARCH EXERCISES ON THE WEB 1082
FOCUS ON ETHICS: SPECIAL TOPICS 1083

Appendix D The United Nations Convention
on Contracts for the International
Sale of Goods (Excerpts) A–176
Appendix E The Uniform Partnership Act
(Excerpts) A–180
Appendix F The Revised Uniform Limited
Partnership Act (Excerpts) A–190
Appendix G The Revised Model Business
Corporation Act (Excerpts)
A–200
Appendix H The Sarbanes-Oxley Act of 2002
(Excerpts and Explanatory
Comments) A–210
Appendix I Sample Answers for End-of-Chapter
Questions with Sample
Answer A–218
Glossary G–1

Appendices

Table of Cases TC–1

Appendix A How to Brief Cases and
Analyze Case Problems A–1

Index I–1



xvii

1.1 Schools of Jurisdprudential Thought
1.2 Sources of American Law

4

8

36

2.2 Types of Courts

27.1 Honoring Checks

42

3.1 Pretrial Procedures

65

72
132

6.2 Intentional Torts against Property

136

194


11.1 Methods by Which an Offer Can Be
Terminated 242
11.2 Effective Time of Acceptance 245
269

668

299

16.1 Assignments and Delegations

781

39.1 Roles of Directors and Officers
270

13.3 Contracts by Mentally Incompetent
Persons 271

18.1 Equitable Remedies

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

13.2 Contracts by Intoxicated Persons

14.1 Voluntary Consent


30.1 Forms of Bankruptcy Relief
Compared 630

32.2 Termination of an Agency

257

13.1 Contracts by Minors

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

31.1 Formation of the Agency
Relationship 645

10.1 Types of Contracts 224

12.1 Consideration

578

29.1 Creating and Perfecting a Security
Interest 596

6.1 Intentional Torts against Persons
9.1 Types of Crimes

554

28.1 Remedies Available to Creditors


3.2 Trial Procedures 70
3.3 Posttrial Options

529

26.2 Transfer Warranty Liability for
Transferors Who Receive
Consideration 531

1.3 The Common Law Tradition 13
2.1 Jurisdiction

26.1 Signature Liability

327

364

801

39.2 Duties and Liabilities of Directors and
Officers 805
39.3 Role of Shareholders

813

40.1 Methods of Expanding Corporate
Operations and Interests 826
47.1 Acquisition of Personal Property


966

20.1 The Formation of Sales and Lease
Contracts 411

47.2 Mislaid, Lost, and Abandoned
Property 968

21.1 Delivery without Movement of the
Goods 431

47.3 Rights and Duties of the Bailee and the
Bailor 976

21.2 Risk of Loss When a Sales or Lease
Contract is Breached 433

48.1 Interests in Real Property

22.1 Performance of Sales and Lease
Contracts 444

50.2 Trusts 1041

23.1 Types of Warranties

51.1 Common Law Liability of Accountants
and Other Professionals 1056


466

24.1 Requirements for Negotiability

499

25.1 Types of Indorsements and Their
Effect 509
25.2 Rules and Requirements for HDC
Status 518

50.1 Wills

987

1036

51.2 Statutory Liability of Accountants and
Other Professionals 1063


xviii

1–1 Areas of the Law That May Affect
Business Decision Making 5

15–3 Contracts Subject to the Statute of
Frauds 311

1–2 Equitable Maxims


15–4 Parol Evidence Rule

9

317

1–3 Procedural Differences between an Action
at Law and an Action in Equity 10

16–1 Assignment Relationships
16–2 Delegation Relationships

326

1–4 West’s National Reporter System—
Regional/Federal 17

16–3 Third Party Beneficiaries

331

1–5 How to Read Citations

17–1 Contract Discharge

18

1–6 A Sample Court Case


2–1 The State and Federal Court Systems

37

2–2 Geographic Boundaries of the U.S. Courts
of Appeals and U.S. District Courts
2–3 Basic Differences in the Traditional
Forms of ADR 43
3–2 A Typical Complaint
3–4 Pretrial Motions

54

18–2 Remedies for Breach of Contract
19–1 A Click-On Agreement

19–2 The E-SIGN Act and the UETA

61

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

21–1 Contract Terms–Definitions

4–1 Protections Guaranteed by the Bill of
Rights 83
5–1 The Intersection of What Is Legal and
What Is Ethical 107
160


8–2 Existing Generic Top Level Domain
Names 165

428

24–2 A Typical Time Draft 488
24–3 A Typical Trade Acceptance
24–4 A Typical Promissory Note

489
491

9–2 Civil (Tort) Lawsuit and Criminal
Prosecution for the Same Act 186

25–1 A Blank Indorsement

9–3 Major Procedural Steps in a Criminal
Case 203

25–3 A Qualified Indorsement

10–1 Classifications Based on Contract
Formation 218
10–2 Enforceable, Voidable, Unenforceable,
and Void Contracts 223
10–3 Rules of Contract Interpretation 225
13–2 Contract Legality 281
14–1 Mistakes of Fact


287

15–1 The One-Year Rule
15–2 Collateral Promises

304
307

453

24–1 Basic Types of Negotiable
Instruments 487

24–5 A Typical Small Certificate of
Deposit 491

279

395

22–1 A Letter-of-Credit Transaction

9–1 Key Differences between Civil Law and
Criminal Law 185

13–1 Unconscionability

382


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

57

8–1 Forms of Intellectual Property

363

373

20–2 The Law Governing Contracts

56

3–3 A Typical Summons

349

18–1 Measurement of Damages—Breach of
Construction Contracts 355

24

3–1 Stages in a Typical Lawsuit

322

505


25–2 A Special Indorsement

505
506

25–4 “For Deposit Only” and “For Collection
Only” Indorsements 507
25–5 Trust (Agency) Indorsements 507
25–6 Converting an Order Instrument to a
Bearer Instrument and Vice Versa 508
25–7 Taking for Value

514

26–1 Time for Proper Presentment 525
26–2 Defenses against Liability on Negotiable
Instruments 534
27–1 A Cashier’s Check

545

27–2 An American Express Traveler’s
Check 546


xix

27–3 A Stop-Payment Order

548


27–4 A Poorly Filled-Out Check

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

553

27–5 The Traditional Check-Collection
Process 556
28–1 Suretyship and Guaranty Parties

579

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

29–1 Secured Transactions—Concept and
Terminology 587

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

29–2 Types of Collateral and Methods of
Perfection 589

42–2 Venture Capital Issues

29–3 The Uniform Financing Statement


591

29–4 Priority of Claims to a Debtor’s
Collateral 601
30–1 Collection and Distribution of Property in
Most Voluntary Bankruptcies 620

873

43–1 Costs of Regulation to Businesses

887

43–2 Executive Departments and Important
Subagencies 891
43–3 Selected Independent Regulatory
Agencies 892

32–1 A Sample General Power of Attorney 654

43–4 The Process of Formal Administrative
Adjudication 898

36–1 Terms Commonly Included in a
Partnership Agreement 740

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


36–2 A Comparison of General Partnerships
and Limited Partnerships 752

45–1 Major Federal Environmental
Statutes 923

38–1 Offshore Low-Tax Jurisdictions

47–1 Degree of Care Required of a Bailee

38–2 Articles of Incorporation
38–3 Types of Corporate Bonds

774

783

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

789

38–4 How Do Stocks and Bonds Differ?
38–5 Types of Stocks

790

790

821


40–3 The Terminology of Takeover
Defenses 825
40–4 Major Forms of Business Compared

831

836

41–2 Exemptions under the 1933 Act

1020

50–1 Excerpts from the Will of Diana, Princess
of Wales 1028

809

819

41–1 Basic Functions of the SEC

1009

49–3 Typical Fire Insurance Policies

39–2 Results of Cumulative Voting
40–2 Consolidation

49–1 Insurance Classifications


49–2 Insurance Contract Provisions and
Clauses 1014

39–1 Directors’ Management
Responsibilities 797
40–1 Merger

972

841

50–2 Per Stirpes Distribution

1037

50–3 Per Capita Distribution

1038

50–4 A Revocable Living Trust
Arrangement 1039
51–1 Key Provisions of the Sarbanes-Oxley Act
of 2002 Relating to Public Accounting
Firms 1057

41–3 A Sample Restricted Stock
Certificate 844

52–1 The Legal Systems of Selected

Nations 1070

Chapter 5 Breach of Trust Issues Hit Major
German Corporations 112

Chapter 24 The Negotiability of Checks in
Other Nations 490

Chapter 19 International Use and Regulation of
the Internet 380

Chapter 42 Moving Your Small Business Online:
Seller Beware 865


xx

Chapter 1 How the Internet Is Expanding
Precedent 22

Chapter 41 Moving Company Information to
the Internet 838

Chapter 8 Search Engines versus Copyright
Owners 174

Chapter 2 Implications of an Increasingly
Private Justice System 38
Chapter 14 Internet Click Fraud


Chapter 51 An Auditor’s Duty to Correct
Certified Opinions 1060

292

Chapter 3 E-Discovery and Cost-Shifting
Chapter 9 Stand-Your-Ground Laws

66

196

Chapter 23 Removing Class-Action Lawsuits to
the Federal Court 470

Chapter 33 Paying Overtime in the Virtual
Workforce 678
Chapter 34 New Issues in Online Privacy and
Employment Discrimination 706

Chapter 27 Using Digital Cash Facilitates
Money Laundering 564

Chapter 4 Does State Regulation of Internet
Prescription Transactions Violate
the Dormant Commerce Clause? 84
Chapter 6 Tort Reform 124
Chapter 12 Promissory Estoppel and
Employment Contracts 260


Chapter 13 Are Online Fantasy Sports
Gambling? 274
Chapter 15 Prenuptial Agreements and Advice
of Counsel 312
Chapter 39 A Shareholder Access Rule

808

Chapter 45 Should the EPA Take the Threat of
Global Warming into Account? 924


The study of business law and, more generally, the
legal environment of business has universal applicability.A student entering virtually any field of business
must have at least a passing understanding of business law in order to function in the real world.
Additionally, students preparing for a career in
accounting, government and political science, economics,and even medicine can use much of the information they learn in a business law and legal
environment course. In fact, every individual throughout his or her lifetime can benefit from a knowledge
of contracts, real property law, landlord-tenant relationships, and other topics. Consequently, we have
fashioned this text as a useful “tool for living” for all of
your students (including those taking the CPA exam).
For the Eleventh Edition,we have spent a great deal
of effort making this book more contemporary, exciting,and visually appealing than ever before to encourage your students to learn the law. We have also
designed many new features and special pedagogical
devices that focus on the legal, ethical, global, and
e-commerce environments, while addressing core curriculum requirements.

What Is New in the Eleventh Edition
Instructors have come to rely on the coverage, accuracy, and applicability of Business Law. To make sure
that our text engages your students’ interests, solidifies

their understanding of the legal concepts presented,
and provides the best teaching tools available,we now
offer the following items either in the text or in conjunction with the text.

New Insight Features
For the Eleventh Edition,we have created three special
new Insight features—Insight into E-Commerce,

Insight into Ethics, and Insight into the Global
Environment. These features, which appear in
selected chapters, provide valuable insights into how
the courts and the law are dealing with specific contemporary issues. Each of these features ends with a criticalthinking question that explores some cultural,
environmental, political, social, or technological aspect
of the issue.

1. Insight into E-Commerce—When the topic
involves some new technology or how the
Internet is affecting a particular area of law, we
include an Insight into E-Commerce feature. For
example, Chapter 1 contains an Insight into
E-Commerce feature on How the Internet Is
Expanding Precedent, Chapter 8 has a feature on
Search Engines Versus Copyrights, and Chapter 41
includes a feature on Moving Company
Information to the Internet.
2. Insight into Ethics—When the topic has ethical
implications, we include an Insight into Ethics feature. For example, Chapter 2’s Insight into Ethics
feature is entitled Implications of an Increasingly
Private Justice System, Chapter 14’s feature
addresses Internet Click Fraud, and Chapter 51’s

feature covers An Auditor’s Duty to Correct Certified
Opinions.
3. Insight into the Global Environment—
Because business transactions today are increasingly global, we have also included a feature that
discusses global implications or explains how foreign nations deal with a particular topic. For example, there is an Insight into the Global Environment
feature in Chapter 5 titled Breach of Trust Issues Hit
Major German Corporations, one in Chapter 19 on
International Use and Regulation of the Internet,and
one in Chapter 42 on Moving Your Small Business
Online: Seller Beware.


xxii

Two Critical-Thinking Questions at the
End of Every Case Presented in This Text

Analysis questions and the questions in the Reviewing
features, which are described next.

In every chapter of the Tenth Edition of West’s Business
Law, we included one longer case excerpt followed by
two case-ending questions designed to guide students’
analysis of the case and help build their legal reasoning skills.For the Eleventh Edition,we continue to offer
one longer excerpt—now labeled an Extended
Case—with two critical-thinking questions in every
chapter. These extended cases may be used for casebriefing assignments and are also tied to the Special
Case Analysis questions found in every unit of the text.
Because of the popularity of the case-ending questions, for this edition, we’ve also included two questions for all cases. In addition to the What If the Facts
Were Different? questions and Impact of This Case on

Today’s Law sections that appeared in the Tenth
Edition,we’ve devised an entirely new set of questions.
These new Dimension questions focus on meeting
aspects of your curriculum requirements, including:

New Special Case Analysis Questions

• The Ethical Dimension
• The E-Commerce Dimension
• The Global Dimension
• The Legal Environment Dimension
Suggested answers to all questions following
cases can be found in both the Instructor’s
Manual and the Answers Manual that accompany this text. (The full title of this manual is Answers
to Questions and Case Problems and Alternate Problem
Sets with Answers.)

Greater Emphasis on
Critical Thinking and Legal Reasoning
Today’s business leaders are often required to think
“outside the box”when making business decisions.For
this reason, we have added a number of criticalthinking elements for the Eleventh Edition that
are designed to challenge students’ understanding of
the materials beyond simple retention.Your students’
critical-thinking and legal reasoning skills will be
increased as they work through the numerous pedagogical devices within the book. Almost every feature
and every case presented in the text conclude with
some type of critical-thinking question. These questions include For Critical Analysis,What If the Facts Were
Different? and the Ethical, E-Commerce, Global, and
Legal Environment Dimension questions discussed

previously. They also include the new Special Case

Through the years, instructors have frequently
requested that we teach their business law students
how to analyze case law. We discuss the fundamental
topic of how to read and understand case law in
Chapter 1 and cover How to Brief Cases and Analyze
Case Problems in Appendix A.For this edition,we have
gone one step further: in selected chapters of the text,
we provide a Special Case Analysis question that is
based on the Extended Case excerpt in that chapter.
The Special Case Analysis questions are part of the
Questions and Case Problems that appear at the end of
the chapter. We offer one of these special questions for
every unit in the text to build students’ analytical skills.
The Special Case Analysis questions test students’ ability to perform IRAC (Issue, Rule, Application, and
Conclusion) case analysis. Students must identify the
legal issue presented in the chapter’s extended case,
understand the rule of law, determine how the rule
applies to the facts of the case,and describe the court’s
conclusion. Instructors can assign these questions as
homework or can use them in class to elicit student
participation and teach case analysis.

Reviewing Features in Every Chapter
For the Eleventh Edition of Business Law, we have
included a new and improved feature at the end of
every chapter that helps solidify students’ understanding of the chapter materials. The feature appears just
before the Terms and Concepts and is entitled
Reviewing [chapter topic]. Each of these features presents a hypothetical scenario and then asks a series of

questions that require students to identify the issues
and apply the legal concepts discussed in the 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 prior to
completing homework assignments. Suggested
answers to the questions posed in the Reviewing
features can be found in both the Instructor’s
Manual and the Answers Manual that accompany this text.
The Reviewing features are also tied to a new set of
questions for each chapter in the Web-based