Business Law pdf

LibraryPirate
SMITH & ROBERSON’S
Business Law
FIFTEENTH EDITION
RICHARD A. MANN
Professor of Business Law
The University of North Carolina at Chapel Hill
Member of the North Carolina Bar
BARRY S. ROBERTS
Professor of Business Law
The University of North Carolina at Chapel Hill
Member of the North Carolina and Pennsylvania Bars
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Smith & Roberson’s Business Law,
Fifteenth Edition
Richard A. Mann and Barry S. Roberts
Vice President of Editorial, Business:
Jack W. Calhoun
Editor-in-Chief: Rob Dewey
Sr. Acquisitions Editor: Vicky True-Baker
Developmental Editor: Kendra Brown
Marketing Manager: Laura-Aurora Stopa
Marketing Coordinator: Nicole Parsons
Content Project Manager: Scott Dillon
Sr. Media Editor: Kristen Meere

Sr. Manufacturing Buyer: Kevin Kluck
Editorial Assistant: Patrick I. Clark
Production Service/Compositor:
Cadmus Communications
Sr. Art Director: Michelle Kunkler
Cover/Internal Designer: Ramsdell Design
Image Permissions Manager: John Hill
Text Permissions Manager: Audrey Pettengill
Printed in the United States of America
12345671514131211
ª 2012, 2009 South-Western, Cengage Learning
ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may
be reproduced or used in any form or by any means—graphic, electronic, or
mechanical, including photocopying, recording, taping, Web distribution,
information storage and retrieval systems, or in any other manner—except as may
be permitted by the license terms herein.
For product information and technology assistance, contact us at
Cengage Learning Customer & Sales Support, 1-800-354-9706
For permission to use material from this text or product,
submit all requests online at www.cengage.com/permissions
Further permissions questions can be emailed to

ExamView
¤
is a registered trademark of eInstruction Corp. Windows is a
registered trademark of the Microsoft Corporation used herein under license.
Macintosh and Power Macintosh are registered trademarks of Apple Computer, Inc.
used herein under license.
ª 2011 Cengage Learning. All Rights Reserved.
Library of Congress Control Number: 2010939466

ISBN 13: 978-0-538-47363-7
ISBN 10: 0-538-47363-0
South-Western Cengage Learning
5191 Natorp Boulevard
Mason, OH 45040
USA
Cengage Learning products are represented in Canada by Nelson Education, Ltd.
For your course and learning solutions, visit www.cengage.com
Purchase any of our products at your local college store or at our preferred online
store www.cengagebrain.com
About the Authors
Richard A. Mann received a B.S. in Mathematics from
the University of North Carolina at Chapel Hill and a J.D.
from Yale Law School. He is currently professor of Busi-
ness Law at the Kenan-Flagler School of Business, Univer-
sity of North Carolina at Chapel Hill, and is past president
of the Southeastern Regional Business Law Association.
He is a member of Who’s Who in America, Who’s Who
in American Law, and the North Carolina Bar.
Professor Mann has written extensively on a number of
legal topics, including bankruptcy, sales, secured transac-
tions, real property, insurance law, and business associa-
tions. He has received the American Business Law Journal’s
award both for the best article and for the best comment
and has, in addition, served as a reviewer and staff editor
for the publication. Professor Mann is a coauthor of Busi-
ness Law and the Regulation of Business (Tenth Edition),
Essentials of Business Law and the Legal Environment
(Tenth Edition), and Contemporary Business Law.
Barry S. Roberts received a B.S. in Business Administra-

tion from Pennsylvania State University, a J.D. from the
University of Pennsylvania, and an LL.M. from Harvard
Law School. He served as a judicial clerk for the Pennsyl-
vania Supreme Court prior to practicing law in Pitts-
burgh. Barry Roberts is currently professor of Business
Law at the Kenan-Flagler School of Business, University
of North Carolina at Chapel Hill, and is a member of
Who’s Who in American Law and the North Carolina
and Pennsylvania Bars.
Professor Roberts has written numerous articles on
such topics as antitrust, products liability, constitutional
law, banking law, employment law, and business associa-
tions. He has been a reviewer and staff editor for the
American Business Law Journal. He is coauthor of Business
Law and the Regulation of Business (Tenth Edition), Essen-
tials of Business Law and the Legal Environment (Tenth
Edition), and Contemporary Business Law.
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
iii
Contents in Brief
Preface xiii
Table of Cases xvii
Table of Illustrations xxi
PART 1
The Legal Environment of Business 1
1 Introduction to Law 2
2 Business Ethics and the Social Responsibility
of Business 13
3 Civil Dispute Resolution 41
4 Constitutional Law 64

5 Administrative Law 86
6 Criminal Law 101
7 Intentional Torts 119
8 Negligence and Strict Liability 140
PART 2
Contracts 163
9 Introduction to Contracts 164
10 Mutual Assent 178
11 Conduct Invalidating Assent 196
12 Consideration 215
13 Illegal Bargains 233
14 Contractual Capacity 250
15 Contracts in Writing 264
16 Third Parties to Contracts 288
17 Performance, Breach, and Discharge 305
18 Contract Remedies 321
PART 3
Agency 339
19 Relationship of Principal and Agent 340
20 Relationship with Third Parties 361
PART 4
Sales 385
21 Introduction to Sales and Leases 386
22 Performance 408
23 Transfer of Title and Risk of Loss 429
24 Products Liability: Warranties and Strict
Liability in Tort 446
25 Sales Remedies 472
PART 5
Negotiable Instruments 495

26 Form and Content 496
27 Transfer 511
28 Holder in Due Course 527
29 Liability of Parties 550
30 Bank Deposits, Collections, and Funds
Transfers 571
PART 6
Unincorporated Business Associations 595
31 Formation and Internal Relations of General
Partnerships 596
32 Operation and Dissolution of General
Partnerships 619
33 Limited Partnerships and Limited Liability
Companies 645
PART 7
Corporations 667
34 Nature, Formation, and Powers 668
35 Financial Structure 691
36 Management Structure 711
37 Fundamental Changes 742
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
iv
PART 8
Debtor and Creditor Relations 759
38 Secured Transactions and Suretyship 760
39 Bankruptcy 792
PART 9
Regulation of Business 819
40 Protection of Intellectual Property 820
41 Antitrust 842

42 Consumer Protection 866
43 Employment Law 893
44 Securities Regulation 927
45 Accountants’ Legal Liability 961
46 Environmental Law 974
47 International Business Law 997
PART 10
Property 1015
48 Introduction to Property, Property Insurance,
Bailments, and Documents of Title 1016
49 Interests in Real Property 1040
50 Transfer and Control of Real Property 1060
51 Trusts and Decedents’ Estates 1077
Appendices [1]
Appendix A
The Constitution of the United States of America [2]
Appendix B
Uniform Commercial Code
(Selected Provisions) [8]
Appendix C
Uniform Partnership Act [101]
Appendix D
Revised Uniform Partnership Act
(Selected Provisions) [107]
Appendix E
Revised Model Business Corporation Act [116]
Appendix F
Dictionary of Legal Terms [148]
Index [168]
Contents in Brief

v
Contents
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
Preface xiii
Table of Cases xvii
Table of Illustrations xxi
PART 1
The Legal Environment of Business 1
1 Introduction to Law 2
Nature of Law 2
Classification of Law 4
Sources of Law 5
Legal Analysis 9
Chapter Summary 10
Cases 11
Questions 12
2 Business Ethics and the Social
Responsibility of Business 13
Law versus Ethics 14
Ethical Theories 14
Ethical Standards in Business 17
Ethical Responsibilities of Business 18
Corporate Governance 19
Chapter Summary 21
Cases 23
Questions 23
Problems 23
Business Ethics Cases 25
3 Civil Dispute Resolution 41
The Court System 41

The Federal Courts 41
State Courts 43
Jurisdiction 44
Subject Matter Jurisdiction 44
Jurisdiction over the Parties 46
Civil Dispute Resolution 47
Civil Procedure 48
Alternative Dispute Resolution 52
Chapter Summary 54
Cases 56
Questions 61
Problems 62
4 Constitutional Law 64
Basic Principles of Constitutional Law 64
Powers of Government 66
Limitations on Government 69
Chapter Summary 73
Cases 74
Questions 84
Problems 84
5 Administrative Law 86
Operation of Administrative Agencies 87
Limits on Administrative Agencies 89
Chapter Summary 91
Cases 92
Questions 98
Problems 98
6 Criminal Law 101
Nature of Crimes 101
White-Collar Crime 103

Crimes Against Business 105
Defenses to Crimes 107
Criminal Procedure 107
Chapter Summary 110
Cases 111
Questions 116
Problems 116
7 Intentional Torts 119
Intent 120
Harm to the Person 120
vi
Harm to the Right of Dignity 122
Harm to Property 124
Harm to Economic Interests 125
Defenses to Intentional Torts 127
Chapter Summary 128
Cases 129
Questions 136
Problems 136
8 Negligence and Strict Liability 140
Negligence 140
Breach of Duty of Care 141
Factual Cause 145
Scope of Liability (Proximate Cause) 145
Harm 147
Defenses to Negligence 147
Strict Liability 149
Activities Giving Rise to Strict Liability 149
Defenses to Strict Liability 150
Chapter Summary 150

Cases 152
Questions 159
Problems 159
PART 2
Contracts 163
9 Introduction to Contracts 164
Development of the Law of Contracts 164
Definition of a Contract 165
Requirements of a Contract 166
Classification of Contracts 166
Promissory Estoppel 169
Quasi Contracts 169
Chapter Summary 170
Cases 171
Questions 176
Problems 176
10 Mutual Assent 178
Offer 178
Essentials of an Offer 179
Duration of Offers 181
Acceptance 183
Communication of Acceptance 183
Variant Acceptances 185
Chapter Summary 186
Cases 187
Questions 192
Problems 193
11 Conduct Invalidating Assent 196
Duress 196
Undue Influence 197

Fraud 197
Nonfraudulent Misrepresentation 199
Mistake 199
Chapter Summary 201
Cases 202
Questions 210
Problems 210
12 Consideration 215
Legal Sufficiency 215
Bargained-for Exchange 220
Contracts without Consideration 221
Chapter Summary 222
Cases 223
Questions 230
Problems 230
13 Illegal Bargains 233
Violations of Statutes 233
Violations of Public Policy 234
Effect of Illegality 237
Chapter Summary 238
Cases 239
Questions 247
Problems 247
14 Contractual Capacity 250
Minors 250
Incompetent Persons 252
Intoxicated Persons 253
Chapter Summary 253
Cases 254
Questions 261

Problems 261
15 Contracts in Writing 264
Statute of Frauds 264
Contracts within the Statute of Frauds 264
Compliance with the Statute of Frauds 270
Effect of Noncompliance 271
Parol Evidence Rule 271
The Rule 271
Situations to Which the Rule Does Not Apply 272
Supplemental Evidence 272
Interpretation of Contracts 273
Chapter Summary 274
Cases 276
Contents
vii
Questions 284
Problems 284
16 Third Parties to Contracts 288
Assignment of Rights 288
Delegation of Duties 291
Third-Party Beneficiary Contracts 292
Chapter Summary 294
Cases 295
Questions 301
Problems 302
17 Performance, Breach, and Discharge 305
Conditions 305
Discharge by Performance 307
Discharge by Breach 307
Discharge by Agreement of the Parties 308

Discharge by Operation of Law 309
Chapter Summary 311
Cases 313
Questions 317
Problems 318
18 Contract Remedies 321
Interests Protected by Contract Remedies 321
Monetary Damages 321
Remedies in Equity 325
Restitution 326
Limitations on Remedies 326
Chapter Summary 328
Cases 329
Questions 335
Problems 335
PART 3
Agency 339
19 Relationship of Principal and Agent 340
Nature of Agency 340
Creation of Agency 341
Duties of Agent to Principal 343
Duties of Principal to Agent 345
Termination of Agency 347
Chapter Summary 349
Cases 350
Questions 358
Problems 358
20 Relationship with Third Parties 361
Relationship of Principal and Third Persons 361
Contract Liability of the Principal 361

Tort Liability of the Principal 367
Criminal Liability of the Principal 370
Relationship of Agent and Third Persons 370
Contract Liability of Agent 370
Tort of Liability of Agent 373
Rights of Agent Against Third Person 373
Chapter Summary 373
Cases 375
Questions 382
Problems 382
PART 4
Sales 385
21 Introduction to Sales and Leases 386
Nature of Sales and Leases 386
Definitions 387
Fundamental Principles of Article 2 and Article 2A 388
Formation of Sales and Lease Contracts 391
Manifestation of Mutual Assent 391
Consideration 393
Form of the Contract 395
Chapter Summary 397
Cases 398
Questions 405
Problems 405
22 Performance 408
Performance by the Seller 408
Performance by the Buyer 412
Obligations of Both Parties 414
Chapter Summary 417
Cases 419

Questions 425
Problems 425
23 Transfer of Title and Risk of Loss 429
Transfer of Title 429
Risk of Loss 433
Sales of Goods in Bulk 436
Chapter Summary 437
Cases 438
Questions 443
Problems 443
24 Products Liability: Warranties and Strict
Liability in Tort 446
Warranties 446
Types of Warranties 446
Obstacles to Warranty Actions 449
Strict Liability in Tort 452
Requirements of Strict Liability 453
Contents
viii
Obstacles to Recovery 455
Restatement of Torts (Third): Products Liability 457
Chapter Summary 458
Cases 460
Questions 468
Problems 468
25 Sales Remedies 472
Remedies of the Seller 472
Remedies of the Buyer 476
Contractual Provisions Affecting Remedies 480
Chapter Summary 482

Cases 484
Questions 491
Problems 491
PART 5
Negotiable Instruments 495
26 Form and Content 496
Negotiability 496
Types of Negotiable Instruments 498
Formal Requirements of Negotiable Instruments 499
Chapter Summary 505
Cases 506
Questions 509
Problems 509
27 Transfer 511
Negotiation 511
Indorsements 513
Chapter Summary 517
Cases 518
Questions 524
Problems 524
28 Holder in Due Course 527
Requirements of a Holder in Due Course 527
Holder in Due Course Status 532
The Preferred Position of a Holder in Due Course 532
Limitations upon Holder in Due Course Rights 536
Chapter Summary 537
Cases 538
Questions 546
Problems 547
29 Liability of Parties 550

Contractual Liability 550
Signature 550
Liability of Primary Parties 551
Liability of Secondary Parties 552
Termination of Liability 555
Liability Based on Warranty 556
Warranties on Transfer 556
Warranties on Presentment 557
Chapter Summary 560
Cases 561
Questions 568
Problems 569
30 Bank Deposits, Collections, and Funds
Transfers 571
Bank Deposits and Collections 571
Collection of Items 571
Relationship Between Payor Bank and Its Customer 574
Electronic Funds Transfers 577
Types of Electronic Funds Transfers 577
Consumer Funds Transfers 578
Wholesale Funds Transfers 579
Chapter Summary 582
Cases 584
Questions 591
Problems 591
PART 6
Unincorporated Business Associations 595
31 Formation and Internal Relations
of General Partnerships 596
Choosing a Business Association 596

Factors Affecting the Choice 596
Forms of Business Associations 598
Formation of General Partnerships 599
Nature of Partnership 599
Formation of a Partnership 600
Relationships among Partners 603
Duties among Partners 604
Rights among Partners 605
Chapter Summary 609
Cases 611
Questions 616
Problems 616
32 Operation and Dissolution of General
Partnerships 619
Relationship of Partnership and Partners with
Third Parties 619
Contracts of Partnership 619
Torts and Crimes of Partnership 621
Notice to a Partner 622
Liability of Incoming Partner 622
Dissociation and Dissolution of General
Partnerships under RUPA 623
Dissociation 623
Contents
ix
Dissolution 624
Dissociation without Dissolution 626
Dissolution of General Partnerships under UPA 628
Dissolution 628
Winding Up 629

Continuation after Dissolution 630
Chapter Summary 631
Cases 633
Questions 641
Problems 641
33 Limited Partnerships and Limited
Liability Companies 645
Limited Partnerships 645
Limited Liability Companies 650
Other Types of Unincorporated Business
Associations 654
Chapter Summary 655
Cases 658
Questions 663
Problems 664
PART 7
Corporations 667
34 Nature, Formation, and Powers 668
Nature of Corporations 669
Corporate Attributes 669
Classification of Corporations 670
Formation of a Corporation 672
Organizing the Corporation 672
Formalities of Incorporation 673
Recognition or Disregard of Corporateness 676
Defective Incorporation 676
Piercing the Corporate Veil 677
Corporate Powers 678
Sources of Corporate Powers 678
Ultra Vires Acts 679

Liability for Torts and Crimes 679
Chapter Summary 680
Cases 682
Questions 687
Problems 687
35 Financial Structure 691
Debt Securities 691
Authority to Use Debt Securities 692
Types of Debt Securities 692
Equity Securities 692
Issuance of Shares 692
Classes of Shares 695
Dividends and Other Distributions 697
Types of Dividends and Other Distributions 697
Legal Restrictions on Dividends and Other
Distributions 698
Declaration and Payment of Distributions 700
Liability for Improper Dividends
and Distributions 700
Chapter Summary 701
Cases 703
Questions 709
Problems 709
36 Management Structure 711
Corporate Governance 711
Role of Shareholders 713
Voting Rights of Shareholders 713
Enforcement Rights of Shareholders 717
Role of Directors and Officers 719
Function of the Board of Directors 719

Election and Tenure of Directors 720
Exercise of Directors’ Functions 721
Officers 722
Duties of Directors and Officers 723
Chapter Summary 726
Cases 728
Questions 738
Problems 739
37 Fundamental Changes 742
Charter Amendments 742
Combinations 743
Dissolution 746
Chapter Summary 748
Cases 750
Questions 756
Problems 757
PART 8
Debtor and Creditor Relations 759
38 Secured Transactions and Suretyship 760
Secured Transactions in Personal Property 760
Essentials of Secured Transactions 760
Classification of Collateral 761
Attachment 763
Perfection 765
Priorities among Competing Interests 769
Default 773
Contents
x
Suretyship 775
Nature and Formation 775

Rights of Surety 777
Defenses of Surety and Principal Debtor 778
Chapter Summary 779
Cases 782
Questions 788
Problems 788
39 Bankruptcy 792
Federal Bankruptcy Law 792
Case Administration—Chapter 3 793
Creditors, the Debtor, and the Estate—Chapter 5 795
Liquidation—Chapter 7 800
Reorganization—Chapter 11 802
Adjustments of Debts of Individuals—Chapter 13 805
Creditors’ Rights and Debtor’s Relief Outside
of Bankruptcy 806
Creditors’ Rights 807
Debtor’s Relief 807
Chapter Summary 809
Cases 811
Questions 816
Problems 817
PART 9
Regulation of Business 819
40 Protection of Intellectual Property 820
Trade Secrets 820
Trade Symbols 821
Trade Names 824
Copyrights 825
Patents 827
Chapter Summary 829

Cases 830
Questions 838
Problems 839
41 Antitrust 842
Sherman Act 842
Clayton Act 847
Robinson-Patman Act 849
Federal Trade Commission Act 851
Chapter Summary 851
Cases 852
Questions 863
Problems 863
42 Consumer Protection 866
State and Federal Consumer Protection
Agencies 866
Consumer Purchases 870
Consumer Credit Transactions 872
Creditors’ Remedies 877
Chapter Summary 879
Cases 880
Questions 890
Problems 890
43 Employment Law 893
Labor Law 893
Employment Discrimination Law 895
Employee Protection 900
Chapter Summary 904
Cases 906
Questions 923
Problems 923

44 Securities Regulation 927
Securities Act of 1993 928
Definition of a Security 928
Registration of Securities 929
Exempt Securities 931
Exempt Transactions for Issuers 931
Exempt Transactions for Nonissuers 933
Liability 935
Securities Exchange Act of 1934 937
Disclosure 937
Liability 942
Chapter Summary 947
Cases 949
Questions 958
Problems 958
45 Accountants’ Legal Liability 961
Common Law 961
Federal Securities Law 964
Chapter Summary 966
Cases 968
Questions 972
Problems 972
46 Environmental Law 974
Common Law Actions for Environmental
Damage 974
Nuisance 974
Trespass to Land 975
Strict Liability for Abnormally Dangerous
Activities 975
Problems Common to Private Causes of Action 975

Federal Regulation of the Environment 975
The National Environmental Policy Act 975
Contents
xi
The Clean Air Act 977
The Clean Water Act 979
Hazardous Substances 980
International Protection of the Ozone Layer 982
Chapter Summary 984
Cases 985
Questions 995
Problems 995
47 International Business Law 997
The International Environment 997
Jurisdiction over Actions of Foreign Governments 999
Transacting Business Abroad 1000
Forms of Multinational Enterprises 1004
Chapter Summary 1004
Cases 1006
Questions 1012
Problems 1012
PART 10
Property 1015
48 Introduction to Property, Property
Insurance, Bailments, and Documents
of Title 1016
Introduction to Property and Personal Property 1016
Kinds of Property 1016
Transfer of Title to Personal Property 1017
Property Insurance 1019

Fire and Property Insurance 1020
Nature of Insurance Contracts 1021
Bailments and Documents of Title 1022
Bailments 1022
Documents of Title 1026
Chapter Summary 1028
Cases 1031
Questions 1036
Problems 1036
49 Interests in Real Property 1040
Freehold Estates 1040
Leasehold Estates 1042
Concurrent Ownership 1046
Nonpossessory Interests 1048
Chapter Summary 1049
Cases 1051
Questions 1058
Problems 1058
50 Transfer and Control of Real Property 1060
Transfer of Real Property 1060
Contract of Sale 1060
Deeds 1061
Secured Transactions 1062
Adverse Possession 1064
Public and Private Controls 1064
Zoning 1065
Eminent Domain 1066
Private Restrictions upon Land Use 1067
Chapter Summary 1067
Cases 1069

Questions 1074
Problems 1074
51 Trusts and Decedents’ Estates 1077
Trusts 1077
Types of Trusts 1077
Creation of Trusts 1079
Termination of a Trust 1080
Decedents’ Estates 1080
Wills 1081
Intestate Succession 1084
Administration of Estates 1084
Chapter Summary 1085
Cases 1087
Questions 1093
Problems 1093
Appendices [1]
Appendix A
The Constitution of the United States of America [2]
Appendix B
Uniform Commercial Code (Selected Provisions) [8]
Appendix C
Uniform Partnership Act [101]
Appendix D
Revised Uniform Partnership Act (Selected
Provisions) [107]
Appendix E
Revised Model Business Corporation Act [116]
Appendix F
Dictionary of Legal Terms [148]
Index [168]

Contents
xii
Preface
T
he format of the Fifteenth Edition follows the tradi-
tion established by the fourteen prior editions, in that
each chapter contains narrative text, cases consisting
of selected court decisions, and problems.
TOPICAL COVERAGE
This text is designed for use in business law and legal envi-
ronment courses generally offered in universities, colleges,
and schools of business and commerce. By reason of the
broad coverage and variety of the material, instructors may
readily adapt this volume to specially designed courses in
business law by assigning and emphasizing different combi-
nations of the subject matter. The text covers all topics
included in the CPA exam.
Emphasis has been placed upon the regulatory environ-
ment of business law: the first eight chapters introduce the
legal environment of business, and Part 9 (Chapters 40
through 47) addresses government regulation of business.
UP-TO-DATE
The Dodd-Frank Wall Street Reform and Consumer Protec-
tion Act of 2010 has been extensively covered in Chapters
30, 36, 37, 42, 44, 47, and 50. The chapter on Securities
Regulation has been updated to reflect recent SEC regula-
tions regarding proxy solicitations and disclosure of execu-
tive compensation and corporate governance. The Antitrust
chapter has been revised to reflect the Horizontal Merger
Guidelines of 2010 that were issued jointly by the Justice

Department and the FTC. The Employment Law chapter
has incorporated the ADA Amendments of 2008. The
Credit Card Accountability, Responsibility, and Disclosure
Act is discussed in the Consumer Protection chapter.
READABILITY
To make the text as readable as possible, all unnecessary
‘‘legalese’’ has been omitted, and necessary legal terms have
been printed in boldface and clearly defined, explained, and
illustrated. The text is enriched by numerous illustrative hy-
pothetical and case examples, which help students relate the
material to real-life experiences. The end-of-chapter cases are
cross-referenced in the text, as are related topics covered in
other chapters.
CASE TREATMENT
Drawing from our long classroom experience, we are of the
opinion that fundamental legal principles can be learned
more effectively from text and case materials having at least a
degree of human interest. Accordingly, we have incorporated
a large number of recent cases including the following U.S.
Supreme Court cases: Vaden v. Discover Bank; Wyeth v.
Levine; Department of Revenue of Kentucky v. Davis; Summers
v. Earth Island Institute; FCC v. Fox Television Stations; Ham-
ilton v. Lanning; Bilski v. Kappos; American Needle, Inc. v.
National Football League; Jerman v. Carlisle, Mc-Nellie, Rini,
Kramer & Ulrich LPA; Ricci v. Destefano; and Stoneridge Inv.
Partners, LLC v. Scientific-Atlanta. Landmark cases, on the
other hand, have not been neglected. All have been carefully
edited to preserve the actual language of the court and to show
the essential facts of the case, the issue or issues involved, the
decision of the court, and the reason for its decision.

ILLUSTRATIONS
In this text, we have used more than 140 classroom-tested
figures, charts, and diagrams. The diagrams help the stu-
dents conceptualize the many abstract concepts in the law;
the charts not only summarize prior discussions but also
help to illustrate relationships among legal rules. In addition,
each chapter has a summary in the form of an annotated
outline of the entire chapter, including key terms.
END-OF-CHAPTER MATERIALS
Classroom-proven problems appear at the ends of chapters
to test the student’s understanding of major concepts. We
have used the problems—many of which are taken from
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
xiii
reported court decisions—in our own classrooms and con-
sider them excellent stimulants to classroom discussion. Stu-
dents, in turn, have found the problems helpful in enabling
them to apply the basic rules of law to factual situations. In
addition to the problems, which readily suggest other and
related problems to the inquiring, analytical mind, we have
included discussion questions to provide students another
opportunity to assess their comprehension of the material.
APPENDICES
The text contains comprehensive appendices, including the
Constitution of the United States (Appendix A); the Uni-
form Commercial Code (Appendix B); the Uniform Partner-
ship Act (Appendix C); the Revised Uniform Partnership Act
(Appendix D); and the Revised Model Business Corporation
Act (Appendix E). A comprehensive Dictionary of Legal
Terms appears in Appendix F.

PEDAGOGICAL BENEFITS
Classroom use and study of this book should provide for the
student the following benefits and skills:
1. Perception and appreciation of the scope, extent, and
importance of the law.
2. Basic knowledge of the fundamental concepts, principles,
and rules of law that apply to business transactions.
3. Knowledge of the function and operation of courts and
governmental administrative agencies.
4. Ability to recognize the potential legal problems which
may arise in a doubtful or complicated situation, and the
necessity of consulting a lawyer and obtaining competent
professional legal advice.
5. Development of analytical skills and reasoning power.
COMPREHENSIVE LEARNING SOLUTIONS
For more information about any of these ancillaries, contact
your South-Western sales representative, or visit the Mann
and Roberts Smith & Roberson’s Business Law companion web-
site at login.cengage.com. You must log in with your faculty
account username and password, using ISBN 0538473630 to
access the website.
Instructor’s Resource CD (ISBN 0538474513) The
IRCD brings a powerful collection of resources to your
fingertips and includes all of the key supplements that
accompany this text: Instructor’s Manual, Test Bank in
Microsoft
¤
Word and in ExamView
¤
, and Microsoft

PowerPoint
¤
slides. All IRCD resources except for the
ExamView
¤
Test Bank are also available on the instructor
companion site, accessible through login.cengage.com.
You must use ISBN 0538473630 to add instructor resour-
ces to your account ‘‘bookshelf’’.
• Instructor’s Manual The Instructor’s Manual contains
opening ethics questions, suggested activities, and
research projects; chapter lecture outlines; answers to
problems and discussion questions; briefs to cases page-
referenced to the book; suggested case questions for stu-
dents; and supplemental lectures. The Instructor’s Man-
ual is also available on the instructor companion site.
• Test Bank The Test Bank contains thousands of true/
false, multiple choice, case questions, and challenge test
questions. The Test Bank is also available on the instruc-
tor companion site.
• ExamViewä Testing Software This computerized test-
ing software contains all of the questions in the test bank.
This easy-to-use test creation software program is com-
patible with Microsoftä Windows. Instructors can add
or edit questions, instructions, and answers; and can
select questions by previewing them on the screen, select-
ing them randomly, or selecting them by number.
Instructors can also create and administer quizzes online,
whether over the Internet, a local area network (LAN), or
a wide area network (WAN). The ExamViewä testing

software is available only on the IRCD. Contact your
South-Western sales representative for more information.
• PowerPoint
¤
Lecture Review Slides These slides are
available for use by instructors to enhance their lectures.
The slides are also available at the text companion site.
Business Law CourseMate (available Fall 2011) Cengage
Learning’s Business Law CourseMate brings course concepts
to life with interactive learning, study, and exam preparation
tools that support the printed textbook. CourseMate
includes an interactive eBook, teaching and learning tools—
quizzes, flashcards, videos, Engagement Tracker, and more.
Engagement Tracker is a first-of-its-kind tool that monitors
student engagement in the course. This intuitive, online
reporting tool makes it easy for you to evaluate use of study
resources, monitor time-on-task,and track progress for the
entire class or for individual students. Instantly see what
concepts are the most difficult for your class and identify
which students are at risk throughout the semester. For
more information about how CourseMate can help you en-
courage engagement and assess student learning, contact
your South-Western sales representative.
Study Guide (ISBN 0538475803) The study guide gives
students a chapter outline; key terms; true/false, multiple
choice, and short essay questions for each chapter; and supple-
mental research topics (selected topics). Each part has a sam-
ple examination. The study guide also includes a CPA Exam
business law review. Students can purchase the study guide
from their bookstore or from www.cengagebrain.com.

Preface
xiv
WebTutorä for BlackBoard or WebCT WebTutorä fea-
tures chat, discussion groups, testing, student progress track-
ing, and business law course materials. Contact your South-
Western sales representative for more information.
Business Law Digital Video Library Featuring more than
seventy-five video clips that spark class discussion and clarify
core legal principles, the Business Law Digital Video Library
is organized into six series: Legal Conflicts in Business
(includes specific modern business and e-commerce scenar-
ios); Ask the Instructor (presents straightforward explana-
tions of concepts for student review); Drama of the Law
(features classic business scenarios that spark classroom par-
ticipation); LawFlix (contains clips from many popular
films); Real World Legal (presents legal scenarios encoun-
tered in real businesses); and Business Ethics (presents ethi-
cal dilemmas in business scenarios). For more information
about the Digital Video Library, visit www.cengage.com/
blaw/dvl. Access for students is free when bundled with a
new textbook or can be purchased separately. Students must
register for and purchase access to the Digital Video Library
at www.cengagebrain.com.
Student Guide to the Sarbanes-Oxley Act (ISBN
0324827199) This brief overview for undergraduate busi-
ness students explains the Sarbanes-Oxley Act, describes its
requirements, and shows how it potentially affects students
in their business life. The guide is available as an optional
package with the text.
Cengage Learning Custom Solutions Whether you need

print, digital, or hybrid course materials, Cengage Learning
Custom Solutions can help you create your perfect learning
solution. Draw from Cengage Learning’s extensive library of
texts and collections, add or create your own original work,
and create customized media and technology to match your
learning and course objectives. Our editorial team will work
with you through each step, allowing you to concentrate on
the most important thing—your students. Learn more about
all our services at www.cengage.com/custom.
Cengage Learning’s Global Economic Watch Make the
current global economic downturn a teachable moment with
Cengage Learning’s Global Economic Watch—a powerful
online portal that brings these pivotal current events into the
classroom. The Watch includes:
• A content-rich blog of breaking news, expert analysis,
and commentary—updated multiple times daily—plus
links to many other blogs
• A powerful real-time database of hundreds of relevant
and vetted journal, newspaper, and periodical articles,
videos, and podcasts—updated four times every day
• A thorough overview and timeline of events leading up to
the global economic crisis
• Discussion and testing content, PowerPoint
¤
slides on
key topics, sample syllabi, and other teaching resources
• Social Networking tools: Instructor and student forums
encourage students
Visit www.cengage.com/thewatch for more information.
ACKNOWLEDGMENTS

We express gratitude to the following professors for their
helpful comments:
• William N. Bockanic, John Carroll University
• Joyce Boland-DeVito, Esq., St. John’s University
• John Davis, Ashland Community & Technical College
• J. Royce Fichtner, Drake University
• Sally Terry Green, Texas Southern University
• Dale A. Grossman, Cornell University
• Tanya M. Marcum, Bradley University
• Carol Nielsen, Bemidji State University
• Gail P. Petravick, Bradley University
• Decateur Reed, Boise State University
• Alan Ross, University of California – Berkeley
• Beverly E. Stanis, Oakton Community College
• Lowell E. Stockstill, Wittenberg University
• James D. Taylor, Claremont McKenna College
• Dale B. Thompson, University of St. Thomas
• Daniel Warner, Western Washington University
We are also grateful to those who provided us with com-
ments for previous editions of the book: Miriam R. Albert,
Fordham University; Mark Altieri, Cleveland State Univer-
sity; Albert Anderson, Mount Aloysius College; Albert
Andrews, Jr., University of Minnesota; Denise A. Bartles,
Missouri Western State College; Lois Yoder Beier, Kent
State University; Robert Bing, William Paterson College;
Joell Bjorke, Winona State University; William N. Bockanic,
John Carroll University; Donald Boren, Bowling Green
State University; Joe Boucher, University of Wisconsin–
Madison; L. Brooks, Nichols College; Nicolaus Bruns, Jr.,
Lake Forest Graduate School of Management; Mark A.

Buchanan, Boise State University; Deborah Lynn Bundy,
Marquette University; Thomas J. Canavan, Long Island
University–C. W. Post Campus; Donald Cantwell, Univer-
sity of Texas–Arlington; John P. Carnasiotis, University
of Missouri; Albert L. Carter, Jr., University of the District
of Columbia; Richard R. Clark, University of the District of
Columbia; Mitchell F. Crusto, Washington University–St.
Louis; Richard Dalebout, Brigham Young University;
Arthur S. Davis, Long Island University; Kenneth R. Davis,
Fordham School of Business; William Day, Cleveland State
University; Alex DeVience, Jr., DePaul University; Craig
Disbrow, Plymouth State College, New Hampshire;
Preface
xv
William G. Elliott, Saginaw Valley State University; Edward
Eramus, State University of New York–Brockport; Kurt
Erickson, South West Michigan College; Jay Ersling,
University of St. Thomas, Minnesota; Joe W. Fowler, Okla-
homa State University–Stillwater; Karla H. Fox, University
of Connecticut; Stanley Fuchs, Fordham University; Samuel
B. Garber, DePaul University; Nathan T. Garrett, Esq.,
North Carolina Central University; Michael J. Garrison,
North Dakota State University; Sue Gragiano, Bowling
Green State University; James Granito, Youngstown State
University; Dale A. Grossman, Cornell University; Donald
Haley, Cleveland State University; Marc Hall, Auburn
University Montgomery; James V. Harrison, St. Peter’s
State College; Edward J. Hartman, St. Ambrose University;
Frances J. Hill, University of Wisconsin–Whitewater;
Telford F. Hollman, University of Northern Iowa–Cedar

Falls; Georgia L. Holmes, Mankato State University; James
Holzinger, Muhlenberg College; Norman Hope, Tabor
College; Sarah H. Hudwig, Mary Baldwin College; Velma
Jesser, Lane Community College; Theresa Johnson, Cleve-
land State University; Marilee Jones-Confield, California
State University–Long Beach; Al Joyner, Eastern Illinois
University; Mary C. Keifer, Ohio University; Randall
Kilbourne, Northwestern State University; Barbara Kirkpa-
trick, Virginia Intermont College; Edward M. Kissling,
Ocean County College, New Jersey; Robert Klepa, UCLA
Extension; Louise Knight, Bucknell University; Duane R.
Lambert, California State University–Hayward; Andrew
Liput, Felician College; Sarah H. Ludwig, Mary Baldwin
College; Richard Luke, Ricks College; Pat Maroney, Florida
State University; Michael A. Mass, American University;
Cheryl Massingale, University of Tennessee–Knoxville; Greg
K. McCann, Stetson University; Bruce McClain, Cleveland
State University; Ann L. McClure, Fort Hays State Univer-
sity; Charles R. McGuire, Illinois State University; Herbert
McLaughlin, Bryant College; James Molloy, University of
Wisconsin–Whitewater; Sebrena R. Moten, Troy University;
Donald Nelson, University of Denver; Carol L. Nielsen,
Bemidji State University; L. K. O’Drudy, Jr., University
of Virginia; Ann Morales Olaza
´
bal, University of Miami;
Richard Paxton, San Diego Community College; James L.
Porter, University of New Mexico; Elinor Rahm, Central
Missouri State University; Samuel H. Ramsay, Jr., Bryant
College; Lori K. Harris-Ransom, Caldwell College; Richard

E. Regan, St. John Fisher College; Roger Reinsch, Emporia
State University; L. Reppert, Marymount University;
Caroline Rider, Marist College; George Roe, University of
Illinois–Chicago; Stanford Rosenberg, La Roche College;
Tim Rueth, Marquette University; Donald H. Shoop, North
Dakota State University; Carol Wahle Smith, Central Florida
Community College; Michael J. Sovansky, Saginaw Valley
State University; Janis Stamm, Edinboro University of Penn-
sylvania; James Staruck, DePaul University; Al Stauber,
Florida State University; David Steele, University of Wiscon-
sin–Eau Claire; Peter Strohm, Georgian Court College; Al
Talarczyk, Edgewood College; Kevin M. Teeven, Bradley
University; Robert J. Tepper, University of New Mexico;
Leonard Tripodi, St. Joseph’s College; Nancy A. Wain-
wright, Eastern Washington University; Charles H. Walker,
University of Mississippi; Michael G. Walsh, Villanova Uni-
versity; Peter M. Wasemiller, Fresno Pacific College; David
Webster, University of South Florida–Tampa; Scott A.
White, University of Wisconsin; E. Marshall Wick, Gallau-
det University; Wells J. Wright, University of Minnesota;
and James B. Zimarowski, University of Notre Dame.
We express our thanks and deep appreciation to Peggy
Pickard and Debra Corvey for administrative assistance. For
their support we extend our thanks to Karlene Fogelin
Knebel and Joanne Erwick Roberts. And we are grateful to
Vicky True-Baker, Kendra Brown, and Scott Dillon of
South-Western for their invaluable assistance and coopera-
tion in connection with the preparation of this text.
This text is dedicated to our children Lilli-Marie
Knebel Mann, Justin Erwick Roberts, and Matthew Charles

Roberts.
Richard A. Mann
Barry S. Roberts
Preface
xvi
Table of Cases
Cases in italic are the principal cases included at the ends of the chapters. Reference numbers are to pages.
Abrams v. United States, 69
Aldana v. Colonial Palms Plaza, Inc., 297
Allied Capital Partners, L. P. v. Bank One, Texas,
N. A., 519
Alpert v. 28 William St. Corp., 750
Alzado v. Blinder, Robinson & Co., Inc., 658
American Airlines, Incorporated v. Department of
Transportation, 92
American Manufacturing Insurance Company v. Tison Hog
Market, Inc., 786
American Needle, Inc. v. National Football League, 852
American Tobacco Co. v. United States, 844
Anderson v. McOskar Enterprises, Inc., 242
Any Kind Checks Cashed, Inc. v. Talcott, 541
Apodaca v. Oregon, 110
Arrowhead School District No. 75, Park County, Montana
v. James A. Kylap, Jr., 331
Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 846
Associated Builders, Inc. v. William M. Coggins et al., 314
Austin v. Michigan Chamber of Commerce, 70
Beam v. Stewart, 737
Bear’s Adm’x v. Bear, 258

Beatty v. Guggenheim Exploration Co., 1078
Beckman v. Dunn, 122
Beldin, Inc. v. American Electronic Components, Inc., 460
Berardi v. Meadowbrook Mall Company, 202
Berg v. Traylor, 254
Bigelow-Sanford, Inc. v. Gunny Corp., 486
Bijlani v. Nationsbank of Florida, N. A., 518
Bilski v. Kappos, 836
Bily v. Young & Co., 968
Boc Group, Inc. v. Chevron Chemical Company, LLC, 489
Border State Bank of Greenbush v. Bagley Livestock
Exchange, Inc., 782
Borton v. Forest Hills Country Club, 1057
Bradkin v. Leverton, 169
Brehm v. Eisner, 734
Brentwood Academy v. Tennessee Secondary School Athletic
Association, 76
Brown v. Board of Education of Topeka, 72, 82
Broz v. Cellular Information Systems, Inc., 738
Burlington Industries, Inc. v. Ellerth, 915
Burlington N. & S. F. R. Co. v. White, 906
Carson v. Here’s Johnny Portable Toilets, Inc., 135
Carter v. Tokai Financial Services, Inc., 398
Catalon, Inc. v. Target Sales, Inc., 844
Catamount Slate Products, Inc. v. Sheldon, 186
Central Hudson Gas & Elec. Corp. v. Public Serv.
Comm’n. of N. Y. 80
Central Hudson Gas and Electric Corp. v. Public Service
Commission, 70
Chapa v. Traciers & Associates, 785

Charles E. Horton, et al. v. Compaq Computer
Corporation, 728
Chicago Board of Trade v. United States, 843
Christy v. Pilkinton, 309
Citizens United v. Federal Election Commission, 70
City First Mortgage Corp. v. Florida Residential Property
& Casualty Joint Underwriting Ass’n., 518
Coastal Leasing Corporation v. T-Bar S Corporation, 487
Cohen v. Disner, 561
Cohen v. Kipnes, 561
Cohen v. Mirage Resorts, Inc., 752
Commerce & Industry Insurance Company v. Bayer
Corporation, 403
Commonwealth v. Brown, 9
Compaq Computer Corporation v. Horton, 728
Conklin Farm v. Doris Leibowitz, 635
Connes v. Molalla Transport System, Inc., 378
Consolidated Edison Co. v. NLRB, 90
Cooke v. Fresh Express Foods Corporation, Inc.,
754
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
xvii
Cooperative Centrale Rauffeisen-Boerenleenbank B.A. v.
Bailey, 508
Coopers & Lybrand v. Fox, 683
Coppperwald Corp. v. Independence Tube Corp., 844
Corner v. Mills, 1072
County of Washington v. Gunther, 899
Credit Alliance Corp. v. Arthur Anderson & Co., 962
D. I. Felsenthal Co. v. Northern Assurance Co., 677

Dartmouth College v. Woodward, 668
Davis v. Watson Brothers Plumbing, Inc., 566
Del Pillar v. DHL Global Customer Solutions (USA),
Inc., 350
Denney v. Reppert, 225
Department of Revenue of Kentucky v. Davis, et al., 78
Detroit Lions, Inc. v. Argovitz, 354
Dexheimer v. CDS, Inc., 1055
Diamond, Commissioner of Patents and Trademarks v.
Chakrabarty, 827
Dilorenzo v. Valve and Primer Corporation, 227
DJ Coleman, Inc. v. Nufarm Americas, Inc., 401
Dodge v. Ford Motor Co., 700
Dodge v. Ford Motor Co., 707
Donahue v. Rodd Electrotype Co., Inc., 731
Donald R. Hessler v. Crystal Lake Chrysler-Plymouth,
Inc., 423
Dr. Miles Medical Co. v. John D. Park & Sons Co., 856
Eastman Kodak Co. v. Image Technical Services, Inc., 859
Eastwood v. Superior Court, 134
Ed Nowogroski Insurance, Inc. v. Rucker, 830
Edgington v. Fitzmaurice, 199
Enea v. The Superior Court of Monterey County, 615
Ernst & Ernst v. Hochfelder, 957, 958
Ernst & Ernst v. Hochfelder, 970
Escott v. BarChris Const. Corp., 971
Escott v. BarChris Construction Corp., 950
Estate of Countryman v. Farmers Coop. Ass’n, 662
Estate of Jackson v. Devenyns, 280
F. Hoffmann-La Roche, Ltd. v. Empagran S. A., 1008

Faragher v. City of Boca Raton, 913
FCC v. Fox Television Stations, 96
Federal Deposit Insurance Corporation v. Meyer, 545
Federal Trade Commission v. Cyberspace.com LLC, 880
Federal Trade Commission v. Motion Picture Advertising
Service Co., 851
Federal Trade Commission v. Procter & Gamble Co.,
848
Federal Trade Commission v. Ruberoid Co., 9, 86
Ferrell v. Mikula, 130
First National Bank v. Bellotti, 70
First State Bank of Sinai v. Hyland, 259
Fletcher v. Rylands, 158
Fox v. Mountain West Electric, Inc., 171
Frank B. Hall & Co., Inc. v. Buck, 132
Freeman v. Barrs, 1031
Furlong v. Alpha Chi Omega Sorority, 420
Gaddy v. Douglas, 357
Galler v. Galler, 671, 716
Georg v. Metro Fixtures Contractors, Inc., 538
Gertz v. Robert Welch, Inc., 71
Golini v. Bolton, 1092
Greene v. Boddie-Noell Enterprises, Inc., 467
Griggs v. Duke Power Co, 812
Hadfield v. Gilchrist, 1034
Hadley v. Baxendale, 324
Halla Nursery, Inc. v. Baumann-Furrie & Co., 962
Hamilton v. Lanning, 814
Harold Lang Jewelers, Inc. v. Johnson, 682
Harris v. Looney,

684
Heinrich v. Titus-Will Sales, Inc., 439
Hochster v. De La Tour, 308
Hochster v. De La Tour, 316
Hoffman v. Red Owl Food Stores, 174
Home Rentals Corp. v. Curtis, 1051
Honeycutt v. Honeycutt, 584
Horizon/CMS Healthcare Corporation v. Southern Oaks
Health Care, Inc., 637
Hospital Corporation of America v. FTC, 861
Household Credit Services, Inc. v. Pfennig, 882
Hun v. Cary, 723
Hydrotech Systems, Ltd. v. Oasis Waterpark, 239
Iacono v. Lyons, 278
Ianelli v. Powers, 1046
Illinois v. Gates, 109
In Re Johns Manville Corporation, 812
In Re Keytronics, 611
In Re L.B. Trucking, Inc., 462
In Re The Score Board, Inc., 256
In the Matter of the Estate of Rowe, 1088
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America, UAW v.
Johnson Controls, Inc., 908
J. W. Hamptom Co. v. United States, 67
Jackson v. Metropolitan Edison Co., 66
James v. Taylor, 1055
Jasper v. H. Nizam, Inc., 920
Jenkins v. Eckerd Corporation, 282
Jerman v. Carlisle, McNellie, Rini, Kramer Ulrich

LPA, 888
Johnson v. Transportation Agency, 898
Table of Cases
xviii
Jones v. Brown, 9
Jones v. Star Credit Corp., 389
Kalas v. Cook, 279
Keeney v. Keeney, 1087
Kelo v. City of New London, 1071
Kelser v. Bayer Corporation, 466
Kenco Homes, Inc. v. Williams, 484
Kentucky Bankers Ass’n. et al. v. Cassady, 225
Kimbrell’s of Sanford, Inc. v. KPS, Inc., 784
Klang v. Smith’s Food & Drug Centers, Inc., 705
Klein v. Pyrodyne Corporation, 157
Landreth Timer Co. v. Landreth, 929
Langley v. FDIC, 546
Lawrence v. Fox, 293
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 844
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 855
Lefkowitz v. Great Minneapolis Surplus Store, Inc.,
9, 180
Lefkowitz v. Minneapolis Surplus Store, Inc., 189
Leibling, P. C. v. Mellon PSFS (NJ) National Association,
585
Lesher v. Strid, 209
Local 53 of International Association of Heat and Frost
Insulators and Asbestos Workers v. Vogler, 897
Logan v. Zimmerman Brush Co., 72
Love v. Hardee’s Food Systems, Inc., 153

Macke Co. v. Pizza of Gaithersburg, 299
Madison Square Garden Corp., LLC v. Carnera, 334
Marbury v. Madison, 65
Maroun v. Wyreless Systems, Inc., 206
Marrama v. Citizens Bank, 811
Marsh v. Alabama, 66
Martin v. Melland’s, Inc, 442
Massachusetts v. Environmental Protection Agency, 985
McCulloch v. Maryland, 65
McDonnell Douglas Corp. v. Green, 896
McLaurin v. Oklahoma State Regents, 83
Meinhard v. Salmon, 604
Merritt v. Craig, 325
Messing v. Bank of America, N. A., 563
Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 834
Metropolitan Insurance Company v. RJR Nabisco,
Inc., 703
Miller v. McDonald’s Corporation, 352
Monsanto Co. v. Spray-Rite Service Corporation, 843
Moore v. Kitsmiller, 156
Motor Vehicle Mfrs. Assn. of United States, Inc. v. State
Farm Mut. Automobile Ins. Co., 97
Motschenbacher v. R. J. Reynolds Tobacco Co., 135
Murphy v. BDO Seidman, LLP, 968
National Business Services, Inc. v. Wright, 235
National Hotel Associates v. O. Ahlborg & Sons,
Inc., 685
National Shawmut Bank of Boston v. Jones, 771
Nationsbank of Virginia, N. A. v. Barnes, 507
New England Rock Services, Inc. v. Empire Paving, Inc.,

226
New York Times Co. v. Sullivan, 70
NLRB v. Exchange Parts Co., 894
NLRB v. Jones & Laughlin Steel Corp., 893
Northern Corp v. Chugach Electrical Association, 314
Northern Pacific Railway Co. v. United States, 843
O’Fallon v. O’Fallon, 1033
Orr v. Orr, 73
Osprey L. L. C. v. Kelly-Moore Paint Co., Inc., 190
Pacific Custom Pools, Inc. v. Turner Construction
Company, 239
Palsgraf v. Long Island Railroad Co., 155
Parents Involved in Community Schools v. Seattle School
District No. 1, 72
Parker v. Twentieth Century-Fox Corp., 59
Parlato v. Equitable Life Assurance Society of the United
States, 376
Payroll Advance, Inc. v. Yates,
240
Pearsall v. Alexander, 223
People v. Farell, 111
Philip Morris USA v. Williams, 128
Phillips v. Grendahl, 884
Pike v. Bruce Church, Inc., 79
Pittsley v. Houser, 172
Pittsley v. Houser, 399
Plain Dealer Publishing Co. v. Worrell, 380
Plessy v. Ferguson, 83
Providence & Worcester Co. v. Baker, 714
Public Service Commission of Maryland v. Panda-

Brandywine, L. P., 298
Raffles v. Wichelhaus, 201
Raytheon Co. v. Hernandez, 896, 897
Rea v. Paulson, 204
Real Estate Analytics, LLC v. Vallas, 333
Reed v. King, 207
Reed v. Reed, 73
Reiser v. Dayton Country Club Company, 295
Ricci v. Destefano, 911
RNR Investments Limited Partnership v. Peoples First
Community Bank, 633
Robinson v. Durham, 438
Rosewood Care Center, Inc. v. Caterpillar, Inc., 276
Ryan v. Friesenhahn, 11
Rylands v. Fletcher, 158
Table of Cases
xix
Sanchez v. Western Pizza Enterprises, Inc., 244
Saudi Arabia v. Nelson, 1006
Schmerber v. California, 109
Schoenberger v. Chicago Transit Authority, 375
Schreiber v. Burlington Northern, Inc., 957
SEC v. Edwards, 949
Securities and Exchange Commission v. Berger,
1010
Securities and Exchange Commission v. W. J. Howey
Co., 929, 949
Seigel v. Merrill Lynch, Pierce, Fenner & Smith, 586
Shearson Lehman Brothers, Inc. v. Wasatch Bank, 519
Shelley v. Kraemer, 66

Sherrod v. Kidd, 192
Silvestri v. Optus Software, Inc., 313
Skibba v. Kasch, 174
Skidmore v. Swift Co., 88
Smith v. Van Gorkom, 724
Soldano v. O’Daniels, 152
South Dakota v. Dole, 68
South Florida Water Management District v. Miccosukee
Tribe of Indians, 989
State ex rel. Foster v. Standard Oil Co. of Kansas, 729
State of New Mexico v. Herrera, 521
State of Qatar v. First American Bank of Virginia, 523
State of South Dakota v. Morse, 113
State v. Jones, 9
State v. Kelm, 115
State v. Rivers, 114
Steinberg v. Chicago Medical School, 173
Stine v. Stewart, 300
Stone v. Mississippi, 69
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 953
Strougo v. Bassini, 730
Summers v. Earth Island Institute, 94
Sweatt v. Painter, 83
Taghipour v. Jerez, 661
Texaco, Inc. v. Pennzoil, Co., 126
The Hyatt Corporation v. Palm Beach National Bank, 518
Thomas v. Lloyd, 614
Thompson v. Western States Medical Center, 80
Toyota Motor Manufacturing, Kentucky, Inc. v. Williams,
916

Transatlantic Financing Corp. v. United States, 317
Travelers Indemnity Co. v. Stedman, 567
Triffin v. Cigna Insurance, 544
Tucker v. Hayford, 1053
U. S. Oil Inc. v. Midwest Auto Care Svcs., 175
Ultramares Corporation v. Touche, 962
Union Planters Bank, National Association v. Rogers, 589
United States v. Bestfoods, 992
United States v. O’Hagan, 945
United States v. O’Hagan, 955
United States v. Socony-Vacuum Oil Co., 844
United States v. Virginia, 73
United Steelworkers of America v. Weber, 897
United Travel Service, Inc. v. Weber, 235
Vaden v. Discover Bank, 60
Virginia Bd. of Pharmacy v. Virginia Citizens Consumer
Council, Inc., 81
VonHoldt v. Barba & Barba Construction, Inc., 1069
Waddell v. L.V.R.V., Inc, 421
Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 832
Wards Cove Packing Co. v. Antonio, 897
Warnick v. Warnick, 638
Weeks v. United States, 109
White v. FCI USA, Inc., 56
White v. Samsung Electronics America, Inc., 134
Wilson v. Scampoli,
419
Windows, Inc. v. Jordan Panel Systems Corp., 435
Windows, Inc. v. Jordan Panel Systems Corp., 441
Womco, Inc. v. Navistar International Corporation, 465

World-Wide Volkswagen Corp. v. Woodson, 57
Wyeth v. Levine, 74
Wyler v. Feuer, 660
Yin v. Society National Bank Indiana, 506
Zelnick v. Adams, 257
Zobmondo Entertainment v. Falls Media, 822
Table of Cases
xx
Table of
Illustrations
1-1 Law and Morals 3
1-2 Classification of Law 4
1-3 Comparison of Civil and Criminal Law 5
1-4 Hierarchy of Law 6
2-1 Kohlberg’s Stages of Moral Development 17
2-2 The Stakeholder Model 21
3-1 Federal Judicial System 41
3-2 Circuit Courts of the United States 42
3-3 State Court System 43
3-4 Federal and State Jurisdiction 45
3-5 Subject Matter Jurisdiction 46
3-6 Stare Decisis in the Dual Court System 46
3-7 Jurisdiction 48
3-8 Stages in Civil Procedure 52
3-9 Comparison of Adjudication, Arbitration,
and Mediation/Conciliation 53
4-1 Separation of Powers: Checks and Balances 66
4-2 Powers of Government 68
4-3 Limitations on Government 69
5-1 Limits on Administrative Agencies 89

6-1 Degrees of Mental Fault 102
6-2 Constitutional Protection for the Criminal
Defendant 108
7-1 Intent 121
7-2 Privacy 124
7-3 Intentional Torts 127
8-1 Negligence and Negligence Per Se 143
8-2 Duties of Possessors of Land 145
8-3 Defenses to a Negligence Action 148
9-1 Law Governing Contracts 165
9-2 Contractual and Noncontractual Promises 166
9-3 Validity of Agreements 167
9-4 Contracts, Promissory Estoppel, and
Quasi Contracts 169
10-1 Mutual Assent 184
10-2 Offer and Acceptance 185
11-1 Misrepresentation 200
12-1 Consideration in Unilateral and Bilateral
Contracts 217
12-2 Modification of a Preexisting Contract 219
14-1 Incapacity: Minors, Nonadjudicated
Incompetents, and Intoxicated 253
15-1 The Statute of Frauds 269
15-2 Parol Evidence Rule 273
17-1 Discharge of Contracts 311
18-1 Contract Remedies 327
19-1 Duties of Principal and Agent 346
20-1 Contract Liability of Disclosed Principal 363
20-2 Contract Liability of Unidentified Principal 364
20-3 Contract Liability of Undisclosed Principal 365

20-4 Tort Liability 368
21-1
Law of Sales and Leases 387
21-2 Selected Rules Applicable to Merchants 390
21-3 Battle of the Forms 394
21-4 Contract Law Compared with Law of Sales 396
22-1 Tender of Performance by the Seller 411
22-2 Performance by the Buyer 415
23-1 Passage of Title in Absence of Agreement
by Parties 431
23-2 Void Title 432
23-3 Voidable Title 432
23-4 Entrusting of Goods to a Merchant 433
23-5 Passage of Risk of Loss in Absence
of Breach 436
24-1 Warranties 451
24-2 Products Liabilities 457
25-1 Remedies of the Seller 476
25-2 Remedies of the Buyer 481
26-1 Order to Pay: Draft or Check 498
26-2 Draft 498
26-3 Check 499
26-4 Promise to Pay: Promissory Note or
Certificate of Deposit 499
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS
xxi
26-5 Note 500
26-6 Certific ate of Deposit 500
27-1 Bearer Paper 512
27-2 Negotiation of Bearer and Order Paper 512

27-3 Indorsements 514
27-4 Placement of Indorsement 516
28-1 Rights of Transferees 528
28-2 Stolen Bearer Paper 529
28-3 Stolen Order Paper 529
28-4 Effects of Alterations 534
28-5 Material Alteration 535
28-6 Availability of Defenses against Holders
in Due Course 536
28-7 Rights of Holder in Due Course under
FTC Rule 537
29-1 Contractual Liability 555
29-2 Liability on Transfer 558
29-3 Liability Based on Warranty 559
30-1 Bank Collections 572
30-2 Parties to a Funds Transfer 581
30-3 Credit Transaction 581
31-1 General Partnership, Limited Partnership,
Limited Liability Company, and Corporation 597
31-2 Tests for Existence of a Partnership 602
31-3 Partnership Property Compared with
Partner’s Interest 607
32-1 Contract Liability 620
32-2 Tort Liability 622
32-3 Dissociation and Dissolution under RUPA 627
33-1 Comparison of General and Limited Partners 649
33-2 Comparison of Member-Managed and
Manager-Managed LLCs 652
33-3 Liability Limitations in LLPs 655
34-1 Promoter’s Preincorporation Contracts

Made in Corporation’s Name 673
34-2 Sample Articles of Incorporation 675
34-3 Comparison of Charter and Bylaws 676
35-1 Issuance of Shares 695
35-2 Debt and Equity Securities 697
35-3 Key Concepts in Legal Restrictions upon
Distributions 699
35-4 Liability for Improper Distributions 701
36-1 Management Structure of Corporations:
The Statutory Model 713
36-2 Management Structure of Typical Closely
Held Corporation 713
36-3 Management Structure of Typical Publicly
Held Corporation 713
36-4 Concentrations of Voting Power 716
36-5 Shareholder Suits 718
37-1 Fundamental Changes under Pre-1999 RMBCA 748
38-1 Fundamental Rights of Secured Party and Debtor 761
38-2 Requisites for Enforceability of Security
Interests 766
38-3 Sample Financing Statement 767
38-4 Methods of Perfecting Security Interests 769
38-5 Priorities 773
38-6 Suretyship Relationship 776
38-7 Assumption of Mortgage 776
38-8 Defenses of Surety and Principal Debtor 778
39-1 Collection and Distribution of the Debtor’s Estate 802
39-2 Comparison of Bankruptcy Proceedings 803
40-1 Intellectual Property 828
41-1 Restraints of Trade under Sherman Act 846

41-2 Meeting Competition Defense 850
42-1 Magnuson-Moss Warranty Act 871
42-2 Consumer Rescission Rights 872
43-1 Unfair Labor Practices 895
43-2 Charges Filed in 2006–2009 with the EEOC 896
43-3 Federal Employment Discrimination Laws 901
44-1 Registration and Exemptions under
the 1933 Act 932
44-2 Exempt Transactions for Issuers under
the 1933 Act 934
44-3 Registration and Liability Provisions of
the 1933 Act 936
44-4 Applicability of the 1934 Act 937
44-5 Disclosure under the 1934 Act 938
44-6 Parties Forbidden to Trade on Inside
Information 943
44-7 Civil Liability under the 1933 and 1934 Acts 946
45-1 Accountants’ Liability to Third Parties
for Negligent Misrepresentation 963
45-2 Accountants’ Liability under Federal
Securities Law 965
46-1 Major Federal Environmental Statutes 983
48-1 Kinds of Property 1017
48-2 Duties in a Bailment 1024
49-1 Freehold Estates 1042
49-2 Assignment Compared with Sublease 1044
49-3 Rights of Concurrent Owners 1047
50-1 Fundamental Rights of Mortgagor
and Mortgagee 1064
50-2 Eminent Domain 1066

51-1 Trusts 1078
51-2 Allocation of Principal and Income 1080
51-3 Per Stirpes and Per Capita 1085
Table of Illustrations
xxii
PART 1
The Legal Environment
of Business
CHAPTER 1
Introduction to Law
CHAPTER 2
Business Ethics
and the Social
Responsibility
of Business
CHAPTER 3
Civil Dispute
Resolution
CHAPTER 4
Constitutional Law
CHAPTER 5
Administrative Law
CHAPTER 6
Criminal Law
CHAPTER 7
Intentional Torts
CHAPTER 8
Negligence and Strict
Liability
COLUMN: ª PHOTOGRAPHEROLYMPUS CLOUDS: ª KERTLIS