B-Law Pearson

BUSINESS LAW
TENTH EDITION
A01_CHEE8780_10_SE_FM.indd 1 17/10/17 5:02 PM

BUSINESS LAW
TENTH EDITION
Henry R. Cheeseman
Professor Emeritus
Marshall School of Business
University of Southern California
New York, NY

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1 17
ISBN 10: 0-13-4728785

ISBN 13: 978-0-13-4728780

BRIEF CONTENTS
PREFACE.........................................................xxi Part VI CREDIT, SECURED TRANSACTIONS,
AND BANKRUPTCY........................ 431
Part I LEGAL ENVIRONMENT 26 Credit, Real Property Financing,
OF BUSINESS..................................... 1 and Debtor’s Rights............................................ 432
1 Legal Heritage and the Digital Age............................ 2 27 Secured Transactions............................................ 449
2 Courts and Jurisdiction........................................... 21 28 Bankruptcy and Reorganization............................ 464
3 Judicial, Alternative, and E-Dispute Resolution...... 44
4 Constitutional Law for Business Part VII AGENCY, EMPLOYMENT,
and E-Commerce................................................. 67 AND LABOR LAW............................487
29 Agency Formation and Termination..................... 488
Part II TORTS, CRIMES, AND 30 Liability of Principals, Agents,
INTELLECTUAL PROPERTY................91 and Independent Contractors........................... 502
5 Intentional Torts and Negligence............................ 92 31 Employment, Worker Protection,
6 Product and Strict Liability................................... 113 and Immigration Law........................................ 516
7 Intellectual Property and Information 32 Labor Law............................................................. 534
Technology........................................................ 129 33 Equal Opportunity in Employment....................... 546
8 Criminal Law and Cybercrime.............................. 156
Part VIII BUSINESS ORGANIZATIONS,
Part III CONTRACTS AND CORPORATE GOVERNANCE,
E-COMMERCE................................185 INVESTOR PROTECTION,
9 Nature of Traditional and E-Contracts.................. 186 AND BUSINESS ETHICS..................571
10 Agreement............................................................. 200 34 Small Business, Entrepreneurship,
11 Consideration and Promissory Estoppel............... 215 and General Partnerships.................................. 572
12 Capacity and Legality............................................ 225 35 Limited Partnerships and Special Partnerships...... 589
13 Genuineness of Assent and Undue Influence........ 242 36 Corporate Formation and Financing..................... 600
14 Statute of Frauds and Equitable Exceptions......... 252 37 Corporate Governance and Sarbanes-
15 Third-Party Rights and Discharge......................... 265 Oxley Act........................................................... 622
16 Breach of Contract and Remedies......................... 283 38 Corporate Acquisitions and Multinational
17 Digital Law and E-Commerce............................... 300 Corporations...................................................... 642
39 Limited Liability Companies and Limited
Part IV SALES AND LEASE CONTRACTS Liability Partnerships........................................ 659
AND WARRANTIES.........................315 40 Franchise and Special Forms of Business............. 676
18 Formation of Sales and Lease Contracts............... 316 41 Investor Protection and E-Securities
19 Title to Goods and Risk of Loss............................. 331 Transactions...................................................... 692
20 Remedies for Breach of Sales 42 Ethics and Social Responsibility of Business........ 719
and Lease Contracts.......................................... 343
21 Warranties............................................................. 358 Part IX GOVERNMENT REGULATION...........733
43 Administrative Law and Regulatory Agencies....... 734
Part V NEGOTIABLE INSTRUMENTS, 44 Consumer Protection and Product Safety............. 746
BANKING, AND ELECTRONIC 45 Environmental Protection..................................... 756
FINANCIAL TRANSACTIONS............371 46 Antitrust Law and Unfair Trade Practices............. 770
22 Creation of Negotiable Instruments...................... 372
23 Holder in Due Course and Transferability............ 387 Part X PERSONAL PROPERTY, REAL
24 Liability, Defenses, and Discharge........................ 401 PROPERTY, AND INSURANCE.........791
25 Banking System and Electronic Financial 47 Personal Property and Bailment........................... 792
Transactions...................................................... 415 48 Real Property......................................................... 809

vi Brief Contents
49 Landlord–Tenant Law and Land Part XIII GLOBAL ENVIRONMENT..................913

Use Regulation................................................... 827 54 International and World Trade Law...................... 914
50 Insurance.............................................................. 842
Part XI ACCOUNTING PROFESSION............859 Appendix A THE CONSTITUTION

51 Accountants’ Duties and Liability......................... 860 OF THE UNITED STATES
OF AMERICA............................. 935
Part XII PERSONAL LAW.............................879 GLOSSARY................................................... 945
52 Wills, Trusts, and Estates...................................... 880 CASE INDEX............................................... 1001
53 Family Law............................................................ 898 SUBJECT INDEX......................................... 1005

CONTENTS
PREFACE........................................................ xxi 3 JUDICIAL, ALTERNATIVE,
AND E-DISPUTE RESOLUTION.................... 44
Introduction to Judicial, Alternative,
Part I LEGAL ENVIRONMENT and E-Dispute Resolution....................................................45
OF BUSINESS.................................. 1 Attorney Representation....................................................45
Case 3.1 • Federal Court Case • Contingency-Fee Agreement •
Goesel v. Boley International (H.K.) Ltd........................................ 46
1 LEGAL HERITAGE AND THE
Pretrial Litigation Process..................................................47
DIGITAL AGE................................................. 2 Pleadings..........................................................................47
Introduction to Legal Heritage and the Digital Age................3 Class Action......................................................................49
What is Law?.......................................................................3 Case 3.2 • U.S. Supreme Court Case • Class Action •
Critical Legal Thinking • Brown v. Board of Education............................. 5 Tyson Foods, Inc. v. Bouaphakeo................................................. 50
Schools of Jurisprudential Thought.......................................6 Discovery...........................................................................51
Global Law • Command School of Jurisprudence Information Technology • Cellphone Texting Data Discoverable
of Cuba.......................................................................................... 8 in an Automobile Accident Case.................................................. 52
History of American Law...................................................... 9 Information Technology • Social Media Postings and Photographs
Landmark Law • Adoption of English Common Law are Discoverable Evidence........................................................... 52
in America...................................................................................... 9 Pretrial Motions.................................................................53
Global Law • Civil Law System of France and Germany........................ 10 Case 3.3 • State Court Case • Summary Judgment • Wade v.
Sources of Law in the United States...................................11 Wal-Mart Stores, Inc.................................................................... 54
Contemporary Environment • How a Bill Becomes Law......................... 12 Settlement Conference......................................................55
Information Technology • Law in the Digital Age................................... 15 Contemporary Environment • Cost–Benefit Analysis of a Lawsuit.......... 55
Critical Legal Thinking.......................................................15 Trial...................................................................................55
Case 1.1 • U.S. Supreme Court Case • Affirmative Action in Ethics • Nondisclosure of Evidence by Wal-Mart................................... 57
University Admissions • Fisher v. University of Texas at Austin....... 17 E-Courts............................................................................57
Developing Skills for Your Career........................................18 Appeal...............................................................................58
Key Terms and Concepts....................................................18 Global Law • British Legal System....................................................... 59
Critical Legal Thinking Case...............................................19 Alternative Dispute Resolution...........................................59
Ethics Cases......................................................................19 Landmark Law • Federal Arbitration Act............................................... 60
Notes................................................................................20 Case 3.4 • U.S. Supreme Court Case • Arbitration Agreement •
Kindred Nursing Centers Limited Partnership v. Clark................... 61
E-Dispute Resolution..........................................................62
2 COURTS AND JURISDICTION..................... 21 Key Terms and Concepts....................................................63
Introduction to Courts and Jurisdiction................................22 Critical Legal Thinking Cases.............................................64
State Court Systems..........................................................22 Ethics Cases......................................................................65
Business Environment • Delaware Courts Specialize Notes................................................................................66
in Business Disputes................................................................... 24
Federal Court System.........................................................26
Contemporary Environment • Foreign Intelligence
4 CONSTITUTIONAL LAW FOR BUSINESS
Surveillance Court........................................................................ 26 AND E-COMMERCE.................................... 67
Supreme Court of the United States....................................28 Introduction to Constitutional Law for Business
Contemporary Environment • Process of Choosing a U.S. and E-Commerce................................................................68
Supreme Court Justice................................................................. 29 Constitution of the United States of America......................68
Contemporary Environment • “I’ll Take You to the U.S. Supremacy Clause.............................................................71
Supreme Court!”.......................................................................... 31 Case 4.1 • U.S. Supreme Court Case • Supremacy Clause •
Jurisdiction of Federal and State Courts..............................32 Mutual Pharmaceutical Company, Inc. v. Bartlett......................... 71
Case 2.1 • U.S. Supreme Court Case • Full Faith Commerce Clause..............................................................72
and Credit Clause • V.L. v. E.L...................................................... 34 Critical Legal Thinking • Heart of Atlanta Motel v. United States........... 74
Standing to Sue, Jurisdiction, and Venue.............................34 E-Commerce and the Constitution.......................................75
Critical Legal Thinking • International Shoe Company v. Information Technology • E-Commerce and the Commerce
State of Washington.................................................................... 35 Clause.......................................................................................... 75
Case 2.2 • Federal Court Case • Forum-Selection Clause • Bill of Rights and Other Amendments to the
Carter’s of New Bedford, Inc. v. Nike, Inc...................................... 37 U.S. Constitution...............................................................76
Jurisdiction in Digital Commerce.........................................38 Freedom of Speech............................................................77
Information Technology • Jurisdiction Over an Internet Information Technology • Case 4.2 • U.S. Supreme Court Case •
eBay Seller.................................................................................. 39 Free Speech Rights and the Internet • Packingham v.
Global Law • Judicial System of Japan................................................. 39 North Carolina............................................................................. 77
Key Terms and Concepts....................................................40 Information Technology • Free Speech and Video Games..................... 80
Critical Legal Thinking Cases.............................................41 Freedom of Religion...........................................................80
Ethics Cases......................................................................42 Equal Protection................................................................81
Notes................................................................................43 Due Process......................................................................82
vii

viii Contents
Case 4.3 • U.S. Supreme Court Case • Due Process Key Terms and Concepts..................................................126
and Equal Protection Clauses • Obergefell v. Hodges.................... 83 Critical Legal Thinking Cases...........................................126
Government Taking of Property...........................................84 Ethics Cases....................................................................128
Case 4.4 • U.S. Supreme Court Case • Takings Clause and Just Note................................................................................128
Compensation • Horne v. Department of Agriculture..................... 85
Privileges and Immunities...................................................86 7 INTELLECTUAL PROPERTY AND
Global Law • Human Rights Violations in Myanmar.............................. 86
Key Terms and Concepts....................................................87 INFORMATION TECHNOLOGY................. 129
Critical Legal Thinking Cases.............................................87 Introduction to Intellectual Property
Ethics Cases......................................................................89 and Information Technology..............................................130
Notes................................................................................90 Intellectual Property........................................................130
Trade Secret....................................................................131
Information Technology • Defend Trade Secrets Act...........................132
Part II TORTS, CRIMES, AND Ethics • Coca-Cola Employee Tries to Sell Trade Secrets
INTELLECTUAL PROPERTY............ 91 to Pepsi-Cola.............................................................................133
Patent.............................................................................133
Information Technology • Case 7.1 • U.S. Supreme Court Case •
5 INTENTIONAL TORTS
Patent • Association for Molecular Pathology v. Myriad
AND NEGLIGENCE....................................... 92 Genetics, Inc.............................................................................136
Introduction to Intentional Torts and Negligence.................93 Information Technology • Case 7.2 • U.S. Supreme Court Case •
Intentional Torts................................................................93 Design Patent • Samsung Electronics Co., Ltd. v.
Case 5.1 • State Court Case • False Imprisonment • Wal-Mart Apple Inc...................................................................................138
Stores, Inc. v. Cockrell................................................................. 94 Copyright.........................................................................139
Critical Legal Thinking • The Rosa Parks Story is Not Protected Case 7.3 • U.S. Supreme Court Case • Copyright • Star Athletica,
by the Right to Publicity............................................................... 96 L.L.C. v. Varsity Brands, Inc........................................................140
Unintentional Torts (Negligence)........................................99 Information Technology • Case 7.4 • Federal Court Case •
Ethics • Ouch! McDonald’s Coffee Is Too Hot!....................................100 Copyright Infringement • Broadcast Music, Inc. v.
Case 5.2 • State Court Case • Negligence • Jones v. City McDade & Sons, Inc..................................................................141
of Seattle, Washington..............................................................101 Information Technology • Digital Millennium Copyright Act.................143
Critical Legal Thinking • Palsgraf v. The Long Island Trademark.......................................................................144
Railroad Company.....................................................................103 Information Technology • Google Inc. Obtains Abandoned
Information Technology • Proximate Cause and Violent “Android” Trademark..................................................................147
Video Games.............................................................................103 Information Technology • “Google” Trademark is Not
Special Negligence Doctrines...........................................104 a Generic Name.........................................................................149
Case 5.3 • State Court Case • Gross Negligence • Aleo v. SLB Dilution............................................................................150
Toys USA, Inc.............................................................................106 Information Technology • Case 7.5 • Federal Court Case •
Defenses Against Negligence...........................................108 Dilution of a Trademark • V Secret Catalogue, Inc.
Case 5.4 • State Court Case • Assumption of the Risk • Grady v. and Victoria’s Secret Stores, Inc. v. Moseley..................................151
Green Acres, Inc........................................................................108 Global Law • International Protection of Intellectual Property.............152
Strict Liability..................................................................109 Key Terms and Concepts..................................................152
Key Terms and Concepts..................................................110 Critical Legal Thinking Cases...........................................153
Critical Legal Thinking Cases...........................................110 Ethics Cases....................................................................154
Ethics Cases....................................................................112 Notes..............................................................................155
Notes..............................................................................112
8 CRIMINAL LAW AND CYBERCRIME.......... 156
6 PRODUCT AND STRICT LIABILITY............ 113 Introduction to Criminal Law and Cybercrime....................157
Introduction to Product and Strict Liability........................114 Definition of a Crime........................................................157
Product Liability: Negligence............................................114 Contemporary Environment • Criminal Acts as the Basis
Case 6.1 • Federal Court Case • Product Liability • Bilenky v. for Tort Actions..........................................................................161
Ryobi Technologies, Inc.............................................................115 Criminal Procedure...........................................................161
Product Liability: Misrepresentation..................................115 Criminal Trial...................................................................164
Product Liability: Strict Liability........................................115 Case 8.1 • U.S. Supreme Court Case • Assistance
Product Defects...............................................................118 of Counsel • Maryland v. Kulbicki...............................................164
Defect in Manufacture......................................................118 Common Crimes...............................................................165
Case 6.2 • State Court Case • Defect in Manufacture • Shoshone Critical Legal Thinking • Court Acts as a “Thirteenth Juror”.................166
Coca-Cola Bottling Company v. Dolinski.....................................118 Business and White-Collar Crimes.....................................168
Defect in Design..............................................................119 Ethics • Ponzi Scheme Defrauds $200 Million
Case 6.3 • State Court Case • Design Defect • Genie Industries, from Investors............................................................................170
Inc. v. Matak..............................................................................120 Business Environment • Corporate Criminal Liability..........................172
Failure to Warn................................................................121 Cybercrimes....................................................................172
Case 6.4 • Federal Court Case • Warning • Braswell v. Cincinnati Information Technology • The Internet and Identity Theft....................172
Incorporated..............................................................................121 Information Technology • Case 8.2 • Federal Court Case •
Defect in Packaging.........................................................122 Computer Crime • United States v. Barrington............................173
Other Defects..................................................................122 Fourth Amendment Protection from Unreasonable
Defenses to Product Liability............................................123 Search and Seizure..........................................................174
Case 6.5 • Federal Court Case • Supervening Event • Case 8.3 • U.S. Supreme Court Case • Fourth Amendment •
Cummins v. BIC USA, Inc...........................................................124 Birchfield v. North Dakota..........................................................175

Contents
ix
Information Technology • Case 8.4 • U.S. Supreme Court Case • Gift Promise.....................................................................217
Search of Cell Phones • Riley v. California..................................176 Case 11.2 • State Court Case • Gifts and Gift Promises •
Fifth Amendment Privilege Against Self-Incrimination........177 Cooper v. Smith.........................................................................218
Other Constitutional Protections......................................180 Promises That Lack Consideration....................................219
Global Law • France Does Not Impose the Death Penalty...................181 Case 11.3 • State Court Case • Consideration • Clemmons v.
Key Terms and Concepts..................................................181 Kansas City Chiefs Football Club, Inc.........................................220
Critical Legal Thinking Cases...........................................182 Special Business Contracts..............................................221
Ethics Cases....................................................................184 Settlement of Claims.......................................................222
Notes..............................................................................184 Equity: Promissory Estoppel.............................................222
Key Terms and Concepts..................................................223
Critical Legal Thinking Cases...........................................223
Part III CONTRACTS AND Ethics Case.....................................................................224
Note................................................................................224
E-COMMERCE............................. 185
9 NATURE OF TRADITIONAL 12 CAPACITY AND LEGALITY......................... 225

Introduction to Capacity and Legality................................226
AND E-CONTRACTS.................................. 186 Minors.............................................................................226
Introduction to Nature of Traditional And E-Contracts........187 Contemporary Environment • Special Types of Minors’
Definition of a Contract....................................................187 Contracts...................................................................................229
Sources of Contract Law..................................................188 Mentally Incompetent Persons.........................................229
Objective Theory of Contracts...........................................189 Case 12.1 • State Court Case • Mental Capacity • Ivie v. Smith...........229
Case 9.1 • Federal Court Case • Objective Theory of Contract • Intoxicated Persons.........................................................231
Kolodziej v. Mason.....................................................................190 Legality...........................................................................231
Classifications of Contracts..............................................191 Case 12.2 • Federal Court Case • Illegal Contract • Ford Motor
Case 9.2 • Federal Court Case • Type of Contract • Lagen v. Company v. Ghreiwati Auto........................................................232
United Continental Holdings, Inc................................................192 Ethics • Gambling Contract................................................................234
Express and Implied Contracts.........................................194 Special Business Contracts and Licensing Statutes..........235
Information Technology • Case 9.3 • Federal Court Case • Case 12.3 • State Court Case • Exculpatory Agreement •
Express Contract • Facebook, Inc. v. Winklevoss.........................194 DeCormier v. Harley-Davidson Motor Company Group, Inc..........236
Ethics • Was an Implied-in-Fact Contract Created?............................195 Business Environment • Covenants Not to Compete...........................237
Equity..............................................................................197 Unconscionable Contracts................................................238
E-Commerce....................................................................197 Critical Legal Thinking • Interest Rates of Over 1,000% Per
Information Technology • Electronic Contracts and Licenses..............197 Year on Consumer Loans Found Unconscionable.......................239
Key Terms and Concepts..................................................198 Key Terms and Concepts..................................................239
Critical Legal Thinking Cases...........................................198 Critical Legal Thinking Cases...........................................240
Ethics Cases....................................................................199 Ethics Cases....................................................................241
Notes..............................................................................199 Note................................................................................241
10 AGREEMENT.............................................. 200 13 GENUINENESS OF ASSENT

Introduction to Agreement...............................................201 AND UNDUE INFLUENCE.......................... 242
Agreement.......................................................................201 Introduction to Genuineness of Assent
Ethics • A Contract Is a Contract Is a Contract...................................201 and Undue Influence.........................................................243
Offer................................................................................202 Mistake...........................................................................243
Case 10.1 • State Court Case • Express Contract • McKee v. Fraud...............................................................................244
Isle of Capri Casinos, Inc...........................................................203 Types of Fraud.................................................................245
Special Offers..................................................................204 Case 13.1 • Federal Court Case • Fraud in the Inducement •
Termination of an Offer by Act of the Parties.....................205 Portugués-Santana v. Rekomdiv International, Inc.....................246
Case 10.2 • State Court Case • Counteroffer • Ehlen v. Melvin............206 Case 13.2 • State Court Case • Fraud • Krysa v. Payne.......................248
Business Environment • Option Contract............................................207 Duress.............................................................................248
Termination of an Offer by Operation of Law......................207 Equitable Doctrine: Undue Influence.................................249
Acceptance.....................................................................209 Key Terms and Concepts..................................................249
Information Technology • Email Acceptance Creates Critical Legal Thinking Cases...........................................250
an Enforceable Contract............................................................210 Ethics Case.....................................................................251
Key Terms and Concepts..................................................212 Notes..............................................................................251
Ethics Case.....................................................................213
Notes..............................................................................214 14 STATUTE OF FRAUDS AND EQUITABLE
EXCEPTIONS.............................................. 252
Introduction to Statute of Frauds and Equitable
11 CONSIDERATION AND PROMISSORY Exceptions......................................................................253
ESTOPPEL.................................................. 215 Statute of Frauds for Common Contracts..........................253
Introduction to Consideration and Promissory Ethics • Bonus Lost Because of the Statute of Frauds........................255
Estoppel..........................................................................216 UCC Statutes of Fraud.....................................................257
Consideration..................................................................216 Equitable Exception: Part Performance.............................257
Case 11.1 • State Court Case • Consideration • Critical Legal Thinking • Doctrine of Part Performance Used
Ferguson v. Carnes....................................................................217 to Enforce Oral Promise to Transfer Real Estate.........................258

x Contents
Formality of the Writing....................................................258 17 DIGITAL LAW AND E-COMMERCE........... 300

Parol Evidence Rule.........................................................259 Introduction to Digital Law and E-Commerce.....................301
Case 14.1 • Federal Court Case • Parol Evidence Rule The Internet.....................................................................301
and Merger Clause • In The Matter of Pilgrim’s Email and Text Contracts.................................................302
Pride Corporation.......................................................................260 Information Technology • Regulation of Email Spam..........................302
Case 14.2 • State Court Case • Parol Evidence Rule • Information Technology • Case 17.1 • Federal Court Case •
Yarde Metals, Inc. v. New England Patriots Limited Email Spam • Facebook, Inc. v. Porembski.................................303
Partnership................................................................................261 E-Commerce and Web Contracts.......................................304
Equitable Doctrine: Promissory Estoppel...........................262 Information Technology • Case 17.2 • State Court Case •
Critical Legal Thinking • Doctrine of Promissory Estoppel Used Web Contract • Hubbert v. Dell Corporation................................304
Against a Subcontractor That Did Not Honor Its Bid...................262 Information Technology • E-SIGN Act: Statute of Frauds
Key Terms and Concepts..................................................263 and Electronic Contracts............................................................305
Critical Legal Thinking Cases...........................................263 Information Technology • E-SIGN Act: E-Signatures
Ethics Case.....................................................................264 and Electronic Contracts............................................................305
Notes..............................................................................264 E-Licensing of Software and Information Rights.................306
Privacy in Cyberspace......................................................307
15 THIRD-PARTY RIGHTS Domain Names.................................................................308
Information Technology • Specific Top-Level Domain
AND DISCHARGE....................................... 265 (TLD) Names..............................................................................310
Introduction to Third-Party Rights and Discharge...............266 Information Technology • Anticybersquatting Consumer
Assignment of a Right......................................................266 Protection Act............................................................................311
Delegation of a Duty........................................................270 Information Technology • Case 17.3 • National Arbitration
Third-Party Beneficiary.....................................................272 Forum • Domain Name • New York Yankees Partnership
Case 15.1 • State Court Case • Third-Party Beneficiary • d/b/a The New York Yankees Baseball Club...............................311
Cline v. Homuth.........................................................................272 Global Law • The Internet in Foreign Countries...................................312
Case 15.2 • Federal Court Case • Third-Party Beneficiary • Key Terms and Concepts..................................................313
Does I-XI, Workers in China, Bangladesh, Indonesia, Critical Legal Thinking Cases...........................................313
Swaziland, and Nicaragua v. Wal-Mart Stores, Inc......................275 Ethics Cases....................................................................314
Covenants.......................................................................276 Notes..............................................................................314
Conditions.......................................................................276
Business Environment • “Time Is of the Essence” Contract.................278
Discharge of Performance................................................279 PART IV SALES AND LEASE CONTRACTS
Statute of Limitations......................................................280
AND WARRANTIES...................... 315
Ethics Case.....................................................................282 18 FORMATION OF SALES AND LEASE
Notes..............................................................................282 CONTRACTS.............................................. 316
Introduction to Formation of Sales
16 BREACH OF CONTRACT and Lease Contracts........................................................317
Uniform Commercial Code................................................317
AND REMEDIES.......................................... 283 Landmark Law • Uniform Commercial Code.......................................317
Introduction to Breach of Contract and Remedies.............284 Article 2 (Sales)..............................................................318
Performance and Breach..................................................284 Case 18.1 • State Court Case • Good or Service • Brandt v.
Monetary Damages..........................................................286 Boston Scientific Corporation and Sarah Bush
Compensatory Damages...................................................287 Lincoln Health Center................................................................319
Consequential Damages...................................................288 Article 2a (Leases)..........................................................320
Nominal Damages............................................................289 Formation of Sales and Lease Contracts: Offer..................321
Mitigation of Damages.....................................................289 Business Environment • UCC Firm Offer Rule......................................323
Liquidated Damages.........................................................290 Formation of Sales and Lease Contracts:
Business Environment • Liquidated Damage Clause Acceptance.....................................................................323
Limits Recovery of Damages......................................................290 Business Environment • UCC Permits Additional Terms......................324
Case 16.1 • Federal Court Case • Liquidated Damages • Business Environment • UCC Battle of the Forms...............................324
Burke v. 401 N. Wabash Venture, LLC........................................291 UCC Statute of Frauds.....................................................325
Rescission and Restitution...............................................292 Business Environment • UCC Written Confirmation Rule.....................326
Equitable Remedies.........................................................292 Electronic Sales and Lease Contracts...............................327
Case 16.2 • State Court Case • Specific Performance • Global Law • Letters of Credit and International Trade.......................328
Alba v. Kaufmann......................................................................293 Key Terms and Concepts..................................................329
Arbitration of Contract Disputes.......................................294 Critical Legal Thinking Cases...........................................329
Case 16.3 • Federal Court Case • Arbitration of a Contract Ethics Cases....................................................................330
Dispute • Mance v. Mercedes-Benz USA.....................................295
Torts Associated with Contracts.......................................295
Critical Legal Thinking • Implied Covenant of Good Faith 19 TITLE TO GOODS AND RISK OF LOSS...... 331
and Fair Dealing........................................................................296 Introduction to Title to Goods and Risk of Loss.................332
Key Terms and Concepts..................................................297 Identification of Goods and Passage of Title......................332
Critical Legal Thinking Cases...........................................297 Business Environment • Commonly Used Shipping Terms..................333
Ethics Cases....................................................................298 Risk of Loss Where There is No Breach of the
Notes..............................................................................299 Sales Contract.................................................................335

Contents
xi
Risk of Loss Where There is a Breach Part V NEGOTIABLE INSTRUMENTS,

of the Sales Contract.......................................................336
Global Law • United Nations Convention on Contracts
BANKING, AND ELECTRONIC
for the International Sale of Goods (CISG).................................336 FINANCIAL TRANSACTIONS......... 371
Risk of Loss in Conditional Sales......................................337
Risk of Loss in Lease Contracts........................................338 22 CREATION OF NEGOTIABLE
Business Environment • Insuring Goods Against
Risk of Loss...............................................................................338 INSTRUMENTS........................................... 372
Sale of Goods by Nonowners.............................................338 Introduction to Creation of Negotiable Instruments...........373
Stolen Goods...................................................................338 Negotiable Instruments....................................................373
Case 19.1 • State Court Case • Entrustment Rule • Types of Negotiable Instruments.......................................374
Lindholm v. Brant.......................................................................339 Requirements for Creating a Negotiable Instrument...........378
Key Terms and Concepts..................................................341 Case 22.1 • State Court Case • Negotiable Instrument •
Critical Legal Thinking Cases...........................................341 Tips Family Trust v. PB Commercial LLC.....................................381
Ethics Cases....................................................................342 Case 22.2 • Federal Court Case • Negotiable Instrument •
Las Vegas Sands, LLC, dba Venetian Resort Hotel
Casino v. Nehme........................................................................383
20 REMEDIES FOR BREACH Prepayment, Acceleration, and Extension Clauses............384
Nonnegotiable Contract...................................................384
OF SALES AND LEASE CONTRACTS.......... 343 Global Law • Negotiable Instruments Payable
Introduction to Remedies for Breach of Sales
in Foreign Currency....................................................................385
and Lease Contracts........................................................344
Seller and Lessor Performance..........................................344
Contemporary Environment • Seller’s and Lessor’s
Ethics Case.....................................................................386
Right to Cure.............................................................................345
Critical Legal Thinking • UCC Imposes Duties of Good
Faith and Reasonableness.........................................................346 23 HOLDER IN DUE COURSE
Buyer and Lessee Performance.........................................346
Case 20.1 • State Court Case • Acceptance of Goods •
AND TRANSFERABILITY............................. 387
Accent Commercial Furniture, Inc. v. P. Schneider Introduction to Holder in Due Course
& Associates, PLLC....................................................................348 and Transferability...........................................................388
Seller and Lessor Remedies..............................................349 Transfer of a Nonnegotiable Contract
Business Environment • Lost Volume Seller.......................................351 by Assignment.................................................................388
Buyer and Lessee Remedies.............................................351 Transfer of a Negotiable Instrument
Contemporary Environment • Buyer’s and Lessee’s by Negotiation.................................................................388
Right to Cover............................................................................352 Contemporary Environment • Converting Order
Additional Performance Issues..........................................354 and Bearer Paper.......................................................................389
Ethics • UCC Doctrine of Unconscionability........................................355 Case 23.1 • State Court Case • Bearer Paper • Gerber &
Key Terms and Concepts..................................................355 Gerber, P.C. v. Regions Bank......................................................390
Critical Legal Thinking Cases...........................................356 Transfer of a Negotiable Instrument
Ethics Cases....................................................................357 by Indorsement................................................................391
Types of Indorsements.....................................................392
Holder in Due Course (HDC).............................................396
21 WARRANTIES............................................. 358 Requirements for Holder in Due Course
Introduction to Warranties................................................359 (HDC) Status...................................................................397
Express Warranty.............................................................359 Contemporary Environment • Shelter Principle...................................399
Implied Warranties...........................................................360 Key Terms and Concepts..................................................399
Implied Warranty of Merchantability.................................361 Critical Legal Thinking Cases...........................................399
Case 21.1 • Federal Court Case • Implied Warranty of Ethics Case.....................................................................400
Merchantability • Osorio v. One World Technologies, Inc.............361
Case 21.2 • Federal Court Case • Implied Warranty
of Merchantability • Geshke v. Crocs, Inc....................................362
24 LIABILITY, DEFENSES, AND
Impiled Warranty of Fitness for Human Consumption.........363 DISCHARGE............................................... 401
Case 21.3 • Federal Court Case • Implied Warranty Introduction to Liability, Defenses, and Discharge.............402
of Merchantability • Manley v. Doe.............................................364 Signature Liability for Negotiable Instruments...................402
Implied Warranty of Fitness for a Particular Primary Liability for Negotiable Instruments......................403
Purpose...........................................................................364 Secondary Liability for Negotiable Instruments..................403
Warranty Disclaimers.......................................................365 Forged Indorsements........................................................407
Case 21.4 • State Court Case • Warranty Disclaimer • Ethics • Imposter Rule.......................................................................407
Roberts v. Lanigan Auto Sales...................................................366 Ethics • Fictitious Payee Rule.............................................................407
Magnuson-Moss Warranty Act..........................................367 Warranty Liability for Negotiable Instruments....................407
Information Technology • Warranty Disclaimers Transfer Warranties..........................................................408
in Software Licenses..................................................................367 Presentment Warranties...................................................408
Warranties of Title and Possession...................................368 Defenses to Payment of Negotiable Instruments...............409
Key Terms and Concepts..................................................369 Universal (Real) Defenses................................................409
Critical Legal Thinking Cases...........................................369 Personal Defenses...........................................................410
Ethics Case.....................................................................370 Case 24.1 • Federal Court Case • Holder in Due Course •
Note................................................................................370 Bank of Colorado v. Berwick.......................................................411

xii Contents
Contemporary Environment • FTC Rule Limits HDC Status Key Terms and Concepts..................................................446
in Consumer Transactions..........................................................412 Critical Legal Thinking Cases...........................................447
Discharge of Liability........................................................412 Ethics Cases....................................................................448
Ethics Case.....................................................................414
Note................................................................................414 27 SECURED TRANSACTIONS........................ 449
Introduction to Secured Transactions...............................450
Secured Transactions in Personal Property.......................450
25 BANKING SYSTEM AND ELECTRONIC Creating a Security Interest.............................................452
Perfecting a Security Interest...........................................454
FINANCIAL TRANSACTIONS..................... 415
Case 27.1 • State Court Case • Filing a Financing Statement •
Introduction to the Banking System and Electronic
Pankratz Implement Company v. Citizens National Bank............455
Financial Transactions.....................................................416
Priority of Claims.............................................................457
The Bank–Customer Relationship.....................................416
Information Technology • Electronic Financing Statements
Ordinary Checks...............................................................417
and Records..............................................................................458
Special Types of Checks..................................................418
Default and Remedies......................................................458
Honoring Checks..............................................................419
Case 27.2 • State Court Case • Deficiency Judgment •
Ethics • Federal Currency Reporting Law............................................420
John Deere Construction & Forestry Co. v. Parham.....................460
Forged Signatures and Altered Checks.............................420
Business Environment • Artisan’s Liens on Personal
Case 25.1 • State Court Case • Series of Forgeries of Checks •
Property.....................................................................................461
Spacemakers of America, Inc. v. SunTrust Bank.........................422
The Collection Process.....................................................423
Bank Payment Rules........................................................424
Ethics Cases....................................................................463
Contemporary Environment • FDIC Insurance
of Bank Deposits.......................................................................425
Electronic Banking and E-Money.......................................425 28 BANKRUPTCY AND
Information Technology • Consumer Electronic
Funds Transfers.........................................................................426
REORGANIZATION.................................... 464
Information Technology • Commercial Electronic Introduction to Bankruptcy and Reorganization.................465
Wire Transfers............................................................................427 Bankruptcy Law...............................................................465
Information Technology • Cryptocurrency...........................................427 Landmark Law • Bankruptcy Code.....................................................466
Bank Reform....................................................................428 Bankruptcy Procedure......................................................466
Global Law • Hiding Money in Offshore Banks....................................428 Case 28.1 • Federal Court Case • Bankruptcy Discharge •
Key Terms and Concepts..................................................429 Speedsportz v. Lieben...............................................................469
Critical Legal Thinking Cases...........................................429 Bankruptcy Estate...........................................................470
Ethics Case.....................................................................430 Ethics • Fraudulent Transfer of Diamonds Prior
Notes..............................................................................430 to Bankruptcy............................................................................471
Exempt Property..............................................................471
Ethics • Abusive Homestead Exemptions...........................................472
Chapter 7—Liquidation.....................................................473
Part VI CREDIT, SECURED Case 28.2 • U.S. Supreme Court Case • Bankruptcy Fraud •
TRANSACTIONS, AND Husky International Electronics, Inc. v. Ritz................................476
Critical Legal Thinking • Discharge of Student Loans
BANKRUPTCY............................. 431
in Bankruptcy............................................................................477
Chapter 13—Adjustment of Debts of an Individual
26 CREDIT, REAL PROPERTY FINANCING, with Regular Income........................................................478
AND DEBTOR’S RIGHTS............................ 432 Chapter 11—Reorganization.............................................480
Introduction to Credit, Real Property Financing, Business Environment • General Motors Bankruptcy..........................483
and Debtor’s Rights.........................................................433 Key Terms and Concepts..................................................484
Credit..............................................................................433 Critical Legal Thinking Cases...........................................485
Unsecured Credit.............................................................433 Ethics Cases....................................................................486
Secured Credit.................................................................434 Notes..............................................................................486
Real Property Financing...................................................434
Case 26.1 • State Court Case • Mortgages and Liens •
Old Republic National Title Insurance Company v. Part VII AGENCY, EMPLOYMENT,
Fifth Third Bank..........................................................................436 AND LABOR LAW........................ 487
Business Environment • Construction Liens on Real Property.............438
Surety and Guaranty Arrangements...................................439
Case 26.2 • Federal Court Case • Personal Guaranty • Avnet, 29 AGENCY FORMATION
Inc. v. Catalyst Resource Group, LLC..........................................440 AND TERMINATION.................................. 488
Collection Remedies........................................................441 Introduction to Agency Formation and Termination............489
Consumer Financial Protection.........................................442 Employment and Agency..................................................489
Contemporary Environment • Consumer Financial Independent Contractor....................................................490
Protection Bureau......................................................................442 Formation of an Agency....................................................491
Ethics • Credit CARD Act....................................................................444 Contemporary Environment • Power of Attorney.................................491
Business Environment • Dodd-Frank Wall Street Reform Case 29.1 • State Court Case • Independent Contractor •
and Consumer Protection Act....................................................446 Smith v. Delta Tau Delta, Inc......................................................492

Contents
xiii
Case 29.2 • State Court Case • Agency • Eco-Clean, 32 LABOR LAW.............................................. 534
Inc. v. Brown..............................................................................493 Introduction to Labor Law and Collective Bargaining.........535
Apparent Agency.............................................................494 Labor Law........................................................................535
Case 29.3 • State Court Case • Agency Relationship • Landmark Law • Federal Labor Law Statutes......................................535
Bosse v. Brinker Restaurant Corporation, d.b.a. Chili’s Organizing a Union...........................................................536
Grill and Bar..............................................................................494 Case 32.1 • Federal Court Case • Unfair Labor Practice •
Principal’s Duties.............................................................495 National Labor Relations Board v. Starbucks
Agent’s Duties.................................................................496 Corporation...............................................................................537
Termination of an Agency.................................................497 Collective Bargaining.......................................................538
Key Terms and Concepts..................................................500 Business Environment • State Right-to-Work Laws.............................539
Critical Legal Thinking Cases...........................................500 Strikes............................................................................539
Ethics Case.....................................................................501 Picketing.........................................................................541
Case 32.2 • Federal Court Case • Union Picketing • Ahern,
National Labor Relations Board v. International
30 LIABILITY OF PRINCIPALS, Longshore and Warehouse Union...............................................541
AGENTS, AND INDEPENDENT Business Environment • Labor Union Picketing and the
CONTRACTORS......................................... 502 First Amendment.......................................................................542
Introduction to Liability of Principals, Agents, Internal Union Affairs.......................................................543
and Independent Contractors...........................................503 Business Environment • Worker Adjustment and
Agent’s Duty of Loyalty....................................................503 Retraining Notification Act.........................................................543
Tort Liability of Principals and Agents Key Terms and Concepts..................................................544
to Third Parties................................................................504 Critical Legal Thinking Cases...........................................544
Case 30.1 • State Court Case • Scope of Employment • Ethics Case.....................................................................545
Matthews v. Food Lion, LLC........................................................505 Notes..............................................................................545
Liability for Intentional Torts.............................................507
Case 30.2 • State Court Case • Employee’s Intentional Tort • 33 EQUAL OPPORTUNITY
Burlarley v. Wal-Mart Stores, Inc................................................508
Contract Liability of Principals and Agents
IN EMPLOYMENT...................................... 546
Introduction to Equal Opportunity in Employment..............547
to Third Parties................................................................509
Equal Employment Opportunity Commission......................547
Independent Contractor....................................................511
Title VII of the Civil Rights Act of 1964.............................548
Critical Legal Thinking • Are FedEx Drivers Independent
Landmark Law • Title VII of the Civil Rights Act of 1964.....................549
Contractors?..............................................................................512
Race and Color Discrimination..........................................550
Case 33.1 • Federal Court Case • Race Discrimination •
Bennett v. Nucor Corporation.....................................................551
Ethics Case.....................................................................515
Landmark Law • Civil Rights Act of 1866...........................................552
National Origin Discrimination..........................................552
31 EMPLOYMENT, WORKER Contemporary Environment • English-Only Rules
in the Workplace........................................................................553
PROTECTION, AND Gender Discrimination......................................................553
IMMIGRATION LAW................................. 516 Sexual Orientation and Gender Identity
Introduction to Employment, Worker Protection, Discrimination..................................................................554
and Immigration Law........................................................517 Critical Legal Thinking • Sexual Orientation
Term Employment and Employment at Will........................517 Protected by Title VII..................................................................555
Workers’ Compensation...................................................518 Harassment.....................................................................556
Case 31.1 • State Court Case • Workers’ Compensation • Case 33.2 • Federal Court Case • Sexual Harassment •
Wal-Mart Stores v. Henle...........................................................520 Waldo v. Consumers Energy Company.......................................558
Occupational Safety.........................................................520 Information Technology • Offensive Electronic Communications
Case 31.2 • Federal Court Case • Specific Duty Standard • Constitute Sexual and Racial Harassment..................................559
R. Williams Construction Company v. Occupational Religious Discrimination...................................................559
Safety and Health Review Commission......................................521 Case 33.3 • U.S. Supreme Court Case • Religious
Case 31.3 • Federal Court Case • General Duty Standard • Accommodation • Equal Employment Opportunity
SeaWorld of Florida, LLC v. Perez, Secretary, Commission v. Abercrombie & Fitch Stores, Inc.........................560
United States Department of Labor............................................522 Defenses to a Title VII Action...........................................561
Fair Labor Standards Act..................................................523 Equal Pay Act..................................................................562
Critical Legal Thinking • Payment of Overtime Pay Age Discrimination...........................................................563
to Workers.................................................................................524 Discrimination Against Individuals with Disabilities...........564
Family and Medical Leave Act..........................................526 Landmark Law • Americans with Disabilities Act................................564
Consolidated Omnibus Budget Reconciliation Act.............526 Genetic Information Discrimination...................................566
Employee Retirement Income Security Act........................526 Protection from Retaliation..............................................567
Unemployment Compensation..........................................527 Affirmative Action............................................................567
Social Security.................................................................527 Contemporary Environment • Employment Protections
Immigration Law..............................................................528 for Veterans and Military Personnel............................................568
Key Terms and Concepts..................................................531 Key Terms and Concepts..................................................568
Critical Legal Thinking Cases...........................................531 Critical Legal Thinking Cases...........................................569
Ethics Cases....................................................................532 Ethics Cases....................................................................570
Notes..............................................................................533 Notes..............................................................................570

xiv Contents
Part VIII BUSINESS ORGANIZATIONS, Business Environment • S Corporation Election for Federal
Tax Purposes.............................................................................613
CORPORATE GOVERNANCE, Corporate Powers............................................................613
INVESTOR PROTECTION, Financing the Corporation: Equity Securities.....................614
AND BUSINESS ETHICS............... 571 Financing the Corporation: Debt Securities.......................616
Business Environment • Delaware Corporation Law............................617
Dissolution and Termination of Corporations.....................618
34 SMALL BUSINESS, Key Terms and Concepts..................................................619
ENTREPRENEURSHIP, Critical Legal Thinking Cases...........................................620
AND GENERAL PARTNERSHIPS................. 572 Ethics Case.....................................................................621
Introduction to Small Business, Entrepreneurship, Note................................................................................621
and General Partnerships.................................................573
Entrepreneurship..............................................................573 37 CORPORATE GOVERNANCE
Sole Proprietorship...........................................................574
Business Environment • Using a d.b.a. Trade Name...........................574
AND SARBANES-OXLEY ACT..................... 622
Introduction to Corporate Governance
Case 34.1 • State Court Case • Sole Proprietorship •
and Sarbanes-Oxley Act....................................................623
Bank of America, N.A. v. Barr.....................................................575
Shareholders....................................................................623
General Partnership.........................................................576
Ethics • Piercing the Corporate Veil....................................................628
Landmark Law • Uniform Partnership Act...........................................577
Case 37.1 • Federal Court Case • Piercing the Corporate
Case 34.2 • State Court Case • General Partnership •
Veil • Northeast Iowa Ethanol, LLC v. Drizin.................................628
Pegg v. Kohn.............................................................................578
Board of Directors............................................................629
Rights of General Partners...............................................579
Information Technology • Corporate E-Communications.....................630
Duties of General Partners................................................581
Corporate Officers............................................................632
Liability of General Partners..............................................583
Ethics • Volkswagen Emissions Scandal.............................................633
Business Environment • Liability of Incoming Partners.......................584
Duty of Obedience............................................................633
Business Environment • Liability of Outgoing Partners.......................584
Duty of Care....................................................................634
Dissolution of a General Partnership.................................584
Business Environment • The Business Judgment Rule........................634
Business Environment • Right of Survivorship
Duty of Loyalty.................................................................634
of General Partners....................................................................586
Case 37.2 • State Court Case • Fiduciary Duties of Corporate
Directors and Officers • McPadden v. Sidhu................................636
Sarbanes-Oxley Act..........................................................638
Ethics Case.....................................................................588
Ethics • The Sarbanes-Oxley Act Improves Corporate
Governance...............................................................................638
35 LIMITED PARTNERSHIPS Global Law • Bribes Paid by U.S. Companies
AND SPECIAL PARTNERSHIPS................... 589 in Foreign Countries...................................................................639
Introduction to Limited Partnerships and
Special Partnerships........................................................590
Ethics Cases....................................................................641
Limited Partnership..........................................................590
Notes..............................................................................641
Landmark Law • Revised Uniform Limited
Partnership Act..........................................................................591
Business Environment • Master Limited Partnership..........................593 38 CORPORATE ACQUISITIONS
Liability of General and Limited Partners...........................594
Management of a Limited Partnership...............................595
AND MULTINATIONAL
Business Environment • Modern Rule Permits Limited CORPORATIONS....................................... 642
Partners to Participate in Management......................................596 Introduction to Corporate Acquisitions
Limited Liability Limited Partnership.................................596 and Multinational Corporations.........................................643
Dissolution of a Limited Partnership..................................597 Proxy Solicitation and Proxy Contests..............................643
Key Terms and Concepts..................................................598 Shareholder Resolution....................................................644
Critical Legal Thinking Cases...........................................599 Ethics • Shareholder Resolution for Net-Zero GHG
Ethics Case.....................................................................599 Emissions..................................................................................645
Mergers and Acquisitions.................................................646
Case 38.1 • State Court Case • Dissenting Shareholder
36 CORPORATE FORMATION Appraisal Rights • Global GT LP v. Golden
AND FINANCING....................................... 600 Telecom, Inc..............................................................................648
Introduction to Corporate Formation Tender Offer.....................................................................649
and Financing..................................................................601 Global Law • Foreign Acquisitions of U.S. Companies........................652
Nature of the Corporation.................................................601 State Antitakeover Statutes.............................................653
Landmark Law • Revised Model Business Corporation Act.................601 Business Environment • Delaware Antitakeover Statute.....................653
Case 36.1 • State Court Case • Shareholder’s Multinational Corporations...............................................653
Limited Liability • Menendez v. O’Niell........................................603 Ethics • Are U.S. Companies Accountable for Activities
Classifications of Corporations.........................................604 of International Suppliers?.........................................................654
Incorporation Procedure...................................................605 Global Law • India’s Multinational Corporations.................................656
Information Technology • Choosing a Domain Name Key Terms and Concepts..................................................656
for a Corporation.......................................................................606 Critical Legal Thinking Cases...........................................657
Ethics • Public Benefit Corporations...................................................609 Ethics Case.....................................................................658
Business Environment • Close Corporation Election...........................610 Notes..............................................................................658

Contents
xv
39 LIMITED LIABILITY COMPANIES Crowdfunding...................................................................702

Information Technology • Regulation Crowdfunding...........................702
AND LIMITED LIABILITY Liability for Violations of the Securities
PARTNERSHIPS.......................................... 659 Act of 1933.....................................................................703
Introduction to Limited Liability Companies Exempt Securities............................................................704
and Limited Liability Partnerships.....................................660 Exempt Transactions.......................................................705
Limited Liability Company.................................................660 Business Environment • Private Placement Exemptions......................707
Landmark Law • Uniform Limited Liability Company Act.....................660 Trading in Securities........................................................708
Formation of an LLC.........................................................661 Insider Trading.................................................................710
Limited Liability of Members of an LLC..............................664 Case 41.1 • Federal Court Case • Insider Trading •
Case 39.1 • State Court Case • Limited Liability Company • United States v. Bhagat.............................................................710
Siva v. 1138 LLC.......................................................................665 Tipper–Tippee Liability......................................................711
Management of an LLC....................................................667 Case 41.2 • U.S. Supreme Court Case • Tippee Trading •
Fiduciary Duties of Members of an LLC.............................669 Salman v. United States............................................................712
Business Environment • Advantages of Operating Ethics • Stop Trading on Congressional Knowledge Act......................713
a Business as an LLC.................................................................670 Short-Swing Profits..........................................................714
Dissolution of an LLC.......................................................670 State “Blue-Sky” Laws.....................................................715
Limited Liability Partnership (LLP)....................................672 Key Terms and Concepts..................................................715
Business Environment • Accounting Firms Operate Critical Legal Thinking Cases...........................................716
as LLPs......................................................................................673 Ethics Cases....................................................................717
Ethics Cases....................................................................675
42 ETHICS AND SOCIAL RESPONSIBILITY
40 FRANCHISE AND SPECIAL FORMS OF BUSINESS............................................. 719
OF BUSINESS............................................. 676 Introduction to Ethics and Social Responsibility
of Business......................................................................720
Introduction to Franchise and Special Forms
Ethics and the Law..........................................................720
of Business......................................................................677
Case 42.1 • U.S. Supreme Court Case • Business Ethics •
Franchise.........................................................................677
Wal-Mart Stores, Inc. v. Samara Brothers, Inc............................721
Franchise Disclosure Laws...............................................679
Business Ethics...............................................................721
Franchise Agreement.......................................................680
Ethics • Whistle-blower Statute..........................................................722
Business Environment • McDonald’s Franchise..................................681
Case 42.2 • U.S. Supreme Court Case • Moral Theory
Liability of Franchisor and Franchisee...............................682
of Law and Ethics • • POM Wonderful, LLC v.
Case 40.1 • State Court Case • Franchise Liability •
Coca-Cola Company..................................................................723
Rainey v. Domino’s Pizza LLC.....................................................683
Case 42.3 • U.S. Supreme Court Case • Nondisclosure
Case 40.2 • State Court Case • Franchise Liability •
of Evidence • Goodyear Tire & Rubber Company
Espinosa v. Accor North America, Inc.........................................684
v. Haeger...................................................................................725
Apparent Agency.............................................................684
Social Responsibility of Business......................................726
Critical Legal Thinking • Apparent Agency..........................................685
Global Law • Is the Outsourcing of U.S. Jobs to Foreign
Termination of a Franchise...............................................685
Countries Ethical?......................................................................727
Licensing.........................................................................686
Ethics • Sarbanes-Oxley Act Requires Public Companies
Global Law • Starbucks’ Joint Venture in South Korea........................687
to Adopt Codes of Ethics...........................................................728
Joint Venture...................................................................687
Global Law • Conducting Business in Russia.....................................730
Strategic Alliance............................................................689
Ethics Cases....................................................................731
Ethics Case.....................................................................691
Notes..............................................................................732
Note................................................................................691
41 INVESTOR PROTECTION AND Part IX GOVERNMENT REGULATION........ 733

E-SECURITIES TRANSACTIONS.................. 692
Introduction to Investor Protection
and E-Securities Transactions...........................................693 43 ADMINISTRATIVE LAW
Securities Law.................................................................694 AND REGULATORY AGENCIES.................. 734
Landmark Law • Federal Securities Laws...........................................694 Introduction to Administrative Law
Jumpstart Our Business Startups Act................................694 and Regulatory Agencies..................................................735
Securities and Exchange Commission...............................694 Administrative Law..........................................................735
E-Securities Transactions.................................................695 Cabinet-Level Departments...............................................736
Definition of Security........................................................696 Landmark Law • U.S. Department of Homeland Security....................737
Initial Public Offering........................................................697 Federal Administrative Agencies.......................................737
Business Environment • Facebook’s Initial Public Offering..................698 State and Local Administrative Agencies..........................737
Emerging Growth Company...............................................700 Administrative Procedure.................................................738
Regulation A+ Securities Offering.....................................701 Landmark Law • Administrative Procedure Act...................................738
Small Company Offering Registration................................701 Powers of Administrative Agencies...................................738
Well-Known Seasoned Issuer............................................702 Judicial Review of Administrative Agency Actions.............741

xvi Contents
Case 43.1 • U.S. Supreme Court Case • Administrative Federal Antitrust Law.......................................................771
Agency Rule • Environmental Protection Agency v. Landmark Law • Federal Antitrust Statutes........................................771
EME Homer City Generation, L.P................................................741 Restraints of Trade: Section 1 of the Sherman Act............773
Individual Rights and Disclosures of Agency Business Environment • Rule of Reason and Per Se Rule...................773
Actions............................................................................743 Case 46.1 • Federal Court Case • Price Fixing • United States
Key Terms and Concepts..................................................744 v. Apple, Inc...............................................................................774
Critical Legal Thinking Cases...........................................744 Monopolization: Section 2 of the Sherman Act..................778
Ethics Cases....................................................................745 Mergers: Section 7 of the Clayton Act..............................780
Notes..............................................................................745 Business Environment • Premerger Notification.................................783
Tying Arrangements: Section 3 of the Clayton Act.............783
Price Discrimination: Section 2 of the Clayton Act............784
44 CONSUMER PROTECTION Federal Trade Commission Act.........................................785
AND PRODUCT SAFETY............................ 746 Exemptions from Antitrust Law.........................................786
Introduction to Consumer Protection State Antitrust Laws........................................................787
and Product Safety..........................................................747 Global Law • European Union Antitrust Law.......................................787
Food Safety.....................................................................747 Key Terms and Concepts..................................................788
Case 44.1 • Federal Court Case • Adulterated Food • Critical Legal Thinking Cases...........................................788
United States v. LaGrou Distribution Systems, Ethics Case.....................................................................789
Incorporated..............................................................................747 Notes..............................................................................790
Food, Drugs, and Cosmetics Safety..................................748
Landmark Law • Food, Drug, and Cosmetic Act..................................748
Ethics • Restaurants Required to Disclose Calories Part X PERSONAL PROPERTY,
of Food Items............................................................................749 REAL PROPERTY,
Global Law • United Nations Biosafety Protocol for AND INSURANCE......................... 791
Genetically Altered Foods..........................................................750
Product and Automobile Safety.........................................751
Unfair and Deceptive Practices.........................................751 47 PERSONAL PROPERTY
Case 44.2 • Federal Court Case • Deceptive Advertising • AND BAILMENT......................................... 792
Federal Trade Commission v. Bronson Partners, LLC..................752 Introduction to Personal Property
Ethics • False Advertising by Juice Producer.......................................752 and Bailment...................................................................793
Case 44.3 • Federal Court Case • Deceptive Internet Personal Property............................................................793
Advertising • Federal Trade Commission v. Ross.........................753 Ownership of Personal Property........................................793
Contemporary Environment • Do-Not-Call Registry.............................754 Mislaid, Lost, and Abandoned Personal
Key Terms and Concepts..................................................754 Property..........................................................................796
Critical Legal Thinking Cases...........................................755 Case 47.1 • State Court Case • Mislaid or Abandoned
Ethics Case.....................................................................755 Property • Grande v. Jennings.....................................................797
Notes..............................................................................755 Ethics • Estray Statutes Promote Honesty in Finders..........................798
Bailment..........................................................................799
Case 47.2 • State Court Case • Bailment • Ziva Jewelry, Inc. v.
45 ENVIRONMENTAL PROTECTION.............. 756 Car Wash Headquarters, Inc......................................................800
Introduction to Environmental Protection..........................757 Ordinary Bailments...........................................................800
Environmental Protection.................................................757 Special Bailments............................................................802
Air Pollution.....................................................................758 Business Environment • Warehouse Receipt......................................803
Case 45.1 • U.S. Supreme Court Case • Air Pollution • Business Environment • Bill of Lading................................................804
Michigan v. Environmental Protection Agency............................759 Case 47.3 • Federal Court Case • Common Carrier Shipment •
Contemporary Environment • Indoor Air Pollution...............................760 Rykard v. FedEx Ground Package System, Inc............................804
Water Pollution................................................................760 Key Terms and Concepts..................................................806
Case 45.2 • Federal Court Case • Environmental Pollution • Critical Legal Thinking Cases...........................................806
United States v. Maury...............................................................761 Ethics Cases....................................................................808
Ethics • BP Oil Spill in the Gulf of Mexico...........................................763 Notes..............................................................................808
Toxic Substances and Hazardous Wastes..........................764
Landmark Law • Superfund................................................................765
Endangered Species.........................................................765 48 REAL PROPERTY........................................ 809
Critical Legal Thinking • Should Endangered Species Introduction to Real Property............................................810
Be Saved?.................................................................................766 Real Property...................................................................810
State Environmental Protection Laws...............................766 Contemporary Environment • Air Rights.............................................811
Global Law • International Environmental Protection..........................767 Estates in Land................................................................811
Key Terms and Concepts..................................................767 Concurrent Ownership......................................................812
Critical Legal Thinking Cases...........................................768 Contemporary Environment • Community Property.............................814
Ethics Case.....................................................................769 Future Interests...............................................................815
Notes..............................................................................769 Transfer of Ownership of Real Property.............................816
Case 48.1 • State Court Case • Reformation of a Deed •
Robenolt v. Zyznar.....................................................................817
46 ANTITRUST LAW AND UNFAIR Adverse Possession.........................................................819
TRADE PRACTICES..................................... 770 Case 48.2 • State Court Case • Adverse Possession •
Introduction to Antitrust Law and Unfair Paine v. Sexton..........................................................................820
Trade Practices...............................................................771 Easements.......................................................................821

Contents
xvii
Case 48.3 • State Court Case • Easement • The Willows, Case 51.1 • State Court Case • Ultramares Doctrine •
LLC v. Bogy................................................................................822 Credit Alliance Corporation v. Arthur Andersen
Zoning.............................................................................824 & Company...............................................................................865
Key Terms and Concepts..................................................824 Case 51.2 • State Court Case • Accountants’ Liability
Critical Legal Thinking Cases...........................................825 to a Third Party • Cast Art Industries, LLC v.
Ethics Case.....................................................................826 KPMG LLP..................................................................................867
Securities Law Violations.................................................869
Ethics • Accountants’ Duty to Report a Client’s
49 LANDLORD–TENANT LAW Illegal Activity............................................................................871
AND LAND USE REGULATION.................. 827 Criminal Liability of Accountants......................................871
Introduction to Landlord–Tenant Law and Land Sarbanes-Oxley Act..........................................................873
Use Regulation................................................................828 Business Environment • Audit Committee..........................................874
Landlord–Tenant Relationship...........................................828 Accountants’ Privilege and Work Papers...........................874
Landlord’s Duties to a Tenant...........................................830 Key Terms and Concepts..................................................875
Implied Warranty of Habitability........................................831 Critical Legal Thinking Cases...........................................876
Case 49.1 • State Court Case • Landlord’s Liability • Ethics Cases....................................................................877
New Haverford Partnership v. Stroot...........................................832 Notes..............................................................................878
Tenant’s Duties to a Landlord...........................................833
Transfer of Leased Property by Landlords..........................834
Assignment and Sublease of a Lease Part XII PERSONAL LAW.......................... 879
by Tenants.......................................................................834
Government Regulation of Real Property...........................836
Contemporary Environment • Rent Control.........................................836 52 WILLS, TRUSTS, AND ESTATES.................. 880
Antidiscrimination Laws and Real Property........................836 Introduction to Wills, Trusts, and Estates.........................881
Government Taking of Real Property.................................838 Will.................................................................................881
Critical Legal Thinking • Eminent Domain and the Taking Probate...........................................................................884
of Real Property.........................................................................839 Case 52.1 • State Court Case • Slayer’s Statute •
Key Terms and Concepts..................................................839 Swain v. Estate of Tyre Ex Rel. Reilly..........................................885
Critical Legal Thinking Cases...........................................840 Testamentary Gifts...........................................................885
Ethics Cases....................................................................841 Intestate Succession.......................................................888
Notes..............................................................................841 Case 52.2 • State Court Case • Intestacy Statute •
Banner v. Vandeford..................................................................889
Irrevocable Trusts............................................................889
50 INSURANCE............................................... 842 Special Types of Trust......................................................891
Introduction to Insurance.................................................843 Living Trust......................................................................892
Principles of Insurance.....................................................843 Undue Influence...............................................................893
Contemporary Environment • Insurable Interest.................................843 Case 52.3 • State Court Case • Undue Influence •
Common Clauses in Insurance Policies.............................844 In re Estate of Haviland..............................................................894
Case 50.1 • Federal Court Case • Exclusion from Coverage • Living Will and Health Care Directive................................895
Green v. Life Insurance Company of North America....................845 Contemporary Environment • Right to Die..........................................895
Life Insurance..................................................................846 Key Terms and Concepts..................................................896
Health and Disability Insurance........................................848 Critical Legal Thinking Cases...........................................896
Fire and Homeowners’ Insurance......................................849 Ethics Case.....................................................................897
Case 50.2 • State Court Case • Insurance Fraud • Notes..............................................................................897
People v. Abraham.....................................................................850
Automobile, Vehicle, and Vessel Insurance.......................851 53 FAMILY LAW............................................. 898
Contemporary Environment • No-Fault Automobile Liability
Introduction to Family Law...............................................899
Insurance..................................................................................853
Premarriage Issues..........................................................899
Business Insurance..........................................................853
Marriage..........................................................................900
Cyber Insurance...............................................................856
Same-Gender Marriage.....................................................901
Umbrella Insurance..........................................................856
Contemporary Environment • Same-Sex Marriage..............................901
Parents and Children........................................................902
Marriage Termination.......................................................902
Ethics Case.....................................................................858
Prenuptial Agreement......................................................904
Contemporary Environment • Prenuptial Agreement...........................904
Case 53.1 • State Court Case • Prenuptial Agreement •
Part XI ACCOUNTING PROFESSION......... 859 Beyor v. Beyor............................................................................905
Case 53.2 • State Court Case • Prenuptial Agreement •
Dodson v. Dodson.....................................................................906
51 ACCOUNTANTS’ DUTIES Division of Assets............................................................907
AND LIABILITY........................................... 860 Spousal and Child Support................................................909
Introduction to Accountants’ Duties Landmark Law • Family Support Act..................................................910
and Liability.....................................................................861 Child Custody..................................................................910
Public Accounting............................................................861 Key Terms and Concepts..................................................911
Accounting Standards and Principles................................862 Critical Legal Thinking Cases...........................................911
Accountants’ Liability to Their Clients...............................863 Ethics Case.....................................................................912
Accountants’ Liability to Third Parties..............................864 Notes..............................................................................912

xviii Contents
Part XIII GLOBAL ENVIRONMENT.............. 913 International Religious Laws.............................................929

Global Law • Jewish Law and the Torah.............................................929
Global Law • Islamic Law and the Qur’an...........................................930
54 INTERNATIONAL AND WORLD Global Law • Christian and Canon Law..............................................930
TRADE LAW............................................... 914 Global Law • Hindu Law—Dharmasastra.............................................931
Introduction to International and World Trade Law.............915 Key Terms and Concepts..................................................931
The United States and Foreign Affairs...............................915 Critical Legal Thinking Cases...........................................932
United Nations.................................................................916 Ethics Case.....................................................................933
Global Law • United Nations Children’s Fund.....................................919 Notes..............................................................................933
European Union................................................................919
North American Free Trade Agreement..............................921
Association of Southeast Asian Nations............................921
Other Regional Organizations............................................923
Global Law • Union of South American Nations..................................924 Appendix A T HE CONSTITUTION
World Trade Organization.................................................924 OF THE UNITED STATES
National Courts and International
Dispute Resolution...........................................................925
OF AMERICA............................. 935
Case 54.1 • Federal Court Case • Act of State Doctrine • GLOSSARY................................................... 945
Glen v. Club Mediterranee, S.A...................................................926
Case 54.2 • U.S. Supreme Court Case • Sovereign Immunity •
CASE INDEX............................................... 1001
OBB Personenverkehr AG v. Sachs.............................................928 SUBJECT INDEX......................................... 1005

Dedication
To my wife, Jin Du,

and to our new twins: Ziva and Xavier

PREFACE
New to the Tenth Edition
This tenth edition of Business Law is a significant revision of Professor Chee-
seman’s business law and legal environment textbook that includes many new
cases and features.
New U.S. Supreme Court Cases

More than 15 new U.S. Supreme Court cases, including:
• Equal Employment Opportunity Commission v. Abercrombie & Fitch
Stores, Inc. (Title VII applies to prevent religious employment discrimina-
tion against a Muslim female
job applicant who was not
hired because she wore a
head scarf, which would have
violated the clothing store’s
policy against sales personnel
wearing head caps.)
• Fisher v. University of Texas
at Austin (Race-conscious uni-
versity admissions policy does
not violate the Equal Protec-
tion Clause.)
• Maryland v. Kulbicki (Crimi-
nal defense attorneys are
required to provide reasonable
competent representation to criminal defendants and not perfect advocacy as
asserted by a defendant convicted of murder.)
• Michigan v. Environmental Protection Agency (The EPA acted unrea-
sonably when it did not consider cost when it ordered power plants
to spend $9 billion per year to reduce hazardous air pollutants
that would yield benefits of reduced air pollution by only $6 million
per year.)
• Obergefell v. Hodges (The U.S. Supreme Court held that same-sex couples
may exercise the fundamental right to marry and held that state laws that
did not permit or recognize
same-sex marriages violated
the Due Process and Equal
Protection clauses to the U.S.
Constitution.)
• Samsung Electronics Co.,
Ltd. v. Apple Inc. (Samsung’s
smartphones infringed Apple’s
design patents, and the dam-
ages could be either the entire
profits made from the sale
of the product or the profits
attributable to the infringing
components.)
xxi

xxii Preface
New State and Federal Court Cases

More than 35 new state and federal court cases including:
• United States v. Apple, Inc. (Apple, who orchestrated a conspiracy among
five major publishing companies to enter a price-fixing agreement to raise the
retail price of digital books sold
on Apple’s iBookstore engaged in
a per se price-fixing in violation
of antitrust law.)
• G rady v. Green Acres, Inc.
(Assumption of the risk applies to
snow tubing and precludes plaintiff
from recovering damages for inju-
ries he suffered while snow tubing.)
• Kolodziej v. Mason (A lawyer who,
during an NBC interview, stated a
$1 million challenge to anyone who
could prove his theory of a case he
was involved in was wrong, made
the challenge in jest and it did not
constitute an offer.)
• S mith v. Delta Tau Delta, Inc.
(No agency existed between a
national fraternity and one of
its local college chapters, so the
national fraternity was not liable
for death of a pledge of the local
chapter that occurred during a
hazing incident.)
• Wade v. Wal-Mart Stores, Inc.
(The court granted summary
judgment to Wal-Mart where the
plaintiff tripped and sustained injuries from an open and obvious hazard in the
store’s parking lot.)
• Wal-Mart Stores v. Henle (A worker was awarded permanent total disability
workers’ compensation benefits after she was severely injured on the job
when a 60-pound stack of plastic totes fell 15 feet, striking her on the head.)
New Special Features on Critical Legal Thinking, Ethics,

and Information Technology
More than 20 new special features, including:
• Critical Legal Thinking: Are FedEx Drivers Independent
Contractors?
• Critical Legal Thinking: Pay-
ment of Overtime Pay to
Workers
• E thics: Ponzi Scheme
Defrauds $200 Million From
Investors
• E thics: Volkswagen Emis-
sions Scandal
• Global Law: Union of South
American Nations

Preface
xxiii
• I nformation Technology:
“Google” Trademark Is Not
a Generic Name
• Information Technology:
Social Media Posting and
Photographs are Discover-
able Evidence
Reach Every Student by

Pairing This Text with
MyLab Business Law
MyLab is the teaching and learning platform that empowers you to reach every
student. By combining trusted author content with digital tools and a flexible
platform, MyLab personalizes the learning experience and improves results for
each student. Learn more about MyLab Business Law
Deliver Trusted Content

You deserve teaching materials that meet your own high standards for your
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• UPDATED! Mini Sims put your students in business professional roles and
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Empower Each Learner

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review, and allowing them to use customized
practice and learning aids—such as videos,
eText, tutorials, and more—to get them back
on track.
• Dynamic Study Modules help students study
effectively on their own by continuously
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real time. Here’s how it works: students com-
plete a set of questions with a unique answer

xxiv Preface
format that also asks them to

indicate their confidence level.
Questions repeat until the stu-
dent can answer them all cor-
rectly and confidently.
Teach Your Course

Your Way
Your course is unique. So
whether you’d like to build
your own assignments, teach
multiple sections, or set pre-
requisites, MyLab gives you the flexibility to easily create your course to fit
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• MediaShare for Business—Consisting of a curated collection of business vid-
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Improve Student Results

When you teach with MyLab, student performance improves. That’s why instruc-
tors have chosen MyLab for over 15 years, touching the lives of over 50 million
students.
Developing Skills for Your Career

If you haven’t yet decided on a major, you may be thinking that this section isn’t
relevant to you. Let me assure you it is. Whether or not you plan on a career in busi-
ness, the lessons you learn in
this course will help you (in
business and/or in your life
in many ways). Moreover, it
is only through the aggregate
of your educational experi-
ence that you will have the
opportunity to develop many
of the skills that employers
have identified as critical to
success in the workplace. In
this course, and specifically
in this text you’ll have the
opportunity to develop and
practice these skills through
features such as Critical Think-
ing Legal Questions and Infor-
mation Technology Law cases.

Preface
xxv
Instructor Resources
Business Law comes with the following teaching resources.
Supplements available Features of the Supplement

to instructors at
www.pearsonhighered.com
Instructor’s Manual • Chapter-by-chapter summaries
• Examples and activities not in the main book
authored by Carolyn Mendelson
• Teaching outlines
from University of Pittsburgh
• Teaching tips
• Solutions to all questions and problems in the book
Case Solutions Solutions to the end-of-chapter content.
authored by Henry Cheeseman
from University of Southern
California
Test Bank 4,000 multiple-choice, true/false, short-answer, and graphing questions
with these annotations:
authored by David Dieteman from
Pennsylvania State University and • Difficulty level (1 for straight recall, 2 for some analysis, 3 for
Leila Lawlor from Georgia State complex analysis)
University • Type (Multiple-choice, true/false, short-answer, essay
• Topic (The term or concept the question supports)
• Learning outcome
• AACSB learning standard (Written and Oral Communication;
Ethical Understanding and Reasoning; Analytical Thinking;
Information Technology; Interpersonal Relations and Teamwork;
Diverse and Multicultural Work; Reflective Thinking; Application
of Knowledge)
• Page number in the text
Computerized TestGen TestGen allows instructors to:
• Customize, save, and generate classroom tests
• Edit, add, or delete questions from the Test Item Files
• Analyze test results
• Organize a database of tests and student results.
PowerPoints authored by Abbey Slides include the graphs, tables, and equations in the textbook.
Stemler from Indiana University
PowerPoints meet accessibility standards for students with disabilities.
Features include, but not limited to:
• Keyboard and Screen Reader access
• Alternative text for images
• High color contrast between background and foreground colors
Business Law, 10th edition, is available as an eBook and can be purchased at most eBook retailers.

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 tenth edition of 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 learn that this course presents the “real world,” that is, real legal
disputes involving real people like yourselves. 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 encounter. 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 received a
wonderful reward for the work I do.
I remind myself of this every time I sit down to work on writing and
revising 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 environment keeps
changing. This new tenth edition of Business Law
emphasizes coverage of online law, e-commerce,
and information technology as key parts of the
legal environment. In addition, this book covers
social, ethical, 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 creating it for you.
Henry Cheeseman

ABOUT THE AUTHOR
Henry R. Cheeseman is professor
emeritus of the Marshall School of
Business of the University of South-
ern California (USC), Los Angeles,
California.
Professor Cheeseman earned a
bachelor’s degree in finance from
Marquette University, both a mas-
ter’s in business administration
(MBA) and a master’s in business
taxation (MBT) from the University
of Southern California, a juris doc-
tor (JD) degree from the University
of California at Los Angeles (UCLA)
School of Law, a master’s degree
with an emphasis on law and eco-
nomics from the University of Chi-
cago, and a master’s in law (LLM)
degree in financial institutions law
from Boston University.
Professor Cheeseman was direc-
tor of the Legal Studies in Business
Program at the University of South-
ern California. He taught business law, legal environment, 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, eth-
ics, business organizations, cyberlaw, 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 Pro-
fessor Cheeseman for recognition of his leadership, commitment, and excellence
in teaching.
Professor Cheeseman writes leading business law and legal environment text-
books that are published by Pearson Education, Inc. These textbooks include
Business Law; Contemporary Business Law; and Legal Environment of
Business.
Professor Cheeseman is an avid traveler and amateur photographer. All of the
photographs that appear in this textbook (except the book cover photo) were
taken by Professor Cheeseman.
xxix

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—copyeditors, develop-
mental editors, 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

I appreciate the ideas, encouragement, effort, and decisions of the management
team at Pearson: Donna Battista, Vice President Business Publishing; Stephanie
Wall, Director of Portfolio Management; Nicole Sam, Portfolio Manager Business
Law; Melissa Feimer, Managing Producer; and Jeff Holcomb, Director of Produc-
tion; for their support in the publication of this book.
I’d also like to thank: Pam Rockwell for her excellent copyediting of the manu-
script; Heidi Allgair, Project Manager at Cenveo® Publisher Services, for her excep-
tional work coordinating the manuscript process; and Michelle Zeng, Content
Producer at Pearson.
I would especially like to thank the professionals of the sales staff of Pearson
Education, Inc., particularly all the knowledgeable sales representatives, without
whom the success of this textbook would be impossible.
Personal Acknowledgments
My Family
I would like to dedicate this book to my wife, Jin Du, and my twins, Ziva and
Xavier.
My Relatives
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 brother Gregory—
with whom a special bond exists as twins—and the rest of my family, including
my sister Marcia, deceased; Gregory’s wife Lana; my nephew Gregory and his
wife Karen; my niece Nicky and her husband Jerry; and my great nieces Lauren,
Addison, and Shelby.
Students
I’d like to acknowledge the students at the University of Southern California
(USC) and the students at other colleges and universities in the United States
and around the world. Their spirit, energy, and joy are contagious. I love teach-
ing my students (and, as important, my students teaching me). At the end of
each semester, I am sad that the students I have come to know are moving on.
But each new semester brings another group of students who will be a joy to
teach. And thus, the cycle continues.
xxxi

xxxii Acknowledgments
Colleagues
Certain people and colleagues are enjoyable to work with and have made my life
easier as I have endeavored to write this new tenth edition of Business Law.
I would like to thank Kerry Fields, my colleague who teaches business, inter-
national, real estate, and employment law courses at the University of Southern
California, who is a superb professor and a wonderful friend.
I also thank Kevin Fields, my colleague who teaches business, corporation,
and real estate law courses at the University of Southern California, who is an
excellent professor and a close friend.
And I give special thanks to Helen Pitts, Debra Jacobs, Terry Lichvar, and Jean
Collins, at the Marshall School of Business, who are always a joy to work with.
Business Law Professors

I would also like to thank the professors who teach business law, legal environ-
ment of business, and other law-related courses at undergraduate and MBA pro-
grams at colleges and universities in the United States and around the world
for their dedication to the discipline. Their experience in the law and teaching
ability make them some of the greatest professors on any college or university
campus.
Author’s Personal Statement

While writing the preface and acknowledgments, I have thought about the thou-
sands of hours I have spent researching, writing, and preparing this manuscript.
I’ve loved every minute, 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

BUSINESS LAW
TENTH EDITION


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BUSINESS LAW

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PEARSON, ALWAYS LEARNING, and MYLAB are exclusive trademarks owned by

Unless otherwise indicated herein, any third-party trademarks, logos, or icons

Cataloging-in-Publication Data is available on file at the Library of Congress

ISBN 10: 0-13-4728785

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49 Landlord–Tenant Law and Land Part XIII GLOBAL ENVIRONMENT..................913

Part XI ACCOUNTING PROFESSION............859 Appendix A THE CONSTITUTION

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9 NATURE OF TRADITIONAL 12 CAPACITY AND LEGALITY......................... 225

10 AGREEMENT.............................................. 200 13 GENUINENESS OF ASSENT

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Formality of the Writing....................................................258 17 DIGITAL LAW AND E-COMMERCE........... 300

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Risk of Loss Where There is a Breach Part V NEGOTIABLE INSTRUMENTS,

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39 LIMITED LIABILITY COMPANIES Crowdfunding...................................................................702

41 INVESTOR PROTECTION AND Part IX GOVERNMENT REGULATION........ 733

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Part XIII GLOBAL ENVIRONMENT.............. 913 International Religious Laws.............................................929

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To my wife, Jin Du,

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New U.S. Supreme Court Cases

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New State and Federal Court Cases

New Special Features on Critical Legal Thinking, Ethics,

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Reach Every Student by

Deliver Trusted Content

Empower Each Learner

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format that also asks them to

Teach Your Course

Improve Student Results

Developing Skills for Your Career

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Supplements available Features of the Supplement

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The Exceptional Pearson Professionals

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Business Law Professors

Author’s Personal Statement

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