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13th Edition
Business Law
Today
COMPREHENSIVE Edition
Text & Cases
Roger LeRoy Miller

Institute for University Studies
Arlington, Texas
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Text & Cases 13th Edition
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Contents in Brief
Unit 1 The Legal Environment of Business 1 Unit 5 Business Organizations 699
1 Law and Legal Reasoning 1 30 Sole Proprietorships and Franchises 700
2 Constitutional Law 34 31 All Forms of Partnership 716
3 Ethics in Business 59 32 Limited Liability Companies and Special Business Forms 739
4 Courts and Alternative Dispute Resolution 88 33 Corporate Formation and Financing 756
5 Tort Law 123 34 Corporate Directors, Officers, and Shareholders 777
6 Product Liability 151 35 Corporate Mergers, Takeovers, and Termination 796
7 Intellectual Property Rights 171 36 Investor Protection, Insider Trading, and Corporate
8 Internet Law, Social Media, and Privacy 197 Governance 812
9 Criminal Law and Cyber Crime 220
Unit 6 Government Regulation 839
Unit 2 Contracts and E-Contracts 249 37 Administrative Law 840
10 Nature and Classification 250 38 Antitrust Law and Promoting Competition 860
11 Agreement 269 39 Consumer and Environmental Law 883
12 Consideration 293 40 Liability of Accountants and Other Professionals 911
13 Capacity and Legality 307
14 Voluntary Consent 326 Unit 7 Property and Its Protection 933
15 The Statute of Frauds—Writing Requirement 340
41 Personal Property and Bailments 934
16 Performance and Discharge 356
42 Real Property and Landlord-Tenant Law 956
17 Breach and Remedies 372
43 Insurance, Wills, and Trusts 980
18 Third Party Rights 393
APPENDICES
Unit 3 Commercial Transactions 409
A How to Brief Cases and Analyze Case Problems A–1
19 The Formation of Sales and Lease Contracts 410
B The Constitution of the United States A–3
20 Title and Risk of Loss 434 C The Uniform Commercial Code A–3
21 Performance and Breach of Sales and Lease Contracts 450 D Answers to the Issue Spotters A–4
22 Negotiable Instruments 481
E Sample Answers for Business Case Problems
23 International and Space Law 513 with Sample Answer A–11
24 Banking 535
25 Security Interests and Creditors’ Rights 558 Glossary G–1
26 Bankruptcy 588 Table of Cases TC–1
Index I–1
Unit 4 Agency and Employment Law 615
27 Agency Relationships in Business 616
28 Employment, Immigration, and Labor Law 644
29 Employment Discrimination 672
iii
Contents
Unit 1 The Legal Environment of Business 1

Chapter 1 Privacy Rights 52
■■ Cybersecurity and the Law: Should Apple Help
Law and Legal Reasoning 2 Law Enforcement? 52
Business Activities and the Legal Environment 3

Sources of American Law 4
Chapter 3
The Common Law 8 Ethics in Business 59
■■ Managerial Strategy: The Power of Precedent 10
■■ Landmark in the Law: Equitable Maxims 15 Ethics and the Role of Business 60
■■ Business Web Log: Bogus Bank and Credit Card
Classifications of Law 15
Accounts at Wells Fargo Bank 61
Appendix to Chapter 1 21 ■■ Adapting the Law to the Online Environment: Should
Finding and Analyzing the Law 21 Employees Have a “Right of Disconnecting”? 63
Finding Statutory and Administrative Law 21 Case 3.1: Al-Dabagh v. Case Western Reserve University 65
Finding Case Law 22 Ethical Principles and Philosophies 66
Exhibit 1A–1 The National Reporter System—Regional/Federal 23 ■■ Managerial Strategy: The Stakeholder Capitalism Movement 71
Reading and Understanding Case Law 24 Sources of Ethical Issues in Business Decisions 71
Exhibit 1A–2 How to Read Citations 25 Case 3.2: Watson Laboratories, Inc. v. State of Mississippi 72
Exhibit 1A–3 A Sample Court Case 28 Making Ethical Business Decisions 75
■■ Business Law Analysis: Case Briefing and IRAC Legal Reasoning 32 ■■ Business Law Analysis: Applying the IDDR Framework 79
Business Ethics on a Global Level 80
Chapter 2 Appendix to Chapter 3 87
Costco Code of Ethics 87
Constitutional Law 34
The Constitutional Powers of Government 35 Chapter 4
Case 2.1: Classy Cycles, Inc. v. Panama City Beach 36
■■ Landmark in the Law: Gibbons v. Ogden (1824) 38
Courts and Alternative
Classic Case 2.2: Heart of Atlanta Motel v. United States 39 Dispute Resolution 88
Business and the Bill of Rights 41 The Judiciary’s Role in American Government 89
■■ Adapting the Law to the Online Environment: Social ■■ Landmark in the Law: Marbury v. Madison (1803) 89
Media and the Constitution 43
Basic Judicial Requirements 90
Spotlight on Beer Labels: Case 2.3: Bad Frog Brewery,
Spotlight on Gucci: Case 4.1: Gucci America, Inc. v. Wang Huoqing 95
Inc. v. New York State Liquor Authority 46
■■ Business Law Analysis: Determining When Public The State and Federal Court Systems 97
Religious Displays Violate the Establishment Clause 48 Case 4.2: Oxford Tower Apartments, LP v. Frenchie’s Hair Boutique 98
Due Process and Equal Protection 50 Following a State Court Case 101
iv
Contents v
■■ Adapting the Law to the Online Environment: Chapter 7

Using Social Media for Service of Process 103
Case 4.3: Klipsch Group, Inc. v. ePRO E-Commerce Limited 107 Intellectual Property Rights 171
Courts Online 111 Trademarks 172
Alternative Dispute Resolution 112 ■■ Managerial Strategy: Trademarks and Service Marks 172
■■ Business Web Log: Samsung and Forced Arbitration 115 Classic Case 7.1: Coca-Cola Co. v. Koke Co. of America 173
■■ Business Web Log: Amazon Faces Fake Products 178
Chapter 5 Patents 180
■■ Business Law Analysis: The Impact of Patent Time Limits 181
Tort Law 123 Copyrights 183
The Basis of Tort Law 123 Case 7.2: LEGO A/S v. ZURU Inc. 185
Intentional Torts against Persons 125 ■■ Adapting the Law to the Online Environment:
Beyoncé, Sampling, and a $20 Million Lawsuit 188
■■ Business Law Analysis: Analyzing Intentional Infliction
of Emotional Distress Claims 127 Case 7.3: Oracle USA, Inc. v. Rimini Street, Inc. 189
Case 5.1: Sky v. Van Der Westhuizen 129 Trade Secrets 190
■■ Adapting the Law to the Online Environment: Revenge International Protections 191
Porn and Invasion of Privacy 132
Intentional Torts against Property 136
Chapter 8
Negligence 138
Case 5.2: Bogenberger v. Pi Kappa Alpha Corporation, Inc. 139 Internet Law, Social Media,
■■ Landmark in the Law: Palsgraf v. Long Island and Privacy 197
Railroad Co. (1928) 143
Spotlight on the Seattle Mariners: Case 5.3: Taylor v. Baseball Internet Law 198
Club of Seattle, L.P. 144 Spotlight on Internet Porn: Case 8.1: Hasbro,
Strict Liability 145 Inc. v. Internet Entertainment Group, Ltd. 202
Copyrights in Digital Information 203
■■ Landmark in the Law: The Digital Millennium Copyright Act 203
Chapter 6 ■■ Adapting the Law to the Online Environment: Riot
Games, Inc., Protects Its Online Video Game Copyrights 204
Product Liability 151 Case 8.2: BMG Rights Management (US), LLC v. Cox
Product Liability Claims 151 Communications, Inc. 206
■■ Business Web Log: Johnson & Johnson Faces Continuing Social Media 207
Lawsuits Over Its Talcum Powder 152 Online Defamation 210
■■ Landmark in the Law: MacPherson v. Buick
■■ Business Law Analysis: Immunity of ISPs
Motor Co. (1916) 153 under the Communications Decency Act 211
Case 6.1: Primal Vantage Co. v. O’Bryan 154 Privacy 212
Strict Product Liability 155 Case 8.3: Campbell v. Facebook, Inc. 212
■■ Cybersecurity and the Law: The Internet of Things 157
■■ Business Law Analysis: How State Legislation
Can Limit Recovery for Design Defects 158 Chapter 9
Case 6.2: Stange v. Janssen Pharmaceuticals, Inc.
■■ Managerial Strategy: When Is a Warning Legally
160
Criminal Law and Cyber Crime 220
Bulletproof? 161 Civil Law and Criminal Law 220
Defenses to Product Liability 163 Criminal Liability 223
Spotlight on Injuries from Vaccinations: Case 6.3: ■■ Adapting the Law to the Online Environment: Should
Bruesewitz v. Wyeth, LLC 164 Bitcoin Be Illegal? 223
vi Contents
Case 9.1: United States v. Crabtree 224 Defenses to Criminal Liability 234
■■ Managerial Strategy: The Criminalization of Constitutional Safeguards 236
American Business 226
Cyber Crime 239
Types of Crimes 228 ■■ Landmark in the Law: Miranda v. Arizona (1966) 240
Spotlight on White-Collar Crime: Case 9.2: People v. Sisuphan 230 ■■ Cybersecurity and the Law: Counter-Strike: Global Offensive 242
Unit 2 Contracts and E-Contracts 249

Chapter 10 ■■ Landmark in the Law: Hamer v. Sidway (1891) 294
Case 12.1: Cincinnati Reds, L.L.C. v. Testa 295
Nature and Classification 250 Agreements That Lack Consideration 297
An Overview of Contract Law 250 Case 12.2: Baugh v. Columbia Heart Clinic, P.A. 298
Elements of a Contract 252 Settlement of Claims 300
Case 10.1: Credible Behavioral Health, Inc. v. Johnson 253 Spotlight on Nike: Case 12.3: Already, LLC v. Nike, Inc. 301
Types of Contracts 254 Promissory Estoppel 302
Case 10.2: Boswell v. Panera Bread Co. 256
Quasi Contracts 259 Chapter 13
■■ Business Law Analysis: Deciding If a Court
Would Impose a Quasi Contract 260 Capacity and Legality 307
Interpretation of Contracts 261
Contractual Capacity 307
Spotlight on Columbia Pictures: Case 10.3: Wagner v.
Spotlight on KFC: Case 13.1: PAK Foods Houston, LLC v. Garcia 308
Columbia Pictures Industries, Inc. 262
Legality 311
■■ Business Law Analysis: Determining If a Contract with an
Chapter 11 Unlicensed Party Is Enforceable 313
Agreement 269 Case 13.2: Kennedy v. Shave Barber Co.

■■ Managerial Strategy: Creating Liability Waivers
315
Offer 269 That Are Not Unconscionable 318

Classic Case 11.1: Lucy v. Zehmer 270 Case 13.3: Holmes v. Multimedia KSDK, Inc. 318
Spotlight on Amazon.com: Case 11.2: Basis Technology The Effect of Illegality 319
Corp. v. Amazon.com, Inc. 273
■■ Business Law Analysis: Offers of a Reward 275
Chapter 14
Acceptance 277
■■ Adapting the Law to the Online Environment: Voluntary Consent 326
Can Your E-Mails Create a Valid Contract? 278
E-Contracts 280 Mistakes 326
Case 11.3: Bailey v. Kentucky Lottery Corp. 283 Fraudulent Misrepresentation 329
The Uniform Electronic Transactions Act 286 Case 14.1: McCullough v. Allstate Property and Casualty
Insurance Co. 330
Case 14.2: Cronkelton v. Guaranteed Construction Services, LLC 333
Chapter 12 ■■ Adapting the Law to the Online Environment: The Problem
of “Contract Cheating” 334
Consideration 293 Case 14.3: Adeli v. Silverstar Automotive, Inc. 335
Elements of Consideration 293 Undue Influence and Duress 336
Contents vii
Chapter 15 Chapter 17
The Statute of Frauds— Breach and Remedies 372
Writing Requirement 340 Damages 373
The Writing Requirement 340 ■■ Cybersecurity and the Law: Arby’s Restaurant Group, Inc. 374
Case 15.1: Sloop v. Kiker 341 Case 17.1: HDAV Outdoor, LLC v. Red Square Holdings, LLC 376
■■ Landmark in the Law: Hadley v. Baxendale (1854) 377
Exceptions to the Statute of Frauds 345
Spotlight on Liquidated Damages: Case 17.2: Kent State
Sufficiency of the Writing 347
University v. Ford 379
Case 15.2: Moore v. Bearkat Energy Partners, LLC 348
Equitable Remedies 380
The Parol Evidence Rule 348 ■■ Business Law Analysis: Enforceability of Liquidated
Case 15.3: Habel v. Estate of Capelli 349 Damages Provisions 381
Case 17.3: Cipriano Square Plaza Corp. v. Munawar 381
Chapter 16 Recovery Based on Quasi Contract 385
Contract Provisions Limiting Remedies 386
Performance and Discharge 356
Conditions of Performance 356
Discharge by Performance 358
Chapter 18
■■ Business Law Analysis: Determining When a Breach Third Party Rights 393
Is Material 360
Case 16.1: Chalk Supply LLC v. Ribbe Real Assignments 393
Estate LLC 361 Case 18.1: JP Morgan Chase Bank N.A. v. McNeill 395
Discharge by Agreement 362 Delegations 398
Case 16.2: DWB, LLC v. D&T Pure Trust 364 Case 18.2: Mirandette v. Nelnet, Inc. 400
Discharge by Operation of Law 365 Third Party Beneficiaries 401
Case 16.3: Hampton Road Bankshares, Inc. v. Harvard 366 Case 18.3: Bozzio v. EMI Group, Ltd. 401
Unit 3 Commercial Transactions 409

Chapter 19 ■■ Business Law Analysis: Additional Terms between Merchants 422
Classic Case 19.3: Jones v. Star Credit Corp. 427
The Formation of Sales and Lease Contracts for the International Sale of Goods 427
Contracts 410
■■ Landmark in the Law: The Uniform Commercial Code 411 Chapter 20
The Scope of Articles 2 and 2A 411
■■ Adapting the Law to the Online Environment:
Title and Risk of Loss 434
Taxing Web Purchases 413 Identification 435
The Formation of Sales and Lease Contracts 415 Case 20.1: BMW Group, LLC v. Castle Oil Corp. 436
Case 19.1: Toll Processing Services, LLC v. Kastalon, Inc. 416 Passage of Title 437
Case 19.2: Cadillac Rubber & Plastics, Inc. v. Tubular Metal ■■ Managerial Strategy: Commercial Use of Drones 438
Systems, LLC 420 Spotlight on Andy Warhol: Case 20.2: Lindholm v. Brant 440
viii Contents
Risk of Loss 442 Case 23.2: Changzhou Trina Solar Energy Co.,
Case 20.3: Total Quality Logistics, LLC v. Balance Transportation, LLC 443 Ltd. v. International Trade Commission 523
Insurable Interest 446 U.S. Laws in a Global Context 525
Spotlight on International Torts: Case 23.3:
Daimler AG v. Bauman 526
Chapter 21 Space Law 528
Performance and Breach of ■■ Cybersecurity and the Law: Safe Satellites 529
Sales and Lease Contracts 450

Chapter 24
Obligations of the Seller or Lessor 451
Case 21.1: All the Way Towing, LLC v. Bucks County Banking 535
International, Inc. 453
Checks and the Bank-Customer Relationship 536
Obligations of the Buyer or Lessee 456
The Bank’s Duty to Honor Checks 538
Remedies of the Seller or Lessor 459 Case 24.1: Legg v. West Bank 539
Remedies of the Buyer or Lessee 461 Case 24.2: Horton v. JPMorgan Chase Bank, N.A. 542
Spotlight on Baseball Cards: Case 21.2: Fitl v. Strek 466
The Bank’s Duty to Accept Deposits 545
Warranties 467 ■■ Landmark in the Law: Check Clearing for the 21st Century
Classic Case 21.3: Webster v. Blue Ship Tea Room, Inc. 471 Act (Check 21) 546
■■ Business Law Analysis: Implied Warranties 473 Electronic Fund Transfers 548
Case 24.3: Binns v. Truist Bank 550
Chapter 22 Banking in the Digital Age 551
■■ Adapting the Law to the Online Environment: Open Banking 552
Negotiable Instruments 481
Formation of Negotiable Instruments 482 Chapter 25
■■ Adapting the Law to the Online Environment: Pay with Your
Smartphone 484 Security Interests and Creditors’
Case 22.1: OneWest Bank, FSB v. Nunez 488 Rights 558
■■ Business Law Analysis: Deciding If an Instrument
Is Negotiable 490 Creating and Perfecting a Security Interest 558
Case 22.2: Collins Asset Group, LLC v. Alialy 491 Spotlight on Wedding Rings: Case 25.1: Royal Jewelers,
Inc. v. Light 560
Transfer of Instruments 493
■■ Adapting the Law to the Online Environment”
Holder in Due Course (HDC) 495 Secured Transactions Online 562
Case 22.3: Jarrell v. Conerly 498 ■■ Business Law Analysis: Perfecting a Security Interest 564
Signature and Warranty Liability 500 Scope of a Security Interest 567
Defenses, Limitations, and Discharge 505 Priorities, Rights, and Duties 569
Case 25.2: Lewis v. Chris Carbine, Inc. 570
Chapter 23 Default 573
Case 25.3: SunTrust Bank v. Monroe 575
International and Space Law 513 Other Laws Assisting Creditors 577
International Law 513
Case 23.1: Rubin v. Islamic Republic of Iran 517 Chapter 26
■■ Business Law Analysis: Sovereign Immunity Claims 519
Doing Business Internationally 519
Bankruptcy 588
Regulation of Specific Business Activities 522 The Bankruptcy Code 588
Contents ix
■■ Business Web Log: Online Competition, Bankruptcy, Case 26.1: In re Anderson 600
and the “Retail Apocalypse” 589 Case 26.2: In re Dykes 603
■■ Landmark in the Law: The Bankruptcy Abuse Prevention
and Consumer Protection Act 590 Chapter 11—Reorganization 605
Chapter 7—Liquidation 591 Bankruptcy Relief under Chapter 13 and Chapter 12 607
■■ Business Law Analysis: Violations of the Automatic Stay 595 Case 26.3: In re Chamberlain 609
Unit 4 Agency and Employment Law 615

Chapter 27 Health, Safety, Income Security, and Privacy 650
Case 28.2: Packers Sanitation Services, Inc. v. Occupational Safety
Agency Relationships in Business 616 and Health Review Commission 652
■■ Business Law Analysis: Workers’ Compensation Claims 653
Agency Law 617
■■ Adapting the Law to the Online Environment: Social
Formation of an Agency 620 Media in the Workplace Come of Age 657
Duties of Agents and Principals 622 Immigration Law 658
Spotlight on Taser International: Case 27.1: Taser International, Labor Law 660
Inc. v. Ward 624
■■ Managerial Strategy: Union Organizing Using a Company’s
Agent’s Authority 626 E-Mail System 664
Case 27.2: Dearborn West Village Condominium Case 28.3: Contemporary Cars, Inc. v. National Labor Relations Board 665
Association v. Makki 628
Liability in Agency Relationships 630
■■ Business Law Analysis: Liability of Disclosed Principals 631 Chapter 29
■■ Landmark in the Law: The Doctrine of Respondeat
Superior 634
Employment Discrimination 672
Case 27.3: Simon v. Farm Bureau Insurance Co. 635 Title VII of the Civil Rights Act 673
Termination of an Agency 636 ■■ Adapting the Law to the Online Environment: Hiring
Discrimination Based on Social Media Posts 677
Case 29.1: Young v. United Parcel Service, Inc. 678
Chapter 28 ■■ Business Law Analysis: Retaliation Claims 682
Employment, Immigration, Case 29.2: Franchina v. City of Providence 683
and Labor Law 644 Discrimination Based on Age,

Disability, or Military Status 685
Employment at Will 645 Case 29.3: Kassa v. Synovus Financial Corp. 689
Wages, Hours, and Leave 646 Defenses to Employment Discrimination 691
Case 28.1: Encino Motorcars, LLC v. Navarro 648 Affirmative Action 693
Unit 5 Business Organizations 699

Chapter 30 Sole Proprietorships 701
Case 30.1: Port Orchard Airport, Inc. v. Wagner 701
Sole Proprietorships and ■■ Adapting the Law to the Online Environment:
Franchises 700 “Doing Business As” a Sole Proprietor 703
x Contents
Franchises 704 Chapter 33

The Franchise Contract 706
■■ Cybersecurity and the Law: Brinker Corporate Formation
International, Inc. 708 and Financing 756
Franchise Termination 709
Nature and Classification 756
Case 30.2: S&P Brake Supply, Inc. v. Daimler Trucks North
America, LLC 709 Case 33.1: Wulf v. Bravo Brio Restaurant Group, Inc. 758
Spotlight on Holiday Inns: Case 30.3: Holiday Inn Franchising, Case 33.2: Pantano v. Newark Museum 760
Inc. v. Hotel Associates, Inc. 711 Case 33.3: Greenfield v. Mandalay Shores Community
Association 763
Formation and Powers 764
Chapter 31
Piercing the Corporate Veil 768
All Forms of Partnership 716 ■■ Cybersecurity and the Law: The CLOUD Act 768
Corporate Financing 770
Basic Partnership Concepts 717
■■ Business Law Analysis: Piercing the Corporate Veil 770
Case 31.1: Harun v. Rashid 718
Formation and Operation 720
Classic Case 31.2: Meinhard v. Salmon 723 Chapter 34
Dissociation and Termination 726 Corporate Directors,
Case 31.3: Guenther v. Ryerson 729
Officers, and Shareholders 777
Limited Liability Partnerships 730
Limited Partnerships 731 Directors and Officers 777
Duties and Liabilities of Directors and Officers 780
Case 34.1: Oliveira v. Sugarman 781
Chapter 32
Classic Case 34.2: Guth v. Loft, Inc. 783
Limited Liability Companies Shareholders 785
and Special Business Forms 739 Rights of Shareholders 788
Case 34.3: Robinson v. Langenbach 791
The Limited Liability Company 739
■■ Landmark in the Law: Limited Liability Company
(LLC) Statutes 740 Chapter 35
Case 32.1: Nesset, Inc. v. Jones 743
LLC Operation and Management 744
Corporate Mergers,
■■ Managerial Strategy: Can a Person Who Is Not a Takeovers, and Termination 796
Member of a Protected Class Sue for
Discrimination? 745
Merger, Consolidation, and Share Exchange 796
Case 32.2: Schaefer v. Orth 746 Purchase of Assets 800
Case 35.1: McElrath v. Kalanick 800
Dissociation and Dissolution
of an LLC 747 Case 35.2: Heavenly Hana, LLC v. Hotel Union &
Case 32.3: Reese v. Newman 748 Hotel Industry of Hawaii Pension Plan 802
■■ Business Law Analysis: When Will a Court Order the Takeovers 803
Dissolution of an LLC? 749 Corporate Termination 805
Special Business Forms 750 Major Business Forms Compared 806
Contents xi
Chapter 36 ■■ Landmark in the Law: Changes to Regulation

A: “Reg A+” 818
Investor Protection, Insider Trading, Securities Exchange Act of 1934 821
and Corporate Governance 812 Classic Case 36.2: Securities and Exchange
Commission v. Texas Gulf Sulphur Co. 822
Securities Act of 1933 813 Case 36.3: Singer v. Reali 827
Case 36.1: Securities and Exchange Commission v. Scoville 813 State Securities Laws 829
■■ Adapting the Law to the Online Environment: Investment Corporate Governance 830
Crowdfunding—Regulations and Restrictions 817
Unit 6 Government Regulation 839

Chapter 37 Case 38.3: TransWeb, LLC v. 3M Innovative Properties Co. 876
U.S. Antitrust Laws in the Global Context 877
Administrative Law 840
Practical Significance 840 Chapter 39
Agency Creation and Powers 843
Case 37.1: Simmons v. Smith 845
Consumer and Environmental Law 883
The Administrative Process 846 Advertising, Marketing, Sales, and Labeling 884
Case 37.2: Edwin Taylor Corp. v. U.S. Department Case 39.1: POM Wonderful, LLC v. Federal Trade Commission 885
of Labor 851 Case 39.2: Haywood v. Massage Envy Franchising, LLC 888
Judicial Deference to Agency Decisions 852 Protection of Health and Safety 891
Case 37.3: Olivares v. Transportation Security Credit Protection 894
Administration 853
Case 39.3: Manuel v. Merchants and Professional Bureau, Inc. 898
Public Accountability 854
Protecting the Environment 898
Air and Water Pollution 900
Chapter 38 Toxic Chemicals and Hazardous Waste 904
Antitrust Law
and Promoting Competition 860 Chapter 40
The Sherman Antitrust Act 861 Liability of Accountants
■■ Landmark in the Law: The Sherman and Other Professionals 911
Antitrust Act 861
Case 38.1: United States v. Vega-Martínez 863 Potential Liability to Clients 912
Section 1 of the Sherman Act 863 Case 40.1: Suarez v. Fernandez 916
Section 2 of the Sherman Act 867 Potential Liability to Third Parties 917
The Clayton Act 870 Liability of Accountants under Federal Laws 919
■■ Adapting the Law to the Online Environment: Big Case 40.2: Laccetti v. Securities and Exchange Commission 921
Tech’s Monopoly Problem 870 Potential Criminal Liability 925
Case 38.2: Candelore v. Tinder, Inc. 872 Confidentiality and Privilege 926
Enforcement and Exemptions 875 Case 40.3: Commonwealth of Pennsylvania v. Schultz 926
xii Contents
Unit 7 Property and Its Protection 933

Chapter 41 Chapter 43
Personal Property and Bailments 934 Insurance, Wills, and Trusts 980
Personal Property versus Real Property 934 Insurance 980
Acquiring Ownership of Personal Property 936 Case 43.1: Breeden v. Buchanan 983
■■ Adapting the Law to the Online Environment: The Wills 988
Exploding World of Digital Property 936 Case 43.2: In the Matter of the Estate of Thorn 992
■■ Business Law Analysis: Effective Gift of a Brokerage Account 938
In the Matter of the Estate of Thorn 992
Classic Case 41.1: In re Estate of Piper 939 ■■ Adapting the Law to the Online Environment: Online
Mislaid, Lost, and Abandoned Property 941 Asset Estate Planning 995
Case 41.2: Zephier v. Agate 943 Trusts 997
Bailments 943 Case 43.3: Dowdy v. Dowdy 999
Case 41.3: Zissu v. IH2 Property Illinois, L.P. 948
Appendices
Chapter 42
A How to Brief Cases and Analyze Case Problems A–1
Real Property and
B The Constitution of the United States A–3
Landlord-Tenant Law 956
The Nature of Real Property 956 C The Uniform Commercial Code A–3
Ownership Interests and Leases 958 D Answers to the Issue Spotters A–4
Case 42.1: In the Matter of the Estate of Nelson 959
Transfer of Ownership 964 E Sample Answers for Business Case Problems
Spotlight on Sales of Haunted Houses: Case 42.2: with Sample Answer A–11
Stambovsky v. Ackley 965
■■ Business Law Analysis: When Possession of Property Is
Not “Adverse” 969 Glossary G–1
Case 42.3: A2 Creative Group, LLC v. Anderson 969 Table of Cases TC–1
Landlord-Tenant Relationships 972 Index I–1
Preface
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objective was to make its pages more interesting, to the point, and visually compelling than
ever before. I put particular focus on pedagogical devices within the text that focus on legal,
ethical, and corporate issues, while never losing sight of the course’s core curriculum.
The Thirteenth Edition incorporates the latest legal developments, from United States
Supreme Court decisions to state-level legislation. It also includes nearly forty new and
updated features and more than thirty new cases from 2019 and 2020, over one hundred
new Examples and Case Examples, along with an extensive array of exhibits, Focus Questions,
margin definitions, and case problems.
New and Updated Features

The Thirteenth Edition of Business Law Today: Comprehensive Edition is filled with stimu-
lating new and updated features designed to cover current high-interest legal topics. Nearly
every chapter in the text contains one or more of the following special features.
1. Entirely new Cybersecurity and the Law features shed light on the risks that
go with the many rewards offered by technology in the global marketplace. In
selected chapters, these features recount how some of the most important brands in
corporate America are protecting themselves and their customers from the threats
lurking in cyber space. Some of the topics include:
• Should Apple Help Law Enforcement? (Chapter 2)
• Counter Strike: Global Offensive (Chapter 9)
• The CLOUD Act (Chapter 33)
2. Entirely New Hypotheticals in selected chapter introductions provide a real-world
link that generates student interest and highlights specific legal concepts that will be
discussed in the chapter. These hypotheticals—often based on real cases or business
situations—help to introduce and illustrate legal issues facing managers, companies,
and even industries.
3. Business Web Log features underscore the importance of the text material to real-
world businesses. Each of these features discusses a major U.S. company that is
engaged in a dispute involving a topic covered in the chapter. Some topics include:
• Samsung and Forced Arbitration (Chapter 4)
• Johnson & Johnson Faces Continuing Lawsuits Over Its Talcum Powder (Chapter 6)
• Online Competition, Bankruptcy, and the “Retail Apocalypse” (Chapter 26)
xiii
xiv Preface
4. Adapting the Law to the Online Environment features examine cutting-edge cyberlaw
topics, such as:
• The Problem of “Contract Cheating” (Chapter 14)
• Open Banking (Chapter 24)
• Big Tech’s Monopoly Problem (Chapter 38)
5. Business Law Analysis features appear in numerous chapters of the text. These
features are useful tools to help students master the legal analysis skills that they
will need to answer questions and case problems in the book, on exams, and in
everyday business situations. Topics include:
• The Impact of Patent Time Limits (Chapter 7)
• Deciding If a Court Would Impose a Quasi Contract (Chapter 10)
• Workers’ Compensation Claims (Chapter 28)
6. Ethical Issue features focus on the ethical aspects of a topic being discussed in order
to emphasize that ethics is an integral part of a business law course. Examples
include:
• Even Though Corporations Can Restrict the Speech of Their Employees, Should They
Do So? (Chapter 2)
• Does the Gig Economy Take Advantage of Independent Contractors? (Chapter 27)
• Does Corporate America Need Gender Quotas for Boards of Directors? (Chapter 36)
7. Managerial Strategy features emphasize the management aspects of business law
and the legal environment. Topics include:
• The Power of Precedents (Chapter 1)
• The Stakeholder Capitalism Movement (Chapter 3)
• Can a Person Who Is Not a Member of a Protected Class Sue for Discrimination?
(Chapter 32)
8. Landmark in the Law features discuss a landmark case, statute, or development that
has significantly affected business law. Examples include:
• Palsgraf v. Long Island Railroad Co. (Chapter 5)
• The Digital Millennium Copyright Act (Chapter 8)
• Federal Trade Commission Rule 433 (Chapter 22)
Making Ethical Business Decisions—The IDDR Approach

The Thirteenth Edition of Business Law Today: Comprehensive Edition boasts its own frame-
work for helping students (and businesspersons) make ethical decisions—the IDDR
Approach, which is presented in Chapter 3. This systematic approach provides students
with a clear step-by-step process to analyze the legal and ethical implications of decisions
that are in everyday business operations. The IDDR Approach uses four logical steps:
• Step 1: Inquiry
• Step 2: Discussion
• Step 3: Decision
• Step 4: Review
Students can remember the first letter of each step easily by using the phrase “I Desire to
Do Right.” Material in Chapter 3 (Ethics in Business) details the goals of each IDDR step
and then provides a Sample Scenario to show students how to apply this new approach to
ethical decision making. The text now focuses on real-life application of ethical principles.
Preface xv
After Chapter 3, to reinforce the application of the IDDR Approach, students are asked
to use its various steps when answering each chapter’s A Question of Ethics. In addition, the
Thirteenth Edition retains the Ethical Issue feature in most chapters, several of which have
been refreshed with timely topics involving the ever-evolving technologies and trends in
business.
New Cases and Case Problems

The Thirteenth Edition of Business Law Today: Comprehensive Edition has new cases and case
problems from 2019 and 2020 in nearly every chapter. The new cases have been carefully
selected to illustrate important points of law and to be of high interest to students and instruc-
tors. I have made it a point to find recent cases that enhance learning and are straightforward
enough for business law students to understand. At the end of each chapter, additional scenar-
ios are presented as case problems that require students to apply concepts learned from the text.
Certain cases and case problems have been carefully chosen as good teaching cases and are
designated as Spotlight Cases and Spotlight Case Problems. Some examples include Spotlight
on Gucci, Spotlight on Beer Labels, Spotlight on Nike, and Spotlight on the Seattle Mariners.
Instructors will find these Spotlight decisions useful to illustrate the legal concepts under
discussion, and students will enjoy studying the cases because they involve interesting and
memorable facts. Other cases have been chosen as Classic Cases because they establish a
legal precedent in a particular area of law.
Each case concludes with a section, called Critical Thinking, which includes at least one
question. Each question is labeled Ethical, Economic, Legal Environment, Political, Social, or
What If the Facts Were Different? In addition, Classic Cases include an Impact of This Case on
Today’s Law section that clarifies how the case has affected the legal environment. Suggested
answers to all case-ending questions can be found in the Answers Manual for this text.
Many New Highlighted and Numbered Case Examples

Many instructors use cases and examples to illustrate how the law applies to business. This
edition of Business Law Today: Comprehensive Edition offers hundreds of new 2019 and 2020
highlighted and consecutively numbered Examples and Case Examples. Examples illustrate
how the law applies in a specific situation, and Case Examples present the facts and issues of
an actual case and then describe the court’s decision and rationale.
In addition, this edition presents Spotlight Case Examples, which deal with especially
high-interest cases, and Classic Case Examples, which discuss older, landmark decisions.
The numbered Examples and Case Examples features are integrated throughout the text to
help students better understand how courts apply legal principles in the real world.
Critical Thinking and Legal Reasoning Elements

For this edition of Business Law Today: Comprehensive Edition, I have included a discussion of
legal reasoning in Chapter 1. The Business Law Analysis features that can be found throughout
the text emphasize legal reasoning skills as well. Critical Thinking questions conclude most of
the features and cases in this text. At the end of each chapter, a Debate This question requires
students to think critically about the rationale underlying the law on a particular topic.
Answers to all Critical Thinking questions, as well as to the Business Scenarios and Case
Problems at the end of every chapter, are presented in the Thirteenth Edition’s Answers Man-
ual. In addition, the answers to one case problem in each chapter, called the Business Case
Problem with Sample Answer, appear in Appendix E.
The chapter-ending materials also include a separate section of questions that focus on
critical thinking and writing. This section always includes a Time-Limited Group Assignment
and may also include a Critical Legal Thinking question requiring students to think critically
xvi Preface
about some aspect of the law discussed in the chapter or a Business Law Writing question
requiring students to compose a written response.
Other Pedagogical Devices Within Each Chapter

• Focus Questions (questions listed at the beginning of each chapter and repeated
in the margins of the text provide a framework of main chapter concepts for the
student).
• Margin definitions of each boldfaced Key Term.
• Know This (margin features).
• Exhibits (in most chapters).
• Photographs (with critical-thinking questions).
Chapter-Ending Pedagogy
• Practice and Review (in every chapter).
• Debate This (a statement or question at the end of Practice and Review).
• Key Terms (with appropriate page references to their margin definitions).
• Chapter Summary (in table format).
• Issue Spotters (in every chapter with answers in Appendix D).
• Business Scenarios and Case Problems (including in every chapter, a Business
Case Problem with Sample Answer that is answered in Appendix E; in selected
chapters, a Spotlight Case Problem; and in every chapter, a A Question of Ethics
that applies this textbook’s unique IDDR Approach to business ethics).
• Critical Thinking and Writing Assignments (including a Time-Limited Group
Assignment in every chapter, and a Business Law Writing or a Critical Legal
Thinking question in selected chapters).
Unit-Ending Pedagogy
Each of the seven units in the Thirteenth Edition of Business Law Today: Comprehensive Edi-
tion concludes with a Task-Based Simulation. This feature presents a hypothetical business
situation and then asks a series of questions about how the law applies to various actions
taken by the firm. To answer the questions, the student must apply the laws discussed
throughout the unit. (Answers are provided in the Answers Manual.)
Supplements
Business Law Today, Thirteenth Edition, provides a comprehensive supplements package
designed to make the tasks of teaching and learning more enjoyable and efficient. The fol-
lowing supplements are available for instructors.
MindTap Business Law for Business Law Today,

Thirteenth Edition
Today’s leading digital platform, MindTap, gives you complete control of your course—
equipping you to craft unique learning experiences that challenge students, build confidence
and elevate performance.
Preface xvii
Use MindTap as-is or customize it to meet your specific needs. You can even integrate it
easily into your institution’s Learning Management System (LMS).
A streamlined learning path and redesigned assessments minimize reader distraction,
while dual-pane assignments for students pair readings side-by-side with assessments. Mind-
Tap presents complex concepts using a blend of engaging narrative and media assets clearly
linked to assessments. So, students can start applying concepts to real-world situations from
the beginning of your course with content that progresses from understanding core concepts
to critical thinking and, ultimately, application.
Exclusive Instructor Tools allow you to customize course content to your needs and
tailor assessments to match the specific language and style of your course. New Instructor
Reports provide actionable insights into student performance and present opportunities for
just-in-time intervention.
Product Features
MindTap’s outcomes-based learning design propels students from memorization to mastery. It’s
the only platform today that gives you complete ownership of your course. With MindTap you
can challenge every student, build confidence, and empower today’s learners to be unstoppable.
Anchor Learning with Improved Learning Path Design

MindTap helps students focus by dividing the Learning Path into groups of bite-size activi-
ties that are anchored to a single concept. MindTap presents concepts by pairing instructional
content with assessment in a visually captivating side-by-side format.
Provide Learning on the Go

Offer your students the flexibility they need to fit learning into their day—wherever they
are and using whatever approach works best for them. Bite-size content and activities that
students can complete on a smartphone or tablet keep learning engaging, even on the go.
Quick Lesson Videos Present Complex Topics Visually

MindTap contains a variety of new and existing Quick Lesson Videos, placed within Learn
It activities and in the Additional Resources, Quick Lessons folder in the MindTap, to reach
all types of learners.
Access Everything You Need in One Place

Cut down on prep with preloaded, organized course materials in MindTap. Teach more effi-
ciently with interactive multimedia, assignments, quizzes and focused resources all on one
screen. With MindTap you give your students the power to read, listen and study on their
phones—so they can learn on their own terms.
Empower Students to Reach Their Potentials

Gain actionable insights into student engagement with MindTap’s twelve distinct metrics.
Identify topics troubling your entire class and instantly communicate with struggling stu-
dents. You can track your class’ performance down to the learning objective and curate your
lectures in real-time to respond to distinct class-wide needs. Students can track their scores
and take the guesswork out of studying with performance reports and personalized study
materials that help them progress toward their goals.
xviii Preface
Control Your Course, Your Content

Only MindTap gives you complete control of your course. You have the flexibility to reorder
textbook chapters, add your own notes and embed a variety of content, including OER. Per-
sonalize course content to your students’ needs by editing question text or answer choices.
They can even read your notes, add their own and highlight key text to aid their progress.
Count on Our Dedicated Team, Whenever You Need Them

MindTap is not simply a comprehensive tool—it’s a network of support from a personalized
team eager to further your success. We’re ready to help—from setting up your course to
tailoring MindTap resources to meet your specific objectives. You’ll be ready to make an
impact from day one. And, we’ll be right here to help you and your students throughout the
semester—and beyond.
MindTap Table of Contents

Why Does [Topic] Matter to Me?
Immediately engage students with new activities that connect the upcoming chapter to an
authentic, real-world scenario designed to pique engagement and emphasize relevance. Use
these activities to ensure students read material before class and to trigger lively in-class
discussion.
Chapter-Level Ebook
Immediately engage students with a dynamic eBook that brings the value, concepts and
applications of the printed text to life. Students open an active learning experience as each
chapter provides opportunities to interact with content using the approach that’s best for
the individual learner.
Learn It Activities
Easily add multimedia instruction to your course to supplement textbook learning. Mind-
Tap’s Learn It activities offer small sections of instruction in the form of narrative, images,
and/or Quick Lesson Videos that highlight the most important concepts in each chapter.
Learn It activities reinforce the text’s instruction and even approach concepts in a different
way to promote student choice and autonomy with personalizing learning. You can assign
Learn It activities to ensure that students have read and understand key concepts before class.
Check Your Understanding—Chapter Quizzes

Use MindTap’s Check Your Understanding quizzes to assess student performance and imme-
diately identify class-wide learning needs.
Apply It Activities
Assign any of MindTap’s carefully designed, practically focused application activities to
ensure your students know how to make business decisions through the lens of the law.
• Case Problem Analyses offer a multi-step activity that asks students to
identify the facts in a scenario through a series of questions that promote a
Preface xix
critical-thinking process so that students can arrive at the decision of the court.
In the second part, the facts are changed, and students apply the same critical-
thinking process on their own.
• Brief Hypotheticals help students spot the issue and apply the law in the context
of a short, fictional scenario.
Additional Resources (found at the part level)

• Business Cases develop students’ skills to apply critical-thinking and legal
reasoning through relevant real-world business scenarios.
• Quick Lesson Videos highlight the most important concepts in each chapter.
• PowerPoint Slides edited for student use offer visual outlines of each chapter.
Cengage Testing Powered by Cognero

Cengage Testing Powered by Cognero is a flexible online system that allows instructors to
do the following:
• Author, edit, and manage Test Bank content from multiple Cengage Learning
solutions.
• Create multiple test versions in an instant.
• Deliver tests from their Learning Management System (LMS), classroom, or
wherever they want.
Start Right Away! Cengage Testing Powered by Cognero works on any operating system or
browser.
• Use your standard browser; no special installs or downloads are needed.
• Create tests from school, home, the coffee shop—anywhere with Internet access.
What Instructors Will Find

• Simplicity at every step. A desktop-inspired interface features drop-down menus
and familiar, intuitive tools that take instructors through content creation and
management with ease.
• Full-featured test generator. Create ideal assessments with a choice of fifteen
question types—including true/false, multiple choice, opinion scale/Likert, and
essay. Multi-language support, an equation editor, and unlimited metadata help
ensure instructor tests are complete and compliant.
• Cross-compatible capability. Import and export content into other systems.
Instructor Companion Website

The Instructor’s Companion Website is an all-in-one resource for class preparation, presen-
tation, and testing. Accessible through www.cengage.com/login with your faculty account,
you will find available for download:
• Instructor’s Manual. Includes activities and assessments for each chapter and
their correlation to specific learning objectives, an outline, key terms with
definitions, a chapter summary, and several ideas for engaging with students with
discussion questions, ice breakers, case studies, and social learning activities that
may be conducted in an on-ground, hybrid, or online modality.
xx Preface
• Answers Manual. Provides answers to all questions presented in the text,

including the Focus Questions, the questions in each case and feature, the Issue
Spotters, the Business Scenarios and Case Problems, Critical Thinking and Writing
Assignments, and the unit-ending Task-Based Simulation features.
• Test Bank. A comprehensive test bank, offered in Blackboard, Moodle,
Desire2Learn, and Canvas formats, contains learning objective-specific true-false,
multiple-choice and essay questions for each chapter. Import the test bank into
your LMS to edit and manage questions, and to create tests.
• PowerPoint Slides. Presentations are closely tied to the Instructor Manual,
providing ample opportunities for generating classroom discussion and
interaction. They offer ready-to-use, visual outlines of each chapter, which may
be easily customized for your lectures.
• Guide to Teaching Online. Presents technological and pedagogical considerations
and suggestions for teaching the Business Law course when you can’t be in the
same room with students.
• Transition Guide. Highlights all of the changes in the text and in the digital
offerings from the previous edition to this edition.
• Educator Guide. Walks you through what the unique activities are in the
MindTap, where you’ll find them and how they’re built for easier curriculum
integration.
Acknowledgments
S
ince I began this project many years ago, numerous business law professors and users
of Business Law Today have been kind enough to help me revise the book and digital
offerings, including the following:
John J. Balek Bradley D. Childs Joseph L. Flack Joseph D. Marcus

Morton College, Illinois Belmont University, Tennessee Washtenaw Community College, Michigan Prince George’s Community College, Maryland
John Jay Ballantine Corey Ciocchetti Jerry Furniss Woodrow J. Maxwell
University of Colorado, Boulder University of Denver, Colorado University of Montana Hudson Valley Community College,
New York
Lorraine K. Bannai Peter Clapp Joan Gabel
Western Washington University St. Mary’s College, California Florida State University Diane May
Winona State University, Minnesota
Marlene E. Barken Dale Clark Elizabeth J. Guerriero
Ithaca College, New York Corning Community College, New York Northeast Louisiana University Beverly McCormick
Phil Harmeson Morehead State University, Kentucky
Laura Barnard Tammy W. Cowart
Lakeland Community College, Ohio University of Texas, Tyler University of South Dakota William J. McDevitt
Nancy L. Hart Saint Joseph’s University, Pennsylvania
Denise A. Bartles, J.D. Stanley J. Dabrowski
Missouri Western State University Hudson County Community College, Midland College, Texas John W. McGee
New Jersey Mo Hassan Aims Community College, Colorado
Daryl Barton
Sandra J. Defebaugh Cabrillo College, California
Eastern Michigan University James K. Miersma
Eastern Michigan University Andy E. Hendrick Milwaukee Area Technical Institute, Wisconsin
Merlin Bauer
Patricia L. DeFrain Coastal Carolina University, South Carolina
Mid State Technical College, Wisconsin Susan J. Mitchell
Glendale College, California Janine S. Hiller Des Moines Area Community College, Iowa
Donna E. Becker
Virginia Polytechnic Institute & State University
Frederick Community College, Maryland M. Yvonne Demory, Jim Lee Morgan
Richard J. Bennet J.D., LL.M. Karen A. Holmes West Los Angeles College, California
George Mason University Hudson Valley Community College, New York
Three Rivers Community College, Connecticut Jack K. Morton
Julia G. Derrick Fred Ittner University of Montana
Dr. Anne Berre College of Alameda, California
Brevard Community College, Florida
Schreiner University, Texas Annie Laurie I. Myers
Joe D. Dillsaver Susan S. Jarvis Northampton Community College,
Robert C. Bird University of Texas, Pan American Pennsylvania
Northeastern State University, Oklahoma
University of Connecticut
Claude W. Dotson Jack E. Karns Solange North
Bonnie S. Bolinger East Carolina University, North Carolina Fox Valley Technical Institute, Wisconsin
Northwest College, Wyoming
Ivy Tech Community College, Wabash Valley
Region, Indiana Larry R. Edwards Sarah Weiner Keidan Jamie L. O’Brien
Tarrant County Junior College, South Campus, Texas Oakland Community College, Michigan South Dakota State University
Brad Botz
Garden City Community College, Kansas Jacolin Eichelberger Richard N. Kleeberg Ruth R. O’Keefe
Hillsborough Community College, Florida Solano Community College, California Jacksonville University, Florida
Teresa Brady
Holy Family College, Pennsylvania George E. Eigsti Bradley T. Lutz Robert H. Orr
Kansas City, Kansas, Community College Hillsborough Community College, Florida Florida Community College at Jacksonville
Dean Bredeson
University of Texas at Austin Florence E. Elliott-Howard Diane MacDonald George Otto
Stephen F. Austin State University, Texas Pacific Lutheran University, Washington Truman College, Illinois
Lee B. Burgunder
California Polytechnic University, Tony Enerva Darlene Mallick Thomas L. Palmer
San Luis Obispo Lakeland Community College, Ohio Anne Arundel Community College, Maryland Northern Arizona University
Thomas D. Cavenagh Benjamin C. Fassberg John D. Mallonee David W. Pan
North Central College, Illinois Prince George’s Community College, Maryland Manatee Community College, Florida University of Tulsa, Oklahoma
xxi
xxii Acknowledgments
Victor C. Parker, Jr. William M. Rutledge Elisabeth “Lisa” Sperow Whitney B. Westrich
North Georgia College and State University Macomb Community College, Michigan California Polytechnic State University, University of Cincinnati
San Luis Obispo
Jane Patterson Roberto Sandoval Clark W. Wheeler
Ozarks Technical Community College and University of Texas at El Paso Catherine A. Stevens Santa Fe Community College, Florida
Missouri State University College of Southern Maryland
Martha Wright Sartoris Lori Whisenant
Donald L. Petote North Hennepin Community College, Nicole Forbes Stowell, University of Houston, Texas
Genesee Community College, New York Minnesota Esquire Kay O. Wilburn
University of Southern Florida, St. Petersburg The University of Alabama at Birmingham
Francis D. Polk Kurt M. Saunders
Ocean County College, New Jersey Andrea Studzinski
California State University, John G. Williams, J.D.
Northridge College of DuPage Northwestern State University, Louisiana
Gregory Rabb
Jamestown Community College, New York Maurice Tonissi
Anne W. Schacherl Shallin S. Williams
Madison Area Technical College, Quinsigamond Community College, Massachusetts Tri-County Technical College
Brad Reid
Abilene Christian University, Texas Wisconsin James D. Van Tassel James L. Wittenbach
Edward F. Shafer Mission College, California University of Notre Dame, Indiana
Anne Montgomery
Ricketts Rochester Community College, Minnesota Russell A. Waldon Abby A. Wood, Esq.
University of Findlay, Ohio College of the Canyons, California Mt. San Antonio College
Lance Shoemaker, J.D.,
Donald A. Roark M.C.P., M.A. Frederick J. Walsh Margaret M. Wright,
University of West Florida West Valley College, California Franklin Pierce College, New Hampshire
J.D. LL.M.
Joey Robertson Lou Ann Simpson James E. Walsh, Jr. University of Illinois, Urbana-Champaign
Sam Houston State University Drake University, Iowa Tidewater Community College, Virginia Eric D. Yordy
Hugh Rode Anthony A. Smith Randy Waterman Northern Arizona University
Utah Valley State College Ithaca College Richland College, Texas Joseph Zavaglia, Jr.
Gerald M. Rogers Denise Smith Jerry Wegman Brookdale Community College, New Jersey
Front Range Community College, Colorado Missouri Western State College University of Idaho Alexandria Zylstra,
Dr. William J. Russell Hugh M. Spall Edward L. Welsh, Jr. J.D., LL.M.
Northwest Nazarene University, Idaho Central Washington University Phoenix College, Arizona George Mason University
In addition, I give my thanks to the staff at Cengage, especially Abbie Schultheis, Associate
Product Manager; Joe Sabatino, Product Director; Julia Chase, Senior Content Manager;
Cazzie Reyes and Liz Harnage, Learning Designers; Lisa Elliot, Subject Matter Expert;
Steven McMillian, Digital Delivery Lead; Nick Perez, Product Assistant; Ashley Maynard,
Permissions Analyst; and Nick Barrows, Permissions Project Manager. I also thank Andrew
Stock in Marketing. Additionally, I would like to thank my project manager Ann Borman
at SPi Global, the compositor, for accurately generating pages for the text and making it
possible for me to meet my ambitious schedule for the print and digital products.
I give special thanks to Katherine Marie Silsbee for managing the project and providing
exceptional research and editorial skills. I also thank William Eric Hollowell, co-author of the
Answers Manual for his excellent research efforts. I am grateful for the copyediting services of
Beverly Peavler and proofreading services of Maureen Johnson. I also thank Vickie Reierson
and Suzanne Jasin for their many efforts on this project.
Roger LeRoy Miller
Dedication
To Judi and Jeff Camps,
Your move to the West

has been a boon to all of us
who love the outdoors
(and has added great company
for the indoors, too).
R.L.M.
Unit 1
The Legal
Environment of
Business
1 Law and Legal Reasoning

2 Constitutional Law
3 Ethics in Business
4 Courts and Alternative Dispute Resolution
5 Tort Law
6 Product Liability
7 Intellectual Property Rights
8 Internet Law, Social Media, and Privacy
Sergii Gnatiuk/Shutterstock.com
9 Criminal Law and Cyber Crime
Andrey_Popov/Shutterstock.com
Focus Questions
1 Law and Legal Reasoning
“Laws should be like In the chapter-opening quotation, Clarence Darrow asserts
The four Focus Questions below clothes. They should that law should be created to serve the public. Because
are designed to help improve your you are part of that public, the law is important to you. In
understanding. After reading this chapter, be made to fit the particular, those entering the world of business will find
you should be able to answer the following people they are themselves subject to numerous laws and government reg-
questions:
meant to serve.” ulations. A basic knowledge of these laws and regulations
1. What are four primary is beneficial—if not essential—to anyone contemplating a
Clarence Darrow
sources of law in the United 1857–1938
successful career in today’s business environment.
States? (American lawyer) Although the law has various definitions, all of them
are based on the general observation that law consists of
2. What is a precedent? When
enforceable rules governing relationships among individuals and between individuals and
might a court depart from
their society. In some societies, these enforceable rules consist of unwritten principles of
precedent?
behavior. In other societies, they are set forth in ancient or contemporary law codes. In
3. What is the difference the United States, our rules consist of written laws and court decisions created by modern
between remedies at law and legislative and judicial bodies. Regardless of how such rules are created, they all have one
remedies in equity? feature in common: they establish rights, duties, and privileges that are consistent with the
4. What are some important values and beliefs of a society or its ruling group.
differences between civil law In this introductory chapter, we look at how business law and the legal environment
and criminal law? affect business decisions. For instance, suppose that Mototron, Inc., plans to introduce
a driverless car equipped with lidar, a radar system that relies on lasers, and artificially
intelligent cameras. Even if its technicians put the vehicles through two million miles of
testing on closed courses and deem them low risk, Mototron cannot simply start selling
Law A body of enforceable rules
governing relationships among rides to consumers. The company must first test the cars on public roads, which requires
individuals and between individuals permission from state governments. It must also establish safety rules with federal regula-
and their society. tors and negotiate sustainable insurance rates. At each step, Mototron will have to adjust
CHAPTER 1: Law and Legal Reasoning 3
its bottom line to take account of the legal costs of introducing cutting-edge but potentially
dangerous technology into the American marketplace.
Our goal in this text is not only to teach you about specific laws, but also to teach you
how to think about the law and legal environment, and to develop your critical-thinking
and legal reasoning skills. The laws may change, but the ability to analyze and evaluate the
legal (and ethical) ramifications of situations as they arise is an invaluable and lasting skill.
1–1 Business Activities and the Legal Environment

Laws and government regulations affect almost all business activities—from hiring and fir-
ing decisions to workplace safety, the manufacturing and marketing of products, business
financing, and more. To make good business decisions, businesspersons need to understand
the laws and regulations governing these activities.
Realize also that in today’s business world, simply being aware of what conduct can lead
to legal liability is not enough. Businesspersons must develop critical-thinking and legal Liability The state of being legally
reasoning skills so that they can evaluate how various laws might apply to a given situation responsible (liable) for something,
and determine the best course of action. Businesspersons are also pressured to make ethical such as a debt or obligation.
decisions. Thus, the study of business law necessarily involves an ethical dimension.
As you will note, each chapter in this text covers a specific area of the law and shows how
the legal rules in that area affect business activities. Although compartmentalizing the law
in this fashion facilitates learning, it does not indicate the extent to which many different
laws may apply to just one transaction. Exhibit 1–1 illustrates the various areas of the law
that may influence business decision making.
Exhibit 1–1 Areas of the Law That May Affect Business Decision Making
Contracts
Courts and Sales and

Court Procedures E-Commerce
Environmental Negotiable
Laws Instruments
Business
Business Creditors’
Decision
Organizations Rights
Making
Intellectual
Agency Property
Torts Professional
Liability
Product
Liability
4 UNIT ONE: The Legal Environment of Business
Example 1.1 Soon after it launched, YouTube faced a potentially catastrophic $1 billion
copyright infringement lawsuit. Entertainment conglomerate Viacom claimed that the
video-hosting platform was not taking sufficient steps to remove unlicensed use of Viacom’s
content on its site. A federal judge ensured YouTube’s survival by ruling that the company
was in compliance with federal copyright law as long as it responded reasonably to “take-
down” requests from Viacom and other content providers.
Not surprisingly, with five hundred hours of video uploaded to its site each minute, You-
Tube has remained under constant legal pressure ever since. Liberal and conservative groups
have sued the company for discriminating against their political viewpoints. It has faced
regulatory scrutiny for, among other things, failing to protect users from sexual and racist
harassment and hosting misleading election-related video content. At one point, the Federal
Trade Commission fined the company $170 million for collecting personal information from
children without their parents’ consent. ■
1–2 Sources of American Law

Primary Source of Law A There are numerous sources of American law. A source that establishes the law on a particular
source that establishes the issue is called a primary source of law. Primary sources include the following:
law on a particular issue, such
as a constitution, a statute, an • The U.S. Constitution and the constitutions of the various states.
administrative rule, or a court • Statutory law—including laws passed by Congress, state legislatures, and local
decision.
governing bodies.
• Regulations created by administrative agencies, such as the federal Food and
Focus Question 1 Drug Administration.
What are four primary • Case law (court decisions).
sources of law in the United
States? We describe each of these important primary sources of law in the following pages. (See
the appendix at the end of this chapter for a discussion of how to find statutes, regulations,
and case law.)
Secondary Source of Law A A secondary source of law is a book or article that summarizes and clarifies a primary source
publication that summarizes or of law. Legal encyclopedias, compilations (such as Restatements of the Law, which summa-
interprets the law, such as a legal rize court decisions on a particular topic), official comments to statutes, treatises, articles
encyclopedia, a legal treatise, or an
in law reviews published by law schools, and articles in other legal journals are examples
article in a law review.
of secondary sources of law. Courts often refer to secondary sources of law for guidance in
interpreting and applying the primary sources of law discussed here.
1–2a Constitutional Law

The federal government and the states have written constitutions that set forth the general
Constitutional Law The body of organization, powers, and limits of their respective governments. Constitutional law, which
law derived from the U.S. Constitution deals with the fundamental principles by which the government exercises its authority, is
and the constitutions of the various the law as expressed in these constitutions.
states.
The U.S. Constitution is the basis of all law in the United States. It provides a framework
for statutes and regulations, and thus is the supreme law of the land. A law in violation of the
U.S. Constitution, if challenged, will be declared unconstitutional and will not be enforced,
no matter what its source.
The Tenth Amendment to the U.S. Constitution reserves to the states all powers not
granted to the federal government. Each state in the union has its own constitution. Unless
it conflicts with the U.S. Constitution or a federal law, a state constitution is supreme within
that state’s borders.
1–2b Statutory Law

Laws enacted by legislative bodies at any level of government, such as the statutes passed by
Congress or by state legislatures, make up the body of law generally referred to as statutory Statutory Law The body of law
law. When a legislature passes a statute, that statute ultimately is included in the federal code enacted by legislative bodies (as
of laws or the relevant state code of laws. opposed to constitutional law,
administrative law, or case law).
Whenever a particular statute is mentioned in this text, we usually provide a footnote
showing its citation (a reference to a publication in which a legal authority—such as a statute Citation A reference to a
or a court decision—or other source can be found). In the appendix following this chapter, publication in which a legal
we explain how you can use these citations to find statutory law. authority—such as a statute or a
court decision—or other source can
Local Ordinances Statutory law also includes local ordinances. An ordinance is a regu- be found.
lation passed by a municipal or county governing unit to deal with matters not covered
Ordinance A regulation enacted
by federal or state law. Ordinances commonly have to do with city or county land use by a city or county legislative body
(zoning ordinances), building and safety codes, and other matters affecting only the local that becomes part of that city’s and
governing unit. county’s statutory law.
Applicability of Statutes A federal statute, of course, applies

to all states. A state statute, in contrast, applies only within the
state’s borders. State laws thus may vary from state to state. No
federal statute may violate the U.S. Constitution, and no state
statute or local ordinance may violate the U.S. Constitution or
the relevant state constitution.
Example 1.2 The tension between federal, state, and local laws
is evident in the national debate over so-called sanctuary c ities—
cities that limit their cooperation with federal immigration
authorities. Normally, law enforcement officials are supposed
to alert federal immigration authorities when they come into
Michael Dwyer/Alamy
contact with an undocumented immigrant. Then, immigration

officials request the state and local authorities to detain the indi-
vidual for possible deportation.
But a number of cities across the United States have adopted
either local ordinances or explicit policies that do not follow this
How have local “sanctuary cities” frustrated federal immigration
procedure. Police in these cities often do not ask or report the
procedures?
immigration status of individuals with whom they come into
contact. Other places refuse to detain undocumented immi-
grants who are accused of low-level offenses. ■
Uniform Laws During the 1800s, the differences among state laws frequently created dif-
ficulties for businesspersons conducting trade and commerce among the states. To counter
these problems, a group of legal scholars and lawyers formed the National Conference of
Commissioners on Uniform State Laws (NCCUSL, online at www.uniformlaws.org) in 1892
to draft uniform laws (“model statutes”) for the states to consider adopting. The NCCUSL still Uniform Laws Model laws
exists today and continues to issue uniform laws. developed by the National
Each state has the option of adopting or rejecting a uniform law. Only if a state legislature Conference of Commissioners on
Uniform State Laws for the states to
adopts a uniform law does that law become part of the statutory law of that state. Furthermore, consider enacting into statute.
a state legislature may choose to adopt only part of a uniform law or to rewrite the sections
that are adopted. Hence, even though many states may have adopted a uniform law, those
laws may not be entirely “uniform.”
The Uniform Commercial Code (UCC) One of the most important uniform acts is the
Uniform Commercial Code (UCC), which was created through the joint efforts of
the NCCUSL and the American Law Institute.1 The UCC was first issued in 1952 and has
been adopted in all fifty states,2 the District of Columbia, and the Virgin Islands.
The UCC facilitates commerce among the states by providing a uniform, yet flexible, set
of rules governing commercial transactions. Because of its importance in the area of com-
mercial law, we cite the UCC frequently in this text. From time to time, the NCCUSL revises
the articles contained in the UCC and submits the revised versions to the states for adoption.
1–2c Administrative Law

Administrative Law The body Another important source of American law is administrative law, which consists of the rules,
of law created by administrative orders, and decisions of administrative agencies. An administrative agency is a federal, state, or
agencies in order to carry out their local government agency established to perform a specific function.
duties and responsibilities.
Rules issued by various administrative agencies affect almost every aspect of a business’s
Administrative Agency A federal, operations. Regulations govern a business’s capital structure and financing, its hiring and
state, or local government agency firing procedures, its relations with employees and unions, and the way it manufactures
created by the legislature to perform and markets its products.
a specific function, such as to make
and enforce rules pertaining to the Federal Agencies At the national level, numerous executive agencies exist within the
environment.
c abinet departments of the executive branch. The Food and Drug Administration, for exam-
ple, is an agency within the U.S. Department of Health and Human Services. Executive
agencies are subject to the authority of the president, who has the power to appoint and
remove their officers.
There are also major independent regulatory agencies at the federal level, including the
Federal Trade Commission, the Securities and Exchange Commission, and the Federal Com-
munications Commission. The president’s power is less pronounced in regard to independent
agencies, whose officers serve for fixed terms and cannot be removed without just cause.
State and Local Agencies There are administrative agencies at the state and local levels
as well. Commonly, a state agency (such as a state pollution-control agency) is created as a
parallel to a federal agency (such as the Environmental Protection Agency).
Just as federal statutes take precedence over conflicting state statutes, so do federal agency
regulations take precedence over conflicting state regulations. Because the rules of state and
local agencies vary widely, we focus here exclusively on federal administrative law.
Agency Creation Because Congress cannot possibly oversee the actual implementation of
all the laws it enacts, it delegates such tasks to agencies. Congress creates an administrative
Enabling Legislation A statute agency by enacting enabling legislation, which specifies the name, composition, purpose, and
enacted by Congress that authorizes powers of the agency being created.
the creation of an administrative Example 1.3 The Federal Trade Commission (FTC) was created in 1914 by the Federal
agency and specifies the name,
composition, purpose, and powers of
Trade Commission Act.3 This act prohibits unfair and deceptive trade practices. It also
the agency being created. describes the procedures the agency must follow to charge persons or organizations with
violations of the act, and it provides for judicial review (review by the courts) of agency
orders.
Other portions of the act grant the agency powers to “make rules and regulations for the
Adjudicate To render a judicial purpose of carrying out the Act,” and to conduct investigations of business practices. In
decision. Adjudication is the
addition, the FTC can obtain reports from interstate corporations concerning their business
trial-like proceeding in which an
administrative law judge hears practices, investigate possible violations of the act, publish findings of its investigations, and
and resolves disputes involving an recommend new legislation. The act also empowers the FTC to hold trial-like hearings and
administrative agency’s regulations. to adjudicate (resolve judicially) certain kinds of disputes involving its regulations.
1. This institute was formed in the 1920s and consists of practicing attorneys, legal scholars, and judges.
2. Louisiana has adopted only Articles 1, 3, 4, 5, 7, 8, and 9.
3. 15 U.S.C. Sections 45–58.
Note that the powers granted to the FTC incorporate functions associated with the legis- Administrative Process The
lative branch of government (rulemaking), the executive branch (investigation and enforce- procedure used by administrative
ment), and the judicial branch (adjudication). Taken together, these functions constitute agencies in fulfilling their three basic
functions: rulemaking, enforcement,
the administrative process, which is the administration of law by administrative agencies. The and adjudication.
administrative process involves rulemaking, enforcement, and adjudication. ■
Rulemaking A major function of an administrative agency is rulemaking—

formulating new regulations or amending old ones. When Congress enacts an
agency’s enabling legislation, it confers the power to make legislative rules, or sub-
stantive rules, which are legally binding on all businesses.
The Administrative Procedure Act (APA)4 imposes strict procedural require-
ments that agencies must follow in legislative rulemaking and other functions.
Example 1.4 The Occupational Safety and Health Act authorized the Occupational
Safety and Health Administration (OSHA) to develop and issue rules governing
safety in the workplace. When OSHA wants to formulate rules regarding safety in
the steel industry, it has to follow specific procedures outlined by the APA. If an
agency fails to follow the APA’s rulemaking procedures, the resulting rule may not
be binding. ■
Legislative Rules. Legislative rulemaking under the APA typically involves the
following three steps (referred to as notice-and-comment rulemaking).
Which federal agency oversees worker
1. Notice of the proposed rulemaking. The notice must be published in the safety?
Federal Register, a daily publication of the U.S. government.
2. A comment period. The agency must allow ample time for interested parties to
comment in writing on the proposed rule. The agency takes these comments into Rulemaking The process by which
consideration when drafting the final version of the regulation. an administrative agency formally
adopts a new regulation or amends
3. The final rule. Once the agency has drafted the final rule, it is published in the an old one.
Federal Register. (See the appendix at the end of this chapter for an explanation of
how to find agency regulations.) Legislative Rules Administrative
agency rules that carry the same
Interpretive Rules. Administrative agencies also issue interpretive rules that are not legally weight as congressionally enacted
binding but simply indicate how an agency plans to interpret and enforce its statutory statutes.
authority. The APA does not apply to interpretive rulemaking. Example 1.5 The Equal Employ- Interpretive Rules Nonbinding
ment Opportunity Commission periodically issues interpretive rules indicating how it plans rules or policy statements issued by
to interpret the provisions of certain statutes, such as the Americans with Disabilities Act. an administrative agency that explain
These informal rules provide enforcement guidelines for agency officials. ■ how it interprets and intends to apply
the statutes it enforces.
Enforcement and Investigation Agencies often enforce their own rules and have both
investigatory and prosecutorial powers. Agencies investigate a wide range of activities,
including coal mining, automobile manufacturing, and the industrial discharge of pollut-
ants into the environment.
In an investigation, an agency can request that individuals or organizations hand over
specified books, papers, electronic records, or other documents. In addition, agencies may
conduct on-site inspections, although a search warrant is normally required for such inspec-
tions.5 Sometimes, a search of a home, an office, or a factory is the only means of obtaining
evidence needed to prove a regulatory violation.
After investigating a suspected rule violation, an agency may decide to take action against
an individual or a business. Most administrative actions are resolved through negotiated
4. 5 U.S.C. Sections 551–706.

5. In some heavily regulated industries, such as the sale of firearms or liquor, agencies can conduct searches without obtaining a warrant.
settlement at their initial stages without the need for formal adjudication. If a settlement
cannot be reached, though, the agency may issue a formal complaint and proceed to
adjudication.
Administrative Law Judge Adjudication Agency adjudication involves a trial-like hearing before an administrative law
(ALJ) One who presides over an judge (ALJ). Hearing procedures vary widely from agency to agency. After the hearing, the
administrative agency hearing and ALJ renders a decision in the case. The ALJ can fine the charged party or prohibit the party
has the power to administer oaths,
from carrying on some specified activity.
take testimony, rule on questions of
evidence, and make determinations Either the agency or the charged party may appeal the ALJ’s decision to the commission
of fact. or board that governs the agency. If the party fails to get relief there, appeal can be made
to a federal court. Courts give significant weight (deference) to an agency’s judgment and
interpretation of its rules, though, and typically uphold the ALJ’s decision unless it is unrea-
sonable. If neither side appeals the case, the ALJ’s decision becomes final.
Ethical Issue Do administrative agencies exercise too much authority?

Administrative agencies, such as the Federal Trade Commission,
combine in a single governmental entity functions normally divided among the three branches of
government. They create rules, conduct investigations, and prosecute and pass judgment on viola-
tors. Yet administrative agencies’ powers often go unchecked by the other branches. Some busi-
nesspersons have suggested that it is unethical for agencies—which are not even mentioned in the
U.S. Constitution—to wield so many powers.
Although agency rulemaking must comply with the requirements of the Administrative Proce-
dure Act (APA), the act applies only to legislative, not interpretive, rulemaking. In addition, the APA
is largely procedural and aimed at preventing arbitrariness. It does little to ensure that the rules
passed by agencies are fair or correct—or even cost-effective. On those rare occasions when an
agency’s ruling is challenged and later reviewed by a court, the court cannot reverse the agency’s
decision unless the agency exceeded its authority or acted arbitrarily. Courts typically are reluctant
to second-guess an agency’s rules, interpretations, and decisions. Moreover, once an agency has
final regulations in place, it is difficult to revoke or alter them.
1–2d Case Law and Common Law Doctrines

The rules of law announced in court decisions constitute another basic source of American
law. These rules of law include interpretations of constitutional provisions, of statutes enacted
Case Law The rules of law by legislatures, and of regulations created by administrative agencies.
announced in court decisions. Case
Today, this body of judge-made law is referred to as case law. Case law—the doctrines and
law interprets statutes, regulations,
and constitutional provisions, and principles announced in cases—governs all areas not covered by statutory law or administra-
governs all areas not covered by tive law and is part of our common law tradition. We look at the origins and characteristics
statutory or administrative law. of the common law tradition in some detail in the discussion that follows.
1–3 The Common Law

Because of our colonial heritage, much American law is based on the English legal system.
Knowledge of this system is crucial to understanding our legal system today because judges
in the United States still apply common law principles when deciding cases.
1–3a Early English Courts

After the Normans conquered England in 1066, William the Conqueror and his successors
began the process of unifying the country under their rule. One of the means they used
to do this was the establishment of the king’s courts, or curiae regis. Before the Norman
Conquest, disputes had been settled according to the local legal customs and traditions in
various regions of the country. The king’s courts sought to establish a uniform set of rules
for the country as a whole. What evolved in these courts was the beginning of the common Common Law The body of law
law—a body of general rules that applied throughout the entire English realm. Eventually, developed from custom or judicial
the common law tradition became part of the heritage of all nations that were once British decisions in English and U.S. courts,
not attributable to a legislature.
colonies, including the United States.
Courts developed the common law rules from the principles underlying judges’ decisions
in actual legal controversies. Judges attempted to be consistent, and whenever possible, they Focus Question 2
based their decisions on the principles suggested by earlier cases. They sought to decide sim-
What is a precedent? When
ilar cases in a similar way and considered new cases with care because they knew that their
might a court depart from
decisions would make new law. Each interpretation became part of the law on the subject and
precedent?
served as a legal precedent—that is, a court decision that furnished an example or authority
for deciding subsequent cases involving identical or similar legal principles or facts.
In the early years of the common law, there was no single place or publication where court Precedent A court decision that
opinions, or written decisions, could be found. Beginning in the late thirteenth and early furnishes an example or authority for
fourteenth centuries, however, portions of significant decisions from each year were gath- deciding subsequent cases involving
ered together and recorded in Year Books. The Year Books were useful references for lawyers identical or similar facts.
and judges. In the sixteenth century, the Year Books were discontinued, and other reports of
cases became available. (See the appendix to this chapter for a discussion of how cases are
reported, or published, in the United States today.)
1–3b Stare Decisis

The practice of deciding new cases with reference to former decisions, or precedents, even-
tually became a cornerstone of the English and U.S. judicial systems. The practice forms a
doctrine called stare decisis 6 (a Latin phrase meaning “to stand on decided cases”). Stare Decisis A common law
Under the doctrine of stare decisis, judges are obligated to follow the precedents estab- doctrine under which judges are
lished within their jurisdictions. (The term jurisdiction refers to a geographic area in which obligated to follow the precedents
established in prior decisions.
a court or courts have the power to apply the law.) Once a court has set forth a principle of
law as being applicable to a certain set of facts, that court must apply the principle in future
cases involving similar facts. Courts of lower rank (within the same jurisdiction) must do
likewise. Thus, stare decisis has two aspects:
1. A court should not overturn its own precedents unless there is a strong reason to do so.
2. Decisions made by a higher court are binding on lower courts.
Controlling Precedents Precedents that must be followed within a jurisdiction are known
as controlling precedents. Controlling precedents are binding authorities. A binding authority is Binding Authority Any source of
any source of law that a court must follow when deciding a case. Binding authorities include law that a court must follow when
deciding a case.
constitutions, statutes, and regulations that govern the issue being decided, as well as court
decisions that are controlling precedents within the jurisdiction. United States Supreme Court
case decisions, no matter how old, remain controlling until they are overruled by a subsequent
decision of the Supreme Court, by a constitutional amendment, or by congressional legislation.
Know This
Courts normally must
Stare Decisis and Legal Stability The doctrine of stare decisis helps the courts to be more follow the rules set
efficient because if other courts have carefully reasoned through a similar case, their legal forth by higher courts
in deciding cases with
6. Pronounced stahr-ee dih-si-sis. similar fact patterns.
The Power of Precedent Managerial Strategy
R oberta owns and manages an independent

auto repair shop in Boise City, Oklahoma.
Over the past several years, business has
Relying on Stare Decisis
With auto repairs, the customer is charged
a certain amount of “booked” hours per job,
been booming, thanks to an influx of people no matter how long the repair takes. Rober-
moving to Boise City from California. To take ta’s auto mechanics are paid per “booked”
advantage of this population boom, Roberta hour, also regardless of how long the actual
is considering opening a used car dealership repair takes. Consequently, the issue of
on an abandoned lot next to her repair shop. overtime does not apply. Roberta knows she
thanks to the doctrine of stare decisis, should
won’t be able to pay her salespeople using
Working Overtime the salespeople sue Roberta seeking over-
this system. To get more information on her
time pay, she could reasonably rely on the
Knowing that used car dealerships operate options, she calls Fran, a local labor lawyer,
Supreme Court’s decision as binding prece-
on extremely thin margins, Roberta and her for advice.
dent on this matter.
accountant attempt to come up with a list Fran tells Roberta that, under the federal
of all the costs to include in the new busi- Fair Labor Standards Act (FLSA), employers
Business Questions
ness plan. Roberta learns that other used car are not required to pay overtime for any
dealerships in the area are often open from 8 “sales[person] . . . primarily engaged in sell- 1. “When faced with a clearly errone-
A.M. to 7 P.M., presumably to take advantage ing or servicing any automobiles.” Further- ous precedent, my rule is simple,” writes
of customers who visit outside normal work more, in a recent case, the United States Supreme Court Justice Clarence Thomas.
hours. Most of the dealerships are also open Supreme Court upheld this segment of the “We should not follow it.” How do these
on weekends, meaning that any salespeople FLSA, holding that the “plain language” of words offer a cautionary tale for managers
that Roberta hires will work more than the the federal law should determine the out- relying on stare decisis to make business
normal forty-hour workweek. To determine come of any overtime pay dispute. So, under decisions?
her labor costs, Roberta needs to know if federal law, the salespeople at Roberta’s 2. Should Roberta consider paying her
she must pay these employees overtime for used car dealership would be exempt from salespeople overtime even though it is not
the extra hours. overtime pay. Furthermore, explains Fran, required by federal law? Why or why not?
reasoning and opinions can serve as guides. Stare decisis also makes the law more stable and
predictable. If the law on a given subject is well settled, someone bringing a case to court
can usually rely on the court to make a decision based on what the law has been. (See this
chapter’s Managerial Strategy feature to learn how this stability can help business managers
in their decision-making process.)
Departures from Precedent Although courts are obligated to follow precedents, some-
times a court will depart from the rule of precedent. If a court decides that a precedent is
simply incorrect or that technological or social changes have rendered the precedent inap-
plicable, the court may rule contrary to the precedent. Cases that overturn precedent often
receive a great deal of publicity.
Classic Case Example 1.6 In Brown v. Board of Education of Topeka,7 the United States
Supreme Court expressly overturned precedent. The Court concluded that separate educa-
tional facilities for whites and blacks, which had previously been upheld as constitutional,8
were inherently unequal. The Supreme Court’s departure from precedent in the Brown deci-
sion received a tremendous amount of publicity as people began to realize the ramifications
of this change in the law. ■
7. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954).

8. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896).
When There Is No Precedent Occasionally, courts must decide cases for which no prec-
edents exist, called cases of first impression. For instance, as you will read throughout this
text, the Internet and certain other technologies have presented many new and challenging
issues for the courts to decide.
When deciding cases of first impression, courts often look at persuasive authorities.
A persuasive authority is a legal authority that a court may consult for guidance but that is not Persuasive Authority Any legal
binding on the court. A court may consider precedents from other jurisdictions, for instance, authority or source of law that a court
although those precedents are not binding. A court may also consider legal principles and may look to for guidance but need not
follow when making its decision.
policies underlying previous court decisions or existing statutes. Additionally, a court might
look at fairness, social values and customs, and public policy (governmental policy based
on widely held societal values). Federal courts can also look at unpublished opinions (those
not intended for publication in a printed legal reporter) as sources of persuasive
authority.9
Stare Decisis and Legal Reasoning In deciding what law applies to a given dispute and
then applying that law to the facts or circumstances of the case, judges rely on the process
of legal reasoning. Through the use of legal reasoning, judges harmonize their decisions with Legal Reasoning The process
those that have been made before, as the doctrine of stare decisis requires. of reasoning by which a judge
Students of business law and the legal environment also engage in critical thinking and harmonizes his or her opinion with
the judicial decisions in previous
legal reasoning. For instance, you may be asked to provide answers for some of the case cases.
problems that appear at the end of every chapter in this text. Each problem describes the
facts of a particular dispute and the legal question at issue. If you are assigned a case problem,
you will be asked to determine how a court would answer that question, and why. In other
words, you will need to give legal reasons for whatever conclusion you reach.
Basic Steps in Legal Reasoning. At times, the legal arguments set forth in court opinions
are relatively simple and brief. At other times, the arguments are complex and lengthy.
Regardless of the length of a legal argument, however, the basic steps of the legal reasoning
process remain the same. These steps, which you can also follow when analyzing cases and
case problems, form what is commonly referred to as the IRAC method of legal reasoning.
IRAC is an acronym formed from the first letters of the words Issue, Rule, Application, and
Conclusion. To apply the IRAC method, ask the following questions:
1. Issue—What are the key facts and issues? This may sound obvious, but before
you can analyze or apply the relevant law to a specific set of facts, you must clearly
understand those facts. In other words, you should read through the case problem
carefully—more than once, if necessary. Make sure that you understand the
identities of the plaintiff (the one who initiates the lawsuit) and the defendant (the Plaintiff One who initiates a lawsuit.
one being sued) in the case, and the progression of events that led to the lawsuit.
Defendant One against whom a
Suppose that a plaintiff, Anna, comes before the court claiming assault (words
lawsuit is brought or the accused
or acts that wrongfully and intentionally make another person apprehensive of person in a criminal proceeding.
harmful or offensive contact). Anna claims that the defendant, Bryce threatened
her while she was sleeping. Although the plaintiff was unaware that she was being
threatened, her roommate, Jan, heard the defendant make the threat. So, in this
scenario, the identities of the parties are obvious. Anna is the plaintiff, and Bryce is
the defendant.
The legal issue in this case is whether the defendant’s action constitutes the
tort of assault even though the plaintiff was unaware of that threat at the time it
occurred. (A tort is a wrongful act brought under civil rather than criminal law.)
9. Rule 32.1 of the Federal Rules of Appellate Procedure.
2. Rule—What rule of law applies to the case? A rule of law may be a rule stated by
the courts in previous decisions, by a state or federal statute, or by a state or federal
administrative agency regulation. Often, more than one rule of law will be applicable
to a case.
Allege To state, recite, assert, or In our hypothetical case, Anna and her attorney allege (claim) that Bryce committed
charge. a tort. Therefore, the applicable law is the common law of torts—specifically, tort law
governing assault. Case precedents involving similar facts and issues thus would be
relevant.
3. Application—How does the rule of law apply to the particular facts and circumstances
of this case? This step is often the most difficult because each case presents a unique
set of facts, circumstances, and parties. Although cases may be similar, no two cases
are ever identical in all respects.
Normally, judges (and lawyers and law students) try to find previously decided
cases that are as similar as possible to the one under consideration. Such a case is
Case on Point A previous case called a case on point. In this situation, there might be case precedents showing that
involving factual circumstances and if a victim is unaware of the threat of harmful or offensive contact, then no assault
issues that are similar to those in the occurred. These would be cases on point that tend to prove that the defendant did
case before the court.
not commit assault and should win the case.
There might, however, also be cases showing that a sexual assault, at least, can
occur even if the victim is asleep. These would be cases on point in the plaintiff’s
favor. You will need to carefully analyze if there are any missing facts in Anna’s
claim. For instance, you might want to know the specific threat that Bryce made
(and Anna’s roommate overheard). Did he threaten to rape, kill, or beat her? Did he
know that she was asleep when he made the threat? Did he know that her roommate
heard the threat and would relay it to her when she awoke? Sometimes, you will
want to obtain additional facts before analyzing which case precedents should apply
and control the outcome of the case.
4. Conclusion—What conclusion should be drawn? This step normally presents few
problems. Usually, the conclusion is evident if the previous three steps have been
followed carefully. In our sample problem, for instance, you may determine that
Bryce did not commit a tort because Anna could not prove all of the required
elements of assault.
There Is No One “Right” Answer. Many people believe that there is one “right” answer to
every legal question. In many legal controversies, however, there is no single correct result.
Good arguments can usually be made to support either side of a legal controversy. Quite
often, a case does not involve a “good” person suing a “bad” person. In many cases, both
parties have acted in good faith in some measure or in bad faith to some degree. Addition-
ally, each judge has her or his own personal beliefs and philosophy. To some extent, these
Remedy The relief given to an personal factors shape the legal reasoning process.
innocent party to enforce a right or
compensate for the violation of a
right.
1–3c Equitable Remedies and Courts of Equity
A remedy is the means given to a party to enforce a right or to compensate for the violation of
a right. Example 1.7 Elena is injured because of Rowan’s wrongdoing. If Elena files a lawsuit
Focus Question 3 and is successful, a court can order Rowan to compensate Elena for the harm by paying her
What is the difference a certain amount. The compensation is Elena’s remedy. ■
between remedies at law and The kinds of remedies available in the early king’s courts of England were severely
remedies in equity? restricted. If one person wronged another, the king’s courts could award either money or
property, including land, as compensation. These courts became known as courts of law, and
the remedies were called remedies at law. Even though this system introduced uniformity
in the settling of disputes, when a person wanted a remedy other than property or economic
compensation, the courts of law could do nothing, so “no remedy, no right.”
Remedies in Equity Equity is a branch of law—founded on notions of justice and fair

ealing—that seeks to supply a remedy when no adequate remedy at law is available. When
d
individuals could not obtain an adequate remedy in a court of law, they petitioned the king for
relief. Most of these petitions were referred to the chancellor, an adviser to the king who had
the power to grant new and unique remedies. Eventually, formal chancery courts, or courts
of equity, were established. The remedies granted by the chancery courts were called remedies
in equity.
Plaintiffs (those bringing lawsuits) had to specify whether they were bringing an “action
at law” or an “action in equity,” and they chose their courts accordingly. A plaintiff might ask
a court of equity to order the defendant to perform within the terms of a contract. A court
of law could not issue such an order because its remedies were limited to the payment of
money or property as compensation for damages.
A court of equity, however, could issue a decree for specific performance—an order to per-
form what was promised. A court of equity could also issue an injunction, directing a party
to do or refrain from doing a particular act. In certain cases, a court of equity could allow for
the rescission (cancellation) of the contract, thereby returning the parties to the positions that
they held prior to the contract’s formation. Equitable remedies will be discussed in greater
detail in the chapters covering contracts.
The Merging of Law and Equity Today, in most states, the courts of law and equity have Know This
merged, and thus the distinction between the two courts has largely disappeared. A plaintiff Even though courts of
may now request both legal and equitable remedies in the same action, and the trial court
law and equity have
judge may grant either form—or both forms—of relief.
merged, the principles
The distinction between legal and equitable remedies remains significant, however,
because a court normally will grant an equitable remedy only when the remedy at law of equity still apply, and
(property or monetary damages) is inadequate. To request the proper remedy, a business- courts will not grant an
person (or her or his attorney) must know what remedies are available for the specific kinds equitable remedy unless
of harms suffered. Exhibit 1–2 summarizes the procedural differences (applicable in most the remedy at law is
states) between an action at law and an action in equity. inadequate.
Equitable Maxims Over time, the courts have developed a number of equitable maxims that Equitable Maxims General
provide guidance in deciding whether plaintiffs should be granted equitable relief. Because propositions or principles of law that
of their importance, both historically and in our judicial system today, these maxims are set have to do with fairness (equity).
forth in this chapter’s Landmark in the Law feature.
Exhibit 1–2 Procedural Differences between an Action at Law and an Action in Equity

PROCEDURE ACTION AT LAW ACTION IN EQUITY
Initiation of lawsuit By filing a complaint By filing a petition
Decision By jury or judge By judge (no jury)
Result Judgment Decree
Remedy Monetary damages or property Injunction, specific
performance, or rescission
1–3d Schools of Legal Thought

How judges apply the law to specific cases, including disputes relating to the business world,
depends on their philosophical approaches to law, among other things. The study of law,
Jurisprudence The science or often referred to as jurisprudence, includes learning about different schools of legal thought
philosophy of law. and discovering how each school’s approach to law can affect judicial decision making.
Natural Law The oldest school of The Natural Law School According to the natural law theory, a higher, or universal, law
legal thought, based on the belief exists that applies to all human beings. Each written law should reflect the principles inher-
that the legal system should reflect ent in natural law. If it does not, then it loses its legitimacy and need not be obeyed.
universal (“higher”) moral and ethical
The natural law tradition is one of the oldest and most significant schools of jurispru-
principles that are inherent in human
nature. dence. It dates back to the days of the Greek philosopher Aristotle (384–322 b.c.e.), who
distinguished between natural law and the laws governing a particular nation.
According to Aristotle, natural law applies universally to all humankind.
The notion that people have “natural rights” stems from the natural law tra-
dition. Those who claim that certain nations, such as China and North Korea,
are depriving many of their citizens of their human rights are implicitly appeal-
ing to a higher law that has universal applicability.
The question of the universality of basic human rights also comes into
play in the context of international business operations. For instance, U.S.
companies that have operations abroad often hire foreign workers as employ-
ees. Should the same laws that protect U.S. employees apply to these foreign
employees? This question is rooted implicitly in a concept of universal rights
Science History Images/Alamy Stock Photo
that has its origins in the natural law tradition.
Legal Positivism Positive law, or national law, is the written law of a given
society at a particular point in time. In contrast to natural law, it applies only to
the citizens of that nation or society. Those who adhere to legal positivism believe
that there can be no higher law than a nation’s positive law.
According to the positivist school, there is no such thing as “natural rights.”
Rather, human rights exist solely because of laws. If the laws are not enforced,
What is the basic premise of Aristotle’s natural anarchy will result. Thus, whether a law is morally “bad” or “good” is irrele-
law theory? vant. The law is the law and must be obeyed until it is changed—in an orderly
manner through a legitimate lawmaking process. A judge who takes this view
Legal Positivism A school of legal will probably be more inclined to defer to an existing law than would a judge who adheres
thought centered on the assumption to the natural law tradition.
that there is no law higher than
the laws created by a national
The Historical School The historical school of legal thought emphasizes the evolutionary
government. Laws must be obeyed,
even if they are unjust, to prevent
process of law by concentrating on the origin and history of the legal system. This school
anarchy. looks to the past to discover what the principles of contemporary law should be. The legal
doctrines that have withstood the passage of time—those that have worked in the past—are
Historical School A school of deemed best suited for shaping present laws. Hence, law derives its legitimacy and author-
legal thought that looks to the past ity from adhering to the standards that historical development has shown to be workable.
to determine what the principles of
contemporary law should be.
Followers of the historical school are more likely than those of other schools to adhere
strictly to decisions made in past cases.
Legal Realism In the 1920s and 1930s, a number of jurists and scholars, known as legal
Legal Realism A school of legal realists, rebelled against the historical approach to law. Legal realism is based on the idea that
thought that holds that the law is only law is just one of many institutions in society and that it is shaped by social forces and needs.
one factor to be considered when
This school reasons that because the law is a human enterprise, judges should look beyond
deciding cases, and that social and
economic circumstances should also
the law and take social and economic realities into account when deciding cases.
be taken into account. Legal realists also believe that the law can never be applied with total uniformity. Given
that judges are human beings with unique experiences, personalities, value systems, and
Equitable Maxims Landmark

in the Law
In medieval England, courts of equity were
expected to use discretion in supplementing
the common law. Even today, when the same
5. Equity regards substance rather than
form. (Equity is more concerned with
fairness and justice than with legal
court can award both legal and equitable technicalities.)
remedies, it must exercise discretion. 6. Equity aids the vigilant, not those
Students of business law and the legal who rest on their rights. (Equity will
environment should know that courts often not help those who neglect their
invoke equitable maxims when making their rights for an unreasonable period of
decisions. Here are some of the most signif- time.) Application to Today’s World The
icant equitable maxims: equitable maxims listed here underlie many
The last maxim has come to be known as of the legal rules and principles that are com-
1. Whoever seeks equity must do equity.
the equitable doctrine of laches. The doctrine monly applied by the courts today—and that
(Anyone who wishes to be treated
arose to encourage people to bring lawsuits you will read about in this book.
fairly must treat others fairly.)
while the evidence was fresh. If they failed For instance, in the contracts materials,
2. Where there is equal equity, the law
must prevail. (The law will determine to do so, they would not be allowed to bring you will read about the doctrine of promissory
the outcome of a controversy in which a lawsuit. What constitutes a reasonable estoppel. Under this doctrine, a person who
the merits of both sides are equal.) time, of course, varies according to the cir- has reasonably and substantially relied on
3. One seeking the aid of an equity court cumstances of the case. the promise of another may be able to obtain
must come to the court with clean Time periods for different types of some measure of recovery, even though no
hands. (Plaintiffs must have acted cases are now usually fixed by statutes of enforceable contract exists. The court will
fairly and honestly.) limitations—that is, statutes that set the estop (bar) the one making the promise from
4. Equity will not suffer a wrong to be maximum time period during which a certain asserting the lack of a valid contract as a
without a remedy. (Equitable relief will action can be brought. After the time allowed defense. The rationale underlying the doc-
be awarded when there is a right to under a statute of limitations has expired, no trine of promissory estoppel is similar to that
relief and there is no adequate remedy action can be brought, no matter how strong expressed in the fourth and fifth maxims just
at law.) the case was originally. listed.
intellects, different judges will obviously bring different reasoning processes to the same case.
Female judges, for instance, might be more inclined than male judges to consider whether a
decision might have a negative impact on the employment of women or minorities.
1–4 Classifications of Law

The law may be broken down according to several classification systems. One classification
system divides law into substantive law (all laws that define, describe, regulate, and create legal Substantive Law Law that defines,
rights and obligations) and procedural law (all laws that establish the methods of enforcing describes, regulates, and creates
the rights established by substantive law). legal rights and obligations.
Example 1.8 A state law that provides employees with the right to workers’ compensation Procedural Law Law that
benefits for any on-the-job injuries they sustain is a substantive law because it creates legal establishes the methods of enforcing
rights. Procedural laws, in contrast, establish the method by which an employee must notify the rights established by substantive
the employer about an on-the-job injury, prove the injury, and periodically submit additional law.
proof to continue receiving workers’ compensation benefits. ■ Note that a law may contain
both substantive and procedural provisions.
Other classification systems divide law into federal law and state law, and private law
(dealing with relationships between persons) and public law (addressing the relationship
Cyberlaw An informal term used to between persons and their governments). Frequently, people use the term cyberlaw to refer
refer to all laws governing electronic to the emerging body of law that governs transactions conducted via the Internet, but
communications and transactions, cyberlaw is not really a classification of law. Rather, it is an informal term used to refer to
particularly those conducted via the
Internet.
both new laws and modifications of traditional legal principles that relate to the online
environment.
Focus Question 4 1–4a Civil Law and Criminal Law

What are some important Civil law spells out the rights and duties that exist between persons and between persons
differences between civil law and their governments, as well as the relief available when a person’s rights are violated.
and criminal law? Typically, in a civil case, a private party sues another private party who has failed to comply
with a duty. Much of the law that we discuss in this text—including contract law and tort
law—is civil law.
Criminal law has to do with wrongs committed against society for which society demands
Civil Law The branch of law dealing
redress. Criminal acts are proscribed by local, state, or federal government statutes. Thus,
with the definition and enforcement
of all private or public rights, as criminal defendants are prosecuted by public officials, such as a district attorney (D.A.), on
opposed to criminal matters. behalf of the state, not by their victims or other private parties.
Whereas in a civil case the object is to obtain a remedy (such as monetary damages) to
Criminal Law The branch of law compensate the injured party, in a criminal case the object is to punish the wrongdoer in
that defines and punishes wrongful
actions committed against the public.
an attempt to deter others from similar actions. Penalties for violations of criminal statutes
consist of fines and/or imprisonment—and, in some cases, death.
1–4b Common Law and Civil Law Systems

Two types of legal systems predominate around the globe today. One is the common law
system of England and the United States, which we discussed earlier. In a common law sys-
tem, the body of law derives from custom and judicial decisions and depends on the impor-
tance of legal precedent.
Civil Law System A system of law The other, known as a civil law system, is based on Roman civil law, or “code law,” which
derived from Roman law that is based relies on legal principles enacted into law by a legislature or governing body. Thus, in a
on codified laws (rather than on case civil law system, the primary source of law is a statutory code, and case precedents are not
precedents).
judicially binding, as they normally are in a common law system. Although judges in a civil
law system often refer to previous decisions as sources of legal guidance, those decisions
are not binding. (Note that a civil law system is not the same as civil law, discussed in the
previous section.)
Generally, countries that were once colonies of Great Britain have retained their
English common law heritage. The civil law system, which is used in most continental
European nations, has been retained in countries that were once colonies of those nations
(see Exhibit 1–3). In the United States, the state of Louisiana, because of its historical ties
to France, is heavily influenced by principles of civil law systems. A third, less prevalent
legal system is widespread in Islamic countries, where the law is often influenced by
sharia, the religious law of Islam.
1–4c National and International Law

U.S. businesspersons increasingly engage in transactions that extend beyond our national
borders. For this reason, those who pursue a career in business today should have an under-
standing of the global legal environment.
National Law Law that pertains The law of a particular nation, such as Japan or Germany, is national law. National law,
to a particular nation (as opposed to of course, varies from country to country because each country’s law reflects the interests,
international law). customs, activities, and values that are unique to that nation’s culture. Even though the laws
and legal systems of various countries differ substantially, broad similarities do exist.
Exhibit 1–3 The Legal Systems of Selected Nations

CIVIL LAW COMMON LAW
Argentina Indonesia Australia Nigeria
Austria Iran Bangladesh Singapore
Brazil Italy Canada United Kingdom
Chile Japan Ghana United States
China Mexico India Zambia
Egypt Poland Israel
Finland South Korea Jamaica
France Sweden Kenya
Germany Tunisia Malaysia
Greece Venezuela New Zealand
In contrast, international law applies to more than one nation. International law can be International Law Law that
defined as a body of written and unwritten laws observed by independent nations and gov- governs relations among nations.
erning the acts of individuals as well as governments. It is a mixture of rules and constraints
derived from a variety of sources, including the laws of individual nations, customs devel-
oped among nations, and international treaties and organizations.
The key difference between national law and international law is that government author-
ities can enforce national law. If a nation violates an international law, however, enforcement
is up to other countries or international organizations, which may or may not choose to
act. If persuasive tactics fail, the only option is to take coercive actions against the violating
nation. Coercive actions range from the severance of diplomatic relations and boycotts to
sanctions and, as a last resort, war.
Practice and Review

Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions of
automobiles in that state. A group of automobile manufacturers files a suit against the state of California
to prevent enforcement of the law. The automakers claim that a federal law already sets fuel economy
standards nationwide and that these standards are essentially the same as carbon dioxide emission
standards. According to the automobile manufacturers, it is unfair to allow California to impose more
stringent regulations than those set by the federal law. Using the information presented in the chapter,
answer the following questions.
1. Who are the parties (the plaintiffs and the defendant) in this lawsuit?
2. Are the plaintiffs seeking a legal remedy or an equitable remedy? Why?
3. What is the primary source of the law that is at issue here?
4. Read through the appendix that follows this chapter, and then answer the following question:
Where would you look to find the relevant California and federal laws?
Debate This
Under the doctrine of stare decisis, courts are obligated to follow the precedents established in their
jurisdiction unless there is a compelling reason not to do so. Should U.S. courts continue to adhere to this
common law principle, given that our government now regulates so many areas by statute?
Key Terms
adjudicate 6 defendant 11 ordinance 5
administrative agency 6 dissenting opinion 27 per curiam opinion 27
administrative law 6 enabling legislation 6 persuasive authority 11
administrative law judge (ALJ) 8 equitable maxims 13 plaintiff 11
administrative process 7 historical school 14 plurality opinion 27
allege 12 international law 17 precedent 9
binding authority 9 interpretive rules 7 primary source of law 4
case law 8 jurisprudence 14 procedural law 15
case on point 12 law 2 remedy 12
citation 5 legal positivism 14 rulemaking 7
civil law 16 legal realism 14 secondary source of law 4
civil law system 16 legal reasoning 11 stare decisis 9
common law 9 legislative rules 7 statutory law 5
concurring opinion 27 liability 3 substantive law 15
constitutional law 4 majority opinion 27 uniform laws 5
criminal law 16 national law 16
cyberlaw 16 natural law 14
Chapter Summary: Law and Legal Reasoning

Sources of American Law 1. Constitutional law—The law as expressed in the U.S. Constitution and the various state
constitutions. The U.S. Constitution is the supreme law of the land. State constitutions are supreme
within state borders to the extent that they do not violate the U.S. Constitution or a federal law.
2. Statutory law—Laws or ordinances created by federal, state, and local legislatures. None of
these laws can violate the U.S. Constitution, and no state statute or local ordinance can violate
the relevant state constitution. Uniform laws, when adopted by a state legislature, become statutory
law in that state.
3. Administrative law—The rules, orders, and decisions of federal or state government administrative
agencies. Federal administrative agencies are created by enabling legislation enacted by the U.S.
Congress. Agency functions include rulemaking, investigation and enforcement, and adjudication.
4. Case law and common law doctrines—Judge-made law, including interpretations of constitutional
provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies.
Case law governs all areas not covered by statutory law or administrative law, and is part of our
common law tradition.
The Common Law 1. Common law—Law that originated in medieval England with the creation of the king’s courts, or
curiae regis, and the development of a body of rules that were common to (or applied in) all regions
of the country.
2. Stare decisis—A doctrine under which judges “stand on decided cases”—or follow the rule of
precedent—in deciding cases. Stare decisis is the cornerstone of the common law tradition.
3. Stare decisis and legal reasoning—Judges use legal reasoning to harmonize their decisions with
those that have been made before, as required by the doctrine of stare decisis. The basic steps of
legal reasoning form what is often referred to as the IRAC method of legal reasoning. IRAC stands
for Issue, Rule, Application, and Conclusion. First, clearly grasp the relevant facts and identify
the issue. Second, determine the rule of law that applies to the case. Third, analyze (using cases
on point) how the rule of law applies to the particular facts of the dispute, and fourth, arrive at a
conclusion.
4. Remedies—A remedy is the means by which a court enforces a right or compensates for a
violation of a right. Courts typically grant legal remedies (monetary damages or property) but may
also grant equitable remedies (specific performance, injunction, or rescission) when the legal
remedy is inadequate or unavailable.
5. Schools of legal thought—Judges’ decision making is influenced by their philosophy of law. The
following are four important schools of legal thought, or legal philosophies:
a. Natural law—One of the oldest and most significant schools of legal thought. Those who believe
in natural law hold that there is a universal law applicable to all human beings and that this law
is of a higher order than positive, or national, law.
b. Legal positivism—A school of legal thought centered on the assumption that there is no law
higher than the laws created by the government. Laws must be obeyed, even if they are unjust,
to prevent anarchy.
c. Historical school—A school of legal thought that stresses the evolutionary nature of law and
looks to doctrines that have withstood the passage of time for guidance in shaping present laws.
d. Legal realism—A school of legal thought that generally advocates a less abstract and more
realistic approach to the law. This approach takes into account customary practices and the
social and economic circumstances in which transactions take place.
Classifications of Law The law may be broken down according to several classification systems, such as substantive or
procedural law, federal or state law, and private or public law. Three broad classifications are civil and
criminal law, common law systems, and civil law systems, and national and international law. Cyberlaw
is not really a classification of law but a term that refers to the growing body of case and statutory law
that applies to Internet transactions.
Issue Spotters
1. The First Amendment to the U.S. Constitution provides protection for the free exercise of religion. A state legislature enacts a law that
outlaws all religions that do not derive from the Judeo-Christian tradition. Is this law valid within that state? Why or why not? (See
Sources of American Law.)
2. Apex Corporation learns that a federal administrative agency is considering a rule that will have a negative impact on the firm’s ability to
do business. Does the firm have any opportunity to express its opinion about the pending rule? Explain. (See Sources of American Law.)
—Check your answers to the Issue Spotters against the answers provided in Appendix D.
Business Scenarios and Case Problems

1–1. Binding versus Persuasive Authority. A county 3. A state statute conflicts with the common law of that state.
court in Illinois is deciding a case involving an issue that has 4. A state constitutional amendment conflicts with the U.S.
never been addressed before in that state’s courts. The Iowa Constitution.
Supreme Court, however, recently decided a case involving a
very similar fact pattern. Is the Illinois court obligated to follow 1–3. Remedies. Arthur Rabe is suing Xavier Sanchez for
the Iowa Supreme Court’s decision on the issue? If the United breaching a contract in which Sanchez promised to sell Rabe a
States Supreme Court had decided a similar case, would that Van Gogh painting for $150,000. (See The Common Law.)
decision be binding on the Illinois court? Explain. (See The 1. In this lawsuit, who is the plaintiff, and who is the defendant?
Common Law.) 2. If Rabe wants Sanchez to perform the contract as promised,
what remedy should Rabe seek?
1–2. Sources of Law. This chapter discussed a number of
sources of American law. Which source of law takes priority 3. Suppose that Rabe wants to cancel the contract because
in the following situations, and why? (See Sources of American Sanchez fraudulently misrepresented the painting as an
Law.) original Van Gogh when in fact it is a copy. In this situation,
what remedy should Rabe seek?
1. A federal statute conflicts with the U.S. Constitution.
4. Will the remedy Rabe seeks in either situation be a remedy
2. A federal statute conflicts with a state constitutional
at law or a remedy in equity?
provision.
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ASTOLPH.
Will you leave

The Monastery?
CARLOMAN.
At once.
ASTOLPH.
You have no terror?

You will not creep back, conscience in your nerves?
CARLOMAN.
Let me but pass the door.
ASTOLPH.
[laughing] You see it swings.

I left it open.
CARLOMAN.
Then we start at once.
ASTOLPH.
[checking him]
No, stay a little. Are you still the friend
Of Zacharias?
CARLOMAN.
He is great.
ASTOLPH.
No doubt—
And most sagacious, for he seeks your brother
To win him with the bribe of sacred oil
As vassal and ally against myself.
I started here from Rome the hour I heard
That Zacharias had crept out by night
To travel northward and defeat my hopes.
You must arrive before him! I am come
Sure, from report, that you will help my cause,
You, who have been a ruler. I contend
No supernatural power should have control
Of lands and cities, troops and civil rights,
Matters distinct from God, as from the world
The service he requires. Life is so easy
If we will keep it human—quarrel, murder,
And then make friends: we have so short a time
To sin together ... but this hate deferred,
These pestilential menaces!—
CARLOMAN.
The Pope
Shall never injure France!
ASTOLPH.
It lies with you

To break the threatened treaty. You have owned
Power over Pepin?
CARLOMAN.
Yes; tho’ tardily,
He followed all my counsels.
ASTOLPH.
Ride, and stop

This treaty. If you ride you will forestall
The Pontiff’s slower march; and I meantime
Will press the siege of Rome ... you must not mind
The ache of stiffened muscles.
CARLOMAN.
Hills and plains

And trees—the olives, cypresses and vines;
Then France with nuts and poplars! But you keep me
In one great palpitation.
ASTOLPH.
Zacharias,
Besetting me from north and southward, crushes
My strongest forces. What a splendid thing
For the old man to travel in the heat
So far to work my ruin!
CARLOMAN.
But the world

Is for the young, my Astolph.
ASTOLPH.
Carloman,
I love you. Why, I feel a lad, eighteen,
When looking on you. Come, we two must kiss;
We may not burn together, flame in flame,
Again—so we must kiss.
CARLOMAN.
My blessed one,
Would I could cleave to you! You give me freedom,
A gift so rarely thought of.
ASTOLPH.
[calling a monk] Fetch the Prior,

The brethren, now—this instant. We must start.
CARLOMAN.
Grant me beside the freedom for myself

Salvation for another.
ASTOLPH.
What, a monk
Still half of you! Such trouble for men’s souls—
But have your wish. Once on the battlefield,
Men will become your prey. This solid jaw
Means grip you will not loose. O Carloman,
If I can circumvent the Pope, and then
Stretch him a bleeding quarry at my feet—
CARLOMAN.
What, Zacharias!
But I plead for France;
Popes must not meddle with her.
ASTOLPH.
[as the Prior and Monks re-enter] I require

The services of Carloman: another
Whom he will choose attends him.
DAMIANI.
Impious wretch,
You steal from God His servants!
[Astolph laughs and moves up the courtyard to summon his men: Damiani
and Rachis talk to each other; the monks listen in a scared group.]
CARLOMAN.
[drawing Marcomir to the front] Marcomir,

Come from this graveyard.
MARCOMIR.
No, I must not come,

I dare not; she is yours.
CARLOMAN.
Is mine? You wrong her—
Not yours nor mine. Earth’s wisdom will begin
When all relationships are put away,
With their dull pack of duties, and we look
Curious, benignant, with a great compassion
Into each other’s lives.
MARCOMIR.
It is not so
I look; I have a lust to gratify,
A lust for very shame I loathe to mix
With Geneviva’s image.
CARLOMAN.
Faugh! because
You think that I possess her! Cursèd bonds,
Cursed law that makes this riot in the heart!
Come forth; all will be gentle out of doors.
Gird up your habit.
MARCOMIR.
She?—
CARLOMAN.
Is but herself,
O Marcomir, we tarry—and the leaves
Are tossing through the air—
[Astolph throws his scarlet riding-cloak over Carloman, who seizes

Marcomir with an impetuous movement and draws him toward the horses
that champ at the gate.]
ACT IV
Scene: The Hall of the Frankish Palace. Early morning; the remains of a
banquet on the table, drinking-cups, wine bottles, faded leaves.
[A Servant is wiping away the stains of wine from the floor.]
SERVANT.
It is a cheerful thing to make all clean

When one is brisk and cool: this early air
Before the sun gets up is fit for men
To breathe when they are working.
Spot on spot!
A stranger to the revel of last night
Would take it there had been a massacre
To daub the floor so thickly.
[Enter another Servant.]

2ND SERVANT.
What a strew
Of glass and muddy wine-drops! Come up close
And listen. There’s a curious monk outside
Who asks to see the King—almost a beggar,
And yet a red embroidered riding-cloak
Flaunts round his ragged sackcloth; while his voice
Has such a wanton ring we need not trouble
Lest he should take the scandal of this room
Too much to heart. The jolly soul can pipe!
[A voice is heard richly humming.]

Wine is for drinking,
Glasses for chinking—
Fellowship, pleasure,
Of the full cup:
Lift it up, lift it up!
And let us be gay and be friends without measure.
1ST SERVANT.
A monk indeed! Why we must drink again!

A minstrel!
2ND SERVANT.
And his comrade took the horses

As he had been a squire.
1ST SERVANT.
Oh, but the song!

I never heard another one like this.
2ND SERVANT.
Man, they are all the same: but then he sings it

As if he had just learnt that grapes have juice,
That makes it sound so well. You’re pouring wine?
1ST SERVANT.
Yes, he must drink for that. Ho, there again!

Have you not caught the line?
[They join in as the voice sings]

These are the treasure
Of the full cup;
Lift it up, lift it up!
And let us be gay and be friends without measure.
Ha, ha!
2ND SERVANT.
Come in!
[Enter Carloman.]
You praise deep drinking—you ...

For shame! A churchman! But ...
How thin!
1ST SERVANT.
What eyes!
CARLOMAN.
Shall I have long to wait? Is Pepin ill,

Or is he grown luxurious? I would say
That I remember how your King is famed
For industry. He does not lie abed?
1ST SERVANT.
No, father.
CARLOMAN.
Call me brother if you will.
Why do you choke with laughter? I am ready
To laugh with you, to laugh to very tears
At what I am and have been. Do not hide
A thing so good and bright as laughter—Eh?
2ND SERVANT.
Mad! It were best to leave him to himself.
[They draw back.]
CARLOMAN.
[Looking round the room]

Throw the door wide open. Here we need
Fresh air even more than water. How the wine
Cries from the ground—shut in with walls, and cast
Below men’s feet, a slough where animals
Might wallow, and so sour! Let in the breeze.
Let in the dawn outside there!
1ST SERVANT.
[propping the door] After all

He is abstemious and sad at sin.
Look how profoundly sad!
2ND SERVANT.
Such twins of temper
Are frequent with the crazy. Now he drops
His mantle, have you ever seen such limbs—
A very scare-crow’s!
1ST SERVANT.
But a kindly smile.
2ND SERVANT.
He touches things and lifts them up and down

Just like an idiot. We must warn the King.
[Exeunt.]
CARLOMAN.
A feast, how nasty! Dabbled vine-leaves, vessels
Broken to shivers, the inspiring juice
Black on the boards—a feast! Can happiness
Leave refuse such as this? It visits slaves,
And then its track is loathsome. Ah, the air
Has entered like a wedge, keen, reaching me
Through all the mustiness ... and now I breathe!
The door is not enough, the windows too ...
[opening one]
There! How it enters!
[turning toward another window]
In this room I lived;
It is not altered? No, the fireplace, east;
My chair in front, and hers ... but they are crowned
At present; and my name upon that bench.
It is more terrible than nightmare—this
Besieging of one’s life by chairs and walls
And memories. Ah yes, the walls, the walls,
They do the mischief; and this reek of age
From every corner sickens worse than stale
Imprisoned fumes of wine. More air!
[He throws wide all the windows: then leans out of the last. While his back
is turned, Geneviva staggers drowsily in, reels to the board, tries to drink,
then flings herself against the throne sleeping.]
O Earth,
How beautiful to think I travelled on
And on, yet rode against no wall, so freely
The outworks of your sky gave up their space.
My brain is tired with interest: what men do
Or speak enthrals me, I who often paced
This room as blind to anything alive
As if a child unborn.
[Impulsively beginning to pace.]
And yet, my God,

How great a Captain thou wilt have in me
If this bond-King, this Pepin can be freed;
If I can do this thing, while Astolph batters
The very gates of Rome.
[pausing at sight of Geneviva.]
But who is this

Strange, beautiful, wild woman?
Oh, how delicious
Her arms, her bosom! Through the sodden hair,
Trailing the ground, what glitter, and how clean
This naked shoulder lies against the floor.
Why, this is Sleep itself!
[He comes close.]
O Geneviva,
So you too have learnt freedom, and are grown
How marvellous in beauty!—Marcomir!—
[Marcomir stands at the door.]
He must not see her drunken and so flushed;

He shall not.
[moving quickly to the door.]
I am looking every moment

For Pepin; do not enter.
[Marcomir turns and goes out.]
Oh, my shame,
If she should open her gray eyes on me,
And find me frocked and tonsured ... for the sun
Strikes sheer across her face.
[He bends over her; she wakes, looks up, laughs in his face, and then
speaks.]
GENEVIVA.
So young a guardian!
Most holy father, but I am not dead;
Do not bring rosemary, or sprinkle me
With holy drops.
[rubbing her eyes] They call this morning sleep
A beauty sleep. You must not stare so hard.
CARLOMAN.
But do not laugh.
GENEVIVA.
I must; you are a monk

Shame-faced and awkward. [rising] Have you travelled far?
CARLOMAN.
I came on embassy: the Lombard King ...
GENEVIVA.
These kings and princes! But whoever rules
Young men must have their pleasure. You and I—
Shall we not drink together?
[She pours wine into a goblet—he drinks]
God, what thirst!

Now you must rest awhile.
CARLOMAN.
Who are you, lady?
GENEVIVA.
So should a novice lisp. I am a woman.
CARLOMAN.
Glorious!
GENEVIVA.
And you? [she laughs.]
CARLOMAN.
Oh, do not jest with me;

You bring a devil to the paradise
It is to gaze on you. I am escaped
From convent-walls, the wrong, the bitterness!
GENEVIVA.
These monks are cruel, cruel, and I shudder
At their embrace; yet if I have a joy
It is to bring their manhood back to them.
Ha, ha! To see them look the murderer’s guilt
After a moment’s pleasure in my arms.
You shall not slip me.
CARLOMAN.
I have left the convent

A novice, as you say. But who are you
So terrible in pity that you touch
My hand and draw me to you, though my habit
And shaven hair insult you worse, more grossly
Than the most wanton bearing you have met
In any other man? I am ashamed
That you should see me thus.
GENEVIVA.
My dearest lovers
Forsook me to be monks. You are as one
That comes to bring me tidings of the dead,
The holy dead who have no evil thoughts
Or trouble from temptation.
[She laughs bitterly] For their sakes
You are beloved.
CARLOMAN.
Then put away all speech:

When love draws on me put it by as scholars
Their task when night falls thick upon the page.
Bend over me and kiss me. Do not laugh—
I love you.
GENEVIVA.
Did you ever love before?
CARLOMAN.
Never.
GENEVIVA.
Then I must tell you who I am:

A harlot ... in my palace—Do not wince!
[she looks at him doubtfully]
I had a husband counted me a temptress

And fled: I laugh now to remember it.
I loved once; he I loved became a monk,
And therefore I make sport of holy men.
I would not scoff at you, not tempt you even.
You have deep, burning eyes.
CARLOMAN.
He was a monk?
His name, who fled you? Would you have your pleasure
With me, his name!
GENEVIVA.
[to herself, shaking her head]

He had oblivious eyes!
[vindictively]
My lover’s name was Marcomir.
CARLOMAN.
The monk
Who journeys with me on this embassy
Is Marcomir. If you are amorous still
Of him ...
GENEVIVA.
Not now—no more. I am afraid ...

Who are you? You are surely of my race,
Have known me in my youth. A flushing shame
Breaks on me—
CARLOMAN.
And to find you are beloved

Moves you?
GENEVIVA.
Not that! I hear it every day.

It is too stale a story. Could I love——
CARLOMAN.
[Observing Marcomir passing and re-passing the windows]
How dare he watch us! But I recollect

You told me he had been your paramour.
GENEVIVA.
You come ... he comes, I mean, from Mount Soracte—

Then ... yes, I will have speech with him.
CARLOMAN.
[bitterly] Oh, gossip,

The convent’s gossip. I can furnish that.
If you desire him carnally, I yield;
But if ...
GENEVIVA.
He knows so much of long ago.
CARLOMAN.
[impulsively]
Then he shall speak.
GENEVIVA.
Not now; you must not call!

Not now; for he remembers—
CARLOMAN.
Ay, the harlot

Was once a girl, the monk was once a man.
If you would speak of life
Before it was apprenticed to these trades—
Of life and youth, virginity and love,
My ear will be as ripe for your confession
As his. We all remember; but our wisdom
Is to forget: our powers of penitence
Must be enfranchised, sin itself set free,
No clog or fetter on us!
GENEVIVA.
Carloman,
My husband!
CARLOMAN.
Your free lover. Oh, I burn,

Burn toward your beauty! How can you forgive
The years I simply owned you!
GENEVIVA.
Am I sweet,
So sweet to you—these lips so many men
Have kissed, this body.... But you bid me speak
Of life and youth, virginity and love,
And by a miracle I can. We two
Can argue of such matters.
[As Marcomir passes she calls] Marcomir!
[She restrains Carloman and goes to the door.]
No, I must summon him.
[Marcomir enters.]
Were we not happy,

Those days we sat together quite alone
Praising and talking of him? We adored,
We each adored him, but we had no part
In that lone heart of his. Now all is changed
He loves me—
MARCOMIR.

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Business Law Today, Comprehensive

(MindTap Course List) - eBook PDF

Roger LeRoy Miller

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Unit 1 The Legal Environment of Business 1

Business Activities and the Legal Environment 3

■■ Adapting the Law to the Online Environment: Chapter 7

Unit 2 Contracts and E-Contracts 249

Agreement 269 Case 13.2: Kennedy v. Shave Barber Co.

Offer 269 That Are Not Unconscionable 318

Unit 3 Commercial Transactions 409

Sales and Lease Contracts 450

Unit 4 Agency and Employment Law 615

and Labor Law 644 Discrimination Based on Age,

Unit 5 Business Organizations 699

Franchises 704 Chapter 33

Chapter 36 ■■ Landmark in the Law: Changes to Regulation

Unit 6 Government Regulation 839

Unit 7 Property and Its Protection 933

New and Updated Features

Making Ethical Business Decisions—The IDDR Approach

New Cases and Case Problems

Many New Highlighted and Numbered Case Examples

Critical Thinking and Legal Reasoning Elements

Other Pedagogical Devices Within Each Chapter

MindTap Business Law for Business Law Today,

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MindTap Table of Contents

Check Your Understanding—Chapter Quizzes

Additional Resources (found at the part level)

Cengage Testing Powered by Cognero

What Instructors Will Find

Instructor Companion Website

• Answers Manual. Provides answers to all questions presented in the text,

John J. Balek Bradley D. Childs Joseph L. Flack Joseph D. Marcus

To Judi and Jeff Camps,

Your move to the West

1 Law and Legal Reasoning

9 Criminal Law and Cyber Crime

1–1 Business Activities and the Legal Environment

Courts and Sales and

1–2 Sources of American Law

1–2a Constitutional Law

1–2b Statutory Law

Applicability of Statutes A federal statute, of course, applies

contact with an undocumented immigrant. Then, immigration

1–2c Administrative Law

Rulemaking A major function of an administrative agency is rulemaking—­

4. 5 U.S.C. Sections 551–706.

and Labor Law 644 Discrimination Based on Age,

Rulemaking A major function of an administrative agency is rulemaking—

Exhibit 1–2 Procedural Differences between an Action at Law and an Action in Equity