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Brief Contents
Preface xxvii
Part I Legal, Ethical, and Digital
Environment . . . . . . . . . . . . . . . . 1
1 Legal Heritage and the Digital Age . . . . . . . . . . . . . . . . . 2
2 Constitutional Law for Business and E-Commerce . . . 19
3 Courts and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 40
4 Judicial, Alternative, Administrative, and E-Dispute
Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5 Intentional Torts and Negligence . . . . . . . . . . . . . . . . . 85
6 Criminal Law and Cyber Crimes . . . . . . . . . . . . . . . . . 105
7 Intellectual Property and Cyber Piracy . . . . . . . . . . . . 130
8 Ethics and Social Responsibility of Business . . . . . . . . 154
Part II Contracts and E-Commerce 169
9 Nature of Traditional and E-Contracts . . . . . . . . . . . . 170
10 Agreement and Consideration . . . . . . . . . . . . . . . . . . . 183
11 Capacity and Legality . . . . . . . . . . . . . . . . . . . . . . . . . 201
12 Genuineness of Assent and Statute of Frauds . . . . . . . 217
13 Third-Party Rights and Discharge . . . . . . . . . . . . . . . 235
14 Breach of Contract and Remedies . . . . . . . . . . . . . . . . 252
15 Digital Law and E-Commerce . . . . . . . . . . . . . . . . . . 270
Part III Sales and Lease Contracts
and Product Liability . . . . . . 285
16 Formation of Sales and Lease Contracts . . . . . . . . . . . 286
17 Title to Goods and Risk of Loss . . . . . . . . . . . . . . . . . 300
18 Remedies for Breach of Sales and Lease Contracts . . . 312
19 Warranties and Product Liability . . . . . . . . . . . . . . . . 326
Part IV Negotiable Instruments,
Banking, and Electronic
Financial Transactions . . . . 347
20 Creation and Transfer of Negotiable Instruments . . . . 348
21 Holder in Due Course and Liability of Parties . . . . . . 366
22 Banking System and Electronic Financial
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
Part V Credit, Secured Transactions,
and Bankruptcy . . . . . . . . . . . 395
23 Credit, Real Property Financing, and Secured
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
24 Bankruptcy and Reorganization . . . . . . . . . . . . . . . . . . 416
Part VI Business Organizations,
Corporate Governance,
And Investor Protection . . . 437
25 Agency Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
26 Small Business, Entrepreneurship, and Partnerships . . 457
27 Corporate Formation and Financing . . . . . . . . . . . . . . 477
28 Corporate Governance and Sarbanes-Oxley Act . . . . . 497
29 Corporate Acquisitions and Multinational
Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515
30 Limited Liability Companies and Limited Liability
Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531
31 Franchise and Special Forms of Business . . . . . . . . . . 548
32 Investor Protection, E-Securities, and Wall Street
Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563
Part VII Government Regulation
And Employment Law . . . . . . 587
33 Antitrust Law and Unfair Trade Practices . . . . . . . . . . 588
34 Consumer Safety and Environmental Protection . . . . 606
35 Labor, Worker Protection, and Immigration Laws . . . 628
36 Equal Opportunity in Employment . . . . . . . . . . . . . . . 647
Part VIII Property, Insurance, and
Estates . . . . . . . . . . . . . . . . . . 669
37 Personal Property, Bailment, and Insurance . . . . . . . . 670
38 Real Property, Landlord–Tenant Law,
and Land Use Regulation . . . . . . . . . . . . . . . . . . . . . . 689
39 Family Law, Wills, and Trusts . . . . . . . . . . . . . . . . . . 712
Part IX Accounting Profession . . . . 735
40 Accountants’ Duties and Liability . . . . . . . . . . . . . . . . 736
Part X Global Environment . . . . . . . 753
41 International and World Trade Law . . . . . . . . . . . . . . 754
Appendix The Constitution
Of The United States
Of America . . . . . . . . . . . 777
Case Index . . . . . . . . . . . . . . . . . . . . . . 785
Subject Index . . . . . . . . . . . . . . . . . . . 789
vii
This page intentionally left blank
Contents
Preface  xxvii
Part I Legal, Ethical, and Digital
Environment . . . . . . . . . . . . . . 1
1 Legal Heritage and the
Digital Age������������������������������������������ 2
Introduction to Legal Heritage and The Digital Age . . . . . . 3
What Is Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Definition of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Functions of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Fairness of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Flexibility of the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Landmark U.S. Supreme Court Case • Brown v. Board of Education . . 5
Schools of Jurisprudential Thought . . . . . . . . . . . . . . . . . . 6
Natural Law School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Historical School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Analytical School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sociological School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Command School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Critical Legal Studies School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Law and Economics School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Global Law • Command School of Jurisprudence of Cuba . . . . . . . . . 8
History of American Law . . . . . . . . . . . . . . . . . . . . . . . . . . 8
English Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Landmark Law • Adoption of English Common Law in America . . . . . 9
Global Law • Civil Law System of France and Germany . . . . . . . . . . 10
Sources of Law in the United States . . . . . . . . . . . . . . . . 10
Constitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Contemporary Environment • How a Bill Becomes Law . . . . . . . . . . 11
State Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Ordinances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Executive Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Regulations and Orders of Administrative Agencies . . . . . . . . . . 12
Judicial Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Priority of Law in the United States . . . . . . . . . . . . . . . . . . . . . . . 14
Digital Law • Law in the Digital Age . . . . . . . . . . . . . . . . . . . . . . . . 14
Critical Legal Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Defining Critical Legal Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Socratic Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IRAC Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Supreme Court Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Case 1.1 • U.S. Supreme Court Case • Voting Rights Act • Shelby
County, Texas v. Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 17
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 17
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2 Constitutional Law for Business
and E-Commerce ������������������������������ 19
Introduction to Constitutional Law for Business and
E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Constitution of the United States of America . . . . . . . . . 20
Federalism and Delegated Powers . . . . . . . . . . . . . . . . . . . . . . . . 21
Doctrine of Separation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . 21
Checks and Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Supremacy Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Case 2.1 • U.S. Supreme Court Case • Supremacy Clause •
Mutual Pharmaceutical Company, Inc. v. Bartlett . . . . . . . . . . 23
Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Commerce with Native Americans . . . . . . . . . . . . . . . . . . . . . . . . 24
Foreign Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Interstate Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Landmark U.S. Supreme Court Case • Heart of Atlanta Motel
v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
State Police Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Dormant Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
E-Commerce and the Constitution . . . . . . . . . . . . . . . . . . 26
Digital Law • E-Commerce and the Commerce Clause . . . . . . . . . . . 27
Bill of Rights and other Amendments to
the U.S. Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Freedom of Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Fully Protected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Case 2.2 • U.S. Supreme Court Case • Free Speech and Violent
Video Games • Brown, Governor of California v. Entertainment
Merchants Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limited Protected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Unprotected Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Case 2.3 • U.S. Supreme Court Case • Free Speech • Snyder v. Phelps . . . 31
Freedom of Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Establishment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Free Exercise Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Equal Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Standards of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Case 2.4 • U.S. Supreme Court Case • Equality •
United States v. Windsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Substantive Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Procedural Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Privileges and Immunities . . . . . . . . . . . . . . . . . . . . . . . . 36
Global Law • Human Rights Violations in Myanmar . . . . . . . . . . . . . 36
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 37
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 37
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3 Courts And Jurisdiction������������������ 40
Introduction to Courts and Jurisdiction . . . . . . . . . . . . . . 41
State Court Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Limited-Jurisdiction Trial Courts . . . . . . . . . . . . . . . . . . . . . . . . . 41
General-Jurisdiction Trial Courts . . . . . . . . . . . . . . . . . . . . . . . . . 41
Intermediate Appellate Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Highest State Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Business Environment • Delaware Courts Specialize in
Business Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Federal Court System . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Special Federal Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Contemporary Environment • Foreign Intelligence
Surveillance Court (FISA Court) . . . . . . . . . . . . . . . . . . . . . . . 46
U.S. District Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
U.S. Courts of Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Supreme Court of The United States . . . . . . . . . . . . . . . . 47
Contemporary Environment • Process of Choosing
a U.S. Supreme Court Justice . . . . . . . . . . . . . . . . . . . . . . . . . 48
ix
x Contents
Jurisdiction of the U.S. Supreme Court . . . . . . . . . . . . . . . . . . . . 48
Decisions of the U.S. Supreme Court . . . . . . . . . . . . . . . . . . . . . . 48
Contemporary Environment • “I’ll Take You to the
U.S. Supreme Court!” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Jurisdiction of Federal Courts . . . . . . . . . . . . . . . . . . . . . 50
Federal Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Diversity of Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Case 3.1 • U.S. Supreme Court Case • Diversity of Citizenship •
Hertz Corporation v. Friend . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Jurisdiction of State Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Standing to Sue, Jurisdiction, and Venue . . . . . . . . . . . . . 53
Standing to Sue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
In Personam Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Case 3.2 • Federal Court Case • Service of Process •
Facebook, Inc. v. Banana Ads LLC . . . . . . . . . . . . . . . . . . . . . . 53
Long-Arm Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Landmark U.S. Supreme Court Case • International Shoe
Company v. State of Washington . . . . . . . . . . . . . . . . . . . . . . 54
In Rem Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Quasi In Rem Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Forum-Selection and Choice-of-Law Clauses . . . . . . . . . . . . . . . 56
Jurisdiction in Cyberspace . . . . . . . . . . . . . . . . . . . . . . . 56
Case 3.3 • Federal Court Case • Jurisdiction over an Internet
Seller • Chanel, Inc. v. Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Global Law • Judicial System of Japan . . . . . . . . . . . . . . . . . . . . . . 58
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 58
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 59
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4 Judicial, Alternative,
Administrative, and E-Dispute
Resolution���������������������������������������� 61
Introduction to Judicial, Alternative, Administrative,
and E-Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 62
Pretrial Litigation Process . . . . . . . . . . . . . . . . . . . . . . . 62
Pleadings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Complaint and Summons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Answer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Cross-Complaint and Reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Intervention and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Class Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Case 4.1 • U.S. Supreme Court Case • Class Action Lawsuit •
Wal-Mart Stores, Inc. v. Dukes . . . . . . . . . . . . . . . . . . . . . . . . 65
Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Deposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Interrogatories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Production of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Physical or Mental Examination . . . . . . . . . . . . . . . . . . . . . . . . . 67
Case 4.2 • State Court Case • Discovery •
Averyt v. Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 67
Pretrial Motions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Motion for Judgment on the Pleadings . . . . . . . . . . . . . . . . . . . . 68
Motion for Summary Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Case 4.3 • State Court Case • Summary Judgment •
Murphy v. McDonald’s Restaurants of Ohio . . . . . . . . . . . . . . . 69
Settlement Conference . . . . . . . . . . . . . . . . . . . . . . . . . 69
Contemporary Environment • Cost–Benefit Analysis of a Lawsuit . . . 70
Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Jury Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Opening Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
The Plaintiff ’s Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
The Defendant’s Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Rebuttal and Rejoinder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Closing Arguments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Jury Instructions, Deliberation, and Verdict . . . . . . . . . . . . . . . . . 72
Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
E-Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Case 4.4 • U.S. Supreme Court Case • Appeal •
Cavazos, Acting Warden v. Smith . . . . . . . . . . . . . . . . . . . . . . 73
Global Law • British Legal System . . . . . . . . . . . . . . . . . . . . . . . . . 74
Alternative Dispute Resolution . . . . . . . . . . . . . . . . . . . . 75
Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Landmark Law • Federal Arbitration Act . . . . . . . . . . . . . . . . . . . . . 76
Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Case 4.5 • U.S. Supreme Court Case • Arbitration •
Nitro-Lift Technologies, L.L.C. v. Howard . . . . . . . . . . . . . . . . . 77
Critical Legal Thinking Case • Class Action Waiver •
AT&T Mobility LLC v. Concepcion . . . . . . . . . . . . . . . . . . . . . . 78
E-Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Administrative Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Cabinet-Level Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Federal Administrative Agencies . . . . . . . . . . . . . . . . . . . . . . . . . 80
Landmark Law • Administrative Procedure Act . . . . . . . . . . . . . . . . 80
Administrative Law Judge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Delegation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
State and Local Administrative Agencies . . . . . . . . . . . . . . . . . . . 80
Judicial Review of Administrative Agency Actions . . . . . . . . . . . 81
Global Law • Solving Tribal Disputes, Mali, West Africa . . . . . . . . . . 81
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . . 82
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . . 82
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5 Intentional Torts and
Negligence���������������������������������������� 85
Introduction to Intentional Torts and Negligence . . . . . . . 86
Intentional Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Assault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Battery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
False Imprisonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Shoplifting and Merchant Protection Statutes . . . . . . . . . . . . . . . 87
Case 5.1 • State Court Case • False Imprisonment • Wal-Mart
Stores, Inc. v. Cockrell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Misappropriation of the Right to Publicity . . . . . . . . . . . . . . . . . 88
Invasion of the Right to Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Defamation of Character . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Disparagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Intentional Misrepresentation (Fraud) . . . . . . . . . . . . . . . . . . . . . 89
Intentional Infliction of Emotional Distress . . . . . . . . . . . . . . . . 90
Malicious Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Unintentional Torts (Negligence) . . . . . . . . . . . . . . . . . . 91
1. Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
2. Breach of the Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Ethics • Ouch! McDonald’s Coffee Is Too Hot! . . . . . . . . . . . . . . . . . 92
3. Injury to Plaintiff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4. Actual Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Case 5.2 • State Court Case • Negligence •
Carter v. Indianapolis Power & Light Company
and Indiana Bell Telephone Company, Inc. . . . . . . . . . . . . . . . 94
5. Proximate Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Critical Legal Thinking Case • Proximate Cause •
Palsgraf v. The Long Island Railroad Company . . . . . . . . . . . . . 95
Case 5.3 • Federal Court Case • Duty of Care •
James v. Meow Media, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Special Negligence Doctrines . . . . . . . . . . . . . . . . . . . . . 96
Professional Malpractice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
 Contents xi
Negligent Infliction of Emotional Distress . . . . . . . . . . . . . . . . . 97
Negligence Per Se . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Res Ipsa Loquitur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Attractive Nuisance Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Case 5.4 • State Court Case • Negligence •
Choate v. Indiana Harbor Belt Railroad Company . . . . . . . . . . 98
Good Samaritan Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Defenses Against Negligence . . . . . . . . . . . . . . . . . . . . 100
Superseding or Intervening Event . . . . . . . . . . . . . . . . . . . . . . . 100
Assumption of the Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Case 5.5 • State Court Case • Assumption of the Risk •
Lilya v. The Greater Gulf State Fair, Inc. . . . . . . . . . . . . . . . . . 100
Contributory and Comparative Negligence . . . . . . . . . . . . . . . . 101
Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 102
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 102
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
6 Criminal Law and Cyber Crimes�� 105
Introduction to Criminal Law and Cyber Crimes . . . . . . . 106
Definition of a Crime . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Penal Codes and Regulatory Statutes . . . . . . . . . . . . . . . . . . . . . 106
Parties to a Criminal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Classification of Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Intent Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Nonintent Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Contemporary Environment • Criminal Acts as
the Basis for Tort Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Criminal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Arrest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Indictment or Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Arraignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Plea Bargain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Criminal Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Common Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Murder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Case 6.1 • State Court Case • Murder • State of Ohio v. Wilson . . . 113
Robbery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Burglary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Larceny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Receiving Stolen Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Arson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Business and White-Collar Crimes . . . . . . . . . . . . . . . . . 115
Forgery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Embezzlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Bribery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Extortion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Criminal Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Mail Fraud and Wire Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Racketeer Influenced and Corrupt Organizations Act (RICO) ����117
Criminal Conspiracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Business Environment • Corporate Criminal Liability . . . . . . . . . . . 118
Cyber Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Information Infrastructure Protection Act (IIP Act) . . . . . . . . . 119
Digital Law • Internet and Identity Theft . . . . . . . . . . . . . . . . . . . . 119
Counterfeit Access Device and Computer Fraud
and Abuse Act (CFAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Case 6.2 • Federal Court Case • Computer Crimes •
United States v. Barrington . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Fourth Amendment Protection Against Unreasonable
Search and Seizure . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Exclusionary Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Case 6.3 • U.S. Supreme Court Case • Search • Maryland v. King . . 121
Searches of Business Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Critical Legal Thinking Case • Exclusionary Rule • Arizona v. Gant . . . . 122
Fifth Amendment Privilege Against Self-Incrimination . . 123
Miranda Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Attorney–Client Privilege and Other Privileges . . . . . . . . . . . . . 124
Immunity from Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Other Constitutional Protections . . . . . . . . . . . . . . . . . 125
Fifth Amendment Protection Against Double Jeopardy . . . . . . 125
Sixth Amendment Right to a Public Jury Trial . . . . . . . . . . . . . 125
Eighth Amendment Protection Against Cruel and
Unusual Punishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Global Law • France Does Not Impose the Death Penalty . . . . . . . 126
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 126
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 127
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
7 Intellectual Property and
Cyber Piracy ���������������������������������� 130
Introduction to Intellectual Property and Cyber Piracy . . 131
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Trade Secret . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Reverse Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Civil Trade Secret Law: Misappropriation of a Trade Secret . . . 132
Criminal Trade Secret Law: Economic Espionage Act . . . . . . . 133
Ethics • Coca-Cola Employee Tries to Sell Trade Secrets
to Pepsi-Cola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
U.S. Court of Appeals for the Federal Circuit . . . . . . . . . . . . . . 134
Patent Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Subject Matter That Can Be Patented . . . . . . . . . . . . . . . . . . . . 134
Requirements for Obtaining a Patent . . . . . . . . . . . . . . . . . . . . . 135
Case 7.1 • U.S. Supreme Court Case • Patent • Association for
Molecular Pathology v. Myriad Genetics, Inc. . . . . . . . . . . . . . 136
Patent Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Provisional Patent Application . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Patent Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Design Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Contemporary Environment • Leahy-Smith America
Invents Act (AIA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Tangible Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Registration of Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Copyright Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Civil Copyright Law: Copyright Infringement . . . . . . . . . . . . . 140
Critical Legal Thinking Case • Cyber Piracy • BMG Music v. Gonzalez . . . . 141
Fair Use Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Case 7.2 • U.S. Supreme Court Case • Copyright •
Kirtsaeng v. John Wiley & Sons, Inc. . . . . . . . . . . . . . . . . . . . 142
Criminal Copyright Law: No Electronic Theft Act . . . . . . . . . . 142
Digital Law • Digital Millennium Copyright Act . . . . . . . . . . . . . . . 143
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Registration of a Mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Types of Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Distinctiveness or Secondary Meaning . . . . . . . . . . . . . . . . . . . . 146
Trademark Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Case 7.3 • Federal Court Case • Trademark Infringement • Intel
Corporation v. Intelsys Software, LLC . . . . . . . . . . . . . . . . . . 146
Generic Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Diluting, Blurring, or Tarnishing Trademarks . . . . . . . . . . . . . . 149
Case 7.4 • Federal Court Case • Dilution of a Trademark • V Secret
Catalogue, Inc. and Victoria’s Secret Stores,
Inc. v. Moseley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 150
Global Law • International Protection of Intellectual Property . . . . 151
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 152
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
xii Contents
8 Ethics and Social Responsibility
of Business�������������������������������������� 154
Introduction to Ethics and Social Responsibility
of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Ethics and the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Case 8.1 • U.S. Supreme Court Case • Business Ethics •
Wal-Mart Stores, Inc. v. Samara Brothers, Inc. . . . . . . . . . . . 156
Business Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Ethical Fundamentalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Critical Legal Thinking Case • Whistleblower Statute • United States
ex. rel. Estate of George Couto v. Bayer Corporation . . . . . . . 157
Utilitarianism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Kantian Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Rawls’s Social Justice Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Ethical Relativism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Ethics • Bernie Madoff Steals Billions of Dollars in Fraudulent
Investment Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Social Responsibility of Business . . . . . . . . . . . . . . . . . 160
Maximize Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Ethics • Is the Outsourcing of U.S. Jobs to Foreign
Countries Ethical? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Moral Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Stakeholder Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Corporate Citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Ethics • Sarbanes-Oxley Act Requires Public
Companies to Adopt Codes of Ethics . . . . . . . . . . . . . . . . . . 162
Case 8.2 • Supreme Court Case • Humanitarian Violations •
Kiobel v. Royal Dutch Petroleum Company . . . . . . . . . . . . . . 164
Global Law • Conducting Business in Russia . . . . . . . . . . . . . . . . 165
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 166
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 166
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Part II Contracts and
E-Commerce . . . . . . . . . . . . . 169
9 Nature of Traditional and
E-Contracts������������������������������������ 170
Introduction to Nature of Traditional and E-Contracts . . . 171
Definition of a Contract . . . . . . . . . . . . . . . . . . . . . . . . 171
Parties to a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Elements of a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Defenses to the Enforcement of a Contract . . . . . . . . . . . . . . . . 172
Sources of Contract Law . . . . . . . . . . . . . . . . . . . . . . . 172
Common Law of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Uniform Commercial Code (UCC) . . . . . . . . . . . . . . . . . . . . . . 172
The Restatement of the Law of Contracts . . . . . . . . . . . . . . . . . 173
Objective Theory of Contracts . . . . . . . . . . . . . . . . . . . 173
Case 9.1 • Federal Court Case • Contract • Facebook, Inc. v.
Winklevoss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Digital Law • Electronic Contracts and Licenses . . . . . . . . . . . . . . 175
Classifications of Contracts . . . . . . . . . . . . . . . . . . . . . 175
Bilateral and Unilateral Contracts . . . . . . . . . . . . . . . . . . . . . . . 175
Formal and Informal Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 176
Valid, Void, Voidable, and Unenforceable Contracts . . . . . . . . . . 176
Executed and Executory Contracts . . . . . . . . . . . . . . . . . . . . . . 177
Express and Implied Contracts . . . . . . . . . . . . . . . . . . . 177
Express Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Implied-in-Fact Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Case 9.2 • Federal Court Case • Implied-in-Fact Contract • Wrench
LLC v. Taco Bell Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 177
Implied-in-Law Contract (Quasi-Contract) . . . . . . . . . . . . . . . 178
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Critical Legal Thinking Case • Equity • Romasanta v. Mitton . . . . . . 180
Global Law • International Contract Law in India . . . . . . . . . . . . . 180
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 181
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 181
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
10 Agreement And Consideration ���� 183
Introduction to Agreement and Consideration . . . . . . . . 184
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Express Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Implied Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Communication of an Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Case 10.1 • Federal Court Case • Contract • Marder v. Lopez . . . . . 186
Special Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Advertisements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Termination of an Offer . . . . . . . . . . . . . . . . . . . . . . . . . 188
Revocation of an Offer by the Offeror . . . . . . . . . . . . . . . . . . . . 188
Rejection of an Offer by the Offeree . . . . . . . . . . . . . . . . . . . . . 188
Counteroffer by the Offeree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Case 10.2 • State Court Case • Counteroffer • Ehlen v. Melvin . . . . 189
Business Environment • Option Contract . . . . . . . . . . . . . . . . . . . . 189
Termination of an Offer by Operation of Law . . . . . . . . . . . . . . 190
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Who Can Accept an Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Unequivocal Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Mirror Image Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Time of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Mode of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Requirements of Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 193
Gift Promise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Case 10.3 • State Court Case • Gifts and Gift Promises •
Cooper v. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Promises That Lack Consideration . . . . . . . . . . . . . . . . 194
Illegal Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Illusory Promise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Preexisting Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Past Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Business Environment • Special Business Contracts . . . . . . . . . . . 196
Settlement of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Equity: Promissory Estoppel . . . . . . . . . . . . . . . . . . . . . 196
Global Law • Contract Law of China . . . . . . . . . . . . . . . . . . . . . . . 197
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 198
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 198
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
11 Capacity and Legality�������������������� 201
Introduction to Capacity and Legality . . . . . . . . . . . . . . 202
Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Infancy Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Disaffirmance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Duties of Restoration and Restitution . . . . . . . . . . . . . . . . . . . . 203
Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Parents’ Liability for Their Children’s Contracts . . . . . . . . . . . . 204
Necessaries of Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Contemporary Environment • Special Types of Minors’ Contracts . 204
Mentally Incompetent Persons . . . . . . . . . . . . . . . . . . . 204
Adjudged Insane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Insane But Not Adjudged Insane . . . . . . . . . . . . . . . . . . . . . . . . 205
 Contents xiii
Case 11.1 • State Court Case • Mental Capacity •
Campbell v. Carr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Intoxicated Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Contracts Contrary to Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Contracts to Commit Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Gambling Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Effect of Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Ethics • Illegal Gambling Contract . . . . . . . . . . . . . . . . . . . . . . . . 208
Contracts Contrary to Public Policy . . . . . . . . . . . . . . . . . . . . . . 208
Critical Legal Thinking Case • Murder and Life Insurance •
Flood v. Fidelity & Guaranty Life Insurance Company . . . . . . . 209
Special Business Contracts and Licensing Statutes . . . 209
Contract in Restraint of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Licensing Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Case 11.2 • District of Columbia Court Case • Licensing Statute •
Sturdza v. United Arab Emirates . . . . . . . . . . . . . . . . . . . . . . 210
Exculpatory Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Case 11.3 • Federal Court Case • Release Contract •
Lin v. Spring Mountain Adventures, Inc. . . . . . . . . . . . . . . . . . 212
Business Environment • Covenants Not to Compete . . . . . . . . . . . 212
Unconscionable Contracts . . . . . . . . . . . . . . . . . . . . . . 213
Elements of Unconscionability . . . . . . . . . . . . . . . . . . . . . . . . . . 213
Case 11.4 • State Court Case • Unconscionable Contract •
Stoll v. Xiong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 214
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 215
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
12 Genuineness Of Assent And
Statute Of Frauds�������������������������� 217
Introduction to Genuineness of Assent and Statute
of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Unilateral Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Mutual Mistake of a Material Fact . . . . . . . . . . . . . . . . . . . . . . . 219
Mutual Mistake of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Elements of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
1. Misrepresentation of a Material Fact . . . . . . . . . . . . . . . . . . . 219
2. Intent to Deceive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
3. Reliance on the Misrepresentation . . . . . . . . . . . . . . . . . . . . . 220
4. Injury to the Innocent Party . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Fraud in the Inception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Fraud in the Inducement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Fraud by Concealment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Silence as Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Misrepresentation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Innocent Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Case 12.1 • State Court Case • Fraud • Krysa v. Payne . . . . . . . . . . 222
Duress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
Equitable Doctrine: Undue Influence . . . . . . . . . . . . . . . 223
Statute Of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Writing Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Contracts Involving Interests in Real Property . . . . . . . . . . . . . . 224
Equitable Exception: Part Performance . . . . . . . . . . . . . . . . . . . 225
Critical Legal Thinking Case • Doctrine of Part Performance •
Sutton v. Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
One-Year Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Ethics • Bonus Lost Because of the Statute of Frauds . . . . . . . . . . 226
Guaranty Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Case 12.2 • State Court Case • Guaranty Contract • Page v. Gulf
Coast Motors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Agents’ Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Promises Made in Consideration of Marriage . . . . . . . . . . . . . . 228
UCC Statutes of Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Formality of the Writing . . . . . . . . . . . . . . . . . . . . . . . . 228
Required Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Integration of Several Writings . . . . . . . . . . . . . . . . . . . . . . . . . 229
Interpreting Contract Words and Terms . . . . . . . . . . . . . . . . . . 229
Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Merger, or Integration, Clause . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Exceptions to the Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . 230
Case 12.3 • State Court Case • Parol Evidence Rule • Yarde
Metals, Inc. v. New England Patriots Limited Partnership . . . . 230
Equitable Doctrine: Promissory Estoppel . . . . . . . . . . . . 231
Global Law • Seals Used as Signatures in Asia . . . . . . . . . . . . . . . 231
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 232
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 232
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
13 Third-Party Rights and
Discharge���������������������������������������� 235
Introduction to Third-Party Rights and Discharge . . . . . . 236
Assignment of a Right . . . . . . . . . . . . . . . . . . . . . . . . . 236
Form of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Personal Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Assignment of a Future Right . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Contract Where an Assignment Would Materially
Alter the Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Assignment of a Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Effect of an Assignment of a Right . . . . . . . . . . . . . . . . . . . . . . 238
Notice of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Anti-Assignment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Approval Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Successive Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Delegation of a Duty . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Duties That Can and Cannot Be Delegated . . . . . . . . . . . . . . . 240
Effect of Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Anti-Delegation Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Assignment and Delegation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 241
Intended Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Donee Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Creditor Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Incidental Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Case 13.1 • Federal Court Case • Third-Party Beneficiary •
Does I-XI, Workers in China, Bangladesh, Indonesia,
Swaziland, and Nicaragua v. Wal-Mart Stores, Inc. . . . . . . . . 244
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Condition Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Condition Precedent Based on Satisfaction . . . . . . . . . . . . . . . . 245
Business Environment • “Time Is of the Essence”
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Condition Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Concurrent Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Implied Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Discharge of Performance . . . . . . . . . . . . . . . . . . . . . . 247
Discharge by Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Discharge by Impossibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Force Majeure Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 248
Global Law • Negotiation of Contracts
in Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 249
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 250
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
xiv Contents
14 Breach Of Contract And
Remedies������������������������������������������ 252
Introduction to Breach of Contract and
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Performance and Breach . . . . . . . . . . . . . . . . . . . . . . . 253
Complete Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Substantial Performance: Minor Breach . . . . . . . . . . . . . . . . . . . 254
Inferior Performance: Material Breach . . . . . . . . . . . . . . . . . . . . 254
Case 14.1 • State Court Case • Breach of Contract • Turner
Broadcasting System, Inc. v. McDavid . . . . . . . . . . . . . . . . . . 255
Anticipatory Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Monetary Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Compensatory Damages . . . . . . . . . . . . . . . . . . . . . . . . 256
Sale of a Good . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Construction Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Employment Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . 258
Disclaimer of Consequential Damages . . . . . . . . . . . . . . . . . . . . 258
Nominal Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
Mitigation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . 259
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
Critical Legal Thinking Case • Liquidated Damages •
Uzan v. 845 UN Limited Partnership . . . . . . . . . . . . . . . . . . . 260
Rescission and Restitution . . . . . . . . . . . . . . . . . . . . . . 261
Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
Case 14.2 • State Court Case • Specific Performance •
Alba v. Kaufmann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Arbitration of Contract Disputes . . . . . . . . . . . . . . . . . . 264
Case 14.3 • Federal Court Case • Arbitration of a
Contract Dispute • Mance v. Mercedes-Benz USA . . . . . . . . . 264
Torts Associated With Contracts . . . . . . . . . . . . . . . . . 265
Intentional Interference with Contractual Relations . . . . . . . . . 265
Breach of the Implied Covenant of Good Faith and
Fair Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Case 14.4 • State Court Case • Bad Faith Tort •
Mitchell v. Fortis Insurance Company . . . . . . . . . . . . . . . . . . 266
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 267
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 267
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
15 Digital Law And E-Commerce�������� 270
Introduction to Digital Law and E-Commerce . . . . . . . . . 271
Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
World Wide Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Email Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Digital Law • Regulation of Email Spam . . . . . . . . . . . . . . . . . . . . 272
Case 15.1 • Federal Court Case • Email Spam • Facebook, Inc.
v. Porembski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Internet Service Provider (ISP) . . . . . . . . . . . . . . . . . . . . . . . . . 273
E-Commerce and Web Contracts . . . . . . . . . . . . . . . . . . 273
Case 15.2 • State Court Case • Web Contract • Hubbert v. Dell
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Digital Law • E-SIGN Act: Statute of Frauds and
Electronic Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Digital Law • E-SIGN Act: E-Signatures and
Electronic Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Counteroffers Ineffectual Against Electronic Agent . . . . . . . . . 275
E-Licensing of Software and Information Rights . . . . . . . 276
Digital Law • Uniform Computer Information
Transactions Act (UCITA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
E-License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Licensing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Privacy in Cyberspace . . . . . . . . . . . . . . . . . . . . . . . . . 277
Electronic Communications Privacy Act . . . . . . . . . . . . . . . . . . 278
Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Registration of Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . 278
Domain Name Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Digital Law • New Top-Level Domain Names . . . . . . . . . . . . . . . . . 279
Country Domain Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Cybersquatting on Domain Names . . . . . . . . . . . . . . . . . . . . . . 280
Digital Law • Anticybersquatting Consumer Protection Act . . . . . . 281
Case 15.3 • National Arbitration Forum • Domain Name •
New York Yankees Partnership d/b/a
The New York Yankees Baseball Club . . . . . . . . . . . . . . . . . . 281
Global Law • Internet in Foreign Countries . . . . . . . . . . . . . . . . . . 282
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 282
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 283
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
Part III Sales and Lease Contracts
and Product Liability . . . . 285
16 Formation Of Sales And Lease
Contracts . . . . . . . . . . . . . . . . . . . 286
Introduction to Formation of Sales and
Lease Contracts����������������������������������������������������������� 287
Uniform Commercial Code . . . . . . . . . . . . . . . . . . . . . . 287
Landmark Law • Uniform Commercial Code (UCC) . . . . . . . . . . . . 288
Article 2 (Sales) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
What Is a Sale? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
What Are Goods? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Goods Versus Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
Case 16.1 • State Court Case • Good or Service •
Brandt v. Boston Scientific Corporation and
Sarah Bush Lincoln Health Center . . . . . . . . . . . . . . . . . . . . . 289
Who Is a Merchant? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Article 2A (Leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Definition of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Finance Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Formation of Sales and Lease Contracts: Offer . . . . . . . 291
Open Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
Contemporary Environment • UCC Firm Offer Rule . . . . . . . . . . . . . 292
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Formation of Sales and Lease Contracts:
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Method and Manner of Acceptance . . . . . . . . . . . . . . . . . . . . . . 293
Contemporary Environment • UCC Permits
Additional Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Accommodation Shipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Business Environment • UCC “Battle of the Forms” . . . . . . . . . . . . 294
Ucc Statute of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . 294
Exceptions to the UCC Statute of Frauds . . . . . . . . . . . . . . . . . 295
Business Environment • UCC Written Confirmation Rule . . . . . . . . 295
When Written Modification Is Required . . . . . . . . . . . . . . . . . . 295
Parol Evidence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
Electronic Sales and Lease Contracts . . . . . . . . . . . . . . 297
Global Law • Letters of Credit and International Trade . . . . . . . . . 297
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 298
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 298
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
 Contents xv
17 Title To Goods And Risk Of Loss �� 300
Introduction to Title to Goods and Risk of Loss������������� 301
Identification of Goods and Passage of Title . . . . . . . . . 301
Identification of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Passage of Title to Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
Shipment and Destination Contracts . . . . . . . . . . . . . . . . . . . . . 302
Delivery of Goods Without Moving Them . . . . . . . . . . . . . . . . 302
Business Environment • Commonly Used Shipping Terms . . . . . . . 303
Risk of Loss Where There Is No Breach of the Sales
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
Carrier Cases: Movement of Goods . . . . . . . . . . . . . . . . . . . . . . 304
Noncarrier Cases: No Movement of Goods . . . . . . . . . . . . . . . . 304
Goods in the Possession of a Bailee . . . . . . . . . . . . . . . . . . . . . . 305
Risk of Loss Where There Is a Breach of
the Sales Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Seller in Breach of a Sales Contract . . . . . . . . . . . . . . . . . . . . . . 305
Buyer in Breach of a Sales Contract . . . . . . . . . . . . . . . . . . . . . . 305
Risk of Loss in Conditional Sales . . . . . . . . . . . . . . . . . 305
Sale on Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Global Law • United Nations Convention on Contracts for the
International Sale of Goods (CISG) . . . . . . . . . . . . . . . . . . . . 306
Sale or Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
Consignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Risk of Loss in Lease Contracts . . . . . . . . . . . . . . . . . . 307
Business Environment • Insuring Goods Against Risk of Loss . . . . 307
Sale of Goods by Nonowners . . . . . . . . . . . . . . . . . . . . . 308
Stolen Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Fraudulently Obtained Goods . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Entrustment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Case 17.1 • State Court Case • Entrustment Rule •
Lindholm v. Brant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 310
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 310
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
18 Remedies for Breach of
Sales and Lease Contracts . . . . . 312
Introduction to Remedies for Breach of Sales
and Lease Contracts ��������������������������������������������������� 313
Seller and Lessor Performance . . . . . . . . . . . . . . . . . . . 313
Place of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313
Perfect Tender Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
Contemporary Environment • Seller’s and Lessor’s Right to Cure . . 314
Installment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Destruction of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Ethics • UCC Imposes Duties of Good Faith and Reasonableness . 315
Buyer and Lessee Performance . . . . . . . . . . . . . . . . . . . 315
Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Revocation of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Seller and Lessor Remedies . . . . . . . . . . . . . . . . . . . . . 317
Right to Withhold Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Right to Stop Delivery of Goods in Transit . . . . . . . . . . . . . . . . 317
Right to Reclaim Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Right to Dispose of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Unfinished Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
Right to Recover the Purchase Price or Rent . . . . . . . . . . . . . . . 318
Right to Recover Damages for Breach of Contract . . . . . . . . . . 318
Right to Cancel a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
Business Environment • Lost Volume Seller . . . . . . . . . . . . . . . . . 319
Buyer and Lessee Remedies . . . . . . . . . . . . . . . . . . . . . 319
Right to Reject Nonconforming Goods or
Improperly Tendered Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
Right to Recover Goods from an Insolvent Seller or Lessor . . . 320
Right to Obtain Specific Performance . . . . . . . . . . . . . . . . . . . . 320
Contemporary Environment • Buyer’s and Lessee’s
Right to Cover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Right to Replevy Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Right to Cancel a Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Right to Recover Damages for
Nondelivery or Repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Right to Recover Damages for Accepted
Nonconforming Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Additional Performance Issues . . . . . . . . . . . . . . . . . . . 322
Assurance of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
Agreements Affecting Remedies . . . . . . . . . . . . . . . . . . . . . . . . 323
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Ethics • UCC Doctrine of Unconscionability . . . . . . . . . . . . . . . . . . 323
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 323
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 324
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
19 Warranties and
Product Liability���������������������������� 326
Introduction to Warranties and
Product Liability����������������������������������������������������������� 327
Express Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Creation of an Express Warranty . . . . . . . . . . . . . . . . . . . . . . . . 327
Statement of Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
Damages Recoverable for Breach of Warranty . . . . . . . . . . . . . . 328
Implied Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
Implied Warranty of Merchantability . . . . . . . . . . . . . . . . . . . . . 328
Ethics • Implied Warranty of Merchantability . . . . . . . . . . . . . . . . 329
Implied Warranty of Fitness for a Particular Purpose . . . . . . . . 330
Warranty Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . 331
Conspicuous Display of Disclaimer . . . . . . . . . . . . . . . . . . . . . . 331
Case 19.1 • State Court Case • Warranty Disclaimer •
Roberts v. Lanigan Auto Sales . . . . . . . . . . . . . . . . . . . . . . . . 332
Magnuson-Moss Warranty Act . . . . . . . . . . . . . . . . . . . . . . . . . 332
Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Strict Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Liability Without Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
All in the Chain of Distribution Are Liable . . . . . . . . . . . . . . . . 334
Parties Who Can Recover for Strict Liability . . . . . . . . . . . . . . 334
Damages Recoverable for Strict Liability . . . . . . . . . . . . . . . . . . 335
Product Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
Defect in Manufacture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
Case 19.2 • State Court Case • Defect in Manufacture •
Shoshone Coca-Cola Bottling Company v. Dolinski . . . . . . . . 336
Defect in Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Critical Legal Thinking Case • Strict Liability •
Domingue v. Cameco Industries, Inc. . . . . . . . . . . . . . . . . . . 337
Crashworthiness Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Failure to Warn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Case 19.3 • State Court Case • Failure to Warn •
Patch v. Hillerich & Bradsby Company . . . . . . . . . . . . . . . . . . 339
Defect in Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
Other Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
Defenses to Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Case 19.4 • Federal Court Case • Generally Known
Danger • Thompson v. Sunbeam Products, Inc. . . . . . . . . . . . 341
Statute of Limitations and Statute of Repose . . . . . . . . . . . . . . . 341
Plaintiff Partially at Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 343
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 343
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
xvi Contents
Part IV Negotiable Instruments,
Banking, and Electronic
Financial Transactions . . . 347
20 Creation and Transfer of
Negotiable Instruments���������������� 348
Introduction to the Creation and Transfer
of Negotiable Instruments ������������������������������������������� 349
Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . . . . 349
Article 3 of the UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Functions of Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . 349
Types of Negotiable Instruments . . . . . . . . . . . . . . . . . . 350
Draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Certificate of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Requirements of a Negotiable Instrument . . . . . . . . . . . 353
Be in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Be Signed by the Maker or the Drawer . . . . . . . . . . . . . . . . . . . 353
Be an Unconditional Promise or Order to Pay . . . . . . . . . . . . . . 353
State a Fixed Amount of Money . . . . . . . . . . . . . . . . . . . . . . . . 354
Not Require Any Undertaking in Addition to the
Payment of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
Be Payable on Demand or at a Definite Time . . . . . . . . . . . . . . 355
Be Payable to Order or to Bearer . . . . . . . . . . . . . . . . . . . . . . . . 355
Case 20.1 • Federal Court Case • Negotiable Instrument •
Las Vegas Sands, LLC, dba Venetian Resort Hotel
Casino v. Nehme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Prepayment and Acceleration Clauses . . . . . . . . . . . . . . . . . . . . 356
Nonnegotiable Contract . . . . . . . . . . . . . . . . . . . . . . . . 357
Transfer of a Negotiable Instrument by Negotiation . . . . 357
Negotiating Order Paper or Bearer Paper . . . . . . . . . . . . . . . . . . 357
Contemporary Environment • Converting Order and
Bearer Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Case 20.2 • State Court Case • Bearer Paper •
Gerber & Gerber, P.C. v. Regions Bank . . . . . . . . . . . . . . . . . 358
Transfer of a Negotiable Instrument by Indorsement . . . 359
Types of Indorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Blank Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Special Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
Qualified Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Restrictive Indorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Misspelled or Wrong Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Multiple Payees or Indorsees . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Global Law • Negotiable Instruments Payable
in Foreign Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 363
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 364
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
21 Holder in due Course and
Liability of Parties������������������������ 366
Introduction to Holder in Due Course and
Liability of Parties ������������������������������������������������������� 367
Holder in Due Course (HDC) . . . . . . . . . . . . . . . . . . . . . 367
Requirements for HDC Status . . . . . . . . . . . . . . . . . . . . . . . . . . 367
Taking for Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
Taking in Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368
Taking Without Notice of Defect . . . . . . . . . . . . . . . . . . . . . . . 368
Taking Where There Is No Evidence of Forgery,
Alteration, or Irregularity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Contemporary Environment • Shelter Principle . . . . . . . . . . . . . . . 369
Signature Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Primary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Secondary Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
Agent’s Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
Liability of Unqualified and Qualified Indorsers . . . . . . . . . . . . 370
Liability of an Accommodation Party . . . . . . . . . . . . . . . . . . . . 370
Forged Indorsements . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Ethics • Imposter Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Ethics • Fictitious Payee Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Warranty Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Transfer Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Presentment Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Defenses Against Payment of Negotiable Instruments . . 373
Universal (Real) Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Personal Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Case 21.1 • Federal Court Case • Holder in
Due Course • Bank of Colorado v. Berwick . . . . . . . . . . . . . . . 374
Contemporary Environment • FTC Rule Limits HDC
Status for Negotiable Instruments Arising from
Consumer Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
Discharge of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 376
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 376
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 376
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
22 Banking System and Electronic
Financial Transactions ���������������� 378
Introduction to the Banking System and Electronic
Financial Transactions������������������������������������������������� 379
The Bank–Customer Relationship . . . . . . . . . . . . . . . . . 379
Uniform Commercial Code Governs Checks and Banking . . . . 379
Ordinary Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
Parties to a Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
Special Types of Checks . . . . . . . . . . . . . . . . . . . . . . . . 380
Certified Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Cashier’s Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Honoring Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
Stale Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Incomplete Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Postdated Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Stop-Payment Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Wrongful Dishonor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Ethics • Federal Currency Reporting Law . . . . . . . . . . . . . . . . . . . 383
Forged Signatures and Altered Checks . . . . . . . . . . . . . 383
Forged Signature of the Drawer . . . . . . . . . . . . . . . . . . . . . . . . . 383
Altered Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
One-Year Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Series of Forgeries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Case 22.1 • State Court Case • Series of Forgeries of Checks •
Spacemakers of America, Inc. v. SunTrust Bank . . . . . . . . . . 385
The Collection Process . . . . . . . . . . . . . . . . . . . . . . . . . 386
Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386
Bank Payment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 386
Deferred Posting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Contemporary Environment • FDIC Insurance of Bank Deposits . . . 387
Electronic Banking and E-Money . . . . . . . . . . . . . . . . . . 388
Automated Teller Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Debit Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Digital Law • Consumer Electronic Funds Transfers . . . . . . . . . . . 389
Direct Deposit and Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . 389
Online Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Digital Law • Commercial Electronic Wire Transfers . . . . . . . . . . . 390
Bank Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Landmark Law • Dodd-Frank Wall Street Reform and
Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Global Law • Hiding Money in Offshore Banks . . . . . . . . . . . . . . . 391
 Contents xvii
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 391
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 392
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Part V Credit, Secured Transactions,
and Bankruptcy . . . . . . . . . 395
23 Credit, Real Property Financing,
and Secured Transactions ���������� 396
Introduction to Credit, Real Property Financing,
and Secured Transactions ������������������������������������������� 397
Unsecured and Secured Credit . . . . . . . . . . . . . . . . . . . 397
Unsecured Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
Secured Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Real Property Financing . . . . . . . . . . . . . . . . . . . . . . . . 398
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Note and Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Recording Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Foreclosure Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400
Case 23.1 • State Court Case • Mortgages and
Liens • Old Republic National Title Insurance
Company v. Fifth Third Bank . . . . . . . . . . . . . . . . . . . . . . . . . 400
Deficiency Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Antideficiency Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Business Environment • Construction Liens on Real Property . . . . 402
Secured Transactions in Personal Property . . . . . . . . . . 403
Revised Article 9—Secured Transactions . . . . . . . . . . . . . . . . . . 403
Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Two-Party Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 404
Three-Party Secured Transaction . . . . . . . . . . . . . . . . . . . . . . . . 404
Personal Property Subject to a Security Agreement . . . . . . . . . . 405
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
The Floating Lien Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406
Perfecting a Security Interest in Personal Property . . . . 406
Perfection by Filing a Financing Statement . . . . . . . . . . . . . . . . 407
Case 23.2 • State Court Case • Filing a Financing
Statement • Pankratz Implement Company v.
Citizens National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
Perfection by Possession of Collateral . . . . . . . . . . . . . . . . . . . . . 408
Perfection by a Purchase Money Security Interest in Consumer
Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408
Termination Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Priority of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Buyers in the Ordinary Course of Business . . . . . . . . . . . . . . . . 409
Digital Law • Electronic Financing Statements and Records . . . . . 410
Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410
Business Environment • Artisan’s Liens on Personal Property . . . . 411
Surety and Guaranty Arrangements . . . . . . . . . . . . . . . . 411
Surety Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
Guaranty Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412
Collection Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 412
Key Terms And Concepts . . . . . . . . . . . . . . . . . . . . . . . 413
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 414
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
24 Bankruptcy And
Reorganization������������������������������ 416
Introduction to Bankruptcy and Reorganization������������� 417
Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
Types of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
Landmark Law • Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
Bankruptcy Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
Bankruptcy Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 418
Prepetition and Postpetition Counseling . . . . . . . . . . . . . . . . . . 418
Filing a Bankruptcy Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Attorney Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Order for Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
Meeting of the Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Proof of Claim and Proof of Interest . . . . . . . . . . . . . . . . . . . . . 420
Bankruptcy Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Discharge of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Reaffirmation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Bankruptcy Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Ethics • Fraudulent Transfer of Property Prior to Bankruptcy . . . . 422
Case 24.1 • Federal Court Case • Bankruptcy
Fraud • In Re Hoang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
State Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Homestead Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424
Ethics • Abusive Homestead Exemptions . . . . . . . . . . . . . . . . . . . 424
Chapter 7—Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . 424
Qualifications for Chapter 7 Bankruptcy . . . . . . . . . . . . . . . . . . 424
Statutory Distribution of Property . . . . . . . . . . . . . . . . . . . . . . . 425
Chapter 7 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Acts That Bar Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
Contemporary Environment • Discharge of Student Loans in
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
Chapter 13 —Adjustment of Debts of
an Individual with Regular Income . . . . . . . . . . . . . . . . 427
Filing a Chapter 13 Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Limitations on Who Can File for Chapter 13
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Property of a Chapter 13 Estate . . . . . . . . . . . . . . . . . . . . . . . . . 428
Chapter 13 Plan of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
Confirmation of a Chapter 13 Plan of Payment . . . . . . . . . . . . . 429
Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Contemporary Environment • Helping Families Save
Their Home Act of 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Chapter 11 —Reorganization . . . . . . . . . . . . . . . . . . . . 430
Debtor-in-Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Creditors’ Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Automatic Stay in Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 430
Executory Contracts and Unexpired Leases in Chapter 11 . . . . 431
Discharge of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Chapter 11 Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . 432
Confirmation of a Chapter 11 Plan of Reorganization . . . . . . . 432
Business Environment • General Motors Bankruptcy . . . . . . . . . . . . . . 433
Small Business Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 434
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 435
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Part VI Business Organizations,
Corporate Governance,
And Investor Protection . . 437
25 Agency Law�������������������������������������� 438
Introduction to Agency Law ����������������������������������������� 439
Employment and Agency Relationships . . . . . . . . . . . . . 439
Principal–Agent Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
Employer–Employee Relationship . . . . . . . . . . . . . . . . . . . . . . . 440
Critical Legal Thinking Case • Scope of Employment • Massey v.
Starbucks Corporation ���������������������������������������������������������440
Principal–Independent Contractor Relationship . . . . . . . . . . . . 441
xviii Contents
Formation of an Agency . . . . . . . . . . . . . . . . . . . . . . . . 441
Express Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
Contemporary Environment • Power of Attorney . . . . . . . . . . . . . . 442
Implied Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
Agency by Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
Apparent Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
Principal’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443
Contingency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Agent’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Duty to Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Duty to Notify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Duty to Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
Ethics • Agent’s Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . 445
Tort Liability of Principals and Agents . . . . . . . . . . . . . . 445
Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
Case 25.1 • State Court Case • Scope of
Employment • Matthews v. Food Lion, LLC . . . . . . . . . . . . . . . 446
Frolic and Detour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
Coming and Going Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
Dual-Purpose Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
Intentional Tort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
Case 25.2 • State Court Case • Employee’s
Intentional Tort • Burlarley v. Wal-Mart
Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Contract Liability of Principals and Agents . . . . . . . . . . 450
Fully Disclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Partially Disclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Undisclosed Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
Independent Contractor . . . . . . . . . . . . . . . . . . . . . . . . 452
Factors for Determining Independent Contractor Status . . . . . . 452
Liability for an Independent Contractor’s Torts . . . . . . . . . . . . . 453
Liability for an Independent Contractor’s Contracts . . . . . . . . . 453
Termination of an Agency . . . . . . . . . . . . . . . . . . . . . . . 453
Termination of an Agency by an Act of the Parties . . . . . . . . . . 453
Termination of an Agency by an Unusual Change
in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
Termination of an Agency by Impossibility of Performance . . . 454
Termination of an Agency by Operation of Law . . . . . . . . . . . . 454
Wrongful Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 455
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 455
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
26 Small Business, Entrepreneurship,
and Partnerships�������������������������� 457
Introduction to Small Business,
Entrepreneurship, and Partnerships ����������������������������� 458
Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
Entrepreneurial Forms of Conducting Business . . . . . . . . . . . . . 458
Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
Creation of a Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . 459
Business Environment • “d.b.a.” Trade Name . . . . . . . . . . . . . . . . 459
Personal Liability of a Sole Proprietor . . . . . . . . . . . . . . . . . . . . 459
Case 26.1 • State Court Case • Sole
Proprietorship • Bank of America, N.A. v. Barr . . . . . . . . . . . . 460
Taxation of a Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . 461
General Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
Uniform Partnership Act (UPA) . . . . . . . . . . . . . . . . . . . . . . . . 461
Formation of a General Partnership . . . . . . . . . . . . . . . . . . . . . . 462
Name of the General Partnership . . . . . . . . . . . . . . . . . . . . . . . . 462
General Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 463
Taxation of General Partnerships . . . . . . . . . . . . . . . . . . . . . . . . 463
Right to Participate in Management . . . . . . . . . . . . . . . . . . . . . 463
Right to Share in Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463
Other Rights of General Partners . . . . . . . . . . . . . . . . . . . . . . . 464
Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Duty to Inform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Duty of Obedience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Right to an Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Liability of General Partners of a
General Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
Tort Liability of General Partners . . . . . . . . . . . . . . . . . . . . . . . 466
Contract Liability of General Partners . . . . . . . . . . . . . . . . . . . . 466
Liability of Incoming Partners . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Liability of Outgoing Partners . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
Revised Uniform Limited Partnership Act . . . . . . . . . . . . . . . . . 468
General Partners and Limited Partners . . . . . . . . . . . . . . . . . . . 468
Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . 469
Defective Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Limited Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 469
Share of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Liability of General and Limited Partners of a Limited
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470
Management of a Limited Partnership . . . . . . . . . . . . . . . . . . . . 470
Limited Liability Limited Partnership . . . . . . . . . . . . . . . 471
Liability of General and Limited Partners of an LLLP . . . . . . . 471
Management of an LLLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
Dissolution of General and Limited Partnerships . . . . . . 472
Dissolution of a Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
Winding Up of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . 472
Notice of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Distribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Continuation of a Partnership After Dissolution . . . . . . . . . . . . 473
Business Environment • Right of Survivorship of
General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 474
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 475
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
27 Corporate Formation and
Financing ���������������������������������������� 477
Introduction to Corporate Formation and Financing������� 478
Nature of a Corporation . . . . . . . . . . . . . . . . . . . . . . . . 478
The Corporation as a Legal “Person” . . . . . . . . . . . . . . . . . . . . . 479
Limited Liability of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 479
Case 27.1 • State Court Case • Shareholder’s Limited Liability •
Menendez v. O’Niell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
Classifications of Corporations . . . . . . . . . . . . . . . . . . . 481
Private Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
Not-for-Profit Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
Government-Owned Corporations . . . . . . . . . . . . . . . . . . . . . . 482
Domestic, Foreign, and Alien Corporations . . . . . . . . . . . . . . . . 482
Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . 482
Selecting a State for Incorporating a Corporation . . . . . . . . . . . 483
Selecting a Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Digital Law • Choosing a Domain Name
for a Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Promoters and Incorporators . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Purpose of a Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
Business Environment • Close Corporation Election . . . . . . . . . . . 486
Corporate Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
Organizational Meeting of the Board of Directors . . . . . . . . . . 487
Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Business Environment • S Corporation Election for
Federal Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
 Contents xix
Financing the Corporation: Equity Securities . . . . . . . . . 489
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
Authorized, Issued, and Outstanding
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
Financing the Corporation: Debt
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
Types of Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
Indenture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
Business Environment • Delaware
Corporation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
Dissolution and Termination of
Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494
Winding Up, Liquidation, and Termination . . . . . . . . . . . . . . . . 494
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 494
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 495
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496
28 Corporate Governance and
Sarbanes-Oxley Act ���������������������� 497
Introduction to Corporate Governance and
Sarbanes-Oxley Act ����������������������������������������������������� 498
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
Shareholders’ Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
Straight (Noncumulative) Voting . . . . . . . . . . . . . . . . . . . . . . . . 500
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Supramajority Voting Requirement . . . . . . . . . . . . . . . . . . . . . . 500
Voting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
Restrictions on the Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . 501
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502
Derivative Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502
Piercing the Corporate Veil . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502
Case 28.1 • Federal Court Case • Piercing the Corporate Veil •
Northeast Iowa Ethanol, LLC v. Drizin . . . . . . . . . . . . . . . . . . 503
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
Resolutions of the Board of Directors . . . . . . . . . . . . . . . . . . . . 504
Digital Law • Corporate E-Communications . . . . . . . . . . . . . . . . . . 505
Selecting Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505
Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505
Meetings of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . 506
Business Environment • Sarbanes-Oxley Act
Imposes Duties on Audit Committee . . . . . . . . . . . . . . . . . . . 506
Corporate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
Agency Authority of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
Duty of Obedience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
The Business Judgment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509
Case 28.2 • State Court Case • Fiduciary Duties of
Corporate Directors and Officers •
McPadden v. Sidhu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 511
Ethics • Sarbanes-Oxley Act Improves
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511
Global Law • Bribes Paid by
U.S. Companies in Foreign Countries . . . . . . . . . . . . . . . . . . 512
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 512
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 513
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
29 Corporate Acquisitions
and Multinational
Corporations���������������������������������� 515
Introduction to Corporate Acquisitions and
Multinational Corporations������������������������������������������� 516
Proxy Solicitation and Proxy Contests . . . . . . . . . . . . . 516
Federal Proxy Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516
Antifraud Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517
Proxy Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517
Shareholder Resolution . . . . . . . . . . . . . . . . . . . . . . . . 517
Ethics • Coca-Cola Says “No” to a Shareholder
Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518
Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 519
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Share Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
Required Approvals for a Merger or Share Exchange . . . . . . . . 519
Short-Form Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
Sale or Lease of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
Dissenting Shareholder Appraisal Rights . . . . . . . . . . . . . . . . . . 520
Case 29.1 • State Court Case • Dissenting Shareholder
Appraisal Rights • Global GT LP v.
Golden Telecom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Williams Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
Tender Offer Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
Antifraud Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523
Fighting a Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523
Business Judgment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524
Global Law • Foreign Acquisitions of U.S. Companies . . . . . . . . . . 524
State Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . 525
Business Environment • Delaware Antitakeover Statute . . . . . . . . 525
Multinational Corporations . . . . . . . . . . . . . . . . . . . . . . 525
International Branch Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
International Subsidiary Corporation . . . . . . . . . . . . . . . . . . . . . 526
Global Law • India’s Multinational Corporations . . . . . . . . . . . . . . 527
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 528
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 528
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530
30 Limited Liability Companies
and Limited Liability
Partnerships���������������������������������� 531
Introduction to Limited Liability Companies
and Limited Liability Partnerships��������������������������������� 532
Limited Liability Company (LLC) . . . . . . . . . . . . . . . . . . 532
Uniform Limited Liability Company Act . . . . . . . . . . . . . . . . . 532
Taxation of LLCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Powers of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Formation of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Articles of Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Certificate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
Duration of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
Capital Contribution to an LLC . . . . . . . . . . . . . . . . . . . . . . . . 535
Operating Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535
Conversion of an Existing Business to an LLC . . . . . . . . . . . . . 535
Dividing an LLC’s Profits and Losses . . . . . . . . . . . . . . . . . . . . 535
Distributional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Limited Liability of Members of an LLC . . . . . . . . . . . . . 536
Liability of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Members’ Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536
Case 30.1 • State Court Case • Limited Liability
Company • Siva v. 1138 LLC . . . . . . . . . . . . . . . . . . . . . . . . . 537
Liability of Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538
xx Contents
Liability of Tortfeasors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538
Management of an LLC . . . . . . . . . . . . . . . . . . . . . . . . 538
Member-Managed LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
Manager-Managed LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . 539
Agency Authority to Bind an LLC
to Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540
Fiduciary Duties of Members of
an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540
Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540
Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541
No Fiduciary Duty Owed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541
Business Environment • Advantages of Operating a
Business as an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541
Dissolution of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . 542
Payment of Distributional Interest . . . . . . . . . . . . . . . . . . . . . . . 542
Notice of Disassociation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542
Continuation of an LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
Winding up an LLC’s Business . . . . . . . . . . . . . . . . . . . . . . . . . 543
Limited Liability Partnership (LLP) . . . . . . . . . . . . . . . . 543
Articles of Limited Liability Partnership . . . . . . . . . . . . . . . . . . 543
Taxation of LLPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
Limited Liability of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 544
Business Environment • Accounting Firms
Operate as LLPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 545
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 545
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546
31 Franchise and Special Forms
of Business�������������������������������������� 548
Introduction to Franchise and Special Forms of
Business��������������������������������������������������������������������� 549
Franchise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549
Types of Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549
Franchise Disclosure Laws . . . . . . . . . . . . . . . . . . . . . . 551
FTC Franchise Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
Disclosure of Sales or Earnings Projections Based on
Actual Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
Disclosure of Sales or Earnings Projections Based on
Hypothetical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
FTC Franchise Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
State Disclosure Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552
Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 552
Business Environment • McDonald’s Franchise . . . . . . . . . . . . . . . 552
Liability of Franchisor and Franchisee . . . . . . . . . . . . . . 554
Case 31.1 • State Court Case • Franchise
Liability • Rainey v. Domino’s Pizza, LLC . . . . . . . . . . . . . . . . 554
Case 31.2 • State Court Case • Franchisor
Liability • Martin v. McDonald’s Corporation . . . . . . . . . . . . . 555
Apparent Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556
Critical Legal Thinking Case • Apparent
Agency • Holiday Inns, Inc. v. Shelburne . . . . . . . . . . . . . . . . 556
Termination of a Franchise . . . . . . . . . . . . . . . . . . . . . . 557
Breach of the Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . 557
Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558
Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558
Joint Venture Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558
Joint Venture Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559
Strategic Alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560
Global Law • International Franchising . . . . . . . . . . . . . . . . . . . . . 560
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 560
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 561
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562
32 Investor Protection,
E-Securities, and Wall
Street Reform�������������������������������� 563
Introduction to Investor Protection,
E-Securities, and Wall Street Reform����������������������������� 564
Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564
Landmark Law • Federal Securities Laws . . . . . . . . . . . . . . . . . . . 565
Securities and Exchange Commission (SEC) . . . . . . . . . . . . . . 565
Reporting Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565
Definition of Security . . . . . . . . . . . . . . . . . . . . . . . . . . 566
Initial Public Offering: Securities Act of 1933 . . . . . . . . 567
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
Business Environment • Facebook’s IPO . . . . . . . . . . . . . . . . . . . . 568
Limitations on Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569
Sale of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 569
Regulation A Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
Small Company Offering Registration (SCOR) . . . . . . . . . . . . 570
Contemporary Environment • JOBS Act:
Emerging Growth Company (EGC) . . . . . . . . . . . . . . . . . . . . . 570
Well-Known Seasoned Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . 571
Civil Liability: Section 11 of the Securities Act of 1933 . . . . . . 571
Civil Liability: Section 12 of the Securities Act of 1933 . . . . . . 572
SEC Actions: Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . 572
Criminal Liability: Section 24 of the Securities Act of 1933 . . . 572
E-Securities Transactions . . . . . . . . . . . . . . . . . . . . . . . 572
E-Securities Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
Edgar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
E-Public Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
Digital Law • JOBS Act: Crowd Funding and
Funding Portals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Exempt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Exempt Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Nonissuer Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Intrastate Offering Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Private Placement Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 575
Small Offering Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 576
Ethics • Sarbanes-Oxley Act Erects Institutional Wall . . . . . . . . . . 577
Trading in Securities: Securities
Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . . . 577
Section 10(b) and Rule 10b-5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 577
Civil Liability: Section 10(b) of the
Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 578
SEC Actions: Securities Exchange Act of 1934 . . . . . . . . . . . . . 578
Criminal Liability: Section 32 of the
Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 578
Insider Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578
Tipper–Tippee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579
Case 32.1 • Federal Court Case • Insider Trading and
Tipping • United States v. Bhagat . . . . . . . . . . . . . . . . . . . . . 579
Misappropriation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Aiders and Abettors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Ethics • Stop Trading on Congressional Knowledge Act
(STOCKS Act) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Short-Swing Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Section 16(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
SEC Section 16 Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581
Dodd-Frank Wall Street Reform and
Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . 582
State “Blue-Sky” Laws . . . . . . . . . . . . . . . . . . . . . . . . . 583
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 583
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 584
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
 Contents xxi

Part VII Government Regulation And Global Law • United Nations Biosafety Protocol for
Genetically Altered Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . 610
Employment Law . . . . . . . . . 587 Regulation of Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
Regulation of Cosmetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
33 Antitrust Law And Unfair Trade Regulation of Medicinal Devices . . . . . . . . . . . . . . . . . . . . . . . . 611
Practices���������������������������������������� 588 Product and Automobile Safety . . . . . . . . . . . . . . . . . . . 611
Medical and Health Care Protection . . . . . . . . . . . . . . . 611
Introduction to Antitrust Law and Unfair
Landmark Law • Health Care Reform Act of 2010 . . . . . . . . . . . . . 612
Trade Practices����������������������������������������������������������� 589
Unfair and Deceptive Practices . . . . . . . . . . . . . . . . . . . 612
Federal Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . 589
False and Deceptive Advertising . . . . . . . . . . . . . . . . . . . . . . . . 612
Landmark Law • Federal Antitrust Statutes . . . . . . . . . . . . . . . . . . 589
Contemporary Environment • Do-Not-Call Registry . . . . . . . . . . . . . 613
Government Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
Consumer Financial Protection . . . . . . . . . . . . . . . . . . . 613
Private Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
Bureau of Consumer Financial Protection . . . . . . . . . . . . . . . . . 613
Effect of a Government Judgment . . . . . . . . . . . . . . . . . . . . . . . 590
Truth-in-Lending Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614
Section 1 of the Sherman Act: Restraints
Consumer Financial Protection Statutes . . . . . . . . . . . . . . . . . . 614
of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
Business Environment • Dodd-Frank Wall Street Reform and
Business Environment • Rule of Reason and Per Se Rule . . . . . . . 591
Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 615
Horizontal Restraints of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Ethics • Credit CARD Act of 2009 . . . . . . . . . . . . . . . . . . . . . . . . . 616
Price Fixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . 616
Division of Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Protection Agency . . . . . . . . . . . . . . . . . . . . . . . 616
Group Boycotts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592
Environmental Impact Statement . . . . . . . . . . . . . . . . . . . . . . . 617
Other Horizontal Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Air Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
Vertical Restraints of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
National Ambient Air Quality Standards . . . . . . . . . . . . . . . . . . 617
Resale Price Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Water Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
Nonprice Vertical Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594
Point Sources of Water Pollution . . . . . . . . . . . . . . . . . . . . . . . . 618
Case 33.1 • U.S. Supreme Court Case • Contract,
Case 34.2 • U.S. Supreme Court Case • Water Pollution •
Combination, or Conspiracy • American Needle,
Decker, Oregon State Forester v. Northwest
Inc. v. National Football League . . . . . . . . . . . . . . . . . . . . . . 594
Environmental Defense Center . . . . . . . . . . . . . . . . . . . . . . . 618
Unilateral Refusal to Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Thermal Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Conscious Parallelism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Wetlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Noerr Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
Safe Drinking Water Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Section 2 of the Sherman Act: Monopolization . . . . . . . 595
Ocean Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Attempts and Conspiracies to Monopolize . . . . . . . . . . . . . . . . 597
Ethics • BP Oil Spill in the Gulf of Mexico . . . . . . . . . . . . . . . . . . . 620
Defenses to Monopolization . . . . . . . . . . . . . . . . . . . . . . . . . . . 597
Toxic Substances and Hazardous Wastes . . . . . . . . . . . 620
Section 7 of the Clayton Act: Mergers . . . . . . . . . . . . . 597
Toxic Substances Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Horizontal Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598
Insecticides, Fungicides, and Rodenticides . . . . . . . . . . . . . . . . . 621
Vertical Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Hazardous Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
Market Extension Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Landmark Law • Superfund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
Conglomerate Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Nuclear Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
Defenses to Section 7 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Endangered Species . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
Premerger Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Critical Legal Thinking Case • Endangered Species •
Section 3 of the Clayton Act: Tying Arrangements . . . . . 600
Tennessee Valley Authority v. Hill,
Section 2 of the Clayton Act: Price Discrimination . . . . 600
Secretary of the Interior . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623
Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
State Environmental Protection Laws . . . . . . . . . . . . . . 623
Defenses to Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . 601
Global Law • International Environmental Protection . . . . . . . . . . 624
Federal Trade Commission Act . . . . . . . . . . . . . . . . . . . 602
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 624
Exemptions from Antitrust Law . . . . . . . . . . . . . . . . . . . 602
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 625
State Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 602
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
Global Law • European Union Antitrust Law . . . . . . . . . . . . . . . . . 603
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 603
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 604
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 35 Labor, Worker Protection, and
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605
Immigration Laws�������������������������� 628
Introduction to Labor, Worker Protection, and
34 Consumer Safety and Immigration Laws��������������������������������������������������������� 629
Environmental Protection ���������� 606 Workers’ Compensation . . . . . . . . . . . . . . . . . . . . . . . . 629
Introduction to Consumer Safety and Workers’ Compensation Insurance . . . . . . . . . . . . . . . . . . . . . . . 630
Environmental Protection��������������������������������������������� 607 Employment-Related Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
Case 34.1 • Federal Court Case • Adulterated Food • United Case 35.1 • State Court Case • Workers’ Compensation •
States v. LaGrou Distribution Systems, Incorporated . . . . . . . 608 Kelley v. Coca-Cola Enterprises, Inc. . . . . . . . . . . . . . . . . . . . 630
Food, Drugs, and Cosmetics Safety . . . . . . . . . . . . . . . . 609 Occupational Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Landmark Law • Food, Drug, and Cosmetic Act . . . . . . . . . . . . . . . 609 Specific Duty Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Regulation of Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 General Duty Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
Food Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Fair Labor Standards Act . . . . . . . . . . . . . . . . . . . . . . . 632
Ethics • Restaurants Required to Disclose Child Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
Calories of Food Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610 Minimum Wage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
xxii Contents
Overtime Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
Case 35.2 • U.S. Supreme Court Case • Fair
Labor Standards Act • IBP, Inc. v. Alvarez . . . . . . . . . . . . . . . 633
Exemptions from Minimum Wage and Overtime
Pay Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633
Family and Medical Leave Act . . . . . . . . . . . . . . . . . . . 634
Labor Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634
Landmark Law • Federal Labor Law Statutes . . . . . . . . . . . . . . . . 635
National Labor Relations Board (NLRB) . . . . . . . . . . . . . . . . . 635
Organizing a Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635
Types of Union Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636
Union Solicitation on Company Property . . . . . . . . . . . . . . . . . 636
Illegal Interference with an Election . . . . . . . . . . . . . . . . . . . . . 636
Case 35.3 • Federal Court Case • Unfair
Labor Practice • National Labor Relations
Board v. Starbucks Corporation . . . . . . . . . . . . . . . . . . . . . . 637
Collective Bargaining . . . . . . . . . . . . . . . . . . . . . . . . . . 637
Union Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638
Business Environment • State Right-to-Work Laws . . . . . . . . . . . . 638
Strikes and Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . 639
Illegal Strikes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639
Crossover and Replacement Workers . . . . . . . . . . . . . . . . . . . . . 639
Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639
Secondary Boycott Picketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 640
Critical Legal Thinking Case • Labor Union
Picketing • Sheet Metal Workers’ International
Association, Local 15, AFL-CIO v. National Labor
Relations Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640
Internal Union Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641
Business Environment • Worker Adjustment and Retraining
Notification (WARN) Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641
Immigration Law and Employment . . . . . . . . . . . . . . . . . 641
H-1B Foreign Guest Worker Visa . . . . . . . . . . . . . . . . . . . . . . . 642
EB-1 Extraordinary Ability Visa . . . . . . . . . . . . . . . . . . . . . . . . 642
Undocumented Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642
Cobra and Erisa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Government Programs . . . . . . . . . . . . . . . . . . . . . . . . . 643
Unemployment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 644
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 645
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646
36 Equal Opportunity in
Employment . . . . . . . . . . . . . . . . . . 647
Introduction to Equal Opportunity in Employment ��������� 648
Equal Employment Opportunity Commission (EEOC) . . . 648
Complaint Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648
Lilly Ledbetter Fair Pay Act of 2009 . . . . . . . . . . . . . . . . . . . . . 649
Title VII of the Civil Rights Act of 1964 . . . . . . . . . . . . . 649
Landmark Law • Title VII of the Civil Rights Act of 1964 . . . . . . . . 649
Scope of Coverage of Title VII . . . . . . . . . . . . . . . . . . . . . . . . . . 650
Disparate-Treatment Discrimination . . . . . . . . . . . . . . . . . . . . . 650
Disparate-Impact Discrimination . . . . . . . . . . . . . . . . . . . . . . . 650
Remedies for Violations of Title VII . . . . . . . . . . . . . . . . . . . . . 651
Race and Color Discrimination . . . . . . . . . . . . . . . . . . . 651
Race Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651
Color Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651
Landmark Law • Civil Rights Act of 1866 . . . . . . . . . . . . . . . . . . . 652
National Origin Discrimination . . . . . . . . . . . . . . . . . . . 652
Contemporary Environment • English-Only Rules
in the Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652
Gender Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . 653
Gender Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653
Pregnancy Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653
Harassment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654
Classification of Harasser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654
Racial and National Origin Harassment . . . . . . . . . . . . . . . . . . 655
Sexual Harassment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655
Critical Legal Thinking Case • Sexual Harassment •
Pennsylvania State Police v. Suders . . . . . . . . . . . . . . . . . . . 656
Digital Law • Offensive Electronic Communications
Constitute Sexual Harassment . . . . . . . . . . . . . . . . . . . . . . . 656
Religious Discrimination . . . . . . . . . . . . . . . . . . . . . . . . 657
Defenses to a Title VII Action . . . . . . . . . . . . . . . . . . . . 657
Bona Fide Occupational Qualification (BFOQ) . . . . . . . . . . . . 658
Equal Pay Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
Criteria That Justify a Differential in Wages . . . . . . . . . . . . . . . 659
Age Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
Physically Challenged Person Discrimination . . . . . . . . . 660
Landmark Law • Americans with Disabilities Act . . . . . . . . . . . . . . 660
Qualified Individual with a Disability . . . . . . . . . . . . . . . . . . . . 661
Limits on Employer Questions . . . . . . . . . . . . . . . . . . . . . . . . . 661
Reasonable Accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . 661
Undue Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
Uncovered Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
Genetic Information Discrimination . . . . . . . . . . . . . . . . 662
Genetic Information Nondiscrimination Act (GINA) . . . . . . . . 663
Protection from Retaliation . . . . . . . . . . . . . . . . . . . . . 663
Case 36.1 • U.S. Supreme Court Case • Employer Retaliation •
Thompson v. North American Stainless, LP . . . . . . . . . . . . . . 663
Affirmative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Affirmative Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Reverse Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Contemporary Environment • Veterans and Military Personnel
Employment Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . 664
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 665
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 665
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667
Part VIII Property, Insurance,
and Estates . . . . . . . . . . . . . 669
37 Personal Property, Bailment,
And Insurance . . . . . . . . . . . . . . . . 670
Introduction to Personal Property, Bailment,
and Insurance ������������������������������������������������������������� 671
Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Ownership of Personal Property . . . . . . . . . . . . . . . . . . 671
Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Gift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Other Methods of Acquiring Ownership of
Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Mislaid, Lost, and Abandoned Personal
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Mislaid Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Lost Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674
Abandoned Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674
Case 37.1 • State Court Case • Mislaid or Abandoned
Property • Grande v. Jennings . . . . . . . . . . . . . . . . . . . . . . . . 674
Ethics • Estray Statutes Promote Honesty in Finders . . . . . . . . . . 675
Bailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675
Elements Necessary to Create a Bailment . . . . . . . . . . . . . . . . . 676
Case 37.2 • State Court Case • Bailment • Ziva Jewelry,
Inc. v. Car Wash Headquarters, Inc. . . . . . . . . . . . . . . . . . . . . 676
Ordinary Bailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677
Duration and Termination of Bailments . . . . . . . . . . . . . . . . . . 678
Special Bailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678
Warehouse Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678
 Contents xxiii
Common Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679
Case 37.3 • Federal Court Case • Common
Carrier Shipment • Rykard v. FedEx Ground
Package System, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680
Innkeeper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681
Insurable Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682
Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682
Duties of Insured and Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . 682
Common Clauses in Insurance Policies . . . . . . . . . . . . . . . . . . . 683
Ethics • Insurance Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683
Types of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684
Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684
Health and Disability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 684
Automobile, Vehicle, and Vessel Insurance . . . . . . . . . . . . . . . . . 684
Contemporary Environment • No-Fault Automobile
Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685
Homeowners’ and Renters’ Insurance . . . . . . . . . . . . . . . . . . . . . 685
Business Environment • Special Forms of Business Insurance . . . . 686
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 686
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 687
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688
38 Real Property, Landlord–Tenant
39 Family Law, Wills, and Trusts������ 712
Law, and Land Use Regulation������ 689
Introduction to Real Property, Landlord–Tenant
Law, and Land Use Regulation ������������������������������������� 690
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690
Land and Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690
Subsurface Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690
Plant Life and Vegetation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691
Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691
Contemporary Environment • Air Rights . . . . . . . . . . . . . . . . . . . . . 691
Estates in Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 691
Fee Simple Absolute (or Fee Simple) . . . . . . . . . . . . . . . . . . . . . 691
Fee Simple Defeasible (or Qualified Fee) . . . . . . . . . . . . . . . . . . 692
Life Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692
Concurrent Ownership . . . . . . . . . . . . . . . . . . . . . . . . . 692
Joint Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693
Tenancy in Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693
Case 38.1 • State Court Case • Concurrent
Ownership • Reicherter v. McCauley . . . . . . . . . . . . . . . . . . . . 693
Tenancy by the Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694
Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694
Condominium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695
Future Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695
Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695
Remainder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696
Transfer of Ownership of Real Property . . . . . . . . . . . . . 696
Sale of Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696
Deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696
Recording Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697
Quiet Title Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698
Marketable Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698
Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698
Case 38.2 • State Court Case • Adverse
Possession • Whelan v. Loun . . . . . . . . . . . . . . . . . . . . . . . . . 699
Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699
Easement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699
Creating an Easement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
Case 38.3 • State Court Case • Easement •
The Willows, LLC v. Bogy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
Profit-à-Prendre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
Landlord–Tenant Law . . . . . . . . . . . . . . . . . . . . . . . . . . 702
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
Tenancy for Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Periodic Tenancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Tenancy at Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Tenancy at Sufferance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
Landlord’s Duties to a Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . 704
Implied Warranty of Habitability . . . . . . . . . . . . . . . . . . . . . . . . 704
Tenant’s Duties to a Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 705
Transfer of Leased Property by Landlords . . . . . . . . . . . . . . . . . 705
Assignment of a Lease by a Tenant . . . . . . . . . . . . . . . . . . . . . . 705
Sublease by a Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705
Government Regulation of Real Property . . . . . . . . . . . . 706
Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706
Rent Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
Antidiscrimination Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708
Critical Legal Thinking Case • Eminent Domain • Kelo v. City
of New London, Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . 708
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 709
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 710
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
Introduction to Family Law, Wills, and Trusts����������������� 713
Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
Marriage Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714
Common Law Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714
Contemporary Environment • Same-Sex Marriage . . . . . . . . . . . . . 714
Termination of a Marriage . . . . . . . . . . . . . . . . . . . . . . 715
Annulment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Divorce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Divorce Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715
Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716
Contemporary Environment • Prenuptial Agreement . . . . . . . . . . . 716
Division of Assets upon Divorce or Annulment . . . . . . . . 717
Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
Marital Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718
Division of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Spousal and Child Support . . . . . . . . . . . . . . . . . . . . . . 719
Spousal Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Child Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719
Child Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720
Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
Requirements for Making a Will . . . . . . . . . . . . . . . . . . . . . . . . 721
Attestation by Witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
Amending and Revoking Wills . . . . . . . . . . . . . . . . . . . . . . . . . 723
Joint and Mutual Wills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Special Types of Wills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Simultaneous Deaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Probate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723
Testamentary Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
Lineal Descendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
Ademption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
Intestate Succession . . . . . . . . . . . . . . . . . . . . . . . . . . 726
Irrevocable Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Inter Vivos Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Testamentary Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
Living Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
Benefits of a Living Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
Funding and Operation of a Living Trust . . . . . . . . . . . . . . . . . . 729
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
xxiv Contents
Undue Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730
Case 39.1 • State Court Case • Undue Influence • In re Estate
of Haviland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730
Living Will and Health Care Directive . . . . . . . . . . . . . . 731
Living Will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731
Health Care Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731
Critical Legal Thinking Case • Assisted Suicide • Gonzales,
Attorney General of the United States v. Oregon . . . . . . . . . . 732
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 732
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 733
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Part IX Accounting Profession . . . 735
40 Accountants’ Duties
and Liability . . . . . . . . . . . . . . . . . . 736
Introduction to Accountants’ Duties and Liability ��������� 737
Public Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737
Limited Liability Partnership (LLP) . . . . . . . . . . . . . . . . . . . . . 737
Accounting Standards and Principles . . . . . . . . . . . . . . 738
Generally Accepted Accounting Principles (GAAPs) . . . . . . . . 738
Generally Accepted Auditing Standards (GAASs) . . . . . . . . . . 738
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
Auditor’s Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
Disclaimer of Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
Accountants’ Liability to Their Clients . . . . . . . . . . . . . . 739
Liability to Clients: Breach of Contract . . . . . . . . . . . . . . . . . . . 739
Liability to Clients: Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740
Liability to Clients: Accounting Malpractice (Negligence) . . . . 740
Accountants’ Liability to Third Parties . . . . . . . . . . . . . 740
Liability to Third Parties: Ultramares Doctrine . . . . . . . . . . . . . 740
Case 40.1 • State Court Decision • Ultramares
Doctrine • Credit Alliance Corporation
v. Arthur Andersen & Company . . . . . . . . . . . . . . . . . . . . . . . 741
Liability to Third Parties: Section 552 of the
Restatement (Second) of Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . 742
Liability to Third Parties: Foreseeability Standard . . . . . . . . . . . 742
Case 40.2 • Federal Court Case • Accountants’ Liability
to a Third Party • Johnson Bank v. George Korbakes &
Company, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742
Critical Legal Thinking Case • Accountants’ Liability •
Grant Thornton, LLP v. Prospect High Income Fund . . . . . . . . 743
Liability to Third Parties: Fraud . . . . . . . . . . . . . . . . . . . . . . . . . 744
Liability to Third Parties: Breach of Contract . . . . . . . . . . . . . . 744
Securities Law Violations . . . . . . . . . . . . . . . . . . . . . . . 744
Section 11(a) of the Securities Act of 1933 . . . . . . . . . . . . . . . . 744
Section 10(b) of the Securities Exchange Act of 1934 . . . . . . . . 745
Section 18(a) of the Securities Exchange Act of 1934 . . . . . . . . 745
Private Securities Litigation Reform Act of 1995 . . . . . . . . . . . 745
Ethics • Accountants’ Duty to Report a
Client’s Illegal Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
Criminal Liability of Accountants . . . . . . . . . . . . . . . . . 746
Criminal Liability: Section 24 of the
Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
Criminal Liability: Section 32(a) of the
Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . 746
Criminal Liability: Tax Preparation . . . . . . . . . . . . . . . . . . . . . . 747
Criminal Liability: Racketeer Influenced and
Corrupt Organizations Act (RICO) . . . . . . . . . . . . . . . . . . . . . . 747
Criminal Liability: State Securities Laws . . . . . . . . . . . . . . . . . . 747
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
Public Company Accounting Oversight Board (PCAOB) . . . . . . 748
Public Accounting Firms Must Register with the PCAOB . . . . . 748
Audit and Nonaudit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Audit Report Sign-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Certain Employment Prohibited . . . . . . . . . . . . . . . . . . . . . . . . 748
Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Accountants’ Privilege and Work Papers . . . . . . . . . . . . 749
Accountant–Client Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
Accountants’ Work Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 750
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 750
Ethics Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752
Part X Global Environment . . . . . 753
41 International and
World Trade Law���������������������������� 754
Introduction to International and World Trade Law��������� 755
The United States and Foreign Affairs . . . . . . . . . . . . . . 755
Foreign Commerce Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755
Treaty Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 756
United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
General Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Security Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
Secretariat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
United Nations Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758
International Court of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . 758
European Union (EU) . . . . . . . . . . . . . . . . . . . . . . . . . . 758
Global Law • International Monetary Fund (IMF) . . . . . . . . . . . . . . 759
Global Law • United Nations Children’s Fund (UNICEF) . . . . . . . . . 760
EU Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760
Global Law • World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
North American Free Trade Agreement (NAFTA) . . . . . . 762
Association of Southeast Asian Nations (ASEAN) . . . . . 764
Other Regional Organizations . . . . . . . . . . . . . . . . . . . . 766
Organization of the Petroleum
Exporting Countries (OPEC) . . . . . . . . . . . . . . . . . . . . . . . . . . 766
Dominican Republic–Central America
Free Trade Agreement (DR-CAFTA) . . . . . . . . . . . . . . . . . . . . 766
Other Regional Economic Organizations . . . . . . . . . . . . . . . . . 767
World Trade Organization (WTO) . . . . . . . . . . . . . . . . . . 767
WTO Dispute Resolution���������������������������������������������������������768
National Courts and International Dispute Resolution . . 768
Judicial Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768
Act of State Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769
Case 41.1 • Federal Court Case • Act of State Doctrine •
Glen v. Club Mediterranee, S.A. . . . . . . . . . . . . . . . . . . . . . . 769
Doctrine of Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . 770
Exceptions to the FSIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770
International Religious Laws . . . . . . . . . . . . . . . . . . . . . 771
Global Law • Jewish Law and the Torah . . . . . . . . . . . . . . . . . . . . 771
Global Law • Islamic Law and the Qur’an . . . . . . . . . . . . . . . . . . . 772
Global Law • Christian and Canon Law . . . . . . . . . . . . . . . . . . . . . 772
Global Law • Hindu Law—Dharmasastra . . . . . . . . . . . . . . . . . . . . 773
Key Terms and Concepts . . . . . . . . . . . . . . . . . . . . . . . 773
Critical Legal Thinking Cases . . . . . . . . . . . . . . . . . . . . 774
Ethics Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775
Appendix The Constitution Of The
United States Of America ��777
Case Index���������������������������������������������� 785
Subject Index���������������������������������������� 789
About the Author
Henry R. Cheeseman is professor emer-
itus of the Marshall School of Business
of the University of Southern California
(USC), Los Angeles, California.
Professor Cheeseman earned a bach-
elor’s degree in finance from Marquette
University, both a master’s in business
administration (MBA) and a master’s
in business taxation (MBT) from the
University of Southern California, a juris
doctor (JD) degree from the University
of California at Los Angeles (UCLA)
School of Law, a master’s d ­ egree with
an emphasis on law and economics from
the University of Chicago, and a mas-
ter’s in law (LLM) degree in financial
institutions law from Boston University.
Professor Cheeseman was director of the Legal Studies in Business Program at the
University of Southern California. Professor Cheeseman taught business law, legal envi-
ronment, and ethics courses in both the Master of Business Administration (MBA) and
undergraduate programs of the Marshall School of Business of the University of Southern
California. At the MBA level, he developed and taught courses on corporate governance,
securities regulation, mergers and acquisitions, and bankruptcy law. At the undergraduate
level, he taught courses on business law, the legal environment of business, ethics, business
organizations, cyber law, and intellectual property.
Professor Cheeseman received the Golden Apple Teaching Award on many occasions
by being voted by the students as the best professor at the Marshall School of Business of
the University of Southern California. He was named a fellow of the Center for Excellence
in Teaching at the University of Southern California by the dean of the Marshall School
of Business. The USC’s Torch and Tassel Chapter of the Mortar Board, a national senior
honor society, tapped Professor Cheeseman for recognition of his leadership, commit-
ment, and excellence in teaching.
Professor Cheeseman writes leading business law and legal environment textbooks that
are published by Pearson Education, Inc. These include Business Law: Legal Environment,
Online Commerce, Business Ethics, and International Issues; Contemporary Business Law; and
The Legal Environment of Business and Online Commerce. Professor Cheeseman has also
­co-authored a textbook entitled Contemporary Employment Law.
Professor Cheeseman is an avid traveler and amateur photographer. The i­nterior
­photographs for this book were taken by Professor Cheeseman.

xxv
This page intentionally left blank
Preface
New To The Eighth Edition
This edition of Contemporary Business Law is a significant
revision of Professor Cheeseman’s business law and legal
­environment textbook that includes many new cases, statutes,
and features.
New U.S. Supreme Court Cases
More than 12 new U.S. Supreme Court cases, including:
• Shelby County, Texas v. Holder (Voting Rights Act)
• United States v. Windsor (federal Defense of Marriage Act
violates equal protection clause)
• Maryland v. King (taking DNA of person at time of
booking is reasonable search)
• Kiobel v. Royal Dutch Petroleum Company (Alien Tort
Statute does not permit lawsuit in federal court for alleged
crimes against humanity committed in another country)
• Thompson v. North American Stainless, LP (employer retalia-
tion violates Title VII)
• Mutual Pharmaceutical Company, Inc. v. Bartlett (federal
drug labeling law preempts state law)
• Brown v. Entertainment Merchants Association (state law
regulating violent video games violates free speech)
• Walmart Stores, Inc. v. Dukes (certification of a class
denied)
• Snyder v. Phelps (picketing near veteran’s funeral is pro-
tected free speech)
• Association for Molecular Pathology v. Myriad Genetics, Inc.
(naturally occurring segments of DNA is a product of na-
ture and is not patentable)
New State and Federal Court Cases
More than 40 new state and federal court cases, including:
• The Facebook, Inc. v. Winklevoss (settlement agreement
reached by founders of Facebook is enforced)
• United States v. Barrington (undergraduate student con-
victed of computer crimes for changing students’ grades
on university’s internet grading system)
• Hubbert v. Dell Corporation (content reached by hyper-
links in licensing agreement is part of the contract)
• National Labor Relations Board v. Starbucks Corporation
(Starbucks Corporation engaged in unfair labor practices)
• Does I-XI, Workers in China, Bangladesh, Indonesia,
Swaziland, and Nicaragua v. Walmart Stores, Inc. (foreign
workers not intended beneficiaries of Wal-Mart’s con-
tracts with foreign suppliers)
• Chanel, Inc. v. Banks (Internet seller found subject to per-
sonal jurisdiction)
• McPadden v. Sidhu (directors of Delaware corporation not
liable for negligence because of liability waiver in corpo-
rate documents)
• V Secret Catalogue, Inc. and Victoria’s Secret Stores, Inc. v.
Moseley (tarnishment of a senior mark by a junior mark)
• Las Vegas Sands, LLC v. Nehme (casino marker is a nego-
tiable instrument)
• Mitchell v. Fortas Insurance Company (bad faith tort com-
mitted by insurance company)
• Rainey v. Domino’s Pizza, LLC (franchisor not liable for
an accident caused by franchisee’s delivery person)
• Intel Corporation v. Intelsys Software LLC (trademark
­infringement found)
• Stoll v. Xiong (unconscionable contract not enforced)
• Mance v. Mercedes-Benz USA (arbitration clause in auto-
mobile purchase contract enforced)
• Menendez v. O’Neill (sole shareholder of corporation not
liable for corporation’s liabilities)
• In re Estate of Haviland (undue influence on elderly man
in preparing estate documents)
• Yarde Metals, Inc. v. New England Patriots Limited
Partnership (parol evidence not admitted to change terms
of a ticketholder’s contract)
New Statutes
Coverage of recent federal statutes, including:
• Jumpstart Our Business Startups Act (JOBS Act) of 2012
• Stop Trading on Congressional Knowledge Act
(STOCKS Act) of 2012
• Leahy-Smith America Invents Act (AIA) of 2011
• Helping Families Save Their Homes Act of 2009
New Feature: “Critical Legal Thinking”
More than 15 new “Critical Legal Thinking Cases” have
been introduced to this edition to prompt students to con-
sider the policy implications of covered subject matters.
These include:
• Campaign Financing Law (Citizens United v. Federal
Election Committee)
• Class Action Waivers (AT&T Mobility LLC v.
Concepcion)
xxvii
xxviii Preface

• Sexual Harassment (Pennsylvania State Police v. Suders) • United Nations Children’s Fund (UNICEF)
• Exclusionary Rule (Arizona v. Gant) • Law in the Digital Age
• Cyber Piracy (BMG Music v. Gonzalez) • E-Commerce and the Commerce Clause
• Strict Liability (Domingue v. Cameco Industries, Inc.) • International Protection of Intellectual Property
• Eminent Domain (Kelo v. City of New London,
Connecticut)
• Assisted Suicide (Gonzales, Attorney General of the
United States v. Oregon)
Supplements That
More than seventy-five new “Critical Legal Thinking
Accompany The Eighth
Questions” have been placed in the margins. Edition
New Special Features on Ethics, Digital Law, For Instructors
Contemporary Environment, Business Environment, We offer a variety of supplements to meet the unique
and Global Law teaching needs of each instructor. Electronic versions of
More than 20 new special features, including: the supplements that accompany this text are available for
• Facebook’s IPO download at our Instructor Resource Center (www.pear-
• Foreign Intelligence Surveillance Court (FISA Court) sonhighered.com) and include the following:
• Crowd Funding and Funding Portals
• Emerging Growth Company (EGC) Instructor’s Manual
• Is Outsourcing of U.S. Jobs Ethical? Test Item File
• Delaware Corporation Law TestGen
• Veterans and Military Personnel Employment PowerPoint Presentation
Protections
 Preface xxix

To the Students
C ontemporary students have different needs than previous generations.
Having been exposed to the electronic world for your entire lives, you think,
learn, and process information in different ways than prior generations. This new
eighth edition of Contemporary Business Law and its electronic supplements have
been designed especially for your needs.
Many of you may be apprehensive about taking a law course because it may
seem daunting or different from studying many of your other courses. But it is
not. As you embark on your study of the law, you will know that this course pres-
ents the “real world,” that is, real legal disputes involving real people like your-
selves. The course also offers you an opportunity to develop your critical thinking
skills that will serve you in addressing legal and other issues that you may encoun-
ter. And lastly, learning the subject matter of this course will help you make more
informed and confident decisions in your business and personal life.
Each semester, as I stand in front of a new group of students in my business
law and legal environment classes, I am struck by the thought that I draw as much
from them as they do from me. Their youth, enthusiasm, and questions—and
even the doubts a few of them hold about the relevance of law to their futures—
fuel my teaching. They don’t know that every time they open their minds to look
at an issue from a new perspective or critically question something, I have gotten
a wonderful reward for the work I do.
I remind myself of this every time I sit down to work on writing and revising
Contemporary Business Law, as well. My goal is to present business law, the legal
environment, business ethics, and digital law in a way that will spur students to
ask questions, to go beyond rote memorization.
Business law is an evolving outgrowth of its environment, and the legal en-
vironment keeps changing. This new eighth edition of Contemporary Business
Law emphasizes coverage of online law and e-commerce as key parts of the legal
­environment. In addition, this book covers social, ethi-
cal, and global issues that are important to the study of
business law.
It is my wish that my commitment to these goals
shines through in this labor of love, and I hope you
have as much pleasure in using it as I have had in cre-
ating it for you.

Henry Cheeseman
This page intentionally left blank
Acknowledgments

When I first began writing this book, I was a solitary figure, researching cases online and
in the law library and writing text on the computer and by hand at my desk. As time
passed, others entered upon the scene—copy editors, developmental editors, research as-
sistants, reviewers, and production personnel—and touched the project and made it better.
Although my name appears on the cover of this book, it is no longer mine alone. I humbly
thank the following persons for their contributions to this project.

The Exceptional PEARSON PRofessionals

Many thanks to Bob Horan, Executive Editor; Karen Kirincich, Project Manager; Kaylee
Rotella, Editorial Assistant; and Ilene Kahn, Project Manager, for shepherding this eighth
edition through the many phases of editing and production with great care and attention.
I would especially like to thank the professionals of the sales staff of Pearson, particu-
larly all the knowledgeable sales representatives, without whom the success of this text-
book would be impossible.

Personal Acknowledgments
My family
I would like to dedicate this book to my wife, Jin Du.
I thank my parents—Henry B. and Florence, deceased—who had a profound effect on
me and my ability to be a professor and writer.
I also thank other members of my family, particularly my twin brother, Gregory, with
whom a special bond exists. And the importance of the rest of my family, including my
sister, Marcia, deceased, Gregory’s wife, Lana, my nephew, Gregory, and niece, Nicky,
and their children, Lauren, Addison, and Shelby.

Colleagues
Certain people and colleagues are enjoyable to work with and have made my life easier as
I have endeavored to write this new eighth edition of Contemporary Business Law. I would
like to thank Kerry Fields, my colleague in teaching business law courses at USC, who
is an excellent professor and a wonderful friend. I would also like to thank Helen Pitts,
Debra Jacobs, Terry Lichvar, and Jean Collins, at the Marshall School of Business, who do
so much for me and are always a joy to work with.

Reviewers
The author and publisher would like to acknowledge the following reviewers for their time
and valuable feedback:

Denise Bartles, Western State College

Eli Bortman, Babson College
Chester Brough, Utah State University
John Bryan, Bridgewater State College
Greg Cermignano, Widener University
Nigel J. Cohen, University of Texas, Pan American

xxxi
xxxii Acknowledgments

Stefan Defebaugh, Eastern Michigan University

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

Author’s Personal Statement

While writing this Preface and Acknowledgment, I have thought about the thousands of
hours I have spent researching, writing, and preparing this manuscript. I’ve loved every mi-
nute, and the knowledge gained has been sufficient reward for the endeavor.
I hope this book and its supplementary materials will serve you as well as they have
served me.
With joy and sadness,
emptiness and fullness,
honor and humility,
I surrender the fruits of this labor
Henry R. Cheeseman
 Part I
Legal, Ethical, and
Digital Environment

1
1 Legal Heritage
and the Digital Age

▲ Statue of Liberty, New York Harbor The Statue of Liberty stands majestically in New
York Harbor. During the American Revolution, France gave the colonial patriots substantial
support in the form of money for equipment and supplies, officers and soldiers who fought in the
war, and ships and sailors who fought on the seas. Without the assistance of France, it is unlikely
that the American colonists would have won their independence from Britain. In 1886, the
people of France gave the Statue of Liberty to the people of the United States in recognition of
the friendship that was established during the American Revolution. Since then, the Statue of
Liberty has become a symbol of liberty and democracy throughout the world.

Learning Objectives
After studying this chapter, you should be able to:
1. Define law. 4. List and describe the sources of law in the United States.
2. Describe the functions of law. 5. Discuss the importance of the U.S. Supreme Court’s
3. Explain the development of the U.S. legal system. ­decision in Brown v. Board of Education.

Chapter Outline
➤ Introduction to Legal Heritage and the ➤ Schools of Jurisprudential Thought
Digital Age Global Law • Command School of Jurisprudence of Cuba
➤ What Is Law? ➤ History of American Law
Landmark U.S. Supreme Court Case • Brown v. Board Landmark Law • Adoption of English Common Law in America
of Education Global Law • Civil Law System of France and Germany

2
Another random document with
no related content on Scribd:
[Contents]

ITZPAPALOTL = “OBSIDIAN KNIFE BUTTERFLY”

Area of Worship: Originally Chichimec tribes; Mexican Plateau.

Relationship: Associated with Mixcoatl and the Centzon Mimixcoa; one of the Tzitzimimê.
Symbols: The butterfly; Mixcoatl’s stone knife.
Compass Direction: Earth (?).
Calendar Place: Ruler of the sixteenth day, cozcaquauhtli; of the fifteenth “week,” ce calli.

ITZPAPALOTL.

(Stone of Aristides Martel.)

 XILONEN. (Sahagun
MS.)
ZAPOTLANTENAN.
See p. 228. (Sahagun MS.)

See p. 228.

ASPECT AND INSIGNIA

Codex Vaticanus B.—Sheet 92: In this representation and on the sheet devoted to the fifteenth
tonalamatl division and its ruler, Itzpapalotl is depicted as furnished with human teeth, but is
predominantly animal in form, retaining, however, certain peculiarities which indicate the intention that
she should be regarded as an insect. She displays a kind of butterfly wing, edged round with stone
knives. Above her is figured the flowering tree broken in the middle from which blood flows. This symbol
denotes the Tamoanchan, or House of Descent, the region of the mythical west, home of the maize-
plant and seat of the primeval gods, where the wandering tribes were said to have made a long sojourn.
In sheet 63 she is represented as standing upon a platform, which seems to be covered with a symbolic
leaf—perhaps that on which butterflies are most usually found. She has a dark body edged with white,
and the claws and face are flecked with ulli rubber gum. The head is an adaptation of that of Tlaloc, and
a short, wheel-shaped wing occupies the back from nape to tail-root.

Codex Borgia.—Sheet 11: In this place the goddess is depicted as a woman with jaguar claws on hands
and feet. The facial painting is like that of Tlauizcalpantecutli, but the [224]features are those of the
Death-god—a skull with a stone-knife nose. She wears a collar with the form and colouring of a
butterfly’s wing, and her dress is set with stone knives at prominent points. She is accompanied by an
animal of rapacious aspect, perhaps a jaguar or ocelot.

Codex Telleriano-Remensis.—A butterfly with antennæ and wings acts as a naualli, or disguise (a kind
of helmet-mask), to a female figure which has death’s-head teeth, animal claws on the hands and feet,
and a blue-coloured disk on the cheek. As in Codex Borgia, this face has a stone knife on the nose, a
collar studded with stone knives, and on the head the warrior’s forked heron-feather ornament. The
crown is of dark feathers, the sombreness of which is lightened by quetzal plumes and a loin-cloth like
that of the Ciuateteô or Ciuapipiltin, the dead women who had perished in childbed, and who were
regarded as partaking of the nature of warriors. The end of the loin-cloth and skirt is trimmed with a hem
of teeth. As a back-mirror she wears a death’s-head, below which hangs a “star-skirt,” to the plaited
thongs of which rattling snail-shells are attached.

Aubin-Goupil Tonalamatl (15th Division).—Here the goddess looks out of a butterfly helmet-mask. Her
face is painted a red colour and she is decorated with dark plumage on arms and legs. She has a snail-
shell before her face, and wears a gold disk on the breast. Opposite her are a broken tree and a
beheaded captive, whose body spouts two streams of blood in the shape of snakes’ heads. She is
seated on a throne ornamented with small disks.

Codex Borbonicus.—Here the goddess is pictured as a demon of darkness, tzitzimitl, who descends
from heaven in the form of an eagle.

Bas-relief.—A bas-relief, known as the stone of Aristides Martel, represents the goddess as in the act of
flight, and agrees with the representations of her in the Codex Telleriano-Remensis and the Codex
Borbonicus. The face is intended to represent that of an insect with round eyes and almost reptilian
mouth, and the headdress is flat and covered with feather balls. The hands and feet are furnished with
long [225]claws. In this place the feather-marking of the goddess presents a distinctly serpentine
appearance and she is surrounded by serpent motifs, between the folds of which is seen the cross-
hatching symbolical of these reptiles.

MYTHS

The interpreter of Codex Telleriano-Remensis regards Itzpapalotl as a male deity, probably because, like
the Ciuateteô or women who died in childbed, who were regarded as the equals of the warriors, she
wore a male loin-cloth. He says: “He was called Xounco and after he sinned Yzpapalotle. The sign of
this name is a Knife of Butterflies, and accordingly he is surrounded with knives and wings of butterflies;
for they say that he sometimes appears to them, and that they only see feet resembling those of an
eagle. Yzpapalotle was one of those who fell from heaven with the rest, whose names are the following:
Queçalcoatle, Ochululuchesi, Tezcatlipoca, Caleteotle, and Hatzcanpantecoatl.”

The interpreter of the Codex Vaticanus A also labours under a misapprehension regarding Itzpapalotl’s
sex. He states: “Yxpapalotl signifies a knife of butterflies. He was one of those gods who, as they affirm,
was expelled from heaven; and on this account they paint him surrounded with knives and wings of
butterflies. They represent him with the feet of an eagle, because they say that he occasionally appears
to them, and they only see the feet of an eagle. They further add that, being in a garden of great delight,
he pulled some roses, but that suddenly the tree broke and blood streamed from it; and that in
consequence of this they were deprived of that place of enjoyment and were cast into this world
because Tonacatecutli and his wife became incensed, and accordingly they came some of them to the
earth, and others went to hell. He presided over these thirteen signs; the first of which the house (calli)
they considered unfortunate, because they said that demons came through the air on that sign in the
figure of women such as we call witches, who usually went to the highways, where they met in the form
of a cross.” [226]

In the song to Tlazolteotl, the fourth of the Sahagun series, we find the following strophes relating to
Itzpapalotl:

The stone-knife butterfly

Who hovers over the cactus.
Her food is on the Nine Plains,
She was nurtured on the hearts of deer,
Our mother, the Earth-goddess.

The reference to the Nine Plains alludes to the circumstance that Itzpapalotl is a goddess of the
Chichimec, or hunting people. The two first lines of this song are translated by Seler as follows:

“O, she has become a goddess of the melon cactus,

Our mother Itzpapalotl, the Obsidian Butterfly.”

The inference in these lines seems to be that whereas Itzpapalotl was formerly the goddess of a hunting
tribe who sacrificed deer to her, she has now become the deity of the cultivated field and a settled
agricultural community. This hypothesis would appear to gain strength from the text of the Anales de
Quauhtitlan, where Itzpapalotl is spoken of as the foundress of the oldest Chichimec kingdom in
Nequameyocan, “Place of the Wild Agave.” Camargo states 66 that the tribes issuing from Chicomoztoc,
“The Seven Caves,” first came to Mazatepec, “The Deer Mountain,” then to the province of Tepeueuec,
where a victim was sacrificed to Itzpapalotl by shooting him with arrows, a circumstance which in itself
proves the goddess to have been associated with the earth.

NATURE AND STATUS

Like Mixcoatl, with whom she is closely associated, Itzpapalotl appears to have been originally one of
the ancient stellar and lightning deities of the Chichimec or nomadic tribes of the northern plains. Later,
on the abandonment of the hunting mode of subsistence and the acceptance of a more settled and
agricultural mode of life by the tribes who worshipped her, Itzpapalotl would appear (as the allusion to
[227]her in the song to Tlazolteotl seems to show) to have become a goddess of the food-supply, the
melon-patch, and the maize-crop. She was one of the Tzitzimimê, or demons of darkness, and as such
symbolically took insect shape (cf. Xochiquetzal as a spider), but beneath her butterfly form there lurks
the symbol of the old, fierce earth-mother with claws and merciless, protruding teeth, which were
originally evolved from those of the cipactli, or earth-monster. It seems to me also that she bears about
her the marks of the deer, and at this I am not surprised, as I am convinced that in many lands the deer
is regarded as a surrogate of the dragon, and is thus frequently associated with fire and water. Indeed,
in places, Itzpapalotl is tacitly identified with the mythical deer Itzcuêyê, 67 the captive and wife of
Mixcoatl.

That Itzpapalotl is associated with fire is probable, and we know from the song that she was nurtured on
the hearts of deer. From her association with the obsidian cult and the fact that she is closely connected
with Mixcoatl, whose obsidian knife is her symbol, I should not be surprised to find further evidence that
she is in some manner identified with the lightning, the heavenly fire, or the stars. Again, we know that
the butterfly was in some measure associated with the Ciuateteô, the women who died in childbed. We
know, too, from Sahagun’s account that at the festival of the Ciuateteô the people offered cakes
stamped with a butterfly and S-shaped cakes to these spirits, to represent the lightning. In Codex
Telleriano-Remensis, Itzpapalotl wears the male loin-cloth, like the Ciuateteô, and in Codex Vaticanus B
(sheet 92) there is represented near her a flowering tree broken in the middle and spouting blood, the
glyph or symbol of Tamoanchan, the paradise of the west, where dwelt the Ciuateteô. In the Mexican
mind the gaudy hues of the butterfly may have become associated with the brilliance of the western sky
at sunset, and this may account for the connection which undoubtedly exists between Itzpapalotl and
the western home of the Ciuateteô. Again, the insect may [228]typify the frivolous nature of these dead
women. 68 However, the precise significance of this goddess is by no means easy to arrive at, and in any
case is composed of elements of considerable obscurity and diversity. 69

Tezcatlipocâ, it may be recalled, is “the obsidian snake.” His obsidian sandals in some MSS. bear the
zigzag lines of the snake and, as has already been said, the footgear is frequently eloquent of the name
or character of a person or divinity in Mexican painting. In Itzpapalotl we seem to see another deity of
the obsidian cult. Certain of her pictures as a butterfly are, as has been indicated, of dragon-like aspect,
and we know that the butterfly is in some countries a surrogate of the dragon. Is obsidian to be regarded
as the “bones” of the cipactli, the earth-beast or dragon?

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ZAPOTLANTENAN = “MOTHER OF ZAPOTLAN”

Area of Worship: Mexico; Zapotlan.

Symbol: The eagle-feather.

ASPECT AND INSIGNIA

Sahagun MS. (Biblioteca del Palacio).—Behind the region of the chin and on the front part of the neck
the goddess has a black, almost beard-like painting. She wears a crown of paper flecked with ulli gum,
and decorated at the top with quetzal-feathers. Her collar is of chalchihuitl stones and she wears a plain
overdress and skirt edged with horizontal bands, connected by slanting strips. Her feet are sandalled,
and her shield has the insignia of the eagle-feather. In her hand she carries the rattle-staff of the Rain-
god.

PRIESTHOOD

Sahagun states (Appendix to bk. ii) that Zapotlantenan had a special high-priest, the Zapotlan
teohuatzin, who was charged with making all the necessary arrangements for the [229]festival of that
goddess, such as procuring a supply of paper, copal, ulli, and odoriferous plants for incense. Clavigero
says that she was annually honoured with the sacrifice of human victims and with particular hymns
composed in her praise. 70

NATURE AND STATUS

Sahagun states 71 that she was said to have been the inventor or discoverer of turpentine, which was
used in Mexico for medicinal purposes, and it seems probable that she may have been revered as a
goddess of medicine. Clearly she is also an earth-goddess of the people of the populous valley of
Zapotlan, on the other side of the Otomi country, adopted into the Mexican pantheon, but having no
place in the calendar.

[Contents]

ILAMATECUTLI = “THE OLD PRINCESS”

Area of Worship: Tehuacan (?); Cozcatlan (?); Chichimec.

Minor Names:
Citlallinicue = “She of the Starry Skirt.”
Cozcamiauh = “Necklace of Maize.”
Calendar Place: Thirteenth of the lords of the day-hours.
Compass Direction: The Middle.
Festival: Tititl (“stretching of limbs”) in the seventeenth month.
Relationship: Spouse of Iztac Mixcoatl; variant of Tonacaciuatl or Ciuacoatl.

ASPECT AND INSIGNIA

Codex Borgia.—Sheets 9, 11: In this representation the goddess is shown with hair composed of heron-
feathers and wearing a white garment. In the pictures of this codex the contracted corners of her mouth,
due to old age, are indicated by a ring-shaped ornament worn below the upper lip.

Codex Borbonicus.—She has a skeleton’s head, which differs from that of the Death-god in that it is
coloured yellow, with red lines instead of black, but shows a similarity to it in the ruffled “night-hair” with
which it is covered. In most of the pictures of her in this codex her blue dress is dotted with [230]circular
white spots which are perhaps intended for stars. This garment is completed with thongs, from which
depend snail-shells, a decoration also seen in the rattling girdle ornaments (citlalicue) characteristic of
the Earth and Underworld goddesses.

MYTHS

According to the myth related by Motolinia, 72 Ilamatecutli or Ilancuêyê, as he designates her, was the
wife of Iztac Mixcoatl (q.v.), with whom she dwelt in Chicomoztoc, “the land of the seven canes,” the
mythical officina gentium of the Mexican tribes, whence the aboriginal ancestors of the several races of
Mexico were supposed to have had their being. By a second wife, Chinamatl, or Chimalmat, Iztac
Mixcoatl became the father of Quetzalcoatl.

FESTIVAL
Tititl (“Stretching of Limbs”).—This festival was held in the Kalends of the seventeenth month, probably
about December 19. 73 A female slave was bought by the authorities and dressed as follows: She wore
an upper garment or peplum of white stuff and a skirt of the same colour, beneath which showed the
citlalicue, or star-skirt, of the goddess, a dress sprinkled with stars, cut at the ankles in the shape of
many thongs, from each of which hung a small shell, so that when she walked these came together and
made a rattling sound. Her sandals were white and she bore a shield whitened with chalk, having a
design of eagle’s feathers in the centre. Fringes of heron’s feathers terminating in eagle’s plumes hung
from the lower edge of the shield. In the other hand she carried the tzotozopaztli, a wooden knife, used
for pressing cloth. Her face was painted black and yellow. Her hair was dressed in the form known as
tzompilinalli, or “hair tied at the temples,” and eagle’s plumes fell from it behind.

Before the victim was dispatched they made her dance to the sound of instruments played by old men,
which mingled [231]with the chanting of the priests. The wretched woman wept and sobbed as she
danced, and as evening approached she was taken to the temple of Uitzilopochtli, accompanied by all
the priests wearing their insignia and the masks of their gods, one of which was that of Ilamatecutli. On
arriving at the summit of the teocalli, or pyramid-temple, she was immediately slain, her heart was torn
out and she was decapitated. The head was given to the priest attired in the insignia of the goddess,
who held it in his right hand by the hair, and engaged in a dance, raising and lowering the horrid trophy,
and in this solemn measure he was accompanied by the priests who represented the other divinities.
They then descended the steps of the teocalli in procession, and sought their quarters.

The priest of Ilamatecutli carried a great cane, the stock of which had three roots. The mask of the
goddess which he bore had two faces with “great mouths, bulging eyes, and surmounted by a crown of
paper cut into sharp points.” The priests, disguised as gods, having entered the calpulli, or priests’
quarters, a priest descended from the teocalli dressed as a young exquisite, wearing a splendid cloak,
his head decorated with white plumes and wearing in place of sandals the hoofs of a deer. He carried in
his hand a leaf of the maguey, surmounted by a little paper banner. He proceeded to the quauhxicalco,
a place of sacrifice principally associated with human offerings to Tezcatlipocâ, where there was a small
cage made of pine-wood and covered with paper, and known as “the granary of Ilamatecutli.” The priest
laid the maguey-leaf in this receptacle and then set the whole on fire. Seeing this, the other priests
rushed to the summit of the teocalli. This ceremony was known as the xochipayna, or “flower-running.”
Placing on high a flower called teoxochitl, or “blossom of the god,” the first who gained the eminence
seized upon it and cast it upon the quauhxicalco where the “cage” burned. Upon the following day the
men and boys made little sacks, which they filled with flowers or paper, and with these they skirmished
with one another and beat the young girls who chanced to pass by. [232]

The purpose underlying this celebration is obscure. The costume worn by the victim is, of course, that of
the goddess herself, and we may, perhaps, infer that the wooden knife she carried, the purpose of which
was to press cloth, was symbolical of one of the domestic duties of the older women, whom she appears
in a measure to have represented. The exercise of dancing to which the victim was subjected seems to
bear reference to the name of the festival, tititl, the “stretching of limbs,” and its purpose was probably to
ensure vigour and “liveliness” in the earth or soil, for it was about this period that the winter solstice
occurred and the labours of the field were renewed. The Earth-mother must, therefore, stretch her limbs
ere she once more took up the great task of growth. 74

The decapitation of the slave girl was probably a dramatic-mythical representation of the reaping of the
maize. The “great cane” borne by the priest of Ilamatecutli was, of course, the magic rain-rattle, so
prominent an adjunct to many Mexican religious ceremonies. The “young exquisite” we must surely
explain as a representative of vegetation, his deer’s-hoofs sandals having, perhaps, a pluvial
significance, or else indicating the swift growth of the maize-plant, which takes but four months to ripen.
The burning of the maguey-leaf in the granary would seem to indicate the end of the season of
vegetative luxuriance and the commencement of that of domestic fires, and the casting of the sacred
blossom into the flames probably possessed a similar significance.

NATURE AND STATUS

Ilamatecutli was unquestionably a goddess of the primeval time, as her aged appearance in the
manuscripts, her association [233]with Iztac Mixcoatl, the old Chichimec god, and her connection with fire
would lead us to suppose. She is primarily a goddess of the earth and of maize. Her stellar connection
and her name Citlallinicue (Star Skirt) are eloquent of her Chichimec derivation, and she may represent
the starry night sky, or possibly the Milky Way, just as does her mythical husband, and in this she
connects with Tonacaciuatl. As an earth-goddess she has also a plutonic significance and can be
equated with Mictecaciuatl, mistress of Hades, in this resembling many other earth-goddesses. Again,
she is the “old goddess” par excellence, patroness of old women, and worker at the metate, or stone on
which the maize cakes were, and still are, made by Mexican women. Her connection with fire proves her
relative antiquity. The circumstance that her mask is described as being two-faced leads me to believe
that her idol or image had been evolved from the “Kirn-baby,” or doll made at harvests out of the last
sheaf of grain and furnished with a face and hands, frequently with two faces, in order that it should not
prove of bad omen to those following the image in procession. In this respect Ilamatecutli is similar to
Chicomecoatl (q.v.). [234]

1 Tonalamatl of the Aubin-Goupil Collection, 1900–1901. ↑

2 This circular patch with the centre punched out is worn by the women of more than one Asiatic country. ↑
3 Sahagun, Bks. viii and x. ↑
4 By Seler, in Commentary on Aubin Tonalamatl, p. 93. ↑
5 Sahagun, bk. i, c. xii. ↑
6 As regards these translations of hymns throughout the work, some have been translated by me from the Mexican
originals, others have been translated from the German of Seler. Like that authority I have not received any enlightenment
from Brinton’s “translations” in his Sacred Chants of the Ancient Mexicans. ↑
7 Bk. ii, c. xxx; see also Torquemada, bk. x, c. xxxv. ↑
8 Pyramid temple. ↑
9 Seler, Commentary on Vaticanus B, p. 262, believes the ceremony to refer to the parturition of the goddess, who gives
birth to Cinteotl, although he at first elucidated the ceremony as here indicated. Seler confounds the postures of sexual
intercourse and parturition. ↑
10 See picture in Codex Borbonicus. ↑
11 As do Aphrodite, and other goddesses of love. ↑
12 It is equally the symbol of the fertility-pot. ↑
13 Bk. ii, c. xxiii. ↑
14 Lib. x, c. xiii. ↑
15 A species of wild laurel. ↑
16 The custom of wearing a mask of the deity worshipped (in this case the slain woman represented the goddess) is
widespread. ↑
17 Sahagun, bk. ii. ↑
18 Appendix to bk. ii. ↑
19 Who, like several of the older Spanish authorities, regarded Cinteotl as a goddess, a belief now exploded. See vol. i, bk. vi
(English translation). ↑
20It might be quoted against this view that the lewd life of pleasure of which Xochipilli and Macuilxochitl are the representative
results in that death which is the child of sin, and that these gods are therefore “brothers” to Cinteotl in this especial
connection. Seler, Comm. Codex Fej.-Mayer, p. 66; Comm. Codex Vat. B, pp. 207–208. ↑
21 Sahagun, bk. ix, c. xvii. ↑
22 Sahagun MS. ↑
23At the festival of Demeter, with whose worship the serpent was connected, the earth was struck with rods by the priest
who called upon the goddess. This is also done during the act of divination among the Zulus, when they call upon spirits.
See Callaway, Izinyanga Zokubula, p. 362. ↑
24 Lib. ii, c. ii. ↑
25 Brasseur de Bourbourg, Hist. Nat. Civ. du Mex. (quoting a Cakchiquel MS.), vol. i, p. 248. ↑
26 Bk. i, c. vi. ↑
27 Sahagun, bk. i, c. vi. ↑
28 Idem, bk. 2, Appendix. ↑
29 Idea, p. 27; vol. i, pp. 419 ff. ↑
30 See Introduction, pp. 14, 16. ↑
31 See Uitzilopochtli, pp. 73 ff. ↑
32 Bk. i, c. xix. ↑
33 Idea, pp. 63–66. This myth seems to me to show vestiges of a belief in the theory of the transmigration of souls, and to
indicate that the ascetic, almost on the borders of what is known in Buddhistic belief as “arahatship,” or promotion to a
higher life, was condemned for his lapse to recommence existence once more under a low form of life. ↑
34 Bk. i, c. xix, appendix. ↑
35 See Appendix in the Tonalamatl, “Day-signs.” ↑
36 A diacritical point. ↑
37 Bk. x, c. xxxv. ↑
38 Bk. x, c. xxxi. ↑
39 Seler, Commentary on Aubin Tonalamatl, p. 119. ↑
40 Seler, Commentary on Codex Vaticanus B, p. 161. ↑
41 But see the song to Cinteotl in the portion dealing with that god, which in a manner refers to Xochipilli. ↑
42 Commentary on Aubin Tonalamatl, p. 87. ↑
43 Bk. i, c. xiv. ↑
44 Cronica Mexicana. See picture of Axayacatl in Boban’s catalogue of the Goupil collection, Paris, 1891, pp. 14, 15. ↑
45 The best authority on Xipe’s costume is Sahagun (Mexican MS.). ↑
46 Baring-Gould, Curious Myths of the Middle Ages, pp. 417 ff. ↑
47 Sahagun, bk. v, c. xiii. ↑
48 Werenfels, Dissertation upon Superstition, p. 6 (London, 1748). Bancroft, Native Races of the Pacific States, vol. ii, pp.
719 ff. ↑
49 Roscher, Über Selene und verwandtes (Leipzig, 1890), pp. 49 ff. ↑
50 Pliny, Nat. Hist., vol. ii, p. 223; Payne, Hist. New World, vol. i, p. 495. ↑
51 Or calpulli, a muster-place at several festivals. ↑
52 “They who seize the head,” alluding to the custom of taking the victims by the hair. ↑
53Sahagun states that the “hair” of the uauantin was kept as a trophy. This seems to me analogous to the North American
Indian custom of scalping, which is sometimes spoken of as “losing one’s hair,” a phrase which, through its use among
American border fighters, has passed into slang. ↑
54 Tezcatlipocâ took the form of a coyote and lay in wait for travellers. Sahagun, bk. v, c. xiii. ↑
55 Or coyote. ↑
Sahagun, bk. ii, Appendix. ↑
56 57 Sahagun, bk. ii, Appendix. ↑
58 Seler, Commentary on Codex Vaticanus B, p. 175. ↑
59 Decade iii, lib. iii, c. xv. ↑
60 Tezozomac, Cronica Mexicana, c. xci. ↑
61 J. Lecœur, Esquisses du Bocage Normand, vol. ii, p. 240. ↑
62 Athenæus, vol. ix, 47, p. 392 d. ↑
63 Religion of the Semites, new edition, 1914, p. 469. ↑
64 Bk. ii. c. viii. ↑
65 Bk. x, c. xix. ↑
66 Hist. de Tlaxcallan, c. v. ↑
67 This deer is two-headed; so is Quaxolotl a variant of Chantico, the Fire-goddess, with whom Itzpapalotl seems to have
many points of resemblance. ↑
68 See Xochipilli. ↑
69 In some myths of the Old World the butterfly is the soul or ghost. This would explain her connection with the Ciuateteô, or
dead women. ↑
70 Vol. i, bk. vi (English translation). ↑
71 Bk. i, c. ix. ↑
72 Hist. de los Indios de la Nueva España (Epistola Proemial). ↑
73 Sahagun, bk. ii., c. xxxvi; Torquemada, bk. x, c. xxix. ↑
74It occurred to the writer that the expression tititl may have had reference to the act of sexual impregnation, as in the case
of Tlazolteotl (q.v.), who “widens herself, stretches herself out” at the foot of the teocalli of Uitzilopochtli, when she is
impregnated by that deity. This consideration scarcely seems to apply to the present instance, however, and that indicated
above appears preferable. ↑
[Contents]
CHAPTER VI
 THE GODS OF RAIN AND MOISTURE

[Contents]

INTRODUCTORY

The gods of rain proper are clearly to be distinguished from the gods of grain and growth,
although they were regarded by the ancient Mexicans as stimulating vegetable plenteousness.
That they were paramount in the practical theology of the rain-cult 1 is evident, for, whereas
Quetzalcoatl was regarded in one of his phases as the deification of the rain-making priest,
Tlaloc and the Tlaloquê possessed the entire disposition of the rainfall. Sahagun’s remarks
upon Quetzalcoatl make it clear that in this connection he was regarded as a wind-god who
swept the way clear for the rain-gods, or ushered in the rains. Myth related how Quetzalcoatl,
the first discoverer of the maize, was robbed of his find by Tlaloc, who afterwards had the
governance over its growth and distribution. Although the high-priest of the Mexican hierarchy
was called by the name of Quetzalcoatl, the prelate next in importance to him bore the name of
Tlaloc.

Although Quetzalcoatl was above all regarded by the Aztecâ as a god of wind, evidence is not
lacking that to some extent he was looked upon as a rain-god, or at least a rain-bringing god.
But the overwhelming superiority of the Tlaloquê in this cult is witnessed to by the fact that out
of eighteen great seasonal festivals, no less than five were dedicated to them. 2

Those of the Tlaloquê, or gods of rain, whose names are [235]known were: Tlaloc, the father of
all, Chalchihuitlicue, his wife and sister, Nappatecutli, god of the mat-makers, who used aquatic
reeds in their work, Atlaua, “Lord of the Beaches” or lake shores, Uixtociuatl, goddess of salt,
and Opochtli, god of fishers and fowlers, and inventor of the net.

Concerning the Tlaloquê Sahagun remarks: “The Mexicans take for gods all those high
mountains from which the rain comes in the rainy season, and for each of these they imagine
an idol.… They also believe that certain maladies proceeding from cold have their origin in the
mountains and that these gods have the power to visit them upon them. Those who were
attacked by such complaints made a vow to this or that mountain, whichever chanced to be in
the neighbourhood, or that for which they entertained the most devotion. A similar vow was
made by persons on the point of being drowned in the rivers or in the sea. The maladies for
which they made these vows were gout in the hands, feet, or any other part of the body,
impotence in any member, or in the entire body, rheumatism, the contraction of the members or
cramp. Those who were visited with these maladies made a vow to raise a statue to the
following gods: to the idols of the volcano called Popocatepetl in the Sierra Nevada, to a
mountain named Poyauhtecatl, or any other to which the feeling of devotion inclined them.
When they proposed to offer up to the mountain or gods, they made an image in human form,
a mass called tzoalli.” 3 These the people did not make themselves, but called in the offices of
those priests skilled in the making of idols, who moulded them out of the paste and gave them
teeth of calabash pips and eyes of haricot beans. The rest of the process of manufacture is as
described in the account of the festival of the atemoztli (see Tlaloc). These small figures were
known as tepictoton, and, like the sacrificial victims to the rain-gods, their hair was dressed in
two horns or whorls.

[Contents]

TLALOC = “HE WHO MAKES THINGS SPROUT”

Area of Worship: Plateau of Anahuac.

Minor Names: Chicunaui Ocelotl = “Nine Jaguar” (or ocelot). [236]
Calendar Place: Ruler of the seventh day-count, mazatl (deer), and of the seventh
tonalamatl division, ce quiautl (one rain).
Compass Direction: The four quarters in his several aspects.
Festivals: Atlacahualco, tozoztontli, etzalqualiztli, tepeilhuitl, atemoztli.
Symbols: His head, with serpentine motif and tusks; the day-sign nine ocelot.
Relationship: Husband (1) of Xochiquetzal; (2) of Matlalcuêyê or Chalchiuhtlicue. Father
or brother of the Tlaloquê.
 (From Codex Magliabecchiano, 3 fol., sheet
89.)

(From Codex Magliabecchiano, 3 fol., sheet 34.)

FORMS OF TLALOC.

ASPECT AND INSIGNIA

The evolution of the familiar and characteristic face of Tlaloc is perhaps best exemplified in a
stone statuette included in the Uhde collection in the Royal Ethnological Museum, Berlin. In this
striking example of the Mexican sculptor’s art a representation of the face of the god is skilfully
contrived by the arrangement of two snakes or serpents, the tails of which form eye-orbits and
a species of nose, the reptiles’ heads meeting in the region of the mouth, their fangs thus
serving the god for teeth. It is rarely in aboriginal art that a conception so individual and striking
is encountered, and great imaginative ability must be conceded the sculptor who conceived it.
It is not known whether the later pictures and carvings of Tlaloc were evolved from this effigy,
but it is not unreasonable to suppose that either from it or similar representations the later
conception of him came into being. We observe in the examples shown in the illustrations that
the custom of representing divine beings in profile resulted in his case in the survival of a mere
ring about the eye and a spirally convoluted band forming the upper lip and depending from it
for some distance. These are painted blue in the MSS. More faithfully preserved are the long
tusk-like teeth, which in certain stone effigies, however, degenerate into several straight,
downward strokes. This head of the Rain-god is almost invariably reproduced as the symbol for
the day-sign atl (water).
Representations of Tlaloc in the codices of the Borgia group occasionally show a development
of the lip-band, which rises upwards and includes the nose, thus, perhaps, [237]indicating a
transition form. In the Vatican B, Fejérváry-Mayer, and Laud Codices the prolongation of the
lip-band and its serpentine character are apparent, the snake’s teeth and eye being clearly
visible.

(From Codex Fejérváry-Mayer,

sheet 14.)
 (From Codex Vaticanus A, sheet 20.)

FORMS OF TLALOC.

Codex Borgia.—Sheet 14: In this place the body-paint of Tlaloc is green, although, as a rule, it
is black elsewhere. The face is half-black, half-yellow. The eye and lip-bands are blue. The
head is crowned with white heron-feathers, such as are worn by the octli gods. A fillet
surrounds the forehead, and from this spring four rosettes, which may symbolize the four
quarters from which the rain falls. The headdress and its accompanying ornaments are painted
in alternate stripes, green and white, sprinkled with liquid rubber. A paper tie adorns the
shoulder, such as was used for the decoration of offerings, or in the ceremonial arrangement of
the dead. The ear-plug is square, to indicate, perhaps, the four quarters. It is in this codex
(sheet 12) that we obtain the best evidence of the reflection of the various points of the
compass upon the character of the great god of rain.

But the most important pictures in Codex Borgia relating to Tlaloc are those on sheet 27, which
illustrate the cycle of fifty-two years, and show in the four corner compartments the four days
which form the initial days of the four quarters of the cycle. They do not, however, commence
with ce acatl, “one reed,” ce tecpatl, “one flint,” ce calli, “one house,” ce tochtli, “one rabbit,” as
might be expected, 4 but with ce cipactli, “one earth-beast,” ce miquiztli, “one death,” ce
ozomatli, “one monkey,” and ce cozcaquauhtli, “one vulture,” for the reason that the tonalamatl
signs here shown are hieroglyphic of the four quarters of the heavens, rather than allusive to
the dates of the grand cycle of fifty-two years. The middle or fifth region, which is without a
hieroglyph, is ascribed to the central figure. The lower to the right represents the east. To it
belongs the first division of the calendar, as well as the first day of the great cycle. Tlaloc in this
picture is painted a dark colour, and wears the cipactli head of the first [238]calendar division as
a helmet-mask. The sky above him is figuratively drawn to represent a cloudy firmament
holding rain about to fall, and he stands upon the cipactli, or earth-beast, which symbolizes the
fruitful earth, from whose body springs the maize-plant, represented as a tiny head or mask, on
each side of which sprout leaves. The god empties his jar upon the soil, and its contents are
seen to be a renewed supply of maize-ears, indicating the bounteous nature of the eastern
Tlaloc.

The figure on the upper right shows the deity in his northern aspect. The second division of the
tonalamatl and of the cycle are indicated in its dating and on its helmet-mask. The yellow
colour of the god in this picture is supplemented by the symbolism of a bright atmosphere
sending down sharp rays of light, shown in conventional form by V-shaped emblems stabbing
downwards from aloft. Beneath the god are shown three vessels filled with the brown-coloured
water which falls when the Rain-god is unpropitious. Indeed, it bears within it the symbols of
death, the death’s-head eye and bony nasal spine. The artistic effort is to portray water which
has been sucked up by the parched and cracked soil of a Mexican June—water which has
been insufficient in quantity, or has fallen too late. There are present, too, in the picture, the
vampire shapes of such insects as devour the maize, each decorated with the death’s-head.
But, more fatal sign than all, from the pitcher of the god descends the lightning-axe, wrapped in
symbolic fire. The northern Tlaloc, then, is no deity of plenty, but obviously represents the Rain-
god in his most deadly and terrible aspect. The god in his western complexion is painted blue,
and wears as a helmet-mask the sign of the third calendar division. A cloudy sky flecked with
rain shows the partial descent of the serpent-like showers, and the maize-plants beneath him
stand in heavy puddles of water. The southern aspect of Tlaloc (that on the lower left) is
painted red, and the helmet-mask is in vulture form, as in consonance with the sign of the
fourth calendar division. From a cloudless sky dart the conventional sun-rays as described in
the second picture, but [239]beneath the foot of the divinity are representations of the maize-
plant run to seed. Small animals, the faces of which bear some resemblance to a death’s-head,
devour them. Once again the lightning-axe falls from the jar held by the god, accompanied by
its bright, symbolic flame. The central figure represents the influence of the Rain-god from the
zenith. The Tlaloc who presides over this situation is striped red and white (the colours of night
and twilight) and he is represented in the normal insignia of the Rain-god. He is accompanied
by the signs for day and night, and the earth-goddesses cluster around his feet. From the jar he
holds are poured all manner of warlike implements—the atlatl, javelin, shield, and banner.

The similar fivefold representation of Tlaloc on sheet 28 is believed by Seler to illustrate his
connection with the Venus period.

Codex Vaticanus A.—Sheet 20: Here Tlaloc is represented with the body painted black, the
fore-part of the face black and the hinder portion yellow. His chin is bearded and the lip-band is
prolonged, as described above. In front of his mantle is a stone knife, from which fire issues.
His attire is painted in alternate stripes of black and green, flecked with melted rubber. He
wears the fillet of Tonatiuh, the Sun-god, and the strips of hide which fall from the panache of
feathers on his head are also part of the Sun-god’s insignia. He holds a burnt offering of
firewood and rubber in his hand, enveloped in a covering painted black and green, flecked
alternately. The type of the tarns or pools into which such offerings were cast is depicted in
front of him, in the depths of which are seen fishes and snails.
Codex Magliabecchiano.—Sheet 92: Here he is represented in female costume and, as in the
Sahagun MSS., a white circular spot or patch with black dots is visible on the god’s cheek,
which, the text implies, was made of the crushed seed of the Mexican prickly poppy (Argemone
Mexicana).

General.—Other details in the costume of the Rain-god are eloquent of his nature and
characteristics. In the Borgia group of codices his garment and headdress are dark [240]green,
flecked with melted rubber, whilst in those codices from the Mexican country proper we find
them painted blue, bespotted with the same unpleasant incense. His robe, the anachxecilli
(“dripping-garment,” “cloud-garment”), is said to be “set with green gems,” and in his ear is a
broad plate with a dependent band on which are worked smaller figures made of chalchihuitl
stones. On his breast he wears a wide collar of plaited stuff (reeds?) also enriched with the
precious green stone typical of water, and a large gold disk.

(From Codex Laud.)

 Stone figure (from Castella
del Teayó.)

FORMS OF TLALOC.

In Codex Vaticanus A, the Codex Magliabecchiano, and the Sahagun MSS. we find him
wearing at the nape of his neck a large crescent-shaped loop which projects on each side of
the head and is secured in the middle by a rosette, as well as his crown of heron-feathers. In
the Codex Vaticanus B a large fan-shaped object painted dark green and white projects behind
the head of the god. In Codex Borgia (sheet 14), too, he wears the headdress of Mayauel, the
goddess of the agave plant, but the colours in which it is painted (dark green and white with
rubber flecking) are his own and not the blue and white of the female divinity.

In the Codex Magliabecchiano (sheet 77) and on a stone relief in the Trocadero Museum,
Tlaloc is represented as holding a jug in one hand and a staff in the other, the latter of a blue
colour and having serpentine bands in its length. In Codices Vaticanus B and A he also holds
this serpentine wand and in the other the incense-pouch marked with a cross, to symbolize the
four quarters of the heavens. Occasionally he is seen holding the agave thorn or spike and the
omitl bone, the implements of mortification, as in Codex Borbonicus and Codex Borgia (sheet
67).

Gama (Dos Piedras, pt. i, p. 101; pt. ii, pp. 76–79) states that in Tlaloc’s left hand was a shield
ornamented with feathers. In his right were thin, wavy sheets of gold, representing his
thunderbolts, or sometimes a golden serpent, representing either the thunderbolt or moisture.
On his feet were a kind of half-boots, with little bells of gold hanging therefrom. Round his neck
was a band or collar set with gold and gems, while from his wrists depended strings of
[241]costly stones. His dress was an azure smock, reaching to the middle of the thigh, cross-
hatched all over with ribbons of silver forming squares, and in the middle of each square was a
circle of silver, while in the angle thereof were flowers, pearl-coloured, with yellow leaves
hanging down. His shield was similarly decorated, with feathers of yellow and green, flesh-
colour and blue, each colour forming a distinct band. The body was naked from mid-thigh
down, and of a grey tint, as was also the face. This face had only one eye, of a somewhat
extraordinary character: there was an exterior circle of blue, the interior was white with a black
line across it, and a little semicircle below the line. Either round the whole eye or round the
mouth was a doubled band or ribbon of blue. In the open mouth were three grinders. The front
teeth were painted red, as was also the pendant with its button of gold that hung from his ear.
He wore an open crown of white and green feathers, from which depended red and white
plumes.

Ixtlilxochitl represents him in the month etzalli pictured with a cane of maize in the one hand,
and in the other an instrument with which he is digging the ground, in which he places maize-
leaves and a kind of food, like fritters, called etzalli.

Sahagun MS.—This states that the god’s face was entirely black with a few spots of salvia
chia. The body was also of a dark colour. He wears a “mist” or “cloud” shirt without sleeves, in
the Toltec fashion, falling to the knee, and a cloth is rolled round the hips. The crown is of
heron-feathers, and the sandals symbolize the foam of water. The shield is inset with water-
flowers or rushes, and the god carries a white rush staff.

STATUARY AND VASES

As has been said, the vases in the Uhde collection and in the Anthropological Museum at
Berlin show the Tlaloc face, probably in its earlier state of development. In both of these a
serpentine motif arches over the eyes and meets in a knot or twist which forms the nose, while
a separate serpent [242]pattern forms the mouth in a moustache-like manner, the long teeth
jutting out from underneath it. Another found in the Calle de las Escalerillas, Mexico City, is
identical with these last. A stone slab found at Cerro de Zapotitlan, near Castillo de Teayo, and
resembling a tombstone, shows the face of Tlaloc very clearly, the characteristic feather crown
and the long tusk-like teeth being especially noticeable. Another stone figure found at Teayo is
fully illustrative of the god’s facial characteristics, but the two serpents twining together to form
the nose spring upwards and, after traversing the position of the eyebrow, end with their tails
above this in a flourish. The back-fan is well represented in this figure, which has also a mantle
and a waist-belt. In a relief found at Teayo in which Tlaloc is represented along with
Xochiquetzal, we see once more the manner in which the serpentine motifs around the mouth
and eyes have become unified through the exigencies of representation in profile. The usual
insignia are represented here, such as the necklace, the back-fan, and the short tunic; but
certain knots or bows on the dress lead me to think that what have been commonly taken for
sprinklings of indiarubber gum (ulli) may be small ornamental knots of some textile material.
Vases found at Tlaxcallan and in the Mixtec country show precisely the same characteristics.

MYTHS

The myth explanatory of the Tlaloquê is found in the Historia de los Mexicanos por sus
Pinturas (c. ii), 5 which tells how the rain-gods lived in four chambers surrounding a great court
in which stood four immense water-casks. In one of these good water was stored, which
descended upon the grain when it was in process of growth. Bad water stood in the next, which
produced fungus growth, causing the maize to turn black. When rain and frost came together it
was thought that the third cask had been drawn upon, and the fourth was filled with such rain
as was followed by no [243]growth, or by such growth as grew sere and withered. Tlaloc, we
learn from this account, had created for the purposes of rain-making a number of dwarfs who
made their homes in the four chambers of his house, and who carried sticks in their hands, and
jars into which they drew water from the great casks. When Tlaloc commanded them to water a
certain tract of country they poured water from the jars they held, and the lightning-flash was
supposed to proceed from the cracking or breaking of their vessels. This myth is represented in
the Codex Borgia, p. 27, as already described.

Another piece of mythic information is found in the Song of the Rain-god, the fourth canticle in
Sahagun’s collection, which has been translated as follows:

Oh, Mexico has done service with the gods,

The paper flags fly over the four corners of the heavens,
It is no more a time of mourning.

II

Oh, Tlaloc (the Rain-god) has been created

(I.e. my statue has been set on the temple),
My God has become a dark red colour from the blood of the sacrifices.
The whole day they took, with the making of rain in the temple court.
III

O my Chieftain, the maize-prince,

In truth it is your produce;
You created it first;
And yet they only do insult to you.
They can have nothing against you;
Distribute thou no offering.

IV

But they abuse me (abstain from sacrifice),

I am therefore not satisfied,
My father, my old priest,
The Jaguar-serpent.

Out of the Tlalocan the turquoise house (the blue house)

Came thy father, Acatonal.

[244]

VI

O go, go down on the mountain Poyauhtlan

With the mist rattle-board;
Water will be sent from Tlalocan,
The country of the rain-gods.

VII

O my elder brother Toxcuecuex!

I will go; it is enough to make him weep.

VIII

O send me to the place that no one knows.

Down came his word;
 I spoke to him, Tetzauhpilli,
I will go; that is enough to make him weep.

IX

After four years he will be placed over us.

Of thee it was said,
The place of the fallen,
The quetzal feather-house, the place of plenty,
And yet he becomes distributer for the Kingdom.

It would be rash to attempt any precise elucidation of this obscure song. Briefly and doubtfully, I
may say, it seems to me that its tendency is as follows: The song evidently refers to one of the
festivals of the Rain-god, probably the atemoztli, when much time was occupied in “rain-
making” ceremonies, as the canticle indicates. The pious maker of the song had evidently in
mind the myth which told how Tlaloc stole the maize from Quetzalcoatl, an assertion to which
he objects (verse iii), and advises the god to withhold his produce. This myth, which is given in
the Anales de Quauhtitlan (Codex Chimalpopocâ), the second or historical portion, states that
Quetzalcoatl discovered maize in the mountain Tonacatepetl. To do so, he took the form of a
black ant and was led to the spot by a red ant. As he was unable to lift the mountain, it was
split open by the magical prowess of Xolotl in his phase of Nanahuatl and the maize was
secured by Quetzalcoatl, but was stolen from him by Tlaloc. In verse iv of the song under
discussion Tlaloc replies in agreement with his servant, whom it is, perhaps, that he
[245]addresses as Jaguar-serpent, Jaguar (Balam), being a common designation of priests
among the Maya-Quiche. 6 Or it may have reference to the god himself, one of whose names is
“Nine Jaguar.”

The god would seem to refer to some unknown myth relating to his own parentage in verse v.
The name Acatonal (“Reed of the Sun”) given to his father seems to have a calendric
significance. The ceremony of the mist rattle-board, the rattling of which was supposed to bring
rain by sympathetic magic, was one of the ceremonies connected with rain-making at more
than one of the festivals of the Tlaloquê. Poyauhtlan (“Place of Mugwort”) is a district of
Tlalocan, as well as the name of his temple, and Toxcuecuex is Uitzilopochtli. The last verse
seems to allude to the myth mentioned in the interpretation of Codex Vaticanus A, where it is
stated that, as no rain had fallen for a period of four years, Quetzalcoatl began to make
sacrifices to obtain it, and, the worshipper or priest hints, will receive the consequent honour.

According to Boturini, quoting Gemelli Carreri (tom. 6, p. 83), Tlaloc was the deity who at the
behest of Tezcatlipocâ raised the earth out of the waters of the universal flood, and who
counsels men by his divine messages written in the lightning and the thunderbolt to live wisely
and morally. Like most of the theories of this writer, this is pure allegory. Following the analogy
of the calendar stone, we seem to see Tlaloc as the sun during the period of Naui Quiauitl, or
“Four Rain,” which ended in a universal conflagration. The interpreter of the Codex Vaticanus A
alludes to Tlaloc as feminine, speaks of him as “goddess of water,” and explains Tlaloquê as
signifying “fine weather.” Farther on he states that “on the 21st of December they celebrated
the festival of this god through whose instrumentality they say the earth became again visible
after it had been covered with the waters of the deluge; they therefore kept his festival during
the twenty following signs, in which they performed sacrifices to him.” [246]

The abode of Tlaloc was in Tlalocan, the heights on the road from Texcuco to Huetzotzinca and
Tlaxcallan, a high and shady place. 7 This locality remained verdant and moist because of its
proximity to the snowy peaks above it even when the plains beneath languished in drought
under merciless sunshine, and it seems natural that it should have appealed to the ancient
Mexicans as a fitting abode for the god of rain. Of Tlalocan in its more mythical sense,
Sahagun (c. ii, Appendix to bk. iii) says that there was abundance of all refreshments, green
maize, calabashes, and other vegetables and fruits. Here dwelt the Tlaloquê, who resembled
the priests who ministered to their idols in that they wore their hair long. The folk who went to
that paradise were those who had been killed by lightning, the leprous, gouty, and dropsical—
any such, in fact, who had died from a “watery” complaint. In Tlalocan they enjoyed a perpetual
summer.

FESTIVALS

Quaitl eloa.—The first annual festival to the Tlaloquê was the quaitl eloa, of which Sahagun
says: “In the first days of the first month of the year, which month was called in some parts of
Mexico quavitleloa, but generally atlacahualco, and begins on the second of our February, a
great feast was made in honour of the Tlalocs, gods of rain and water. For this occasion many
children at the breast were purchased from their mothers; those being chosen that had two
whorls in their hair, and that had been born under a good sign; it being said that such were the
most agreeable sacrifices to the storm-gods, and most likely to induce them to send rain in due
season. Some of these infants were butchered for this divine holiday on certain mountains, and
some were drowned in the Lake of Mexico. With the beginning of the festival, in every house,
from the hut to the palace, certain poles were set up, and to these were attached strips of the
[247]paper of the country, daubed over with indiarubber gum, these strips being called
amateteuitl; this was considered an honour to the water-gods. And the first place where
children were killed was Quauhtepetl, 8 a high mountain in the neighbourhood of Tlatelulco; all
infants, boys or girls, sacrificed there were called by the name of the place, Quauhtepetl, and
were decorated with strips of paper, dyed red. The second place where children were killed
was Yoaltecatl, 9 a high mountain near Guadalupe. The victims were decorated with pieces of
black paper with red lines on it, and were named after the place, Yoaltecatl. The third death-
halt was made at Tepetzingo, a well-known hillock that rose up from the waters of the lake
opposite Tlatelulco; there they killed a little girl, decking her with blue paper, and calling her
Quezalxoch, 10 for so was this hillock called by another name. Poiauhtla, 11 on the boundary of
Tlascala, was the fourth hill of sacrifice. Here they killed children, named as usual after the
locality, and decorated with paper, on which were lines of indiarubber oil. The fifth place of
sacrifice was the whirlpool or sink of the Lake of Mexico, Pantitlan. 12 Those drowned here were
called Epcoatl, 13 and their adornment epuepaniuhqui. 14 The sixth hill of death was Cocotl, 15
near Chalcoatenco; the infant victims were named after it and decorated with strips of paper, of
which half the number were red and half a tawny colour. The mount Yiauhqueme, 16 near
Atlacuioaia, was the seventh station; the victims being named after the place and adorned with
a paper of tawny colour.

“When the procession reached the temple near Tepetzinco, on the east, called Tozoacab, the
priests rested there all night, watching and singing songs, so that the children could not sleep.
In the morning the march was again resumed; if the children wept copiously those around them
were very glad, saying it was a sign that much rain would fall; while [248]if they met any
dropsical person on the road, it was taken for a bad omen and something that would hinder the
rain. If any of the temple ministers, or of the others called quaquavitli, or of the old men, broke
off from the procession or turned back to their houses before they came to the place where the
sacrifice was done, they were held infamous and unworthy of any public office; thenceforward
they were called mocauhque, that is to say, ‘deserters.’ ” 17

Tozozontli.—The second festival to Tlaloc was tozozontli, of which Sahagun says:

“The third month was designated toçozontli, the first day of it being consecrated to the festival
of the god Tlaloc, who is the divinity of rain. Many children were slain on the mountains and
offered in sacrifice to this god and his colleagues, in order to obtain water. The first fruits of the
flowers of the year were offered in the temple called Yopico, no one daring to smell a flower
until this offering had been made. The gardeners, who were designated xochimanque, held a
festival in honour of their goddess called Coatlicue, also known as Coatlan tonan.

“It was likewise during this month that those who had been wearing the skins of the dead since
the month previous, now stripped them off and threw them into the basin of the temple styled
Yopico. This was done in procession and with great ceremony. They smelt like rotten dogs; and
after disrobing they performed devotional ablutions.

“Sick people made vows to take part in this procession in the hope of being cured of their
infirmities, and we are assured that many of them were thus restored.

“The masters of the captives and the people of their houses performed penance for twenty
days, neither bathing nor washing until the skins of their victims had been carried to the basin
of the temple above mentioned, and alleging their penance was in honour of their captives.

“The period of penance being over, they bathed and washed, and invited their neighbours and
friends to banquets, performing elaborate ceremonies with the bones of their dead [249]slaves.
These twenty days until the following month were entirely spent in singing in the buildings
called cuicacalli, everyone being always seated, without dancing, and incessantly chanting the
praises of their deities. Other rites were performed, an account of which will be given in the
chapter dealing with them.” 18

Etzalqualiztli.—The third festival to the Tlaloquê generally was the etzalqualiztli. Concerning
this feast Sahagun relates:

“On the first day of this month a festival was held in honour of the gods of rain. The priests of
these divinities fasted for four days prior to the festival, these days consequently being the last
four of the previous month. On the occasion of these celebrations the attendant satellites of the
idols repaired to Citlaltepec to pull the rushes which grow very high and very beautifully in a
pond called Temilco. From thence they carried them to Mexico, to decorate the temples. No
one was to be seen on the road which they traversed; everyone took care to hide in case they
should meet them. But if, unfortunately, the priests encountered anyone on the road, they
stripped him of everything, leaving him naked as a worm, and should he dare to defend
himself, he was maltreated and left for dead upon the highway. Even had he carried the
treasure of Moteuhçoma and been robbed of it, it is quite certain that no punishment would
have fallen upon them, for, in their capacity as priests of the idols, they were at liberty to do
such things and worse without fear of consequences.

“On the day of the festival of etzalqualiztli, everyone prepared cakes or a broth called etzalli,
which was considered as a delicacy among them, everybody partaking of them at home, and
sharing the repast with visitors. A thousand follies were perpetrated on that day.

“On the occasion of this festival those priests of the idols who had committed faults in the
exercise of their functions were terribly punished on the waters of the lake. They were
maltreated to the point of being left for dead on the [250]banks of the lake, whither their parents
or relatives repaired to take them home almost lifeless.

“Death was also inflicted on a great number of captives and slaves dressed in the trappings of
the god Tlaloc, in whose temples they were slain in their honour; the hearts of those
unfortunates were then thrown into the gaping hole in the middle of the lake, which was at that
time quite visible. 19 Many other rites were performed as well.” 20

Tepeilhuitl.—The fourth festival to the gods of the water-giving mountains was the tepeilhuitl.
Sahagun says of this:

“During this month festivals were held in honour of the high mountains which were the point of
departure of the clouds, and which are very numerous in this land of New Spain. To each of
these a statue in human form was erected out of a paste called tzoalli, and offerings were
made to these idols in honour of these mountains.

“Serpents were also made in their honour out of wood or the roots of trees, which were so
carved as to terminate in an adder’s head. Long pieces of wood of the size of a fist were also
made, which were called ecatotontin (“little winds”). They were smoothed on the surface with a
lump of tzoalli, and were baptized as mountains, being placed upon men’s heads.

“Images were also made in memory of people who had been drowned, or of those who had
died such a death as entitled their bodies to be buried instead of being burnt.

“Having placed the statues just described upon the altars with great ceremony, tamalli and
many other foods were offered to them; hymns were chanted, and wine drunk in their honour.

“The day of the mountain festival having come round, four women and a man were slain. One
of the women was called Tepexoch, the second Matlalque, the third Xochitecatl, the fourth
Mayauel; the man bore the name of Milnauatl. 21 These women, as well as the man, were
decked with paper [251]anointed with ulli gum, and certain females, richly dressed, carried them
in litters upon their shoulders to the place where they were to be killed.

“After they were slain and their hearts torn out, they were taken slowly away, being dragged
down the temple stairs to the bottom, where their heads were cut off and placed upon wooden
pikes, while their bodies were taken to the calpulli 22 and there divided for eating. The papers
with which the statues were decorated were hung up in the temples, after the statues had been
broken up for food.” 23

Atemoztli.—On the sixteenth month, atemoztli, the people celebrated the Rain-god’s festival in
right good earnest. Says Sahagun 24:

“The sixteenth month was called atemoztli, that is to say the rain month, when the thunder and
heavy rains began to display themselves. The people said, ‘Now the Tlaloquê come.’

“At this time the priests began to pray earnestly for rain, doing penance the while. Taking their
censers of serpent-headed brass, they threw the incense called yiauhtli, they rang little bells
attached to the censer, and censed all the statues of the gods and all the quarters of the town.
As on another occasion, they made images of the mountains during the time they fasted, and
prepared the paper usually used in these ceremonies. During five days when they bathed
themselves they permitted no water to fall upon the head or to go above the neck. They also
abstained from women. The night which preceded the atemoztli, which they celebrated on the
twentieth day of the month, they occupied in cutting the paper, which they gummed with ulli,
and which was then called teteuitl. These they attached to long poles, which they planted in the
courts of the houses, where they remained during the day of the feast. The paste images they
made represented the mountains surrounding the valley of Anahuac. These were placed in the
oratory of the house, where they were offered food, and people sat in front of them, serving
them in tiny vessels full of food, little pots and [252]vessels of cocoa and food, which were
offered four times a night. Nor was an offering of pulque forgotten. They sang all night before
these images, and played on the flute. At daybreak the priests asked the people of the house
for a tzotzo paztli, or weaver’s bodkin, with which they opened the stomachs of the images.
They also beheaded them and drew out their hearts, which they handed to the master of the
house in a green porringer. They then stripped them of the paper with which they were decked,
which they burned in the court of the house along with the viands offered to the images.” 25

Camargo, who had witnessed the festivals to Tlaloc thirty years before writing his book, states
that 26 when the rain failed and the land was parched with drought, great processions were
made in which a number of the hairless edible dogs of the country were carried on decorated
litters to a place of sacrifice and there killed and their hearts cut out, after which the bodies
were eaten with much festivity. This, of course, related to a period subsequent to the Conquest,
when human sacrifice was forbidden. He further states that old Aztec priests had informed him
that the hearts of the human beings sacrificed to Tlaloc were first held up to the sun, then to the
remaining three cardinal points, after which they were burned. Tlaloc was held in high respect,
and priests alone had the right to enter his temple. Whoever dared to blaspheme against him
was supposed to die suddenly by a thunderbolt, no matter how clear the sky may have been.
The priests, he adds, took good care to retard his festivals until they saw indication of coming
rain.

TEMPLES AND PLACES OF WORSHIP

The earliest recorded place of worship of this deity is that spoken of by Clavigero 27 in one of
the few enlightening passages which he permits himself, as follows: [253]

“The native historians relate, that the Acolhuas having arrived in that country in the time of
Xolotl, the first Chichimecan king, found at the top of the mountain of Tlaloc, an image of that
god, made of a white and very light stone, in the shape of a man sitting upon a square stone,
with a vessel before him, in which was some elastic gum, and a variety of seeds. This was their
yearly offering by way of rendering up their thanks, after having had a favourable harvest. That
image was reckoned the oldest in the country; for it had been placed upon that hill by the
ancient Toltecas and remained till the end of the XVth or beginning of the XVIth century, when
Nezahualpilli, King of Acollhuacan, in order to gain the favour of his subjects, carried it away
and placed another in its stead, of a very hard, black stone. The new image, however, being
defaced by lightning, and the priests declaring it to be a punishment from heaven, the ancient
statue was restored, and there continued to be preserved and worshipped, until the
promulgation of the gospel, when it was thrown down and broken by order of the first Bishop of
Mexico.”

The principal seat of the worship of Tlaloc was the great temple of Uitzilopochtli at Mexico,
which is fully described in the section which deals with that god.

Sahagun speaks (Appendix to bk. ii) of a temple within the sacred precinct of Mexico which
was especially dedicated to the Tlaloquê. This was the epcoatl (“pearl serpent”), so called,
perhaps, from the circumstance that the victims immolated therein were known by the same
name. It was in this place that the priests fasted and did penance for forty days before the feast
in honour of their gods. The Mexico Calmecac was a school or junior monastery, where those
who were destined to become priests of the god received their training. At the acatla yiacapan
uei calpulli (“chief flowery hall”) the slaves intended for sacrifice to the god were assembled,
and here their bodies were prepared for the horrid banquet which concluded his festival. [254]

PRIESTHOOD

The Tlaloc Tlamacasque, the second in rank in the Mexican priesthood, stood at the head of
the ministers of the god. The acolnauacatl acolmiztli (“he of the puma shoulder” or “dress”)
made all arrangements for the festivals of the god, and kept the vestments worn by the king on
these occasions. It is also clear from many passages that the priesthood of Tlaloc composed a
large and considerable body.
PRAYERS

Sahagun 28 gives at great length a most striking prayer to Tlaloc made in time of drought by the
priests in hope of rain. It asks for compassion from the Tlaloquê, who, along with their sister,
Chalchiuhtlicue, have withdrawn their faces from mankind. It describes the wretchedness of the
people, tells how they perish of thirst, and draws a harrowing picture of the sufferings of the
children. It requests Tlaloc to assist the god of earth with rain, so that the vegetables and plants
may grow and not perish. It also asks that the rain may be of the kind which assists growth,
and that it be not accompanied by hail or lightning, the usual manifestation of the wrath of the
Tlaloquê. “You who are gods of the water, who dwell at the east, west, north, and south of the
world, who inhabit the subterranean places, the air, the mountains and the profound caverns,
hasten to the consolation of man.”

NATURE AND STATUS

There is less doubt concerning the character of Tlaloc than that of any other Mexican deity. The
representations of him in the manuscripts, the prayers offered up to him, the myths which seek
to explain him, all make it clear that he is the god of the rain-cult par excellence, to whom even
Quetzalcoatl, the deified rain-maker, in time becomes merely “a sweeper of the ways.” The
etymological derivation of the name has been frequently essayed. Tlaloc, says [255]Seler, is a
noun derived from the verb tlaloa, “to hasten,” which in its reflexive sense means “to shoot up,”
“to sprout,” so that the name really conveys the sense of “He who makes things sprout,” “He
who hastens growth.” He is, indeed, the god of rain, of moisture, who dwells on the mountain
peaks, and manifests himself in the lightning and the thunder, both of which are symbolized in
the serpentine folds of his countenance and in its darksome hues. His progeny are the
Tlaloquê, who dwell on every mountain top, dwarfish servants who pour forth the rain out of the
great jars which stand in his courtyard. “When they beat these with the sticks they carry, it
thunders, and when it lightens a piece of the jug falls.” 29

The name Tlaloc was specially given by the Mexicans to a mountain to the east of Tezcuco,
near the pass which led to Huetzotzinco, and here it was that his most ancient idol was found
by the immigrant tribes. The mountains Popocatepetl and Teocuinaui were also especially
sacred to him. He possessed, as will have been observed, both beneficent and terrible
aspects, and was the striker, the slayer, as well as the giver of bounteous food-supplies. That
his cult was an ancient one in Mexico is proved by the numerous finds of his images among
remains of pre-Aztec date at Teotihuacan, at Teotitlan in the Huaxtec country, at Quiengola in
the Zapotec district, and at Quen Santo in Guatemala.

Tlaloc denotes the four quarters from which the rain comes, as his symbolism abundantly
shows, and the learned priests of Mexico undoubtedly regarded him as the personification of
the tlequiauitl, or fire-rain, the disaster which closed one of the epochs of the prehistoric world.
He is further analogous to the Maya Chac and God B.