Business Law Text and Cases 15Th Edition Kenneth W Clarkson Full Chapter

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Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Busi n e ss L aw
Te x t a nd C a se s
Fifteenth Edition
Kenneth W. Clarkson
University of Miami
Roger LeRoy Miller

Institute for University Studies
Arlington, Texas
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
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Brief Contents
Unit One The Legal Environment of Business 1

Chapter 1 Law and Legal Reasoning 2
Chapter 2 Business and the Constitution 26
Chapter 3 Ethics in Business 44
Chapter 4 Courts and Alternative Dispute Resolution 65
Chapter 5 Court Procedures 86
Unit Two Torts and Crimes 111

Chapter 6 Tort Law 112
Chapter 7 Strict Liability and Product Liability 134
Chapter 8 Intellectual Property Rights 150
Chapter 9 Internet Law, Social Media, and Privacy 170
Chapter 10 Criminal Law and Cyber Crime 187
Unit Three Contracts and E-Contracts 215

Chapter 11 Nature and Terminology 216
Chapter 12 Agreement 231
Chapter 13 Consideration 250
Chapter 14 Capacity and Legality 263
Chapter 15 Mistakes, Fraud, and Voluntary Consent 280
Chapter 16 The Writing Requirement 294
Chapter 17 Third Party Rights 309
Chapter 18 Performance and Discharge 324
Chapter 19 Breach of Contract and Remedies 339
Unit Four Domestic and International Sales and Lease Contracts 359
Chapter 20 Sales and Lease Contracts 360
Chapter 21 Title, Risk, and Insurable Interest 386
Chapter 22 Performance and Breach of Sales and Lease Contracts 403
Chapter 23 Warranties 424
Chapter 24 International and Space Law 437
Unit Five Negotiable Instruments 461

Chapter 25 Negotiable Instruments 462
Chapter 26 Transferability and Holder in Due Course 478
Chapter 27 Liability, Defenses, and Discharge 496
Chapter 28 Banking 514
iii
iv Br ief Con t ent s
Unit Six Creditors’ Rights and Bankruptcy 537

Chapter 29 Creditors’ Rights and Remedies 538
Chapter 30 Secured Transactions 554
Chapter 31 Bankruptcy Law 577
Unit Seven Agency and Employment 603

Chapter 32 Agency Formation and Duties 604
Chapter 33 Agency Liability and Termination 620
Chapter 34 Employment, Immigration, and Labor Law 639
Chapter 35 Employment Discrimination 662
Unit Eight Business Organizations 687

Chapter 36 Small Businesses and Franchises 688
Chapter 37 All Forms of Partnerships 703
Chapter 38 Limited Liability Companies and Special Business Forms 723
Chapter 39 Corporate Formation and Financing 739
Chapter 40 Corporate Directors, Off icers, and Shareholders 759
Chapter 41 Mergers and Takeovers 778
Chapter 42 Investor Protection, Insider Trading, and Corporate Governance 794
Unit Nine Government Regulation 821

Chapter 43 Administrative Agencies 822
Chapter 44 Consumer Law 839
Chapter 45 Environmental Protection 856
Chapter 46 Antitrust Law 871
Chapter 47 Professional Liability and Accountability 890
Unit Ten Property and Its Protection 915

Chapter 48 Personal Property and Bailments 916
Chapter 49 Real Property and Landlord-Tenant Law 935
Chapter 50 Insurance 957
Chapter 51 Wills and Trusts 973
Appendices
A How to Brief Cases and Analyze Case Problems A–1
B Answers to the Issue Spotters A–4
C Sample Answers for Business Case Problems with Sample Answer A–13
Glossary G–1
Table of Cases TC–1
Index I–1
Contents
Unit One Chapter 4

The Legal Environment of Business 1 Courts and Alternative Dispute Resolution 65
The Judiciary’s Role in American Government 65
Chapter 1 Basic Judicial Requirements 66
Case Analysis 4.1 Mala v. Crown Bay Marina, Inc. 68
Law and Legal Reasoning 2 Spotlight on Gucci
Business Activities and the Legal Environment 2 Case 4.2 Gucci America, Inc. v. Wang Huoqing 70
Sources of American Law 3 The State and Federal Court Systems 73
The Common Law Tradition 6 Case 4.3 Johnson v. Oxy USA, Inc. 74
■ Ethics Today: Stare Decisis versus Spider-Man 9 ■ Managerial Strategy: Should You Consent to Have Your
Schools of Legal Thought 11 Business Case Decided by a U.S. Magistrate Judge? 76
Classifications of Law 12 Alternative Dispute Resolution 79
How to Find Primary Sources of Law 13 International Dispute Resolution 82
How to Read and Understand Case Law 16
Chapter 5
Chapter 2 Court Procedures 86
Business and the Constitution 26 Procedural Rules 86
The Constitutional Powers of Government 26 Pretrial Procedures 88
Classic Case 2.1 Heart of Atlanta Motel v. United States 28 ■ Digital Update: Using Social Media for Service of
Business and the Bill of Rights 30 Process 90
■ Digital Update: Does Everyone Have a Constitutional Right Case Analysis 5.1 Espresso Disposition Corp. 1 v. Santana Sales
to Use Social Media? 32 & Marketing Group, Inc. 91
Case 2.2 Animal Legal Defense Fund v. Wasden 33 Case 5.2 Lewis v. Twenty-First Century Bean Processing 93
Spotlight on Beer Labels Case 5.3 Klipsch Group, Inc. v. ePRO E-Commerce Limited 96
Case 2.3 Bad Frog Brewery, Inc. v. New York State The Trial 99
Liquor Authority 35 Posttrial Motions 101
Due Process and Equal Protection 39 The Appeal 102
Privacy Rights 40 Enforcing the Judgment 103
Unit One Task-Based Simulation 107
Unit One Application and Ethics:
Chapter 3
“Arbitration, No Class Actions” 108
Ethics in Business 44
Ethics and the Role of Business 44 Unit Two
■ Digital Update: Should Employees Have a “Right of
Disconnecting”? 47 Torts and Crimes 111
Case 3.1 Al-Dabagh v. Case Western Reserve University 48
Ethical Principles and Philosophies 49 Chapter 6
Sources of Ethical Issues in Business Decisions 52
Tort Law 112
Case 3.2 Watson Laboratories, Inc. v. State of Mississippi 53
Making Ethical Business Decisions 55 The Basis of Tort Law 112
Business Ethics on a Global Level 58 Intentional Torts against Persons 113
■ Ethics Today: Applying the IDDR Framework 59 Case Analysis 6.1 Blake v. Giustibelli 115
Appendix to Chapter 3: The Costco Code of Ethics 64 ■ Digital Update: Revenge Porn and Invasion of Privacy 119
v
vi Con t ent s
Intentional Torts against Property 122 Chapter 10

Unintentional Torts—Negligence 124 Criminal Law and Cyber Crime 187
Case 6.2 Bogenberger v. Pi Kappa Alpha Corporation, Inc. 125
Defenses to Negligence 128 Civil Law and Criminal Law 187
Spotlight on the Seattle Mariners Criminal Liability 189
Case 6.3 Taylor v. Baseball Club of Seattle, LP 129 ■ Digital Update: Using Twitter to Cause Seizures—
A Crime? 189
Case 10.1 United States v. Crabtree 190
Chapter 7
■ Managerial Strategy: The Criminalization of American
Strict Liability and Product Liability 134 Business 192
Strict Liability 134 Types of Crimes 193
Product Liability 135 Spotlight on White-Collar Crime
Case Analysis 7.1 Schwarck v. Arctic Cat, Inc. 136 Case 10.2 People v. Sisuphan 195
Strict Product Liability 137 Defenses to Criminal Liability 199
Case 7.2 Stange v. Janssen Pharmaceuticals, Inc. 140 Criminal Procedures 201
■ Managerial Strategy: When Is a Warning Legally Cyber Crime 204
Bulletproof? 142 Case Analysis 10.3 United States v. Warner 205
Defenses to Product Liability 143 Unit Two Task-Based Simulation 211
Case 7.3 VeRost v. Mitsubishi Caterpillar Forklift America, Inc. 144 Unit Two Application and Ethics:
One of the Biggest Data Breaches Ever 212
Chapter 8
Intellectual Property Rights 150
Unit Three
Trademarks and Related Property 150 Contracts and E-Contracts 215
Classic Case 8.1 The Coca-Cola Co. v. The Koke
Co. of America 150
Case 8.2 Headspace International, LLC v. Podworks Corp. 152 Chapter 11
■ Global Insight: ALEVE versus FLANAX—Same Pain Killer, Nature and Terminology 216
But in Different Countries 154
Patents 157 An Overview of Contract Law 216
Copyrights 159 Elements of a Contract 217
Case Analysis 8.3 Winstead v. Jackson 161 Case Analysis 11.1 Weston v. Cornell University 218
Trade Secrets 164 Types of Contracts 219
International Protection for Intellectual Property 164 Case 11.2 Boswell v. Panera Bread Co. 220
Quasi Contracts 223
Interpretation of Contracts 225
Chapter 9
Spotlight on Columbia Pictures
Internet Law, Social Media, and Privacy 170 Case 11.3 Wagner v. Columbia Pictures Industries, Inc. 226
Internet Law 170
Spotlight on Internet Porn Chapter 12
Case 9.1 Hasbro, Inc. v. Internet Entertainment
Agreement 231
Group, Ltd. 173
Copyrights in Digital Information 174 Elements of Agreement 231
■ Digital Update: Riot Games, Inc., Protects Its Online Video Classic Case 12.1 Lucy v. Zehmer 232
Game Copyrights 175 Spotlight on Amazon.com
Case 9.2 BMG Rights Management (US), LLC v. Cox Case 12.2 Basis Technology Corp. v. Amazon.com, Inc. 234
Communications, Inc. 176 ■ Digital Update: Can Your E-Mails or Instant Messages
Social Media 178 Create a Valid Contract? 238
Online Defamation 180 Agreement in E-Contracts 240
Other Actions Involving Online Posts 181 Case 12.3 Bailey v. Kentucky Lottery Corp. 242
Case Analysis 9.3 David v. Textor 182 U.S. Laws Affecting E-Contracts 245
Privacy 183 International Treaties Affecting E-Contracts 247
C o n te n ts vii
Chapter 13 Chapter 17
Consideration 250 Third Party Rights 309
Elements of Consideration 250 Assignments and Delegations 309
Classic Case 13.1 Hamer v. Sidway 250 Case 17.1 Bass-Fineberg Leasing, Inc. v. Modern Auto Sales, Inc. 312
Case 13.2 Cincinnati Reds, LLC v. Testa 252 Case 17.2 Mirandette v. Nelnet, Inc. 314
Agreements That Lack Consideration 254 Third Party Beneficiaries 316
Settlement of Claims 256 Case Analysis 17.3 Bozzio v. EMI Group, Ltd. 317
Spotlight on Nike
Case 13.3 Already, LLC v. Nike, Inc. 257 Chapter 18
Exceptions to the Consideration Requirement 258 Performance and Discharge 324
Conditions 324
Chapter 14
Discharge by Performance 325
Capacity and Legality 263 Classic Case 18.1 Jacob & Youngs v. Kent 327
Contractual Capacity 263 Case Analysis 18.2 Kohel v. Bergen Auto Enterprises, L.L.C. 328
Case 14.1 PAK Foods Houston, LLC v. Garcia 264 Discharge by Agreement 330
Legality 268 Case 18.3 DWB, LLC v. D&T Pure Trust 332
Case 14.2 Kennedy v. Shave Barber Co. 270 Discharge by Operation of Law 333
Case Analysis 14.3 Holmes v. Multimedia KSDK, Inc. 273 ■ Ethics Today: When Is Impossibility of Performance a
■ Managerial Strategy: Creating Liability Waivers That Are Valid Defense? 334
Not Unconscionable 275
Chapter 19
Chapter 15 Breach of Contract and Remedies 339
Mistakes, Fraud, Damages 339
and Voluntary Consent 280 Case Analysis 19.1 Baird v. Owens Community College 340
Spotlight on Liquidated Damages
Mistakes 280
Case 19.2 Kent State University v. Ford 344
Fraudulent Misrepresentation 282
Case 15.1 McCullough v. Allstate Property and Casualty
Equitable Remedies 345
Case 19.3 Cipriano Square Plaza Corp. v. Munawar 346
Insurance Co. 282
Case Analysis 15.2 Cronkelton v. Guaranteed Construction
Recovery Based on Quasi Contract 349
Services, LLC 285
Waiver of Breach 350
■ Digital Update: “Catfishing” and Fraudulent
Contract Provisions Limiting Remedies 351
Unit Three Task-Based Simulation 355
Misrepresentation 287
Unit Three Application and Ethics:
Case 15.3 Fazio v. Cypress/GR Houston I, LP 288
Nondisclosure Agreements 356
Undue Influence 289
Duress 289
Adhesion Contracts and Unconscionability 290
Unit Four
Chapter 16 Domestic and International
The Writing Requirement 294 Sales and Lease Contracts 359
The Statute of Frauds 294
Contracts That Require a Writing 294 Chapter 20
Case Analysis 16.1 Sloop v. Kiker 295
Exceptions to the Writing Requirement 298
Sales and Lease Contracts 360
Sufficiency of the Writing 300 The Uniform Commercial Code 360
Case 16.2 Moore v. Bearkat Energy Partners, LLC 301 The Scope of Articles 2 (Sales) and 2A (Leases) 361
The Parol Evidence Rule 302 ■ Digital Update: Taxing Web Purchases 363
Case 16.3 Frewil, LLC v. Price 303 The Formation of Sales and Lease Contracts 365
The Statute of Frauds in the International Context 305 Case 20.1 Toll Processing Services, LLC v. Kastalon, Inc. 365
viii Con t ent s
Case 20.2 C. Mahendra (N.Y.), LLC v. National Gold & Diamond Doing Business Internationally 442
Center, Inc. 369 ■ Ethics Today: Is It Ethical (and Legal) to Brew “Imported”
Classic Case 20.3 Jones v. Star Credit Corp. 375 Beer Brands Domestically? 443
Contracts for the International Sale of Goods 376 Regulation of Specific Business Activities 445
Appendix to Chapter 20 An Example of a Contract for the Case 24.2 Changzhou Trina Solar Energy Co., Ltd. v. United
International Sale of Coffee 382 States International Trade Commission 446
International Dispute Resolution 448
Chapter 21 U.S. Laws in a Global Context 449
Title, Risk, and Insurable Interest 386 Spotlight on International Torts
Case 24.3 Daimler AG v. Bauman 449
Identification 386 Space Law 451
Case Analysis 21.1 BMW Group, LLC v. Castle Oil Corp. 387 Unit Four Task-Based Simulation 456
When Title Passes 388 Unit Four Application and Ethics:
■ Managerial Strategy: Commercial Use of Drones 389 Success in Global Commerce 457
Case 21.2 Louisiana Department of Revenue v. Apeck
Construction, Inc. 389
Spotlight on Andy Warhol Case 21.3 Lindholm v. Brant 393 Unit Five
Risk of Loss 395 Negotiable Instruments 461
Insurable Interest 399
Performance and Breach Negotiable Instruments 462
of Sales and Lease Contracts 403 Types of Negotiable Instruments 462
Case 25.1 Silicon Valley Bank v. Miracle Faith
Obligations of the Seller or Lessor 403
World Outreach, Inc. 465
Case 22.1 All the Way Towing, LLC v. Bucks County
International, Inc. 405
Requirements for Negotiability 466
Case Analysis 25.2 OneWest Bank, FSB v. Nunez 468
Obligations of the Buyer or Lessee 409
Remedies of the Seller or Lessor 411 Factors That Do Not Affect Negotiability 472
Case 25.3 Charles R. Tips Family Trust v.
Remedies of the Buyer or Lessee 413
PB Commercial, LLC 473
Case Analysis 22.2 Genesis Health Clubs, Inc. v. LED Solar &
Light Co. 416
Spotlight on Baseball Cards Chapter 26
Case 22.3 Fitl v. Strek 418 Transferability and
Additional Provisions Affecting Remedies 419 Holder in Due Course 478
Dealing with International Contracts 420
Negotiation 478
Chapter 23 Indorsements 479
Case 26.1 In re Bass 479
Warranties 424 Case Analysis 26.2 AS Peleus, LLC v. Success, Inc. 481
Warranties of Title 424 Holder in Due Course (HDC) 486
Express Warranties 425 Case 26.3 Jarrell v. Conerly 488
Implied Warranties 427 Holder through an HDC 491
Classic Case 23.1 Webster v. Blue Ship Tea Room, Inc. 429
Overlapping Warranties 431 Chapter 27
Warranty Disclaimers and Limitations on Liability 432 Liability, Defenses, and Discharge 496
Case Analysis 23.2 Roberts v. Lanigan Auto Sales 432
Signature Liability 496
Chapter 24 Case Analysis 27.1 Envision Printing, LLC v. Evans 499
Warranty Liability 502
International and Space Law 437 Defenses and Limitations 505
International Law 437 Case 27.2 Mills v. Chauvin 507
Case 24.1 Rubin v. Islamic Republic of Iran 441 Discharge 510
C o n te n t s ix
Banking 514 Bankruptcy Law 577
Checks 514 The Bankruptcy Code 577
The Bank-Customer Relationship 516 Liquidation Proceedings 578
The Bank’s Duty to Honor Checks 517 Case 31.1 In re Anderson 584
Case Analysis 28.1 Legg v. West Bank 517 ■ Ethics Today: Should There Be More Relief for Student
Case 28.2 Horton v. JPMorgan Chase Bank, N.A. 521 Loan Defaults? 587
The Bank’s Duty to Accept Deposits 523 Case 31.2 In re Cummings 588
Case 28.3 Shahin v. Delaware Federal Credit Union 525 Reorganizations 589
Electronic Fund Transfers 528 Bankruptcy Relief under Chapter 12 and Chapter 13 591
Online Banking and E-Money 529 Case 31.3 In re Chamberlain 593
■ Digital Update: Electronic Payment Systems Are Reducing Unit Six Task-Based Simulation 599
the Use of Checks 530 Unit Six Application and Ethics:
Unit Five Task-Based Simulation 533 Federal Student Loans—Default and Discharge 600
Unit Five Application and Ethics:
Virtual Currency—Is It Safe? 534
Unit Seven
Agency and Employment 603
Unit Six
Creditors’ Rights and Bankruptcy 537 Chapter 32
Agency Formation and Duties 604
Agency Relationships 604
Chapter 29
■ Ethics Today: Is It Fair to Classify Uber and Lyft Drivers as
Creditors’ Rights and Remedies 538 Independent Contractors? 606
Laws Assisting Creditors 538 Formation of the Agency Relationship 607
Case Analysis 29.1 Picerne Construction Corp. v. Villas 539 Case 32.1 Riedel v. Akron General Health System 608
Mortgages 542 Duties of Agents and Principals 610
■ Ethics Today: Creditors’ Rights When Debtors Move to Spotlight on Taser International
Another State 543 Case 32.2 Taser International, Inc. v. Ward 611
Case 29.2 Banc of California, N.A. v. Madhok 545 Case Analysis 32.3 NRT New England, LLC v. Jones 614
Suretyship and Guaranty 547 Rights and Remedies of Agents and Principals 616
Case 29.3 HSBC Realty Credit Corp. (USA) v. O’Neill 548
Protection for Debtors 550 Chapter 33
Agency Liability and Termination 620
Chapter 30 Scope of Agent’s Authority 620
Spotlight on Apparent Authority of Managers
Secured Transactions 554 Case 33.1 Lundberg v. Church Farm, Inc. 622
The Terminology of Secured Transactions 554 Case 33.2 Dearborn West Village Condominium
Creation of a Security Interest 554 Association v. Makki 623
Case 30.1 Royal Jewelers, Inc. v. Light 555 Liability for Contracts 625
■ Digital Update: Secured Transactions—Escrow Services Liability for Torts and Crimes 627
Online 557 ■ Global Insight: Islamic Law and Respondeat Superior 629
Perfection of a Security Interest 557 Case Analysis 33.3 M.J. v. Wisan 631
The Scope of a Security Interest 562 Termination of an Agency 633
Case 30.2 In re Tusa–Expo Holdings, Inc. 563
Priorities 566 Chapter 34
Rights and Duties of Debtors and Creditors 569 Employment, Immigration, and Labor Law 639
Default 569
Case 30.3 SunTrust Bank v. Monroe 571 Employment at Will 639
Case 34.1 Caterpillar, Inc. v. Sudlow 640
x C on t ent s
Wages, Hours, and Layoffs 642 Chapter 37

■ Ethics Today: Is It Fair to Dock Employees’ Pay for All Forms of Partnerships 703
Bathroom Breaks? 643
Case 34.2 Encino Motorcars, LLC v. Navarro 643 Basic Partnership Concepts 703
Family and Medical Leave 645 Case 37.1 Harun v. Rashid 704
Health, Safety, and Income Security 646 Formation and Operation 706
Employee Privacy Rights 649 Classic Case 37.2 Meinhard v. Salmon 708
Immigration Law 650 Dissociation and Termination 711
Labor Unions 652 Case Analysis 37.3 Shamburger v. Shamburger 714
■ Managerial Strategy: Union Organizing Using a Company’s Limited Liability Partnerships 715
E-Mail System 655 Limited Partnerships 716
Case Analysis 34.3 Contemporary Cars, Inc. v. National ■ Ethics Today: Should an Innocent General Partner Be Jointly
Labor Relations Board 655 Liable for Fraud? 719
Employment Discrimination 662 Limited Liability Companies
Title VII of the Civil Rights Act 662
and Special Business Forms 723
■ Digital Update: Hiring Discrimination Based on Social The Limited Liability Company 723
Media Posts 666 Case 38.1 Hodge v. Strong Built International, LLC 725
Case Analysis 35.1 Bauer v. Lynch 667 LLC Management and Operation 727
Case 35.2 Young v. United Parcel Service, Inc. 668 ■ Managerial Strategy: Can a Person Who Is Not a Member
Case 35.3 Franchina v. City of Providence 672 of a Protected Class Sue for Discrimination? 728
Discrimination Based on Age 673 Case 38.2 Schaefer v. Orth 729
Discrimination Based on Disability 675 Dissociation and Dissolution of an LLC 730
Discrimination Based on Military Status 677 Case Analysis 38.3 Reese v. Newman 731
Defenses to Employment Discrimination 678 Special Business Forms 733
Affirmative Action 679
Unit Seven Task-Based Simulation 683
Chapter 39
Unit Seven Application and Ethics:
Health Insurance and Small Business 684 Corporate Formation and Financing 739
The Nature and Classification of Corporations 739
■ Digital Update: Programs That Predict Employee
Unit Eight
Misconduct 741
Business Organizations 687 Case 39.1 Drake Manufacturing Co. v. Polyflow, Inc. 741
Case Analysis 39.2 Pantano v. Newark Museum 743
Case 39.3 Greenfield v. Mandalay Shores
Chapter 36
Community Association 746
Small Businesses and Franchises 688 Corporate Formation and Powers 748
General Considerations for Small Businesses 688 ■ Global Insight: Does Cloud Computing Have a
Sole Proprietorships 689 Nationality? 751
Case Analysis 36.1 A. Gadley Enterprises, Inc. v. Department of Piercing the Corporate Veil 751
Labor and Industry Office of Unemployment Compensation Corporate Financing 753
Tax Services 690
■ Digital Update: A Sole Proprietorship, Facebook Poker, and Chapter 40
Bankruptcy 692 Corporate Directors, Off icers, and
Franchises 693
Shareholders 759
Franchise Termination 696
Case 36.2 S&P Brake Supply, Inc. v. Daimler Trucks North Role of Directors and Officers 759
America, LLC 696 Duties and Liabilities of Directors and Off icers 762
Spotlight on Holiday Inns Case 40.1 Oliveira v. Sugarman 764
Case 36.3 Holiday Inn Franchising, Inc. v. Hotel Classic Case 40.2 Guth v. Loft, Inc. 765
Associates, Inc. 698 The Role of Shareholders 767
C o n te n t s xi
Rights of Shareholders 770 Chapter 44

Case 40.3 Hammoud v. Advent Home Medical, Inc. 772 Consumer Law 839
Duties and Liabilities of Shareholders 774
Advertising, Marketing, and Sales 839
Case 44.1 POM Wonderful, LLC v. Federal
Chapter 41
Trade Commission 840
Mergers and Takeovers 778 ■ Digital Update: Regulating “Native” Ads on the
Merger, Consolidation, and Share Exchange 778 Internet 843
Case Analysis 41.1 In re Trulia, Inc. Stockholder Case 44.2 Haywood v. Massage Envy Franchising, LLC 844
Litigation 780 Labeling and Packaging Laws 846
Purchase of Assets 782 Protection of Health and Safety 847
Case 41.2 Heavenly Hana, LLC v. Hotel Union & Hotel Credit Protection 848
Industry of Hawaii Pension Plan 784 Case Analysis 44.3 Santangelo v. Comcast Corp. 850
Purchase of Stock 785
Corporate Termination 787 Chapter 45
Major Business Forms Compared 788 Environmental Protection 856
Chapter 42 Common Law Actions 856
Federal, State, and Local Regulations 857
Investor Protection, Insider Trading, and
Case Analysis 45.1 Friends of Animals v. Clay 857
Corporate Governance 794 ■ Global Insight: Can a River Be a Legal Person? 860
The Securities Act of 1933 794 Air Pollution 860
■ Managerial Strategy: The SEC’s Pay-Ratio Disclosure Case 45.2 United States v. O’Malley 862
Rule 796 Water Pollution 864
■ Digital Update: Investment Crowdfunding—Regulations Toxic Chemicals and Hazardous Waste 866
and Restrictions 798
Case 42.1 Omnicare, Inc. v. Laborers District Council Chapter 46
Construction Industry Pension Fund 800
Antitrust Law 871
The Securities Exchange Act of 1934 802
Classic Case 42.2 SEC v. Texas Gulf Sulphur Co. 803 The Sherman Antitrust Act 871
Case 42.3 Singer v. Reali 807 Section 1 of the Sherman Act 872
State Securities Laws 809 Section 2 of the Sherman Act 875
Corporate Governance 810 Case Analysis 46.1 McWane, Inc. v. Federal
Unit Eight Task-Based Simulation 816 Trade Commission 877
Unit Eight Application and Ethics: The Clayton Act 878
Business Start-Ups Online 817 Case 46.2 Candelore v. Tinder, Inc. 879
Enforcement and Exemptions 882
Case 46.3 TransWeb, LLC v. 3M Innovative Properties Co. 883
Unit Nine U.S. Antitrust Laws in the Global Context 884
Government Regulation 821 ■ Digital Update: The European Union Issues Record Fines
Against Google in Antitrust Case 886
Chapter 43
Administrative Agencies 822 Chapter 47
Professional Liability and
The Practical Significance of Administrative Law 822
Accountability 890
Agency Creation and Powers 823
Case 43.1 Simmons v. Smith 826 Potential Liability to Clients 890
The Administrative Process 828 ■ Ethics Today: What Are an Attorney’s Responsibilities for
Case 43.2 Craker v. Drug Enforcement Administration 831 Protecting Data Stored in the Cloud? 891
Judicial Deference to Agency Decisions 832 Potential Liability to Third Parties 894
Case Analysis 43.3 Olivares v. Transportation Case Analysis 47.1 Perez v. Stern 896
Security Administration 833 The Sarbanes-Oxley Act 897
Public Accountability 835 Case 47.2 Laccetti v. Securities and Exchange Commission 898
xii Cont en t s
Potential Liability of Accountants under ■ Ethics Today: Should Eminent Domain Be Used to Promote
Securities Laws 901 Private Development? 949
Confidentiality and Privilege 904 Zoning and Government Regulations 950
Case 47.3 Commonwealth of Pennsylvania v. Landlord-Tenant Relationships 952
Schultz 905
Unit Nine Task-Based Simulation 910 Chapter 50
Unit Nine Application and Ethics: Insurance 957
Climate Change 911
Insurance Terminology and Concepts 957
Case 50.1 Breeden v. Buchanan 959
Unit Ten The Insurance Contract 960
Property and Its Protection 915 Case 50.2 Cannon v. Farm Bureau Insurance Company 964
Types of Insurance 966
Chapter 48
Chapter 51
Personal Property and Bailments 916 Wills and Trusts 973
Personal Property versus Real Property 916
Wills 973
Acquiring Ownership of Personal Property 917
Case 51.1 In re Navarra 976
■ Digital Update: The Exploding World of Digital
Case Analysis 51.2 Peterson v. Harrell 978
Property 917
■ Digital Update: Social Media Estate Planning 981
Classic Case 48.1 In re Estate of Piper 919
Intestacy Laws 981
Mislaid, Lost, and Abandoned Property 920
Trusts 984
Case 48.2 State of Washington v. Preston 923
Case 51.3 Dowdy v. Dowdy 985
Bailments 924
Other Estate-Planning Issues 989
Ordinary Bailments 925
Unit Ten Task-Based Simulation 994
Case Analysis 48.3 Zissu v. IH2 Property Illinois, L.P. 928
Unit Ten Application and Ethics:
Special Types of Bailments 930
Business Planning for Divorce 995
Chapter 49
Appendices
Real Property and Landlord-Tenant Law 935 A How to Brief Cases and Analyze Case Problems A–1
The Nature of Real Property 935 B Answers to the Issue Spotters A–4
Ownership and Other Interests in Real Property 937 C Sample Answers for Business Case Problems with
Case 49.1 In the Matter of the Estate of Nelson 938 Sample Answer A–13
Transfer of Ownership 942
Spotlight on Sales of Haunted Houses
Case 49.2 Stambovsky v. Ackley 943 Glossary G–1
Case Analysis 49.3 Montgomery County v. Bhatt 946 Table of Cases TC–1
Limitations on the Rights of Property Owners 948 Index I–1
Concept Summaries
1.1 Sources of American Law 5 25.1 Requirements for Negotiability 474

1.2 The Common Law Tradition 11 26.1 Types of Indorsements and Their Effect 484
1.3 Schools of Jurisprudential Thought 13 26.2 Requirements for HDC Status 492
4.1 Jurisdiction 72 27.1 Signature Liability 503
4.2 Types of Courts 78 28.1 Basic Rules for Honoring Checks 524
5.1 Pretrial Procedures 98 29.1 Remedies Available to Creditors 546
5.2 Trial Procedure 101 30.1 Creating Security Interest 557
5.3 Posttrial Options 103 30.2 Perfecting a Security Interest 563
6.1 Intentional Torts against Persons 121 30.3 Remedies of the Secured Party on the
6.2 Intentional Torts against Property 124 Debtor’s Default 573
7.1 Defenses to Product Liability 147 31.1 Forms of Bankruptcy Relief Compared 595
10.1 Types of Crimes 199 32.1 Formation of the Agency Relationship 610
11.1 Types of Contracts 224 33.1 Authority of an Agent to Bind the Principal
and a Third Party 625
12.1 Methods by Which an Offer
Can Be Terminated 237 33.2 Agency Termination by Operation of Law 635
13.1 Consideration 254 35.1 Coverage of Employment Discrimination Laws 678
13.2 Settlement of Claims 259 38.1 Special Business Forms 735
14.1 Contracts by Minors 266 39.1 Classification of Corporations 747
14.2 Contracts by Intoxicated Persons 267 40.1 Roles of Directors and Officers 762
14.3 Contracts by Mentally Incompetent Persons 268 40.2 Duties and Liabilities of Directors and Officers 767
15.1 Factors That May Indicate a Lack of 40.3 Role, Rights, and Liability of Shareholders 775
Voluntary Consent 291 41.1 Merger, Consolidation, and Share Exchange 783
17.1 Assignment and Delegations 316 41.2 Purchases of Assets and Purchases of Stock 785
19.1 Equitable Remedies 350 47.1 Common Law Liability of Accountants and
20.1 Offer, Acceptance, and Consideration under Other Professionals 898
the UCC 372 47.2 Statutory Liability of Accountants and
20.2 The Parol Evidence Rule 375 Other Professionals 904
21.1 Delivery without Movement of the Goods 397 48.1 Acquisition of Personal Property 921
21.2 Risk of Loss When a Sales or Lease Contract 48.2 Mislaid, Lost, and Abandoned Property 921
Is Breached 399 48.3 Rights and Duties of the Bailee and the Bailor 931
22.1 Obligations of the Seller or Lessor 409 51.1 Wills 982
23.1 Warranties of Title and Express Warranties 426 51.2 Trusts 988
xiii
Exhibits
1–1 Areas of the Law That Can Affect Business 18–1 Conditions of Performance 325
Decision Making 3 18–2 Discharge by Performance 330
1–2 Equitable Maxims 7 18–3 Contract Discharge 335
1–3 Procedural Differences between an Action at Law 19–1 Measure of Damages—Breach of
and an Action in Equity 7 Construction Contracts 342
1–4 National Reporter System—Regional/Federal 15 19–2 Remedies for Breach of Contract 349
1–5 How to Read Citations 17 20–1 The Law Governing Contracts 362
1–6 A Sample Court Case 20 20–2 Major Differences between Contract Law
2–1 Protections Guaranteed by the Bill of Rights 31 and Sales Law 373
2–2 Federal Legislation Relating to Privacy 41 21–1 Void and Voidable Titles 392
3–1 An Analysis of Ethical Approaches to the 21–2 Contract Terms—Definitions 396
Sample Dilemma 57 22–1 The Perfect Tender Rule and Its Exceptions 406
4–1 Exclusive and Concurrent Jurisdiction 70 22–2 Obligations of the Buyer or Lessee 410
4–2 The State and Federal Court Systems 73 22–3 A Letter-of-Credit Transaction 421
4–3 Geographic Boundaries of the U.S. Courts of Appeals 23–1 Types of Implied Warranties 427
and U.S. District Courts 77 24–1 The Legal Systems of Selected Nations 439
4–4 Basic Differences in the Traditional Forms of ADR 80 24–2 Examples of International Principles and
5–1 Stages in a Typical Lawsuit 87 Doctrines 442
5–2 A Typical Complaint 89 25–1 Basic Types of Negotiable Instruments 463
5–3 Pretrial Motions 91 25–2 A Typical Time Draft 464
8–1 Forms of Intellectual Property 165 25–3 A Typical Promissory Note 466
10–1 Key Differences between Civil Law and 25–4 A Sample Certificate of Deposit 467
Criminal Law 187 26–1 A Blank Indorsement 479
10–2 Civil (Tort) Lawsuit and Criminal Prosecution for the 26–2 A Special Indorsement 481
Same Act 188 26–3 A Qualified Indorsement 482
10–3 Major Procedural Steps in a Criminal Case 203 26–4 “For Deposit Only” and “For Collection
11–1 Classifications Based on Contract Formation 219 Only” Indorsements 483
11–2 Enforceable, Voidable, Unenforceable, and 26–5 Trust (Agency) Indorsements 484
Void Contracts 223 26–6 Converting an Order Instrument to a Bearer
11–3 Rules of Contract Interpretation 225 Instrument and Vice Versa 485
12–1 A Click-On Agreement Sample 242 26–7 Taking for Value 487
12–2 The E-SIGN Act and the UETA 246 27–1 Time for Proper Presentment 498
13–1 Consideration in Bilateral and 27–2 Transfer Warranty Liability for Transferors Who
Unilateral Contracts 252 Receive Consideration 504
13–2 Examples of Agreements That Lack 27–3 Defenses against Liability on Negotiable
Consideration 256 Instruments 505
14–1 Unconscionability 272 28–1 A Cashier’s Check 515
14–2 Contract Legality 276 28–2 An American Express Traveler’s Check 516
15–1 Mistakes of Fact 281 28–3 The Check-Collection Process 527
16–1 The One-Year Rule 297 29–1 Methods of Avoiding Foreclosure 544
16–2 Collateral Promises 298 29–2 Suretyship and Guaranty Parties 547
16–3 Business Contracts and the Writing Requirement 300 30–1 Secured Transactions—Concept and Terminology 555
16–4 The Parol Evidence Rule 305 30–2 A Sample Uniform Financing Statement Form 558
17–1 Assignment Relationships 310 30–3 Selected Types of Collateral and Methods
17–2 Delegation Relationships 313 of Perfection 562
17–3 Third Party Beneficiaries 320 30–4 Priority of Claims to a Debtor’s Collateral 568
xiv
E x h i b i ts xv
31–1 Collection and Distribution of Property in Most 42–3 Some Key Provisions of the Sarbanes-Oxley Act Relating
Voluntary Bankruptcies 586 to Corporate Accountability 812
32–1 Duties of the Agent 611 43–1 Executive Departments and Important
32–2 Duties of the Principal 613 Subagencies 824
33–1 A Sample General Power of Attorney 621 43–2 Selected Independent Regulatory Agencies 825
33–2 Termination by Act of the Parties 633 43–3 The Formal Administrative Agency
34–1 Good Faith versus Bad Faith in Adjudication Process 830
Collective Bargaining 657 44–1 Selected Areas of Consumer Law Regulated
36–1 The FTC’s Franchise Rule Requirements 694 by Statutes 840
37–1 Provisions Commonly Included in a 45–1 Major Federal Environmental Statutes 858
Partnership Agreement 706 45–2 Environmental Impact Statements 861
37–2 A Comparison of General Partnerships and 45–3 Pollution-Control Equipment Standards under the
Limited Partnerships 717 Clean Air Act and the Clean Water Act 865
38–1 Management of an LLC 727 46–1 Required Elements of a Sherman Act Violation 872
38–2 Provisions Commonly Included in an LLC 46–2 Exemptions to Antitrust Enforcement 885
Operating Agreement 729 47–1 Three Basic Rules of an Accountant’s Liability to
39–1 How Do Stocks and Bonds Differ? 753 Third Parties 896
39–2 Common and Preferred Stocks 754 47–2 Key Provisions of the Sarbanes-Oxley Act Relating to
40–1 Directors’ Management Responsibilities 760 Public Accounting Firms 900
40–2 Results of Cumulative Voting 770 48–1 Degree of Care Required of a Bailee 927
41–1 Merger 778 49–1 Interests in Real Property 942
41–2 Consolidation 779 50–1 Selected Insurance Classifications 958
41–3 The Terminology of Takeover Defenses 786 50–2 Insurance Contract Provisions and Clauses 961
41–4 Major Forms of Business Compared 789 50–3 Typical Fire Insurance Policies 967
42–1 Exempt Transactions under the 1933 51–1 Excerpts from Michael Jackson’s Will 974
Securities Act 797 51–2 Per Stirpes Distribution 983
42–2 Comparison of Coverage, Application, and Liability 51–3 Per Capita Distribution 984
under SEC Rule 10b-5 and Section 16(b) 805 51–4 A Revocable Living Trust Arrangement 985
Preface
The study of business law and the legal environment of completely new framework for helping students (and
business has universal applicability. A student entering businesspersons) make ethical decisions. We present
any field of business must have at least a passing under- The IDDR Approach in Chapter 3 (Ethics in Busi-
standing of business law in order to function in the real ness). This systematic approach provides students with a
world. Business Law, Fifteenth Edition, provides the clear step-by-step process to analyze the legal and ethical
information that students need in an interesting and implications of decisions that arise in everyday business
contemporary way. operations.
Additionally, students preparing for a career in The new IDDR Approach uses four logical steps:
accounting, government and political science, econom- • Step 1: Inquiry
ics, and even medicine can use much of the informa- • Step 2: Discussion
tion they learn in a business law and legal environment • Step 3: Decision
course. In fact, every individual throughout his or her • Step 4: Review
lifetime can benefit from knowledge of contracts, real Students can remember the first letter of each step easily
property law, landlord-tenant relationships, and other by using the phrase: “I Desire to Do Right.”
business law topics. Consequently, we have fashioned
this text as a useful “tool for living” for all of your stu- Completely Revised Chapter 3 on Ethics in
dents (including those taking the CPA exam). Business A newly revised Chapter 3 details each IDDR
The Fifteenth Edition of this best-selling text is more step’s goals and then provides a Sample Scenario to help
modern, exciting, and visually appealing than ever before. students apply this new approach to ethical decision mak-
We have added many new features, cases, concept sum- ing. In addition to introducing the IDDR Approach, we
maries, and exhibits. The text also contains h undreds of have made Chapter 3 more current and more practical,
highlighted and numbered Cases in Point and E xamples, and reduced the amount of theoretical ethical principles
as well as a number of new case problems and unit- it presents. The chapter now focuses on real-life applica-
ending Task-Based Simulations. Special pedagogical tion of ethical principles.
elements within the text focus on legal, ethical, global,
and corporate issues while addressing core curriculum New A Question of Ethics throughout Text
requirements. After Chapter 3, to reinforce the application of the
IDDR Approach, students are asked to use its various
steps when answering each chapter’s A Question of Ethics.
To challenge students in analyzing the ethical angles in
Highlights of the Fifteenth Edition today’s business legal environment, each of the A Question
of Ethics problems have been updated throughout the text
Instructors have come to rely on the coverage, accuracy, and are based on a 2017, 2018 or 2019 case.
and applicability of Business Law. To make sure that our
text engages your students, solidifies their understanding
of legal concepts, and provides the best teaching tools A Variety of Exciting Features
available, we offer the following. The Fifteenth Edition of Business Law is filled with
numerous features specifically designed to cover current
The IDDR Approach: legal topics of high interest.
Each feature is related to a topic discussed in the text
A New Emphasis on Ethics and ends with Critical Thinking or Business Questions.
The ability of businesspersons to reason through ethi- Suggested answers to all of the Critical Thinking and
cal issues is now more important than ever. For the Business Questions are included in the Answers Manual
Fifteenth Edition of Business Law, we have created a for this text.
xvii
xviii P ref ace
1. Ethics Today. These features focus on the ethical Social media have entered the mainstream and become
aspects of a topic discussed in the text to empha- a part of everyday life for many businesspersons. In this
size that ethics is an integral part of a business law special chapter, we give particular emphasis to the legal
course. Examples include the following: issues surrounding the Internet, social media, and privacy.
• Applying the IDDR Framework (Chapter 3) We also recognize this trend throughout the text by incor-
• Is It Ethical (and Legal) to Brew “Imported” Beer porating the Internet and social media as they relate to the
Brands Domestically? (Chapter 24) topics under discussion.
• Should There Be More Relief for Student Loan
Defaults? (Chapter 31)
• Is It Fair to Classify Uber and Lyft Drivers as Coverage of Topics
Independent Contractors? (Chapter 32) on the Revised CPA Exam
2. Global Insight. These features illustrate how other
nations deal with specific legal concepts to give In 2016, the American Institute of CPAs (AICPA) issued
students a sense of the global legal environment. its final report on “Maintaining the Relevance of the
Subjects include the following: Uniform CPA Exam.” In addition to more focus on criti-
• Aleve versus Flanax—Same Pain Killer, but in cal thinking, authentic applications, and problem solv-
Different Countries (Chapter 8) ing, the content of the exam will change to some extent.
• Islamic Law and Respondeat Superior (Chapter 33) The Fifteenth Edition of Business Law incorporates
• Does Cloud Computing Have a Nationality? information on the new topics on the CPA exam, specifi-
(Chapter 39) cally addressing the following:
• Can a River Be a Legal Person (Chapter 45) • Agency law (worker classification and duties of
3. Digital Update. These features are designed to principals and agents)
examine cutting-edge cyberlaw topics, such as the • Employment law (Affordable Care Act)
following: • Business organizations (corporate governance
• Does Everyone Have a Constitutional Right to issues, including Sarbanes-Oxley compliance
Use Social Media? (Chapter 2) and criminal liability for organizations and
• Should Employees Have a “Right of Disconnecting”? management)
(Chapter 3)
• Revenge Porn and Invasion of Privacy (Chapter 6) In addition, the Fifteenth Edition continues to cover top-
• Riot Games, Inc., Protects Its Online Video ics that are essential to new CPAs who are working with
Game Copyrights (Chapter 9) sophisticated business clients, regardless of whether the
• “Catfishing” and Fraudulent Misrepresentation CPA exam covers these topics.
(Chapter 15) We recognize that today’s business leaders must often
• Hiring Discrimination Based on Social Media think “outside the box” when making business decisions.
Posts (Chapter 35) For this reason, we strongly emphasize business and criti-
4. Managerial Strategy. These features emphasize cal thinking elements throughout the text. We have care-
the management aspects of business law and the fully chosen cases, features, and problems that are rel-
legal environment. Topics include the following: evant to business operations. Almost all of the features
• Should You Consent to Have Your Business Case and cases conclude with some type of critical thinking
Decided by a U.S. Magistrate Judge? (Chapter 4) question. For those teaching future CPAs, this is con-
• When Is a Warning Legally Bulletproof? sistent with the new CPA exam’s focus on higher-order
(Chapter 7) skills, such as critical thinking and problem solving.
• The Criminalization of American Business
(Chapter 10)
• Commercial Use of Drones (Chapter 21) Highlighted and Numbered Examples and
• The SEC’s Pay-Ratio Disclosure Rule (Chapter 42) Case in Point Illustrations
Many instructors use cases and examples to illustrate how
Entire Chapter on Internet Law, the law applies to business. Students understand legal
concepts better in the context of their real-world applica-
Social Media, and Privacy tion. Therefore, for this edition of Business Law, we have
The Fifteenth Edition again includes a whole chapter expanded the number of highlighted numbered Examples
(Chapter 9) on Internet Law, Social Media, and Privacy. and Cases in Point in every chapter.
P re f a ce xix
Examples illustrate how the law applies in a specific sit- cases because they involve interesting and memo-
uation. Cases in Point present the facts and issues of an actual rable facts. Other cases have been chosen as Classic
case and then describe the court’s decision and rationale. Cases because they establish a legal precedent in a
These two features are uniquely designed and consecutively particular area of law.
numbered throughout each chapter for easy reference. 2. Critical Thinking Section. Each case concludes
The Examples and Cases in Point are integrated through- with a Critical Thinking section, which normally
out the text to help students better understand how courts includes two questions. The questions may address
apply legal principles in the real world. Legal Environment, E-Commerce, Economic, Envi-
ronmental, Ethical, Global, Political, or Technological
issues, or they may ask What If the Facts Were Dif-
Task-Based Simulations: ferent? Each Classic Case ends with an Impact of This
A New Unit-Ending Feature Case on Today’s Law discussion and a Critical Think-
ing question.
A new Task-Based Simulation feature concludes each of the
3. Longer Excerpts for Case Analysis. We have also
ten units in the Fifteenth Edition. This feature presents a
included one longer case excerpt in most chapters—
hypothetical business situation and then asks a series of
labeled Case Analysis—followed by three Legal
questions about how the law applies to various actions
Reasoning Questions. The questions are designed to
taken by the firm. To answer the questions, the students
guide students’ analysis of the case and build their
must apply the laws discussed throughout the unit.
legal reasoning skills. These Case Analysis cases may
In addition, each unit ends with an Application and
be used for case-briefing assignments.
Ethics feature that provides additional analysis on a topic
related to that unit and explores its ethics ramifications. Suggested answers to all case-ending questions and case
Each of the features ends with two questions—a Critical problems are included in the Answers Manual for this
Thinking question and an E thics Question. Some topics text.
covered include the following:
• One of the Biggest Data Breaches Ever (Unit 2) Business Case Problem with Sample Answer
• Nondisclosure Agreements (Unit 3)
• Virtual Currency—Is It Safe? (Unit 5) In response to those instructors who would like students
• Health Insurance and Small Business (Unit 7) to have sample answers available for some of the ques-
tions and case problems, we include a Business Case Prob-
Suggested answers to the questions in the new Task- lem with Sample Answer in each chapter. The Business
Based Simulation features (and the Application and Ethics Case Problem with Sample Answer is based on an actual
features) are included in the Answers Manual for this text. case, and students can find a sample answer at the end of
the text. Suggested answers to the Business Case Problems
with Sample Answers are provided in Appendix C and in
New Cases and Case Problems the Answers Manual for this text.
For the Fifteenth Edition of Business Law, we have added
more than a hundred new cases and case problems, most
from 2017, 2018, and 2019. The new cases and problems Exhibits and Concept Summaries
have been carefully selected to illustrate important points of We have spent considerable effort developing and design-
law and to be of high interest to students and instructors. ing all of the exhibits and concept summaries in this text
We have made it a point to find recent cases that enhance to achieve better clarity and more visual appeal.
learning and are relatively easy to understand.
1. Spotlight Cases and Classic Cases. Certain cases
and case problems that are exceptionally good Practice and Review
teaching cases are labeled as Spotlight Cases and In the Fifteenth Edition of Business Law, we offer a Practice
Spotlight Case Problems. Examples include Spotlight and Review feature at the end of every chapter to help solid-
on Amazon, Spotlight on Beer Labels, Spotlight on ify students’ understanding of the chapter materials. Each
Gucci, Spotlight on Nike, and Spotlight on the Seattle Practice and Review feature presents a hypothetical scenario
Mariners. Instructors will find these Spotlight and then asks a series of questions that require students to
Cases useful to illustrate the legal concepts under identify the issues and apply the legal concepts discussed in
discussion, and students will enjoy studying the the chapter.
xx Pref ace
These features are designed to help students review singular Learning Path, MindTap Business Law guides
the chapter topics in a simple and interesting way and students through their course with ease and engagement.
see how the legal principles discussed in the chapter af- Instructors can personalize the experience by customiz-
fect the world in which they live. An instructor can use ing Cengage Learning resources and adding their own con-
these features as the basis for in-class discussion or en- tent via apps that integrate into the MindTap framework
courage students to use them for self-study prior to com- seamlessly with Learning Management Systems (LMS).
pleting homework assignments. Suggested answers to The MindTap Business Law product provides a four-
the questions posed in the Practice and Review features step Learning Path, Case Repository, Adaptive Test Prep,
can be found in the Answers Manual for this text. and an Interactive eBook designed to meet instructors’
needs while also allowing instructors to measure skills
and outcomes with ease. Each and every item is assign-
Issue Spotters able and gradable. This gives instructors knowledge of
At the conclusion of each chapter, we have included a spe- class standings and students’ mastery or concepts that
cial section with two Issue Spotters related to the c hapter’s may be difficult. Additionally, students gain knowledge
topics. These questions facilitate student learning and about where they stand—both individually and com-
review of the chapter materials. Suggested answers to the pared to the highest performers in class.
Issue Spotters in every chapter are provided in Appendix B
and in the Answers Manual for this text.
Cengage Testing Powered by Cognero
Cengage Testing Powered by Cognero is a flexible, online
Time-Limited Group Assignment system that allows you to do the following:
For instructors who want their students to engage in
• Author, edit, and manage Test Bank content from
group projects, each chapter of the Fifteenth Edition
multiple Cengage Learning solutions.
includes a special Time-Limited Group Assignment. Each
• Create multiple test versions in an instant.
activity begins by describing a business scenario and then
• Deliver tests from your LMS, your classroom, or
poses several questions pertaining to the scenario. Each
wherever you want.
question is to be answered by a different group of stu-
dents based on the information in the chapter. These
projects may be used in class to spur discussion or as Start Right Away! Cengage Testing Powered by Cognero
homework assignments. Suggested answers to the Time- works on any operating system or browser.
Limited Group Assignments are included in the Answers • Use your standard browser; no special installs or
Manual for this text. downloads are needed.
• Create tests from school, home, the coffee shop—
anywhere with Internet access.
Supplements/Digital What Will You Find?

Learning Systems • Simplicity at every step. A desktop-inspired inter-
Business Law, Fifteenth Edition, provides a comprehen- face features drop-down menus and familiar intu-
sive supplements package designed to make the tasks of itive tools that take you through content creation
teaching and learning more enjoyable and efficient. The and management with ease.
following supplements and digital products are offered in • Full-featured test generator. Create ideal assess-
conjunction with the text. ments with your choice of fifteen question
types—including true/false, multiple choice,
opinion scale/Likert, and essay. Multi-language
MindTap for Business Law support, an equation editor, and unlimited meta-
MindTap™ for Business Law, Fifteenth Edition, is a fully data help ensure your tests are complete and
online, highly personalized learning experience built compliant.
upon Cengage Learning content. By combining read- • Cross-compatible capability. Import and export
ings, multimedia, activities, and assessments into a content to and from other systems.
P re f a ce xxi
Instructor’s Companion Website for remembering the individual steps: Inquiry,

Discussion, Decision, and Review.) A new Ethics
The Instructor’s Companion Website for the Fifteenth Edi- Today feature illustrates how to apply the IDDR
tion of Business Law contains the following supplements: framework. The step-by-step IDDR approach is
• Instructor’s Manual. Includes sections entitled then reiterated in the problems labeled A Question
“Additional Cases Addressing This Issue” at the of Ethics that appear in every subsequent chap-
end of selected case synopses. ter. There are five new Cases in Point, seven new
• Answers Manual. Provides answers to all ques- Examples, a new case, and four new case problems
tions presented in the text, including the questions in the chapter. A Digital Update feature explores
in each case and feature, the Practice and Review, whether employees have a right to disconnect
the Issue Spotters, the Business Scenarios and Case from their electronic devices after work hours. The
Problems, and the unit-ending Task-Based Simula- chapter concludes with a new Time-Limited Group
tion and Application and Ethics features. Assignment on corporate social responsibility.
• Test Bank. A comprehensive test bank that con- • Chapter 8 (Intellectual Property Rights)—The
tains multiple-choice, true/false, and short essay materials on intellectual property rights have
questions. been thoroughly revised and updated to reflect
• Case-Problem Cases. the most current laws and trends. A new Global
• Case Printouts. Insight feature discusses confusion in the context
• PowerPoint Slides. of trademark infringement. There are new Cases
• Lecture Outlines. in Point and Examples, as well as a new case and
• MindTap Integrated Syllabus. two new case problems.
• Chapter 9 (Internet Law, Social Media, and
rivacy)—This chapter, which covers legal issues
P
that are unique to the Internet, has been thor-
oughly revised and updated for the Fifteenth
For Users of the Previous Edition Edition. It includes a new case, four new Cases in
First of all, we want to thank you for helping make Point, and a new Digital Update feature on how
Business Law the best-selling business law text in copyright law applies to video games.
America today. Second, we want to make you aware of • Chapters 11 through 19 (Contracts and
the numerous additions and changes that we have made E-Contracts)—In this unit, we have added nine
in this edition—many in response to comments from new cases and fifteen new Cases in Point, along
reviewers. with new Examples and case problems. We have
Every chapter of the Fifteenth Edition has been also reworked exhibits, concept summaries, and
revised as necessary to incorporate new develop-
features. These updates clarify and enhance our
ments in the law or to streamline the presentations. already superb contract law coverage.
Other major changes and additions for this edition • Chapters 20 through 23 (the first three chapters
include the following: in the Domestic and International Sales and Lease
Contracts unit)—We have streamlined and sim-
• Chapter 2 (Business and the Constitution)—The plified our coverage of the Uniform Commercial
chapter has been revised and updated to be more Code and added three new cases, as well as four
business oriented. It has a new case, two new case new Cases in Point and one new Example. New
problems, and a new Digital Update feature on a case problems have also been added.
United States Supreme Court decision concerning • Chapter 24 (International and Space Law)—The
whether everyone has a constitutional right to use last chapter in the unit on Domestic and Interna-
social media. tional Sales and Lease Contracts includes a section
• Chapter 3 (Ethics in Business)—The chapter on space law—international and domestic. Two
contents have been revised and updated to be cases presented are new to this edition. There is
more practical for businesspersons. A new sec- an updated discussion of NAFTA (now called
tion introduces a systematic approach to resolv- USMCA) and on a United States Supreme Court
ing ethical issues called the IDDR Approach. (“I decision concerning the Alien Tort Statute. The
Desire to Do Right” is a useful mnemonic device chapter also includes an updated Ethics Today
xxii P ref ace
feature on the domestic brewing of imported decisions affecting employment issues throughout
beer brands. both chapters.
• Chapter 28 (Banking) This chapter reflects the • Chapters 36 through 42 (Business Organizations)—
realities of banking in today’s digital world. This unit has been revised and updated to improve
A new case is presented, along with a new Case flow and clarity. We provide more practical infor-
in Point, a new Example, and two new case mation and recent examples. We start with small
problems. A Digital Update feature explains how business forms, go on to partnerships, and then cover
electronic payment systems are reducing the use limited liability companies. We discuss corporations
of checks. in Chapters 39 through 42. There are new cases in
• Chapter 34 (Employment, Immigration, and every chapter and new Cases in Point throughout
Labor Law) and Chapter 35 (Employment the unit. In Chapter 39, a Global Insight feature
Discrimination)—These two chapters covering examines whether cloud computing has a nation-
employment law have been thoroughly updated to ality. The chapter on securities law (Chapter 42)
include discussions of legal issues facing employers has been substantially revised and updated due to
today. Chapter 34 has two new cases, three new the changes in Regulation A (Regulation A+). The
Cases in Point, one new Example, and two new chapter includes a new exhibit, two new Cases in
case problems. Features include an Ethics Today on Point, and a new Digital Update feature on invest-
whether employees should receive paid bathroom ment crowdfunding. A Managerial Strategy feature
breaks and a Managerial Strategy on union orga- discusses the SEC’s pay-ratio disclosure rule.
nizing using company e-mail systems. Chapter 35 • Chapter 48 (Personal Property and Bailments) and
has one new case, four new Cases in Point, a new Chapter 49 (Real Property and Landlord-Tenant
concept summary, and two new case problems. Law)—Each chapter includes a new case, as well as
A revised Digital Update feature discusses hiring a Classic Case or Spotlight Case. There are two new
discrimination based on social media posts. We Cases in Point, a new concept summary, and four
discuss relevant United States Supreme Court new case problems in these two chapters.
Acknowledgments for Previous Editions

Since we began this project many years ago, a sizable number of business law professors and others have helped us in
revising the book, including the following:
Jeffrey E. Allen Michael G. Barth Dean Bredeson
University of Miami University of Phoenix, Arizona University of Texas at Austin
Judith Anshin David L. Baumer Kylar William Broadus, Esq.
Sacramento City College, California North Carolina State University Lincoln University, Missouri
Thomas M. Apke Barbara E. Behr Doug Brown
California State University, Fullerton Bloomsburg University of Pennsylvania Montana State University
Robert B. Bennett, Jr. Kristi K. Brown

Raymond August
Butler University, Indiana University of Texas at Austin
Washington State University
Elizabeth K. Brunn, Esq.
William Auslen Robert C. Bird
University of Baltimore; University of
San Francisco City College, California University of Connecticut
Maryland University College
Mary B. Bader Heidi Boerstler William J. Burke
Moorhead State University, Kentucky University of Colorado Denver University of Massachusetts Lowell
Frank Bagan Maria Kathleen Boss Kenneth Burns
County College of Morris, New Jersey California State University, Los Angeles University of Miami
John J. Balek Lawrence J. Bradley Daniel R. Cahoy
Morton College, Illinois University of Notre Dame, Indiana Pennsylvania State University
P re f a ce xxiii
Rita Cain Maria Elena Ellison James M. Haine

University of Missouri-Kansas City Florida Atlantic University University of Wisconsin-Stevens Point
Jeanne A. Calderon Nena Ellison Gerard Halpern
New York University Florida Atlantic University University of Arkansas
Joseph E. Cantrell O. E. Elmore Christopher L. Hamilton
DeAnza College, California Texas A&M University Golden West College, California
Donald Cantwell Robert J. Enders JoAnn W. Hammer

University of Texas at Arlington California State Polytechnic University, University of Texas at Austin
Pomona Charles Hartman
Arthur J. Casey
Michael Engber Wright State University, Ohio
San Jose State University, California
Ball State University, Indiana Richard A. Hausler
Thomas D. Cavenagh
David A. Escamilla University of Miami School of Law, Florida
North Central College, Illinois
University of Texas at Austin Harry E. Hicks
Robert Chatov
Denise M. Farag Butler University, Indiana
University at Buffalo, New York
Linfield College, Oregon Janine S. Hiller
Corey Ciocchetti Virginia Polytechnic Institute and
University of Denver, Colorado James S. Fargason
Louisiana State University State University
Nanette C. Clinch Rebecca L. Hillyer
Frank S. Forbes
San Jose State University, California Chemeketa Community College, Oregon
University of Nebraska Omaha
Robert J. Cox E. Clayton Hipp, Jr.
Joe W. Fowler
Salt Lake Community College Clemson University, South Carolina
Oklahoma State University
Thomas Crane Anthony H. Holliday, Jr.
Stanley G. Freeman
University of Miami Howard University, Washington D.C.
University of South Carolina
Angela Crossin Telford Hollman
Joan Gabel
Purdue University Northwest, Indiana University of Northern Iowa
Florida State University
Kenneth S. Culott June A. Horrigan
Christ Gaetanos
University of Texas at Austin California State University, Sacramento
State University of New York at Fredonia
Larry R. Curtis John P. Huggard
Chester S. Galloway North Carolina State University
Iowa State University Auburn University, Alabama
Richard Dalebout Terry Hutchins
Bob Garrett The University of North Carolina at
Brigham Young University, Utah American River College, California Pembroke
William H. Daughtrey, Jr. Gary L. Giese Robert Jesperson
Virginia Commonwealth University University of Colorado Denver University of Houston, Texas
Michael DeAngelis Thomas Gossman Debra M. Johnson
University of Rhode Island Western Michigan University Montana State University Billings
James Doering John D. Grigsby Bryce J. Jones
University of Wisconsin-Green Bay Pennsylvania College of Technology Truman State University, Missouri
John V. Dowdy Dr. J. Keaton Grubbs Margaret Jones
University of Texas at Arlington Stephen F. Austin State University, Texas Missouri State University
Michele A. Dunkerley Patrick O. Gudridge Peter A. Karl III
University of Texas at Austin University of Miami School of Law, Florida SUNY Polytechnic Institute, New York
Julia M. Dunlap, Esq. Paul Guymon Jack E. Karns
University of California San Diego William Rainey Harper College, Illinois East Carolina University
Paul Dusseault Jacqueline Hagerott Anne E. Kastle
Herkimer College, New York Franklin University, Ohio Edmonds Community College, Washington
xxiv P ref ace
Tamra Kempf Woodrow J. Maxwell Dwight D. Murphey

University of Miami, Florida Hudson Valley Community College, Wichita State University, Kansas
Judith Kenney New York Daniel E. Murray
University of Miami, Florida Bruce E. May University of Miami School of Law, Florida
Barbara Kincaid University of South Dakota
Paula C. Murray
Southern Methodist University, Texas Diane May University of Texas at Austin
Carey Kirk Winona State University, Minnesota
Gregory J. Naples
University of Northern Iowa Gail McCracken Marquette University, Wisconsin
Nancy P. Klintworth University of Michigan-Dearborn
George A. Nation III
University of Central Florida John W. McGee Lehigh University, Pennsylvania
Kurtis P. Klumb Texas State University
Caleb L. Nichols
University of Wisconsin-Milwaukee Cotton Meagher Western Connecticut State University
Kathleen M. Knutson University of Nevada, Las Vegas
John M. Norwood
St. Catherine University, Minnesota Christopher Meakin University of Arkansas
Lisa Quinn Knych University of Texas at Austin
Jamie O’Brien
Syracuse University, Whitman School Roger E. Meiners University of Notre Dame, Indiana
of Management, New York University of Texas at Arlington
Dr. Kelly E. O’Donnell, J.C.D.
Peter Kwiatkowski, Esq. Gerald S. Meisel California Lutheran University, California
Baldwin Wallace University, Ohio Bergen Community College, New Jersey
Michael J. O’Hara
Meg Costello Lambert Jennifer Merton, J.D. University of Nebraska Omaha
Oakland Community College— University of Massachusetts Amherst
Auburn Hills Campus, Michigan Rick F. Orsinger
Richard Mills College of DuPage, Illinois
Vonda M. Laughlin Cypress College, California
Carson-Newman University, Tennessee Daniel J. O’Shea
David Minars Hillsborough Community College, Florida
M. Alan Lawson City University of New York, Brooklyn
Mt. San Antonio College, California Thomas L. Palmer
Leo Moersen Northern Arizona University
Leslie E. Lenn The George Washington University,
St. Edward’s University, Texas Washington D.C. Charles M. Patten
The University of Wisconsin Oshkosh
Susan Liebeler Alan Moggio
Loyola University, California Illinois Central College Patricia Pattison
Texas State University
Robert B. Long Violet E. Molnar
Oakland Community College, Michigan Riverside City College, California Peyton J. Paxson
University of Texas at Austin
Stuart MacDonald James E. Moon
University of Central Oklahoma Meyer, Johnson & Moon, Minneapolis Carlton Perkins
Texas Southern University
Thomas E. Maher Melinda Ann Mora
California State University, Fullerton University of Texas at Austin Darren A. Prum
Florida State University
Sal Marchionna Bob Morgan
Triton College, Illinois Eastern Michigan University Ralph L. Quinones
University of Wisconsin Oshkosh
Gene A. Marsh Barry S. Morinaka
University of Alabama Baker College, Michigan Carol D. Rasnic
Virginia Commonwealth University
Michael Martin, J.D., M.B.A., LL.M. Melanie Morris
University of Northern Colorado, Raritan Valley Community College, Marvin H. Robertson
Monfort College of Business New Jersey Harding University, Arkansas
Karen Kay Matson Joan Ann Mrava Bert K. Robinson
University of Texas at Austin Los Angeles Southwest College, California Kennesaw State University, Georgia
P re f a ce xxv
Norberto Ruiz Robert D. Sprague William H. Walker

Chabot College, California University of Wyoming Indiana University–Purdue University
Gary K. Sambol Elisabeth Sperow Fort Wayne
Rutgers University, New Jersey California Polytechnic University, Diana Walsh
Rudy Sandoval San Luis Obispo County College of Morris, New Jersey
University of Texas at San Antonio Brenda Steuer Robert J. Walter
Sidney S. Sappington Lone Star College-North Harris University of Texas at El Paso
York College of Pennsylvania Campus, Texas
Gary Watson
Martha Sartoris Craig Stilwell California State University, Los Angeles
North Hennepin Community College, Michigan State University
Katherine Hannan Wears, J.D.
Minnesota Irwin Stotsky Clarkson University School of Business,
Barbara P. Scheller University of Miami School of Law, New York
Temple University, Pennsylvania Florida
John L. Weimer
S. Alan Schlact Larry Strate Nicholls State University, Louisiana
Kennesaw State University, Georgia University of Nevada, Las Vegas
Marshall Wilkerson
Lorne H. Seidman Charles R. B. Stowe University of Texas at Austin
University of Nevada, Las Vegas Sam Houston State University, Texas
Melanie Stallings Williams
Ira Selkowitz Raymond Mason Taylor California State University,
University of Colorado Denver North Carolina State University Northridge
Roscoe B. Shain Thomas F. Taylor Arthur D. Wolfe
Austin Peay State University, Tennessee Campbell University, North Carolina Michigan State University
Bennett D. Shulman Ray Teske Elizabeth A. Wolfe
Lansing Community College, Michigan University of Texas at San Antonio University of Texas at Austin
S. Jay Sklar H. Allan Tolbert Daniel R. Wrentmore
Temple University, Pennsylvania Central Texas College Santa Barbara City College,
Dana Blair Smith Jesse C. Trentadue California
University of Texas at Austin University of North Dakota Eric D. Yordy
Michael Smydra Edwin Tucker Northern Arizona University
Oakland Community College— University of Connecticut Norman Gregory Young
Royal Oak Campus, Michigan Gary Victor California State Polytechnic University,
Arthur Southwick Eastern Michigan University, Pomona
University of Michigan Michigan Ronald C. Young
Sylvia A. Spade William H. Volz Kalamazoo Valley Community College,
University of Texas at Austin Wayne State University, Michigan Michigan
John A. Sparks David Vyncke Bob Zaffram
Grove City College, Pennsylvania Scott Community College, Iowa Erie Community College, New York
xxvi Pref ace
As in all past editions, we owe a debt of extreme grati- the application of her superb research and editorial skills.
tude to the numerous individuals who worked d irectly We also wish to thank William Eric Hollowell, who co-
with us or at Cengage. In particular, we wish to thank authored the Instructor’s Manual and the Test Bank, for
Vicky True-Baker and Michael Giffen, senior p roduct his excellent research efforts. We were fortunate enough
managers; Joe Sabatino, product director; Martha to have the copyediting of Beverly Peavler and the proof-
C
onway and Julia Chase, senior content managers; and reading of Susan Bradley. We are grateful for the many
Lisa Elliot, Cengage subject matter expert. We also thank efforts of Vickie Reierson, Roxanna Lee, and Suzanne
Sarah Huber and Courtney Wolstoncroft, learning desig Jasin, which helped to ensure an error-free text.
ners; Jennifer Chinn and Steven McMillian, digital Through the years, we have enjoyed an ongoing cor-
d
elivery leads; Christian Wood and Nick Perez, product respondence with many of you who have found points
assistants; Chris Doughman, designer; Carly Belcher, intel on which you wish to comment. We continue to wel-
lectual property project manager; and Ashley Maynard, come all comments and promise to respond promptly.
intellectual property analyst. We are indebted as well to By incorporating your ideas, we can continue to write
the staff at SPi Global, our compositor, as well as Phil a business law text that is best for you and best for your
Scott, project manager, for accurately generating pages students.
for this text and making it possible for us to meet our
ambitious schedule for print and digital products.
We especially wish to thank Katherine Marie Silsbee K.W.C.
for her management of the entire project, as well as for R.L.M.
For MaryKay and Jim,
May our many years of
friendship continue.
It’s a great ride!
R.L.M.
Unit One
The Legal Environment

of Business
1. Law and Legal Reasoning
2. Business and the Constitution
3. Ethics in Business
4. Courts and Alternative Dispute Resolution
5. Court Procedures
C h a p te r 1
Law and Legal Reasoning
O
ne of the most important func- enforceable rules governing relation- For instance, suppose that Hellix Com-
tions of law in any society is to ships among individuals and between munications, Inc., wants to buy a com-
provide stability, predictability, individuals and their society. In some peting cellular company. It also wants
and continuity so that people can know societies, these enforceable rules to offer unlimited data plans once it
how to order their affairs. If any society consist of unwritten principles of has acquired this competitor. Manage-
is to survive, its citizens must be able behavior. In other societies, they are ment fears that if the company does
to determine what is legally right and set forth in ancient or contemporary not expand, one of its bigger rivals
legally wrong. They must know what law codes. In the United States, our will put it out of business. But Hellix
sanctions will be imposed on them if rules consist of written laws and court Communications cannot simply buy its
they commit wrongful acts. If they suf- decisions created by modern legisla- rivals. Nor can it just offer a low-cost
fer harm as a result of others’ wrong- tive and judicial bodies. Regardless of cell-phone plan to its customers. It has
ful acts, they must know how they can how such rules are created, they all to follow the laws pertaining to its
seek compensation. By setting forth the have one feature in common: they proposed actions. Some of these laws
rights, obligations, and privileges of citi- establish rights, duties, and privileges (or regulations) depend on interpreta-
zens, the law enables individuals to go that are consistent with the values tions by those running various regula-
about their business with confidence and beliefs of their society or its rul- tory agencies. The rules that control
and a certain degree of predictability. ing group. Hellix Communications’ actions reflect
Although law has various defini- In this introductory chapter, we past and current thinking about how
tions, they all are based on the gen- look at how business law and the legal large telecommunications companies
eral observation that law consists of environment affect business decisions. should and should not act.
critical-thinking and legal-reasoning skills. The laws may

1–1 Business Activities and the change, but the ability to analyze and evaluate the legal
(and ethical) ramifications of situations as they arise is an
Legal Environment invaluable and lasting skill.
Laws and government regulations affect almost all business
activities—from hiring and firing decisions to workplace 1–1a Many Different Laws May
safety, the manufacturing and marketing of products,
business financing, and more. To make good business Affect a Single Business Decision
decisions, a basic knowledge of the laws and regulations As you will note, each chapter in this text covers specific
governing these activities is beneficial—if not essential. areas of the law and shows how the legal rules in each
Realize also that in today’s business world, knowing area affect business activities. Although compartmental-
what conduct can lead to legal liability is not enough. izing the law in this fashion promotes conceptual clarity,
Businesspersons must develop critical thinking and legal it does not indicate the extent to which a number of dif-
reasoning skills so that they can evaluate how various ferent laws may apply to just one decision. Exhibit 1–1
laws might apply to a given situation and determine the illustrates the various areas of the law that may influence
best course of action. business decision making.
Our goal in this text is not only to teach you about ■ Example 1.1 When Mark Zuckerberg, as a H arvard
specific laws, but also to teach you how to think about the student, first launched Facebook, others claimed that
law and the legal environment and to develop your Zuckerberg had stolen their ideas for a social networking
2
C h a p te r 1 Law and Legal Reasoning 3
Exhibit 1–1 Areas of the Law That Can Affect Business Decision Making
Contracts
Environmental Intellectual
Law and Sustainability Property
Business
Internet Law,
Decision
Social Media, Making Torts
and Privacy
Product
Sales Liability
site. They filed a lawsuit against him alleging theft of intellec- some of the types of ethical questions that arise in busi-
tual property, fraudulent misrepresentation, and violations ness. For instance, all of the unit-ending Unit Application
of partnership law and securities law. Facebook ultimately and Ethics features include an Ethical Connection section
paid $65 million to settle those claims out of court. that explores the ethical dimensions of a topic treated
Since then, Facebook has been sued repeatedly for within the unit. We have also included Ethical Questions
violating users’ privacy (and federal laws) by tracking for each unit, as well as within many of the cases pre-
their website usage and by scanning private messages for sented in this text. Ethics Today features, which focus on
purposes of data mining and user profiling. Facebook’s ethical considerations in today’s business climate, appear
business decisions have also come under scrutiny by federal in selected chapters, including this chapter. A Question
regulators, such as the Federal Trade Commission (FTC), of Ethics case problem is included at the end of every
and by international authorities, such as the European chapter to introduce you to the ethical aspects of specific
Union. The company settled a complaint filed by the FTC cases involving real-life situations.
alleging that Facebook had failed to keep “friends” lists and
other user information private. ■
1–2 Sources of American Law

1–1b Ethics and Business Decision Making
American law has numerous sources. Often, these sources
Merely knowing the areas of law that may affect a busi- of law are classified as either primary or secondary.
ness decision is not sufficient in today’s business world. Primary sources of law, or sources that establish the
Today, business decision makers need to consider not just law, include the following:
whether a decision is legal, but also whether it is ethical.
Ethics generally is defined as the principles governing 1. The U.S. Constitution and the constitutions of the
what constitutes right or wrong behavior. Often, as in various states.
several of the claims against Facebook discussed above, 2. Statutory law—including laws passed by Congress,
disputes arise in business because one party feels that he state legislatures, or local governing bodies.
or she has been treated unfairly. Thus, the underlying 3. Regulations created by administrative agencies, such
reason for bringing some lawsuits is a breach of ethical as the Federal Trade Commission.
duties (such as when a partner or employee attempts to 4. Case law and common law doctrines.
secretly take advantage of a business opportunity). Next, we describe each of these important sources of law.
Throughout this text, you will learn about the rela- Secondary sources of law are books and articles that
tionship between the law and ethics, as well as about summarize and clarify the primary sources of law.
4 Un it One The Legal Environment of Business
Examples include legal encyclopedias, treatises, articles in enforcement officials are supposed to alert federal immi-
law reviews, and compilations of law, such as the Restate- gration authorities when they come into contact with
ments of the Law (which will be discussed later). Courts undocumented immigrants, so that the immigrants can
often refer to secondary sources of law for guidance be detained for possible deportation. But a number of
in interpreting and applying the primary sources of law cities across the United States have adopted either local
discussed here. ordinances or explicit policies that do not follow this pro-
cedure. Police in these cities often do not ask or report the
immigration status of individuals with whom they come
1–2a Constitutional Law into contact. Other places refuse to detain undocumented
The federal government and the states have separate immigrants who are accused of low-level offenses. ■
written constitutions that set forth the general organiza-
tion, powers, and limits of their respective governments. Uniform Laws During the 1800s, the differences
Constitutional law is the law as expressed in these among state laws frequently created difficulties for busi-
constitutions. nesspersons conducting trade and commerce among
According to Article VI of the U.S. Constitution, the the states. To counter these problems, a group of legal
Constitution is the supreme law of the land. As such, it scholars and lawyers formed the National Conference of
is the basis of all law in the United States. A law in viola- Commissioners on Uniform State Laws, or NCCUSL
tion of the Constitution, if challenged, will be declared (www.uniformlaws.org), in 1892. The NCCUSL still
unconstitutional and will not be enforced, no matter exists today. Its object is to draft uniform laws (model
what its source. statutes) for the states to consider adopting.
The Tenth Amendment to the U.S. Constitution Each state has the option of adopting or rejecting a
reserves to the states all powers not granted to the federal uniform law. Only if a state legislature adopts a uniform
government. Each state in the union has its own consti- law does that law become part of the statutory law of that
tution. Unless it conflicts with the U.S. Constitution or state. Note that a state legislature may adopt all or part
a federal law, a state constitution is supreme within the of a uniform law as it is written, or the legislature may
state’s borders. rewrite the law however the legislature wishes. Hence,
even though many states may have adopted a uniform
law, those states’ laws may not be entirely “uniform.”
1–2b Statutory Law The earliest uniform law, the Uniform Negotiable
Laws enacted by legislative bodies at any level of gov- Instruments Law, was completed by 1896 and adopted in
ernment, such as statutes passed by Congress or by state every state by the 1920s (although not all states used exactly
legislatures, make up the body of law known as statutory the same wording). Over the following decades, other acts
law. When a legislature passes a statute, that statute ulti- were drawn up in a similar manner. In all, more than two
mately is included in the federal code of laws or the rel- hundred uniform acts have been issued by the NCCUSL
evant state code of laws. since its inception. The most ambitious uniform act of all,
Statutory law also includes local ordinances—regu- however, was the Uniform Commercial Code.
lations passed by municipal or county governing units
to deal with matters not covered by federal or state law. The Uniform Commercial Code One of the most
Ordinances commonly have to do with city or county important uniform acts is the Uniform Commercial Code
land use (zoning ordinances), building and safety codes, (UCC), which was created through the joint efforts of the
and other matters affecting the local community. NCCUSL and the American Law Institute.1 The UCC
A federal statute, of course, applies to all states. A state was first issued in 1952 and has been adopted in all fifty
statute, in contrast, applies only within the state’s bor- states,2 the District of Columbia, and the Virgin Islands.
ders. State laws thus may vary from state to state. No The UCC facilitates commerce among the states by
federal statute may violate the U.S. Constitution, and no providing a uniform, yet flexible, set of rules governing
state statute or local ordinance may violate the U.S. Con- commercial transactions. Because of its importance in
stitution or the relevant state constitution. the area of commercial law, we cite the UCC frequently
in this text.
Statutory Conflicts Tension may sometimes arise
between federal, state, and local laws. ■ Example 1.2
This tension is evident in the national debate over so- 1. This institute was formed in the 1920s and consists of practicing attorneys,
legal scholars, and judges.
called sanctuary cities—cities that limit their coopera- 2. Louisiana has not adopted Articles 2 and 2A (covering contracts for the
tion with federal immigration authorities. Normally, law sale and lease of goods), however.
1–2c Administrative Law power is less pronounced in regard to independent agen-

cies, whose officers serve for fixed terms and cannot be
Another important source of American law is administra- removed without just cause.
tive law, which consists of the rules, orders, and decisions
of administrative agencies. An administrative agency is State and Local Agencies There are administrative
a federal, state, or local government agency established to agencies at the state and local levels as well. Commonly, a
perform a specific function. Administrative law and pro- state agency (such as a state pollution-control agency) is
cedures constitute a dominant element in the regulatory created as a parallel to a federal agency (such as the Envi-
environment of business. ronmental Protection Agency). Just as federal statutes
Rules issued by various administrative agencies now take precedence over conflicting state statutes, federal
affect almost every aspect of a business’s operations. Regu- agency regulations take precedence over conflicting state
lations govern a business’s capital structure and financing, regulations.
its hiring and firing procedures, its relations with employees
and unions, and the way it manufactures and markets its
products. Regulations enacted to protect the environment 1–2d Case Law and Common Law Doctrines
also often play a significant role in business operations. The rules of law announced in court decisions consti-
tute another basic source of American law. These rules
Federal Agencies At the national level, the cabinet include interpretations of constitutional provisions, of
departments of the executive branch include numerous statutes enacted by legislatures, and of regulations cre-
executive agencies. The U.S. Food and Drug Adminis- ated by administrative agencies.
tration, for instance, is an agency within the U.S. Depart- Today, this body of judge-made law is referred to as case
ment of Health and Human Services. Executive agencies law. Case law—the doctrines and principles announced in
are subject to the authority of the president, who has the cases—governs all areas not covered by statutory law or
power to appoint and remove their officers. administrative law and is part of our common law tradi-
There are also major independent regulatory agencies tion. We look at the origins and characteristics of the com-
at the federal level, such as the Federal Trade Commis- mon law tradition in some detail in the pages that follow.
sion, the Securities and Exchange Commission, and the See Concept Summary 1.1 for a review of the sources
Federal Communications Commission. The president’s of American law.
ETHICS
Concept TODAY1.1
Summary
Sources of American Law
Constitutional Law ● Law as expressed in the U.S. Constitution or state constitutions.

● The U.S. Constitution is the supreme law of the land.
● State constitutions are supreme within state borders to the extent that
they do not conflict with the U.S. Constitution.
Statutory Law ● Statutes (including uniform laws) and ordinances enacted by federal, state,
and local legislatures.
● Federal statutes may not violate the U.S. Constitution.
● State statutes and local ordinances may not violate the U.S. Constitution
or the relevant state constitution.
Administrative Law ● The rules, orders, and decisions of federal, state, and local
administrative agencies.
Case Law and Common ● Judge-made law, including interpretations of constitutional provisions,
Law Doctrines of statutes enacted by legislatures, and of regulations created by
administrative agencies.
Equity is a branch of law—founded on notions of justice

1–3 The Common Law Tradition and fair dealing—that seeks to supply a remedy when no
Because of our colonial heritage, much of American law adequate remedy at law is available.
is based on the English legal system. Knowledge of this
tradition is crucial to understanding our legal system Remedies in Equity The remedies granted by the
today because judges in the United States still apply com- equity courts became known as remedies in equity, or
mon law principles when deciding cases. equitable remedies. These remedies include specific per-
formance, injunction, and rescission. Specific performance
involves ordering a party to perform an agreement as
1–3a Early English Courts promised. An injunction is an order to a party to cease
After the Normans conquered England in 1066, William engaging in a specific activity or to undo some wrong or
the Conqueror and his successors began the process of injury. Rescission is the cancellation of a contractual obli-
unifying the country under their rule. One of the means gation. We will discuss these and other equitable remedies
they used to do this was the establishment of the king’s in more detail in later chapters.
courts, or curiae regis. As a general rule, today’s courts, like the early Eng-
Before the Norman Conquest, disputes had been set- lish courts, will not grant equitable remedies unless
tled according to the local legal customs and traditions in the remedy at law—monetary damages—is inad-
various regions of the country. The king’s courts sought equate. ■ Example 1.3 Ted forms a contract (a legally
to establish a uniform set of customs for the country as binding agreement) to purchase a parcel of land that
a whole. What evolved in these courts was the begin- he thinks will be perfect for his future home. The seller
ning of the common law—a body of general rules that breaches (fails to fulfill) this agreement. Ted could sue the
applied throughout the entire English realm. Eventually, seller for the return of any deposits or down payment he
the common law tradition became part of the heritage of might have made on the land, but this is not the remedy
all nations that were once British colonies, including the he really wants. What Ted wants is to have a court order
United States. the seller to perform the contract. In other words, Ted will
seek the equitable remedy of specific performance because
Courts of Law and Remedies at Law The early monetary damages are inadequate in this situation. ■
English king’s courts could grant only very limited kinds
of remedies (the legal means to enforce a right or redress Equitable Maxims In fashioning appropriate rem-
a wrong). If one person wronged another in some way, edies, judges often were (and continue to be) guided by
the king’s courts could award as compensation one or so-called equitable maxims—propositions or general
more of the following: (1) land, (2) items of value, or statements of equitable rules. Exhibit 1–2 lists some
(3) money. important equitable maxims.
The courts that awarded this compensation became The last maxim listed in the exhibit—“Equity aids
known as courts of law, and the three remedies were the vigilant, not those who rest on their rights”—merits
called remedies at law. (Today, the remedy at law special attention. It has become known as the equitable
normally takes the form of monetary damages—an doctrine of laches (a term derived from the Latin laxus,
amount given to a party whose legal interests have been meaning “lax” or “negligent”), and it can be used as a
injured.) This system made the procedure for settling defense. A defense is an argument raised by the defendant
disputes more uniform. When a complaining party (the party being sued) indicating why the plaintiff (the
wanted a remedy other than economic compensation, suing party) should not obtain the remedy sought. (Note
however, the courts of law could do nothing, so “no that in equity proceedings, the party bringing a lawsuit is
remedy, no right.” called the petitioner, and the party being sued is referred
to as the respondent.)
Courts of Equity When individuals could not obtain The doctrine of laches arose to encourage people to
an adequate remedy in a court of law, they petitioned the bring lawsuits while the evidence was fresh. What consti-
king for relief. Most of these petitions were decided by an tutes a reasonable time, of course, varies according to the
adviser to the king, called a chancellor, who had the power circumstances of the case. Time periods for different types
to grant new and unique remedies. Eventually, formal of cases are now usually fixed by statutes of limitations.
chancery courts, or courts of equity, were established. After the time allowed under a statute of limitations has
Exhibit 1–2 Equitable Maxims
1. Whoever seeks equity must do equity. (Anyone who wishes to be treated fairly must treat others fairly.)
2. Where there is equal equity, the law must prevail. (The law will determine the outcome of a controversy in which the
merits of both sides are equal.)
3. One seeking the aid of an equity court must come to the court with clean hands. (The plaintiff must have acted fairly
and honestly.)
4. Equity will not suffer a wrong to be without a remedy. (Equitable relief will be awarded when there is a right to relief
and there is no adequate remedy at law.)
5. Equity regards substance rather than form. (Equity is more concerned with fairness and justice than with legal
technicalities.)
6. Equity aids the vigilant, not those who rest on their rights. (Equity will not help those who neglect their rights for an
unreasonable period of time.)
expired, no action (lawsuit) can be brought, no matter 1–3c The Doctrine of Stare Decisis
how strong the case was originally.
One of the unique features of the common law is that it
is judge-made law. The body of principles and doctrines
1–3b Legal and Equitable Remedies Today that form the common law emerged over time as judges
The establishment of courts of equity in medieval E ngland decided legal controversies.
resulted in two distinct court systems: courts of law and
courts of equity. The courts had different sets of judges Case Precedents and Case Reporters When pos
and granted different types of remedies. D uring the sible, judges attempted to be consistent and to base their
nineteenth century, however, most states in the United decisions on the principles suggested by earlier cases.
States adopted rules of procedure that resulted in the They sought to decide similar cases in a similar way,
combining of courts of law and equity. A party now may and they considered new cases with care because they
request both legal and equitable remedies in the same knew that their decisions would make new law. Each
action, and the trial court judge may grant either or both interpretation became part of the law on the subject and
forms of relief. thus served as a legal precedent. A precedent is a deci-
The distinction between legal and equitable remedies sion that furnishes an example or authority for deciding
remains relevant to students of business law, however, subsequent cases involving identical or similar legal prin-
because these remedies differ. To seek the proper remedy ciples or facts.
for a wrong, you must know what remedies are available. In the early years of the common law, there was no
Additionally, certain vestiges of the procedures used when single place or publication where court opinions, or writ-
there were separate courts of law and equity still exist. For ten decisions, could be found. By the fourteenth century,
instance, a party has the right to demand a jury trial in an portions of the most important decisions from each year
action at law, but not in an action in equity. Exhibit 1–3 were being gathered together and recorded in Year Books,
summarizes the procedural differences (applicable in most which became useful references for lawyers and judges. In
states) between an action at law and an action in equity. the sixteenth century, the Year Books were discontinued,
Exhibit 1–3 Procedural Differences between an Action at Law and an Action in Equity
Procedure Action at Law Action in Equity

Initiation of lawsuit By filing a complaint By filing a petition
Decision By jury or judge By judge (no jury)
Result Judgment Decree
Remedy Monetary damages or property Injunction, specific performance, or
rescission
and other forms of case publication became available. feature for a discussion of how courts often defer to case
Today, cases are published, or “reported,” in volumes precedent even when they disagree with the reasoning
called reporters, or reports—and are also posted online. in the case.
We describe today’s case reporting system in detail later Although courts are obligated to follow precedents,
in this chapter. sometimes a court will depart from the rule of precedent
if it decides that the precedent should no longer be fol-
Stare Decisis and the Common Law Tradition lowed. If a court decides that a ruling precedent is sim-
The practice of deciding new cases with reference to for- ply incorrect or that technological or social changes have
mer decisions, or precedents, became a cornerstone of rendered the precedent inapplicable, the court might rule
the English and American judicial systems. The practice contrary to the precedent. Cases that overturn precedent
formed a doctrine known as stare decisis,3 a Latin phrase often receive a great deal of publicity.
meaning “to stand on decided cases.” ■ Case in Point 1.4 The United States Supreme Court
Under the doctrine of stare decisis, judges are obli- expressly overturned precedent in the case of Brown v.
gated to follow the precedents established within their Board of Education of Topeka.4 The Court concluded
jurisdictions. The term jurisdiction refers to a geo- that separate educational facilities for whites and blacks,
graphic area in which a court or courts have the power which it had previously upheld as constitutional,5 were
to apply the law. Once a court has set forth a principle inherently unequal. The Supreme Court’s departure from
of law as being applicable to a certain set of facts, that precedent in this case received a tremendous amount of
court must apply the principle in future cases involv- publicity as people began to realize the ramifications of
ing similar facts. Courts of lower rank (within the same this change in the law. ■
jurisdiction) must do likewise. Thus, stare decisis has Note that a lower court will sometimes avoid apply-
two aspects: ing a precedent set by a higher court in its jurisdiction by
1. A court should not overturn its own precedents
distinguishing the two cases based on their facts. When
unless there is a compelling reason to do so. this happens, the lower court’s ruling stands unless it is
2. Decisions made by a higher court are binding on
appealed to a higher court and that court overturns the
lower courts. decision.
Controlling Precedents Precedents that must be When There Is No Precedent Occasionally, courts
followed within a jurisdiction are called controlling pre must decide cases for which no precedents exist, called
cedents. Controlling precedents are a type of binding cases of first impression. For instance, as you will read
authority. A binding authority is any source of law throughout this text, the Internet and certain other tech-
that a court must follow when deciding a case. Bind- nologies have presented many new and challenging issues
ing authorities include constitutions, statutes, and regu- for the courts to decide.
lations that govern the issue being decided, as well as In deciding cases of first impression, courts often
court decisions that are controlling precedents within look at persuasive authorities—legal authorities that a
the jurisdiction. United States Supreme Court case deci- court may consult for guidance but that are not bind-
sions, no matter how old, remain controlling until they ing on the court. A court may consider precedents from
are overruled by a subsequent decision of the Supreme other jurisdictions, for instance, although those prec-
Court or changed by further legislation or a constitu- edents are not binding. A court may also consider legal
tional amendment. principles and policies underlying previous court deci-
sions or existing statutes. Additionally, a court might
Stare Decisis and Legal Stability The doctrine of look at issues of fairness, social values and customs, and
stare decisis helps the courts to be more efficient because, public policy (governmental policy based on widely held
if other courts have analyzed a similar case, their legal societal values). Today, federal courts can also look at
reasoning and opinions can serve as guides. Stare decisis unpublished opinions (those not intended for publica-
also makes the law more stable and predictable. If the tion in a printed legal reporter) as sources of persuasive
law on a subject is well settled, someone bringing a case authority.6
can usually rely on the court to rule based on what the
law has been in the past. See this chapter’s Ethics Today
4. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954).
5. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896).
3. Pronounced stahr-ee dih-si-sis. 6. See Rule 32.1 of the Federal Rules of Appellate Procedure.
Ethics
Today Stare Decisis versus Spider-Man
Supreme Court Justice Elena Kagan, in a recent deci- When Kimble sued Marvel for patent infringement,
sion involving Marvel Comics’ Spider-Man, ruled that, he won. The result was a settlement that involved
“What we can decide, we can undecide. But stare a licensing agreement between Kimble and Marvel
decisis teaches that we should exercise that authority with a lump-sum payment plus a royalty to Kimble of
sparingly.” Citing a Spider-Man comic book, she went 3 percent of all sales of the toy. The agreement did not
on to say that “in this world, with great power there specify an end date for royalty payments to Kimble,
must also come—great responsibility.”a In its decision and Marvel later sued to have the payments stop after
in the case—Kimble v. Marvel Entertainment, LLC—the the patent expired, consistent with the Court’s earlier
Supreme Court applied stare decisis and ruled against Brulotte decision.
Stephen Kimble, the creator of a toy related to the A majority of the Supreme Court justices agreed with
Spider-Man figure.b Marvel. As Justice Kagan said in the opinion, “Patents
endow their holders with certain super powers, but only
Can a Patent Involving Spider-Man for a limited time.” The court further noted that the fifty-
Last Super Long? year-old Brulotte decision was perhaps based on what
A patent is an exclusive right granted to the creator today is an outmoded understanding of economics. That
of an invention. Under U.S. law, patent owners gener- decision, according to some, may even hinder competi-
ally possess that right for twenty years. Patent holders tion and innovation. But “respecting stare decisis means
can license the use of their patents as they see fit dur- sticking to some wrong decisions.”
ing that period. In other words, they can allow others
(called licensees) to use their invention in return for a The Ethical Side
fee (called royalties). In a dissenting opinion, Supreme Court Justice Samuel
More than fifty years ago, the Supreme Court ruled A. Alito, Jr., said, “The decision interferes with the abil-
in its Brulotte decision that a licensee cannot be forced ity of parties to negotiate licensing agreements that
to pay royalties to a patent holder after the patent has reflect the true value of a patent, and it disrupts con-
expired.c So if a licensee signs a contract to continue to tractual expectations. Stare decisis does not require us
pay royalties after the patent has expired, the contract to retain this baseless and damaging precedent. . . .
is invalid and thus unenforceable. Stare decisis is important to the rule of law, but so are
At issue in the Kimble case was a contract signed correct judicial decisions.”
between Marvel Entertainment and Kimble, who had In other words, stare decisis holds that courts should
invented a toy made up of a glove equipped with a adhere to precedent in order to promote predictability
valve and a canister of pressurized foam. The patented and consistency. But in the business world, shouldn’t
toy allowed people to shoot fake webs intended to look parties to contracts be able to, for example, allow a
like Spider-Man’s. In 1990, Kimble tried to cut a deal patent licensee to make smaller royalty payments that
with Marvel Entertainment concerning his toy, but he exceed the life of the patent? Isn’t that a way to reduce
was unsuccessful. Then Marvel started selling its own the yearly costs to the licensee? After all, the licensee
version of the toy. may be cash-strapped in its initial use of the patent.
Shouldn’t the parties to a contract be the ones to
decide how long the contract should last?
a. “Spider-Man,” Amazing Fantasy, No. 15 (1962), p. 13.
b. __ U.S. __, 135 S.Ct. 2401, 192 L.Ed.2d 463 (2015). Also see Critical Thinking When is the Supreme Court justified in
Nautilus, Inc. v. ICON Health & Fitness, Inc., 304 F.Supp.3d 552
(W.D.Texas—San Antonio 2018). not following the doctrine of stare decisis?
c. Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176 (1964).
1–3d Stare Decisis and Legal Reasoning their decisions with those that have been made before, as
In deciding what law applies to a given dispute and the doctrine of stare decisis requires.
then applying that law to the facts or circumstances of Students of business law and the legal environment
the case, judges rely on the process of legal reasoning. also engage in legal reasoning. For instance, you may be
Through the use of legal reasoning, judges harmonize asked to provide answers for some of the case problems
that appear at the end of every chapter in this text. Each are ever identical in all respects. Normally, judges
problem describes the facts of a particular dispute and the (and lawyers and law students) try to find cases on
legal question at issue. If you are assigned a case problem, point—previously decided cases that are as similar as
you will be asked to determine how a court would answer possible to the one under consideration.
that question, and why. In other words, you will need to 4. Conclusion—What conclusion should be drawn?
give legal reasons for whatever conclusion you reach. We This step normally presents few problems. Usually,
look next at the basic steps involved in legal reasoning the conclusion is evident if the previous three steps
and then describe some forms of reasoning commonly have been followed carefully.
used by the courts in making their decisions.
There Is No One “Right” Answer Many people
Basic Steps in Legal Reasoning At times, the believe that there is one “right” answer to every legal
legal arguments set forth in court opinions are rela- question. In most legal controversies, however, there is
tively simple and brief. At other times, the arguments no single correct result. Good arguments can usually be
are complex and lengthy. Regardless of the length of a made to support either side of a legal controversy. Quite
legal argument, however, the basic steps of the legal rea- often, a case does not involve a “good” person suing a
soning process remain the same. These steps, which you “bad” person. In many cases, both parties have acted
can also follow when analyzing cases and case problems, in good faith in some measure or in bad faith to some
form what is commonly referred to as the IRAC method degree. Additionally, each judge has her or his own per-
of legal reasoning. IRAC is an acronym formed from the sonal beliefs and philosophy. At least to some extent,
first letters of the words Issue, Rule, Application, and Con- these personal factors shape the legal reasoning process.
clusion. To apply the IRAC method, you ask the follow- In short, the outcome of a particular lawsuit before a
ing questions: court cannot be predicted with certainty.
1. Issue—What are the key facts and issues? Sup-
pose that a plaintiff comes before the court claiming
assault (words or acts that wrongfully and intention-
1–3e The Common Law Today
ally make another person fearful of immediate phys- Today, the common law derived from judicial decisions
ical harm). The plaintiff claims that the defendant continues to be applied throughout the United States.
threatened her while she was sleeping. Although the Common law doctrines and principles, however, govern
plaintiff was unaware that she was being threatened, only areas not covered by statutory or administrative law. In
her roommate heard the defendant make the threat. a dispute concerning a particular employment practice, for
The legal issue is whether the defendant’s action instance, if a statute regulates that practice, the statute will
constitutes the tort of assault, given that the plaintiff apply rather than the common law doctrine that applied
was unaware of that action at the time it occurred. before the statute was enacted. The common law tradition
(A tort is a wrongful act. As you will see later, torts and its application are reviewed in Concept Summary 1.2.
fall under the governance of civil law rather than
criminal law.) Courts Interpret Statutes Even in areas governed
2. Rule—What rule of law applies to the case? A rule by statutory law, judge-made law continues to be impor-
of law may be a rule stated by the courts in previous tant because there is a significant interplay between
decisions, a state or federal statute, or a state or federal statutory law and the common law. For instance, many
administrative agency regulation. In our hypothetical statutes essentially codify existing common law rules,
case, the plaintiff alleges (claims) that the defendant and regulations issued by various administrative agencies
committed a tort. Therefore, the applicable law is the usually are based, at least in part, on common law prin-
common law of torts—specifically, tort law govern- ciples. Additionally, the courts, in interpreting statutory
ing assault. Case precedents involving similar facts law, often rely on the common law as a guide to what
and issues thus would be relevant. Often, more than the legislators intended. Frequently, the applicability of a
one rule of law will be applicable to a case. newly enacted statute does not become clear until a body
3. Application—How does the rule of law apply to of case law develops to clarify how, when, and to whom
the particular facts and circumstances of this case? the statute applies.
This step is often the most difficult because each case Clearly, a judge’s function is not to make the laws—that
presents a unique set of facts, circumstances, and is the function of the legislative branch of government—
parties. Although cases may be similar, no two cases but to interpret and apply them. From a practical point
ETHICS
Concept TODAY1.2
Summary
The Common Law Tradition
Origins of Common Law The American legal system is based on the common law tradition, which
originated in medieval England.
Legal and Equitable Remedies at law (land, items of value, or money) and remedies in equity
Remedies (including specific performance, injunction, and rescission of a contractual
obligation) originated in the early English courts of law and courts of
equity, respectively.
Case Precedents and In the king’s courts, judges attempted to make their decisions consistent
the Doctrine of with previous decisions, called precedents. This practice gave rise to the
Stare Decisis doctrine of stare decisis. This doctrine, which became a cornerstone of the
common law tradition, obligates judges to abide by precedents established
in their jurisdictions.
Common Law Today The common law governs all areas not covered by statutory law or
administrative laws. Courts interpret statutes and regulations.
of view, however, the courts play a significant role in

defining the laws enacted by legislative bodies, which 1–4 Schools of Legal Thought
tend to be expressed in general terms. Judges thus have How judges apply the law to specific cases, including dis-
some flexibility in interpreting and applying the law. putes relating to the business world, depends in part on
It is because of this flexibility that different courts can, their philosophical approaches to law. Thus, the study of
and often do, arrive at different conclusions in cases that law, or jurisprudence, involves learning about different
involve nearly identical issues, facts, and applicable laws. schools of legal thought and how the approaches to law
characteristic of each school can affect judicial decision
Restatements of the Law Clarify and Illus- making.
trate the Common Law The American Law Insti-
tute (ALI) has published compilations of the common
law called Restatements of the Law, which generally sum- 1–4a The Natural Law School
marize the common law rules followed by most states. An age-old question about the nature of law has to do
There are Restatements of the Law in the areas of con- with the finality of a nation’s laws. What if a particular law
tracts, torts, agency, trusts, property, restitution, security, is deemed to be a “bad” law by a substantial number of
judgments, and conflict of laws. The Restatements, like the nation’s citizens? Must they obey that law? According
other secondary sources of law, do not in themselves have to the natural law theory, a higher, or universal, law exists
the force of law, but they are an important source of legal that applies to all human beings. Each written law should
analysis and opinion. Hence, judges often rely on them reflect the principles inherent in natural law. If it does not,
in making decisions. then it loses its legitimacy and need not be obeyed.
Many of the Restatements are now in their second, third, The natural law tradition is one of the oldest and most
or fourth editions. We refer to the Restatements frequently significant schools of jurisprudence. It dates back to the
in subsequent chapters of this text, indicating in parenthe- days of the Greek philosopher Aristotle (384–322 b.c.e.),
ses the edition to which we are referring. For instance, we who distinguished between natural law and the laws gov-
refer to the third edition of the Restatement of the Law of erning a particular nation. According to Aristotle, natural
Contracts as simply the Restatement (Third) of Contracts. law applies universally to all humankind.
The notion that people have “natural rights” stems forces and needs. Because the law is a human enterprise, this
from the natural law tradition. Those who claim that a school reasons that judges should take social and economic
foreign government is depriving certain citizens of their realities into account when deciding cases.
human rights, for instance, are implicitly appealing to a Legal realists also believe that the law can never be
higher law that has universal applicability. applied with total uniformity. Given that judges are
The question of the universality of basic human rights human beings with unique personalities, value systems,
also comes into play in the context of international busi- and intellects, different judges will obviously bring differ-
ness operations. U.S. companies that have operations ent reasoning processes to the same case. Female judges,
abroad often hire foreign workers as employees. Should for instance, might be more inclined than male judges
the same laws that protect U.S. employees apply to these to consider whether a decision might have a negative
foreign employees? This question is rooted implicitly in impact on the employment of women or minorities.
a concept of universal rights that has its origins in the Legal realism strongly influenced the growth of what
natural law tradition. is sometimes called the sociological school, which
views law as a tool for promoting justice in society. In
the 1960s, for instance, the justices of the United States
1–4b The Positivist School Supreme Court helped advance the civil rights movement
Positive law, or national law, is the written law of a given by upholding long-neglected laws calling for equal treat-
society at a particular time. In contrast to natural law, ment for all Americans, including African Americans and
it applies only to the citizens of that nation or society. other minorities. Generally, jurists who adhere to this
Those who adhere to legal positivism believe that there philosophy of law are more likely to depart from past
can be no higher law than a nation’s positive law. decisions than are jurists who adhere to other schools of
According to the positivist school, there are no “natu- legal thought.
ral rights.” Rather, human rights exist solely because of Concept Summary 1.3 reviews the schools of juris-
laws. If the laws are not enforced, anarchy will result. prudential thought.
Thus, whether a law is “bad” or “good” is irrelevant. The
law is the law and must be obeyed until it is changed—in
an orderly manner through a legitimate lawmaking pro-
cess. A judge who takes this view will probably be more 1–5 Classifications of Law
inclined to defer to an existing law than would a judge The law may be broken down according to several clas-
who adheres to the natural law tradition. sification systems. One system, for instance, divides law
into substantive law and procedural law. Substantive
1–4c The Historical School law consists of all laws that define, describe, regulate,
and create legal rights and obligations. Procedural law
The historical school of legal thought emphasizes the consists of all laws that outline the methods of enforcing
evolutionary process of law by concentrating on the ori- the rights established by substantive law.
gin and history of the legal system. This school looks to Note that many statutes contain both substantive
the past to discover what the principles of contemporary and procedural provisions. ■ Example 1.5 A state law
law should be. The legal doctrines that have withstood that provides employees with the right to workers’ com-
the passage of time—those that have worked in the pensation benefits for on-the-job injuries is a substantive
past—are deemed best suited for shaping present laws. law because it creates legal rights. Procedural laws estab-
Hence, law derives its legitimacy and authority from lish the method by which an employee must notify the
adhering to the standards that historical development has employer about an on-the-job injury, prove the injury,
shown to be workable. Followers of the historical school and periodically submit additional proof to continue
are more likely than those of other schools to strictly fol- receiving workers’ compensation benefits. ■
low decisions made in past cases. Other classification systems divide law into federal
law and state law, private law (dealing with relationships
between private entities) and public law (addressing the
1–4d Legal Realism relationship between persons and their governments),
In the 1920s and 1930s, a number of jurists and scholars, and national law and international law. Here we look at
known as legal realists, rebelled against the historical approach still another classification system, which divides law into
to law. Legal realism is based on the idea that law is just one civil law and criminal law. We also explain what is meant
of many institutions in society and that it is shaped by social by the term cyberlaw.
ETHICS
Concept TODAY1.3
Summary
Schools of Jurisprudential Thought
Natural Law School One of the oldest and most significant schools of legal thought. Those who believe
in natural law hold that there is a universal law applicable to all human beings.
Positivist School A school of legal thought centered on the assumption that there is no law higher
than the laws created by the government.
Historical School A school of legal thought that stresses the evolutionary nature of law and looks
to doctrines that have withstood the passage of time for guidance in shaping
present laws.
Legal Realism A school of legal thought that advocates a less abstract and more realistic and
pragmatic approach to the law and takes into account customary practices and
the circumstances surrounding the particular transaction.
1–5a Civil Law and Criminal Law modifications of traditional laws that relate to the online
environment. Throughout this book, you will read how
Civil law spells out the rights and duties that exist the law in a given area is evolving to govern specific legal
between persons and between persons and their govern- issues that arise in the online context.
ments, as well as the relief available when a person’s rights
are violated. Typically, in a civil case, a private party sues
another private party who has failed to comply with a
duty. (Note that the government can also sue a party for 1–6 How to Find
a civil law violation.) Much of the law that we discuss in
this text is civil law, including contract law and tort law.
Primary Sources of Law
Criminal law, in contrast, is concerned with wrongs This text includes numerous references, or citations, to pri-
committed against the public as a whole. Criminal acts are mary sources of law—federal and state statutes, the U.S.
defined and prohibited by local, state, or federal govern- Constitution and state constitutions, regulations issued
ment statutes. Criminal defendants are thus prosecuted by by administrative agencies, and court cases. A citation
public officials, such as a district attorney (D.A.), on behalf identifies the publication in which a legal authority—
of the state, not by their victims or other private parties. such as a statute or a court decision or other source—can
Some statutes, such as those protecting the environment be found. In this section, we explain how you can use cita-
or investors, have both civil and criminal provisions. tions to find primary sources of law. In addition to being
published in sets of books, as described next, most federal
and state laws and case decisions are available online.
1–5b Cyberlaw
The use of the Internet to conduct business has led to new 1–6a Finding Statutory and
types of legal issues. In response, courts have had to adapt
traditional laws to unique situations. Additionally, legisla- Administrative Law
tures at both the federal and the state levels have created When Congress passes laws, they are collected in a pub-
laws to deal specifically with such issues. lication titled United States Statutes at Large. When state
Frequently, people use the term cyberlaw to refer to legislatures pass laws, they are collected in similar state
the emerging body of law that governs transactions con- publications. Most frequently, however, laws are referred
ducted via the Internet. Cyberlaw is not really a classifica- to in their codified form—that is, the form in which they
tion of law, though, nor is it a new type of law. Rather, it appear in the federal and state codes. In these codes, laws
is an informal term used to refer to both new laws and are compiled by subject.
14 Unit On e The Legal Environment of Business
United States Code The United States Code (U.S.C.) Section 230.504” means that the rule can be found in
arranges all existing federal laws by broad subject. Each of Section 230.504 of Title 17. ■
the fifty-two subjects is given a title and a title number.
For instance, laws relating to commerce and trade are col-
lected in Title 15, “Commerce and Trade.” Each title is
1–6b Finding Case Law
subdivided by sections. A citation to the U.S.C. includes Before discussing the case reporting system, we need to
both title and section numbers. Thus, a reference to “15 look briefly at the court system. There are two types of
U.S.C. Section 1” means that the statute can be found in courts in the United States, federal courts and state courts.
Section 1 of Title 15. (“Section” may be designated by the Both systems consist of several levels, or tiers, of courts.
symbol §, and “Sections,” by §§.) Trial courts, in which evidence is presented and testimony
In addition to the print publication, the federal given, are on the bottom tier. Decisions from a trial court
government provides a searchable online database at
can be appealed to a higher court, which commonly is an
www.gpo.gov. It includes the United States Code, the U.S. intermediate court of appeals, or appellate court. Decisions
Constitution, and many other federal resources. from these intermediate courts of appeals may be appealed
Commercial publications of federal laws and regula- to an even higher court, such as a state supreme court or
tions are also available. For instance, Thomson Reuters the United States Supreme Court.
publishes the United States Code Annotated (U.S.C.A.).
The U.S.C.A. contains the official text of the U.S.C., State Court Decisions Most state trial court deci-
plus notes (annotations) on court decisions that interpret sions are not published in books (except in New York and
and apply specific sections of the statutes. The U.S.C.A. a few other states, which publish selected trial court opin-
also includes additional research aids, such as cross- ions). Decisions from state trial courts are typically filed
references to related statutes, historical notes, and library in the office of the clerk of the court, where the decisions
references. A citation to the U.S.C.A. is similar to a cita- are available for public inspection. (Increasingly, they can
tion to the U.S.C.: “15 U.S.C.A. Section 1.” be found online as well.)
Written decisions of the appellate, or reviewing,
State Codes State codes follow the U.S.C. pattern of courts, however, are published and distributed (in print
arranging law by subject. They may be called codes, revi- and online). Many of the state court cases presented in
sions, compilations, consolidations, general statutes, or this textbook are from state appellate courts. The reported
statutes, depending on the preferences of the states. appellate decisions are published in volumes called reports
In some codes, subjects are designated by number. or reporters, which are numbered consecutively. State
In others, they are designated by name. ■ Example 1.6 appellate court decisions are found in the state report-
“13 Pennsylvania Consolidated Statutes Section 1101” ers of that particular state. Official reports are published
means that the statute can be found in Title 13, Section by the state, whereas unofficial reports are published by
1101, of the Pennsylvania code. “California Commercial nongovernment entities.
Code Section 1101” means that the statute can be found
under the subject heading “Commercial Code” of the Regional Reporters. State court opinions appear in
California code in Section 1101. Abbreviations are often regional units of the West’s National Reporter System,
used. For example, “13 Pennsylvania Consolidated Stat- published by Thomson Reuters. Most lawyers and libraries
utes Section 1101” is abbreviated “13 Pa. C.S. § 1101,” have these reporters because they report cases more quickly
and “California Commercial Code Section 1101” is and are distributed more widely than the state-published
abbreviated “Cal. Com. Code § 1101.” ■ reporters. In fact, many states have eliminated their own
reporters in favor of the National Reporter System.
Administrative Rules Rules and regulations adopted The National Reporter System divides the states into
by federal administrative agencies are initially published the following geographic areas: Atlantic (A., A.2d, or
in the Federal Register, a daily publication of the U.S. gov- A.3d), North Eastern (N.E., N.E.2d, or N.E.3d), North
ernment. Later, they are incorporated into the Code of Western (N.W. or N.W.2d), Pacific (P., P.2d, or P.3d), South
Federal Regulations (C.F.R.). The C.F.R. is available online Eastern (S.E. or S.E.2d), South Western (S.W., S.W.2d, or
on the government database (www.gpo.gov). S.W.3d), and Southern (So., So.2d, or So.3d). (The 2d and
Like the U.S.C., the C.F.R. is divided into titles. 3d in the preceding abbreviations refer to Second Series
Rules within each title are assigned section numbers. and Third Series, respectively.) The states included in each
A full citation to the C.F.R. includes title and section of these regional divisions are indicated in Exhibit 1–4,
numbers. ■ Example 1.7 A reference to “17 C.F.R. which illustrates the National Reporter System.
Exhibit 1–4 National Reporter System—Regional/Federal
Coverage
Regional Reporters Beginning Coverage
Atlantic Reporter (A., A.2d, or A.3d) 1885 Connecticut, Delaware, District of Columbia, Maine, Maryland,
New Hampshire, New Jersey, Pennsylvania, Rhode Island, and Vermont.
North Eastern Reporter (N.E., N.E.2d, or N.E.3d) 1885 Illinois, Indiana, Massachusetts, New York, and Ohio.
North Western Reporter (N.W. or N.W.2d) 1879 Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota, and
Wisconsin.
Pacific Reporter (P., P.2d, or P.3d) 1883 Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana,
Nevada, New Mexico, Oklahoma, Oregon, Utah, Washington, and Wyoming.
South Eastern Reporter (S.E. or S.E.2d) 1887 Georgia, North Carolina, South Carolina, Virginia, and West Virginia.
South Western Reporter (S.W., S.W.2d, or 1886 Arkansas, Kentucky, Missouri, Tennessee, and Texas.
S.W.3d)
Southern Reporter (So., So.2d, or So.3d) 1887 Alabama, Florida, Louisiana, and Mississippi.
Federal Reporters
Federal Reporter (F., F.2d, or F.3d) 1880 U.S. Circuit Courts from 1880 to 1912; U.S. Commerce Court from 1911 to
1913; U.S. District Courts from 1880 to 1932; U.S. Court of Claims (now called
U.S. Court of Federal Claims) from 1929 to 1932 and since 1960; U.S. Courts
of Appeals since 1891; U.S. Court of Customs and Patent Appeals since 1929;
U.S. Emergency Court of Appeals since 1943.
Federal Supplement (F.Supp., F.Supp.2d, 1932 U.S. Court of Claims from 1932 to 1960; U.S. District Courts since 1932;
or F.Supp.3d) U.S. Customs Court since 1956.
Federal Rules Decisions (F.R.D.) 1939 U.S. District Courts involving the Federal Rules of Civil Procedure since 1939
and Federal Rules of Criminal Procedure since 1946.
Supreme Court Reporter (S.Ct.) 1882 United States Supreme Court since the October term of 1882.
Bankruptcy Reporter (Bankr.) 1980 Bankruptcy decisions of U.S. Bankruptcy Courts, U.S. District Courts, U.S.
Courts of Appeals, and the United States Supreme Court.
Military Justice Reporter (M.J.) 1978 U.S. Court of Military Appeals and Courts of Military Review for the Army,
Navy, Air Force, and Coast Guard.
WASH.
VT. ME.
MONTANA N. DAK.
MINN.
OREGON N.H.
IDAHO WIS. MASS.
S. DAK. N.Y.
WYOMING MICH. R.I.
CONN.
IOWA PA.
NEVADA NEBR. N.J.
OHIO DEL.
UTAH ILL. IND.
CALIF. COLORADO W.VA. MD.
KANSAS MO. VA.
KY.
N. CAR.
TENN.
ARIZONA OKLA.
N. MEXICO ARK. S. CAR.
MISS. ALA. GA. Pacific

North Western
TEXAS
South Western
LA. North Eastern
FLA. Atlantic
ALASKA South Eastern
Southern
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of other parts of the world than Europe and North America. One of
the more curious forms of the family is Oniscigaster wakefieldi; the
body of the imago is unusually rotund and furnished with lateral
processes. In Britain we have about forty species of may-fly. The
family is treated as a distinct Order by Brauer and Packard, and is
called Plectoptera by the latter.
Fig. 284.—Oniscigaster wakefieldi. New Zealand. (After M‘Lachlan.)
That Insects so fragile, so highly organised, with a host of powerful

enemies, but themselves destitute of means of attack or defence,
should contrive to exist at all is remarkable; and it appears still more
unlikely that such delicate Insects as Ephemeridae should leave
implanted in the rocks their traces in such a manner that they can be
recognised; nevertheless, such is the case,—indeed, the may-fly
palaeontological record is both rich and remarkable. Several forms
are preserved in amber. In the Tertiary bed of the old lake at
Florissant, Scudder has been able to distinguish the remains of no
less than six species; while in the Jurassic layers of the Secondary
epoch, in more than one locality, the remains of several other
species have been detected and described. Still more remarkable is
the fact that in the Devonian and Carboniferous layers of the
Palaeozoic period, remains are found that appear to be akin to our
existing Ephemeridae. Palingenia feistmantelii from the
Carboniferous of Bohemia is actually referred to a still existing
genus; it is said to have been of gigantic size for a may-fly.
The families Megasecopterides, Platypterides, and
Stenodictyopterides of the Carboniferous epoch (see p. 343) are all
more or less closely allied to the Ephemeridae, and in addition to
these Brongniart has established the family Protephemerides for
some Insects that he considers to have been the precursors in the
Carboniferous epoch of our existing may-flies. These ancient Insects
differed in having the wings of another form from those of existing
Ephemeridae, and in having the hind wings equal in size to the front
pair. Besides this, these Insects had, as shown in Fig. 285,
prothoracic dorsal appendages; some had also projections from the
abdominal segments, considered by Brongniart to be of the nature of
gills. Some doubt must exist as to this point, for we find in the imago
of one of our existing Ephemeridae, Oniscigaster wakefieldi, Fig.
284, abdominal processes that are not gills.
Fig. 285.—Homaloneura bonnieri; Carboniferous of Commentry. (After

Brongniart.)
It is remarkable that may-flies, which now form a comparatively

unimportant part of the Insect tribe, should in far distant times have
been represented by so great a variety of allied forms. Our fragile,
short-lived may-flies appear to be, as Scudder says, the lingering
fragments of an expiring group.
CHAPTER XX
NEUROPTERA PLANIPENNIA—SIALIDAE, ALDER-FLIES, SNAKE-FLIES—

PANORPIDAE, SCORPION-FLIES—HEMEROBIIDAE, ANT-LIONS,
LACEWINGS, ETC.
Fam. VIII. Sialidae—Alder-flies and Snake-flies.
Four wings of moderate size, meeting in repose over the back at

an angle; the hinder of the two pairs slightly the smaller; the anal
area small or nearly absent, not plicate. Nervures moderately
numerous, transverse veinlets moderately numerous, forming
irregularly disposed cells. The metamorphosis is great; there is a
quiescent pupa. The larva has the mandibles formed for biting,
armed with strong teeth.
The Sialidae, though but a small family of only some six or eight
genera, comprise a considerable variety of forms and two sub-
families—Sialides and Raphidiides. The former group has larvae
with aquatic habits possessed of branchiae but no spiracles.
Fig. 286.—The alder-fly, Sialis lutaria. Britain. A, With wings expanded;

B, in profile.
Sialis lutaria is one of the commoner British Insects frequenting the

vegetation about the banks of tranquil streams; it is well known to
anglers, being used by them for a bait. According to Ronalds it is
called the alder or orl-fly, and in Wales the humpback.
Fig. 287.—Portion of a row of eggs of Sialis lutaria. (After Evans.)
Fig. 288.—Sialis lutaria, larva.
It is very unattractive in appearance, being of a blackish colour, with

wings of a yellow-brown tinge, and makes but a poor show when
flying. The female deposits patches of elongate eggs, placed on end
and packed together in a very clever manner (Fig. 287). These
patches of eggs, of a stone-gray colour, are common objects on
rushes or stems of grass near water, and it is stated that there may
be no less than 2000 or 3000 eggs in one of them. Our figure gives
some idea of the mode in which the eggs are arranged, and the
curious narrow process that exists at the end of each. The eggs are
said to be sometimes placed at a considerable distance from water,
so that when the tiny larvae are hatched they must begin their lives
by finding the way to a suitable pool or stream. The larvae (Fig. 288)
are objects of very great interest owing to each of segments 1 to 7 of
the hind body being furnished on each side with a jointed filament,
while the last segment ends in a still longer, but unjointed process.
These filaments are branchiae by means of which the Insect obtains
air, being, as we have said, destitute of spiracles. It is an active
creature and waves its filaments in a very graceful manner; this
process no doubt aids the branchiae in their respiratory work. These
larvae are well able to exist out of water if they have a sufficiently
damp environment. They live on animal matter, but their life-history
has not been followed in much detail and it is not known how many
moults they make. The young larva has the head disproportionately
large and the branchial filaments longer. When the growth is
completed the larva returns to land, seeks a suitable situation in the
soil, and after an interval changes to a pupa, in which the characters
of the perfect Insect are plainly visible. Subsequently, without
becoming again active, it changes to the perfect Insect, and enjoys,
for a few days only, an aerial life.
The anatomy of the larva has been treated by Dufour.[370] The

supra-oesophageal ganglion is remarkably small; nothing is said as
to the existence of an infra-oesophageal ganglion; there are three
thoracic and eight abdominal ganglia; the first pair of these latter are
nearer together than the others, and this is also the case with the
last three. The alimentary canal in the adult is provided with a large
paunch attached to the crop by a narrow neck,[371] but Dufour could
find no trace of this in the larva. The structure of the branchiae has
also been described by the indefatigable French entomotomist. A
tracheal tube sends a branch into one of the appendages (Fig. 289);
the branch gives off numerous smaller tracheae, which at their
extremities break up into branchlets close to the integument. The
tracheal tube that receives each main branchial trachea, sends off
from near the point of entry of the latter another trachea, that
distributes its branchlets on the alimentary canal. The margins of
each appendage are set with swimming hairs, so that the branchiae
act as organs of locomotion as well as of respiration, and by their
activity in the former capacity increase the efficiency of their primary
function.
Fig. 289.—Structure of tracheal gill of Sialis lutaria. (After Dufour.) a,
Base of the gill; b, tracheal trunk with which it is connected; c,
trachea given off to alimentary canal.
The genus Sialis occurs in a few species only, throughout the whole
of the Palaearctic and Nearctic regions, and reappears in Chili,[372]
though absent in all the intervening area. Several other genera of
Insects exhibit the same peculiarity of distribution.
Fig. 290.—Corydalis crassicornis, male, with greater portions of the

wings removed. Texas. (After M‘Lachlan.)
Fig. 291.—Raphidia notata, female. Britain. (After Curtis.)

The genera Corydalis and Chauliodes form a group distinct from
Sialis, and are totally different in appearance, being gigantic Insects,
sometimes with the mandibles of the male enormously elongated
(Fig. 290). The species of Corydalis are called in North America
Hellgrammites; Riley has described and figured the metamorphosis
of C. cornutus,[373] the life-history being very similar to that of our
little Sialis. A mass consisting of two or three thousand eggs is
formed by the female, and the young larva has long filaments at the
sides of the body like Sialis. These in the later larval life are
comparatively shorter, but the Insect is then provided with another
set of gills in the form of spongy masses on the under-side of the
body. Riley, however, considers that these organs serve the purpose
of attachment rather than of respiration. The larvae are known to the
Mississippi fishermen as crawlers, and are greatly esteemed as bait.
The Raphidiides or snake-flies form the second tribe of Sialidae.

There are only two genera, Raphidia and Inocellia, peculiar to the
Palaearctic and Nearctic regions. The perfect Insects are chiefly
remarkable for the elongation of the prothorax and back of the head
to form a long neck, and for the existence in the female of an
elongate exserted ovipositor. The species are rather numerous, and
have been recently monographed by Albarda.[374] The three or four
British species of the genus are all rare Insects, and occur only in
wooded regions.
The Raphidiides, like the Sialides, have a carnivorous larva, which,

however, is terrestrial in habits, feeding, it would appear, chiefly on
Insects that harbour in old timber. The snake-fly larvae (Fig. 292) are
very ingenious in their manner of escaping, which is done by an
extremely rapid wriggling backwards. They are capable of
undergoing very prolonged fasts, and then alter in form a good deal,
becoming shorter and more shrivelled; Fig. 292 is taken from a
specimen that had been fasting for several weeks. They are
excessively voracious, and hunt after the fashion of beasts of prey;
their habits have been described by Stein,[375] who states that he
kept a larva from August to the end of May of the following year
without food; it then died in a shrivelled-up state. The larva of the
snake-fly changes to a pupa that is remarkably intermediate in form
between the perfect Insect and the larva; the eyes, legs, wing-pads,
and ovipositor being but little different from those of the imago, while
the general form is that of the larva, and the peculiar elongation of
the neck of the imago is absent. This pupa differs from that of Sialis
in the important particular that before undergoing its final ecdysis it
regains its activity and is able to run about.
Fig. 292.—Raphidia notata, larva. New Forest.
The internal anatomy of Raphidia has been treated by Loew,[376]

and is of a very remarkable character; we can here only mention that
the salivary glands consist of a pair of extremely elongate tubes, that
there is a very definite paunch attached as an appendage to one
side of the crop, and that the most peculiar character consists of the
fact that, according to Loew, four of the six Malpighian tubes have
not a free extremity, being attached at each end so as to form
elongate loops; the mesenteron is very complex in character.
A considerable number of fossil remains from both Tertiary and

Mesozoic strata are referred to Sialidae; and a larval form from the
red sandstone of Connecticut has been considered by Scudder to be
a Sialid, and named Mormolucoides articulatus, but the correctness
of this determination is very doubtful (Fig. 293). These fossils are,
however, of special interest as being the most ancient Insect larvae
yet brought to light. A still older fossil, from the Carboniferous strata
of Illinois called Miamia bronsoni, is considered by Scudder to have
several points of resemblance to Sialidae.
Fig. 293.—Mormolucoides articulatus, larva. Trias of Connecticut.
(After Scudder.)
Fam. IX. Panorpidae—Scorpion-flies.
Head prolonged to form a deflexed beak, provided with palpi near its
apex; wings elongate and narrow, shining and destitute of hair, with
numerous, slightly divergent veins and moderately numerous
transverse veinlets (in one genus the wings are absent). Larvae
provided with legs, and usually with numerous prolegs like the saw-
flies: habits carnivorous.
Fig. 294.—Panorpa communis, male. Cambridge.
The majority of the members of this family are very readily

distinguished by the beak-like front of the head, this being chiefly
due to enlargement of parts of the head itself, and in a less degree to
prolongation of the mouth-parts. The upper (or front) face of the beak
is formed entirely by the clypeus, the labrum being scarcely visible,
though it may be detected at the sides of the tip of the beak; the
sutures between the various parts of the head are nearly or quite
obliterated, but it is probable that the sides of the beak are formed by
the genae and by the stipites of the maxillae, and its under-surface
chiefly by the submentum: the mentum itself is but small, the ligula is
small, bifid at the extremity, and each branch bears a two-jointed
palpus, the basal article being of very peculiar structure in Panorpa.
The mandibles are but small, and are placed at the apex of the beak;
they have each the form of an oblong plate armed with two very
sharp teeth, and they cross freely. The maxillae are the only parts of
the mouth-pieces that are very elongated; each cardo is articulated
at the base of the head, and the stipes extends all the length of the
side of the beak; each maxilla bears a five-jointed palpus and two
small but very densely ciliated lobes. The antennae are long, very
slender, and flexible, and are many-jointed; they are inserted
between the eyes in large foramina; there are three ocelli, or none,
and the compound eyes are moderately large. The prothorax is
small, its notum is quite small or moderate in size, and the
prothoracic stigma is placed behind it; the side-pieces are small, and
there is no chitinous prosternum except a small longitudinal strip
placed in the membrane between the coxae; these latter are of only
moderate size, and are free and dependent. The meso- and meta-
thorax are large, their side-pieces are of considerable dimensions
and bear large, dependent coxae and supporting-pieces (Fig. 58);
there is a stigma placed between the meso- and meta-thorax at the
hind margin of the upper part of the meso-trochantin; both meso-
and meta-notum are transversely divided. The abdomen is elongate,
slender, conico-cylindrical, consisting of nine segments; the basal
segment is membranous and concealed; the terminal appendages
are of variable nature according to the species and sex. The legs are
elongate and slender, the tarsi five-jointed. The internal anatomy of
Panorpa communis has been examined by Dufour[377] and Loew.
[378] They agree in describing the alimentary canal as being of
peculiar structure: there is a short, slender oesophagus leading to an
organ in which there is seated a remarkable arrangement of
elongate hairs; this structure might be looked on as the
proventriculus, but Loew considers it to be rather a division of the
true stomach. The particulars given by these two anatomists as to
some other parts of the internal anatomy are very discrepant.
The Panorpidae form a small family of only nine or ten genera, two
or three of these being exotic and only imperfectly known; the three
genera found in Europe are composed of very curious Insects. The
scorpion-flies—Panorpa proper—are very common Insects, and
have received their vernacular name from the fact that the males
have the terminal segments elongate and slender and very mobile,
and carry them curved up somewhat after the fashion of the
scorpions (Fig. 294). It is said that Aristotle was acquainted with
these Insects, and considered them to be really winged scorpions.
A second European genus, Boreus, is still more peculiar; it is

destitute of wings, and has the appearance of a minute wingless
grasshopper; it is found from late autumn to early spring in moss and
under stones, and is said to be sometimes found disporting itself on
the surface of the snow: the female of this Insect has an exserted
ovipositor. The writer has found this little creature in Scotland among
moss in November, and under stones early in March (Fig. 295). The
third European genus, Bittacus, does not occur in our islands, but is
common on many parts of the Continent; the perfect Insect has a
great resemblance to a Tipula, or "daddy-long-legs" fly, and attaches
itself to the stems of grasses, and preys on flies; according to Brauer
it has the peculiar habit of using the hind pair of legs as hands (Fig.
296), instead of the front pair, as is usual in Insects. This remarkable
genus is widely distributed, and species of it are found even in the
Antipodes. A species inhabiting caves has been mentioned by
M‘Lachlan.[379]
Fig. 295.—Boreus hiemalis, female. Dumfriesshire.
The early stages of the Panorpidae were for long unknown, but have
recently been discovered by Brauer: he obtained eggs of Panorpa by
confining a number of the perfect flies in a vessel containing some
damp earth on which was placed a piece of meat; when the young
larvae were hatched they buried themselves in the earth and
nourished themselves with the meat or its juices.
Fig. 296.—Bittacus tipularius holding a fly in its hind legs. Austria.

(After Brauer.)
Fig. 297.—Young larva of Panorpa communis. (After Brauer.)
These larvae (Fig. 297) bear a great resemblance to those of the

Hymenopterous family Tenthredinidae; they have biting mandibles
and palp-bearing maxillae, and show no approach to the peculiar
mouth structure found in the Hemerobiidae; there are three pairs of
feet placed on the three thoracic segments, and there is also a pair
of less perfect feet on each of the first eight abdominal segments,
those behind being the larger. The upper surface of the body bears
spines, which, however, disappear after the first change of skin, with
the exception of the larger processes on the posterior segment,
which persist throughout the life of the larva. The larvae are active
for about one month; after this they become quiescent, but do not
change to the pupa state for several weeks; when this happens they
change in form and cannot creep, although their limbs are not
enclosed in any pupa case. Brauer also discovered larvae of
Panorpa communis at large in numbers in an old tree stump that was
quite covered with moss, and contained many ants in the mouldering
wood. The ants appeared to be on friendly terms with the Panorpa
larvae. The earlier stages of Boreus and Bittacus were also
observed by Brauer; they are essentially similar to those of Panorpa,
but the larva in Boreus is not provided with abdominal prolegs. The
Panorpidae have been separated from the other Neuroptera by
certain naturalists as a distinct Order, called Panorpatae by Brauer,
Mecaptera by Packard; but in their structure as well as in their
metamorphoses they are not so distinct from the Phryganeidae and
the Hemerobiidae as to justify this step.
Fossil forms of Bittacus and of Panorpa have been found in amber

and in the Tertiary strata, and Scudder has described some forms
from Florissant in which there are no cross-veinlets in the wings.
Some remains from the English Lias have been referred to
Panorpidae by Westwood under the name Orthophlebia, but it is by
no means certain that they really belong to the family.
Fam. X. Hemerobiidae—Ant-lions, Lacewing-flies, etc.
Head vertical; maxillae free, with five-jointed palpi; labial palpi

three-jointed. Wings subequal in size, with much reticulation,
without anal area. Tarsi five-jointed. Metamorphosis great; the
larvae with mandibles and maxillae coadapted to form spear-like
organs that are suctorial in function. Pupa, similar in general
form to the imago, enclosed in a cocoon.
Fig. 298.—Drepanepteryx phalaenoides. Scotland.

The Hemerobiidae are an extremely varied assemblage of
Neuroptera; the perfect Insects of the various sub-families are very
different in appearance, but the family as a whole is naturally defined
by the very peculiar structure of the mouth-organs of the larvae.
These Insects have, in fact, a suctorial mouth in their early life, and
one of the ordinary biting type in adult life.
This is a very unusual condition, being the reverse of what we find in

Lepidoptera and some other of the large Orders, where the mouth is
mandibulate in the young and suctorial in the adult. The suctorial
condition is in Hemerobiidae chiefly due to modification of the
mandibles; but this is never the case in the Insects that have a
suctorial mouth in the imaginal instar. Nearly all the Hemerobiidae
are terrestrial Insects in all their stages; a small number of them are,
to a certain extent, amphibious in the larval life, while one or two
genera possess truly aquatic larvae. The metamorphosis is, so far as
the changes of external form are concerned, quite complete. There
are no wingless forms in the adult stage.
The classification given by Hagen[380] and generally adopted

recognises seven sub-families. These we shall mention seriatim.
Sub-Fam. 1. Myrmeleonides or Ant-lions.—Antennae short,

clubbed, the apical space of the wing with regular, oblong
cellules.
Fig. 299.—Tomateres citrinus. S. E. Africa. (After Hagen.)
The ant-lions in their perfect state are usually unattractive Insects,

and many are nocturnal in their habits; the species of the genus
Palpares and allies (Fig. 299) are, however, of more handsome
appearance, and attain a large expanse of wing. No member of the
sub-family is an inhabitant of Britain, though species of the typical
genus Myrmeleon are common in Central and Northern Europe. The
remarkable habits of their larvae attracted the attention of naturalists
so long ago as two hundred years. We owe to Réaumur an accurate
and interesting account of M. formicarius, the species found in the
neighbourhood of Paris. The larvae are predaceous, and secure
their prey by means of pitfalls they excavate in the earth, and at the
bottom of which they bury themselves, leaving only their elongate
jaws projecting out of the sand at the bottom of the pit. They move
only backwards, and in forming their pit use their broad body as a
plough, and throw out the sand by placing it on the head and then
sending it to a distance with a sudden jerk. When about to construct
its trap the larva does not commence at the centre, but makes first a
circular groove of the full circumference of the future pit. Burying its
abdomen in the surface of the earth, the Insect collects on to its
head, by means of the front leg, the sand from the side which is
nearest to the centre, and then jerks the sand to a distance. By
making a second circuit within the first one, and then another, the
soil is gradually removed, and a conical pit is formed, at the bottom
of which the ant-lion lurks, burying its body but leaving its formidable
mandibles widely extended and projecting from the sand. In this
position the young ant-lion waits patiently till some wandering Insect
trespasses on its domains. An ant or fly coming over the edge of the
pitfall finds the sand of the sloping sides yielding beneath its body,
and in its effort to secure itself probably dislodges some more of the
sand, which, descending to the bottom of the pit, brings the lurking
lion into activity. Availing himself of his power of throwing sand with
his head, the ant-lion jerks some in the neighbourhood of the
trespasser, and continues to do so until the victim is brought to the
bottom of the pit and into the very jaws of its destroyer; then there is
no further hope of escape; the mandibles close, empale their prey,
and do not relax their hold till the body of the victim is exhausted of
its juices. The position chosen is in a place that will keep dry, as the
larva cannot carry on its operations when the sand is wet or damp,
hence the soil at the base of a high wall or a rock frequently
harbours these Insects.
Fig. 300.—Larva of Myrmeleon pallidipennis. (After Meinert.)
The parts of the mouth of the Myrmeleon are perfectly adapted for
enabling it to empty the victim without for a moment relaxing its hold.
There is no mouth-orifice of the usual character, and the contents of
the victim are brought into the buccal cavity by means of a groove
extending along the under side of each mandible; in this groove the
elongate and slender lobe that replaces the maxilla—there being no
maxillary palpi—plays backwards and forwards, probably raking or
dragging backwards to the buccal cavity at each movement a small
quantity of the contents of the empaled victim. The small lower lip is
peculiar, consisting in greater part of the two lobes that support the
labial palpi. The pharynx is provided with a complex set of muscles,
and, together with the buccal cavity, functions as an instrument of
suction. After the prey has been sucked dry the carcass is jerked
away to a distance. When the ant-lion larva is full grown it forms a
globular cocoon by fastening together grains of sand with fine silk
from a slender spinneret placed at the posterior extremity of the
body; in this cocoon it changes to an imago of very elongate form,
and does not emerge until its metamorphosis is quite completed, the
skin of the pupa being, when the Insect emerges, left behind in the
cocoon. The names by which the European ant-lion has been known
are very numerous. It was called Formicajo and Formicario by
Vallisneri about two hundred years ago; Réaumur called it Formica-
leo, and this was adopted by some modern authors as a generic
name for some other of the ant-lions. The French people call these
Insects Fourmilions, of which ant-lion is our English equivalent. The
Latinised form of the term ant-lion, Formicaleo, is not now applied to
the common ant-lion as a generic term, it having been proposed to
replace it by Myrmecoleon, Myrmeleo, or Myrmeleon; this latter
name at present seems likely to become generally adopted. There
are several species of the genus found in Europe, and their trivial
names have been confounded by various authors in such a way as
to make it quite uncertain, without reference to a synonymic list, what
species is intended by any particular writer. The species found in the
neighbourhood of Paris, and to which it may be presumed
Réaumur's history refers, is now called Myrmeleon formicarium by
Hagen and others; M‘Lachlan renamed it M. europaeus, but now
considers it to be the M. nostras of Fourcroy. The popular name
appears to be due to the fact that ants—Formica in Latin, Fourmi in
French—form a large part of the victims; while lion—the other part of
the name—is doubtless due to its prowess as a destroyer of animal
life, though, as Réaumur long ago remarked, it is a mistake to apply
the term lion to an Insect that captures its prey by strategy and by
snares rather than by rapidity and strength. The imago of Myrmeleon
is of shy disposition, and is rarely seen even in localities where the
larva is abundant. It is of nocturnal habits, and is considered by
Dufour to be carnivorous.
Considerable difference of opinion has existed as to the structure of

the mouth and of the alimentary canal in these larvae. Réaumur was
of opinion that there exists no posterior orifice to the alimentary
canal, but Dufour ridiculed this idea, and stated positively that such
an orifice undoubtedly exists. It is also usually said that the mouth is
closed by a membrane. Meinert has recently examined these points,
[381] and he states that the mouth is not closed by any membrane,
but is merely compressed. He finds that there is no posterior exit
from the stomach; that there is a compact mass without any cavity
between the stomach and the point where the Malpighian tubes
connect with the small intestine. The portions of aliment that are not
assimilated by the larva collect in the stomach and are expelled as a
mass, but only after the Insect has become an imago. This peculiar
excrementitious mass consists externally of uric acid, and from its
form and appearance has been mistaken for an egg by several
naturalists. The posterior portions of the alimentary canal are,
according to Meinert, of a remarkable nature. The small intestine is
elongate, slender, and is coiled. There are eight very long and
slender Malpighian tubes; a pair of these have free extremities, but
the other six in the posterior part of their course are surrounded by a
common membrane, and, following the course of the intestine, form
ultimately a dilated body seated on a coecum. These six Malpighian
tubes are considered to be partially, if not entirely, organs for the
secretion of silk for forming the cocoon, the coecum being a
reservoir. The canal terminates as a slender tube, which acts as a
spinneret and is surrounded by a sheath. A complex set of muscles
completes this remarkable spinning apparatus. The alimentary canal
of the imago has been described and figured by Dufour[382]; it is very
different from that of the larva.
The ant-lion is capable of sustaining prolonged fasts. Dufour kept

specimens for six months without any food. These Insects are said
to give off a peculiar ant-like odour, due, it is thought, to their ant-
eating habits. Although no species inhabits Great Britain, yet one is
found in Southern Sweden. Introduced specimens get on very well in
confinement in our country,[383] and would probably flourish at large
for some years if they were liberated.
Although the number of known species and genera of

Myrmeleonides is considerable—that of the species being now
upwards of 300—the members of the small genus Myrmeleon are
the only forms that are known to make pits of the kind we have
described. Other larvae[384] are known similar in general form to the
common ant-lion, but they walk forwards in the normal manner, and
apparently hunt their prey by lurking in a hidden place and, when a
chance occurs, rushing on the victim with rapidity. Brauer has
observed this habit in the case of Dendroleon pantherinus in the
Prater at Vienna.
Fig. 301.—Upper aspect of head and alimentary canal of Myrmeleon:
a, crop; b, stomach; c, free extremities of two Malpighian tubes; c′,
terminal common portion of other six tubes; d, coecum; e,
spinneret; f, f, muscles for protruding its sheath; g, g, maxillary
glands. (After Meinert.)
The most remarkable forms of Myrmeleonides are contained in the

genus Palpares. We figure Tomateres citrinus (Fig. 299), an allied
genus found in Eastern Africa as far south as Natal. These Insects
have conspicuous blotches and marks on their wings. The species of
Myrmeleon are similar in form, but are smaller, more feeble, and less
ornate in appearance.
Pitfalls, formed in all probability by ant-lions, have been noticed in

the Galapagos islands and in Patagonia, though none of the Insects
forming them have been found.
Sub-Fam. 2. Ascalaphides.—Antennae elongate, with a knob

at the tip; the apical area of the wing with irregular cellules.
Fig. 302.—Ascalaphus coccajus. East Pyrenees.
The sub-family Ascalaphides is not represented by any species in

Britain, though Ascalaphus longicornis occurs as far north as Paris.
In the mountainous regions of Central and Southern Europe some
species of the group form a conspicuous part of the Insect fauna,
owing to their bold and active flight; they are predaceous in their
habits, and fly about in a hawking fashion somewhat like that of
dragon-flies. Some of the larger of the numerous exotic species of
the group are very like dragon-flies, but can be distinguished by a
glance at the elongate antennae with a knob at the end. The sub-
family consists of two groups—Holophthalmi and Schizophthalmi.
M‘Lachlan says[385]: "The eyes in the Schizophthalmous division are
really double, the upper portion overlapping the under; if the upper
portion be separated the lower division looks like a small spherical
ordinary eye." There appears, however, to be considerable
differences in the genera in this respect.
Fig. 303.—A, Eggs of Ascalaphus macaronius. B, Sketch of position of

the young larvae of Helicomitus insimulans (?); C, outline of
natural size. (After Westwood.)

Business Law Text and Cases 15Th Edition Kenneth W Clarkson Full Chapter

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Business Law: Text and Cases 15th

Edition Kenneth W. Clarkson

Roger LeRoy Miller

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

Senior Product Team Manager:

Subject Matter Expert: Lisa Elliott

Marketing Director: Kimberly Kanakes Loose-leaf Edition:

Printed in the United States of America

Unit One The Legal Environment of Business 1

Unit Two Torts and Crimes 111

Unit Three Contracts and E-Contracts 215

Unit Five Negotiable Instruments 461

Unit Six Creditors’ Rights and Bankruptcy 537

Unit Seven Agency and Employment 603

Unit Eight Business Organizations 687

Unit Nine Government Regulation 821

Unit Ten Property and Its Protection 915

Unit One Chapter 4

Intentional Torts against Property 122 Chapter 10

Wages, Hours, and Layoffs 642 Chapter 37

Rights of Shareholders 770 Chapter 44

1.1 Sources of American Law 5 25.1 Requirements for Negotiability 474

Supplements/Digital What Will You Find?

Instructor’s Companion Website for remembering the individual steps: Inquiry,

Acknowledgments for Previous Editions

Robert B. Bennett, Jr. Kristi K. Brown

Rita Cain Maria Elena Ellison James M. Haine

Donald Cantwell Robert J. Enders JoAnn W. Hammer

Tamra Kempf Woodrow J. Maxwell Dwight D. Murphey

Norberto Ruiz Robert D. Sprague William H. Walker

The Legal Environment

1. Law and Legal Reasoning

2. Business and the Constitution

4. Courts and Alternative Dispute Resolution

Law and Legal Reasoning

critical-thinking and legal-reasoning skills. The laws may

1–2 Sources of American Law

1–2c Administrative Law power is less pronounced in regard to independent agen-

Constitutional Law ● Law as expressed in the U.S. Constitution or state constitutions.

Equity is a branch of law—founded on notions of justice

Exhibit 1–2 Equitable Maxims

Procedure Action at Law Action in Equity

of view, however, the courts play a significant role in

Exhibit 1–4 National Reporter System—Regional/Federal

MISS. ALA. GA. Pacific

Fig. 284.—Oniscigaster wakefieldi. New Zealand. (After M‘Lachlan.)

That Insects so fragile, so highly organised, with a host of powerful

Fig. 285.—Homaloneura bonnieri; Carboniferous of Commentry. (After

It is remarkable that may-flies, which now form a comparatively

NEUROPTERA PLANIPENNIA—SIALIDAE, ALDER-FLIES, SNAKE-FLIES—

Fam. VIII. Sialidae—Alder-flies and Snake-flies.

Four wings of moderate size, meeting in repose over the back at

Fig. 286.—The alder-fly, Sialis lutaria. Britain. A, With wings expanded;

Sialis lutaria is one of the commoner British Insects frequenting the

Fig. 288.—Sialis lutaria, larva.

It is very unattractive in appearance, being of a blackish colour, with

The anatomy of the larva has been treated by Dufour.[370] The

Fig. 290.—Corydalis crassicornis, male, with greater portions of the

Fig. 291.—Raphidia notata, female. Britain. (After Curtis.)

The Raphidiides or snake-flies form the second tribe of Sialidae.

The Raphidiides, like the Sialides, have a carnivorous larva, which,

Fig. 292.—Raphidia notata, larva. New Forest.

The internal anatomy of Raphidia has been treated by Loew,[376]