Cengage Advantage Books: Law for Business PDF
Preview Cengage Advantage Books: Law for Business
16th Edition John D. Ashcroft, J.D. Member of the District of Columbia and Missouri Bars Janet E. Ashcroft, J.D. Member of the District of Columbia and Missouri Bars Law for Business, 16th edition John D. Ashcroft • Janet E. Ashcroft VP/Editorial Director: Marketing Manager: Production House: Jack W. Calhoun Jennifer Garamy ICC Macmillan Inc. Publisher: Sr. Production Editor: Printer: Rob Dewey Cliff Kallemeyn Quebecor World Versailles KY Acquisitions Editor: Manager of Technology, Editorial: Steve Silverstein, Esq. John Barans Cover and Internal Designer: Red Hanger Design, LLC Developmental Editor: Technology Project Editor: John Abner Pam Wallace Cover Images: Frank Herholdt/Stone/Getty Images Editorial Assistant: Sr. Manufacturing Coordinator: Krista Kellman Charlene Taylor Executive Marketing Manager: Art Director: Lisa Lysne Michelle Kunkler COPYRIGHT©2008 ALLRIGHTS RESERVED. Library of Congress Control Number: Thomson South-Western, a part of The No part of this work covered by the copy- 2007928359 Thomson Corporation. Thomson, the right hereon may be reproduced or used Star logo, and South-Western are trade- in any form or by any means—graphic, For more information about our products, marks used herein under license. electronic, or mechanical, including contact us at: photocopying, recording, taping, Web Thomson Learning Academic Resource Printed in the United States of America distribution or information storage and Center 1 2 3 4 5 10 09 08 07 retrieval systems, or in any other 1-800-423-0563 manner—without the written permission ISBN-13 978-0-324-38157-3 of thepublisher. Thomson Higher Education ISBN-10 0-324-38157-3 5191 Natorp Boulevard For permission to use material from this Mason, OH 45040 text or product, submit a request online at USA http://www.thomsonrights.com. Brief Contents Part 1: The Legal System and the 24 Liabilities of Parties and Holders Legal Environment of Business 1 in Due Course 265 25 Defenses 279 1 Introduction to Law 2 Part 5 Summary Cases 287 2 Courts and Court Procedure 11 3 Business Torts and Crimes 21 Part 6: Agency and Employment 291 4 GovernmentRegulationofBusiness 37 26 Nature and Creation of an Agency 292 Part 2: Contracts 45 27 Operation and Termination of an Agency 303 5 Nature and Classes of Contracts 46 28 Employer and Employee Relations 314 6 Offer and Acceptance 55 29 Employees’ Rights 325 7 Capacity to Contract 65 30 Labor Legislation 340 8 Consideration 74 Part 6 Summary Cases 350 9 Defective Agreements 83 10 Illegal Agreements 96 Part7:BusinessOrganization 353 11 Written Contracts 106 12 Third Parties and Contracts 115 31 Introduction to Business Organization 354 13 Termination of Contracts 125 32 Creation and Operation Part 2 Summary Cases 137 of a Partnership 365 33 Dissolution of a Partnership 378 Part 3: Personal Property 141 34 Nature of a Corporation 387 35 Ownership of a Corporation 395 14 Nature of Personal Property 142 36 Management and Dissolution of a 15 Special Bailments 155 Corporation 405 Part 3 Summary Cases 169 Part 7 Summary Cases 417 Part 4: Sales 171 Part 8: Risk-Bearing Devices 421 16 Sales of Personal Property 172 37 Principles of Insurance 422 17 Formalities of a Sale 180 38 Types of Insurance 432 18 Transfer of Title and Risk in Sales 39 Security Devices 446 Contracts 187 40 Bankruptcy 457 19 Warranties, Product Liability, and Consumer Part 8 Summary Cases 466 Protection 200 Part 4 Summary Cases 221 Part 9: Real Property 469 41 Nature of Real Property 471 Part 5: Negotiable Instruments 223 42 Transfer of Real Property 480 20 Nature of Negotiable Instruments 224 43 Real Estate Mortgages 489 21 Essentials of Negotiability 234 44 Landlord and Tenant 500 22 Promissory Notes and Drafts 243 45 Wills, Inheritances, and Trusts 513 23 Negotiation and Discharge 256 Part 9 Summary Cases 528 iii This page intentionally left blank Contents Preface ix Chapter7: Capacity to Contract 65 Minors 66 • Mentally Incompetent Persons 69 PART 1: THE LEGAL SYSTEM AND THE • Intoxicated Persons 71 • Convicts 71 LEGAL ENVIRONMENT OF BUSINESS 1 • Questions 71 • Case Problems 72 Chapter8: Consideration 74 Chapter1: Introduction to Law 2 Nature of Consideration 74 • Adequacy of Objectives of Law 3 • Roots of Our Legal System 3 Consideration 75 • Exceptions to Requirement • The Common Law 3 • Equity 3 • Sources of ofConsideration 79 • Questions 80 • Case Law 4 • Civil versus Criminal Law 6 • Tort Problems 81 Law 7 • Ethics 8 • Questions 10 Chapter9: Defective Agreements 83 Chapter2: Courts and Court Procedure 11 Mistakes 83 • Mistakes That Invalidate Contracts FunctionoftheCourts 11 • JurisdictionofCourts 12 84 • Mistakes That Do Not Invalidate Contracts 86 • Classification of Courts 12 • Court Officers 17 • Fraud 88 • Duress 90 • Undue Influence 91 • Procedure in Courts of Record 18 • Procedure in • Remedies for Breach of Contract Because of Fraud, Small Claims Court 19 • Questions 20 Duress, or Undue Influence 92 • Questions 93 Chapter3: Business Torts and Crimes 21 • Case Problems 94 Torts 21 • Crimes 27 • Types of Business Chapter10: Illegal Agreements 96 Crimes 27 • Questions 33 • Case Problems 34 Contracts Prohibited by Statute 97 • Contracts Chapter4:GovernmentRegulationofBusiness 37 Contrary to Public Policy 102 • Questions 103 • Case Problems 104 Purpose of Regulation 38 • Administrative Agencies 38 • Antitrust 40 • Environmental Chapter11: Written Contracts 106 Protection 41 • Questions 44 Reasons for Written Contracts 106 • Statute of Frauds 107 • Note Or Memorandum 110 • PART 2: CONTRACTS 45 Other Written Contracts 111 • Parol Evidence Rule112 • Questions 112 • Case Problems 113 Chapter5: Nature and Classes of Contracts 46 Chapter12: Third Parties and Contracts 115 Requirements for a Contract 47 • Contracts Involving a Third Party 115 • Technicalities of Contrasted with Agreements 47 • Classification anAssignment 119 • Joint, Several, and Joint ofContracts 48 • Questions 52 andSeveral Contracts 121 • Questions 123 • Case Problems 53 • Case Problems 123 Chapter6: Offer and Acceptance 55 Chapter13: Termination of Contracts 125 Requirements of a Valid Offer 56 • Invitations to Methods by Which Contracts Are Terminated 125 Make Offers 57 • Duration of the Offer 59 • Remedies for Breach of Contract 131 • The Acceptance 60 • Counteroffers 61 • Malpractice 133 • Questions 134 • Inquiries Not Constituting Rejection 62 • Case Problems 134 • Manner of Acceptance 62 • Questions 63 • Case Problems 63 Part 2 Summary Cases 137 v vi Contents PART 3: PERSONAL PROPERTY 141 • Exclusion and Surrender of Warranties 207 • Product Liability 209 • Identity of Parties 211 Chapter14: Nature of Personal Property 142 • Nature and Cause of Harm 211 • Consumer Personal Property 142 • Methods of Acquiring Protection 212 • Questions 218 • Case Personal Property 144 • Bailments 147 Problems 218 • The Bailment Agreement 148 • Delivery Part 4 Summary Cases 221 andAcceptance 148 • Return of the Bailed Property 149 • Types of Bailments 149 PART 5: NEGOTIABLE • Conversion of Bailed Property by the Bailee 151 INSTRUMENTS 223 • Questions 152 • Case Problems 152 Chapter15: Special Bailments 155 Chapter20: Nature of Negotiable Instruments 224 Carriers 155 • Liability of Common Carriers of Goods 157 • Hotelkeepers 163 • Questions 166 History and Development 224 • Negotiation 225 • Case Problems 166 • Order Paper and Bearer Paper 225 • Classification of Commercial Paper 226 • Parties to Part 3 Summary Cases 169 Negotiable Instruments 227 • Negotiation and Assignment 229 • Credit and Collection 230 PART 4: SALES 171 • Electronic Fund Transfers 230 • Questions 231 • Case Problems 232 Chapter16: Sales of Personal Property 172 Chapter21: Essentials of Negotiability 234 Property Subject to Sale 172 • Sales and Contracts toSell 173 • Sales of Goods and Contracts for Requirements 234 • Issue and Delivery 239 Services 174 • Price 174 • Existing Goods 175 • Delivery of an Incomplete Instrument 239 • Future Goods 175 • Bill of Sale 176 • Illegal • Date and Place 240 • Questions 241 Sales 177 • International Sales Contracts 177 • Case Problems 241 • Questions 178 • Case Problems 178 Chapter22: Promissory Notes and Drafts 243 Chapter17: Formalities of a Sale 180 Notes 243 • Drafts 245 • Checks 248 • Multiple Purchases and the Statute of Frauds 181 Questions 253 • Case Problems 254 • When Proof of Oral Contract Is Permitted 181 Chapter23: Negotiation and Discharge 256 • Nature of the Writing Required 183 • Questions 185 • Case Problems 185 Place of Indorsement 257 • Multiple Payees 258 • Kinds of Indorsements 259 • Liability of Chapter18: Transfer of Title and Risk in Sales Indorser 261 • Obligation of Negotiator of Bearer Contracts 187 Paper 261 • Discharge of the Obligation 262 • Questions 262 • Case Problems 263 Potential Problems in Sales Transactions 188 • Classification of Sales Transactions 188 • Chapter24: Liabilities of Parties and Holders Ownership, Insurable Interests, and Risk of Loss in inDue Course 265 Particular Transactions 189 • Damage to Or Destruction of Goods 192 • Sales on Approval Liability for the Face of the Paper 267 • Liability for andwith Right to Return 193 • Special Rules Warranties 271 • Holders in Due Course 272 onTransfer of Title 194 • Questions 197 • Holder Through a Holder in Due Course 274 • Case Problems 198 • HoldersofConsumerPaper 274 • Questions 276 • Case Problems 276 Chapter19: Warranties, Product Liability, and Chapter25: Defenses 279 Consumer Protection 200 Classification of Defenses 280 • Miscellaneous Express Warranties 201 • Implied Warranties 202 Matters 284 • Questions 284 • Case • Full Or Limited Warranties 202 • Warranties Problems 285 ofAll Sellers 202 • Additional Warranties of Merchant 204 • Warranties in Particular Sales 206 Part 5 Summary Cases 287 Contents vii PART 6: AGENCY AND PART7:BUSINESSORGANIZATION 353 EMPLOYMENT 291 Chapter31: Introduction to Business Chapter26: Nature and Creation Organization 354 of an Agency 292 Sole Proprietorship 354 • Partnership 357 Importance of Agency 293 • What Powers May be • Corporations 360 • Questions 363 Delegated to an Agent? 293 • Who May Appoint • Case Problems 363 anAgent? 293 • Who May Act as an Agent? 294 Chapter32: Creation and Operation • Classification of Agents 294 • Additional Types of a Partnership 365 of Agents 295 • Extent of Authority 295 • Creation of an Agency 297 • Other Employment Partnership Agreements 365 • Partnership Firm Relationships 299 • Questions 300 • Case Name 367 • Partner’s Interest in Partnership Problems 300 Property 368 • Duties of Partners 368 • Rights of Partners 370 • Liabilities of Partners 372 Chapter27: Operation and Termination • Nature of Partnership Liabilities 373 • Authority of an Agency 303 of a Partner 374 • Sharing of Profits and Losses 374 Agent’s Duties to Principal 303 • Principal’s Duties • Questions 374 • Case Problems 375 to Agent 305 • Agent’s Liabilities to Third Chapter33: Dissolution of a Partnership 378 Parties307 • Principal’s Duties and Liabilities to Third Parties 308 • Termination of an Agency by Dissolution by Acts of the Parties 379 • Dissolution Acts of the Parties 308 • Termination by Operation by Court Decree 380 • Dissolution by Operation of Law 309 • Notice of Termination 310 ofLaw 381 • Effects of Dissolution 382 • Notice • Questions 311 • Case Problems 311 of Dissolution 383 • Distribution of Assets 383 • Questions 384 • Case Problems 384 Chapter28: Employer and Employee Chapter34: Nature of a Corporation 387 Relations 314 Classification by Purpose 387 • Classification by Creation of Employer and Employee Relationship 315 State of Incorporation 389 • Formation of a • Duties and Liabilities of the Employer 316 Corporation 389 • Liability on Promoter’s Contracts • Common-law Defenses of the Employer 317 and Expenses 389 • Issuance of Stock 390 • • Statutory Modification of Common Law 317 Articles of Incorporation 391 • Powers of a • Liabilities of the Employer to Third Parties 319 Corporation 391 • Ultra ViresContracts 392 • • Employee’s Duties to the Employer 320 • Federal Questions 393 • Case Problems 393 Social Security Act 321 • Questions 323 • Case Problems 323 Chapter35: Ownership of a Corporation 395 Chapter29: Employees’ Rights 325 Ownership 396 • Stock Certificate 396 • Transfer of Stock 396 • Classes of Stock 397 Discrimination 326 • Testing 332 • Kinds of Stock 398 • Stock Options 400 • Protections 334 • Other Sources of Rights 336 • Dividends 400 • LawsRegulatingStockSales 401 • Questions 337 • Case Problems 337 • Questions 403 • Case Problems 403 Chapter30: Labor Legislation 340 Chapter36: Management and Dissolution The Fair Labor Standards Act 341 • The National of a Corporation 405 Labor Relations Act and the Labor Management Relations Act 342 • The Labor-Management Stockholders’ Meetings 406 • Rights of Reporting and Disclosure Act 345 • Questions 347 Stockholders 409 • Directors 410 • Officers 411 • Case Problems 347 • Liabilities of Directors and Officers 412 • Corporate Combinations 413 • Dissolution 414 Part 6 Summary Cases 350 • Questions 414 • Case Problems 414 Part 7 Summary Cases 417 viii Contents PART 8: RISK-BEARING DEVICES 421 Chapter42: Transfer of Real Property 480 Deeds 480 • Provisions in a Deed 483 Chapter37: Principles of Insurance 422 • Delivery 485 • Recording 485 • Abstract of Terms Used in Insurance 423 • Types of Insurance Title 486 • Title Insurance 486 • Questions 486 Companies 424 • Who May be Insured 424 • Case Problems 486 • Some Legal Aspects of the Insurance Contract 426 Chapter43: Real Estate Mortgages 489 • Questions 429 • Case Problems 430 The Mortgage Contract 490 • Recording 490 Chapter38: Types of Insurance 432 • Duties of the Mortgagor 492 • Rights of the Life Insurance 432 • Property Insurance 436 Mortgagor 493 • Foreclosure 495 • Assignment • Description of the Property 438 of the Mortgage 496 • Deed of Trust 496 • Coinsurance 438 • Repairs and • Mortgage Insurance 497 • Questions 497 Replacements 439 • Defense and Notice of • Case Problems 498 Lawsuits 439 • Automobile Insurance 440 Chapter44: Landlord and Tenant 500 • Questions 444 • Case Problems 444 The Lease 503 • Types of Tenancies 503 Chapter39: Security Devices 446 • Rights of the Tenant 505 • Duties of the Guaranty and Suretyship 446 • Secured Credit Tenant 506 • Rights of the Landlord 507 Sales 451 • Effect of Default 453 • Duties of the Landlord 507 • Termination • Questions 454 • Case Problems 455 oftheLease 508 • Improvements 510 • Discrimination 511 • Questions 511 Chapter40: Bankruptcy 457 • Case Problems511 Who Can File a Petition of Bankruptcy? 458 • KindsofDebtors 458 • RequiredCounseling 459 Chapter45: Wills, Inheritances, and Trusts 513 • Procedure in a Chapter 7 Case 459 Limitations on Disposition of Property 514 • Terms • Nonliquidation Plans 459 • Eligibility Common to Wills 515 • Distinguishing Restrictions for Chapter 7 460 • Exempt Characteristics of a Will 515 • Formalities 515 Property 461 • Included Property 461 • Debtor’s • Special Types of Wills 516 • The Wording of a Duties During Bankruptcy 461 • Proof of Will 517 • Revocation 517 • Codicils 517 Claims 462 • Reclamations 462 • Types of • Abatement and Ademption 519 • Probate of Claims 462 • Priority of Claims 463 • Discharge a Will 519 • When Administration Is of Indebtedness 463 • Debts not Discharged 463 Unnecessary 520 • Title by Descent 520 • Questions 464 • Case Problems 464 • Per CapitaandPer StirpesDistribution 520 • Part 8 Summary Cases 466 Administrators 522 • Trusts 522 • Questions 525 • Case Problems 525 PART 9: REAL PROPERTY 469 Part 9 Summary Cases 528 Table of Cases T1 Chapter41: Nature of Real Property 470 Glossary G1 Distinguishing Real Property 470 • Multiple Ownership 472 • Estates in Property 474 Index I1 • Other Interests in Real Property 475 • Acquiring Real Property 477 • Questions 478 • Case Problems 478 Preface WHY STUDY BUSINESS LAW? Newspapers,magazines,television,radio—andevenourcomputers—relate business information to us almost by the minute. Behind the scenes of business activity—from startups of new businesses to corporate mergers, marketing, advertising, technology, and employment—laws governing business play a vital role. The study of business law is necessary to provide students with an overview of the law of commercial transactions and other business legal issues. Law for Business, Sixteenth Edition,focuses on these laws to prepare students to conduct business in our dynamic world marketplace. PURPOSE OF THE TEXT Law for Business, Sixteenth Edition, is a practical approach to law that empha- sizescurrentandrelevanttopicsstudentsneedtounderstandaboutbusinesstrans- actionsandissues,suchascontracts,property,employer/employeerelations,and insurance. The basic concepts of business law are covered without the excessive theory that often makes law seem incomprehensible. Practical coverage of law pertainingtobusiness,withoutthedetailedtreatmentofalawschooltext,isthe hallmarkofthistext.Thesubstantialbreadthofthistext,completewithexamples andcases,isaneffectiveintroductiontoavarietyoflegaltopics. NEW AND SUCCESSFUL FEATURES Integrated Learning Objectives Each chapter begins with learning objectives that outline what the students will accomplish after reading the chapter. Margin icons indicate where learning objec- tives are first discussed in the text. Each objective is briefly restated as reinforce- ment, so students need not refer to the beginning of each chapter. These learning objective icons create a natural outline to help students easily comprehend the information. Actual U.S. Court Cases with Citations This book contains no make-believe cases. Every case example, problem, and summary is an actual U.S. court case, transferring theory into reality. These excit- ing actual cases help students relate to the subject as they learn about real world legal situations that can occur in business. Case citations are included in the text for each case example, to further clarify these resources and inspire further research and reading. ix
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