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Contents

Preface xxxiAbout the Authors xxxvii

Part I Foundations of the Law 1

Chapter 1: Business and Its Legal Environment 3

Outline 3Learning Objectives 3Classic Case: Barlow v. United States 4Business and the Law 5

Business 5An Ounce of Prevention 6

Law 6Why Study the Law of Business? 8

An Ounce of Prevention 10Legal Language 10Role of the Attorney 11

An Ounce of Prevention 11Legal Systems 11

Traits of a Legal System 11The Needs of a Legal System 12Compliance with the Law 15The Purposes of a Legal System 15Legal Systems in Other Countries 18The Role of Religion 18

Sources of Law 19Constitutions 19

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Treaties 20Statutes 20Ordinances 21Administrative Regulations 21Common Law 21Case Law 21Equity 23

Classifications of Law 24Federal versus State Law 24Common versus Statutory Law 24Civil versus Criminal Law 25Substantive versus Procedural Law 26Public versus Private Law 26

Contemporary Case: Love v. State Department of Education 27Short Answer Questions 29You Decide . . . 30Notes 32

Chapter 2: Business Ethics 35

Outline 35Learning Objectives 35Classic Case: Jacobson v. Massachusetts 36Introduction 38

Ethics and Law 38Ethics and Morality 39

Ethical Theories 40An Ounce of Prevention 41

Cultural Relativism 41Consequential and Nonconsequential Principles 42Ethical Egoism 42Utilitarianism 43Kant and the Categorical Imperative 45Feminism 45Rawls and the Veil of Ignorance 46

An Ounce of Prevention 48

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A Synthesis for Ethical Decision Making 48Informal Approaches 50

An Ounce of Prevention 50The Evolution of Business as an Ethical Entity 51

Business as an Amoral Institution 51Game Theory 52Social Contract Theory 53Corporate Social Responsibility 54Problems with Business Ethics 56The Human Factor 56The Legal Aspect 57

Multinational Ethics 58A Recommendation for Business 59Contemporary Case: Council of Churches Housing Development Fund Company, Inc. v. Arlington Housing Corporation 60Short Answer Questions 63You Decide . . . 64Notes 65

Chapter 3: The U.S. Legal System and Court Jurisdiction 69

Outline 69Learning Objectives 69Classic Case: International Shoe Co. v. State of Washington 70The Federal Constitution 72

Allocation of Power 72Original Constitution 76Selected Amendments to the Constitution 77

An Ounce of Prevention 77An Ounce of Prevention 79The Courts and Jurisdiction 79

Subject Matter Jurisdiction 79Jurisdiction over the Persons or Property 80

An Ounce of Prevention 85Concurrent versus Exclusive Jurisdiction 85Venue 86

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An Ounce of Prevention 87Choice of Laws 87

An Ounce of Prevention 87Federal Jurisdiction 88The Federal Court System 89The Supreme Court 90State Courts 93

Contemporary Case: Department of Homeland Security v. Regents of the University of California 95Short Answer Questions 99You Decide . . . 99Notes 101

Chapter 4: Dispute Resolution 103

Outline 103Learning Objectives 103Classic Case: Allied-Bruce Terminix Companies, Inc. v. Dobson 104Litigation 105

Costs of Litigation 105The Problem 107Before Trial 107

An Ounce of Prevention 109An Ounce of Prevention 112

The Trial 114An Ounce of Prevention 115

Posttrial Proceedings 120A Comment on Finality 121

Small Claims Court 122Alternative Dispute Resolution (ADR) 122

The Need for Alternatives to a Civil Suit 122An Ounce of Prevention 125

Negotiation 125Mediation 125Arbitration 127

An Ounce of Prevention 129Minitrial 129

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Rent-a-Judge Trial 130Online ADR (ODR) 130Disadvantages of ADR 130

Contemporary Case: Lamps Plus, Inc. v. Varela 131Short Answer Questions 133You Decide . . . 134Notes 135

Chapter 5: International Considerations for Contemporary Businesses 137

Outline 137Learning Objectives 137Classic Case: American Banana Co. v. United Fruit Co. 138Introduction 139

Going Global 142An Ounce of Prevention 142International Implications and Applications of U.S. Laws 143

Extraterritoriality 144Antitrust Laws 144Employment Laws 145

An Ounce of Prevention 145Imports and Exports 146Intellectual Property 146The Foreign Corrupt Practices Act 148Whistle-Blowers 148

International Practices and Doctrines 149Nationalization 149Act of State Doctrine 150Sovereign Immunity 150

The General Agreement on Tariffs and Trade and the World Trade Organization 151Free Trade Agreements 154

The European Union 154The United States-Mexico-Canada Agreement 155Other Free Trade Agreements 157

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International Statutes and Standards 157The United Nations Commission for International Trade Law 158The International Organization for Standardization 158

International Dispute Resolution 159The International Court of Justice 159National Courts 160Arbitration 160

An Ounce of Prevention 161Online Dispute Resolution 161

Contemporary Case: United States v. LSL Biotechnologies 162Short Answer Questions 164You Decide . . . 164Notes 166

Part II Governmental Influences 169

Chapter 6: Constitutional Regulation of Business 171

Outline 171Learning Objectives 171Classic Case: Marbury v. Madison 172An Historic Perspective 174The Commerce Clause 175

Exclusive Federal Power 177Concurrent State Power 179Exclusive State Power 180

The Equal Protection Clause 181The Rational Basis Test 183The Strict Scrutiny Test: A “Compelling State Interest” 184

An Ounce of Prevention 186The Heightened Scrutiny Test: A Substantially Important State Interest 186

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The Due Process Clause 188Substantive Due Process 189

An Ounce of Prevention 190Procedural Due Process 190

An Ounce of Prevention 191The Takings Clause 191The First Amendment and Commercial Speech 193Contemporary Case: Clinton v. Jones 196Short Answer Questions 200You Decide . . . 201Notes 202

Chapter 7: Administrative Regulation 205

Outline 205Learning Objectives 205Classic Case: J.W. Hampton, Jr. & Co. v. United States 206Introduction 208Administrative Agencies 209Statutory Provisions and Limitations on Administrative Agencies 210Rule-Making and Regulatory Authority 212An Ounce of Prevention 212Investigative Authority 213An Ounce of Prevention 215Hearings and Adjudicatory Authority 215Judicial Review of Administrative Actions 217An Ounce of Prevention 218Technological Advances Create New Concerns 218Contemporary Case: Lee v. Conagra Brands, Inc. 219Short Answer Questions 223You Decide . . . 224Notes 225

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Chapter 8: Protection of Intellectual Property 227

Outline 227Learning Objectives 227Classic Case: The Coca-Cola Company v. The Koke Company of America 228Introduction 229Patents 230

The Standards of Patentability 231An Ounce of Prevention 232

Protection from Infringement 232Remedies for Infringement 233International Dimensions 233

An Ounce of Prevention 234Computers 235

Copyrights 235Protection from Infringement 236Remedies for Infringement 238International Dimensions 238Computers 239

Trademarks, Service Marks, and Trade Dress 239Protection from Infringement 240

An Ounce of Prevention 241Remedies for Infringement 244International Dimensions 244

Trade Secrets 245Protection of Trade Secrets 245Liability for Misappropriation 246

An Ounce of Prevention 246Civil and Criminal Remedies 247Computers 247

An Ounce of Prevention 248Contemporary Case: Iancu v. Brunetti 250Short Answer Questions 253You Decide . . . 253Notes 255

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Part III Contracts 257

Chapter 9: Contract Formation 259Outline 259Learning Objectives 259Classic Case: Hamer v. Sidway 260Introduction to Contracts 261A Brief History of Contract Law 262The Elements of a Contract 263The Positive Elements 264

The Offer 264The Acceptance 265

An Ounce of Prevention 267Consideration 267

The Negative Elements 269(Lack of) Capacity to Contract 269(Lack of) Reality of Consent 271(Lack of) a Legal Purpose 274

An Ounce of Prevention 276(Lack of) Proper Form 276

An Ounce of Prevention 277Contemporary Case: Wayment v. Schneider Automotive Group LLC 279Short Answer Questions 280You Decide . . . 281Notes 282

Chapter 10: Contracts: Performance and Remedies 283

Outline 283Learning Objectives 283Classic Case: Hadley v. Baxendale 284Introduction 285Performance of the Contract 285

Perfect Tender 286Substantial Performance 287

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An Ounce of Prevention 288Excused Performance 288

Discharge by Agreement of the Parties 289An Ounce of Prevention 292

Discharge by Operation of Law 292An Ounce of Prevention 295Breach 295An Ounce of Prevention 296Remedies 297

Remedies at Law — Damages 298An Ounce of Prevention 299

Remedies in Equity 301Contemporary Case: Convenience Store Leasing and Management v. Annapurna Marketing 304Short Answer Questions 305You Decide . . . 306Notes 307

Chapter 11: Contracts for the Sale of Goods 309

Outline 309Learning Objectives 309Classic Case: In the Matter of the Arbitration Between Doughboy Industries Inc. and Pantasote Company 310Introduction 312The Sale of Goods 312Article 2 of the Uniform Commercial Code 313

Merchants or Nonmerchants 313Warranties 314

An Ounce of Prevention 315Contract Formation 316The Statute of Frauds 316

An Ounce of Prevention 317Firm Offers 317Performance of the Contract 317

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Risk of Loss 318Standard Delivery Terms 319

An Ounce of Prevention 319Special Rules Under Article 2 321Remedies for Breach of Contract 324

The United Nations Convention on Contracts for The International Sale of Goods (CISG) 327

Scope of the CISG 327Risk of Loss Under the CISG 328Standard Shipping Terms in International Trade (Incoterms) 328Remedies Under the CISG 330Warranties Under the CISG 330

Contemporary Case: Erie Insurance Co. v. Amazon.com, Inc. 332Short Answer Questions 334You Decide . . . 334Notes 335

Part IV Torts and Crimes 337

Chapter 12: Torts 339

Outline 339Learning Objectives 339Classic Case: New York Times Co. v. Sullivan 340Objectives of Tort Law 342Theories of Tort Liability 342

The Role of Duty 344The Role of Foreseeability 344

Intentional Torts 345Assault 345Battery 345Conversion 345Defamation 346Disparagement 348False Imprisonment 348

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Fraud 348Infliction of Emotional Distress 349Intentional Interference with Contractual Relations 349Interference with Prospective Advantage 350Invasion of Privacy 350Misappropriation of Trade Secrets 352

An Ounce of Prevention 352Racketeer Influenced and Corrupt Organizations Act (RICO) Violations 352Trespass 353Defenses to Intentional Torts 353

Negligence 356Duty 356Res Ipsa Loquitur 358Causation 358Harm 359Defenses to Negligence 359

An Ounce of Prevention 360Strict Liability 361Nuisance 361Product Liability 362An Ounce of Prevention 363Tort Liability of Business Entities 365An Ounce of Prevention 365Contemporary Case: Blankenship v. Napolitano 366Short Answer Questions 368You Decide . . . 369Notes 371

Chapter 13: Crimes and Business 373

Outline 373Learning Objectives 373Classic Case: New York v. Burger 374Introduction 375

Crimes versus Torts 378Objectives of Criminal Law 378

Protection of Persons and Property 378Deterrence of Criminal Behavior 378

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An Ounce of Prevention 379Punishment of Criminal Activity 379Rehabilitation of the Criminal 380

Seriousness of the Offense 380Infractions 380Misdemeanors 380Felonies 381Treason and Sedition 381

Elements of a Crime 381The Act 382The Mental State 382

Selected Crimes and Defenses 383Murder/Manslaughter 383Arson 383Burglary 384Embezzlement 384Forgery 384Credit Card and Check Legislation 384Identity Theft 385

An Ounce of Prevention 386Criminal Fraud 386Larceny 387Robbery 388Espionage 388Computer Crime 388

An Ounce of Prevention 390Corporate Liability for Crimes 391

An Ounce of Prevention 391Racketeer Influenced and Corrupt Organizations Act (RICO) 392Currency Crimes 393Defenses 393

Criminal Procedure 395Constitutional Guarantees 395Searches and Seizures 396Stages of a Criminal Case 398

Contemporary Case: Carpenter v. United States 398Short Answer Questions 401You Decide . . . 402Notes 403

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Part V Agency and Business Organizations 407

Chapter 14: Agency 409

Outline 409Learning Objectives 409Classic Case: Pacific Mutual Life Insurance Company v. Haslip 410Creation and Termination of Agency Relationships 411

Creating the Relationship 411Terminating the Relationship 412

An Ounce of Prevention 413Agency at Will 413

An Ounce of Prevention 415Types of Agency Relationships 415

Employees 416Independent Contractors 417

An Ounce of Prevention 418Responsibility for Independent Contractors 418

Duties in the Agency Relationship 419Fiduciary Duties 419Other Duties of the Agent to the Principal 419Duties of the Principal to the Agent 420

Liability for Contracts 421Types of Principals 422

An Ounce of Prevention 423Types of Authority 424Imputing the Agent’s Knowledge to the Principal 428Analysis of Agent’s Contracts with Third Parties 428Contract Between the Principal and the Agent 428

Liability for Torts 429Respondeat Superior 429

An Ounce of Prevention 432Direct Liability of the Employer 432Negligent Hiring 433

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Indemnification 434Defenses Available to the Employer 435Analysis of an Employee’s Torts 436

Injury on the Job 436Contemporary Case: Doe v. Apostolic Assembly of Faith in Christ Jesus 437Short Answer Questions 441You Decide . . . 442Notes 444

Chapter 15: Business Organizations 447

Outline 447Learning Objectives 447Classic Case: Meinhard v. Salmon 448Selecting a Business Form 449An Ounce of Prevention 450Sole Proprietorships 450Partnerships 450

Taxation of Partnerships 453Dissolution of Partnerships 454Limited Partnerships 454Limited Liability Partnerships 455Limited Liability Limited Partnerships 456

Partnerships by Estoppel 456An Ounce of Prevention 457Joint Ventures 457Corporations 457

The Formation Process 458An Ounce of Prevention 459

Taxation of Corporations 460Disregarding Corporate Entities 460

An Ounce of Prevention 461Operation of Corporations 461Corporate Shareholders 462Corporate Boards of Directors 463Corporate Officers 465Fiduciary Duties Owed to Corporations 466

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An Ounce of Prevention 467Limited Liability Companies (LLCs) 468

Management of LLCs 468Taxation of LLCs 469Duration and Termination of LLCs 469

An Ounce of Prevention 469Contemporary Case: Frontier Fiscal Services, LLC v. Pinky’s Aggregates, Inc. 473Short Answer Questions 474You Decide . . . 475Notes 476

Chapter 16: Securities Regulation 481

Outline 481Learning Objectives 481Classic Case: SEC v. C.M. Joiner Leasing Corporation 482What Are Securities? 484The Securities Act of 1933 485An Ounce of Prevention 487The Securities and Exchange Act of 1934 487

Proxy Solicitations 488Insider Trading 489Short-Swing Profits 491

An Ounce of Prevention 492The Sarbanes-Oxley Act 492An Ounce of Prevention 493The Wall Street Reform and Consumer Protection Act 494The JOBS Act of 2012 495The FAST Act of 2015 496State Regulation of Securities 497Contemporary Case: Lindeen v. SEC 497Short Answer Questions 500You Decide . . . 501Notes 502

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Part VI The Regulatory Environment 505

Chapter 17: Strategic Alliances and Antitrust Law 507

Outline 507Learning Objectives 507Classic Case: Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs 508The Basis of Regulatory Reform 509Strategic Alliances 510An Ounce of Prevention 511The Sherman Antitrust Act 511

Section 1: Contracts, Combinations, or Conspiracies in Restraint of Trade 511

An Ounce of Prevention 513Section 2: Monopolizing and Attempting to Monopolize 516Remedies 519

The Clayton Act 519Section 2: Price Discrimination 520Section 3: Exclusive Dealings and Tying Arrangements 522

An Ounce of Prevention 523Section 7: Antimerger Provisions 523Section 8: Interlocking Directorates 525

The Federal Trade Commission Act 526An Ounce of Prevention 526Unfair Trade Practices 527Exemptions 528Contemporary Case: National Football League’s Sunday Ticket Antitrust Litigation v. DirecTV, LLC 528Short Answer Questions 531You Decide . . . 531Notes 533

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Chapter 18: Consumer Protection 535

Outline 535Learning Objectives 535Classic Case: American Express Co. v. Koerner 536Introduction 538The Consumer Credit Protection Act 538An Ounce of Prevention 540Fair Credit Billing Act 541The Fair Credit Reporting Act 543

Credit Reports 543Consumer Rights and Remedies 545

An Ounce of Prevention 545The Fair and Accurate Credit Transactions Act (FACTA) 547

An Ounce of Prevention 548The Equal Credit Opportunity Act 548The Fair Debt Collection Practices Act 551The Consumer Product Safety Act 552An Ounce of Prevention 553Contemporary Case: Bhutta v. Vanchoc Transportation Inc. 555Short Answer Questions 557You Decide . . . 558Notes 559

Chapter 19: Environmental Protection and Sustainability 561

Outline 561Learning Objectives 561Classic Case: Cook v. City of Du Quoin 562Introduction 564Common-Law Actions 564An Ounce of Prevention 566The National Environmental Policy Act 567The Environmental Protection Agency 567Environmental Impact Statements 568

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Pollution Regulation 568Air Pollution 569

An Ounce of Prevention 571An Ounce of Prevention 572

Water Pollution 572Land Conservation and Pollution 575Brownfields Legislation 578

An Ounce of Prevention 579Noise Pollution 579

Wildlife Conservation 580Sustainability 581

“Going Green” 581International Aspects 582Contemporary Case: Weyerhaeuser Co. v. United States Fish & Wildlife Service 583Short Answer Questions 586You Decide . . . 587Notes 588

Chapter 20: Labor and Fair Employment Practices 591

Outline 591Learning Objectives 591Classic Case: Griggs v. Duke Power Co. 592Introduction 593Labor Laws 594

Federal Labor Laws 594State Labor Laws 597

Fair Employment Practices Laws 600The Civil Rights Act of 1964 600

An Ounce of Prevention 601An Ounce of Prevention 603An Ounce of Prevention 604

The Pregnancy Discrimination Act of 1978 605The Immigration Reform and Control Act of 1986 605The Equal Pay Act of 1963 606

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The Age Discrimination in Employment Act of 1967 606The Lilly Ledbetter Fair Pay Act of 2009 606The Civil Rights Act of 1991 607The Americans with Disabilities Act of 1990 607The Family and Medical Leave Act of 1993 608The Occupational Safety and Health Act of 1970 609

An Ounce of Prevention 610International and State Application of U.S. Employment Laws 610

Employee Benefits and Protections 610Group Health Insurance Through Employers 611Health-Care Reform 611Social Security and Medicare 611Unemployment Compensation 612Workers’ Compensation 613

Contemporary Case: Bey v. City of New York 614Short Answer Questions 617You Decide . . . 618Notes 620

Glossary 625

Table of Cases 639

Index 643

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