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

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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

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Anderson’s Business Law and The Legal Environment, 21e David P. Twomey, Marianne Moody Jennings

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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

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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

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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

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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