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SIXTH EDITION

Business Law
and the Legal Environment
STANDARD EDITION

Jeffrey F. Beatty
Boston University

Susan S. Samuelson
Boston University

Dean A. Bredeson
University of Texas

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


Business Law and the Legal Environment,
Sixth Edition
Jeffrey F. Beatty, Susan S. Samuelson,
and Dean A. Bredeson
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1 2 3 4 5 6 7 15 14 13 12 11


CONTENTS: OVERVIEW

Preface

UNIT 1

xxi

The Legal Environment

1

1
2
3
4

2
24
42

5
6
7
8
9

Introduction To Law
Business Ethics and Social Responsibility
Dispute Resolution
Common Law, Statutory Law, and
Administrative Law
Constitutional Law
Intentional Torts and Business Torts
Negligence and Strict Liability
Crime
International Law

UNIT 2

Contracts
10
11
12
13
14
15
16
17
18
19

Introduction to Contracts
The Agreement: Offers and Acceptances
Consideration
Legality
Voidable Contracts: Capacity and Consent
Written Contracts
Third Parties
Performance and Discharge
Remedies
Practical Contracts

UNIT 3

Commercial Transactions
20
21
22
23

Introduction to Sales
Ownership and Risk
Warranties and Product Liability
Performance and Remedies

UNIT 4

Additional CPA Topics
24 Secured Transactions
25 Creating a Negotiable Instrument

75
102
130
156
178
206

229
230
251
275
295
316
339
361
381
403
427

451
452
480
505
531

557
558
593

26 Liability for Negotiable Instruments
27 Accountants’ Liability

UNIT 5

Agency and Employment Law
28 Agency Law
29 Employment Law
30 Labor Law

UNIT 6

Business Organizations
31 Starting a Business: LLCs and Other
Options
32 Partnerships
33 Life and Death of a Corporation
34 Corporate Management
35 Shareholders
36 Securities Regulation
37 Bankruptcy

UNIT 7

618
644

669
670
698
733

761
762
787
815
839
862
891
922

Government Regulation

949

38 Antitrust
39 Consumer Law
40 Environmental Law

950
976
1005

UNIT 8

Property and Cyberlaw
41 Cyberlaw
42 Intellectual Property
43 Real Property and
Landlord-Tenant Law
44 Personal Property and Bailment
45 Planning for the Future: Wills, Trusts,
and Insurance

1033
1034
1059
1087
1119
1140
iii


iv

CONTENTS: OVERVIEW

Appendix A

The Constitution of the United States

Appendix B

Uniform Commercial Code

A1

B1

Glossary

G1

Table of Cases

T1

Index

I1


CONTENTS

Preface

UNIT 1

xxi

The Legal Environment

1

Chapter 1 Introduction To Law

2

Three Important Ideas about Law
Power
Importance
Fascination
Origins of Our Law
English Roots
The Oculist’s Case (1329)
Law in the United States
Sources of Contemporary Law
United States Constitution
Statutes
Common Law
Court Orders
Administrative Law
Treaties
Classifications
Criminal and Civil Law
Law and Morality
Jurisprudence
Legal Positivism
Natural Law
Legal Realism
Working with the Book’s Features
Analyzing a Case
Kuehn v. Pub Zone
Devil’s Advocate
Exam Strategy
You Be the Judge
You Be the Judge: Soldano v.
O’Daniels

3
3
4
4
5
5
6
7
7
7
9
9
9
10
10
10
10
12
12
12
13
13
14
14
14
16
17
17

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

19
19
21
22
23

18

Chapter 2 Business Ethics and Social
Responsibility

Introduction
Why Bother to Act Ethically at All?
Society as a Whole Benefits from Ethical
Behavior
People Feel Better When They Behave
Ethically
Unethical Behavior Can Be Very Costly
Utilitarian vs. Deontological Ethics
Utilitarian Ethics
Deontological Ethics
Ethics Case: HIV Treatment
Applying Personal Ethics in the Workplace
Ethics Case: No Sheen on Sheen
Stakeholder Ethics
Definitions
The Debate
The Organization’s Responsibility to Its
Employees
Ethics Case: The Storm After the Storm
An Organization’s Responsibility to Its
Customers
Ethics Case: Fanning Customer Wrath
Organization’s Responsibility to Overseas
Contract Workers
Ethics Case: The Dragon’s Den
When, If Ever, is Lying Acceptable?
Ethics Case: Truth (?) in Borrowing

24

25
26
26

26
27
27
28
28
29
29
30
30
31
31
31
32
32
32
34
34
36
36

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

37
37
38
39
40

Chapter 3 Dispute Resolution

42

Three Fundamental Areas of Law
Litigation versus Alternative Dispute
Resolution
Court Systems
State Courts
Landmark Case: International Shoe Co. v.
State of Washington
Federal Courts

43
43
43
43
46
48

v


vi

CONTENTS

Litigation
Pleadings
Stinton v. Robin’s Wood, Inc.
Jones v. Clinton
Trial
Adversary System
Right to Jury Trial
Voir Dire
Pereda v. Parajon
Opening Statements
Burden of Proof
Plaintiff’s Case
Rules of Evidence
Motion for Directed Verdict
Defendant’s Case
Closing Arguments
Jury Instructions
Verdict
Motions after the Verdict
Appeals
Appeals Court Options
Alternative Dispute Resolution
Negotiation
Mediation
Arbitration

51
51
57
59
61
61
61
62
62
63
63
64
64
65
65
66
66
66
66
66
67
68
68
68
69

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

70
70
72
73
74

Chapter 4 Common Law, Statutory Law,
and Administrative Law

75

Common Law
Stare Decisis
Bystander Cases
Tarasoff v. Regents of the University of
California
Statutory Law
Bills
Discrimination: Congress and the Courts
Debate
Statutory Interpretation
Landmark Case: Griggs v.
Duke Power Co.
Changing Times
Voters’ Role
Congressional Override

76
76
77

78
79
80
80
81
83
85
85
86
86

Administrative Law
Background
Classification of Agencies
Power of Agencies
Rulemaking
Investigation
Landmark Case: United States v. Biswell
Limits on Agency Power
Statutory Control
Political Control
Judicial Review
Fox Television Stations, Inc. v. Federal
Communications Commission
Informational Control and the Public
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 5 Constitutional Law

Government Power
One in a Million
Overview
Separation of Powers
Individual Rights
Power Granted
Congressional Power
Executive Power
Judicial Power
Kennedy v. Louisiana
Protected Rights
Incorporation
First Amendment: Free Speech
Texas v. Johnson
Citizens United v. Federal Election
Commission
Salib v. City of Mesa
Fifth Amendment: Due Process and the
Takings Clause
Kelo v. City of New London, Connecticut
Fourteenth Amendment: Equal Protection
Clause
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

87
88
88
89
89
91
92
93
93
93
93
94
95
97
97
99
100
101

102

103
103
103
104
104
105
105
108
108
109
111
112
112
112
113
115
117
120
122
124
124
126
127
128


CONTENTS

Chapter 6 Intentional Torts and Business
Torts

Intentional Torts
Defamation
False Imprisonment
Intentional Infliction of Emotional
Distress
Jane Doe and Nancy Roe v. Lynn Mills
Battery and Assault
Trespass, Conversion, and Fraud
Damages
Compensatory Damages
Punitive Damages
Landmark Case: State Farm v. Campbell
You Be the Judge: Boeken v. Philip Morris,
Incorporated
Tort Reform and The Exxon Valdez
Business Torts
Tortious Interference with Business
Relations
Tortious Interference with a Contract
Tortious Interference with
a Prospective Advantage
Carvel v. Noonan
Privacy and Publicity
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

130
132
132
134

135
135
136
137
138
138
140
141

170
170

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

172
172
174
176
177

Chapter 8 Crime

178

157

157
158
159
162
163

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

145
145
147
147
148
149
150
152
153
154

Chapter 7 Negligence and Strict Liability 156

Negligence
Landmark Case: Palsgraf v. Long Island
Railroad
Duty of Due Care
Hernandez v. Arizona Board of Regents
Breach of Duty
Causation
You Be the Judge: Griffith v. Valley of Sun
Recovery, Inc.
Damages
Ra v. Superior Court
Defenses
Contributory and Comparative
Negligence
Assumption of the Risk
Truong v. Nguyen

Strict Liability
Ultrahazardous Activity
New Jersey Department of Environmental
Protection v. Alden Leeds, Inc.

The Differences between a Civil and Criminal
Case
Criminal Procedure
Conduct Outlawed
State of Mind
Gathering Evidence: The Fourth
Amendment
You Be the Judge: Ohio v. Smith
The Case Begins
Landmark Case: Miranda v. Arizona
Right to a Lawyer
After Arrest
Ewing v. California
Crimes that Harm Business
Larceny
Fraud
Skilling v. United States
Arson
Embezzlement
Crimes Committed by Business
Commonwealth v. Angelo Todesca Corp.
Selected Crimes Committed by Business
Punishing a Corporation

142
143
144

165
166
166
167
167
169
169

vii

Chapter 9 International Law

Trade Regulation: The big picture
Export Controls
Import Controls
You Be the Judge: Totes-Isotoner Co. v.
United States

171

179
180
180
181
181
183
185
186
187
187
189
191
191
191
192
194
194
194
195
196
199
200
200
202
203
204

206

207
207
208
208


viii

CONTENTS

Treaties
United States—Import Prohibition of Certain
Shrimp and Shrimp Products
International Sales Agreements
The Sales Contract
Centrifugal Casting Machine Co., Inc. v.
American Bank & Trust Co.
International Trade Issues
Repatriation of Profits
Expropriation
Foreign Corrupt Practices Act
United States v. King
Extraterritoriality
You Be the Judge: Carnero v. Boston
Scientific Corporation

210

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

223
224
226
227
228

UNIT 2

Contracts
Chapter 10 Introduction to Contracts

Contracts
Elements of a Contract
Other Important Issues
All Shapes and Sizes
Contracts Defined
Development of Contract Law
Davis v. Mason
Types of Contracts
Bilateral and Unilateral Contracts
Executory and Executed Contracts
Valid, Unenforceable, Voidable, and Void
Agreements
Mr. W Fireworks, Inc. v. Ozuna
Express and Implied Contracts
You Be the Judge: DeMasse v. ITT
Corporation
Promissory Estoppel and Quasi-Contracts
Norton v. Hoyt
Sources of Contract Law
Common Law
Uniform Commercial Code
Fallsview Glatt Kosher Caterers, Inc. v.
Rosenfeld

210
213
214
216
218
218
218
219
220
222
222

229
230

231
231
231
232
232
233
233
234
234
235
235
236
237
237
238
239
242
242
242
243

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 11 The Agreement: Offers
and Acceptances

Meeting of the Minds
Offer
Statements that Usually do not Amount
to Offers
Landmark Case: Carlill v. Carbolic Smoke
Ball Company
Problems with Definiteness
Baer v. Chase
The UCC and Open Terms
Termination of Offers
Nadel v. Tom Cat Bakery
Acceptance
Mirror Image Rule
UCC and the Battle of Forms
Clickwraps And Shrinkwraps
Specht v. Netscape Communications
Corporation
Communication of Acceptance
Soldau v. Organon, Inc.
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 12 Consideration

What is Consideration?
What Is Value?
Landmark Case: Hamer v. Sidway
You Be the Judge: Kim v. Son
Adequacy of Consideration
Illusory Promises
Applications of Consideration
The UCC: Consideration in Requirements
and Output Contracts
Preexisting Duty
You Be the Judge: Citizens Trust Bank v.
White
Settlement of Debts
Liquidated Debt

244
244
247
248
249

251

252
253
253
255
257
257
259
260
260
262
262
263
264
265
267
268
268
269
271
272
273

275

276
276
277
278
278
280
280
280
282
283
284
285


CONTENTS

Unliquidated Debt: Accord and Satisfaction
Henches v. Taylor
Consideration: Trends
Employment Agreements
Snider Bolt & Screw v. Quality Screw & Nut
Promissory Estoppel and “Moral
Consideration”

285
286
287
287
287

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

289
289
291
292
294

Chapter 13 Legality

295

Contracts that Violate a Statute
Wagers
Insurance
Licensing Statutes
Authentic Home Improvements v. Mayo
Usury
American Express Travel Related Services
Company, Inc. v. Assih
Contracts that Violate Public Policy
Restraint of Trade: Noncompete Agreements
King v. Head Start Family Hair Salons, Inc.
Exculpatory Clauses
You Be the Judge: Ransburg v. Richards
Unconscionable Contracts
Worldwide Insurance v. Klopp
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 14 Voidable Contracts: Capacity
and Consent

Capacity
Minors
Mentally Impaired Persons
Landmark Case: Babcock v. Engel
Reality of Consent
Fraud
Hess v. Chase Manhattan Bank, USA, N.A.
Mistake
Donovan v. RRL Corporation

288

296
296
297
297
298
299

299
300
301
303
304
305
307
308
310
310
312
313
315

316
317
317
319
320
321
322
325
327
328

Duress
You Be the Judge: In Re RLS Legal
Solutions, L.L.C.
Undue Influence
Sepulveda v. Aviles
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 15 Written Contracts

Landmark Case: The Lessee of Richardson v.
Campbell
Common Law Statute of Frauds: Contracts That
Must Be in Writing
Agreements for an Interest in Land
Agreements That Cannot Be Performed
within One Year
You Be the Judge: Sawyer v. Mills
Promise to Pay the Debt of Another
Promise Made by an Executor of an Estate
Promise Made in Consideration of Marriage
The Common Law Statute of Frauds: What the
Writing Must Contain
Signature
Reasonable Certainty
Electronic Contracts and Signatures
The UCC’s Statute of Frauds
UCC §2-201(1)—The Basic Rule
UCC §2-201(2)—The Merchants’ Exception
Seton Co. v. Lear Corp.
UCC §2-201(3)—Special Circumstances
Parol Evidence
Mayo v. North Carolina State University
Exception: An Incomplete or Ambiguous
Contract
Fraud, Misrepresentation, or Duress
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 16 Third Parties
Third Party Beneficiary
Intended Beneficiaries

ix

330
331
331
332
333
333
335
337
338

339
340
342
342
344
345
345
346
346
347
347
347
349
349
350
350
351
352
353
354
354
355
355
355
357
358
360

361

362
362


x

CONTENTS

Schauer v. Mandarin Gems of California, Inc.
Incidental Beneficiaries
Unite Here Local 30 v. California
Department of Parks and Recreation
Assignment and Delegation
Assignment
Tenet Healthsystem Surgical, L.L.C. v.
Jefferson Parish Hospital Service District
No. 1
You Be the Judge: Wells Fargo Bank
Minnesota v. BrooksAmerica Mortgage
Corporation
Delegation of Duties
Rosenberg v. Son, Inc.

363
364

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

375
375
377
378
380

Chapter 17 Performance and Discharge

Conditions
How Conditions Are Created
Types of Conditions
American Electronic Components, Inc. v.
Agere Systems, Inc.
You Be the Judge: Anderson v. Country Life
Insurance Co.
Performance
Strict Performance and Substantial
Performance
Personal Satisfaction Contracts
Good Faith
Brunswick Hills Racquet Club Inc. v. Route
18 Shopping Center Associates
Time of the Essence Clauses
Breach
Material Breach
O’Brien v. Ohio State University
Anticipatory Breach
Statute of Limitations
Impossibility
True Impossibility
Commercial Impracticability and Frustration
of Purpose
Chapter Conclusion
Exam Review

364
365
365
367
371
371
374

381

382
383
384
384
386
387
387
389
390
390
392
392
393
393
394
394
394
394
395
397
397

Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 18 Remedies

Breaching A Contract
Identifying the “Interest” to Be Protected
Expectation Interest
Landmark Case: Hawkins v. McGee
Direct Damages
Consequential Damages
Landmark Case: Hadley v. Baxendale
You Be the Judge: Bi-Economy Market, Inc.
v. Harleysville Ins. Co. of New York
Incidental Damages
The UCC and Damages
Reliance Interest
Promissory Estoppel
Toscano v. Greene Music
Restitution Interest
Restitution in Cases of a Voidable Contract
Putnam Construction & Realty Co. v. Byrd
Restitution in Cases of a Quasi-Contract
Other Remedies
Specific Performance
Injunction
Milicic v. Basketball Marketing
Company, Inc.
Reformation
Special Issues
Mitigation of Damages
Nominal Damages
Liquidated Damages
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 19 Practical Contracts

The Lawyer
Lawyers and Clients
Hiring a Lawyer
The Contract
Who Drafts It?
How to Read a Contract
Mistakes
Quake Construction v. American Airlines

399
400
401

403

404
404
405
405
407
407
407
409
409
410
412
412
412
413
414
414
415
416
416
417
417
419
419
419
419
419
421
421
423
425
426

427

428
429
429
430
430
430
430
431


CONTENTS

Cipriano v. Patrons Mutual Insurance
Company of Connecticut
You Be the Judge: Heritage Technologies v.
Phibro-Tech
The Structure of a Contract
LeMond Cycling, Inc. v. PTI Holding, Inc.
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

UNIT 3

433
435
437
440
446
447
449
450
450

Commercial Transactions

451

Chapter 20 Introduction to Sales

452

Development of Commercial Law
Harold and Maude, Revisited
This Unit and This Chapter
UCC Basics
Code’s Purpose
Scope of Article 2
Mixed Contracts
Merchants
Good Faith and Unconscionability
Contract Formation
Formation Basics: Section 2-204
Jannusch v. Naffziger
Statute of Frauds
Delta Star, Inc. v. Michael’s Carpet World
Added Terms: Section 2-207
Superior Boiler Works, Inc. v. R. J. Sanders,
Inc.
Open Terms: §§2-305 and 2-306
Mathis v. Exxon Corporation
You Be the Judge: Lohman v. Wagner
Modification

453
455
455
456
456
456
457
457
457
458
458
459
460
461
462
465
466
467
469
470

Chapter Conclusion
Exam Review
Multiple-Choice questions
Essay Questions
Discussion Questions

473
473
476
476
478

Chapter 21 Ownership and Risk

480

Legal Interest
Identification, Title, and Insurable Interest

481
482

xi

Existence and Identification
Passing of Title
Circuit City Stores, Inc. v. Commissioner
of Revenue
Insurable Interest
Valley Forge Insurance Co. v. Great American
Insurance Co.
Imperfect Title
Bona Fide Purchaser
Bakalar v. Vavra
Entrustment
Lindholm v. Brant
Creditor’s Rights
Ordinary Sales
Returnable Goods
Risk of Loss
Shipping Terms
When the Parties Fail to Allocate the Risk
Harmon v. Dunn

487
487
487
489
490
491
492
493
493
494
494
495
498

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

499
499
501
502
503

Chapter 22 Warranties and Product
Liability

Express Warranties
Affirmation of Fact or Promise
Description of Goods
Sample or Model
Basis of Bargain
Rite Aid Corp. v. Levy-Gray
Implied Warranties
Implied Warranty of Merchantability
Goodman v. Wenco Foods, Inc.
Implied Warranty of Fitness for a Particular
Purpose
Two Last Warranties: Title and Infringement
Disclaimers and Defenses
Disclaimers
CCB Ohio, LLC v. Chemque, Inc.
Remedy Limitations
Privity
Reed v. City of Chicago
Buyer’s Misuse
Statute of Limitations and Notice of Breach
Negligence
You Be the Judge: Boumelhem v. Bic Corp.

482
484
485
486

505

506
506
507
507
507
508
509
510
511
511
512
513
513
514
515
517
518
519
519
520
521


xii

CONTENTS

Strict Liability
Tort Reform
Time Limits: Statutes of Limitations in
Tort Cases
Other Legislation
Lemon Laws
Consumer Protection Laws

522
524

UNIT 4

524
525
525
525

Chapter 24 Secured Transactions

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

526
526
527
528
530

Chapter 23 Performance and Remedies

Obligation on All Parties: Good Faith
Seller’s Rights and Obligations
Perfect Tender Rule
Restrictions on the Perfect Tender Rule
Zion Temple First Pentecostal Church of
Cincinnati, Ohio, Inc. v. Brighter Day
Bookstore & Gifts
You Be the Judge: United Aluminum
Corporation v. Linde, Inc.
Buyer’s Rights and Obligations
Inspection and Acceptance
Lile v. Kiesel
Seller’s Remedies
Stop Delivery
Identify Goods to the Contract
Resale
Damages for Non-Acceptance
Action for the Price
Buyer’s Remedies
Incidental Damages and Consequential
Damages
Smith v. Penbridge Associates, Inc.
Specific Performance
Cover
Hessler v. Crystal Lake Chrysler-Plymouth,
Inc.
Non-Delivery
Acceptance of Non-Conforming Goods
Liquidated Damages
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Discussion Questions
Discussion Questions

531

532
532
533
533
535

537
539
539
540
541
541
541
542
543
543
544
544
545
545
546
546
547
548
548
549
549
552
553
554

Additional CPA Topics
Article 9: Terms and Scope
Article 9 Vocabulary
Scope of Article 9
Attachment of a Security Interest
Agreement
Control and Possession
In Re CFLC, Inc.
Value
Debtor Rights in the Collateral
Attachment to Future Property
Perfection
Nothing Less than Perfection
Perfection by Filing
Corona Fruits & Veggies, Inc. v. Frozsun
Foods, Inc.
Perfection by Possession or Control
Layne v. Bank One
Perfection of Consumer Goods
Perfection of Movable Collateral and Fixtures
Protection of Buyers
Buyers in Ordinary Course of Business
You Be the Judge: Conseco Finance Servicing
Corp. v. Lee
Buyers of Consumer Goods
Buyers of Chattel Paper, Instruments,
and Documents
Liens
Priorities Among Creditors
Filing versus Control or Possession
Priority Involving a Purchase Money Security
Interest
In Re Roser
Default and Termination
Default
Termination
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 25 Creating a Negotiable
Instrument
Commercial Paper
Types of Negotiable Instruments

557
558

559
559
560
562
563
563
564
565
565
566
566
566
567
568
570
572
573
574
576
576
577
578
579
579
581
582
582
583
584
584
587
587
587
590
591
592

593

594
595


CONTENTS

Negotiability
Requirements for Negotiability
Interpretation of Ambiguities
You Be the Judge: Blasco v. Money
Services Center
Negotiation
Holder in Due Course
Requirements for Being a Holder
in Due Course
Buckeye Check Cashing, Inc. v. Camp
Hartford Accident & Indemnity Co. v.
American Express, Co.
Shelter Rule
Defenses against a Holder in Due Course
Consumer Exception
Antuna v. Nescor, Inc.

607
608
608
611
611

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

612
612
615
616
617

Chapter 26 Liability for Negotiable
Instruments

618

Introduction
The Contract versus the Instrument
Enforcing an Instrument
Primary versus Secondary Liability
The Payment Process
Signature Liability
Maker
Drawer
Drawee
Harrington v. MacNab
Indorser
Accommodation Party
In Re Couchot
Agent
Warranty Liability
Basic Rules of Warranty Liability
Transfer Warranties
You Be the Judge: Quimby v. Bank
of America
Comparison of Signature Liability and
Transfer Warranties
Presentment Warranties
Other Liability Rules
Conversion Liability
Impostor Rule

597
598
600
601
601
603
604
605

619
619
619
620
620
621
621
621
622
622
623
624
625
625
627
627
628

629
630
631
632
632
633

xiii

Fictitious Payee Rule
Employee Indorsement Rule
Negligence
You Be the Judge: Gulf States Section, PGA,
Inc. v. Whitney National Bank of New
Orleans
Crimes
Discharge
Discharge of the Obligor
Discharge of an Indorser or Accommodation
Party

633
633
634

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

637
637
640
642
643

Chapter 27 Accountants’ Liability

644

Introduction
Audits
Opinions
Congress Responds to Enron: Sarbanes-Oxley
Liability to Clients
Contract
Negligence
Oregon Steel Mills, Inc. v. Coopers
& Lybrand, LLP
Common-law Fraud
Breach of Trust
Fiduciary Duty
Leber v. Konigsberg
Liability to Third Parties
Negligence
Gary Ellis v. Grant Thornton
Fraud
Liability for Qualified Opinions
Securities Act of 1933
You Be the Judge: Amorosa v. Ernst
& Young LLP
Securities Exchange Act of 1934
Landmark Case: Ernst & Ernst v. Hochfelder
Criminal Liability
Other Accountant-Client Issues
The Accountant-Client Relationship
Accountant-Client Privilege
Chapter Conclusion
Exam Review
Multiple-Choice Questions

634
635
636
636
637

646
646
647
648
649
649
649
650
651
651
651
652
653
654
656
657
657
657
658
659
659
661
661
661
662
663
663
666


xiv

CONTENTS

Essay Questions
Discussion Questions

UNIT 5

Agency and Employment Law
Chapter 28 Agency Law

Creating an Agency Relationship
Consent
Control
Fiduciary Relationship
Elements Not Required for an Agency
Relationship
Duties of Agents to Principals
Duty of Loyalty
Otsuka v. Polo Ralph Lauren Corporation
Abkco Music, Inc. v. Harrisongs Music, Ltd.
Other Duties of an Agent
Principal’s Remedies when the Agent
Breaches a Duty
Duties of Principals to Agents
Duty to Cooperate
Terminating an Agency Relationship
Termination by Agent or Principal
Principal or Agent Can No Longer Perform
Required Duties
Change in Circumstances
Effect of Termination
Liability
Principal’s Liability for Contracts
Authority
Ratification
Subagents
Agent’s Liability for Contracts
Fully Disclosed Principal
Unidentified Principal
Undisclosed Principal
Unauthorized Agent
Principal’s Liability for Torts
Employee
Scope of Employment
You Be the Judge: Zankel v. United States of
America
Intentional Torts
Doe v. Liberatore
Physical or Non-Physical Harm
Agent’s Liability for Torts
Chapter Conclusion
Exam Review

667
668

669
670

671
671
672
672
672
673
673
673
674
676
678
678
679
679
680

680
681
681
682
682
682
684
684
684
685
685
685
686
687
687
688
689
690
690
691
692
692
692

Multiple-Choice Questions
Essay Questions
Discussion Questions

695
696
697

Chapter 29 Employment Law

698

Introduction
Employment Security
National Labor Relations Act
Family and Medical Leave Act
Health Insurance
Common-Law Protections
Kozloski v. American Tissue Services
Foundation
Whistleblowing
Safety and Privacy in the Workplace
Workplace Safety
Employee Privacy
Financial Protection
Fair Labor Standards Act: Minimum Wage,
Overtime, and Child Labor
Workers’ Compensation
Social Security
Pension Benefits
Employment Discrimination
Equal Pay Act of 1963
Title VII
You Be the Judge: Jespersen v. Harrah’s
Landmark Case: Griggs v. Duke Power Co.
Teresa Harris v. Forklift Systems, Inc.
Age Discrimination
Reid v. Google, Inc.
Americans with Disabilities Act
Genetic Information Nondiscrimination Act

699
700
700
700
700
701
703
706
707
707
708
711
711
711
711
712
712
712
713
714
715
719
721
722
723
724

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

726
726
729
731
732

Chapter 30 Labor Law

733

Unions Develop … and the Law Responds
734
Pro-Union Statutes
735
Labor Unions Today
737
Organizing a Union
738
Exclusivity
738
You Be the Judge: Emporium Capwell Co. v.
Western Additional Community
Organization
738


CONTENTS

Organizing: Stages
Organizing: Actions
Progressive Electric, Inc. v. National Labor
Relations Board
Appropriate Bargaining Unit
Collective Bargaining
Subjects of Bargaining
Duty to Bargain
Landmark Case: NLRB v. Truitt
Manufacturing Co.
Enforcement
Brentwood Medical Associates v. United
Mine Workers of America
Concerted Action
Strikes
Replacement Workers
Citizens Publishing and Printing Company v.
National Labor Relations Board
Picketing
Lockouts

751
752
752

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

754
754
757
757
759

UNIT 6

Business Organizations
Chapter 31 Starting a Business: LLCs
and Other Options

Sole Proprietorships
Corporations
Corporations in General
S Corporations
Close Corporations
Limited Liability Companies
You Be the Judge: Ridgaway v. Silk
Wyoming.com, LLC v. Lieberman
BLD Products, LTC v. Technical Plastics
of Oregon, LLC
Tzolis v. Wolff
Benefit Corporations and LLCs
General Partnerships
Limited Liability Partnerships
Limited Partnerships and Limited Liability
Limited Partnerships
Professional Corporations

739
740
741
743
744
744
746
746
747
748
749
749
750

761
762

Joint Ventures
Franchises
National Franchisee Association v. Burger
King Corporation

778
779

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

782
782
783
784
785

Chapter 32 Partnerships

Introduction
Creating a Partnership
Factors that Matter
You Be the Judge: Nadel v. Starkman
Partnership by Estoppel
Relationship between Partners and Outsiders
Liability of the Partnership to Outsiders
Paying the Debts of the Partnership
Relationship Among Partners
Financial Rights
Banker v. Estate of Banker
Management Rights
Management Duties
Moren v. Jax Restaurant
Marsh v. Gentry
Terminating a Partnership
Dissociation
Continuation of the Partnership Business
Termination of the Partnership Business
Jefferson Insurance Co. v. Curle

763
764
764
766
767
768
769
770

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

771
772
774
774
776

Before the Corporation Is Formed
Promoter’s Liability
Defective Incorporation
You Be the Judge: GS Petroleum, Inc. v.
R and S Fuel, Inc.
Incorporation Process
Where to Incorporate?
Charter’s Required Provisions

776
778

xv

Chapter 33 Life and Death of a
Corporation

781

787

788
788
789
790
791
792
792
793
795
795
796
797
798
799
800
802
802
804
805
807
808
808
811
812
813

815

816
816
817
818
819
819
820


xvi

CONTENTS

Charter’s Optional Provisions
Rodriguez v. Loudeye Corporation
After Incorporation
Directors and Officers
Bylaws
In Re Bigmar
Shareholder Agreements
Issuing Debt
Foreign Corporations
Death of the Corporation
Piercing the Corporate Veil
Brooks v. Becker
Termination

824
825
826
826
828
828
829
830
830
831
831
833
834

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

834
834
836
837
838

Chapter 34 Corporate Management

Managers Versus Shareholders: The Fundamental
Conflict
Landmark Case: Unocal Corp. v. Mesa
Petroleum Co.
Resolving the Conflict: The Business Judgment
Rule
Duty of Loyalty
Lippman v. Shaffer
Anderson v. Bellino
Duty of Care
RSL Communications v. Bildirici
More Conflict: Takeovers
Federal Regulation of Tender Offers: The
Williams Act
State Regulation of Takeovers
You Be the Judge: Airgas, Inc. v. Air Products
and Chemicals, Inc.

839
840
842
843
843
845
846
847
849
850
851
852
854

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

856
857
858
859
860

Chapter 35 Shareholders

862

Introduction
Rights of Shareholders
Right to Information

863
864
864

You Be the Judge: Chopra v. Helio
Solutions, Inc.
Right to Vote
Brehm v. Eisner
Right to Dissent
Right to Protection from Other Shareholders
eBay Domestic Holdings, Inc. v. Newmark
Right to Monitor
Enforcing Shareholder Rights
Derivative Lawsuits
In Re eBay, Inc. Shareholders Litigation
Direct Lawsuits

865
866
875
876
876
877
879
880
880
881
884

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

884
885
887
888
889

Chapter 36 Securities Regulation

Introduction
The Securities and Exchange Commission
What Is a Security?
Securities Act of 1933
General Exemption
Exempt Securities
Exempt Transactions
Public Offerings
You Be the Judge: EBC I, Inc. v. Goldman
Sachs & Co.
Sales of Restricted Securities
Liability Under the 1933 Act
Securities Exchange Act of 1934
General Provisions of the 1934 Act
Liability Under the 1934 Act
Matrixx Initiatives, Inc. v. Siracusano
Stoneridge Investment Partners, LLC v.
Scientific-Atlanta, Inc.
Insider Trading
Landmark Case: Chiarella v. United States
Sarbanes-Oxley
Dodd-Frank
Blue Sky Laws
Exemption from State Regulation
State Regulation
Facilitating State Regulation
Chapter Conclusion
Exam Review
Multiple-Choice Questions

891

892
892
893
893
894
894
894
898
899
900
900
902
902
904
906
908
909
910
913
913
914
914
914
914
915
915
918


CONTENTS

Essay Questions
Discussion Questions

919
920

Chapter 37 Bankruptcy

922

Overview of the Bankruptcy Code
923
Rehabilitation
923
Liquidation
924
Chapter Description
924
Goals
924
Chapter 7 Liquidation
925
Filing a Petition
925
Trustee
927
Creditors
927
Automatic Stay
927
Jackson v. Holiday Furniture
927
Bankruptcy Estate
928
Payment of Claims
930
Discharge
932
In Re Stern
933
In Re: Grisham
936
Chapter 11 Reorganization
937
Debtor in Possession
937
Creditors’ Committee
937
Plan of Reorganization
938
Confirmation of the Plan
938
In Re Fox
938
Discharge
939
Small-Business Bankruptcy
939
Chapter 13 Consumer Reorganizations
940
You Be the Judge: Marrama v. Citizens Bank
of Massachusetts
940
Beginning a Chapter 13 Case
941
Plan of Payment
942
Discharge
942
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

UNIT 7

Government Regulation
Chapter 38 Antitrust
In The Beginning
Sherman Act
Chicago School

942
943
944
945
946

949
950
951
951
952

xvii

Overview of Antitrust Laws
Cooperative Strategies
Horizontal Cooperative Strategies
Landmark Case: United States v. Trenton
Potteries Company
Fears v. Wilhelmina Model Agency, Inc.
Vertical Cooperative Strategies
You Be the Judge: Feesers, Inc. v. Michael
Foods, Inc.
Mergers and Joint Ventures
Landmark Case: United States v. Waste
Management, Inc.
Aggressive Strategies
Monopolization
Predatory Pricing
Tying Arrangements
Controlling Distributors and Retailers
Resale Price Maintenance
Leegin Creative Leather Products, Inc. v.
PSKS, Inc.

953
954
954

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

970
970
973
974
974

Chapter 39 Consumer Law

Introduction
Federal Trade Commission
Consumer Financial Protection Bureau
Sales
Deceptive Acts or Practices
Federal Trade Commission v. Direct
Marketing Concepts, Inc.
Unfair Practices
Additional Sales Rules
Consumer Credit
Truth in Lending Act—General
Provisions
Home Loans
Credit Cards
Gray v. American Express Co.
Debit Cards
Credit Reports
Debt Collection
You Be the Judge: Brown v. Card Service
Center
Equal Credit Opportunity Act

955
956
958
960
960
961
962
962
965
966
967
968
969

976

977
977
977
978
978
978
979
980
982
982
984
985
988
989
990
992
993
994


xviii

CONTENTS

Treadway v. Gateway Chevrolet
Oldsmobile Inc.
Consumer Leasing Act
Magnuson-Moss Warranty Act
Consumer Product Safety
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

Chapter 40 Environmental Law

Introduction
Environmental Protection Agency
Air Pollution
Clean Air Act
You Be the Judge: Central Arizona Water
Conservation District v. EPA
Greenhouse Gases and Global Warming
Soot Particles
Air Toxics
Water Pollution
Clean Water Act
Entergy Corporation v.
Riverkeeper, Inc.
Other Water Pollution Statutes
Waste Disposal
Resource Conservation and
Recovery Act
Superfund
Chemicals
Federal Insecticide, Fungicide, and
Rodenticide Act
Federal Food, Drug, and Cosmetic Act
Food Quality Protection Act of 1996
Toxic Substances Control Act
Natural Resources
National Environmental Policy Act
You Be the Judge: Winter v. Natural
Resources Defense Council, Inc.
Endangered Species Act
Gibbs v. Babbitt
Chapter Conclusion
Exam Review
Mulitple-Choice Questions
Essay Questions
Discussion Questions

994
995
996
997

UNIT 8

Property and Cyberlaw

1033

Chapter 41 Cyberlaw

1034

1008
1009
1011
1011
1012
1013

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

1053
1053
1055
1056
1057

1013
1016
1017

Chapter 42 Intellectual Property

997
998
1001
1002
1004

1005
1006
1006
1007
1007

1017
1019
1020
1020
1021
1021
1021
1021
1021
1022
1023
1025
1026
1027
1029
1030
1031

Privacy
1036
Tracking Tools
1036
Regulation of Online Privacy
1037
You Be the Judge: Juzwiak v. John/Jane Doe 1038
United States of America v. Angevine
1039
United States of America v. Warshak
1040
You Be the Judge: Scott v. Beth Israel
Medical Center Inc.
1043
Spam
1045
Internet Service Providers and Web Hosts:
Communications Decency Act of 1996
1046
Carafano v. Metrosplash.com, Inc.
1047
Crime on the Internet
1049
Hacking
1049
Fraud
1050

Introduction
Patents
Types of Patents
Requirements for a Patent
Patent Application and Issuance
Copyrights
Lapine v. Seinfeld
Copyright Term
Infringement
First Sale Doctrine
Fair Use
Digital Music and Movies
Metro-Goldwyn-Mayer Studios, Inc. v.
Grokster, Ltd.
International Copyright Treaties
Trademarks
Types of Marks
Ownership and Registration
Valid Trademarks
Infringement
You Be the Judge: Network Automation,
Inc. v. Advanced Systems Concepts, Inc.

1059
1060
1060
1060
1062
1063
1066
1067
1068
1068
1069
1069
1070

1071
1073
1074
1074
1074
1075
1076
1077


CONTENTS

Federal Trademark Dilution Act of 1995
Domain Names
International Trademark Treaties
Trade Secrets
Pollack v. Skinsmart Dermatology and
Aesthetic Center P.C.

1078
1078
1080
1080
1081

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

1082
1082
1083
1084
1086

Chapter 43 Real Property and LandlordTenant Law
1087

Nature of Real Property
Freeman v. Barrs
Estates in Real Property
Concurrent Estates
Jackson v. Estate of Green
Future Interests
Nonpossessory Interests
Easements
Profit
License
Mortgage
Adverse Possession
Entry and Exclusive Possession
Open and Notorious Possession
A Claim Adverse to the Owner
Continuous Possession for the Statutory
Period
Ray v. Beacon Hudson Mountain Corp.
Land Use Regulation
Nuisance Law
Zoning
Eminent Domain
Landlord-Tenant Law
Three Legal Areas Combined
Lease
Types of Tenancy
Tenancy for Years
Periodic Tenancy
Tenancy at Will
Tenancy at Sufferance
Elwell v. Minor
Landlord’s Duties
Duty to Deliver Possession
Quiet Enjoyment

1088
1089
1090
1090
1091
1094
1094
1094
1096
1097
1097
1097
1097
1098
1098

1098
1099
1099
1099
1100
1101
1101
1102
1102
1102
1102
1102
1103
1103
1103
1104
1104
1105

xix

Duty to Maintain Premises
Mishkin v. Young
Tenant’s Duties
Duty to Pay Rent
Duty to Use Premises for Proper Purpose
Duty Not to Damage Premises
Duty Not to Disturb Other Tenants
Injuries
Tenant’s Liability
Landlord’s Liability

1106
1107
1108
1108
1110
1110
1110
1111
1111
1111

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

1112
1112
1115
1116
1117

Chapter 44 Personal Property and
Bailment

Gifts
Intention to Transfer Ownership
Delivery
Inter Vivos Gifts and Gifts Causa Mortis
Acceptance
You Be the Judge: Albinger v. Harris
Found Property
Landmark Case: Armorie v. Delamirie
Accession
Wrongful Accessions
Mistaken Accessions
Bailment
Control
Rights of the Bailee
Duties of the Bailee
You Be the Judge: Johnson v. Weedman
Exculpatory Clauses
Tannenbaum v. New York Dry
Cleaning, Inc.
Rights and Duties of the Bailor
Liability for Defects
Common Carriers and Contract Carriers
Innkeepers
GNOC Corp. v. Powers
Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

1119

1120
1120
1121
1121
1122
1122
1124
1125
1125
1125
1126
1126
1126
1127
1127
1129
1129

1130
1131
1131
1131
1132
1132
1133
1133
1136
1137
1138


xx

CONTENTS

Chapter 45 Planning for the Future:
Wills, Trusts, and Insurance

Introduction to Estate Planning
Definitions
Purpose
Probate Law
Wills
Requirements for a Valid Will
Legal Technicalities
Spouse’s Share
Children’s Share
In re Estate of Josiah James Treloar, Jr.
Amending a Will
Intestacy
Power of Attorney
Probate
Property Not Transferred by Will
Anatomical Gifts
Living Wills
Trusts
Advantages and Disadvantages
Types of Trusts
Trust Administration
Paradee v. Paradee
Termination
Introduction to Insurance
Insurance Contract
Offer and Acceptance
Limiting Claims by the Insured

1140
1141
1141
1142
1142
1142
1143
1143
1144
1144
1145
1147
1147
1147
1147
1148
1148
1148
1149
1150
1151
1151
1152
1153
1153
1154
1154
1155

Bad Faith by the Insurer
Goodson v. American Standard Insurance
Company of Wisconsin
Types of Insurance
Property Insurance
Life Insurance
Health Insurance
Disability Insurance
Liability Insurance
You Be the Judge: Metropolitan Property and
Casualty Insurance Company v. Marshall
Automobile Insurance

1161
1161

Chapter Conclusion
Exam Review
Multiple-Choice Questions
Essay Questions
Discussion Questions

1162
1162
1164
1165
1166

Appendix A

The Constitution of the United States

Appendix B

Uniform Commercial Code

1156
1157
1158
1158
1158
1160
1160
1160

A1
B1

Glossary

G1

Table of Cases

T1

Index

I1


PREFACE

Looking for more examples for class? Find all the latest developments on our blog at
bizlawupdate.com. To be notified when we post updates, just “like” our Facebook page at
Beatty Business Law or follow us on Twitter @bizlawupdate.

NOTE

FROM THE

New to This Edition

AUTHORS

A New Chapter: Practical Contracts

The contracts chapters in this and other business law texts focus on the theory of contract
law. And that theory is important. But our students tell us that theory, by itself, is not
enough. They need to know how these abstract rules operate in practice. They want to
understand the structure and content of a standard agreement. Our students ask questions
such as: Do I need a written agreement? What do these legal terms really mean? Are any
important provisions missing? What happens if a provision is unclear? Do I need to hire a
lawyer? How can I use a lawyer most effectively? These are the questions that we answer in
this new chapter. As an illustration throughout the chapter, we use a real contract between a
movie studio and an actor.

Landmark Cases

As a general rule, we want our cases to be as current as possible—reporting on the world as
it is now. However, sometimes students can benefit from reading vintage cases that are still
good law and also provide a deep understanding of how and why the law has developed as
it has. Thus, for example, we have added Miranda v. Arizona. Reading this case provides
students with a much better understanding of why the Supreme Court created Miranda
rights. And this context helps students follow the recent Supreme Court rulings on
Miranda. Other landmark cases include: Palsgraf v. Long Island Railroad, Hawkins v. McGee
(the case of the hairy hand), Hadley v. Baxendale, Griggs v. Duke Power Co., and Chiarella v.
United States.

CPA Material

We have made two changes to the CPA material. First, faculty have told us that they are
sometimes pressured to teach the CPA material, even if not really necessary, because
students feel cheated if they skip a chapter. To solve this problem, we have created a
separate unit entitled Additional CPA Topics. In it, we have placed topics that are of
primary interest to accounting students: Secured Transactions, Negotiable Instruments, and
Accountants’ Liability. Certainly all professors have the option of including this material in
their courses, but those who want to skip it will now have free rein to do so.
Second, to reflect the changes in the new CPA exam, we have eliminated the chapter
on Article 4 of the UCC, entitled Liability for Negotiable Instruments: Banks and Their
Customers. We have taken this step for several reasons: (1) this material is no longer covered
on the CPA exam, (2) it is not as relevant as it used to be and (3) faculty would like more
breathing room in their syllabus. Also, we felt that class time would be better spent on
Practical Contracts than on a third day of negotiable instruments.
xxi


xxii

PREFACE

The New Patent Law

This statute represents the most major change in patent law in our lifetime.

End of Chapter Material

To facilitate student learning and class discussion, we have overhauled the study questions
at the end of the chapters. They are now divided into three parts:
1. Multiple Choice Questions. Many instructors use this format in their tests, so it
seemed appropriate to provide practice questions. The answers to these multiple
choice questions are available to students online.
2. Essay Questions. Students can use these as study questions and professors can also
assign them as written homework problems.
3. Discussion Questions. Instructors can use these questions to enhance class discussion.
If assigned in advance, students will have a chance to think about the answers before
class. This format is familiar to students because business cases often pose discussion
questions in advance.

New Material

We have, of course, added substantial new material, with a particular focus on the Internet
and social media. For example, there is a discussion in the Securities Law chapter about
special issues involving Facebook and LinkedIn. The Employment Law chapter includes a
section on social media. The chapter on the Life and Death of a Corporation uses Facebook’s
charter as an illustration. There are new cases involving eBay and craigslist. In addition, the
chapter on Starting a Business includes a new section about Benefit organizations—both
Corporations and LLCs.

Staying Current: Our Blog, Facebook and Twitter

Business law changes rapidly. To find out about new developments, visit our blog at
bizlawupdate.com. If you “like” our Facebook page at Beatty Business Law or follow us on
Twitter @bizlawupdate, you will automatically receive a notification whenever we post to the blog.

The Beatty/Samuelson Difference

It has been 18 years since we began work on the first edition of this textbook. At the time,
publishers warned us that our undertaking was risky because there were already so many
business law texts. Despite these warnings, we were convinced that there was a market
for a business law book that was different from all the others. Our goal was to capture the
passion and excitement, the sheer enjoyment, of the law. Business law is notoriously complex, and as authors, we are obsessed with accuracy. Yet this intriguing subject also abounds
with human conflict and hard-earned wisdom, forces that can make a law book sparkle.
Now, as the sixth edition goes to press, we look back over the past eighteen years and are
touched by unsolicited comments from students, such as these posted on Amazon: “Glad I
purchased this. It really helps put the law into perspective and allows me as a leader to make
intelligent decisions. Thanks.” Or, “I enjoyed learning business law and was happy my
college wanted this book. THUMBS UP!” We think of the students who have emailed us to
say, “In terms of clarity, comprehensiveness and vividness of style, I think it’s probably the
best textbook I’ve ever used in any subject,” and “I had no idea business law could be so
interesting.” Or the faculty who have told us, “Until I read your book I never really understood UCC 2-207” or, “With your book, we have great class discussions.” Comments such as
these never cease to thrill us and to make us grateful that we persisted in writing a business
law text like no other—a book that is precise and authoritative, yet a pleasure to read.


PREFACE

Comprehensive. Staying comprehensive means staying current. This sixth edition
contains nearly 100 new cases. Almost all were reported within the last two or three years,
and many within the last 12 months. We never include a new court opinion merely because
it is recent. Yet the law evolves continually, and our willingness to toss out old cases and add
important new ones ensures that this book—and its readers—remain on the frontier of legal
developments.
Strong Narrative. The law is full of great stories, and we use them. Your students and
ours should come to class excited. Look at Chapter 3, on dispute resolution. No tedious list
of next steps in litigation, this chapter teaches the subject by tracking a double-indemnity
lawsuit. An executive is dead. Did he drown accidentally, obligating the insurance company
to pay? Or did the businessman commit suicide, voiding the policy? The student follows
the action from the discovery of the body, through each step of the lawsuit, to the final
appeal.
Students read stories and remember them. Strong narratives provide a rich context for
the remarkable quantity of legal material presented. When students care about the material
they are reading, they persevere. We have been delighted to find that they also arrive in
class eager to question, discuss, and learn.
Precise. The great joy of using English accurately is the power it gives us to attack and
dissect difficult issues, rendering them comprehensible to any lay reader. This text takes on
the most complex legal topics of the day, yet it is appropriate for all college and graduate level
students. Accessible prose goes hand in hand with legal precision. We take great pride in
walking our readers through the most serpentine mazes this tough subject can offer. UCC
section 2-207, on “battle of forms” conflicts, is hardly sexy material, but it is important. We
spotlight the real-world need for section 2-207, and then use pinpoint directions to guide our
readers through its many switchbacks, arriving at a full understanding with sanity and good
humor intact.
As we explore this extraordinary discipline, we lure readers along with quirky anecdotes
and colorful diagrams. However, before the trip is over, we insist that students:






gauge policy and political considerations,
grapple with legal and social history,
spot the nexus between disparate doctrines, and
confront tough moral choices.

Authoritative. We insist, as you do, on a law book that is indisputably accurate. A
professor must teach with assurance, confident that every paragraph is the result of exhaustive research and meticulous presentation. Dozens of tough-minded people spent thousands
of hours reviewing this book, and we are delighted with the stamp of approval we have
received from trial and appellate judges, working attorneys, scholars, and teachers.
We reject the cloudy definitions and fuzzy explanations that can invade judicial
opinions and legal scholarship. To highlight the most important rules, we use bold print,
and then follow with vivacious examples written in clear, forceful English. We cheerfully
venture into contentious areas, relying on very recent decisions. Can a creditor pierce the
veil of an LLC? What are the rights of an LLC member in the absence of an operating
agreement? Where there is doubt about the current (or future) status of a doctrine, we say
so. In areas of particularly heated debate, we footnote our work: we want you to have
absolute trust in this book.
A Book for Students. We have written this book as if we were speaking directly to
our students. We provide black letter law, but we also explain concepts in terms that hook
students. Every chapter begins with a story, either fictional or real, to illustrate the issues in

xxiii


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