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EXTENDED CASE 9.3: Alexander v.

Lafayette Crime Stoppers, Inc. 214

Termination of the Offer 216

Acceptance 218

Section 2: Agreement in E-Contracts 221

Online Offers 221

Online Acceptances 222

E-Signature Technologies 224

State Laws Governing E-Signatures 224

Federal Law on

E-Signatures and E-Documents 224

Partnering Agreements 224

Section 3: The Uniform

Electronic Transactions Act 225

The Scope and

Applicability of the UETA 225

The Federal E-SIGN

Act and the UETA 225

Attributing Electronic Signatures 226

The Effect of Errors 226

Timing 226

Section 4: International

Treaties Affecting E-Contracts 227

Reviewing • Terms and Concepts • Questions and

Case Problems 227–230

Chapter 10—Consideration,

Capacity, and Legality 231

Section 1: Consideration 231

Legal Value 231

Bargained-for Exchange 232

Adequacy of Consideration 232

Agreements That Lack Consideration 233

CASE 10.1: Access

Organics, Inc. v. Hernandez 234

Settlement of Claims 236

Section 2: Promissory Estoppel 238

Requirements to State a Claim 238

Application of the Doctrine 238

EXTENDED CASE 10.2: 1861 Group,

LLC v. Wild Oats Markets, Inc. 239

Section 3: Contractual Capacity 240

Minors 241

Intoxication 242

Mental Incompetence 243

Section 4: Legality 244

Contracts Contrary to Statute 244

Contents ix

Contracts Contrary to Public Policy 246

CASE 10.3: Comedy Club, Inc.

v. Improv West Associates 247

Effect of Illegality 250

Reviewing • Terms and Concepts • Questions and Case Problems 252–255

Chapter 11—Defenses to

Contract Enforceability 256

Section 1: Mistakes 256

Mistakes of Fact 256

CASE 11.1: Inkel v. Pride

Chevrolet-Pontiac, Inc. 258

Mistakes of Value 259

Section 2: Fraudulent

Misrepresentation 259

Misrepresentation Has Occurred 260

Intent to Deceive 261

Reliance on the Misrepresentation 262

Injury to the Innocent Party 262

INSIGHT INTO ETHICS: How Much Information Must Employers Disclose to Prospective Employees? 263

Section 3: Undue Influence 264

How Undue Influence May Occur 264

The Presumption of

Undue Influence 264

Section 4: Duress 264

The Threatened Act Must

Be Wrongful or Illegal 264

Economic Duress 265

Section 5: The Statute of

Frauds—Writing Requirement 265

Contracts Involving Interests in Land 265

EXTENDED CASE 11.2:

Salim v. Solaiman 267

The One-Year Rule 268

Collateral Promises 269

Promises Made in

Consideration of Marriage 270

Contracts for the Sale of Goods 270

Exceptions to the Statute of Frauds 270

Sufficiency of the Writing 272

Section 6: The Parol Evidence Rule 272

Exceptions to the

Parol Evidence Rule 273

CASE 11.3: Watkins v. Schexnider 274

Integrated Contracts 275

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xContents

Reviewing • Terms and Concepts • Questions and

Case Problems 276–279

Chapter 12—Third Party

Rights and Discharge 280

Section 1: Assignments

and Delegations 280

Assignments 280

Delegations 283

Assignment of “All Rights” 285

Section 2: Third Party Beneficiaries 285

Types of Intended Beneficiaries 287

EXTENDED CASE 12.1:

Allan v. Nersesova 287

When the Rights of an

Intended Beneficiary Vest 288

Intended versus

Incidental Beneficiaries 289

Section 3: Contract Discharge 290

Conditions of Performance 290

Discharge by Performance 291

CASE 12.2: Wisconsin Electric Power

Co. v. Union Pacific Railroad Co. 293

Material Breach of Contract 294

Anticipatory Repudiation 294

Time for Performance 295

Discharge by Agreement 295

Discharge by Operation of Law 296

INSIGHT INTO ETHICS:

When Is Impossibility of

Performance a Valid Defense? 298

CASE 12.3: Merry Homes,

Inc. v. Chi Hung Luu 299

Reviewing • Terms and Concepts • Questions and

Case Problems 301–305

Chapter 13—Breach and Remedies 306

Section 1: Damages 306

Types of Damages 306

CASE 13.1: Hadley v. Baxendale 309

Mitigation of Damages 310

Liquidated Damages Provisions 310

EXTENDED CASE 13.2: B-Sharp

Musical Productions, Inc. v. Haber 311

Section 2: Equitable Remedies 312

Rescission and Restitution 312

Specific Performance 313

Reformation 314

CASE 13.3: Drake v. Hance 314

Section 3: Recovery

Based on Quasi Contract 316

When Quasi Contract Is Used 316

The Requirements of Quasi Contract 317

Section 4: Election of Remedies 318

The Purpose of the Doctrine 318

The UCC’s Rejection of the Doctrine 318

Pleading in the Alternative 318

Section 5: Waiver of Breach 318

Consequences of

a Waiver of Breach 318

Reasons for Waiving a Breach 319

Waiver of Breach and

Subsequent Breaches 319

Section 6: Contract

Provisions Limiting Remedies 319

The UCC Allows Sales

Contracts to Limit Remedies 319

Enforceability of Limitation-

of-Liability Clauses 319

Reviewing • Terms and Concepts • Questions and Case Problems 320–323

Unit 3—Commercial

Transactions 325

Chapter 14—The Formation of Sales Contracts 326

Section 1: The Scope

of Articles 2 and 2A 326

Article 2—The Sale of Goods 326

CASE 14.1: Jannusch v. Naffziger 329

Article 2A—Leases 331

Section 2: The Formation of

Sales and Lease Contracts 332

Offer 332

SHIFTING LEGAL PRIORITIES

FOR BUSINESS: Fair Trade and

Environmental Sustainability 334

Acceptance 335

Consideration 336

The Statute of Frauds 336

Parol Evidence 338

Unconscionability 339

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EXTENDED CASE 14.2:

Jones v. Star Credit Corp. 339

Section 3: Title and Risk of Loss 341

Identification 341

When Title Passes 343

Risk of Loss 344

Conditional Sales 346

Consignments 347

CASE 14.3: In re Music City RV, LLC 347

Risk of Loss When a Sales or

Lease Contract Is Breached 349

Section 4: Insurable Interest 349

Insurable Interest of

the Buyer or Lessee 349

Insurable Interest of

the Seller or Lessor 350

Reviewing • Terms and Concepts • Questions and

Case Problems 351–354

Chapter 15—Performance, Breach,

and Warranties for Sales Contracts 355

Section 1: Performance Obligations 355

Obligations of the Seller or Lessor 356

Obligations of the Buyer or Lessee 359

EXTENDED CASE 15.1: Romero

v. Scoggin-Dickey

Chevrolet-Buick, Inc. 360

Anticipatory Repudiation 361

Section 2: Remedies in

Sales and Lease Contracts 363

Remedies of the Seller or Lessor 363

Remedies of the Buyer or Lessee 365

CASE 15.2: Houseman v. Dare 365

Additional Provisions

Affecting Remedies 369

Section 3: Sales and Lease Warranties 369

Warranties of Title 370

Express Warranties 370

Implied Warranties 371

CASE 15.3: Webster v.

Blue Ship Tea Room, Inc. 372

Magnuson-Moss Warranty Act 373

Overlapping Warranties 374

Warranty Disclaimers and

Limitations on Liability 374

Reviewing • Terms and Concepts • Questions and

Case Problems 377–380

Contents xi

Unit 4—Agency

and Business Forms 381

Chapter 16—Agency

Relationships in Business 382

Section 1: Agency Relationships 382

Employer-Employee Relationships 383

Employer–Independent

Contractor Relationships 383

Determination of Employee Status 383

Section 2: Formation of

the Agency Relationship 385

Agency by Agreement 385

CASE 16.1: Laurel Creek

Health Care Center v. Bishop 386

Agency by Ratification 387

Agency by Estoppel 387

Agency by Operation of Law 387

Section 3: Duties and Rights

of Agents and Principals 388

Agent’s Duties to the Principal 388

EXTENDED CASE 16.2:

Taser International, Inc. v. Ward 389

Principal’s Duties to the Agent 391

Rights and Remedies of

Agents and Principals 392

Section 4: Scope of Agent’s Authority 393

Express Authority 393

Implied Authority 393

Apparent Authority 395

CASE 16.3: Azur v. Chase Bank, USA 395

Emergency Powers 396

Ratification 397

Section 5: Liability for Contracts 397

Authorized Acts 397

Unauthorized Acts 398

Actions by E-Agents 398

Section 6: Liability for Torts and Crimes 399

Principal’s Tortious Conduct 399

Principal’s Authorization of Agent’s

Tortious Conduct 399

Liability for Agent’s

Misrepresentation 399

Liability for Agent’s Negligence 400 Liability for Agent’s Intentional Torts 402

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xii Contents

Liability for Independent

Contractor’s Torts 402

Liability for Agent’s Crimes 402

Section 7: Termination of an Agency 402

Termination by Act of the Parties 402

Termination by Operation of Law 404

Reviewing • Terms and Concepts • Questions and

Case Problems 406–409

Chapter 17—Sole Proprietorships, Partnerships, and

Limited Liability Companies 410

Section 1: Sole Proprietorships 410

Advantages of the

Sole Proprietorship 410

Disadvantages of the

Sole Proprietorship 411

Section 2: Partnerships 411

Agency Concepts

and Partnership Law 411

The Uniform Partnership Act 412

Definition of a Partnership 412

When Does a Partnership Exist? 412

Joint Property Ownership

and Partnership Status 412

Entity versus Aggregate 413

Tax Treatment of Partnerships 413

Partnership Formation 413

Rights of Partners 415

Duties and Liabilities of Partners 416

CASE 17.1: Meinhard v. Salmon 417

Dissociation of a Partner 420

Partnership Termination 421

Section 3: The Limited

Liability Company 423

Taxation of the LLC 423

The Nature of the LLC 424

The Formation of the LLC 424

CASE 17.2: 02 Development,

LLC v. 607 South Park, LLC 424

Jurisdictional Requirements 426

Advantages of the LLC 426

EXTENDED CASE 17.3: ORX Resources,

Inc. v. MBW Exploration, LLC 426

Disadvantages of the LLC 428

The LLC Operating Agreement 428

Management of an LLC 429

Operating Procedures 429

INSIGHT INTO ETHICS:

Fiduciary Duties of LLC Managers 430

Dissociation in an LLC 430

Dissolution of an LLC 431

Reviewing • Terms and Concepts • Questions and Case Problems 431–434

Chapter 18—Corporations 435

Section 1: The Nature and

Classification of Corporations 435

Corporate Personnel 436

The Limited Liability of Shareholders 436

Corporate Earnings and Taxation 436

SHIFTING LEGAL PRIORITIES

FOR BUSINESS: The Latest

Recession Re-Ignites the

Internet Taxation Debate 437

Torts and Criminal Acts 438

Classification of Corporations 438

Section 2: Corporate

Formation and Powers 441

Promotional Activities 441

Incorporation Procedures 441

First Organizational

Meeting to Adopt Bylaws 443

Improper Incorporation 444

CASE 18.1: Brown v. W. P. Media, Inc. 445

Corporate Powers 446

Section 3: Piercing the Corporate Veil 447

Factors That Lead Courts to

Pierce the Corporate Veil 447

A Potential Problem for

Closely Held Corporations 447

EXTENDED CASE 18.2: Schultz

v. General Electric Healthcare

Financial Services 448

The Alter-Ego Theory 449

Section 4: Directors and Officers 450

Roles of Directors 450

Corporate Officers and Executives 452

Duties and Liabilities of

Directors and Officers 453

CASE 18.3: Guth v. Loft, Inc. 454

Section 5: Shareholders 456

Shareholders’ Powers 456

Shareholders’ Meetings 457

The study of business law and the legal environment of business has universal applicability for students entering any field of business. In fact, every individual, throughout life, can benefit from a basic knowledge of legal topics, including contracts, tort law, intellectual property, ethics, commercial transactions, and agency law. Consequently, I have fashioned this text as a useful “tool for living” for all of your students.

This book is designed not only to provide your students with a solid foundation of blackletter law but also to make the materials come alive for your students in a way that sparks their interest. Special features, examples, and cases appear throughout the text to show your students how the law really does apply in the modern business environment. I hope that you will find this text authoritative and accurate, conversational but clear, contemporary, exciting, and visually appealing.

INCLUDED IN EVERY CHAPTER

Modern Principles of Business Law combines some of the most popular features available in business law texts today with the reputation and experience of a best-selling author. Each chapter gives special emphasis to critical-thinking elements, ethics, technology, sustainability, and meeting core curriculum requirements. Because today’s business leaders must often think “outside the box” when making business decisions, I have included numerous critical-thinking elements designed to challenge students’ understanding of the materials and lead them beyond simple retention. Your students will enhance their critical-thinking and legal reasoning skills as they work through the chapters of this book.

Case Presentation

Every chapter in this text presents three excerpted cases. The cases are numbered sequentially for easy referencing in class dis-

cussions, homework assignments, and examinations. I have carefully selected and excerpted recent cases that not only provide on-point illustrations of the legal principles discussed in the chapter, but also are of high interest to students. I have also included a few classic cases that are landmarks in the legal environment, because instructors often refer to these cases when teaching modern business law.

The cases in this book are presented in two special formats. Each case begins with the case title and citation (including parallel citations). Whenever possible, a URL is included just below the case citation. Students can use the URL to access the case online (a footnote to the URL explains how to find the specific case at that Web site). For most of the cases, I briefly outline the facts of the dispute and then present the court’s actual opinion in a section called “In the Language of the Court.” To enhance student understanding, the reason for the court’s decision is paraphrased. Every chapter also includes one Extended Case that is presented entirely in the court’s language and does not include any paraphrased section on the case’s background and facts or on the decision and remedy. If an opinion contains any terms that might be difficult for students to understand, a bracketed definition is provided.

Each case concludes with two case-ending questions (or one question and a Managerial Implications section). The cases may include one or more of the following sections:

•Company Profiles—Certain cases include a profile describing the history of the company involved to give students an awareness of the context of the case before the court. Some profiles include the URL for the company’s Web site.

•What If the Facts Were Different?—One case in each chapter typically concludes with this critical-thinking question. The student is asked to decide whether a specified change in the facts of the case would alter its outcome. Suggested answers to these questions

are included in both the Instructor’s Manual and the Answers Manual that accompany this text.

(The full title of the latter manual is Answers to Questions and Case Problems and Alternate Problem Sets with Answers.)

•The Ethical [E-Commerce, Global, or Legal Environment] Dimension—These questions ask students to explore different aspects of the issues of the case and help instructors meet core curriculum requirements for business law. Suggested answers to these questions are included in both the

Instructor’s Manual and the Answers Manual that accompany this text.

in which they live. An instructor can use these features as the basis for in-class discussion or encourage students to use them for self-study prior to completing homework assignments.

Suggested answers to the questions posed in the Reviewing features can be found in both the

Instructor’s Manual and the Answers Manual that accompany this text.

Debate This Features

To encourage student participation and motivate your students to think critically about the rationale underlying the law on a particular topic, I

Because many students are not aware of how some of the older cases presented in this text affect today’s court rulings, a section at the end of landmark and classic cases clarifies the relevance of the particular case to modern law.

•Managerial Implications—These sections clarify the relevance of a case for business owners or managers.

This feature consists of a brief statement or question concerning the chapter material that can be used to spur lively classroom or small-group discussions, or it can be the basis for a written assignment. This feature follows the Reviewing feature at the end of each chapter. Suggested pro and con responses to Debate This features can be found in both the Instructor’s Manual and the Answers Manual that accompany this text.

Highlighted

Case in Point Illustrations

Because many instructors use cases to illustrate how the law applies to business, I have included not only case excerpts but also Case in Point features in every chapter. These features present, in a paragraph format, the facts and issues of an actual case and then describe the court’s decision and rationale. Citations to the case are included for further reference. The Case in Point features are integrated throughout the text to help students better understand how courts apply the principles under discussion in the real world.

Reviewing Features

A Reviewing feature specific to the chapter topic appears at the end of every chapter to help solidify students’ understanding of the chapter materials. Each Reviewing feature presents a hypothetical scenario and then asks a series of questions that require students to identify the issues and apply the legal concepts discussed in the chapter. These features are designed to help students review the chapter topics in a simple and interesting way and see how the legal principles discussed in the chapter affect the world

Questions and

Case Problems—

Two with Sample Answers

Every chapter ends with a section titled

Questions and Case Problems. The first few questions are hypothetical, followed by a set of case problems designed to clarify how modern courts deal with the issues discussed in the chapter. The Question with Sample Answer is a hypothetical question for which students can access a sample answer on the text’s Web site (located at www.cengagebrain.com). The

Case Problem with Sample Answer is based on an actual case and is also answered on the text’s Web site. Each question and case problem is labeled to identify the chapter topic to which it relates, making it easier for those instructors who wish to assign only certain questions to their students.

I have also included a special case problem, called A Question of Ethics, in every chapter to provide modern examples of the kinds of ethical issues businesspersons face and to explore the ways that courts can resolve them. Suggested answers to the Questions and Case Problems are included in both the Instructor’s Manual and the Answers Manual that accompany this text.

SPECIAL FEATURES

IN SELECTED CHAPTERS

Modern Principles of Business Law offers a number of additional features when appropriate to the materials under discussion. For example, whenever key areas of the law need additional emphasis, a Concept Summary is provided. When appropriate, I also include exhibits that illustrate important aspects of the law in graphic form. In addition, the following special features appear only in selected chapters.

Video Questions

I have included special Video Questions at the end of selected chapters. Each of these questions directs students to the text’s Web site (at www.cengagebrain.com), where they will view a video relevant to a topic covered in the chapter and then answer a series of questions in the book that relate the video to the chapter material. Some of the videos are clips from actual movies or television series, such as Jaws and The Jerk. Others are from a new Real World Legal or Drama of the Law series of videos in the comprehensive Digital Video Library, a compendium of more than seventy-five video scenarios and explanations.

An access code for the videos can be packaged with each copy of this textbook at no additional charge. If Digital Video Library access did not come packaged with the textbook, students can purchase it online at www. cengagebrain.com.

These videos can be used for homework assignments, discussion starters, or classroom demonstrations and are useful for generating student interest. By watching a video and answering the questions, students will better understand how the legal concepts they have studied in the chapter apply to the real-life situation portrayed in the video. Suggested answers for all of the Video Questions are given in both the

Instructor’s Manual and the Answers Manual that accompany this text.

Shifting Legal

Priorities for Business

This feature shows students how legal priorities are shifting in the business world. It emphasizes sustainability, ethical trends, and chang-

ing managerial responsibilities. Each feature ends with a short section entitled Managerial Implications that points out why the changing priorities discussed in the feature are significant to businesspersons. Topics examined in these features include the following:

•Sustainability and the Law (Chapter 1).

•The Anti-Counterfeiting Trade Agreement (Chapter 5).

•Prosecuting White-Collar Crime with the HonestServices Fraud Law (Chapter 6).

•Fair Trade and Environmental Sustainability (Chapter 14).

•The Latest Recession Re-Ignites the Internet Taxation Debate (Chapter 18).

Insight into

Ethics Features

The Insight into Ethics feature appears in selected chapters and examines the ethical implications of various topics. This feature provides valuable insights into how the courts and the law are dealing with specific ethical issues. Each of these features ends with a critical-thinking question that explores some cultural, environmental, political, social, or technological aspect of the issue. The following are some of the topics explored in these features:

•Is It Illegal to Distribute Virtual Pornography? (Chapter 2).

•How the Internet Is Expanding Precedent (Chapter 3).

•Some Consequences of Caps on Medical Malpractice Awards (Chapter 7).

•How Much Information Must Employers Disclose to Prospective Employees? (Chapter 11).

•When Is Impossibility of Performance a Valid Defense? (Chapter 12).

THE TEXT’S WEB SITE

When you visit the text’s Web site at www. cengagebrain.com, you will find a broad array of teaching/learning resources, including the following:

•Sample answers to each chapter’s Question with Sample Answer and Case Problem with Sample Answer.

•Videos referenced in the Video Questions (discussed previously) that appear in selected

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xviii Preface

chapters of this edition of Modern Principles of Business Law.

•Interactive quizzes for every chapter in this text.

•Legal reference materials, including a “Statutes” page that offers links to the full text of selected statutes referenced in the text, a Spanish glossary, and links to other important legal resources available at no charge on the Web.

•Link to the Digital Video Library, which provides a compendium of more than seventy-five video scenarios and explanations.

•Online Legal Research Guide that offers complete, yet brief, guidance on using the Internet for legal research and evaluating the information obtained, as well as hyperlinks to the Web sites discussed.

•Court case updates that present summaries of new cases from various West legal publications, are continually updated, and are specifically keyed to chapters in this text.

Bank, PowerPoint slides, ExamView, Instructor’s Manual for the Drama of the Law video series, Handbook of Landmark Cases and Statutes in Business Law and the Legal Environment, Handbook on Critical Thinking and Writing in Business Law and the Legal Environment, and A Guide to Personal Law.

•ExamView Testing Software (also available on the IRCD).

•PowerPoint slides (also available on the IRCD).

•Digital Video Library—Provides access to more than seventy-five videos, including the Drama of the Law videos and video clips from actual Hollywood movies (LawFlix). Access to the Digital Video Library is available in an optional package with each new textbook at no additional cost. If the Digital Video Library access did not come packaged with the textbook, your students can purchase it online at www.cengagebrain.com.

SUPPLEMENTS

Modern Principles of Business Law is accompanied by the following teaching and learning supplements, which are available only via the Internet or on the Instructor’s Resource CD–ROM, or IRCD. For further information on the Modern Principles of Business Law teaching/learning package, contact your local sales representative or visit the Web site at www.cengagebrain.com/.

•Instructor’s Manual—Includes sections entitled “Additional Cases Addressing This Issue” at the end of selected case synopses. (Also available on the IRCD.)

•Test Bank—Contains approximately 540 multiple-choice questions with answers, more than 540 true/false questions with answers, and twoshortessayquestionsperchapter.Additionally, there is one question for every Shifting Legal Priorities and Insight into Ethics feature.

•Answers to Questions and Case Problems and Alternate Problem Sets with Answers—

Provides answers to all questions presented in the text, including the Critical Thinking questions concluding the Insight into Ethics features, as well as alternate problem sets with answers. (Also available on the IRCD.)

ACKNOWLEDGMENTS

I would like to thank the numerous individuals at Cengage Learning who worked with me on this project—especially Vicky True and Rob Dewey for their helpful advice and guidance. I extend my thanks to Jan Lamar, my longtime developmental editor, for her many useful suggestions and for her efforts in ensuring the timely and accurate publication of all supplemental materials. I also wish to thank LauraAurora Stopa for her support and excellent marketing advice.

I am indebted to Bill Stryker, the production manager, who made sure that the text was error-free and on time. I appreciate his efforts more than he can ever imagine. I am also indebted to the staff at Parkwood Composition, the compositor. Their ability to generate the pages for this text quickly and accurately made it possible for me to meet my ambitious printing schedule.

I especially wish to thank Katherine Marie Silsbee for her management of the entire project and for her superb research and editorial skills. I also would like to thank Lavina Leed Miller for her case research and Roger Meiners for his assistance in finding new case problems.