Wassim Zhani Business Law by Mallor 15th Edition.pdf

9 7 8 0 0 7 3 5 2 4 9 8 6
9 0 0 0 0
EAN
ISBN 978-0-07-352498-6
MHID 0-07-352498-0
www.mhhe.com
B
U
S
I
N
E
S
S
L
AW
The
Ethical,
Global,
and
E-Commerce
Environment
M A L L O R
B A R N E S
B OW E R S
L A N G VA R D T
www.mhhe.com/mallor15e
www.mcgrawhillbusinesslaw.com
WE PUT THE BUSINESS
IN BUSINESS LAW.
FIFTEENTH EDITION
B U S I N E S S
L AW
Fifteenth Edition
T H E E T H I C A L , G L O B A L , A N D
E - C O M M E R C E E N V I R O N M E N T
M A L L O R • B A R N E S
B O W E R S • L A N G V A R D T
Md.
Dalim
#1171802
11/21/11
Cyan
Mag
Yelo
Black

15e
Business Law
The Ethical, Global, and E-Commerce Environment
FIFTEENTH EDITION
mal24980_fm_i-xl.indd i
mal24980_fm_i-xl.indd i 12/9/11 10:46 AM
12/9/11 10:46 AM

mal24980_fm_i-xl.indd ii
mal24980_fm_i-xl.indd ii 12/9/11 10:46 AM
12/9/11 10:46 AM

15e
Business Law
The Ethical, Global, and E-Commerce Environment
FIFTEENTH EDITION
Jane P. Mallor
A. James Barnes
Thomas Bowers
Arlen W. Langvardt
all of Indiana University
mal24980_fm_i-xl.indd iii
mal24980_fm_i-xl.indd iii 12/9/11 10:46 AM
12/9/11 10:46 AM

BUSINESS LAW: THE ETHICAL, GLOBAL, AND E-COMMERCE ENVIRONMENT
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the
Americas, New York, NY, 10020. Copyright © 2013, 2010, 2007, 2004, 2001, 1998, 1995, 1992, 1989, 1986,
1982, 1978, 1974, 1970, 1966 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United
States of America. No part of this publication may be reproduced or distributed in any form or by any means,
or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies,
Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for
distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 QVR/QVR 1 0 9 8 7 6 5 4 3 2
ISBN 978-0-07-352498-6
MHID 0-07-352498-0
Vice president and editor-in-chief: Brent Gordon
Editorial director: Paul Ducham
Executive editor: John Weimeister
Executive director of development: Ann Torbert
Development editor II: Megan Shultz
Editorial coordinator: Heather Darr
Vice president and director of marketing: Robin J. Zwettler
Marketing director: Amee Mosley
Executive marketing manager: Sarah Schuessler
Vice president of editing, design, and production: Sesha Bolisetty
Senior project manager: Dana M. Pauley
Senior buyer: Michael R. McCormick
Senior designer: Matt Diamond
Lead media project manager: Brian Nacik
Media project manager: Suresh Babu, Hurix Systems Pvt. Ltd.
Cover Design: George Kokkonas
Typeface: 10/12 Times New Roman
Compositor: MPS Limited, A Macmillan Company
Printer: Quad/Graphics
Library of Congress Cataloging-in-Publication Data
Business law : the ethical, global, and e-commerce environment / Jane P. Mallor ... [et al.].—15th ed.
p. cm.
Includes index.
ISBN 978-0-07-352498-6 (alk. paper)—ISBN 0-07-352498-0 (alk. paper)
1. Commercial law—United States—Cases. 2. Business law—United States—Cases. 3. Commercial
law—United States. 4. Business law—United States. I. Mallor, Jane P.
KF888.B8 2013
346.7307—dc23
2011046954
www.mhhe.com
mal24980_fm_i-xl.indd iv
mal24980_fm_i-xl.indd iv 12/9/11 10:46 AM
12/9/11 10:46 AM

v
The Authors
Thomas Bowers Thomas Bowers is a member of the
Department of Business Law & Ethics in the Kelley School
of Business at Indiana University, Bloomington. Focusing
primarily on the law of business organizations, securities reg-
ulation, professional responsibilities, and ethical and rational
decision making, Dr. Bowers has taught three courses in the
Kelley School’s top-ranked Accounting Graduate Program.
In 2005, he received the Kelley School’s Innovative Teach-
ing Award for his work with the GAP. In addition, his stu-
dents and colleagues have honored him with 27 outstanding
teaching awards. He joined the faculty at Indiana University
in 1977 after obtaining a B.S. in finance summa cum laude
from The Ohio State University and a J.D. from New York
University. He is also Director of the Kelley MBA Sports
& Entertainment Network. He has authored over 15 public
policy op-eds on issues ranging from paying college athletes
to regulating pension plans.
Arlen W. Langvardt Professor of Business Law
and Eveleigh Professor of Business Ethics, joined the
faculty of Indiana University’s Kelley School of Business
in 1985. Professor Langvardt earned a B.A. (summa cum
laude) from Hastings College and a J.D. (with distinction)
from the University of Nebraska. In private law practice
before becoming a member of the Kelley School faculty, he
tried cases in a variety of legal areas, including tort, con-
tract, constitutional, and miscellaneous commercial cases.
Professor Langvardt has received several teaching awards
at the graduate and undergraduate levels. His graduate
teaching assignments have included Critical Thinking, Law
and Ethics, Managing Legal Risk, Legal Issues in Market-
ing Management, Legal Concepts and Trends Affecting
Business, and Legal Issues in the Arts. His undergraduate
teaching assignments have included Legal Environment of
Business, Legal Aspects of Marketing, Law and the Arts,
and Personal Law. From 2000 to 2009, Professor served as
chair of the Kelley School’s Department of Business Law.
Professor Langvardt’s wide-ranging research interests are
reflected in his articles on such topics as intellectual prop-
erty, commercial speech, medical malpractice, and other
healthcare-related subjects. He has published numerous
articles in journals such as the American Business Law Jour-
nal, the Harvard Journal of Sports & Entertainment Law,
the Minnesota Law Review, the University of Pennsylvania
Journal of Business Law, the Trademark Reporter, and the
Journal of Marketing. Professor Langvardt has won several
research awards from professional associations, including
the Holmes/Cardozo and Hoeber Awards from the Academy
of Legal Studies in Business.
Jane P. Mallor has been a member of the Business Law
faculty at Kelley School of Business, Indiana University, since
1976. She has a B.A. from Indiana University and a J.D. from
Indiana University School of Law. She has been admitted to the
Indiana Bar, the Bar of the Southern District of Indiana, and the
Bar of the U.S. Supreme Court. She is a member of the Acad-
emy of Legal Studies in Business.
Professor Mallor has taught a range of courses, including
an introductory legal environment course and a graduate-level
legal concepts course, real estate law, university pedagogy
courses for business doctoral students, and an online law and
ethics graduate course. She is a member of Indiana University’s
Faculty Colloquium for Excellence in Teaching and was a
Lilly Postdoctoral Teaching Fellow. She has won a number of
teaching awards, including the Amoco Foundation Award for
Distinguished Teaching, the Dow Technology Teaching Award,
and the Innovative Teaching Award. Her research has focused
primarily on punitive damages, product liability, and employ-
ment rights. Her work has been published in law reviews such
as Hastings Law Journal, North Carolina Law Review, Ameri-
can Business Law Journal, and Notre Dame Lawyer.
A. James Barnes, J.D. Professor of Public and
Environmental Affairs and Professor of Law at Indiana
University, Bloomington. He previously served as Dean of the
School of Public and Environmental Affairs, and has taught
business law at Indiana University and Georgetown University.
His teaching interests include commercial law, environmental
law, alternative dispute resolution, law and public policy, and
ethics and the public official. He is the co-author of several
leading books on business law.
From 1985 to 1988 Professor Barnes served as the deputy
administrator of the U.S. Environmental Protection Agency.
From 1983 to 1985 he was the EPA general counsel and in the
early 1970s served as chief of staff to the first administrator of
EPA. Professor Barnes also served as a trial attorney in the U.S.
Department of Justice and as general counsel of the U.S. De-
partment of Agriculture. For six years, from 1975 to 1981, he
had a commercial and environmental law practice with the firm
of Beveridge and Diamond in Washington, D.C.
Professor Barnes is a Fellow of the National Academy of
Public Administration, and a fellow in the American College
of Environmental Lawyers. He recently served as the Chair of
EPA’s Environmental Finance Advisory Board, and as a member
of the U.S. Department of Energy’s Environmental Manage-
ment Advisory Board. From 1992 to 1998 he was a member of
the Board of Directors of the Long Island Lighting Company
(LILCO). He received his B.A. from Michigan State University
and a Juris Doctor degree, cum laude, from Harvard Law School.
The Authors
mal24980_fm_i-xl.indd v
mal24980_fm_i-xl.indd v 12/9/11 10:46 AM
12/9/11 10:46 AM

vi
Preface
context, several text chapters enhance students’ understanding
of how political and social changes influence business and the
law. For example, Chapter 4 discusses the ethical issues of re-
cent years, and Chapters 43 and 45 address the mortgage lend-
ing crisis, the current credit crunch, and options backdating.
Chapter 51’s discussion of employment discrimination law
certainly speaks to the subject of workplace diversity. Finally,
the 15th UCC Edition examines many specific legal issues in-
volving e-commerce and the Internet.
Features The 15th Edition continues 10 features intro-
duced by previous editions:
Opening Vignettes precede the chapter discussion in order
to give students a context for the law they are about to study.
Many opening vignettes raise issues that come from the corpo-
rate social responsibility crisis that students have read about the
last few years. Others place students in the position of executives
and entrepreneurs making management decisions and creating
new business.
Ethics in Action boxes are interspersed where ethical issues
arise, asking students to consider the ethics of actions and laws.
The ethics boxes often ask students to apply their learning from
Chapter 4, the chapter on ethical and rational decision making.
The boxes also feature the most important corporate social re-
sponsibility legislation of the last 20 years, the Sarbanes–Oxley
Act of 2002.
Cyberlaw in Action boxes discuss e-commerce and Internet
law at the relevant points of the text.
The Global Business Environment boxes address the legal
and business risks that arise in international business transac-
tions, including being subject to the laws of other countries. By
the integration of the global business environment boxes in each
chapter, students are taught that global issues are an integral part
of business decision making.
Log On boxes direct students to Internet sites where they can
find additional legal and business materials that will aid their
understanding of the law.
Online Research Boxes close each chapter by challenging
students to use their Internet research skills to expand their un-
derstanding of the chapter.
Concept Reviews appear throughout the chapters. These
Concept Reviews visually represent important concepts pre-
sented in the text to help summarize key ideas at a glance and
simplify students’ conceptualization of complicated issues.
Cases include the judicial opinions accompanying court de-
cisions. These help to provide concrete examples of the rules
stated in the text, and to provide a real-life application of the
legal rule.
Problem Cases are included at the end of each chapter to
provide review questions for students.
Key Terms are bolded throughout the text and defined in the
Glossary at the end of the text for better comprehension of im-
portant terminology.
This is the 15th UCC Edition (and the twenty-first overall edition)
of a business law text that first appeared in 1935. Throughout
its over 75 years of existence, this book has been a leader and
an innovator in the fields of business law and the legal environ-
ment of business. One reason for the book’s success is its clear
and comprehensive treatment of the standard topics that form
the traditional business law curriculum. Another reason is its re-
sponsiveness to changes in these traditional subjects and to new
views about that curriculum. In 1976, this textbook was the first to
inject regulatory materials into a business law textbook, defining
the “legal environment” approach to business law. Over the years,
this textbook has also pioneered by introducing materials on busi-
ness ethics, corporate social responsibility, global legal issues, and
e-commerce law. The 15th Edition continues to emphasize change
by integrating these four areas into its pedagogy.
Continuing Strengths
The 15th UCC Edition continues the basic features that have
made its predecessors successful. They include:
• Comprehensive Coverage. We believe that the text continues
to excel both in the number of topics it addresses and the depth
of coverage within each topic. This is true both of the basic
business law subjects that form the core of the book and also
of the regulatory and other subjects that are said to constitute
the “legal environment” curriculum.
• Style and Presentation. This text is written in a style that is
direct, lucid, and organized, yet also relatively relaxed and
conversational. For this reason, we often have been able to
cover certain topics by assigning them as reading without lec-
turing on them. As always, key points and terms are empha-
sized; examples, charts, figures, and concept summaries are
used liberally; and elements of a claim and lists of defenses
are stated in numbered paragraphs.
• Case Selection. We try very hard to find cases that clearly il-
lustrate important points made in the text, that should interest
students, and that are fun to teach. Except when older deci-
sions are landmarks or continue to best illustrate particular
concepts, we also try to select recent cases. Our collective in-
class teaching experience with recent editions has helped us
determine which of those cases best meet these criteria.
• AACSB Curricular Standards. The AACSB’s curriculum
standards say that both undergraduate and MBA curricula
should include ethical and global issues; should address the
influence of political, social, legal and regulatory, environ-
mental, and technological issues on business; and should also
address the impact of demographic diversity on organizations.
In addition to its obvious emphasis on legal and regulatory
issues, the book contains considerable material on business
ethics, the legal environment for international business, and
environmental law, as well as Ethics in Action boxes. By
putting legal changes in their social, political, and economic
Preface
mal24980_fm_i-xl.indd vi
mal24980_fm_i-xl.indd vi 12/9/11 10:46 AM
12/9/11 10:46 AM

Preface vii
• Berghuis v. Thompkins, U.S. Supreme Court’s 2010 decision
establishing that person held for custodial interrogation must
affirmatively speak up in order to invoke right to remain si-
lent, included as new text case in section dealing with Fifth
Amendment and Miranda warnings.
Chapter 6
• New text case dealing with intentional infliction of emotional
distress (Durham v. McDonald’s Restaurants of Oklahoma,
Inc., Oklahoma Supreme Court, 2011).
• New Global Business Environment box dealing with whether
the right of publicity is violated when the relevant activities
occurred outside the United States.
Chapter 7
• New introductory problem dealing with duty, breach of duty,
respondeat superior, and comparative negligence issues
(problem based on Cabral v. Ralphs Grocery Co., California
Supreme Court, 2011).
• New text case dealing with business owner’s potential neg-
ligence liability when customer is attacked by third party in
parking lot outside business premises (Kroger v. Plonski,
Indiana Supreme Court, 2010).
Chapter 8
• As new text cases, recent Supreme Court decisions on patent
law. Chapter 8 also includes new material on the Trademark
Dilution Revision Act of 2006.
• The contracts chapters integrate e-commerce issues at various
points. Examples include treatments of the proposed Uniform
Computer Information Transactions Act in Chapter 9, shrink-
wrap and clickwrap contracts in Chapter 10, and digital or
electronic signatures in Chapter 16.
• New— and extensive—discussion of various patent reform is-
sues and changes in U.S. patent law (including, but not limited
to, switching the U.S. from a “first-to-invent” approach to a
“first-to-file” approach).
• Bilski v. Kappos, the U.S. Supreme Court’s high-profile 2010
decision dealing with business method patents, included as
new text case.
Chapter 9
• Aceves v. U.S. Bank, a topical case involving mortgage fore-
closure and loan modification.
Chapter 10
• Added the case of Hines v. Overstock.com (a topical case in-
volving website terms and conditions).
Chapter 20
• A new section on the preemption and regulatory compliance
defenses in product liability cases, and features the Supreme
Court’s recent Riegel decision in that section.
• New text case dealing with alleged design defects and the neg-
ligence and strict liability theories (Branham v. Ford Motor
Co., South Carolina Supreme Court, 2010).
Important Changes
in This Edition
In this edition, there are many new cases, the text has been thor-
oughly updated, and a good number of problem cases have been
replaced with new ones. The cases continue to include both hy-
pothetical cases as well as real-life cases so that we can target
particular issues that deserve emphasis. The 15th UCC Edition
continues the development of components that were added to
the text’s previous edition. Examples of these components are
as follows:
• Active Learning Objectives open each chapter, and are tied
to AACSB standards. LOs inform you of specific outcomes
you should have after finishing the chapter. Icons reference
each LO’s reference within the chapter.
Chapter 1
• Two new text cases on statutory interpretation—both of which
are 2011 decisions of the U.S. Supreme Court. One, Federal
Communications Commission v. AT&T, deals with whether
the statutory phrase “personal privacy” applies to corpora-
tions. The other, Kasten v. Saint-Gobain Performance Plas-
tics Corp, involves an interpretation of a Fair Labor Standards
Act provision in light of its purpose and historical context.
Chapter 2
• A discussion of the new federal rules governing discovery of
electronically stored information.
• The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 is covered throughout the corporations chapters.
This important legislation gives shareholders a greater role in
corporate governance and expands the liability of corporate of-
ficers and those involved in securities transactions. The Dodd-
Frank Act receives treatment in Chapters 43, 45, and 46.
• Expanded treatment of class-action issues, including discus-
sion of the U.S. Supreme Court’s influential 2011 decision in
Wal-Mart Stores, Inc. v. Dukes.
• New text case dealing with class arbitration issues (U.S.
Supreme Court’s influential 2011 decision in AT&T Mobility
v. Concepcion).
Chapter 3
• Citizens United v. Federal Election Commission, the U.S. Su-
preme Court’s landmark 2010 decision, included as new text
case in First Amendment section.
• New text case dealing with whether federal law on employ-
ment of illegal immigrants preempts Arizona law dealing with
same subject (U.S. Supreme Court’s 2011 decision in Cham-
ber of Commerce v. Whiting).
Chapter 5
• Chapter title changed to “Criminal Law and Procedure.”
• Skilling v. United States, U.S. Supreme Court’s 2010 deci-
sion, included as new text case in section dealing with consti-
tutional challenges to criminal statutes on vagueness grounds.
mal24980_fm_i-xl.indd vii
mal24980_fm_i-xl.indd vii 12/9/11 10:46 AM
12/9/11 10:46 AM

viii Preface
• The Securities Regulation chapter also updates information on
the cost of complying with Sarbanes–Oxley Act section 404.
• One of the first cases addressing the liability of banks as a re-
sult of the current credit crisis, SRM Global Fund L.P. v. Coun-
trywide Financial Corp., is a new text case in Chapter 45.
• The insider trading materials, including a concept review,
have been clarified in Chapter 45.
• Chapter 45 new material on the safe harbor for issuers releas-
ing forward-looking information.
• A problem case in Chapter 45 addresses whether Dallas
Mavericks owner Mark Cuban may be liable for insider trading.
Chapter 46
• A discussion of the recent Supreme Court case, Janus Capital
Group, Inc. v. First Derivative Traders, limiting the persons
who can have liability under Securities Exchange Act Rule
10b-5.
• The Frank–Dodd Act’s imposition of greater liability on bro-
kers and dealers who tout securities is covered in the profes-
sional liability chapter.
• New language in Chapter 45’s coverage of negligent misrep-
resentation clarifies the application of the Ultramares case.
Chapter 47
• Chapter title changed to “Administrative Law.”
• New introductory problem dealing with the saga of the FDA’s
attempts to regulate tobacco problems (including the Supreme
Court’s decision that Congress had not given the FDA such
authority and the later action by Congress to grant the FDA
such authority).
Chapter 48
• Contains new text material discussing recent amendments to
the Consumer Product Safety Act.
Chapter 49
• As a new text case, the recent Leegin decision, in which the
Supreme Court held that vertical minimum price-fixing would
be treated under the rule of reason rather than as a per se viola-
tion of the Sherman Act.
• Recent Supreme Court cases, such as EXXON Shipping Co. v.
Baker (Chapter 52), have been integrated in this edition.
• American Needle, Inc. v. National Football League—the U.S.
Supreme Court’s 2010 decision dealing with the concerted
action requirement under Sherman Act § 1 and with rule of
reason analysis—included as new text case.
Acknowledgments
We would like to recognize Professor Jamie D. Prenkert of
Indiana University, who authored the revisions of Chapter 51
(Employment Law).
We would also like to thank the many reviewers who have
contributed their ideas and time to the development of this text.
Our sincere appreciation to the following:
• New discussion of two key U.S. Supreme Court decisions
dealing with possible federal preemption of state product
liability claims (Wyeth v. Levine, 2009, and Pliva, Inc. v.
Mensing, 2011).
Chapter 27
• New feature discussing the Patient Protection and Affordable
Care Act, which was enacted by Congress and signed into law
by President Obama in 2010.
Chapter 30 (Bankruptcy)
• A case from the Madoff bankruptcy, In Re Bernard Madoff
Investment Securities LLC.
Chapters 35 and 36
• Expanded coverage of the Restatement (Third) of Agency,
making it the primary source of law for those chapters.
Changes include the new Restatement’s change in terminol-
ogy, such as nonemployee agent (instead of independent con-
tractor) and unidentified principal (instead of partial disclosed
principal), as well as different definitions for express and im-
plied authority.
• Ederer v. Gursky, a decision of New York’s highest court, ex-
ploring whether partners in limited liability partnership have
limited liability to their partners, has been added to Chapter 38.
• The Supreme Court’s decision in Goodyear Dunlop Tires Op-
erations, S.A. v. Brown, explaining the limits of the Interna-
tional Shoe case regarding state jurisdiction over foreign and
alien corporations, is a new text case in Chapter 41.
Chapter 41
• A new Ethics in Action box that considers the State of
Indiana’s grant to Amazon.com of an exemption from the
Indiana sales tax in exchange for Amazon’s building ware-
houses in Indiana.
• The Dodd-Frank Act’s provisions requiring periodic share-
holder approval of executive compensation and expanding li-
ability of officers is covered in Chapter 43.
• The recent Delaware Supreme Court case, Versata Enter-
prises, Inc. v. Selectica, regarding the legality of poison pills,
is cited in Chapter 43’s coverage of directors’ duties when
adopting tender offer defenses.
Chapter 44
• As a text case the Delaware Supreme Court’s decision in City
of Westland Police & Fire Retirement System v. Axelis Tech-
nologies, Inc., which delineated the limits of the shareholder
inspection right.
Chapter 45
• Securities Regulation, clarifies the distinction between the
preliminary and final prospectuses, on the one hand, and the
free-writing prospection, on the other.
• The Dodd–Frank Act requirement that the SEC issue rules
expanding shareholder proxy solicitation rights is covered
in Chapter 45, as is the Act’s dictate that the SEC give cash
awards to whistleblowers who report securities violations.
mal24980_fm_i-xl.indd viii
mal24980_fm_i-xl.indd viii 12/9/11 10:46 AM
12/9/11 10:46 AM

Preface ix
Michael Zugelder, Old Dominion University
We also acknowledge the assistance of Professors Sarah Jane
Hughes and Dennis Long of the Indiana University Law School,
and research assistants Elise Boruvka and Scott Corba.
Jane P. Mallor
A. James Barnes
Thomas Bowers
Arlen W. Langvardt
Sandra Jackson, Lincoln Land Community College
Judith Wright, Indiana University, Kelley School of
Business–Indianapolis
Joseph Zavaglia, Brookdale Community College
Kurt Saunders, California State University–Northridge
Melanie Stallings Williams, California State
University–Northridge
George A. Nation III, Lehigh University
Christine R. Bork, Esq., Gloucester County College
Gideon Mark, University of Maryland Smith School of Business
Richard J. Guertin, Orange County Community College
Remy C. Orffeo, Erie Community College
Floyd Woodard, Jr., J.D., Indiana University & Purdue
University–Indianapolis
mal24980_fm_i-xl.indd ix
mal24980_fm_i-xl.indd ix 12/9/11 10:46 AM
12/9/11 10:46 AM

mal24980_fm_i-xl.indd x
mal24980_fm_i-xl.indd x 12/9/11 10:46 AM
12/9/11 10:46 AM

xi
A Guided Tour A Guided Tour A Guided Tour A Guided Tour A Guided Tour A Guided Tour A Guided Tour
A Guided Tour
A New Kind of Business Law
The 15th Edition of Business Law continues to focus on global, ethical, and e-commerce issues af-
fecting legal aspects of business. The new edition contains a number of new features as well as an ex-
citing new supplements package. Please take a few moments to page through some of the highlights
of this new edition.
OPENING VIGNETTES
Each chapter begins with an opening vignette
that presents students with a mix of real-life and
hypothetical situations and discussion questions.
These stories provide a motivational way to open
the chapter and get students interested in the
chapter content.
LEARNING OBJECTIVES
Active Learning Objectives open each chapter, and
are tied to AACSB standards. LOs inform you of
specific outcomes you should have after finishing the
chapter. Icons reference each LO’s reference within
the chapter.
V
ictoria Wilson, a resident of Illinois, wishes to bring an invasion of privacy lawsuit against XYZ Co. be-
cause XYZ used a photograph of her, without her consent, in an advertisement for one of the company’s
products. Wilson will seek money damages of $150,000 from XYZ, whose principal offices are located
in New Jersey. A New Jersey newspaper was the only print media outlet in which the advertisement was published.
However, XYZ also placed the advertisement on the firm’s website. This website may be viewed by anyone with
Internet access, regardless of the viewer’s geographic location.
Consider the following questions regarding Wilson’s case as you read Chapter 2:
• Where, in a geographic sense, may Wilson properly file and pursue her lawsuit against XYZ?
• Must Wilson pursue her case in a state court, or does she have the option of litigating in federal court?
• Assuming that Wilson files her case in a state court, what strategic option may XYZ exercise if it acts
promptly?
• Regardless of the court in which the case is litigated, what procedural steps will occur as the lawsuit proceeds
from beginning to end?
• If Wilson requests copies of certain documents in XYZ’s files, does XYZ have a legal obligation to provide
the copies? What if Wilson requests copies of e-mails written by XYZ employees? Is XYZ legally required to
provide the copies? What ethical obligations attend Wilson’s making, and XYZ’s responses to, such requests?
THE RESOLUTION OF
PRIVATE DISPUTES
C H A P T E R 2
mal27980_ch02_027-054.indd 27 12/6/11 3:17 PM
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
LO
1 Describe the basic structures of state court
systems and the federal court system.
2 Explain the difference between subject matter
jurisdiction and in personam jurisdiction.
3 Identify the major legal issues courts must resolve
when deciding whether in personam jurisdiction
exists with regard to a defendant in a civil case.
4 Explain what is necessary in order for a federal
court to have subject matter jurisdiction over a
civil case.
5 Identify the major steps in a civil lawsuit’s
progression from beginning to end.
6 Describe the different forms of discovery
available to parties in civil cases.
7 Explain the differences among the major forms of
alternative dispute resolution.
mal27980_ch02_027-054.indd 27 12/6/11 3:17 PM
mal24980_fm_i-xl.indd xi
mal24980_fm_i-xl.indd xi 12/9/11 10:46 AM
12/9/11 10:46 AM

xii A Guided Tour
United States v. Jensen 537 F. Supp. 2d 1069 (N.D. Cal. 2008)
On March 18, 2006, The Wall Street Journal published an article analyzing how some companies were granting stock options to
their executives. According to the article, companies issued a suspiciously high number of options at times when the stock price
hit a periodic low, followed by a sharp price increase. The odds of these well-timed grants occurring by chance alone were
astronomical—less likely than winning the lottery. Eventually it was determined that such buy-low, sell-high returns simply could
not be the product of chance. In testimony before Congress, Professor Erik Lie identified three potential strategies to account
for these well-timed stock option grants. The first strategy included techniques called “spring-loading” and “bullet-dodging.”
The practice of “spring-loading” involved timing a stock option grant to precede an announcement of good news. The practice
of “bullet-dodging” involved timing a stock option grant to follow an announcement of bad news. A second strategy included
manipulating the flow of information—timing corporate announcements to match known future grant dates. A third strategy,
backdating, involved cherry-picking past, and relatively low, stock prices to be the official grant date. Backdating occurs when
the option’s grant date is altered to an earlier date with a lower, more favorable price to the recipient.
A company grants stock options to its officers, directors, and employees at a certain “exercise price,” giving the recipient the
right to buy shares of the stock at that price, once the option vests. If the stock price rises after the date of the grant, the options
have value. If the stock price falls after the date of the grant, the options have no value. Options with an exercise price equal to
the stock’s market price are called “at-the-money” options. Options with an exercise price lower than the stock’s market price
are called “in-the-money” options. By granting in-the-money, backdated options, a company effectively grants an employee an
instant opportunity for profit.
Granting backdated options has important accounting consequences for the issuing company. For financial reporting pur-
poses, companies granting in-the-money options have to recognize compensation expenses equal to the difference between
the market price and the exercise price. APB 25 is the accounting rule that governed stock-based compensation through June
mal27980_ch43_1071-1106.indd 1099 12/7/11 10:17 AM
The Global Business Environment
The in personam jurisdiction issues addressed ear-
lier in the chapter also arise when a resident of the
United States initiates legal action in the United
States against a foreign defendant. Benton v. Cameco Corp.,
375 F.3d 1070 (10th Cir. 2004), furnishes a useful example.
A Colorado resident, Oren Benton, and a Canadian firm,
Cameco Corp., entered into a Memorandum of Understand-
ing (MOU) that called for Benton to purchase uranium from
Cameco for purposes of resale. The MOU also set forth the
key terms of a planned joint venture involving uranium trading
activities. The transactions contemplated by the MOU did not
take place, however, because Cameco’s board of directors did
not approve them. Benton later sued Cameco in federal district
court in Colorado, asserting claims for breach of contract and
tortious interference with existing and prospective business re-
lationships. After determining that Cameco did not have suf-
fi i i h C l d ll h i i
foreign forum. Important when a U.S. plaintiff files suit in the
plaintiff’s home state or federal district against a U.S. defen-
dant from a different state, this factor assumes added signifi-
cance when a defendant from another country is sued in the
United States. The Tenth Circuit regarded the burden on Cam-
eco as substantial, given that the firm’s principal offices were
in Saskatchewan, it had no offices, property, or employees in
Colorado, and it was not licensed to do business there. If in
personam jurisdiction were held to exist in this case, Cameco’s
officers and employees would not only have to travel to Colo-
rado for trial but also litigate the case before judges who were
unfamiliar with Canadian law (which the parties, in the MOU,
had agreed would be controlling). The first factor, therefore,
weighed against a conclusion that in personam jurisdiction
should exist as to Cameco.
Second, the Tenth Circuit examined the forum state’s inter-
i l i h di Al h h C l d h d i
CHAPTER 43 UPDATED IN
RESPONSE TO THE 2008
FINANCIAL CRISIS
Legal and ethical issues arising from the credit
crunch of 2008–2009 and options backdating are
addressed in Chapter 43. Included is a criminal
options backdating case, U.S. v. Jensen.
ETHICS IN ACTION BOXES
These boxes appear throughout the chapters and
offer critical thinking questions and situations that
relate to ethical/public policy concerns.
CYBERLAW IN ACTION
BOXES
In keeping with today’s technological world, these
boxes describe and discuss actual instances of how
e-commerce and the Internet are affecting business
law today.
THE GLOBAL BUSINESS
ENVIRONMENT BOXES
Since global issues affect people in many different
aspects of business, this material now appears
throughout the text instead of in a separate chapter
on international issues. This feature brings to life
global issues that are affecting business law.
The broad scope of discovery rights in a civil case
will often entitle a party to seek and obtain copies
of e-mails, records, memos, and other documents
and electronically stored information from the opposing par-
ty’s files. In many cases, some of the most favorable evidence
for the plaintiff will have come from the defendant’s files, and
vice versa. If your firm is, or is likely to be, a party to civil
litigation and you know that the firm’s files contain materials
that may be damaging to the firm in the litigation, you may
be faced with the temptation to alter or destroy the potentially
damaging items. This temptation poses serious ethical dilem-
mas. Is it morally defensible to change the content of records
or documents on an after-the-fact basis, in order to lessen the
adverse effect on your firm in pending or probable litigation?
Is document destruction or e-mail deletion ethically justifiable
when you seek to protect your firm’s interests in a lawsuit?
If the ethical concerns are not sufficient by themselves
to make you leery of involvement in document alteration
civil case. In such instances, courts have broad discretionary
authority to impose appropriate sanctions on the document-
destroying party. These sanctions may include such remedies
as court orders prohibiting the document-destroyer from rais-
ing certain claims or defenses in the lawsuit, instructions to
the jury regarding the wrongful destruction of the documents,
and court orders that the document-destroyer pay certain at-
torney’s fees to the opposing party.
What about the temptation to simply refuse to cooperate
regarding an opposing party’s lawful request for discovery
regarding material in one’s possession? Although a refusal to
cooperate seems less blameworthy than destruction or altera-
tion of documents, extreme instances of recalcitrance during
the discovery process may cause a party to experience adverse
consequences similar to those imposed on parties who destroy
or alter documents. Litigation involving Ronald Perelman and
the Morgan Stanley firm provides an illustration. Perelman
had sued Morgan Stanley on the theory that the investment
Ethics in Action
In recent years, the widespread uses of e-mail and
information presented and stored in electronic
form have raised questions about whether, in
civil litigation, an opposing party’s e-mails and
electronic information are discoverable to the
same extent as conventional written or printed
documents. With the Federal Rules of Civil Procedure and
comparable discovery rules applicable in state courts having
been devised prior to the explosion in e-mail use and online
activities, the rules’ references to “documents” contemplated
traditional on-paper items. Courts, however, frequently
interpreted “documents” broadly, so as to include e-mails
and certain electronic communications within the scope of
discoverable items.
Even so, greater clarity regarding discoverability seemed
warranted—especially as to electronic material that might be
less readily classiﬁable than e-mails as “documents.” Various
states responded by updating their discovery rules to include
the court decides whether the objection is valid in light of the
particular facts and circumstances. For instance, if requested
e-mails appear only on backup tapes and searching those tapes
would require the expenditures of signiﬁcant time, money, and
effort, are the requested e-mails “not reasonably accessible
because of undue burden or costs”? Perhaps, but perhaps not.
The court will rule, based on the relevant situation. The court
may deny the discovery request, uphold it, or condition the
upholding of it on the requesting party’s covering part or all of
the costs incurred by the other party in retrieving the ESI and
making it available. When a party fails or refuses to comply with
a legitimate discovery request and the party seeking discovery
of ESI has to secure a court order compelling the release of it,
the court may order the noncompliant party to pay the attorney’s
fees incurred by the requesting party in seeking the court order.
If a recalcitrant party disregards a court order compelling
discovery, the court may assess attorney’s fees against that
party and/or impose evidentiary or procedural sanctions such
CYBERLAW IN ACTION
mal27980_ch02_027-054.indd 42 12/6/11 3:17 PM
mal24980_fm_i-xl.indd xii
mal24980_fm_i-xl.indd xii 12/9/11 10:46 AM
12/9/11 10:46 AM

A Guided Tour xiii
LOG ON
For a great deal of information about the U.S. Supreme
Court and access to the Court’s opinions in recent cases,
seetheCourt’swebsiteathttp://www.supremecourtus.gov.
12/6/11 3:19 PM
Equal Protection and Levels of Scrutiny
Type of Government Action Controlling Test Operation and Effect of Test
Government action that discriminates
but neither affects exercise of funda-
mental right nor discriminates against
suspect class (e.g., most social and
economic regulation)
Rational basis Lenient test—government action is constitutional
if rationally related to legitimate government
purpose.
concerning ability to exercise funda-
mental right
Full strict scrutiny Very rigorous test—government action is un-
constitutional unless necessary to fulfillment of
compelling government purpose.
on basis of race or national origin
Full strict scrutiny Very rigorous test—government action is un-
constitutional unless necessary to fulfillment of
lli
CONCEPT REVIEW
mal27980_ch03_055-091.indd 81 12/6/11 3:19 PM
The American Arbitration
Association
The American Arbitration Association (AAA) furnishes dispute
resolution services in cases that fall within a wide variety
of legal categories identiﬁed on the AAA’s ofﬁcial website.
Locate and review the organization’s website. Then prepare a
list of the legal categories of cases concerning which the AAA
provides dispute resolution services.
Online Research
12/6/11 3:17 PM
Bombliss v. Cornelsen 824 N.E.2d 1175 (Ill. App. 2005)
Ron and Catherine Bombliss were dog breeders who lived in Illinois. They bred Tibetan mastiffs, as did Oklahoma residents
Anne and Jim Cornelsen. When Anne Cornelsen telephoned the Bomblisses and said she was ready to sell two litters of Tibetan
mastiff puppies, Ron Bombliss expressed interest in purchasing two females of breeding quality.
A Tibetan mastiff named Mulan was the mother of one of the two litters of puppies the Cornelsens were offering for sale.
Mulan was co-owned by Richard Eichhorn. Pursuant to an agreement containing a written guarantee that Mulan was free
of genetic defects, Eichhorn provided Mulan to the Cornelsens for breeding purposes. The agreement between Eichhorn and
the Cornelsens entitled Eichhorn to odd-numbered pups from Mulan’s first two litters. However, in the event a genetic defect
became apparent, Eichhorn would not receive any puppies. According to the complaint filed by the Bomblisses in the case that
follows, Anne Cornelsen was angry with Eichhorn because Mulan was infected with roundworms and ticks when Eichhorn
delivered the dog to the Cornelsens. Anne allegedly told the Bomblisses that she wanted to prevent Eichhorn from getting any
of Mulan’s pups.
In January 2002, the Bomblisses traveled to Oklahoma to see the puppies. During their visit, they observed that Mulan and
some of her pups appeared sick and worm-infested. They urged Anne to get the sick puppies to the veterinarian immediately.
The Bomblisses selected one healthy female from each litter and paid the agreed price with the understanding that the Cor-
nelsens would guarantee the puppies as breeding stock, free from genetic diseases or defects, for three years. According to the
Bomblisses’ complaint, Anne waited two weeks to take one of the sick pups to the veterinarian. It was then confirmed that the
pup had pneumonia. Approximately one month later, Anne posted a message in a Tibetan mastiff chat room on the Internet. In
mal27980_ch02_027-054.indd 29 12/6/11 3:17 PM
LOG ON BOXES
These appear throughout the chapters and direct
students, where appropriate, to relevant websites
that will give them more information about each
featured topic. Many of these are key legal sites that
may be used repeatedly by business law students and
business professionals alike.
ONLINE RESEARCH
PROBLEMS
These end-of-chapter research problems drive
students to the Internet and include discussion
questions so they can be used in class or as
homework.
CONCEPT REVIEWS
These boxes visually represent important
concepts presented in the text to help
summarize key ideas at a glance and
simplify students’ conceptualization of
complicated issues.
CASES
The cases in each chapter help to provide concrete
examples of the rules stated in the text. A list of
cases appears at the front of the text.
mal24980_fm_i-xl.indd xiii
mal24980_fm_i-xl.indd xiii 12/9/11 10:46 AM
12/9/11 10:46 AM

Problems and Problem Cases
1. Parker sues Davis. At trial, Parker’s lawyer attempts
to introduce certain evidence to help make his case.
Davis’s attorney objects, and the trial judge refuses to
allow the evidence. Parker eventually loses the case
at the trial court level. On appeal, his attorney argues
that the trial judge’s decision not to admit the evi-
dence was erroneous. Davis’s attorney argues that the
appellate court cannot consider this question, because
appellate courts review only errors of law (not fact) at
the trial court level. Is Davis’s attorney correct? Why
or why not?
2. Alex Ferrer, a former judge who appeared as “Judge
Alex” on a television program, entered into a con-
tract with Arnold Preston, a California attorney who
rendered services to persons in the entertainment
i d ki f ll dl d d h
agent without the license required by the CTAA. In
addition, Ferrer sued Preston in a California court,
seeking a declaration that the dispute between the
parties regarding the contract and its validity was not
subject to arbitration. Ferrer also sought an injunc-
tion restraining Preston from proceeding before the
arbitrator unless and until the Labor Commissioner
concluded that she did not have authority to rule on
the parties’ dispute. Preston responded by moving to
compel arbitration, in reliance on the Federal Arbitra-
tion Act. The California court denied Preston’s mo-
tion to compel arbitration and issued the injunction
sought by Ferrer. Was the court correct in doing so?
3. Alabama resident Lynda Butler sued Beer Across
America, an Illinois firm, for having sold her minor
son 12 bottles of beer. The son ordered the beer from
the defendant’s website while his parents were on
vacation Butler based her lawsuit on an Alabama
mal27980_ch02_027-054.indd 52 12/6/11 3:17 PM
PROBLEMS AND PROBLEM
CASES
Problem cases appear at the end of each chapter for
student review and discussion.
YOU BE THE JUDGE
We have indicated where you can consider
completing relevant You Be the Judge case
segments.
Judge
Be
the
You
106.indd 1106 12/7/11 10:17 AM
xiv A Guided Tour
mal24980_fm_i-xl.indd xiv
mal24980_fm_i-xl.indd xiv 12/9/11 10:46 AM
12/9/11 10:46 AM

FM Title xv
ONLINE LEARNING CENTER
www.mhhe.com/mallor15e The Online Learn-
ing Center (OLC) is a website that follows the
text chapter by chapter. The 15th Edition OLC
contains case updates, quizzes and review terms for
students to study from, downloadable supplements
for the instructors, links to professional resources
for students and professors, and links to video clips
to use for discussion.
INSTRUCTOR’S MANUAL
The Instructor’s Manual, written by the authors,
consists of objectives, suggestions for lecture
preparation, recommended references, answers to
problems and problem cases, and suggested answers
to the Online Research Problems and Opening
Vignettes. It also includes answers to the Student
Study Guide questions and information/teaching
notes for You Be the Judge case segments.
Supplements Supplements Supplements Supplements Supplements Supplements Supplements Suppleme
Instructor and Student
Supplements
YOU BE THE JUDGE
You Be the Judge online video segments include
18 hypothetical business law cases. All of the cases
are based on real cases from our Business Law texts.
Each case allows you to watch interviews of the
plaintiff and defendant before the courtroom argu-
ment, see the courtroom proceedings, view relevant
evidence, read other actual cases relating to the
issues in the case, and then create your own ruling.
After your verdict is generated, view what an actual
judge ruled (unscripted) in the case and then get
the chance to defend or change your ruling.
Judge
Be
the
You
xv
mal24980_fm_i-xl.indd xv
mal24980_fm_i-xl.indd xv 12/9/11 10:46 AM
12/9/11 10:46 AM

xvi FM Title
POWERPOINT PRESENTATIONS
The PowerPoint presentations are authored by
Pamela S. Evers, Attorney and Associate Professor,
University of North Carolina Wilmington. They
provide lecture outline material, important con-
cepts and figures in the text, photos for discussion,
hyperlinks, and summaries of the cases in the book.
Notes are also provided within the PowerPoint pre-
sentations for students and instructors to augment
information and class discussion.
TEST BANK
The Test Bank consists of true-false, multiple
choice, and short essay questions in each chapter.
Approximately 50 questions are included per
chapter. Questions adapted from previous CPA
exams are also included and highlighted to help
Accounting students review for the exam.
The Business Law Newsletter,
Proceedings
We have developed this resource to help keep your classes inter-
esting and current. One electronic newsletter is e-mailed to you
per month. Instructors across the country have told us they are
looking for ways to include current examples and cases, and we
hope this newsletter provides you with just that. It is meant to be
an easy and effective place to turn for some new discussion top-
ics for your business law courses. Each edition includes:
• Article abstracts with critical thinking questions,
• Video links with discussion questions and answers,
• Case hypotheticals and ethical dilemmas (with answers),
• Teaching tips to help you incorporate this newsletter into your
class, and
• A chapter key that integrates all of the above with each of our
McGraw-Hill Business Law texts.
McGraw-Hill Connect
Business Law
Less Managing. More Teaching.
Greater Learning. McGraw-Hill Connect Business
Law is an online assignment and assess-
ment solution that connects students with
the tools and resources they’ll need to
achieve success.
McGraw-Hill Connect Business Law helps prepare students
for their future by enabling faster learning, more efficient study-
ing, and higher retention of knowledge.
McGraw-Hill Connect Business Law
Features Connect Business Law offers a number of pow-
erful tools and features to make managing assignments easier, so
faculty can spend more time teaching. With Connect Business
Law, students can engage with their coursework anytime and any-
where, making the learning process more accessible and efficient.
Connect Business Law offers you the following features.
Simple assignment management With Connect Busi-
ness Law, creating assignments is easier than ever, so you can
spend more time teaching and less time managing. The assign-
ment management function enables you to:
• Create and deliver assignments easily with selectable end-of-
chapter questions and test bank items.
• Streamline lesson planning, student progress reporting, and
assignment grading to make classroom management more
efficient than ever.
• Go paperless with the eBook and online submission and grad-
ing of student assignments.
Smart grading When it comes to studying, time is precious.
Connect Business Law helps students learn more efficiently by
providing feedback and practice material when they need it,
where they need it. When it comes to teaching, your time also is
precious. The grading function enables you to:
• Have assignments scored automatically, giving students im-
mediate feedback on their work and side-by-side comparisons
with correct answers.
Supplements
TM
xvi
mal24980_fm_i-xl.indd xvi
mal24980_fm_i-xl.indd xvi 12/9/11 10:46 AM
12/9/11 10:46 AM

• Offer access to lectures anytime and anywhere by computer,
iPod, or mobile device.
• Increase intent listening and class participation by easing stu-
dents’ concerns about note-taking. Lecture Capture will make
it more likely you will see students’ faces, not the tops of
their heads.
McGraw-Hill Connect Plus Business Law McGraw-Hill rein-
vents the textbook learning experience for the modern student with
Connect Plus Business Law. A seamless integration of an eBook
and Connect Business Law, Connect Plus Business Law provides
all of the Connect Business Law features plus the following:
• An integrated eBook, allowing for anytime, anywhere access
to the textbook.
• Dynamic links between the problems or questions you as-
sign to your students and the location in the eBook where that
problem or question is covered.
• A powerful search function to pinpoint and connect key con-
cepts in a snap.
In short, Connect Business Law offers you and your students
powerful tools and features that optimize your time and energies,
enabling you to focus on course content, teaching, and student
learning. Connect Business Law also offers a wealth of content
resources for both instructors and students. This state-of-the-art,
thoroughly tested system supports you in preparing students for
the world that awaits.
For more information about Connect, go to www
.mcgrawhillconnect.com, or contact your local McGraw-Hill
sales representative.
Tegrity Campus: Lectures 24/7
Tegrity Campus is a service that makes class time available 24/7
by automatically capturing every
lecture in a searchable format for
students to review when they study and complete assignments.
With a simple one-click start-and-stop process, you capture all
computer screens and corresponding audio. Students can replay
any part of any class with easy-to-use browser-based viewing on
a PC or Mac.
Educators know that the more students can see, hear, and
experience class resources, the better they learn. In fact, stud-
ies prove it. With Tegrity Campus, students quickly recall key
moments by using Tegrity Campus’s unique search feature. This
search helps students efficiently find what they need, when they
need it, across an entire semester of class recordings. Help turn
all your students’ study time into learning moments immediately
supported by your lecture.
To learn more about Tegrity watch a two-minute Flash demo
at http://tegritycampus.mhhe.com.
• Access and review each response; manually change grades or
leave comments for students to review.
• Reinforce classroom concepts with practice tests and instant
quizzes.
Instructor library The Connect Business Law Instructor
Library is your repository for additional resources to improve
student engagement in and out of class. You can select and use
any asset that enhances your lecture. The Connect Business Law
Instructor Library includes:
• eBook
• Instructors Manual
• PowerPoint files
• Videos and Instructional Notes
• Business Law Newsletter archives
• Access to interactive study tools
Student study center The Connect Business Law Student
Study Center is the place for students to access additional re-
sources. The Student Study Center:
• Offers students quick access to lectures, practice materials,
eBooks, and more.
• Provides instant practice material and study questions, easily
accessible on the go.
• Gives students access to the Personalized Learning Plan de-
scribed below.
Student progress tracking Connect Business Law keeps
instructors informed about how each student, section, and class
is performing, allowing for more productive use of lecture and
office hours. The progress-tracking function enables you to:
• View scored work immediately and track individual or group
performance with assignment and grade reports.
• Access an instant view of student or class performance rela-
tive to learning objectives.
• Collect data and generate reports required by many accredita-
tion organizations, such as AACSB.
Lecture capture Increase the attention paid to lecture dis-
cussion by decreasing the attention paid to note taking. For an
additional charge Lecture Capture offers new ways for students
to focus on the in-class discussion, knowing they can revisit im-
portant topics later. Lecture Capture enables you to:
• Record and distribute your lecture with a click of button.
• Record and index PowerPoint presentations and anything
shown on your computer so it is easily searchable, frame by
frame.
xvii
mal24980_fm_i-xl.indd xvii
mal24980_fm_i-xl.indd xvii 12/9/11 10:46 AM
12/9/11 10:46 AM

and content, whether your campus hosts it, or we do. Be sure to
ask your local McGraw-Hill representative for details.
AACSB Statement
The McGraw-Hill Companies is a proud corporate member of
AACSB International. Understanding the importance and value
of AACSB accreditation, Business Law, 15th edition recognizes
the curricula guidelines detailed in the AACSB standards for
business accreditation by connecting selected questions in the
test bank to the six general knowledge and skill guidelines in the
AACSB standards.
The statements contained in Business Law, 15th edition are
provided only as a guide for the users of this textbook. The
AACSB leaves content coverage and assessment within the
purview of individual schools, the mission of the school, and
the faculty. While Business Law, 15th edition and the teaching
package make no claim of any specific AACSB qualification or
evaluation, we have within Business Law, 15th edition labeled
selected questions according to the six general knowledge and
skills areas.
McGraw-Hill Customer Care
Contact Information
At McGraw-Hill, we understand that getting the most from new
technology can be challenging. That’s why our services don’t
stop after you purchase our products. You can e-mail our Prod-
uct Specialists 24 hours a day to get product-training online. Or
you can search our knowledge bank of Frequently Asked Ques-
tions on our support website. For Customer Support, call 800-
331-5094, e-mail hmsupport@mcgraw-hill.com, or visit www
.mhhe.com/support. One of our Technical Support Analysts
will be able to assist you in a timely fashion.
Assurance of Learning Ready
Many educational institutions today are focused on the notion of
assurance of learning, an important element of some accredita-
tion standards. Business Law is designed specifically to support
your assurance of learning initiatives with a simple, yet powerful
solution.
Each test bank question for Business Law maps to a specific
chapter learning outcome/objective listed in the text. You can
use our test bank software, EZ Test and EZ Test Online, or in
Connect Business Law to easily query for learning outcomes/
objectives that directly relate to the learning objectives for
your course. You can then use the reporting features of EZ
Test to aggregate student results in similar fashion, making
the collection and presentation of assurance of learning data
simple and easy.
McGraw-Hill and Blackboard
McGraw-Hill Higher Education and Blackboard have teamed
up. What does this mean for you?
1. Your life, simplified. Now you and your students can ac-
cess McGraw-Hill’s Connect™ and Create™ right from
within your Blackboard course—all with one single sign-
on. Say goodbye to the days of logging in to multiple
applications.
2. Deep integration of content and tools. Not only do you get
single sign-on with Connect™ and Create™, you also get
deep integration of McGraw-Hill content and content en-
gines right in Blackboard. Whether you’re choosing a book
for your course or building Connect™ assignments, all the
tools you need are right where you want them—inside of
Blackboard.
3. Seamless Gradebooks. Are you tired of keeping multiple
gradebooks and manually synchronizing grades into Black-
board? We thought so. When a student completes an integrated
Connect™ assignment, the grade for that assignment automati-
cally (and instantly) feeds your Blackboard grade center.
4. A solution for everyone. Whether your institution is already
using Blackboard or you just want to try Blackboard on your
own, we have a solution for you. McGraw-Hill and Blackboard
can now offer you easy access to industry leading technology
Supplements,continued
xviii
mal24980_fm_i-xl.indd xviii
mal24980_fm_i-xl.indd xviii 12/9/11 10:46 AM
12/9/11 10:46 AM

xix
Brief Contents
Brief Contents
33 Liability of Parties 865
34 Checks and Electronic Transfers 889
Part 8 Agency Law
35 The Agency Relationship 916
36 Third-Party Relations of the Principal and the
Agent 934
Part 9 Partnerships
37 Introduction to Forms of Business and Formation
of Partnerships 954
38 Operation of Partnerships and Related Forms 974
39 Partners’ Dissociation and Partnerships’ Dissolution
and Winding Up 990
40 Limited Liability Companies, Limited Partnerships,
and Limited Liability Limited Partnerships 1008
Part 10 Corporations
41 History and Nature of Corporations 1032
42 Organization and Financial Structure of
Corporations 1051
43 Management of Corporations 1071
44 Shareholders’ Rights and Liabilities 1107
45 Securities Regulation 1139
46 Legal and Professional Responsibilities of Auditors,
Consultants, and Securities Professionals 1187
Part 11 Regulation of Business
47 Administrative Law 1222
48 The Federal Trade Commission Act and Consumer
Protection Laws 1255
49 Antitrust: The Sherman Act 1285
50 The Clayton Act, the Robinson–Patman Act, and
Antitrust Exemptions and Immunities 1319
51 Employment Law 1349
52 Environmental Regulation 1388
Appendix A
The Constituion of the United States
of America A-1
Appendix B
Uniform Commercial Code B-1
Glossary G-1
Index I-1
Preface vi
Part 1 Foundations of American Law
1 The Nature of Law 2
2 The Resolution of Private Disputes 27
3 Business and the Constitution 55
4 Business Ethics, Corporate Social Responsibility,
Corporate Governance, and Critical Thinking 92
Part 2 Crimes and Torts
5 Criminal Law and Procedure 126
6 Intentional Torts 176
7 Negligence and Strict Liability 216
8 Intellectual Property and Unfair Competition 256
Part 3 Contracts
9 Introduction to Contracts 316
10 The Agreement: Offer 334
11 The Agreement: Acceptance 352
12 Consideration 371
13 Reality of Consent 388
14 Capacity to Contract 402
15 Illegality 414
16 Writing 434
17 Rights of Third Parties 456
18 Performance and Remedies 473
Part 4 Sales
19 Formation and Terms of Sales Contracts 502
20 Product Liability 523
21 Performance of Sales Contracts 571
22 Remedies for Breach of Sales Contracts 592
Part 5 Property
23 Personal Property and Bailments 612
24 Real Property 636
25 Landlord and Tenant 666
26 Estates and Trusts 689
27 Insurance Law 709
Part 6 Credit
28 Introduction to Credit and Secured
Transactions 742
29 Security Interests in Personal Property 764
30 Bankruptcy 789
Part 7 Commercial Paper
31 Negotiable Instruments 824
32 Negotiation and Holder in Due Course 840
mal24980_fm_i-xl.indd xix
mal24980_fm_i-xl.indd xix 12/9/11 10:46 AM
12/9/11 10:46 AM

xx
Contents
Contents
1
Alternative Dispute Resolution 47
Common Forms of ADR 47
Other ADR Devices 52
3 Business and the Constitution 55
An Overview of the U.S. Constitution 56
The Evolution of the Constitution and the Role of the
Supreme Court 57
The Coverage and Structure of This Chapter 57
State and Federal Power to Regulate 58
State Regulatory Power 58
Federal Regulatory Power 58
Independent Checks on the Federal Government
and the States 63
Incorporation 63
Government Action 63
Means-Ends Tests 64
Business and the First Amendment 64
Due Process 76
Equal Protection 77
Independent Checks Applying Only to the States 81
The Contract Clause 81
Burden on, or Discrimination against, Interstate
Commerce 82
Federal Preemption 83
The Takings Clause 86
4 Business Ethics, Corporate Social
Responsibility, Corporate Governance,
and Critical Thinking 92
Why Study Business Ethics? 93
The Corporate Social Responsibility Debate 94
Ethical Theories 95
Rights Theory 96
Justice Theory 97
Utilitarianism 98
Profit Maximization 99
Guidelines for Ethical Decision Making 106
What Facts Impact My Decision? 106
What Are the Alternatives? 107
Who Are the Stakeholders? 108
How Do the Alternatives Impact Society as a Whole? 108
How Do the Alternatives Impact My Firm? 108
How Do the Alternatives Impact Me, the Decision
Maker? 108
Preface vi
Part 1 Foundations of American Law
1 The Nature of Law 2
Types and Classiﬁcations of Law 3
The Types of Law 3
Priority Rules 6
Classifications of Law 8
Jurisprudence 9
Legal Positivism 9
Natural Law 9
American Legal Realism 10
Sociological Jurisprudence 10
Other Schools of Jurisprudence 11
The Functions of Law 11
Legal Reasoning 12
Case Law Reasoning 12
Statutory Interpretation 16
Limits on the Power of Courts 20
APPENDIX: Readings and Brieﬁng Cases 21
2 The Resolution of Private Disputes 27
State Courts and Their Jurisdiction 28
Courts of Limited Jurisdiction 28
Trial Courts 28
Appellate Courts 28
Jurisdiction and Venue 28
Federal Courts and Their Jurisdiction 32
Federal District Courts 32
Specialized Federal Courts 35
Federal Courts of Appeals 35
The U.S. Supreme Court 36
Civil Procedure 38
Service of the Summons 38
The Pleadings 38
Motion to Dismiss 39
Discovery 39
Summary Judgment 43
The Pretrial Conference 43
The Trial 43
Appeal 46
Enforcing a Judgment 46
Class Actions 46
mal24980_fm_i-xl.indd xx
mal24980_fm_i-xl.indd xx 12/9/11 10:46 AM
12/9/11 10:46 AM

Contents xxi
2
Purpose of the Criminal Sanction 128
Essentials of Crime 130
Constitutional Limitations on Power to Criminalize
Behavior 131
Criminal Procedure 139
Criminal Prosecutions: An Overview 139
Role of Constitutional Safeguards 140
The Fourth Amendment 140
The Fifth Amendment 152
The Sixth Amendment 157
White-Collar Crimes and the Dilemmas of Corporate
Control 158
Introduction 158
Evolution of Corporate Criminal Liability 158
Corporate Criminal Liability Today 159
Individual Liability for Corporate Crime 160
New Directions 161
Important White-Collar Crimes 163
Regulatory Offenses 163
Fraudulent Acts 163
The Sarbanes–Oxley Act 163
Bribery and Giving of Illegal Gratuities 163
RICO 164
Computer Crime 167
6 Intentional Torts 176
Interference with Personal Rights 181
Battery 181
Assault 183
Intentional Infliction of Emotional Distress 183
False Imprisonment 186
Defamation 189
Invasion of Privacy 201
Misuse of Legal Proceedings 205
Deceit (Fraud) 205
Interference with Property Rights 206
Trespass to Land 206
Private Nuisance 207
Conversion 209
Other Examples of Intentional Tort Liability 209
7 Negligence and Strict Liability 216
Negligence 218
Duty and Breach of Duty 218
Causation of Injury 231
Res Ipsa Loquitur 242
Negligence Defenses 242
What Are the Ethics of Each Alternative? 109
What Are the Practical Constraints of Each
Alternative? 111
What Course of Action Should Be Taken and How Do We
Implement It? 111
Knowing When to Use the Guidelines 111
Thinking Critically 112
Non Sequiturs 112
Appeals to Pity 112
False Analogies 112
Begging the Question 113
Argumentum ad Populum 113
Bandwagon Fallacy 113
Argumentum ad Baculum 113
Argumentum ad Hominem 114
Argument from Authority 114
False Cause 115
The Gambler’s Fallacy 115
Reductio ad Absurdum 115
Appeals to Tradition 115
The Lure of the New 116
Sunk Cost Fallacy 116
Common Characteristics of Poor Decision
Making 116
Failing to Remember Goals 117
Overconfidence 117
Complexity of the Issues 117
Resisting Requests to Act Unethically 118
Recognizing Unethical Requests and Bosses 118
Buying Time 118
Find a Mentor and a Peer Support Group 118
Find Win-Win Solutions 119
Work within the Firm to Stop the Unethical Act 120
Prepare to Lose Your Job 120
Leading Ethically 120
Be Ethical 121
Communicate the Firm’s Core Ethical Values 121
Connect Ethical Behavior with the Firm’s and Workers’
Best Interests 121
Rainforce Ethical Behavior 121
Part 2 Crimes and Torts
5 Criminal Law and Procedure 126
Role of the Criminal Law 128
Nature of Crimes 128
mal24980_fm_i-xl.indd xxi
mal24980_fm_i-xl.indd xxi 12/9/11 10:46 AM
12/9/11 10:46 AM

3
xxii Contents
10 The Agreement: Offer 334
Requirements for an Offer 334
Intent to Contract 335
Definiteness of Terms 336
Communication to Offeree 339
Special Offer Problem Areas 339
Advertisements 339
Rewards 339
Auctions 340
Bids 341
Which Terms Are Included in the Offer? 341
Termination of Offers 343
Terms of the Offer 343
Lapse of Time 343
Revocation 343
Rejection 345
Death or Insanity of Either Party 346
Destruction of Subject Matter 346
Intervening Illegality 346
11 The Agreement: Acceptance 352
What Is an Acceptance? 352
Intention to Accept 353
Intent and Acceptance on the Offeror’s Terms 354
Communication of Acceptance 359
When Is Acceptance Communicated? 359
Acceptances by Instantaneous Forms of Communication 359
Acceptances by Noninstantaneous Forms of
Communication 359
Stipulated Means of Communication 361
Special Acceptance Problem Areas 362
Acceptance in Unilateral Contracts 362
Acceptance in Bilateral Contracts 362
Silence as Acceptance 363
Acceptance When a Writing Is Anticipated 365
Acceptance of Ambiguous Offers 365
Who Can Accept an Offer? 366
12 Consideration 371
Elements of Consideration 372
Legal Value 372
Bargained-For Exchange 374
Exchanges That Fail to Meet Consideration
Requirements 375
Illusory Promises 375
Preexisting Duties 376
Past Consideration 380
Strict Liability 247
Abnormally Dangerous Activities 247
Statutory Strict Liability 250
Tort Reform 250
8 Intellectual Property and Unfair
Competition 256
Protection of Intellectual Property 257
Patents 257
Copyrights 271
Trademarks 282
Trade Secrets 296
Definition of a Trade Secret 296
Ownership and Transfer of Trade Secrets 297
Misappropriation of Trade Secrets 297
Commercial Torts 300
Injurious Falsehood 300
Interference with Contractual Relations 301
Interference with Prospective Advantage 301
Lanham Act § 43(a) 304
Part 3 Contracts
9 Introduction to Contracts 316
The Nature of Contracts 316
The Functions of Contracts 317
The Evolution of Contract Law 317
The Methods of Contracting 317
Basic Elements of a Contract 318
Basic Contract Concepts and Types 320
Bilateral and Unilateral Contracts 320
Valid, Unenforceable, Voidable, and Void Contracts 321
Express and Implied Contracts 321
Executed and Executory Contracts 321
Sources of Law Governing Contracts 321
The Uniform Commercial Code: Origin and Purposes 321
Application of Article 2 322
Application of the Common Law of Contracts 322
Law Governing “Hybrid” Contracts 322
Relationship of the UCC and the Common Law of
Contracts 324
Basic Differences in the Nature of Article 2 and the
Common Law of Contracts 324
Influence of Restatement (Second) of Contracts 326
“Noncontract” Obligations 326
Quasi-Contract 326
Promissory Estoppel 328
mal24980_fm_i-xl.indd xxii
mal24980_fm_i-xl.indd xxii 12/9/11 10:46 AM
12/9/11 10:46 AM

Contents xxiii
Agreements in Violation of Statute 417
Agreements Declared Illegal by Statute 417
Agreements That Violate the Public Policy of a Statute 417
Agreements That May Be in Violation of Public Policy
Articulated by Courts 420
Agreements in Restraint of Competition 420
Exculpatory Clauses 423
Family Relationships and Public Policy 424
Unfairness in Agreements: Contracts of Adhesion and
Unconscionable Contracts 425
Unconscionability 425
Contracts of Adhesion 428
Effect of Illegality 428
General Rule: No Remedy for Breach of Illegal
Agreements 428
Exceptions 428
16 Writing 434
The Signiﬁcance of Writing in Contract Law 434
Purposes of Writing 434
Writing and Contract Enforcement 435
Overview of the Statute of Frauds 435
History and Purposes 435
Effect of Violation of the Statute of Frauds 435
Contracts Covered by the Statute of Frauds 435
Collateral Contracts 436
Interest in Land 438
Contracts That Cannot Be Performed within One Year 439
Sale of Goods for $500 or More 441
Promise of Executor or Administrator to Pay a Decedent’s
Debt Personally 441
Contract in Which Marriage Is the Consideration 442
Meeting the Requirements of the Statute of Frauds 443
Nature of the Writing Required 443
UCC: Alternative Means of Satisfying the Statute of
Frauds in Sale of Goods Contracts 444
Promissory Estoppel and the Statute of Frauds 447
The Parol Evidence Rule 448
Explanation of the Rule 448
Scope of the Parol Evidence Rule 448
Admissible Parol Evidence 449
Interpretation of Contracts 451
17 Rights of Third Parties 456
Assignment of Contracts 456
Nature of Assignment of Rights 457
Creating an Assignment 458
Exceptions to the Consideration Requirement 381
Promissory Estoppel 382
Promises to Pay Debts Barred by Statutes of Limitations 383
Promises to Pay Debts Barred by Bankruptcy Discharge 383
Charitable Subscriptions 384
13 Reality of Consent 388
Effect of Doctrines Discussed in This Chapter 388
Necessity for Prompt and Unequivocal Rescission 389
Misrepresentation and Fraud 389
Relationship between Misrepresentation and Fraud 389
Requirements for Rescission on the Ground of
Misrepresentation 389
Mistake 392
Nature of Mistake 392
Requirements for Mutual Mistake 393
Requirements for Unilateral Mistake 394
Duress 396
Nature of Duress 396
Requirements for Duress 397
Economic Duress 398
Undue Inﬂuence 398
Nature of Undue Influence 398
Determining Undue Influence 398
14 Capacity to Contract 402
What Is Capacity? 402
Effect of Lack of Capacity 403
Capacity of Minors 403
Minors’ Right to Disaffirm 403
Period of Minority 405
Emancipation 405
Time of Disaffirmance 405
Ratification 406
Duties upon Disaffirmance 406
Effect of Misrepresentation of Age 408
Capacity of Mentally Impaired Persons 409
Theory of Incapacity 409
Test for Mental Incapacity 409
The Effect of Incapacity Caused by Mental
Impairment 409
Contracts of Intoxicated Persons 411
Intoxication and Capacity 411
15 Illegality 414
Meaning of Illegality 414
Determining Whether an Agreement Is Illegal 415
mal24980_fm_i-xl.indd xxiii
mal24980_fm_i-xl.indd xxiii 12/9/11 10:46 AM
12/9/11 10:46 AM

4
xxiv Contents
Assignability of Rights 458
Nature of Assignee’s Rights 460
Subsequent Assignments 461
Successive Assignments 461
Assignor’s Warranty Liability to Assignee 461
Delegation of Duties 462
Nature of Delegation 462
Delegable Duties 462
Language Creating a Delegation 463
Assumption of Duties by Delegatee 463
Discharge of Delegator by Novation 463
Third-Party Beneﬁciaries 466
Intended Beneficiaries versus Incidental Beneficiaries 466
Vesting of Beneficiary’s Rights 469
18 Performance and Remedies 473
Conditions 474
Nature of Conditions 474
Types of Conditions 474
Creation of Express Conditions 477
Excuse of Conditions 477
Performance of Contracts 479
Level of Performance Expected of the Promisor 479
Good Faith Performance 480
Breach of Contract 481
Effect of Material Breach 481
Determining the Materiality of the Breach 481
Anticipatory Repudiation 482
Recovery by a Party Who Has Committed Material
Breach 485
Excuses for Nonperformance 485
Impossibility 486
Commercial Impracticability 488
Other Grounds for Discharge 488
Discharge by Mutual Agreement 488
Discharge by Accord and Satisfaction 488
Discharge by Waiver 488
Discharge by Alteration 488
Discharge by Statute of Limitations 489
Discharge by Decree of Bankruptcy 489
Remedies for Breach of Contract 489
Types of Contract Remedies 489
Interests Protected by Contract Remedies 489
Legal Remedies (Damages) 490
Equitable Remedies 493
Restitution 495
Part 4 Sales
19 Formation and Terms of Sales Contracts 502
Sale of Goods 503
Leases 505
Higher Standards for Merchants 505
Code Requirements 505
Terms of Sales Contracts 505
Gap Fillers 505
Price Terms 507
Quantity Terms 507
Output and Needs Contracts 507
Exclusive Dealing Contracts 509
Time for Performance 509
Delivery Terms 510
Title 510
Code Changes 510
General Title Rule 510
Buyer’s Rejection 510
Title and Third Parties 512
Obtaining Good Title 512
Transfers of Voidable Title 512
Buyers in the Ordinary Course of Business 515
Entrusting of Goods 515
Risk of Loss 516
Terms of the Agreement 516
Shipment Contracts 516
Destination Contracts 517
Goods in the Possession of Third Parties 517
Risk Generally 517
Effect of Breach on Risk of Loss 518
Insurable Interest 519
Sales on Trial 519
Sale or Return 520
Sale on Approval 520
20 Product Liability 523
The Evolution of Product Liability Law 524
The 19th Century 524
The 20th and 21st Centuries 525
The Current Debate over Product Liability Law 525
Theories of Product Liability Recovery 525
Express Warranty 526
Implied Warranty of Merchantability 528
Implied Warranty of Fitness 530
mal24980_fm_i-xl.indd xxiv
mal24980_fm_i-xl.indd xxiv 12/9/11 10:46 AM
12/9/11 10:46 AM

Contents xxv
5
22 Remedies for Breach of Sales Contracts 592
Agreements as to Remedies 593
Statute of Limitations 595
Seller’s Remedies 595
Remedies Available to an Injured Seller 595
Cancellation and Withholding of Delivery 596
Resale of Goods 596
Recovery of the Purchase Price 596
Damages for Rejection or Repudiation 597
Seller’s Remedies Where Buyer Is Insolvent 599
Seller’s Right to Stop Delivery 599
Liquidated Damages 600
Buyer’s Remedies 600
Buyer’s Remedies in General 600
Buyer’s Right to Damages 601
Buyer’s Right to Cover 602
Incidental Damages 603
Consequential Damages 604
Damages for Nondelivery 604
Damages for Defective Goods 606
Buyer’s Right to Specific Performance 607
Buyer and Seller Agreements as to Remedies 608
Part 5 Property
23 Personal Property and Bailments 612
Nature of Property 613
Classiﬁcations of Property 613
Personal Property versus Real Property 613
Tangible versus Intangible Personal Property 613
Public and Private Property 613
Acquiring Ownership of Personal Property 614
Production or Purchase 614
Possession of Unowned Property 614
Rights of Finders of Lost, Mislaid, and Abandoned
Property 614
Legal Responsibilities of Finders 617
Leasing 618
Gifts 618
Conditional Gifts 618
Uniform Transfers to Minors Act 621
Will or Inheritance 621
Confusion 621
Accession 621
Negligence 532
Strict Liability 535
The Restatement (Third) 537
Other Theories of Recovery 542
Time Limitations 544
Damages in Product Liability Cases 544
The No-Privity Defense 548
Tort Cases 548
Warranty Cases 548
Disclaimers and Remedy Limitations 553
Implied Warranty Disclaimers 553
Express Warranty Disclaimers 558
Disclaimers of Tort Liability 558
Limitation of Remedies 558
Defenses 558
The Traditional Defenses 558
Comparative Principles 559
Preemption and Regulatory Compliance? 561
21 Performance of Sales Contracts 571
General Rules 572
Good Faith 572
Course of Dealing 572
Usage of Trade 573
Modification 574
Waiver 574
Assignment 575
Delivery 575
Basic Obligation 575
Place of Delivery 575
Seller’s Duty of Delivery 575
Inspection and Payment 576
Buyer’s Right of Inspection 576
Payment 576
Acceptance, Revocation, and Rejection 576
Acceptance 576
Effect of Acceptance 579
Revocation of Acceptance 579
Buyer’s Rights on Improper Delivery 582
Rejection 582
Right to Cure 584
Buyer’s Duties after Rejection 584
Assurance, Repudiation, and Excuse 585
Assurance 585
Anticipatory Repudiation 585
Excuse 585
mal24980_fm_i-xl.indd xxv
mal24980_fm_i-xl.indd xxv 12/9/11 10:46 AM
12/9/11 10:46 AM

xxvi Contents
Bailments 622
Nature of Bailments 622
Elements of a Bailment 622
Creation of a Bailment 622
Types of Bailments 622
Special Bailments 623
Duties of the Bailee 623
Duty of Bailee to Take Care of Property 623
Bailee’s Duty to Return the Property 624
Bailee’s Liability for Misdelivery 624
Limits on Liability 624
Right to Compensation 626
Bailor’s Liability for Defects in the Bailed Property 626
Special Bailments 627
Common Carriers 627
Hotelkeepers 627
Safe-Deposit Boxes 627
Involuntary Bailments 628
Documents of Title 628
Warehouse Receipts 628
Bills of Lading 630
Duty of Care 630
Negotiation of Document of Title 631
Rights Acquired by Negotiation 631
Warranties of Transferor of Document of Title 632
24 Real Property 636
Scope of Real Property 637
Fixtures 637
Rights and Interests in Real Property 640
Estates in Land 640
Co-ownership of Real Property 640
Interests in Real Property Owned by Others 643
Easements 643
Creation of Easements 644
Profits 644
Licenses 645
Restrictive Covenants 645
Acquisition of Real Property 647
Acquisition by Purchase 647
Acquisition by Gift 647
Acquisition by Will or Inheritance 647
Acquisition by Tax Sale 647
Acquisition by Adverse Possession 648
Transfer by Sale 649
Steps in a Sale 649
Contracting with a Real Estate Broker 649
Contract of Sale 650
Fair Housing Act 650
Deeds 651
Form and Execution of Deed 652
Recording Deeds 652
Methods of Assuring Title 653
Seller’s Responsibilities regarding the Quality of
Residential Property 653
Implied Warranty of Habitability 654
Duty to Disclose Hidden Defects 654
Other Property Condition–Related Obligations of Real
Property Owners and Possessors 654
Expansion of Premises Liability 655
Americans with Disabilities Act 655
Land Use Control 656
Nuisance Law 656
Eminent Domain 657
Zoning and Subdivision Laws 660
Land Use Regulation and Taking 661
25 Landlord and Tenant 666
Leases and Tenancies 667
Nature of Leases 667
Types of Tenancies 667
Execution of a Lease 668
Rights, Duties, and Liabilities of the Landlord 669
Landlord’s Rights 669
Landlord’s Duties 669
Landlord’s Responsibility for Condition of Leased
Property 670
Landlord’s Tort Liability 674
Rights, Duties, and Liabilities of the Tenant 682
Rights of the Tenant 682
Duty to Pay Rent 682
Duty Not to Commit Waste 682
Assignment and Subleasing 682
Tenant’s Liability for Injuries to Third Persons 683
Termination of the Leasehold 683
Eviction 683
Agreement to Surrender 683
Abandonment 683
26 Estates and Trusts 689
The Law of Estates and Trusts 690
Estate Planning 690
Wills 690
Right of Disposition by Will 690
mal24980_fm_i-xl.indd xxvi
mal24980_fm_i-xl.indd xxvi 12/9/11 10:46 AM
12/9/11 10:46 AM

6
Contents xxvii
Property Insurance 717
The Insurable Interest Requirement 717
Covered and Excluded Perils 719
Nature and Extent of Insurer’s
Payment Obligation 722
Right of Subrogation 723
Duration and Cancellation of Policy 724
Liability Insurance 725
Types of Liability Insurance Policies 725
Liabilities Insured Against 725
Insurer’s Obligations 729
Is There a Liability Insurance Crisis? 733
Bad Faith Breach of Insurance Contract 734
Part 6 Credit
28 Introduction to Credit and Secured
Transactions 742
Credit 743
Unsecured Credit 743
Secured Credit 743
Development of Security 743
Security Interests in Personal Property 744
Security Interests in Real Property 744
Suretyship and Guaranty 744
Sureties and Guarantors 744
Creation of Principal and Surety Relation 745
Defenses of a Surety 745
Creditor’s Duties to Surety 746
Subrogation, Reimbursement, and Contribution 747
Liens on Personal Property 748
Security Interests in Personal Property and Fixtures under
the Uniform Commercial Code 748
Common Law Liens 748
Statutory Liens 748
Characteristics of Liens 748
Foreclosure of Lien 752
Security Interests in Real Property 752
Historical Developments of Mortgages 752
Form, Execution, and Recording 752
Rights and Liabilities 752
Foreclosure 753
Right of Redemption 753
Recent Development Concerning Foreclosures 754
Deed of Trust 755
Land Contracts 756
Nature of a Will 690
Common Will Terminology 690
Testamentary Capacity 691
Execution of a Will 691
Incorporation by Reference 693
Informal Wills 693
Joint and Mutual Wills 693
Construction of Wills 694
Limitations on Disposition by Will 694
Revocation of Wills 695
Codicils 695
Advance Directives: Planning for Disability 695
Living Wills 695
Durable Power of Attorney 696
Durable Power of Attorney for Health Care 697
Federal Law and Advance Directives 697
Intestacy 697
Characteristics of Intestacy Statutes 697
Special Rules 699
Simultaneous Death 699
Administration of Estates 700
The Probate Estate 700
Determining the Existence of a Will 700
Selecting a Personal Representative 700
Responsibilities of the Personal Representative 700
Trusts 701
Nature of a Trust 701
Trust Terminology 701
Why People Create Trusts 701
Creation of Express Trusts 702
Charitable Trusts 702
Totten Trusts 704
Powers and Duties of the Trustee 704
Liability of Trustee 704
Spendthrift Trusts 704
Termination and Modification of a Trust 705
Implied and Constructive Trusts 705
27 Insurance Law 709
Nature and Beneﬁts of Insurance Relationships 710
Insurance Policies as Contracts 711
Interested Parties 711
Offer, Acceptance, and Consideration 711
Effect of Insured’s Misrepresentation 714
Legality 715
Form and Content of Insurance Contracts 715
Performance and Breach by Insurer 716
mal24980_fm_i-xl.indd xxvii
mal24980_fm_i-xl.indd xxvii 12/9/11 10:46 AM
12/9/11 10:46 AM

xxviii Contents
Mechanic’s and Materialman’s Liens 757
Rights of Subcontractors and Materialmen 757
Basis for Mechanic’s or Materialman’s Lien 757
Requirements for Obtaining Lien 758
Priorities and Foreclosure 758
Waiver of Lien 761
29 Security Interests in Personal Property 764
Article 9 765
Security Interests under the Code 765
Security Interests 765
Types of Collateral 765
Obtaining a Security Interest 766
Attachment of the Security Interest 766
Attachment 766
The Security Agreement 766
Future Advances 768
After-Acquired Property 768
Proceeds 768
Perfecting the Security Interest 769
Perfection 769
Perfection by Public Filing 769
Possession by Secured Party as Public Notice 772
Control 772
Perfection by Attachment/Automatic Perfection 772
Motor Vehicles 773
Fixtures 775
Priority Rules 775
Importance of Determining Priority 775
General Priority Rules 775
Purchase Money Security Interest in Inventory 775
Purchase Money Security Interest in Noninventory
Collateral 777
Rationale for Protecting Purchase Money Security
Interests 777
Buyers in the Ordinary Course of Business 778
Artisan’s and Mechanic’s Liens 778
Liens on Consumer Goods Perfected by Attachment/
Automatic Perfection 778
Fixtures 778
Default and Foreclosure 781
Default 781
Right to Possession 781
Sale of the Collateral 781
Consumer Goods 781
Distribution of Proceeds 781
Liability of Creditor 783
30 Bankruptcy 789
The Bankruptcy Code 790
Bankruptcy Proceedings 790
Liquidations 790
Reorganizations 791
Family Farms 791
Consumer Debt Adjustments 791
The Bankruptcy Courts 791
Chapter 7: Liquidation Proceedings 791
Petitions 791
Involuntary Petitions 791
Automatic Stay Provisions 792
Order of Relief 793
Meeting of Creditors and Election of Trustee 793
Duties of the Trustee 793
The Bankruptcy Estate 794
Exemptions 794
Avoidance of Liens 797
Redemptions 797
Preferential Payments 797
Preferential Liens 798
Transactions in the Ordinary Course of Business 798
Fraudulent Transfers 798
Claims 801
Allowable Claims 801
Secured Claims 801
Priority Claims 801
Distribution of the Debtor’s Estate 802
Discharge in Bankruptcy 802
Discharge 802
Objections to Discharge 802
Acts That Bar Discharge 804
Nondischargeable Debts 804
Reaffirmation Agreements 805
Dismissal for Substantial Abuse 806
Chapter 11: Reorganizations 810
Reorganization Proceeding 810
Use of Chapter 11 813
Collective Bargaining Agreements 814
Chapter 12: Family Farmers and Fishermen 814
Relief for Family Farmers and Fishermen 814
Chapter 13: Consumer Debt Adjustments 816
Relief for Individuals 816
Procedure 816
Discharge 818
Advantages of Chapter 13 819
mal24980_fm_i-xl.indd xxviii
mal24980_fm_i-xl.indd xxviii 12/9/11 10:46 AM
12/9/11 10:46 AM

7
Contents xxix
Holder in Due Course 846
General Requirements 848
Holder 848
Value 850
Good Faith 850
Overdue or Dishonored 850
Notice of Unauthorized Signature or Alteration 851
Notice of Claims 851
Irregular and Incomplete Instruments 852
Shelter Rule 853
Rights of a Holder in Due Course 854
Claims and Defenses Generally 854
Importance of Being a Holder in Due Course 854
Real Defenses 854
Personal Defenses 856
Claims to the Instrument 858
Claims in Recoupment 858
Changes in the Holder in Due Course Rule for
Consumer Credit Transactions 858
Consumer Disadvantages 858
State Consumer Protection Legislation 859
Federal Trade Commission Regulation 860
33 Liability of Parties 865
Liability in General 866
Contractual Liability 866
Primary and Secondary Liability 866
Obligation of a Maker 866
Obligation of a Drawee or an Acceptor 867
Obligation of a Drawer 868
Obligation of an Indorser 868
Obligation of an Accommodation Party 870
Signing an Instrument 870
Signature by an Authorized Agent 870
Unauthorized Signature 872
Contractual Liability in Operation 872
Presentment of a Note 872
Presentment of a Check or a Draft 873
Time of Presentment 874
Warranty Liability 874
Transfer Warranties 874
Presentment Warranties 876
Payment or Acceptance by Mistake 877
Operation of Warranties 878
Other Liability Rules 879
Negligence 879
Impostor Rule 879
Part 7 Commercial Paper
31 Negotiable Instruments 824
Nature of Negotiable Instruments 825
Uniform Commercial Code 825
Negotiable Instruments 825
Negotiability 825
Kinds of Negotiable Instruments 826
Promissory Notes 826
Certificates of Deposit 826
Drafts 828
Checks 828
Beneﬁts of Negotiable Instruments 829
Rights of an Assignee of a Contract 829
Rights of a Holder of a Negotiable Instrument 830
Formal Requirements for Negotiability 830
Basic Requirements 830
Importance of Form 831
In Writing 831
Signed 831
Unconditional Promise or Order 831
Requirement of a Promise or Order 831
Promise or Order Must Be Unconditional 831
Fixed Amount of Money 832
Fixed Amount 832
Payable in Money 833
Payable on Demand or at a Deﬁnite Time 833
Payable on Demand 833
Payable at a Definite Time 833
Payable to Order or Bearer 834
Special Terms 836
Additional Terms 836
Ambiguous Terms 838
32 Negotiation and Holder in Due Course 840
Negotiation 841
Nature of Negotiation 841
Formal Requirements for Negotiation 841
Nature of Indorsement 841
Wrong or Misspelled Name 842
Checks Deposited without Indorsement 842
Transfer of Order Instrument 842
Indorsements 843
Effects of an Indorsement 843
Kinds of Indorsements 844
Rescission of Indorsement 846
mal24980_fm_i-xl.indd xxix
mal24980_fm_i-xl.indd xxix 12/9/11 10:46 AM
12/9/11 10:46 AM

9
8
xxx Contents
Fictitious Payee Rule 880
Comparative Negligence Rule concerning Impostors and
Fictitious Payees 880
Fraudulent Indorsements by Employees 880
Conversion 883
Discharge of Negotiable Instruments 884
Discharge of Liability 884
Discharge by Payment 884
Discharge by Cancellation 884
Altered Instruments; Discharge by Alteration 884
Discharge of Indorsers and Accommodation Parties 886
34 Checks and Electronic Transfers 889
The Drawer–Drawee Relationship 890
Bank’s Duty to Pay 890
Bank’s Right to Charge to Customer’s Account 890
Stop-Payment Order 892
Bank’s Liability for Payment after Stop-Payment
Order 893
Certified Check 895
Cashier’s Check 896
Death or Incompetence of Customer 896
Forged and Altered Checks 897
Bank’s Right to Charge Account 897
Customer’s Duty to Report Forgeries and Alterations 899
Check Collection and Funds Availability 902
Check Collection 902
Funds Availability 905
Check 21 906
Electronic Transfers 907
Electronic Funds Transfer Act 908
Wire Transfers 909
Part 8 Agency Law
35 The Agency Relationship 916
Creation of an Agency 917
Formation 917
Capacity 917
Nondelegable Obligations 917
Agency Concepts, Deﬁnitions, and Types 918
Authority 918
General and Special Agents 919
Gratuitous Agents 919
Subagents 919
Employees and Nonemployee Agents 919
Duties of Agent to Principal 922
Agent’s Duty of Loyalty 922
Agent’s Duty to Obey Instructions 923
Agent’s Duty to Act with Care and Skill 924
Agent’s Duty to Provide Information 924
Agent’s Duties of Segregation, Record-Keeping, and
Accounting 924
Duty Not to Receive a Material Benefit 924
Duty of Good Conduct 924
Duties of Principal to Agent 926
Duty to Compensate Agent 926
Duties of Reimbursement and Indemnity 927
Termination of an Agency 927
Termination by Act of the Parties 927
Termination by Operation of Law 928
Termination of Agency Powers Given as Security 928
Effect of Termination on Agent’s Authority 929
36 Third-Party Relations of the Principal and
the Agent 934
Contract Liability of the Principal 935
Actual Authority 935
Apparent Authority 936
Agent’s Notification and Knowledge 938
Ratification 938
Contracts Made by Subagents 940
Contract Liability of the Agent 940
The Nature of the Principal 940
Liability of Agent by Agreement 942
Implied Warranty of Authority 943
Tort Liability of the Principal 944
Respondeat Superior Liability 944
Direct Liability 946
Liability for Torts of Nonemployee Agents 947
Liability for Agent’s Misrepresentations 947
Tort Liability of the Agent 948
Tort Suits against Principal and Agent 949
Part 9 Partnerships
37 Introduction to Forms of Business and
Formation of Partnerships 954
Choosing a Form of Business 955
Sole Proprietorship 955
Partnership 955
Limited Liability Partnership 956
mal24980_fm_i-xl.indd xxx
mal24980_fm_i-xl.indd xxx 12/9/11 10:46 AM
12/9/11 10:46 AM

Contents xxxi
Tort Liability and Limited Liability Partnerships 985
Crimes 985
Lawsuits by and against Partnerships and
Partners 985
Limited Liability Partnerships 986
39 Partners’ Dissociation and Partnerships’
Dissolution and Winding Up 990
Dissociation 991
Nonwrongful Dissociation 991
Wrongful Dissociation 992
Acts Not Causing Dissociation 992
Effect of Partnership Agreement 992
Dissolution and Winding Up the Partnership
Business 993
Events Causing Dissolution and Winding Up 993
Joint Ventures and Mining Partnerships 995
Performing Winding Up 996
Partner’s Authority during Winding Up 996
Distribution of Dissolved Partnership’s Assets 998
Asset Distributions in a Limited Liability Partnership 998
Termination 999
When the Business Is Continued 999
Successor’s Liability for Predecessor’s Obligations 999
Dissociated Partner’s Liability for Obligations Incurred
While a Partner 999
Dissociated Partner’s Liability for Obligations Incurred
after Leaving the Partnership 999
Effect of LLP Status 1000
Buyout of Dissociated Partners 1000
Partners Joining an Existing Partnership 1003
Liability of New Partners 1003
40 Limited Liability Companies, Limited
Partnerships, and Limited Liability Limited
Partnerships 1008
Limited Liability Companies 1009
Tax Treatment of LLCs 1009
Formation of LLCs 1009
Members’ Rights and Liabilities 1010
Members’ Dissociations and LLC Dissolution 1013
Limited Partnerships and Limited Liability Limited
Partnerships 1016
The Uniform Limited Partnership Acts 1016
Use of Limited Partnerships and LLLPs 1017
Creation of Limited Partnerships and LLLPs 1018
Creation of LLLPs 1018
Limited Partnership 956
Limited Liability Limited Partnership 957
Corporation 957
Professional Corporation 957
Limited Liability Company 958
Partnerships 960
Creation of Partnership 960
RUPA Definition of Partnership 961
Creation of Joint Ventures 962
Creation of Mining Partnerships 965
Creation of Limited Liability Partnerships 965
Purported Partners 965
Purporting to Be a Partner 965
Reliance Resulting in a Transaction with the
Partnership 965
Effect of Purported Partnership 966
Partnership Capital 968
Partnership Property 968
Examples 968
Partner’s Partnership Interest 970
Partner’s Transferable Interest 970
38 Operation of Partnerships and Related
Forms 974
Duties of Partners to the Partnership and Each
Other 975
Having Interest Adverse to Partnership 975
Competing against the Partnership 975
Duty to Serve 975
Duty of Care 975
Duty to Act within Actual Authority 976
Duty to Account 976
Other Duties 976
Compensation of Partners 976
Profits and Losses 976
Management Powers of Partners 979
Individual Authority of Partners 979
Special Transactions 980
Disagreement among Partners: Ordinary Course
of Business 981
When Unanimous Partners’ Agreement Required 982
Liability for Torts and Crimes 984
Torts 984
mal24980_fm_i-xl.indd xxxi
mal24980_fm_i-xl.indd xxxi 12/9/11 10:46 AM
12/9/11 10:46 AM

Wassim Zhani Business Law by Mallor 15th Edition.pdf

Wassim Zhani Business Law by Mallor 15th Edition.pdf

Recommended

Recommended

More Related Content

Similar to Wassim Zhani Business Law by Mallor 15th Edition.pdf

Similar to Wassim Zhani Business Law by Mallor 15th Edition.pdf (20)

More from Wassim Zhani

More from Wassim Zhani (20)

Recently uploaded

Recently uploaded (20)

Wassim Zhani Business Law by Mallor 15th Edition.pdf