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Brief Contents
Preface xxvii Part VI Business Organizations,
Corporate Governance,
Part I Legal, Ethical, and Digital And Investor Protection . . . 437
Environment . . . . . . . . . . . . . . . . 1 25 Agency Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
1 Legal Heritage and the Digital Age . . . . . . . . . . . . . . . . . 2
26 Small Business, Entrepreneurship, and Partnerships . . 457
2 Constitutional Law for Business and E-Commerce . . . 19
27 Corporate Formation and Financing . . . . . . . . . . . . . . 477
3 Courts and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 40
28 Corporate Governance and Sarbanes-Oxley Act . . . . . 497
4 Judicial, Alternative, Administrative, and E-Dispute
29 Corporate Acquisitions and Multinational
Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515
5 Intentional Torts and Negligence . . . . . . . . . . . . . . . . . 85
30 Limited Liability Companies and Limited Liability
6 Criminal Law and Cyber Crimes . . . . . . . . . . . . . . . . . 105 Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531
7 Intellectual Property and Cyber Piracy . . . . . . . . . . . . 130 31 Franchise and Special Forms of Business . . . . . . . . . . 548
8 Ethics and Social Responsibility of Business . . . . . . . . 154 32 Investor Protection, E-Securities, and Wall Street
Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563
Part II Contracts and E-Commerce 169
9 Nature of Traditional and E-Contracts . . . . . . . . . . . . 170 Part VII Government Regulation
10 Agreement and Consideration . . . . . . . . . . . . . . . . . . . 183 And Employment Law . . . . . . 587
11 Capacity and Legality . . . . . . . . . . . . . . . . . . . . . . . . . 201 33 Antitrust Law and Unfair Trade Practices . . . . . . . . . . 588
12 Genuineness of Assent and Statute of Frauds . . . . . . . 217 34 Consumer Safety and Environmental Protection . . . . 606
13 Third-Party Rights and Discharge . . . . . . . . . . . . . . . 235 35 Labor, Worker Protection, and Immigration Laws . . . 628
14 Breach of Contract and Remedies . . . . . . . . . . . . . . . . 252 36 Equal Opportunity in Employment . . . . . . . . . . . . . . . 647
15 Digital Law and E-Commerce . . . . . . . . . . . . . . . . . . 270
Part VIII Property, Insurance, and
Part III Sales and Lease Contracts Estates . . . . . . . . . . . . . . . . . . 669
and Product Liability . . . . . . 285 37 Personal Property, Bailment, and Insurance . . . . . . . . 670
16 Formation of Sales and Lease Contracts . . . . . . . . . . . 286 38 Real Property, Landlord–Tenant Law,
17 Title to Goods and Risk of Loss . . . . . . . . . . . . . . . . . 300 and Land Use Regulation . . . . . . . . . . . . . . . . . . . . . . 689
18 Remedies for Breach of Sales and Lease Contracts . . . 312 39 Family Law, Wills, and Trusts . . . . . . . . . . . . . . . . . . 712
19 Warranties and Product Liability . . . . . . . . . . . . . . . . 326
Part IX Accounting Profession . . . . 735
Part IV Negotiable Instruments, 40 Accountants’ Duties and Liability . . . . . . . . . . . . . . . . 736
Banking, and Electronic
Part X Global Environment . . . . . . . 753
Financial Transactions . . . . 347
41 International and World Trade Law . . . . . . . . . . . . . . 754
20 Creation and Transfer of Negotiable Instruments . . . . 348
21 Holder in Due Course and Liability of Parties . . . . . . 366 Appendix The Constitution
22 Banking System and Electronic Financial Of The United States
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 Of America . . . . . . . . . . . 777
Part V Credit, Secured Transactions, Case Index . . . . . . . . . . . . . . . . . . . . . . 785
and Bankruptcy . . . . . . . . . . . 395 Subject Index . . . . . . . . . . . . . . . . . . . 789
23 Credit, Real Property Financing, and Secured
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
24 Bankruptcy and Reorganization . . . . . . . . . . . . . . . . . . 416
vii
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Contents
Preface xxvii Doctrine of Separation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . 21

Checks and Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Supremacy Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Part I Legal, Ethical, and Digital Case 2.1 • U.S. Supreme Court Case • Supremacy Clause •
Mutual Pharmaceutical Company, Inc. v. Bartlett . . . . . . . . . . 23
Environment . . . . . . . . . . . . . . 1 Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Commerce with Native Americans . . . . . . . . . . . . . . . . . . . . . . . . 24
1 Legal Heritage and the Foreign Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Digital Age�� 2 Interstate Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Landmark U.S. Supreme Court Case • Heart of Atlanta Motel
Introduction to Legal Heritage and The Digital Age . . . . . . 3
v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
What Is Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
State Police Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Definition of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Dormant Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Functions of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
E-Commerce and the Constitution . . . . . . . . . . . . . . . . . . 26
Fairness of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Digital Law • E-Commerce and the Commerce Clause . . . . . . . . . . . 27
Flexibility of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Bill of Rights and other Amendments to
Landmark U.S. Supreme Court Case • Brown v. Board of Education . . 5
the U.S. Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Schools of Jurisprudential Thought . . . . . . . . . . . . . . . . . . 6
Freedom of Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Natural Law School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fully Protected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Historical School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Case 2.2 • U.S. Supreme Court Case • Free Speech and Violent
Analytical School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Video Games • Brown, Governor of California v. Entertainment
Sociological School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Merchants Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Command School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Limited Protected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Critical Legal Studies School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Unprotected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Law and Economics School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Case 2.3 • U.S. Supreme Court Case • Free Speech • Snyder v. Phelps . . . 31
Global Law • Command School of Jurisprudence of Cuba . . . . . . . . . 8
Freedom of Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
History of American Law . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Establishment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
English Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Free Exercise Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Landmark Law • Adoption of English Common Law in America . . . . . 9
Equal Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Global Law • Civil Law System of France and Germany . . . . . . . . . . 10
Standards of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Sources of Law in the United States . . . . . . . . . . . . . . . . 10
Case 2.4 • U.S. Supreme Court Case • Equality •
Constitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
United States v. Windsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Substantive Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Contemporary Environment • How a Bill Becomes Law . . . . . . . . . . 11
Procedural Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
State Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Privileges and Immunities . . . . . . . . . . . . . . . . . . . . . . . . 36
Ordinances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Global Law • Human Rights Violations in Myanmar . . . . . . . . . . . . . 36
Executive Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 37
Regulations and Orders of Administrative Agencies . . . . . . . . . . 12
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 37
Judicial Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Priority of Law in the United States . . . . . . . . . . . . . . . . . . . . . . . 14
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Digital Law • Law in the Digital Age . . . . . . . . . . . . . . . . . . . . . . . . 14
Critical Legal Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Defining Critical Legal Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3 Courts And Jurisdiction�� 40
Socratic Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Introduction to Courts and Jurisdiction . . . . . . . . . . . . . . 41
IRAC Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 State Court Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
U.S. Supreme Court Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Limited-Jurisdiction Trial Courts . . . . . . . . . . . . . . . . . . . . . . . . . 41
Case 1.1 • U.S. Supreme Court Case • Voting Rights Act • Shelby General-Jurisdiction Trial Courts . . . . . . . . . . . . . . . . . . . . . . . . . 41
County, Texas v. Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Intermediate Appellate Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 17 Highest State Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 17 Business Environment • Delaware Courts Specialize in
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Business Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Federal Court System . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Special Federal Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Contemporary Environment • Foreign Intelligence
2 Constitutional Law for Business Surveillance Court (FISA Court) . . . . . . . . . . . . . . . . . . . . . . . 46
and E-Commerce �� 19 U.S. District Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Introduction to Constitutional Law for Business and U.S. Courts of Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Supreme Court of The United States . . . . . . . . . . . . . . . . 47
Constitution of the United States of America . . . . . . . . . 20 Contemporary Environment • Process of Choosing
Federalism and Delegated Powers . . . . . . . . . . . . . . . . . . . . . . . . 21 a U.S. Supreme Court Justice . . . . . . . . . . . . . . . . . . . . . . . . . 48
ix
x Contents
Jurisdiction of the U.S. Supreme Court . . . . . . . . . . . . . . . . . . . . 48 Closing Arguments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Decisions of the U.S. Supreme Court . . . . . . . . . . . . . . . . . . . . . . 48 Jury Instructions, Deliberation, and Verdict . . . . . . . . . . . . . . . . . 72
Contemporary Environment • “I’ll Take You to the Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
U.S. Supreme Court!” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 E-Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Jurisdiction of Federal Courts . . . . . . . . . . . . . . . . . . . . . 50 Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Federal Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Case 4.4 • U.S. Supreme Court Case • Appeal •
Diversity of Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Cavazos, Acting Warden v. Smith . . . . . . . . . . . . . . . . . . . . . . 73
Case 3.1 • U.S. Supreme Court Case • Diversity of Citizenship • Global Law • British Legal System . . . . . . . . . . . . . . . . . . . . . . . . . 74
Hertz Corporation v. Friend . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Alternative Dispute Resolution . . . . . . . . . . . . . . . . . . . . 75
Jurisdiction of State Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Standing to Sue, Jurisdiction, and Venue . . . . . . . . . . . . . 53 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Standing to Sue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Landmark Law • Federal Arbitration Act . . . . . . . . . . . . . . . . . . . . . 76
In Personam Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Case 3.2 • Federal Court Case • Service of Process • Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Facebook, Inc. v. Banana Ads LLC . . . . . . . . . . . . . . . . . . . . . . 53 Case 4.5 • U.S. Supreme Court Case • Arbitration •
Long-Arm Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Nitro-Lift Technologies, L.L.C. v. Howard . . . . . . . . . . . . . . . . . 77
Landmark U.S. Supreme Court Case • International Shoe Critical Legal Thinking Case • Class Action Waiver •
Company v. State of Washington . . . . . . . . . . . . . . . . . . . . . . 54 AT&T Mobility LLC v. Concepcion . . . . . . . . . . . . . . . . . . . . . . 78
In Rem Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 E-Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Quasi In Rem Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Administrative Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Cabinet-Level Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Forum-Selection and Choice-of-Law Clauses . . . . . . . . . . . . . . . 56 Federal Administrative Agencies . . . . . . . . . . . . . . . . . . . . . . . . . 80
Jurisdiction in Cyberspace . . . . . . . . . . . . . . . . . . . . . . . 56 Landmark Law • Administrative Procedure Act . . . . . . . . . . . . . . . . 80
Case 3.3 • Federal Court Case • Jurisdiction over an Internet Administrative Law Judge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Seller • Chanel, Inc. v. Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Delegation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Global Law • Judicial System of Japan . . . . . . . . . . . . . . . . . . . . . . 58 State and Local Administrative Agencies . . . . . . . . . . . . . . . . . . . 80
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 58 Judicial Review of Administrative Agency Actions . . . . . . . . . . . 81
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 59 Global Law • Solving Tribal Disputes, Mali, West Africa . . . . . . . . . . 81
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 82
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 82
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4 Judicial, Alternative,
Administrative, and E-Dispute
Resolution�� 61 5 Intentional Torts and
Introduction to Judicial, Alternative, Administrative, Negligence�� 85
and E-Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 62 Introduction to Intentional Torts and Negligence . . . . . . . 86
Pretrial Litigation Process . . . . . . . . . . . . . . . . . . . . . . . 62 Intentional Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Pleadings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Assault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Complaint and Summons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Battery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Answer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 False Imprisonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Cross-Complaint and Reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Shoplifting and Merchant Protection Statutes . . . . . . . . . . . . . . . 87
Intervention and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Case 5.1 • State Court Case • False Imprisonment • Wal-Mart
Class Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Stores, Inc. v. Cockrell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Case 4.1 • U.S. Supreme Court Case • Class Action Lawsuit • Misappropriation of the Right to Publicity . . . . . . . . . . . . . . . . . 88
Wal-Mart Stores, Inc. v. Dukes . . . . . . . . . . . . . . . . . . . . . . . . 65 Invasion of the Right to Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Defamation of Character . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Disparagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Deposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Intentional Misrepresentation (Fraud) . . . . . . . . . . . . . . . . . . . . . 89
Interrogatories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Intentional Infliction of Emotional Distress . . . . . . . . . . . . . . . . 90
Production of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Malicious Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Physical or Mental Examination . . . . . . . . . . . . . . . . . . . . . . . . . 67 Unintentional Torts (Negligence) . . . . . . . . . . . . . . . . . . 91
Case 4.2 • State Court Case • Discovery • 1. Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Averyt v. Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 67 2. Breach of the Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Pretrial Motions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Ethics • Ouch! McDonald’s Coffee Is Too Hot! . . . . . . . . . . . . . . . . . 92
Motion for Judgment on the Pleadings . . . . . . . . . . . . . . . . . . . . 68 3. Injury to Plaintiff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Motion for Summary Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . 68 4. Actual Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Case 4.3 • State Court Case • Summary Judgment • Case 5.2 • State Court Case • Negligence •
Murphy v. McDonald’s Restaurants of Ohio . . . . . . . . . . . . . . . 69 Carter v. Indianapolis Power & Light Company
Settlement Conference . . . . . . . . . . . . . . . . . . . . . . . . . 69 and Indiana Bell Telephone Company, Inc. . . . . . . . . . . . . . . . 94
Contemporary Environment • Cost–Benefit Analysis of a Lawsuit . . . 70 5. Proximate Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Critical Legal Thinking Case • Proximate Cause •
Jury Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Palsgraf v. The Long Island Railroad Company . . . . . . . . . . . . . 95
Opening Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Case 5.3 • Federal Court Case • Duty of Care •
The Plaintiff ’s Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 James v. Meow Media, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
The Defendant’s Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Special Negligence Doctrines . . . . . . . . . . . . . . . . . . . . . 96
Rebuttal and Rejoinder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Professional Malpractice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Contents xi
Negligent Infliction of Emotional Distress . . . . . . . . . . . . . . . . . 97 Critical Legal Thinking Case • Exclusionary Rule • Arizona v. Gant . . . . 122
Negligence Per Se . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Fifth Amendment Privilege Against Self-Incrimination . . 123
Res Ipsa Loquitur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Miranda Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Attractive Nuisance Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Attorney–Client Privilege and Other Privileges . . . . . . . . . . . . . 124
Case 5.4 • State Court Case • Negligence • Immunity from Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Choate v. Indiana Harbor Belt Railroad Company . . . . . . . . . . 98 Other Constitutional Protections . . . . . . . . . . . . . . . . . 125
Good Samaritan Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Fifth Amendment Protection Against Double Jeopardy . . . . . . 125
Defenses Against Negligence . . . . . . . . . . . . . . . . . . . . 100 Sixth Amendment Right to a Public Jury Trial . . . . . . . . . . . . . 125
Superseding or Intervening Event . . . . . . . . . . . . . . . . . . . . . . . 100 Eighth Amendment Protection Against Cruel and
Assumption of the Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Unusual Punishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Case 5.5 • State Court Case • Assumption of the Risk • Global Law • France Does Not Impose the Death Penalty . . . . . . . 126
Lilya v. The Greater Gulf State Fair, Inc. . . . . . . . . . . . . . . . . . 100 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 126
Contributory and Comparative Negligence . . . . . . . . . . . . . . . . 101 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 127
Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 102 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 102
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 7 Intellectual Property and
Cyber Piracy �� 130
Introduction to Intellectual Property and Cyber Piracy . . 131
6 Criminal Law and Cyber Crimes�� 105 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Introduction to Criminal Law and Cyber Crimes . . . . . . . 106 Trade Secret . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Definition of a Crime . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Reverse Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Penal Codes and Regulatory Statutes . . . . . . . . . . . . . . . . . . . . . 106 Civil Trade Secret Law: Misappropriation of a Trade Secret . . . 132
Parties to a Criminal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Criminal Trade Secret Law: Economic Espionage Act . . . . . . . 133
Classification of Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Ethics • Coca-Cola Employee Tries to Sell Trade Secrets
Intent Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 to Pepsi-Cola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Nonintent Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Contemporary Environment • Criminal Acts as U.S. Court of Appeals for the Federal Circuit . . . . . . . . . . . . . . 134
the Basis for Tort Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Patent Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Criminal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Subject Matter That Can Be Patented . . . . . . . . . . . . . . . . . . . . 134
Arrest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Requirements for Obtaining a Patent . . . . . . . . . . . . . . . . . . . . . 135
Indictment or Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Case 7.1 • U.S. Supreme Court Case • Patent • Association for
Arraignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Molecular Pathology v. Myriad Genetics, Inc. . . . . . . . . . . . . . 136
Plea Bargain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Patent Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Criminal Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Provisional Patent Application . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Common Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Patent Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Murder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Design Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Case 6.1 • State Court Case • Murder • State of Ohio v. Wilson . . . 113 Contemporary Environment • Leahy-Smith America
Robbery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Invents Act (AIA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Burglary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Larceny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Tangible Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Registration of Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Receiving Stolen Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Copyright Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Arson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Civil Copyright Law: Copyright Infringement . . . . . . . . . . . . . 140
Business and White-Collar Crimes . . . . . . . . . . . . . . . . . 115 Critical Legal Thinking Case • Cyber Piracy • BMG Music v. Gonzalez . . . . 141
Forgery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Fair Use Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Embezzlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Case 7.2 • U.S. Supreme Court Case • Copyright •
Bribery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Kirtsaeng v. John Wiley & Sons, Inc. . . . . . . . . . . . . . . . . . . . 142
Extortion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Criminal Copyright Law: No Electronic Theft Act . . . . . . . . . . 142
Criminal Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Digital Law • Digital Millennium Copyright Act . . . . . . . . . . . . . . . 143
Mail Fraud and Wire Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Registration of a Mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Racketeer Influenced and Corrupt Organizations Act (RICO) ��117 Types of Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Criminal Conspiracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Distinctiveness or Secondary Meaning . . . . . . . . . . . . . . . . . . . . 146
Business Environment • Corporate Criminal Liability . . . . . . . . . . . 118 Trademark Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Cyber Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Case 7.3 • Federal Court Case • Trademark Infringement • Intel
Information Infrastructure Protection Act (IIP Act) . . . . . . . . . 119 Corporation v. Intelsys Software, LLC . . . . . . . . . . . . . . . . . . 146
Digital Law • Internet and Identity Theft . . . . . . . . . . . . . . . . . . . . 119 Generic Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Counterfeit Access Device and Computer Fraud Diluting, Blurring, or Tarnishing Trademarks . . . . . . . . . . . . . . 149
and Abuse Act (CFAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Case 7.4 • Federal Court Case • Dilution of a Trademark • V Secret
Case 6.2 • Federal Court Case • Computer Crimes • Catalogue, Inc. and Victoria’s Secret Stores,
United States v. Barrington . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Inc. v. Moseley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Fourth Amendment Protection Against Unreasonable Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 150
Search and Seizure . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Global Law • International Protection of Intellectual Property . . . . 151
Exclusionary Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 152
Case 6.3 • U.S. Supreme Court Case • Search • Maryland v. King . . 121 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Searches of Business Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
xii Contents
8 Ethics and Social Responsibility Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Critical Legal Thinking Case • Equity • Romasanta v. Mitton . . . . . . 180
of Business�� 154 Global Law • International Contract Law in India . . . . . . . . . . . . . 180
Introduction to Ethics and Social Responsibility Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 181
of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 181
Ethics and the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Case 8.1 • U.S. Supreme Court Case • Business Ethics • Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Wal-Mart Stores, Inc. v. Samara Brothers, Inc. . . . . . . . . . . . 156
Business Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Ethical Fundamentalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 10 Agreement And Consideration �� 183
Critical Legal Thinking Case • Whistleblower Statute • United States
Introduction to Agreement and Consideration . . . . . . . . 184
ex. rel. Estate of George Couto v. Bayer Corporation . . . . . . . 157
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Utilitarianism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Kantian Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Express Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Rawls’s Social Justice Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Implied Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Ethical Relativism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Communication of an Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Ethics • Bernie Madoff Steals Billions of Dollars in Fraudulent
Case 10.1 • Federal Court Case • Contract • Marder v. Lopez . . . . . 186
Investment Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Special Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Social Responsibility of Business . . . . . . . . . . . . . . . . . 160
Advertisements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Maximize Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Ethics • Is the Outsourcing of U.S. Jobs to Foreign
Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Countries Ethical? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Termination of an Offer . . . . . . . . . . . . . . . . . . . . . . . . . 188
Moral Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Revocation of an Offer by the Offeror . . . . . . . . . . . . . . . . . . . . 188
Stakeholder Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Rejection of an Offer by the Offeree . . . . . . . . . . . . . . . . . . . . . 188
Corporate Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Counteroffer by the Offeree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Ethics • Sarbanes-Oxley Act Requires Public
Case 10.2 • State Court Case • Counteroffer • Ehlen v. Melvin . . . . 189
Companies to Adopt Codes of Ethics . . . . . . . . . . . . . . . . . . 162
Business Environment • Option Contract . . . . . . . . . . . . . . . . . . . . 189
Case 8.2 • Supreme Court Case • Humanitarian Violations •
Termination of an Offer by Operation of Law . . . . . . . . . . . . . . 190
Kiobel v. Royal Dutch Petroleum Company . . . . . . . . . . . . . . 164
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Global Law • Conducting Business in Russia . . . . . . . . . . . . . . . . 165
Who Can Accept an Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 166
Unequivocal Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Mirror Image Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Time of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Mode of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Requirements of Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 193
Part II Contracts and Gift Promise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
E-Commerce . . . . . . . . . . . . . 169 Case 10.3 • State Court Case • Gifts and Gift Promises •
Cooper v. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Promises That Lack Consideration . . . . . . . . . . . . . . . . 194
9 Nature of Traditional and Illegal Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
E-Contracts�� 170 Illusory Promise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Introduction to Nature of Traditional and E-Contracts . . . 171 Preexisting Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Definition of a Contract . . . . . . . . . . . . . . . . . . . . . . . . 171 Past Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Parties to a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Business Environment • Special Business Contracts . . . . . . . . . . . 196
Elements of a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Settlement of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Defenses to the Enforcement of a Contract . . . . . . . . . . . . . . . . 172 Equity: Promissory Estoppel . . . . . . . . . . . . . . . . . . . . . 196
Sources of Contract Law . . . . . . . . . . . . . . . . . . . . . . . 172 Global Law • Contract Law of China . . . . . . . . . . . . . . . . . . . . . . . 197
Common Law of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 198
Uniform Commercial Code (UCC) . . . . . . . . . . . . . . . . . . . . . . 172 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 198
The Restatement of the Law of Contracts . . . . . . . . . . . . . . . . . 173 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Objective Theory of Contracts . . . . . . . . . . . . . . . . . . . 173 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Case 9.1 • Federal Court Case • Contract • Facebook, Inc. v.
Winklevoss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 11 Capacity and Legality�� 201
Digital Law • Electronic Contracts and Licenses . . . . . . . . . . . . . . 175 Introduction to Capacity and Legality . . . . . . . . . . . . . . 202
Classifications of Contracts . . . . . . . . . . . . . . . . . . . . . 175 Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Bilateral and Unilateral Contracts . . . . . . . . . . . . . . . . . . . . . . . 175 Infancy Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Formal and Informal Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 176 Disaffirmance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Valid, Void, Voidable, and Unenforceable Contracts . . . . . . . . . . 176 Duties of Restoration and Restitution . . . . . . . . . . . . . . . . . . . . 203
Executed and Executory Contracts . . . . . . . . . . . . . . . . . . . . . . 177 Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Express and Implied Contracts . . . . . . . . . . . . . . . . . . . 177 Parents’ Liability for Their Children’s Contracts . . . . . . . . . . . . 204
Express Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Necessaries of Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Implied-in-Fact Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Contemporary Environment • Special Types of Minors’ Contracts . 204
Case 9.2 • Federal Court Case • Implied-in-Fact Contract • Wrench Mentally Incompetent Persons . . . . . . . . . . . . . . . . . . . 204
LLC v. Taco Bell Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 177 Adjudged Insane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Implied-in-Law Contract (Quasi-Contract) . . . . . . . . . . . . . . . 178 Insane But Not Adjudged Insane . . . . . . . . . . . . . . . . . . . . . . . . 205
Contents xiii
Case 11.1 • State Court Case • Mental Capacity • UCC Statutes of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Campbell v. Carr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Formality of the Writing . . . . . . . . . . . . . . . . . . . . . . . . 228
Intoxicated Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Required Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Integration of Several Writings . . . . . . . . . . . . . . . . . . . . . . . . . 229
Contracts Contrary to Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Interpreting Contract Words and Terms . . . . . . . . . . . . . . . . . . 229
Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Contracts to Commit Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Merger, or Integration, Clause . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Gambling Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Exceptions to the Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . 230
Effect of Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Case 12.3 • State Court Case • Parol Evidence Rule • Yarde
Ethics • Illegal Gambling Contract . . . . . . . . . . . . . . . . . . . . . . . . 208 Metals, Inc. v. New England Patriots Limited Partnership . . . . 230
Contracts Contrary to Public Policy . . . . . . . . . . . . . . . . . . . . . . 208 Equitable Doctrine: Promissory Estoppel . . . . . . . . . . . . 231
Critical Legal Thinking Case • Murder and Life Insurance • Global Law • Seals Used as Signatures in Asia . . . . . . . . . . . . . . . 231
Flood v. Fidelity & Guaranty Life Insurance Company . . . . . . . 209 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 232
Special Business Contracts and Licensing Statutes . . . 209 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 232
Contract in Restraint of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Licensing Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Case 11.2 • District of Columbia Court Case • Licensing Statute •
Sturdza v. United Arab Emirates . . . . . . . . . . . . . . . . . . . . . . 210
Exculpatory Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Case 11.3 • Federal Court Case • Release Contract • 13 Third-Party Rights and
Lin v. Spring Mountain Adventures, Inc. . . . . . . . . . . . . . . . . . 212 Discharge�� 235
Business Environment • Covenants Not to Compete . . . . . . . . . . . 212 Introduction to Third-Party Rights and Discharge . . . . . . 236
Unconscionable Contracts . . . . . . . . . . . . . . . . . . . . . . 213 Assignment of a Right . . . . . . . . . . . . . . . . . . . . . . . . . 236
Elements of Unconscionability . . . . . . . . . . . . . . . . . . . . . . . . . . 213 Form of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Case 11.4 • State Court Case • Unconscionable Contract • Personal Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Stoll v. Xiong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Assignment of a Future Right . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 214 Contract Where an Assignment Would Materially
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 215 Alter the Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Assignment of a Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Effect of an Assignment of a Right . . . . . . . . . . . . . . . . . . . . . . 238
Notice of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
12 Genuineness Of Assent And Anti-Assignment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Statute Of Frauds�� 217 Approval Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Introduction to Genuineness of Assent and Statute Successive Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Delegation of a Duty . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Duties That Can and Cannot Be Delegated . . . . . . . . . . . . . . . 240
Unilateral Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Effect of Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Mutual Mistake of a Material Fact . . . . . . . . . . . . . . . . . . . . . . . 219 Anti-Delegation Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Mutual Mistake of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Assignment and Delegation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 241
Elements of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Intended Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
1. Misrepresentation of a Material Fact . . . . . . . . . . . . . . . . . . . 219 Donee Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
2. Intent to Deceive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Creditor Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
3. Reliance on the Misrepresentation . . . . . . . . . . . . . . . . . . . . . 220 Incidental Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
4. Injury to the Innocent Party . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Case 13.1 • Federal Court Case • Third-Party Beneficiary •
Fraud in the Inception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Does I-XI, Workers in China, Bangladesh, Indonesia,
Fraud in the Inducement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Swaziland, and Nicaragua v. Wal-Mart Stores, Inc. . . . . . . . . 244
Fraud by Concealment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Silence as Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Misrepresentation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Condition Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Innocent Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Condition Precedent Based on Satisfaction . . . . . . . . . . . . . . . . 245
Case 12.1 • State Court Case • Fraud • Krysa v. Payne . . . . . . . . . . 222 Business Environment • “Time Is of the Essence”
Duress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Equitable Doctrine: Undue Influence . . . . . . . . . . . . . . . 223 Condition Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Statute Of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Concurrent Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Writing Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Implied Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Contracts Involving Interests in Real Property . . . . . . . . . . . . . . 224 Discharge of Performance . . . . . . . . . . . . . . . . . . . . . . 247
Equitable Exception: Part Performance . . . . . . . . . . . . . . . . . . . 225 Discharge by Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Critical Legal Thinking Case • Doctrine of Part Performance • Discharge by Impossibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Sutton v. Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Force Majeure Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
One-Year Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 248
Ethics • Bonus Lost Because of the Statute of Frauds . . . . . . . . . . 226 Global Law • Negotiation of Contracts
Guaranty Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 in Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
Case 12.2 • State Court Case • Guaranty Contract • Page v. Gulf Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 249
Coast Motors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 250
Agents’ Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Promises Made in Consideration of Marriage . . . . . . . . . . . . . . 228 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
xiv Contents
14 Breach Of Contract And License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

E-License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Remedies�� 252 Licensing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Introduction to Breach of Contract and
Privacy in Cyberspace . . . . . . . . . . . . . . . . . . . . . . . . . 277
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Electronic Communications Privacy Act . . . . . . . . . . . . . . . . . . 278
Performance and Breach . . . . . . . . . . . . . . . . . . . . . . . 253
Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Complete Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Substantial Performance: Minor Breach . . . . . . . . . . . . . . . . . . . 254
Registration of Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . 278
Inferior Performance: Material Breach . . . . . . . . . . . . . . . . . . . . 254
Domain Name Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Case 14.1 • State Court Case • Breach of Contract • Turner
Digital Law • New Top-Level Domain Names . . . . . . . . . . . . . . . . . 279
Broadcasting System, Inc. v. McDavid . . . . . . . . . . . . . . . . . . 255
Country Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Anticipatory Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Cybersquatting on Domain Names . . . . . . . . . . . . . . . . . . . . . . 280
Monetary Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Digital Law • Anticybersquatting Consumer Protection Act . . . . . . 281
Compensatory Damages . . . . . . . . . . . . . . . . . . . . . . . . 256
Case 15.3 • National Arbitration Forum • Domain Name •
Sale of a Good . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
New York Yankees Partnership d/b/a
Construction Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
The New York Yankees Baseball Club . . . . . . . . . . . . . . . . . . 281
Employment Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Global Law • Internet in Foreign Countries . . . . . . . . . . . . . . . . . . 282
Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . 258
Disclaimer of Consequential Damages . . . . . . . . . . . . . . . . . . . . 258
Nominal Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
Mitigation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . 259
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
Critical Legal Thinking Case • Liquidated Damages •
Uzan v. 845 UN Limited Partnership . . . . . . . . . . . . . . . . . . . 260
Rescission and Restitution . . . . . . . . . . . . . . . . . . . . . . 261 Part III Sales and Lease Contracts
Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 and Product Liability . . . . 285
Case 14.2 • State Court Case • Specific Performance •
Alba v. Kaufmann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 16 Formation Of Sales And Lease
Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Contracts . . . . . . . . . . . . . . . . . . . 286
Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Introduction to Formation of Sales and
Arbitration of Contract Disputes . . . . . . . . . . . . . . . . . . 264
Lease Contracts�� 287
Case 14.3 • Federal Court Case • Arbitration of a
Uniform Commercial Code . . . . . . . . . . . . . . . . . . . . . . 287
Contract Dispute • Mance v. Mercedes-Benz USA . . . . . . . . . 264
Landmark Law • Uniform Commercial Code (UCC) . . . . . . . . . . . . 288
Torts Associated With Contracts . . . . . . . . . . . . . . . . . 265
Article 2 (Sales) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Intentional Interference with Contractual Relations . . . . . . . . . 265
What Is a Sale? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Breach of the Implied Covenant of Good Faith and
What Are Goods? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Fair Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Goods Versus Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
Case 14.4 • State Court Case • Bad Faith Tort •
Case 16.1 • State Court Case • Good or Service •
Mitchell v. Fortis Insurance Company . . . . . . . . . . . . . . . . . . 266
Brandt v. Boston Scientific Corporation and
Sarah Bush Lincoln Health Center . . . . . . . . . . . . . . . . . . . . . 289
Who Is a Merchant? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
Article 2A (Leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Definition of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Finance Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Formation of Sales and Lease Contracts: Offer . . . . . . . 291
15 Digital Law And E-Commerce�� 270 Open Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Introduction to Digital Law and E-Commerce . . . . . . . . . 271 Contemporary Environment • UCC Firm Offer Rule . . . . . . . . . . . . . 292
Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
World Wide Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 Formation of Sales and Lease Contracts:
Email Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Digital Law • Regulation of Email Spam . . . . . . . . . . . . . . . . . . . . 272 Method and Manner of Acceptance . . . . . . . . . . . . . . . . . . . . . . 293
Case 15.1 • Federal Court Case • Email Spam • Facebook, Inc. Contemporary Environment • UCC Permits
v. Porembski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Additional Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Internet Service Provider (ISP) . . . . . . . . . . . . . . . . . . . . . . . . . 273 Accommodation Shipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
E-Commerce and Web Contracts . . . . . . . . . . . . . . . . . . 273 Business Environment • UCC “Battle of the Forms” . . . . . . . . . . . . 294
Case 15.2 • State Court Case • Web Contract • Hubbert v. Dell Ucc Statute of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . 294
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 Exceptions to the UCC Statute of Frauds . . . . . . . . . . . . . . . . . 295
Digital Law • E-SIGN Act: Statute of Frauds and Business Environment • UCC Written Confirmation Rule . . . . . . . . 295
Electronic Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 When Written Modification Is Required . . . . . . . . . . . . . . . . . . 295
Digital Law • E-SIGN Act: E-Signatures and Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
Electronic Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 Electronic Sales and Lease Contracts . . . . . . . . . . . . . . 297
Counteroffers Ineffectual Against Electronic Agent . . . . . . . . . 275 Global Law • Letters of Credit and International Trade . . . . . . . . . 297
E-Licensing of Software and Information Rights . . . . . . . 276 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 298
Digital Law • Uniform Computer Information Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 298
Transactions Act (UCITA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Contents xv
17 Title To Goods And Risk Of Loss �� 300 Right to Obtain Specific Performance . . . . . . . . . . . . . . . . . . . . 320
Introduction to Title to Goods and Risk of Loss�� 301 Contemporary Environment • Buyer’s and Lessee’s
Identification of Goods and Passage of Title . . . . . . . . . 301 Right to Cover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Identification of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 Right to Replevy Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Passage of Title to Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Right to Cancel a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Shipment and Destination Contracts . . . . . . . . . . . . . . . . . . . . . 302 Right to Recover Damages for
Delivery of Goods Without Moving Them . . . . . . . . . . . . . . . . 302 Nondelivery or Repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Business Environment • Commonly Used Shipping Terms . . . . . . . 303 Right to Recover Damages for Accepted
Risk of Loss Where There Is No Breach of the Sales Nonconforming Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Additional Performance Issues . . . . . . . . . . . . . . . . . . . 322
Carrier Cases: Movement of Goods . . . . . . . . . . . . . . . . . . . . . . 304 Assurance of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Noncarrier Cases: No Movement of Goods . . . . . . . . . . . . . . . . 304 Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Goods in the Possession of a Bailee . . . . . . . . . . . . . . . . . . . . . . 305 Agreements Affecting Remedies . . . . . . . . . . . . . . . . . . . . . . . . 323
Risk of Loss Where There Is a Breach of Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
the Sales Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Ethics • UCC Doctrine of Unconscionability . . . . . . . . . . . . . . . . . . 323
Seller in Breach of a Sales Contract . . . . . . . . . . . . . . . . . . . . . . 305 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 323
Buyer in Breach of a Sales Contract . . . . . . . . . . . . . . . . . . . . . . 305 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 324
Risk of Loss in Conditional Sales . . . . . . . . . . . . . . . . . 305 Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Sale on Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Global Law • United Nations Convention on Contracts for the
International Sale of Goods (CISG) . . . . . . . . . . . . . . . . . . . . 306 19 Warranties and
Sale or Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
Consignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 Product Liability�� 326
Risk of Loss in Lease Contracts . . . . . . . . . . . . . . . . . . 307 Introduction to Warranties and
Business Environment • Insuring Goods Against Risk of Loss . . . . 307 Product Liability�� 327
Sale of Goods by Nonowners . . . . . . . . . . . . . . . . . . . . . 308 Express Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Stolen Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Creation of an Express Warranty . . . . . . . . . . . . . . . . . . . . . . . . 327
Fraudulently Obtained Goods . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Statement of Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
Entrustment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 Damages Recoverable for Breach of Warranty . . . . . . . . . . . . . . 328
Case 17.1 • State Court Case • Entrustment Rule • Implied Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
Lindholm v. Brant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 Implied Warranty of Merchantability . . . . . . . . . . . . . . . . . . . . . 328
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 310 Ethics • Implied Warranty of Merchantability . . . . . . . . . . . . . . . . 329
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 310 Implied Warranty of Fitness for a Particular Purpose . . . . . . . . 330
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Warranty Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . 331
Conspicuous Display of Disclaimer . . . . . . . . . . . . . . . . . . . . . . 331
Case 19.1 • State Court Case • Warranty Disclaimer •
Roberts v. Lanigan Auto Sales . . . . . . . . . . . . . . . . . . . . . . . . 332
18 Remedies for Breach of Magnuson-Moss Warranty Act . . . . . . . . . . . . . . . . . . . . . . . . . 332
Sales and Lease Contracts . . . . . 312 Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Introduction to Remedies for Breach of Sales Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
and Lease Contracts �� 313 Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Seller and Lessor Performance . . . . . . . . . . . . . . . . . . . 313 Liability Without Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
Place of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 All in the Chain of Distribution Are Liable . . . . . . . . . . . . . . . . 334
Perfect Tender Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 Parties Who Can Recover for Strict Liability . . . . . . . . . . . . . . 334
Contemporary Environment • Seller’s and Lessor’s Right to Cure . . 314 Damages Recoverable for Strict Liability . . . . . . . . . . . . . . . . . . 335
Installment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Product Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
Destruction of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Defect in Manufacture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
Ethics • UCC Imposes Duties of Good Faith and Reasonableness . 315 Case 19.2 • State Court Case • Defect in Manufacture •
Buyer and Lessee Performance . . . . . . . . . . . . . . . . . . . 315 Shoshone Coca-Cola Bottling Company v. Dolinski . . . . . . . . 336
Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 Defect in Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 Critical Legal Thinking Case • Strict Liability •
Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 Domingue v. Cameco Industries, Inc. . . . . . . . . . . . . . . . . . . 337
Revocation of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 Crashworthiness Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Seller and Lessor Remedies . . . . . . . . . . . . . . . . . . . . . 317 Failure to Warn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Right to Withhold Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 Case 19.3 • State Court Case • Failure to Warn •
Right to Stop Delivery of Goods in Transit . . . . . . . . . . . . . . . . 317 Patch v. Hillerich & Bradsby Company . . . . . . . . . . . . . . . . . . 339
Right to Reclaim Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 Defect in Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
Right to Dispose of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 Other Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
Unfinished Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 Defenses to Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Right to Recover the Purchase Price or Rent . . . . . . . . . . . . . . . 318 Case 19.4 • Federal Court Case • Generally Known
Right to Recover Damages for Breach of Contract . . . . . . . . . . 318 Danger • Thompson v. Sunbeam Products, Inc. . . . . . . . . . . . 341
Right to Cancel a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 Statute of Limitations and Statute of Repose . . . . . . . . . . . . . . . 341
Business Environment • Lost Volume Seller . . . . . . . . . . . . . . . . . 319 Plaintiff Partially at Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Buyer and Lessee Remedies . . . . . . . . . . . . . . . . . . . . . 319 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 343
Right to Reject Nonconforming Goods or Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 343
Improperly Tendered Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Right to Recover Goods from an Insolvent Seller or Lessor . . . 320 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
xvi Contents
Part IV Negotiable Instruments, Secondary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Agent’s Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
Banking, and Electronic Liability of Unqualified and Qualified Indorsers . . . . . . . . . . . . 370
Financial Transactions . . . 347 Liability of an Accommodation Party . . . . . . . . . . . . . . . . . . . . 370
Forged Indorsements . . . . . . . . . . . . . . . . . . . . . . . . . . 371
20 Creation and Transfer of Ethics • Imposter Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Ethics • Fictitious Payee Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Negotiable Instruments�� 348 Warranty Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Introduction to the Creation and Transfer Transfer Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
of Negotiable Instruments �� 349 Presentment Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . . . . 349 Defenses Against Payment of Negotiable Instruments . . 373
Article 3 of the UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 Universal (Real) Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Functions of Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . 349 Personal Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Types of Negotiable Instruments . . . . . . . . . . . . . . . . . . 350 Case 21.1 • Federal Court Case • Holder in
Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 Due Course • Bank of Colorado v. Berwick . . . . . . . . . . . . . . . 374
Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 Contemporary Environment • FTC Rule Limits HDC
Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 Status for Negotiable Instruments Arising from
Certificate of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 Consumer Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
Requirements of a Negotiable Instrument . . . . . . . . . . . 353 Discharge of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 376
Be in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 376
Be Signed by the Maker or the Drawer . . . . . . . . . . . . . . . . . . . 353 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 376
Be an Unconditional Promise or Order to Pay . . . . . . . . . . . . . . 353 Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
State a Fixed Amount of Money . . . . . . . . . . . . . . . . . . . . . . . . 354
Not Require Any Undertaking in Addition to the
Payment of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 22 Banking System and Electronic
Be Payable on Demand or at a Definite Time . . . . . . . . . . . . . . 355 Financial Transactions �� 378
Be Payable to Order or to Bearer . . . . . . . . . . . . . . . . . . . . . . . . 355
Introduction to the Banking System and Electronic
Case 20.1 • Federal Court Case • Negotiable Instrument •
Financial Transactions�� 379
Las Vegas Sands, LLC, dba Venetian Resort Hotel
The Bank–Customer Relationship . . . . . . . . . . . . . . . . . 379
Casino v. Nehme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Uniform Commercial Code Governs Checks and Banking . . . . 379
Prepayment and Acceleration Clauses . . . . . . . . . . . . . . . . . . . . 356
Ordinary Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
Nonnegotiable Contract . . . . . . . . . . . . . . . . . . . . . . . . 357
Parties to a Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
Transfer of a Negotiable Instrument by Negotiation . . . . 357
Special Types of Checks . . . . . . . . . . . . . . . . . . . . . . . . 380
Negotiating Order Paper or Bearer Paper . . . . . . . . . . . . . . . . . . 357
Certified Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Contemporary Environment • Converting Order and
Cashier’s Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Bearer Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Honoring Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Case 20.2 • State Court Case • Bearer Paper •
Stale Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Gerber & Gerber, P.C. v. Regions Bank . . . . . . . . . . . . . . . . . 358
Incomplete Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Transfer of a Negotiable Instrument by Indorsement . . . 359
Postdated Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Types of Indorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Stop-Payment Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Blank Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Special Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
Wrongful Dishonor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Qualified Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Ethics • Federal Currency Reporting Law . . . . . . . . . . . . . . . . . . . 383
Restrictive Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Forged Signatures and Altered Checks . . . . . . . . . . . . . 383
Misspelled or Wrong Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Forged Signature of the Drawer . . . . . . . . . . . . . . . . . . . . . . . . . 383
Multiple Payees or Indorsees . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Altered Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Global Law • Negotiable Instruments Payable
One-Year Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
in Foreign Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Series of Forgeries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Case 22.1 • State Court Case • Series of Forgeries of Checks •
Spacemakers of America, Inc. v. SunTrust Bank . . . . . . . . . . 385
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
The Collection Process . . . . . . . . . . . . . . . . . . . . . . . . . 386
Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386
Bank Payment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 386
21 Holder in due Course and Deferred Posting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Liability of Parties�� 366 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Introduction to Holder in Due Course and Contemporary Environment • FDIC Insurance of Bank Deposits . . . 387
Liability of Parties �� 367 Electronic Banking and E-Money . . . . . . . . . . . . . . . . . . 388
Holder in Due Course (HDC) . . . . . . . . . . . . . . . . . . . . . 367 Automated Teller Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Requirements for HDC Status . . . . . . . . . . . . . . . . . . . . . . . . . . 367 Debit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Taking for Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 Digital Law • Consumer Electronic Funds Transfers . . . . . . . . . . . 389
Taking in Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 Direct Deposit and Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . 389
Taking Without Notice of Defect . . . . . . . . . . . . . . . . . . . . . . . 368 Online Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Taking Where There Is No Evidence of Forgery, Digital Law • Commercial Electronic Wire Transfers . . . . . . . . . . . 390
Alteration, or Irregularity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 Bank Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Contemporary Environment • Shelter Principle . . . . . . . . . . . . . . . 369 Landmark Law • Dodd-Frank Wall Street Reform and
Signature Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Primary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 Global Law • Hiding Money in Offshore Banks . . . . . . . . . . . . . . . 391
Contents xvii
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 391 Bankruptcy Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 392 Bankruptcy Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 418
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 Prepetition and Postpetition Counseling . . . . . . . . . . . . . . . . . . 418
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393 Filing a Bankruptcy Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Attorney Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Order for Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Part V Credit, Secured Transactions, Meeting of the Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
and Bankruptcy . . . . . . . . . 395 Proof of Claim and Proof of Interest . . . . . . . . . . . . . . . . . . . . . 420
Bankruptcy Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
23 Credit, Real Property Financing, Discharge of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
and Secured Transactions �� 396 Reaffirmation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Introduction to Credit, Real Property Financing, Bankruptcy Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
and Secured Transactions �� 397 Ethics • Fraudulent Transfer of Property Prior to Bankruptcy . . . . 422
Unsecured and Secured Credit . . . . . . . . . . . . . . . . . . . 397 Case 24.1 • Federal Court Case • Bankruptcy
Unsecured Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 Fraud • In Re Hoang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Secured Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Real Property Financing . . . . . . . . . . . . . . . . . . . . . . . . 398 State Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 Homestead Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424
Note and Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 Ethics • Abusive Homestead Exemptions . . . . . . . . . . . . . . . . . . . 424
Recording Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 Chapter 7—Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . 424
Foreclosure Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 Qualifications for Chapter 7 Bankruptcy . . . . . . . . . . . . . . . . . . 424
Case 23.1 • State Court Case • Mortgages and Statutory Distribution of Property . . . . . . . . . . . . . . . . . . . . . . . 425
Liens • Old Republic National Title Insurance Chapter 7 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Company v. Fifth Third Bank . . . . . . . . . . . . . . . . . . . . . . . . . 400 Acts That Bar Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
Deficiency Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Contemporary Environment • Discharge of Student Loans in
Antideficiency Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Chapter 13 —Adjustment of Debts of
Business Environment • Construction Liens on Real Property . . . . 402 an Individual with Regular Income . . . . . . . . . . . . . . . . 427
Secured Transactions in Personal Property . . . . . . . . . . 403 Filing a Chapter 13 Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Revised Article 9—Secured Transactions . . . . . . . . . . . . . . . . . . 403 Limitations on Who Can File for Chapter 13
Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Two-Party Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 404 Property of a Chapter 13 Estate . . . . . . . . . . . . . . . . . . . . . . . . . 428
Three-Party Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . 404 Chapter 13 Plan of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Personal Property Subject to a Security Agreement . . . . . . . . . . 405 Confirmation of a Chapter 13 Plan of Payment . . . . . . . . . . . . . 429
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
The Floating Lien Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 Contemporary Environment • Helping Families Save
Perfecting a Security Interest in Personal Property . . . . 406 Their Home Act of 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Perfection by Filing a Financing Statement . . . . . . . . . . . . . . . . 407 Chapter 11 —Reorganization . . . . . . . . . . . . . . . . . . . . 430
Case 23.2 • State Court Case • Filing a Financing Debtor-in-Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Statement • Pankratz Implement Company v. Creditors’ Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Citizens National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 Automatic Stay in Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Perfection by Possession of Collateral . . . . . . . . . . . . . . . . . . . . . 408 Executory Contracts and Unexpired Leases in Chapter 11 . . . . 431
Perfection by a Purchase Money Security Interest in Consumer Discharge of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 Chapter 11 Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . 432
Termination Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 Confirmation of a Chapter 11 Plan of Reorganization . . . . . . . 432
Priority of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 Business Environment • General Motors Bankruptcy . . . . . . . . . . . . . . 433
Buyers in the Ordinary Course of Business . . . . . . . . . . . . . . . . 409 Small Business Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Digital Law • Electronic Financing Statements and Records . . . . . 410 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 434
Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 435
Business Environment • Artisan’s Liens on Personal Property . . . . 411 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Surety and Guaranty Arrangements . . . . . . . . . . . . . . . . 411 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Surety Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
Guaranty Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412
Collection Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 412 Part VI Business Organizations,
Key Terms And Concepts . . . . . . . . . . . . . . . . . . . . . . . 413 Corporate Governance,
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 414 And Investor Protection . . 437
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
25 Agency Law�� 438

24 Bankruptcy And Introduction to Agency Law �� 439
Reorganization�� 416 Employment and Agency Relationships . . . . . . . . . . . . . 439
Introduction to Bankruptcy and Reorganization�� 417 Principal–Agent Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 Employer–Employee Relationship . . . . . . . . . . . . . . . . . . . . . . . 440
Types of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 Critical Legal Thinking Case • Scope of Employment • Massey v.
Landmark Law • Bankruptcy Abuse Prevention and Consumer Starbucks Corporation ��440
Protection Act of 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 Principal–Independent Contractor Relationship . . . . . . . . . . . . 441
xviii Contents
Formation of an Agency . . . . . . . . . . . . . . . . . . . . . . . . 441 Other Rights of General Partners . . . . . . . . . . . . . . . . . . . . . . . 464

Express Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
Contemporary Environment • Power of Attorney . . . . . . . . . . . . . . 442 Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Implied Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 Duty to Inform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Agency by Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 Duty of Obedience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Apparent Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 Right to an Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Principal’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 Liability of General Partners of a
Contingency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 General Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
Agent’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 Tort Liability of General Partners . . . . . . . . . . . . . . . . . . . . . . . 466
Duty to Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 Contract Liability of General Partners . . . . . . . . . . . . . . . . . . . . 466
Duty to Notify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 Liability of Incoming Partners . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Duty to Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 Liability of Outgoing Partners . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Ethics • Agent’s Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . 445 Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Tort Liability of Principals and Agents . . . . . . . . . . . . . . 445 Revised Uniform Limited Partnership Act . . . . . . . . . . . . . . . . . 468
Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 General Partners and Limited Partners . . . . . . . . . . . . . . . . . . . 468
Case 25.1 • State Court Case • Scope of Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . 469
Employment • Matthews v. Food Lion, LLC . . . . . . . . . . . . . . . 446 Defective Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Frolic and Detour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 Limited Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 469
Coming and Going Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 Share of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Dual-Purpose Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 Liability of General and Limited Partners of a Limited
Intentional Tort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470
Case 25.2 • State Court Case • Employee’s Management of a Limited Partnership . . . . . . . . . . . . . . . . . . . . 470
Intentional Tort • Burlarley v. Wal-Mart Limited Liability Limited Partnership . . . . . . . . . . . . . . . 471
Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 Liability of General and Limited Partners of an LLLP . . . . . . . 471
Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449 Management of an LLLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
Contract Liability of Principals and Agents . . . . . . . . . . 450 Dissolution of General and Limited Partnerships . . . . . . 472
Fully Disclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 Dissolution of a Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
Partially Disclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 Winding Up of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . 472
Undisclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451 Notice of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Independent Contractor . . . . . . . . . . . . . . . . . . . . . . . . 452 Distribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Factors for Determining Independent Contractor Status . . . . . . 452 Continuation of a Partnership After Dissolution . . . . . . . . . . . . 473
Liability for an Independent Contractor’s Torts . . . . . . . . . . . . . 453 Business Environment • Right of Survivorship of
Liability for an Independent Contractor’s Contracts . . . . . . . . . 453 General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474
Termination of an Agency . . . . . . . . . . . . . . . . . . . . . . . 453 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 474
Termination of an Agency by an Act of the Parties . . . . . . . . . . 453 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 475
Termination of an Agency by an Unusual Change Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
Termination of an Agency by Impossibility of Performance . . . 454
Termination of an Agency by Operation of Law . . . . . . . . . . . . 454 27 Corporate Formation and
Wrongful Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 Financing �� 477
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 455 Introduction to Corporate Formation and Financing�� 478
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 455 Nature of a Corporation . . . . . . . . . . . . . . . . . . . . . . . . 478
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 The Corporation as a Legal “Person” . . . . . . . . . . . . . . . . . . . . . 479
Limited Liability of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 479
Case 27.1 • State Court Case • Shareholder’s Limited Liability •
Menendez v. O’Niell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
26 Small Business, Entrepreneurship, Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
and Partnerships�� 457 Classifications of Corporations . . . . . . . . . . . . . . . . . . . 481
Introduction to Small Business, Private Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
Entrepreneurship, and Partnerships �� 458 Not-for-Profit Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 Government-Owned Corporations . . . . . . . . . . . . . . . . . . . . . . 482
Entrepreneurial Forms of Conducting Business . . . . . . . . . . . . . 458 Domestic, Foreign, and Alien Corporations . . . . . . . . . . . . . . . . 482
Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459 Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . 482
Creation of a Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . 459 Selecting a State for Incorporating a Corporation . . . . . . . . . . . 483
Business Environment • “d.b.a.” Trade Name . . . . . . . . . . . . . . . . 459 Selecting a Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Personal Liability of a Sole Proprietor . . . . . . . . . . . . . . . . . . . . 459 Digital Law • Choosing a Domain Name
Case 26.1 • State Court Case • Sole for a Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Proprietorship • Bank of America, N.A. v. Barr . . . . . . . . . . . . 460 Promoters and Incorporators . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Taxation of a Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . 461 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
General Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 Purpose of a Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
Uniform Partnership Act (UPA) . . . . . . . . . . . . . . . . . . . . . . . . 461 Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
Formation of a General Partnership . . . . . . . . . . . . . . . . . . . . . . 462 Business Environment • Close Corporation Election . . . . . . . . . . . 486
Name of the General Partnership . . . . . . . . . . . . . . . . . . . . . . . . 462 Corporate Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
General Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 463 Organizational Meeting of the Board of Directors . . . . . . . . . . 487
Taxation of General Partnerships . . . . . . . . . . . . . . . . . . . . . . . . 463 Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Right to Participate in Management . . . . . . . . . . . . . . . . . . . . . 463 Business Environment • S Corporation Election for
Right to Share in Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 Federal Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Contents xix
Financing the Corporation: Equity Securities . . . . . . . . . 489 29 Corporate Acquisitions

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490
and Multinational
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 Corporations�� 515
Authorized, Issued, and Outstanding Introduction to Corporate Acquisitions and
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 Multinational Corporations�� 516
Financing the Corporation: Debt Proxy Solicitation and Proxy Contests . . . . . . . . . . . . . 516
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 Federal Proxy Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516
Types of Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 Antifraud Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517
Indenture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 Proxy Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517
Business Environment • Delaware Shareholder Resolution . . . . . . . . . . . . . . . . . . . . . . . . 517
Corporation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 Ethics • Coca-Cola Says “No” to a Shareholder
Dissolution and Termination of Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518
Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 519
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Winding Up, Liquidation, and Termination . . . . . . . . . . . . . . . . 494 Share Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 494 Required Approvals for a Merger or Share Exchange . . . . . . . . 519
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 495 Short-Form Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 Sale or Lease of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 Dissenting Shareholder Appraisal Rights . . . . . . . . . . . . . . . . . . 520
Case 29.1 • State Court Case • Dissenting Shareholder
Appraisal Rights • Global GT LP v.
28 Corporate Governance and Golden Telecom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Sarbanes-Oxley Act �� 497 Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Introduction to Corporate Governance and Williams Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
Sarbanes-Oxley Act �� 498 Tender Offer Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498 Antifraud Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523
Shareholders’ Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498 Fighting a Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 Business Judgment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524
Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 Global Law • Foreign Acquisitions of U.S. Companies . . . . . . . . . . 524
Straight (Noncumulative) Voting . . . . . . . . . . . . . . . . . . . . . . . . 500 State Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . 525
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 Business Environment • Delaware Antitakeover Statute . . . . . . . . 525
Supramajority Voting Requirement . . . . . . . . . . . . . . . . . . . . . . 500 Multinational Corporations . . . . . . . . . . . . . . . . . . . . . . 525
Voting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 International Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
Restrictions on the Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . 501 International Subsidiary Corporation . . . . . . . . . . . . . . . . . . . . . 526
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 Global Law • India’s Multinational Corporations . . . . . . . . . . . . . . 527
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 528
Derivative Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 528
Piercing the Corporate Veil . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
Case 28.1 • Federal Court Case • Piercing the Corporate Veil • Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530
Northeast Iowa Ethanol, LLC v. Drizin . . . . . . . . . . . . . . . . . . 503
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
Resolutions of the Board of Directors . . . . . . . . . . . . . . . . . . . . 504 30 Limited Liability Companies
Digital Law • Corporate E-Communications . . . . . . . . . . . . . . . . . . 505
Selecting Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505
and Limited Liability
Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 Partnerships�� 531
Meetings of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . 506 Introduction to Limited Liability Companies
Business Environment • Sarbanes-Oxley Act and Limited Liability Partnerships�� 532
Imposes Duties on Audit Committee . . . . . . . . . . . . . . . . . . . 506 Limited Liability Company (LLC) . . . . . . . . . . . . . . . . . . 532
Corporate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 Uniform Limited Liability Company Act . . . . . . . . . . . . . . . . . 532
Agency Authority of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 Taxation of LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Duty of Obedience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 Powers of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 Formation of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
The Business Judgment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 Articles of Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509 Certificate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
Case 28.2 • State Court Case • Fiduciary Duties of Duration of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
Corporate Directors and Officers • Capital Contribution to an LLC . . . . . . . . . . . . . . . . . . . . . . . . 535
McPadden v. Sidhu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510 Operating Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 511 Conversion of an Existing Business to an LLC . . . . . . . . . . . . . 535
Ethics • Sarbanes-Oxley Act Improves Dividing an LLC’s Profits and Losses . . . . . . . . . . . . . . . . . . . . 535
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511 Distributional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Global Law • Bribes Paid by Limited Liability of Members of an LLC . . . . . . . . . . . . . 536
U.S. Companies in Foreign Countries . . . . . . . . . . . . . . . . . . 512 Liability of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 512 Members’ Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 513 Case 30.1 • State Court Case • Limited Liability
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 Company • Siva v. 1138 LLC . . . . . . . . . . . . . . . . . . . . . . . . . 537
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 Liability of Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538
xx Contents
Liability of Tortfeasors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538 32 Investor Protection,

Management of an LLC . . . . . . . . . . . . . . . . . . . . . . . . 538
Member-Managed LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
E-Securities, and Wall
Manager-Managed LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 Street Reform�� 563
Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . 539 Introduction to Investor Protection,
Agency Authority to Bind an LLC E-Securities, and Wall Street Reform�� 564
to Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564
Fiduciary Duties of Members of Landmark Law • Federal Securities Laws . . . . . . . . . . . . . . . . . . . 565
an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 Securities and Exchange Commission (SEC) . . . . . . . . . . . . . . 565
Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 Reporting Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565
Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Definition of Security . . . . . . . . . . . . . . . . . . . . . . . . . . 566
No Fiduciary Duty Owed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Initial Public Offering: Securities Act of 1933 . . . . . . . . 567
Business Environment • Advantages of Operating a Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
Business as an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
Dissolution of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . 542 Business Environment • Facebook’s IPO . . . . . . . . . . . . . . . . . . . . 568
Payment of Distributional Interest . . . . . . . . . . . . . . . . . . . . . . . 542 Limitations on Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569
Notice of Disassociation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542 Sale of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 569
Continuation of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 Regulation A Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
Winding up an LLC’s Business . . . . . . . . . . . . . . . . . . . . . . . . . 543 Small Company Offering Registration (SCOR) . . . . . . . . . . . . 570
Limited Liability Partnership (LLP) . . . . . . . . . . . . . . . . 543 Contemporary Environment • JOBS Act:
Articles of Limited Liability Partnership . . . . . . . . . . . . . . . . . . 543 Emerging Growth Company (EGC) . . . . . . . . . . . . . . . . . . . . . 570
Taxation of LLPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 Well-Known Seasoned Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . 571
Limited Liability of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 Civil Liability: Section 11 of the Securities Act of 1933 . . . . . . 571
Business Environment • Accounting Firms Civil Liability: Section 12 of the Securities Act of 1933 . . . . . . 572
Operate as LLPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 SEC Actions: Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . 572
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 545 Criminal Liability: Section 24 of the Securities Act of 1933 . . . 572
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 545 E-Securities Transactions . . . . . . . . . . . . . . . . . . . . . . . 572
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546 E-Securities Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
Edgar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
E-Public Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
Digital Law • JOBS Act: Crowd Funding and
31 Franchise and Special Forms Funding Portals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
of Business�� 548 Exempt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Introduction to Franchise and Special Forms of Exempt Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Business�� 549 Nonissuer Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Franchise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 Intrastate Offering Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Types of Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 Private Placement Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Franchise Disclosure Laws . . . . . . . . . . . . . . . . . . . . . . 551 Small Offering Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
FTC Franchise Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
Disclosure of Sales or Earnings Projections Based on Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
Actual Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 Ethics • Sarbanes-Oxley Act Erects Institutional Wall . . . . . . . . . . 577
Disclosure of Sales or Earnings Projections Based on Trading in Securities: Securities
Hypothetical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . . . 577
FTC Franchise Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 Section 10(b) and Rule 10b-5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 577
State Disclosure Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 Civil Liability: Section 10(b) of the
Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 552 Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 578
Business Environment • McDonald’s Franchise . . . . . . . . . . . . . . . 552 SEC Actions: Securities Exchange Act of 1934 . . . . . . . . . . . . . 578
Liability of Franchisor and Franchisee . . . . . . . . . . . . . . 554 Criminal Liability: Section 32 of the
Case 31.1 • State Court Case • Franchise Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 578
Liability • Rainey v. Domino’s Pizza, LLC . . . . . . . . . . . . . . . . 554 Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578
Case 31.2 • State Court Case • Franchisor Tipper–Tippee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579
Liability • Martin v. McDonald’s Corporation . . . . . . . . . . . . . 555 Case 32.1 • Federal Court Case • Insider Trading and
Apparent Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556 Tipping • United States v. Bhagat . . . . . . . . . . . . . . . . . . . . . 579
Critical Legal Thinking Case • Apparent Misappropriation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Agency • Holiday Inns, Inc. v. Shelburne . . . . . . . . . . . . . . . . 556 Aiders and Abettors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Termination of a Franchise . . . . . . . . . . . . . . . . . . . . . . 557 Ethics • Stop Trading on Congressional Knowledge Act
Breach of the Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . 557 (STOCKS Act) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 Short-Swing Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 Section 16(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Joint Venture Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 SEC Section 16 Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Joint Venture Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559 Dodd-Frank Wall Street Reform and
Strategic Alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560 Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . 582
Global Law • International Franchising . . . . . . . . . . . . . . . . . . . . . 560 State “Blue-Sky” Laws . . . . . . . . . . . . . . . . . . . . . . . . . 583
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 560 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 583
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 561 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 584
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
Contents xxi
Part VII Government Regulation And Global Law • United Nations Biosafety Protocol for
Genetically Altered Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . 610
Employment Law . . . . . . . . . 587 Regulation of Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
Regulation of Cosmetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
33 Antitrust Law And Unfair Trade Regulation of Medicinal Devices . . . . . . . . . . . . . . . . . . . . . . . . 611
Practices�� 588 Product and Automobile Safety . . . . . . . . . . . . . . . . . . . 611
Medical and Health Care Protection . . . . . . . . . . . . . . . 611
Introduction to Antitrust Law and Unfair
Landmark Law • Health Care Reform Act of 2010 . . . . . . . . . . . . . 612
Trade Practices�� 589
Unfair and Deceptive Practices . . . . . . . . . . . . . . . . . . . 612
Federal Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . 589
False and Deceptive Advertising . . . . . . . . . . . . . . . . . . . . . . . . 612
Landmark Law • Federal Antitrust Statutes . . . . . . . . . . . . . . . . . . 589
Contemporary Environment • Do-Not-Call Registry . . . . . . . . . . . . . 613
Government Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
Consumer Financial Protection . . . . . . . . . . . . . . . . . . . 613
Private Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
Bureau of Consumer Financial Protection . . . . . . . . . . . . . . . . . 613
Effect of a Government Judgment . . . . . . . . . . . . . . . . . . . . . . . 590
Truth-in-Lending Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614
Section 1 of the Sherman Act: Restraints
Consumer Financial Protection Statutes . . . . . . . . . . . . . . . . . . 614
of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
Business Environment • Dodd-Frank Wall Street Reform and
Business Environment • Rule of Reason and Per Se Rule . . . . . . . 591
Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 615
Horizontal Restraints of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Ethics • Credit CARD Act of 2009 . . . . . . . . . . . . . . . . . . . . . . . . . 616
Price Fixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . 616
Division of Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Protection Agency . . . . . . . . . . . . . . . . . . . . . . . 616
Group Boycotts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Impact Statement . . . . . . . . . . . . . . . . . . . . . . . 617
Other Horizontal Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Air Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
Vertical Restraints of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
National Ambient Air Quality Standards . . . . . . . . . . . . . . . . . . 617
Resale Price Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Water Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
Nonprice Vertical Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594
Point Sources of Water Pollution . . . . . . . . . . . . . . . . . . . . . . . . 618
Case 33.1 • U.S. Supreme Court Case • Contract,
Case 34.2 • U.S. Supreme Court Case • Water Pollution •
Combination, or Conspiracy • American Needle,
Decker, Oregon State Forester v. Northwest
Inc. v. National Football League . . . . . . . . . . . . . . . . . . . . . . 594
Environmental Defense Center . . . . . . . . . . . . . . . . . . . . . . . 618
Unilateral Refusal to Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Thermal Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Conscious Parallelism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Wetlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Noerr Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Safe Drinking Water Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Section 2 of the Sherman Act: Monopolization . . . . . . . 595
Ocean Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Attempts and Conspiracies to Monopolize . . . . . . . . . . . . . . . . 597
Ethics • BP Oil Spill in the Gulf of Mexico . . . . . . . . . . . . . . . . . . . 620
Defenses to Monopolization . . . . . . . . . . . . . . . . . . . . . . . . . . . 597
Toxic Substances and Hazardous Wastes . . . . . . . . . . . 620
Section 7 of the Clayton Act: Mergers . . . . . . . . . . . . . 597
Toxic Substances Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Horizontal Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598
Insecticides, Fungicides, and Rodenticides . . . . . . . . . . . . . . . . . 621
Vertical Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Hazardous Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
Market Extension Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Landmark Law • Superfund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
Conglomerate Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Nuclear Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
Defenses to Section 7 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Endangered Species . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
Premerger Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Critical Legal Thinking Case • Endangered Species •
Section 3 of the Clayton Act: Tying Arrangements . . . . . 600
Tennessee Valley Authority v. Hill,
Section 2 of the Clayton Act: Price Discrimination . . . . 600
Secretary of the Interior . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623
Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
State Environmental Protection Laws . . . . . . . . . . . . . . 623
Defenses to Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . 601
Global Law • International Environmental Protection . . . . . . . . . . 624
Federal Trade Commission Act . . . . . . . . . . . . . . . . . . . 602
Exemptions from Antitrust Law . . . . . . . . . . . . . . . . . . . 602
State Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 602
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
Global Law • European Union Antitrust Law . . . . . . . . . . . . . . . . . 603
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 35 Labor, Worker Protection, and
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605
Immigration Laws�� 628
Introduction to Labor, Worker Protection, and
34 Consumer Safety and Immigration Laws�� 629
Environmental Protection �� 606 Workers’ Compensation . . . . . . . . . . . . . . . . . . . . . . . . 629
Introduction to Consumer Safety and Workers’ Compensation Insurance . . . . . . . . . . . . . . . . . . . . . . . 630
Environmental Protection�� 607 Employment-Related Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
Case 34.1 • Federal Court Case • Adulterated Food • United Case 35.1 • State Court Case • Workers’ Compensation •
States v. LaGrou Distribution Systems, Incorporated . . . . . . . 608 Kelley v. Coca-Cola Enterprises, Inc. . . . . . . . . . . . . . . . . . . . 630
Food, Drugs, and Cosmetics Safety . . . . . . . . . . . . . . . . 609 Occupational Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Landmark Law • Food, Drug, and Cosmetic Act . . . . . . . . . . . . . . . 609 Specific Duty Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Regulation of Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 General Duty Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Food Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Fair Labor Standards Act . . . . . . . . . . . . . . . . . . . . . . . 632
Ethics • Restaurants Required to Disclose Child Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
Calories of Food Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610 Minimum Wage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
xxii Contents
Overtime Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 Harassment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654

Case 35.2 • U.S. Supreme Court Case • Fair Classification of Harasser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654
Labor Standards Act • IBP, Inc. v. Alvarez . . . . . . . . . . . . . . . 633 Racial and National Origin Harassment . . . . . . . . . . . . . . . . . . 655
Exemptions from Minimum Wage and Overtime Sexual Harassment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655
Pay Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633 Critical Legal Thinking Case • Sexual Harassment •
Family and Medical Leave Act . . . . . . . . . . . . . . . . . . . 634 Pennsylvania State Police v. Suders . . . . . . . . . . . . . . . . . . . 656
Labor Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 Digital Law • Offensive Electronic Communications
Landmark Law • Federal Labor Law Statutes . . . . . . . . . . . . . . . . 635 Constitute Sexual Harassment . . . . . . . . . . . . . . . . . . . . . . . 656
National Labor Relations Board (NLRB) . . . . . . . . . . . . . . . . . 635 Religious Discrimination . . . . . . . . . . . . . . . . . . . . . . . . 657
Organizing a Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635 Defenses to a Title VII Action . . . . . . . . . . . . . . . . . . . . 657
Types of Union Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636 Bona Fide Occupational Qualification (BFOQ) . . . . . . . . . . . . 658
Union Solicitation on Company Property . . . . . . . . . . . . . . . . . 636 Equal Pay Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
Illegal Interference with an Election . . . . . . . . . . . . . . . . . . . . . 636 Criteria That Justify a Differential in Wages . . . . . . . . . . . . . . . 659
Case 35.3 • Federal Court Case • Unfair Age Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
Labor Practice • National Labor Relations Physically Challenged Person Discrimination . . . . . . . . . 660
Board v. Starbucks Corporation . . . . . . . . . . . . . . . . . . . . . . 637 Landmark Law • Americans with Disabilities Act . . . . . . . . . . . . . . 660
Collective Bargaining . . . . . . . . . . . . . . . . . . . . . . . . . . 637 Qualified Individual with a Disability . . . . . . . . . . . . . . . . . . . . 661
Union Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 Limits on Employer Questions . . . . . . . . . . . . . . . . . . . . . . . . . 661
Business Environment • State Right-to-Work Laws . . . . . . . . . . . . 638 Reasonable Accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . 661
Strikes and Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . 639 Undue Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
Illegal Strikes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 Uncovered Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
Crossover and Replacement Workers . . . . . . . . . . . . . . . . . . . . . 639 Genetic Information Discrimination . . . . . . . . . . . . . . . . 662
Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 Genetic Information Nondiscrimination Act (GINA) . . . . . . . . 663
Secondary Boycott Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 640 Protection from Retaliation . . . . . . . . . . . . . . . . . . . . . 663
Critical Legal Thinking Case • Labor Union Case 36.1 • U.S. Supreme Court Case • Employer Retaliation •
Picketing • Sheet Metal Workers’ International Thompson v. North American Stainless, LP . . . . . . . . . . . . . . 663
Association, Local 15, AFL-CIO v. National Labor Affirmative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Relations Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640 Affirmative Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Internal Union Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 Reverse Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Business Environment • Worker Adjustment and Retraining Contemporary Environment • Veterans and Military Personnel
Notification (WARN) Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 Employment Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Immigration Law and Employment . . . . . . . . . . . . . . . . . 641 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 665
H-1B Foreign Guest Worker Visa . . . . . . . . . . . . . . . . . . . . . . . 642 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 665
EB-1 Extraordinary Ability Visa . . . . . . . . . . . . . . . . . . . . . . . . 642 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666
Undocumented Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667
Cobra and Erisa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Government Programs . . . . . . . . . . . . . . . . . . . . . . . . . 643
Unemployment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 643 Part VIII Property, Insurance,
Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
and Estates . . . . . . . . . . . . . 669
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646 37 Personal Property, Bailment,
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646 And Insurance . . . . . . . . . . . . . . . . 670
Introduction to Personal Property, Bailment,
and Insurance �� 671
36 Equal Opportunity in Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Employment . . . . . . . . . . . . . . . . . . 647 Ownership of Personal Property . . . . . . . . . . . . . . . . . . 671
Introduction to Equal Opportunity in Employment �� 648 Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Equal Employment Opportunity Commission (EEOC) . . . 648 Gift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Complaint Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648 Other Methods of Acquiring Ownership of
Lilly Ledbetter Fair Pay Act of 2009 . . . . . . . . . . . . . . . . . . . . . 649 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Title VII of the Civil Rights Act of 1964 . . . . . . . . . . . . . 649 Mislaid, Lost, and Abandoned Personal
Landmark Law • Title VII of the Civil Rights Act of 1964 . . . . . . . . 649 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Scope of Coverage of Title VII . . . . . . . . . . . . . . . . . . . . . . . . . . 650 Mislaid Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Disparate-Treatment Discrimination . . . . . . . . . . . . . . . . . . . . . 650 Lost Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674
Disparate-Impact Discrimination . . . . . . . . . . . . . . . . . . . . . . . 650 Abandoned Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674
Remedies for Violations of Title VII . . . . . . . . . . . . . . . . . . . . . 651 Case 37.1 • State Court Case • Mislaid or Abandoned
Race and Color Discrimination . . . . . . . . . . . . . . . . . . . 651 Property • Grande v. Jennings . . . . . . . . . . . . . . . . . . . . . . . . 674
Race Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651 Ethics • Estray Statutes Promote Honesty in Finders . . . . . . . . . . 675
Color Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651 Bailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675
Landmark Law • Civil Rights Act of 1866 . . . . . . . . . . . . . . . . . . . 652 Elements Necessary to Create a Bailment . . . . . . . . . . . . . . . . . 676
National Origin Discrimination . . . . . . . . . . . . . . . . . . . 652 Case 37.2 • State Court Case • Bailment • Ziva Jewelry,
Contemporary Environment • English-Only Rules Inc. v. Car Wash Headquarters, Inc. . . . . . . . . . . . . . . . . . . . . 676
in the Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 Ordinary Bailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677
Gender Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . 653 Duration and Termination of Bailments . . . . . . . . . . . . . . . . . . 678
Gender Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653 Special Bailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678
Pregnancy Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653 Warehouse Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678
Contents xxiii
Common Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679 Landlord–Tenant Law . . . . . . . . . . . . . . . . . . . . . . . . . . 702

Case 37.3 • Federal Court Case • Common Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
Carrier Shipment • Rykard v. FedEx Ground Tenancy for Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Package System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680 Periodic Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Innkeeper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681 Tenancy at Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681 Tenancy at Sufferance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
Insurable Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 Landlord’s Duties to a Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . 704
Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 Implied Warranty of Habitability . . . . . . . . . . . . . . . . . . . . . . . . 704
Duties of Insured and Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 Tenant’s Duties to a Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 705
Common Clauses in Insurance Policies . . . . . . . . . . . . . . . . . . . 683 Transfer of Leased Property by Landlords . . . . . . . . . . . . . . . . . 705
Ethics • Insurance Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683 Assignment of a Lease by a Tenant . . . . . . . . . . . . . . . . . . . . . . 705
Types of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684 Sublease by a Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705
Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684 Government Regulation of Real Property . . . . . . . . . . . . 706
Health and Disability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 684 Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706
Automobile, Vehicle, and Vessel Insurance . . . . . . . . . . . . . . . . . 684 Rent Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
Contemporary Environment • No-Fault Automobile Antidiscrimination Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708
Homeowners’ and Renters’ Insurance . . . . . . . . . . . . . . . . . . . . . 685 Critical Legal Thinking Case • Eminent Domain • Kelo v. City
Business Environment • Special Forms of Business Insurance . . . . 686 of New London, Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . 708
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 686 Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 709
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 687 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 710
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688 Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
38 Real Property, Landlord–Tenant

39 Family Law, Wills, and Trusts�� 712
Law, and Land Use Regulation�� 689 Introduction to Family Law, Wills, and Trusts�� 713
Introduction to Real Property, Landlord–Tenant Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
Law, and Land Use Regulation �� 690 Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 Marriage Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714
Land and Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 Common Law Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714
Subsurface Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 Contemporary Environment • Same-Sex Marriage . . . . . . . . . . . . . 714
Plant Life and Vegetation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 Termination of a Marriage . . . . . . . . . . . . . . . . . . . . . . 715
Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 Annulment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Contemporary Environment • Air Rights . . . . . . . . . . . . . . . . . . . . . 691 Divorce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Estates in Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691 Divorce Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Fee Simple Absolute (or Fee Simple) . . . . . . . . . . . . . . . . . . . . . 691 Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716
Fee Simple Defeasible (or Qualified Fee) . . . . . . . . . . . . . . . . . . 692 Contemporary Environment • Prenuptial Agreement . . . . . . . . . . . 716
Life Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692 Division of Assets upon Divorce or Annulment . . . . . . . . 717
Concurrent Ownership . . . . . . . . . . . . . . . . . . . . . . . . . 692 Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
Joint Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 Marital Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718
Tenancy in Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 Division of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Case 38.1 • State Court Case • Concurrent Spousal and Child Support . . . . . . . . . . . . . . . . . . . . . . 719
Ownership • Reicherter v. McCauley . . . . . . . . . . . . . . . . . . . . 693 Spousal Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Tenancy by the Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694 Child Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694 Child Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720
Condominium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695 Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695 Requirements for Making a Will . . . . . . . . . . . . . . . . . . . . . . . . 721
Future Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695 Attestation by Witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695 Amending and Revoking Wills . . . . . . . . . . . . . . . . . . . . . . . . . 723
Remainder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 Joint and Mutual Wills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Transfer of Ownership of Real Property . . . . . . . . . . . . . 696 Special Types of Wills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Sale of Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 Simultaneous Deaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 Probate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Recording Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697 Testamentary Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
Quiet Title Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Lineal Descendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
Marketable Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Ademption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
Case 38.2 • State Court Case • Adverse Intestate Succession . . . . . . . . . . . . . . . . . . . . . . . . . . 726
Possession • Whelan v. Loun . . . . . . . . . . . . . . . . . . . . . . . . . 699 Irrevocable Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727
Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Easement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699 Inter Vivos Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Creating an Easement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700 Testamentary Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Case 38.3 • State Court Case • Easement • Living Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
The Willows, LLC v. Bogy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 Benefits of a Living Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 Funding and Operation of a Living Trust . . . . . . . . . . . . . . . . . . 729
Profit-à-Prendre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
xxiv Contents
Undue Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730 Audit Report Sign-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748

Case 39.1 • State Court Case • Undue Influence • In re Estate Certain Employment Prohibited . . . . . . . . . . . . . . . . . . . . . . . . 748
of Haviland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730 Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Living Will and Health Care Directive . . . . . . . . . . . . . . 731 Accountants’ Privilege and Work Papers . . . . . . . . . . . . 749
Living Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731 Accountant–Client Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
Health Care Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731 Accountants’ Work Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
Critical Legal Thinking Case • Assisted Suicide • Gonzales, Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 750
Attorney General of the United States v. Oregon . . . . . . . . . . 732 Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 750
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 732 Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 733 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Part X Global Environment . . . . . 753

Part IX Accounting Profession . . . 735
41 International and
40 Accountants’ Duties World Trade Law�� 754
and Liability . . . . . . . . . . . . . . . . . . 736 Introduction to International and World Trade Law�� 755
Introduction to Accountants’ Duties and Liability �� 737 The United States and Foreign Affairs . . . . . . . . . . . . . . 755
Public Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737 Foreign Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755
Limited Liability Partnership (LLP) . . . . . . . . . . . . . . . . . . . . . 737 Treaty Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 756
Accounting Standards and Principles . . . . . . . . . . . . . . 738 United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Generally Accepted Accounting Principles (GAAPs) . . . . . . . . 738 General Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Generally Accepted Auditing Standards (GAASs) . . . . . . . . . . 738 Security Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739 Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Auditor’s Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739 United Nations Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758
Disclaimer of Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739 International Court of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . 758
Accountants’ Liability to Their Clients . . . . . . . . . . . . . . 739 European Union (EU) . . . . . . . . . . . . . . . . . . . . . . . . . . 758
Liability to Clients: Breach of Contract . . . . . . . . . . . . . . . . . . . 739 Global Law • International Monetary Fund (IMF) . . . . . . . . . . . . . . 759
Liability to Clients: Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740 Global Law • United Nations Children’s Fund (UNICEF) . . . . . . . . . 760
Liability to Clients: Accounting Malpractice (Negligence) . . . . 740 EU Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760
Accountants’ Liability to Third Parties . . . . . . . . . . . . . 740 Global Law • World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761
Liability to Third Parties: Ultramares Doctrine . . . . . . . . . . . . . 740 Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
Case 40.1 • State Court Decision • Ultramares North American Free Trade Agreement (NAFTA) . . . . . . 762
Doctrine • Credit Alliance Corporation Association of Southeast Asian Nations (ASEAN) . . . . . 764
v. Arthur Andersen & Company . . . . . . . . . . . . . . . . . . . . . . . 741 Other Regional Organizations . . . . . . . . . . . . . . . . . . . . 766
Liability to Third Parties: Section 552 of the Organization of the Petroleum
Restatement (Second) of Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 Exporting Countries (OPEC) . . . . . . . . . . . . . . . . . . . . . . . . . . 766
Liability to Third Parties: Foreseeability Standard . . . . . . . . . . . 742 Dominican Republic–Central America
Case 40.2 • Federal Court Case • Accountants’ Liability Free Trade Agreement (DR-CAFTA) . . . . . . . . . . . . . . . . . . . . 766
to a Third Party • Johnson Bank v. George Korbakes & Other Regional Economic Organizations . . . . . . . . . . . . . . . . . 767
Company, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 World Trade Organization (WTO) . . . . . . . . . . . . . . . . . . 767
Critical Legal Thinking Case • Accountants’ Liability • WTO Dispute Resolution��768
Grant Thornton, LLP v. Prospect High Income Fund . . . . . . . . 743 National Courts and International Dispute Resolution . . 768
Judicial Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768
Liability to Third Parties: Fraud . . . . . . . . . . . . . . . . . . . . . . . . . 744
Act of State Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769
Liability to Third Parties: Breach of Contract . . . . . . . . . . . . . . 744
Case 41.1 • Federal Court Case • Act of State Doctrine •
Securities Law Violations . . . . . . . . . . . . . . . . . . . . . . . 744
Glen v. Club Mediterranee, S.A. . . . . . . . . . . . . . . . . . . . . . . 769
Section 11(a) of the Securities Act of 1933 . . . . . . . . . . . . . . . . 744
Doctrine of Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . 770
Section 10(b) of the Securities Exchange Act of 1934 . . . . . . . . 745
Exceptions to the FSIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770
Section 18(a) of the Securities Exchange Act of 1934 . . . . . . . . 745
International Religious Laws . . . . . . . . . . . . . . . . . . . . . 771
Private Securities Litigation Reform Act of 1995 . . . . . . . . . . . 745
Global Law • Jewish Law and the Torah . . . . . . . . . . . . . . . . . . . . 771
Ethics • Accountants’ Duty to Report a
Global Law • Islamic Law and the Qur’an . . . . . . . . . . . . . . . . . . . 772
Client’s Illegal Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
Global Law • Christian and Canon Law . . . . . . . . . . . . . . . . . . . . . 772
Criminal Liability of Accountants . . . . . . . . . . . . . . . . . 746
Global Law • Hindu Law—Dharmasastra . . . . . . . . . . . . . . . . . . . . 773
Criminal Liability: Section 24 of the
Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
Criminal Liability: Section 32(a) of the Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775
Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 746 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775
Criminal Liability: Tax Preparation . . . . . . . . . . . . . . . . . . . . . . 747
Criminal Liability: Racketeer Influenced and Appendix The Constitution Of The
Corrupt Organizations Act (RICO) . . . . . . . . . . . . . . . . . . . . . . 747
Criminal Liability: State Securities Laws . . . . . . . . . . . . . . . . . . 747 United States Of America ��777
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 747 Case Index�� 785
Public Company Accounting Oversight Board (PCAOB) . . . . . . 748
Public Accounting Firms Must Register with the PCAOB . . . . . 748 Subject Index�� 789
Audit and Nonaudit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
About the Author
Henry R. Cheeseman is professor emer-
itus of the Marshall School of Business
of the University of Southern California
(USC), Los Angeles, California.
Professor Cheeseman earned a bach-
elor’s degree in finance from Marquette
University, both a master’s in business
administration (MBA) and a master’s
in business taxation (MBT) from the
University of Southern California, a juris
doctor (JD) degree from the University
of California at Los Angeles (UCLA)
School of Law, a master’s d egree with
an emphasis on law and economics from
the University of Chicago, and a mas-
ter’s in law (LLM) degree in financial
institutions law from Boston University.
Professor Cheeseman was director of the Legal Studies in Business Program at the
University of Southern California. Professor Cheeseman taught business law, legal envi-
ronment, and ethics courses in both the Master of Business Administration (MBA) and
undergraduate programs of the Marshall School of Business of the University of Southern
California. At the MBA level, he developed and taught courses on corporate governance,
securities regulation, mergers and acquisitions, and bankruptcy law. At the undergraduate
level, he taught courses on business law, the legal environment of business, ethics, business
organizations, cyber law, and intellectual property.
Professor Cheeseman received the Golden Apple Teaching Award on many occasions
by being voted by the students as the best professor at the Marshall School of Business of
the University of Southern California. He was named a fellow of the Center for Excellence
in Teaching at the University of Southern California by the dean of the Marshall School
of Business. The USC’s Torch and Tassel Chapter of the Mortar Board, a national senior
honor society, tapped Professor Cheeseman for recognition of his leadership, commit-
ment, and excellence in teaching.
Professor Cheeseman writes leading business law and legal environment textbooks that
are published by Pearson Education, Inc. These include Business Law: Legal Environment,
Online Commerce, Business Ethics, and International Issues; Contemporary Business Law; and
The Legal Environment of Business and Online Commerce. Professor Cheeseman has also
co-authored a textbook entitled Contemporary Employment Law.
Professor Cheeseman is an avid traveler and amateur photographer. The interior
photographs for this book were taken by Professor Cheeseman.
xxv
Preface
New To The Eighth Edition workers not intended beneficiaries of Wal-Mart’s con-
tracts with foreign suppliers)
This edition of Contemporary Business Law is a significant • Chanel, Inc. v. Banks (Internet seller found subject to per-
revision of Professor Cheeseman’s business law and legal sonal jurisdiction)
environment textbook that includes many new cases, statutes, • McPadden v. Sidhu (directors of Delaware corporation not
and features. liable for negligence because of liability waiver in corpo-
rate documents)
• V Secret Catalogue, Inc. and Victoria’s Secret Stores, Inc. v.
New U.S. Supreme Court Cases Moseley (tarnishment of a senior mark by a junior mark)
More than 12 new U.S. Supreme Court cases, including: • Las Vegas Sands, LLC v. Nehme (casino marker is a nego-
tiable instrument)
• Shelby County, Texas v. Holder (Voting Rights Act) • Mitchell v. Fortas Insurance Company (bad faith tort com-
• United States v. Windsor (federal Defense of Marriage Act mitted by insurance company)
violates equal protection clause) • Rainey v. Domino’s Pizza, LLC (franchisor not liable for
• Maryland v. King (taking DNA of person at time of an accident caused by franchisee’s delivery person)
booking is reasonable search) • Intel Corporation v. Intelsys Software LLC (trademark
• Kiobel v. Royal Dutch Petroleum Company (Alien Tort infringement found)
Statute does not permit lawsuit in federal court for alleged • Stoll v. Xiong (unconscionable contract not enforced)
crimes against humanity committed in another country) • Mance v. Mercedes-Benz USA (arbitration clause in auto-
• Thompson v. North American Stainless, LP (employer retalia- mobile purchase contract enforced)
tion violates Title VII) • Menendez v. O’Neill (sole shareholder of corporation not
• Mutual Pharmaceutical Company, Inc. v. Bartlett (federal liable for corporation’s liabilities)
drug labeling law preempts state law) • In re Estate of Haviland (undue influence on elderly man
• Brown v. Entertainment Merchants Association (state law in preparing estate documents)
regulating violent video games violates free speech) • Yarde Metals, Inc. v. New England Patriots Limited
• Walmart Stores, Inc. v. Dukes (certification of a class Partnership (parol evidence not admitted to change terms
denied) of a ticketholder’s contract)
• Snyder v. Phelps (picketing near veteran’s funeral is pro-
tected free speech) New Statutes
• Association for Molecular Pathology v. Myriad Genetics, Inc.
(naturally occurring segments of DNA is a product of na- Coverage of recent federal statutes, including:
ture and is not patentable) • Jumpstart Our Business Startups Act (JOBS Act) of 2012
• Stop Trading on Congressional Knowledge Act
(STOCKS Act) of 2012
New State and Federal Court Cases • Leahy-Smith America Invents Act (AIA) of 2011
More than 40 new state and federal court cases, including: • Helping Families Save Their Homes Act of 2009
• The Facebook, Inc. v. Winklevoss (settlement agreement

New Feature: “Critical Legal Thinking”
reached by founders of Facebook is enforced)
• United States v. Barrington (undergraduate student con- More than 15 new “Critical Legal Thinking Cases” have
victed of computer crimes for changing students’ grades been introduced to this edition to prompt students to con-
on university’s internet grading system) sider the policy implications of covered subject matters.
• Hubbert v. Dell Corporation (content reached by hyper-
These include:
links in licensing agreement is part of the contract)
• National Labor Relations Board v. Starbucks Corporation • Campaign Financing Law (Citizens United v. Federal
(Starbucks Corporation engaged in unfair labor practices) Election Committee)
• Does I-XI, Workers in China, Bangladesh, Indonesia, • Class Action Waivers (AT&T Mobility LLC v.
Swaziland, and Nicaragua v. Walmart Stores, Inc. (foreign Concepcion)
xxvii
xxviii Preface
• Sexual Harassment (Pennsylvania State Police v. Suders) • United Nations Children’s Fund (UNICEF)
• Exclusionary Rule (Arizona v. Gant) • Law in the Digital Age
• Cyber Piracy (BMG Music v. Gonzalez) • E-Commerce and the Commerce Clause
• Strict Liability (Domingue v. Cameco Industries, Inc.) • International Protection of Intellectual Property
• Eminent Domain (Kelo v. City of New London,
Connecticut)
• Assisted Suicide (Gonzales, Attorney General of the
United States v. Oregon)
Supplements That
More than seventy-five new “Critical Legal Thinking
Accompany The Eighth
Questions” have been placed in the margins. Edition
New Special Features on Ethics, Digital Law, For Instructors
Contemporary Environment, Business Environment, We offer a variety of supplements to meet the unique
and Global Law teaching needs of each instructor. Electronic versions of
More than 20 new special features, including: the supplements that accompany this text are available for
• Facebook’s IPO download at our Instructor Resource Center (www.pear-
• Foreign Intelligence Surveillance Court (FISA Court) sonhighered.com) and include the following:
• Crowd Funding and Funding Portals
• Emerging Growth Company (EGC) Instructor’s Manual
• Is Outsourcing of U.S. Jobs Ethical? Test Item File
• Delaware Corporation Law TestGen
• Veterans and Military Personnel Employment PowerPoint Presentation
Protections
Preface xxix
To the Students
C ontemporary students have different needs than previous generations.
Having been exposed to the electronic world for your entire lives, you think,
learn, and process information in different ways than prior generations. This new
eighth edition of Contemporary Business Law and its electronic supplements have
been designed especially for your needs.
Many of you may be apprehensive about taking a law course because it may
seem daunting or different from studying many of your other courses. But it is
not. As you embark on your study of the law, you will know that this course pres-
ents the “real world,” that is, real legal disputes involving real people like your-
selves. The course also offers you an opportunity to develop your critical thinking
skills that will serve you in addressing legal and other issues that you may encoun-
ter. And lastly, learning the subject matter of this course will help you make more
informed and confident decisions in your business and personal life.
Each semester, as I stand in front of a new group of students in my business
law and legal environment classes, I am struck by the thought that I draw as much
from them as they do from me. Their youth, enthusiasm, and questions—and
even the doubts a few of them hold about the relevance of law to their futures—
fuel my teaching. They don’t know that every time they open their minds to look
at an issue from a new perspective or critically question something, I have gotten
a wonderful reward for the work I do.
I remind myself of this every time I sit down to work on writing and revising
Contemporary Business Law, as well. My goal is to present business law, the legal
environment, business ethics, and digital law in a way that will spur students to
ask questions, to go beyond rote memorization.
Business law is an evolving outgrowth of its environment, and the legal en-
vironment keeps changing. This new eighth edition of Contemporary Business
Law emphasizes coverage of online law and e-commerce as key parts of the legal
environment. In addition, this book covers social, ethi-
cal, and global issues that are important to the study of
business law.
It is my wish that my commitment to these goals
shines through in this labor of love, and I hope you
have as much pleasure in using it as I have had in cre-
ating it for you.
Henry Cheeseman
Acknowledgments
When I first began writing this book, I was a solitary figure, researching cases online and
in the law library and writing text on the computer and by hand at my desk. As time
passed, others entered upon the scene—copy editors, developmental editors, research as-
sistants, reviewers, and production personnel—and touched the project and made it better.
Although my name appears on the cover of this book, it is no longer mine alone. I humbly
thank the following persons for their contributions to this project.
The Exceptional PEARSON PRofessionals

Many thanks to Bob Horan, Executive Editor; Karen Kirincich, Project Manager; Kaylee
Rotella, Editorial Assistant; and Ilene Kahn, Project Manager, for shepherding this eighth
edition through the many phases of editing and production with great care and attention.
I would especially like to thank the professionals of the sales staff of Pearson, particu-
larly all the knowledgeable sales representatives, without whom the success of this text-
book would be impossible.
Personal Acknowledgments
My family
I would like to dedicate this book to my wife, Jin Du.
I thank my parents—Henry B. and Florence, deceased—who had a profound effect on
me and my ability to be a professor and writer.
I also thank other members of my family, particularly my twin brother, Gregory, with
whom a special bond exists. And the importance of the rest of my family, including my
sister, Marcia, deceased, Gregory’s wife, Lana, my nephew, Gregory, and niece, Nicky,
and their children, Lauren, Addison, and Shelby.
Colleagues
Certain people and colleagues are enjoyable to work with and have made my life easier as
I have endeavored to write this new eighth edition of Contemporary Business Law. I would
like to thank Kerry Fields, my colleague in teaching business law courses at USC, who
is an excellent professor and a wonderful friend. I would also like to thank Helen Pitts,
Debra Jacobs, Terry Lichvar, and Jean Collins, at the Marshall School of Business, who do
so much for me and are always a joy to work with.
Reviewers
The author and publisher would like to acknowledge the following reviewers for their time
and valuable feedback:
Denise Bartles, Western State College

Eli Bortman, Babson College
Chester Brough, Utah State University
John Bryan, Bridgewater State College
Greg Cermignano, Widener University
Nigel J. Cohen, University of Texas, Pan American
xxxi
xxxii Acknowledgments
Stefan Defebaugh, Eastern Michigan University

Thomas Eppink, University of South Carolina
Deborah Frey, Southern Illinois University
Wendy Gelman, Florida International University
Howard Hammer, Ball State University
Richard Kohn, Southeast Community College
Paul Krazeise, Bellarmine University
Linda Moran, Sonoma State University
Tonia Hap Murphy, Notre Dame University
Mark Patzkowski, North West Oklahoma State University
Frank Primiani, Green River Community College
Donald Roark, University of West Florida
Donald Sanders, Southwest Texas State University
Charles Soos, Livingston College, Rutgers University
Robert Young, University of Nebraska, Kearney
Eric Yordy, Northern Arizona University
Author’s Personal Statement

While writing this Preface and Acknowledgment, I have thought about the thousands of
hours I have spent researching, writing, and preparing this manuscript. I’ve loved every mi-
nute, and the knowledge gained has been sufficient reward for the endeavor.
I hope this book and its supplementary materials will serve you as well as they have
served me.
With joy and sadness,
emptiness and fullness,
honor and humility,
I surrender the fruits of this labor
Henry R. Cheeseman
Part I
Legal, Ethical, and
Digital Environment
1
1 Legal Heritage
and the Digital Age
▲ Statue of Liberty, New York Harbor The Statue of Liberty stands majestically in New
York Harbor. During the American Revolution, France gave the colonial patriots substantial
support in the form of money for equipment and supplies, officers and soldiers who fought in the
war, and ships and sailors who fought on the seas. Without the assistance of France, it is unlikely
that the American colonists would have won their independence from Britain. In 1886, the
people of France gave the Statue of Liberty to the people of the United States in recognition of
the friendship that was established during the American Revolution. Since then, the Statue of
Liberty has become a symbol of liberty and democracy throughout the world.
Learning Objectives
After studying this chapter, you should be able to:
1. Define law. 4. List and describe the sources of law in the United States.
2. Describe the functions of law. 5. Discuss the importance of the U.S. Supreme Court’s
3. Explain the development of the U.S. legal system. decision in Brown v. Board of Education.
Chapter Outline
➤ Introduction to Legal Heritage and the ➤ Schools of Jurisprudential Thought
Digital Age Global Law • Command School of Jurisprudence of Cuba
➤ What Is Law? ➤ History of American Law
Landmark U.S. Supreme Court Case • Brown v. Board Landmark Law • Adoption of English Common Law in America
of Education Global Law • Civil Law System of France and Germany
2
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no related content on Scribd:
DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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Preface  xxvii Doctrine of Separation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . 21

Jurisdiction of the U.S. Supreme Court . . . . . . . . . . . . . . . . . . . . 48 Closing Arguments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

8 Ethics and Social Responsibility Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

14 Breach Of Contract And License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Part IV Negotiable Instruments, Secondary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 391 Bankruptcy Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

25 Agency Law�������������������������������������� 438

Formation of an Agency . . . . . . . . . . . . . . . . . . . . . . . . 441 Other Rights of General Partners . . . . . . . . . . . . . . . . . . . . . . . 464

Financing the Corporation: Equity Securities . . . . . . . . . 489 29 Corporate Acquisitions

Liability of Tortfeasors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538 32 Investor Protection,

Overtime Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 Harassment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654

Common Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679 Landlord–Tenant Law . . . . . . . . . . . . . . . . . . . . . . . . . . 702

38 Real Property, Landlord–Tenant

Undue Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730 Audit Report Sign-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748

Part X Global Environment . . . . . 753

• The Facebook, Inc. v. Winklevoss (settlement agreement

The Exceptional PEARSON PRofessionals

Denise Bartles, Western State College

Stefan Defebaugh, Eastern Michigan University

Author’s Personal Statement

Newala, too, suffers from the distance of its water-supply—at least

The water-supply of New Newala is in the bottom of the valley,

NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAKONDE LOCK AND KEY AT JUMBE CHAURO

MODE OF INSERTING THE KEY

With no small pride first one householder and then a second

Some consolation was afforded me by a brassfounder, whom I

SMOOTHING WITH MAIZE-COB

CUTTING THE EDGE

LAST SMOOTHING BEFORE

FIRING THE BRUSH-PILE

TURNING THE RED-HOT VESSEL

NYASA WOMAN MAKING POTS AT MASASI

DRAWING THE BARK OFF THE LOG

REMOVING THE OUTER BARK

WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

MANUFACTURE OF BARK-CLOTH AT NEWALA

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Preface xxvii Doctrine of Separation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . 21

25 Agency Law�� 438