Business Law Ethic Case Analysis
21e S T A N D A R D V O L U M E
ANDERSON’S BUSINESS LAW
And The Legal Environment
This page intentionally left blank
21e S T A N D A R D V O L U M E
ANDERSON’S BUSINESS LAW
And The Legal Environment
DAVID P. TWOMEY Professor of Law
Carroll School of Management Boston College
Member of the Massachusetts and Florida Bars
MARIANNE MOODY JENNINGS Professor of Legal and Ethical Studies
W.P. Carey School of Business Arizona State University
Member of the Arizona Bar
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
Anderson’s Business Law and The Legal Environment, 21e David P. Twomey, Marianne Moody Jennings
Vice President of Editorial, Business: Jack W. Calhoun
Editor-in-Chief: Rob Dewey
Sr. Acquisitions Editor: Vicky True
Developmental Editor: Kendra Brown
Editorial Assistant: Nicole Parsons
Marketing Manager: Jennifer Garamy
Sr. Marketing Communications Manager: Sarah Greber
Sr. Content Project Manager: Cliff Kallemeyn
Sr. Media Editor: Kristen Meere
Sr. Frontlist Buyer, Manufacturing: Kevin Kluck
Compositor: MPS Limited, A Macmillan Company
Sr. Art Director: Michelle Kunkler
Sr. Rights Acquisitions Account Mgr. – Text: Mardell Glinski Schultz
Cover and Internal Designer: Stratton Design
Cover Image: William Britten/iStockphoto
ã 2011, 2008 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 permissionrequest@cengage.com
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.
2011 Cengage Learning. All Rights Reserved.
Cengage Learning WebTutor is a trademark of Cengage Learning.
Library of Congress Control Number: 2009939865
ISBN-13: 978-0-324-78668-2 ISBN-10: 0-324-78668-9
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
Printed in the United States of America 1 2 3 4 5 6 7 13 12 11 10 09
CONNECT for
SUCCESS For today’s – and tomorrow’s – business leaders, a solid
understanding of the legal environment of business is
crucial. Students must be equipped with the knowledge of
basic legal concepts and the skills to apply these concepts
to real-world examples in order to succeed in business.
Anderson’s Business Law and the Legal Environment,
a time-tested market leading textbook, continues the
tradition of providing crystal clear explanations of the
law, student-friendly examples, and vivid illustrations.
Perhaps the most exciting innovation to the new edition
isn’t what students learn but how they learn – the
cutting-edge 21st Edition delivers an all-new system
for teaching and learning that is integrated into
every facet of the text and package.
CONNECT for LEARNING
SUCCESS The new learning system in the 21st Edition of Anderson’s Business Law and the
Legal Environment, helps students make the connection to what they are reading, what
they are doing in class, and — ultimately — what they will do in the real world as
business managers and leaders.
Chapters open with a self-guided outline — helping students focus on key concepts.
Chapter content continues to provide just the right amount of detail, presented in
terminology students can grasp and relate to. As a learning and study tool, key
examples are highlighted in green throughout each chapter — spotlighting the
connection between chapter concepts and real-world experiences for students.
The self-guided outlines help
students focus on the key concepts
presented in the chapter.
Examples are emphasized in every paragraph with green highlights – spotlighting the connection between legal concepts and real-world experiences for students.
Maximizing student success, the new Make the Connection section found at the end of each chapter begins with a revised and more thorough chapter summary recapping key chapter topics. New action-oriented Learning Outcomes direct students to utilize the existing text pedagogy by serving as a direct reference point for selected “For Example” callouts, case summaries, and feature boxes. A list of Key Terms gives students further opportunity to check their understanding of commonly-used business law terminology. The Questions and Case Problems off er students additional opportunities for students to connect legal concepts to real-world issues. And the CPA Questions provide excellent review for the CPA Exam.
In addition to textbook material, the Student Study Guide also integrates the Make the Connection methodology, including Chapter Outlines and questions related to Learning Outcomes.
Make the Connection helps students understand and retain legal concepts by explaining them in the context of real-world examples. The result: Students are better prepared to have success in class — and in their careers as business leaders.
NEW! End-of-chapter material has been thoroughly revised and expanded! New “Make the Connection” sections help students better understand — and connect — the relationship between legal concepts and how these concepts apply to real-life situations.
CONNECT for TEACHING
SUCCESS Instructor resources also integrate the text’s new Make the Connection learning system.
The Instructor’s Manual includes a thorough explanation of the system as well as
tips for implementation. Expanded PowerPoint® presentations incorporate Learning
Outcomes into every chapter, enabling instructors to talk through examples step
by step in class. In addition, the Test Bank includes questions from the Learning
Outcomes sections.
Instructor’s Manual: This manual provides instructor
insights, chapter outlines, and teaching strategies for each chapter. Chapter overviews
and transparency integration notes ease lecture preparation.
Discussion points are provided for the textbook’s “Thinking
Things Through” and “Ethics & the Law” vignettes. Also included
are answers to CPA questions.
Test Bank: Thousands of true/false, multiple-choice, and case questions are available.
Power Point: PowerPoint® slides are available to help instructors enhance their lectures.
CREATE the PERFECT
LEARNING SOLUTION CENGAGE LEARNING CUSTOM SOLUTIONS Cengage Learning Custom Solutions can provide your students exactly what they need to succeed — remove extra coverage you normally skip, replace chapters with coverage that better matches your approach, supplement your text with additional cases or readings from our legal, business ethics, or our new “pop culture” case collections, and include your own material to create a complete and effi cient course resource. With a customized product your students are paying for “exactly what they need” and receive a greater value for their dollar.
SAVE YOUR STUDENTS TIME AND MONEY! Tell them about CengageBrain.com to access Cengage Learning content and empower them to choose the format and savings that suits them best . . . and a better chance to succeed in your class. On CengageBrain.com students will be able to save up to 60% on their course materials through our full spectrum of options. Students will have the option to rent their textbooks, purchase print textbooks, e-textbooks, or individual e-chapters and audio books all for substantial savings over average retail prices. CengageBrain.com also includes access to Cengage Learning’s broad range of homework and study tools, and features a selection of free content.
LESSONS FROM REAL LIFE RIGHT NOW 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
BRING BUSINESS LAW TO LIFE! South-Western’s Business Law Digital Video Library off ers fi ve kinds of videos for classroom or student review. Over 70 online video clips in total bring business law alive, particularly for the visual learner, to help bridge common experiences to legal ideas, spark student discussion, and tutor core concepts. Student access is free when packaged with a new book!
brief contents
Preface xxix Acknowledgments xxxvi About the Authors xxxix
PART 1 THE LEGAL AND SOCIAL ENVIRONMENT OF BUSINESS 1
1 The Nature and Sources of Law 3 2 The Court System and Dispute Resolution 15 3 Business Ethics, Social Forces, and The Law 39 4 The Constitution as the Foundation of the Legal
Environment 66 5 Government Regulation of Competition and
Prices 87 6 Administrative Agencies 104 7 The Legal Environment of International Trade 126 8 Crimes 155 9 Torts 187
10 Intellectual Property Rights and the Internet 211 11 Cyberlaw 242
PART 2 CONTRACTS 265 12 Nature and Classes of Contracts: Contracting on
the Internet 267 13 Formation of Contracts: Offer and Acceptance 284 14 Capacity and Genuine Assent 307 15 Consideration 331 16 Legality and Public Policy 347 17 Writing, Electronic Forms, and Interpretation of
Contracts 367 18 Third Persons and Contracts 392 19 Discharge of Contracts 410 20 Breach of Contract and Remedies 433
PART 3 SALES AND LEASES OF GOODS 455 21 Personal Property and Bailments 457 22 Legal Aspects of Supply Chain Management 479 23 Nature and Form of Sales 503 24 Title and Risk of Loss 531
25 Product Liability: Warranties and Torts 555 26 Obligations and Performance 580 27 Remedies for Breach of Sales Contracts 598
PART 4 NEGOTIABLE INSTRUMENTS 619 28 Kinds of Instruments, Parties, and
Negotiability 621 29 Transfers of Negotiable Instruments and
Warranties of Parties 641 30 Liability of the Parties Under Negotiable
Instruments 665 31 Checks and Funds Transfers 686
PART 5 DEBTOR-CREDITOR RELATIONSHIPS 715 32 Nature of the Debtor-Creditor Relationship 717 33 Consumer Protection 736 34 Secured Transactions in Personal Property 763 35 Bankruptcy 793 36 Insurance 821
PART 6 AGENCY AND EMPLOYMENT 847 37 Agency 849 38 Third Persons in Agency 874 39 Regulation of Employment 896 40 Equal Employment Opportunity Law 934
APPENDICES
1 How to Find the Law A–1 2 The Constitution of the United States A–4 3 Uniform Commercial Code A–14
GLOSSARY G–1
CASE INDEX CI –1
SUBJECT INDEX SI –1
xi
This page intentionally left blank
contents
Preface xxix Acknowledgments xxxvi About the Authors xxxix
PART 1
THE LEGAL AND SOCIAL ENVIRONMENT OF BUSINESS
CHAPTER 1 THE NATURE AND SOURCES OF LAW 3
A. Nature of Law and Legal Rights 4 1. Legal Rights 4 2. Individual Rights 4 3. The Right of Privacy 4 CASE SUMMARY 5
4. Privacy and Technology 6 ETHICS & THE LAW 6
E-COMMERCE & CYBERLAW 7
B. Sources of Law 7 C. Uniform State Laws 9 D. Classifications of Law 9 SPORTS & ENTERTAINMENT LAW 10
LAW FLIX 11
CHAPTER 2 THE COURT SYSTEM AND DISPUTE RESOLUTION 15
A. The Court System 16 1. The Types of Courts 16 CASE SUMMARY 17
2. The Federal Court System 18 3. State Court Systems 21 B. Court Procedure 22 4. Participants in the Court System 22 5. Which Law Applies—Conflicts of Law 23 6. Initial Steps in a Lawsuit 23 7. The Trial 25 ETHICS & THE LAW 27
THINKING THINGS THROUGH 27
8. Posttrial Procedures 28
C. Alternative Dispute Resolution 28 9. Arbitration 29 10. Mediation 30 11. MedArb 30 12. Reference To a Third Person 31 13. Association Tribunals 31 14. Summary Jury Trial 31 15. Rent-A-Judge 31 E-COMMERCE & CYBERLAW 32
16. Minitrial 32 17. Judicial Triage 32 18. Contract Provisions 33 19. Disposition of Complaints and
Ombudsmen 33 LAW FLIX 33
CHAPTER 3 BUSINESS ETHICS, SOCIAL FORCES, AND THE LAW 39
A. What is Business Ethics? 40 1. The Law as the Standard for Business Ethics 40 2. The Notion of Universal Standards for Business
Ethics 41 3. The Standard of Situational Business Ethics or Moral
Relativism 41 THINKING THINGS THROUGH 42
4. The Business Stakeholder Standard of Behavior 42 ETHICS & THE LAW 44
B. Why is Business Ethics Important? 44 5. The Importance of Trust 44 6. Business Ethics and Financial Performance 45 ETHICS & THE LAW 46
7. The Importance of A Good Reputation 46 8. Business Ethics and Business Regulation: Public
Policy, Law, and Ethics 46 ETHICS & THE LAW 48
C. How to Recognize and Resolve Ethical Dilemmas 51
9. Categories of Ethical Behavior 51 ETHICS & THE LAW 52
SPORTS & ENTERTAINMENT LAW 53
E-COMMERCE & CYBERLAW 55
xiii
10. Resolving Ethical Dilemmas 55 ETHICS & THE LAW 57
LAW FLIX 58
CHAPTER 4 THE CONSTITUTION AS THE FOUNDATION OF THE LEGAL ENVIRONMENT 66
A. The U.S. Constitution and the Federal System 67 1. What a Constitution is 67 2. The Branches of Government 67 B. The U.S. Constitution and the States 67 3. Delegated and Shared Powers 68 4. Other Powers 68 5. Federal Supremacy 69 CASE SUMMARY 69
C. Interpreting and Amending the Constitution 70 6. Conflicting Theories 70 7. Amending the Constitution 71 8. The Living Constitution 71 D. Federal Powers 72 9. The Power to Regulate Commerce 72 CASE SUMMARY 73, 74
10. The Financial Powers 75 CASE SUMMARY 76
E. Constitutional Limitations on Government 76 11. Due Process 76 12. Equal Protection of the Law 77 E-COMMERCE & CYBERLAW 77
13. Privileges and Immunities 78 14. Protection of the Person 78 15. The Bill of Rights and Businesses as Persons 79 CASE SUMMARY 80
THINKING THINGS THROUGH 80
LAW FLIX 81
CHAPTER 5 GOVERNMENT REGULATION OF COMPETITION AND PRICES 87
A. Power to Regulate Business 88 1. Regulation, Free Enterprise, and Deregulation 88 2. Regulation of Production, Distribution, and
Financing 88 3. Regulation of Unfair Competition 89 B. Regulation of Markets and Competition 89 4. Regulation of Prices 89 CASE SUMMARY 90, 91
5. Prevention of Monopolies and Combinations 92 ETHICS & THE LAW 93
CASE SUMMARY 94
SPORTS & ENTERTAINMENT LAW 95
E-COMMERCE & CYBERLAW 96
C. Power to Protect Business 97 6. Remedies for Anticompetitive Behavior 97 LAW FLIX 98
CHAPTER 6 ADMINISTRATIVE AGENCIES 104
A. Nature of the Administrative Agency 105 1. Purpose of Administrative Agencies 105 2. Uniqueness of Administrative Agencies 105 3. Open Operation of Administrative Agencies 106 B. Legislative Power of the Agency 107 4. Agency’s Regulations as Law 107 5. Agency Adoption of Regulations 108 ETHICS & THE LAW 109
CASE SUMMARY 110, 111
E-COMMERCE & CYBERLAW 112
C. Executive Power of the Agency 112 6. Enforcement or Execution of the Law 112 7. Constitutional Limitations on Administrative
Investigation 112 D. Judicial Power of the Agency 114 8. The Agency as a Specialized Court 114 9. Punishment and Enforcement Powers
of Agencies 116 10. Exhaustion of Administrative Remedies 116 11. Appeal from Administrative Action and Finality
of Administrative Determination 116 CASE SUMMARY 118, 119
12. Liability of the Agency 120 LAW FLIX 120
CHAPTER 7 THE LEGAL ENVIRONMENT OF INTERNATIONAL TRADE 126
A. General Principles 127 1. The Legal Background 127 2. International Trade Organizations, Conferences,
and Treaties 129 CASE SUMMARY 131
3. Forms of Business Organizations 132 CASE SUMMARY 134
B. Governmental Regulation 134 4. Export Regulations 134 5. Protection of Intellectual Property Rights 136
xiv Contents
CASE SUMMARY 137
6. Antitrust 137 7. Securities and Tax Fraud Regulation in an
International Environment 140 CASE SUMMARY 141, 142
8. Barriers to Trade 142 CASE SUMMARY 143
9. Relief Mechanisms for Economic Injury Caused by Foreign Trade 143
CASE SUMMARY 144
10. Expropriation 146 11. The Foreign Corrupt Practices Act 146 ETHICS & THE LAW 147
CASE SUMMARY 148
LAW FLIX 148
CHAPTER 8 CRIMES 155
A. General Principles 156 1. Nature and Classification of Crimes 156 2. Basis of Criminal Liability 156 CASE SUMMARY 157, 158
3. Responsibility for Criminal Acts 156 THINKING THINGS THROUGH 162
4. Indemnification of Crime Victims 162 B. White-Collar Crimes 163 5. Conspiracies 163 6. Crimes Related to Production, Competition,
and Marketing 164 7. Money Laundering 164 8. Racketeering 165 9. Bribery 166 10. Commercial Bribery 166 11. Extortion and Blackmail 166 12. Corrupt Influence 166 ETHICS & THE LAW 167
13. Counterfeiting 167 14. Forgery 168 15. Perjury 168 16. False Claims and Pretenses 168 17. Bad Checks 169 18. Credit Card Crimes 169 19. Embezzlement 170 20. Obstruction of Justice: Sarbanes-Oxley 170 21. Corporate Fraud: Sarbanes-Oxley 171 SPORTS & ENTERTAINMENT LAW 171
22. The Common Law Crimes 172 C. Criminal Law and the Computer 173
23. What is a Computer Crime? 173 24. The Computer as Victim 173 25. Unauthorized Use of Computers 174 26. Computer Raiding 174 27. Diverted Delivery by Computer 174 E-COMMERCE & CYBERLAW 175
28. Economic Espionage by Computer 175 29. Electronic Fund Transfer Crimes 175 ETHICS & THE LAW 176
30. Circumventing Copyright Protection Devices Via Computer 176
31. Spamming 177 D. Criminal Procedure Rights for Businesses 177 32. Fourth Amendment Rights for Businesses 177 CASE SUMMARY 178
33. Fifth Amendment Self-Incrimination Rights for Businesses 179
CASE SUMMARY 179
34. Due Process Rights for Businesses 180 CASE SUMMARY 180
LAW FLIX 181
CHAPTER 9 TORTS 187
A. General Principles 188 1. What is a Tort? 188 2. Tort and Crime Distinguished 188 3. Types of Torts 189 B. Intentional Torts 189 4. Assault 189 5. Battery 190 CASE SUMMARY 190
6. False Imprisonment 190 CASE SUMMARY 191
7. Intentional Infliction of Emotional Distress 192 8. Invasion of Privacy 192 CASE SUMMARY 193
9. Defamation 193 CASE SUMMARY 194, 195
10. Product Disparagement 196 11. Wrongful Interference with Contracts 196 12. Trespass 196 C. Negligence 197 13. Elements of Negligence 197 CASE SUMMARY 199
14. Defenses to Negligence 200 CASE SUMMARY 200
SPORTS & ENTERTAINMENT LAW 202
Contents xv
D. Strict Liability 203 THINKING THINGS THROUGH 203
15. What is Strict Liability? 204 16. Imposing Strict Liability 204 LAW FLIX 205
CHAPTER 10 INTELLECTUAL PROPERTY RIGHTS AND THE INTERNET 211
A. Trademarks and Service Marks 212 1. Introduction 212 2. International Registration 213 3. Registrable Marks 213 CASE SUMMARY 214
4. Remedies for Improper Use of Marks 215 CASE SUMMARY 215
5. Abandonment of Exclusive Right to Mark 216 6. Trade Dress Protection 216 7. Limited Lanham Act Protection of Product
Design 217 8. Prevention of Dilution of Famous Marks 218 9. Internet Domain Names and Trademark
Rights 218 E-COMMERCE & CYBERLAW 219
B. Copyrights 220 10. Duration of Copyright 221 11. Copyright Notice 221 12. What is Copyrightable? 221 13. Copyright Ownership and the Internet 222 14. Rights of Copyright Holders 222 15. Limitation on Exclusive Character
of Copyright 223 CASE SUMMARY 223
16. Secondary Liability for Infringement 224 ETHICS & THE LAW 224
17. Digital Millennium Copyright Act 225 C. Patents 225 18. Types, Duration, and Notice 225 19. Patentability 226 CASE SUMMARY 227
20. Patentable Business Methods 227 CASE SUMMARY 228
21. Infringement 229 CASE SUMMARY 229
D. Secret Business Information 230 22. Trade Secrets 230 23. Loss of Protection 231 24. Defensive Measures 231 25. Criminal Sanctions 231
E. Protection of Computer Software and Mask Works 232 26. Copyright Protection of Computer Programs 232 27. Patent Protection of Programs 233 28. Trade Secrets 233 29. Restrictive Licensing 233 30. Semiconductor Chip Protection 233 LAW FLIX 235
CHAPTER 11 CYBERLAW 242
A. Introduction to Cyberlaw 243 1. What is Cyberlaw? 243 2. What are the Issues in Cyberlaw? 243 B. Tort Issues in Cyberspace 244 3. Employer/Employee Privacy Issues in Cyberlaw 244 CASE SUMMARY 247
4. Web User Information and Privacy 247 E-COMMERCE & CYBERLAW 248
CASE SUMMARY 249
5. Appropriation in Cyberspace 250 6. Defamation in Cyberspace 250 ETHICS & THE LAW 251
C. Contract Issues in Cyberspace 252 7. Formation of Contracts in Cyberspace 252 8. Misrepresentation and Fraud in Cyberspace 252 D. Intellectual Property Issues in Cyberspace 253 E. Criminal Law Issues in Cyberspace 254 9. Nature and Types of Cyberspace Crimes 254 10. Criminal Procedure and Rights in Cyberspace 255 THINKING THINGS THROUGH 256
CASE SUMMARY 256
F. Constitutional Restraints and Protections in Cyberspace 257
11. First Amendment Rights in Cyberspace 257 12. Commerce Clause Issues in Cyberspace 258 13. Due Process Issues in Cyberspace 258 G. Securities Law Issues in Cyberspace 258 LAW FLIX 259