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1 HOUGHTON MIFFLIN COMPANY BOSTON NEW YORK Study Guide business Law Principles and Practices SEVENTH EDITION Arnold J. goldman Law Firm of goldman & goldman William D. Sigismond Monroe Community College Vice President & Publisher: George T. Hoffman Associate Development Editor: Suzanna Smith Editorial Assistant: Amy Galvin Ancillary Producer: Holly Schaff Executive Marketing Manager: Steven W. Mikels Copyright 2007 Houghton Mifflin Company. All rights reserved. Houghton Mifflin Company hereby grants you permission to reproduce the Houghton Mifflin material contained in this work in classroom quantities, solely for use with the accompanying Houghton Mifflin textbook. All reproductions must include the Houghton Mifflin copyright notice, and no fee may be collected except to cover the cost of duplication. If you wish to make any other use of this material, including reproducing or transmitting the material or portions thereof in any form or by any electronic or mechanical means including any information storage or retrieval system, you must obtain prior written permission from Houghton Mifflin Company, unless such use is expressly permitted by federal copyright law.

2 If you wish to reproduce material acknowledging a rights holder other than Houghton Mifflin Company, you must obtain permission from the rights holder. Address inquires to College Permissions, Houghton Mifflin Company, 222 Berkeley Street, Boston, MA 02116-3764 ISBN 13: 978-0-618-60835-5 ISBN 10: 0-618-60835-4 Copyright Houghton Mifflin Company. All rights reserved. Contents PART I UNDERSTANDING THE LAW .. 1 CHAPTER 1 FOUNDATIONS OF LAW AND THE ROLE OF ETHICS IN 3 CHAPTER 2 THE FEDERAL AND STATE COURT SYSTEMS AND THEIR CONSTITUTIONAL 7 CHAPTER 3 CRIMINAL LAW: TRADITIONAL AND CYBER 13 CHAPTER 4 TORT LAW: TRADITIONAL AND CYBER 17 CHAPTER 5 LITIGATION AND ALTERNATIVES FOR SETTLING CIVIL 24 REVIEW PART I: UNDERSTANDING THE 29 PART II CONTRACTS .. 37 CHAPTER 6 CONTRACT LAW: A 39 CHAPTER 7 AGREEMENT: OFFER AND 44 CHAPTER 8 50 CHAPTER 9 COMPETENT 54 CHAPTER 10 LEGAL 58 CHAPTER 11 CONTRACTS THAT MUST BE IN WRITING OR 63 CHAPTER 12 TRANSFER OF CONTRACT RIGHTS AND 68 CHAPTER 13 THE TERMINATION OF CONTRACTS: 74 CHAPTER 14 THE TERMINATION OF CONTRACTS: BREACH OF 79 REVIEW PART II: 83 PART III PURCHASE, SALE, AND LEASE OF GOODS UNDER THE UCC.

3 90 CHAPTER 15 FORMATION OF SALES AND LEASE CONTRACTS .. 92 CHAPTER 16 THE SALES CONTRACT: TRANSFER OF TITLE AND RISK OF 96 CHAPTER 17 THE SALES CONTRACT: PERFORMANCE, BREACH, AND REMEDIES FOR 101 CHAPTER 18 PRODUCTS LIABILITY 105 REVIEW PART III: SALE AND LEASE CONTRACTS UNDER THE UCC .. 109 PART IV NEGOTIABLE 115 CHAPTER 19 NATURE AND TYPES OF NEGOTIABLE 117 CHAPTER 20 ISSUE, TRANSFER, AND DISCHARGE OF NEGOTIABLE 121 CHAPTER 21 RIGHTS AND DUTIES OF PARTIES .. 125 CHAPTER 22 CHECKS, THE BANKING SYSTEM, AND 129 iv Contents Copyright Houghton Mifflin Company. All rights reserved. REVIEW PART IV: NEGOTIABLE PART V AGENCY, EMPLOYMENT, AND LABOR LAW ..142 CHAPTER 23 EMPLOYER-EMPLOYEE CHAPTER 24 PRINCIPAL-AGENT CHAPTER 25 PRINCIPAL-AGENT, EMPLOYER-EMPLOYEE, AND THIRD-PARTY REVIEW PART V: AGENCY, EMPLOYMENT, AND LABOR PART VI business ORGANIZATION AND REGULATION.

4 160 CHAPTER 26 SOLE PROPRIETORSHIPS, PARTNERSHIPS, AND LIMITED LIABILITY CHAPTER 27 CORPORATIONS AND CHAPTER 28 GOVERNMENT REGULATION OF REVIEW PART VI: business ORGANIZATION AND PART VII REAL AND PERSONAL PROPERTY, BAILMENTS, AND WILLS AND ESTATE PLANNING ..180 CHAPTER 29 BASIC LEGAL CONCEPTS OF CHAPTER 30 RENTING REAL CHAPTER 31 BUYING AND SELLING REAL CHAPTER 32 NATURE AND TYPES OF CHAPTER 33 SPECIAL CHAPTER 34 WILLS, INTESTACY, AND ESTATE REVIEW PART VII: REAL AND PERSONAL PROPERTY, BAILMENTS, AND WILLS AND ESTATE PART VIII CONSUMER AND CREDITOR PROTECTION ..210 CHAPTER 35 PROTECTING THE CONSUMER AND THE CHAPTER 36 PROTECTING THE CHAPTER 37 PROTECTING THE REVIEW PART VIII: CONSUMER AND CREDITOR PART IX CHAPTER 38 PROPERTY, CASUALTY, AND AUTOMOBILE CHAPTER 39 PERSONAL REVIEW PART IX: ANSWER KEY ..241 PART I UNDERSTANDING THE LAW Copyright Houghton Mifflin Company.

5 All rights reserved. CHAPTER 1 Foundations of Law and the Role of Ethics in business KEY POINTS IN THE CHAPTER Law is a legally enforceable set of rules established by a government to regulate the conduct of people in a society. Sources of law in the United States include constitutions, statutes, case law (court decisions), and administrative regulations. Case law is a modern version of the common law of England. Then, as now, court decisions became precedents. A precedent is a standard that judges use for deciding later cases. The practice of following precedents (previously decided cases) is called stare decisis. Law can be classified as civil or criminal law. Civil law protects the rights and property of individuals from harm by other individuals. Criminal law protects society from the harmful acts of individuals. Those who violate criminal laws are punished, whereas those who violate civil laws pay money damages or are required to perform an act (specific performance) or to refrain from certain conduct (injunction).

6 Law is constantly changing to reflect the changes in society. Technology has had a major impact on the way we conduct our personal and business affairs. Ethics has assumed a greater role as businesses carry on their day-to-day operations. business owners can no longer minimize moral dilemmas in their role as decision makers. A lack of solutions to ethical issues could be a pathway to disaster. Unethical behavior may be serious enough to be considered criminal in nature and therefore subject a violator to a fine or incarceration. TRUE-FALSE QUESTIONS On the line at the right of each statement, write the word true if the statement is true. If the statement is false, write the word or expression that should be substituted for the underlined word or expression to make the statement correct. 1. T F One of the purposes of a legal system is to protect society. _____ 2. T F The Uniform Commercial Code makes the laws of commercial transactions uniform from one state to another.

7 _____ 3. T F Administrative regulations are court rulings that are used as a basis for deciding later cases. _____ 4. T F No law enacted either by Congress or by a state legislature may conflict with the Constitution. _____ 4 Chapter 1: Foundations of Law and the Role of Ethics in business Copyright Houghton Mifflin Company. All rights reserved. 5. T F The system that grants relief for a wrongdoing based on what is fair and just rather than on legal principles is called criminal law. _____ 6. T F As society changes, laws change to reflect the changes in society. _____ 7. T F Statute law refers to decisions made by English courts on the basis of local customs. _____ 8. T F At the federal level, legislation passed by Congress is called opinions. _____ 9. T F An important concept in our legal system is that the law protects people and at the same time imposes legal duties on them.

8 _____ 10. T F A person harmed because of a violation of civil law by another person may sue that person and ask for money damages. _____ MULTIPLE-CHOICE QUESTIONS Circle the letter next to the most appropriate answer. 1. Unwritten law based on previous court decisions is known as a. statute law. b. common law. c. moral law. d. constitutional law. 2. Ethics is the study of a. the way business has changed since the Industrial Revolution. b. profit from a business dealing. c. business law. d. what is right or good for human beings in their everyday living. 3. Laws passed by cities, towns, and villages are called a. decrees. b. ordinances. c. acts. d. moral laws. 4. The fundamental written law of a state or nation that defines the rights and duties of individuals and describes the powers and limitations of government is called a.

9 business law. b. common law. c. constitutional law. d. an ordinance. 5. Laws enacted by legislative bodies that protect society from the harmful acts of individuals and that impose fines or imprisonment for violations are called a. moral laws. b. civil laws. c. natural laws. d. criminal laws. 6. Laws that protect the rights and property of individuals from harm by other individuals and that provide remedies for any harm caused are called a. civil laws. b. criminal laws. c. constitutional laws. d. administrative laws. Chapter 1: Foundations of Law and the Role of Ethics in business 5 Copyright Houghton Mifflin Company. All rights reserved. 7. The term business ethics refers to the study of a. a company s balance sheet. b. what is legally required of a company in the business world.

10 C. what is right, just or fair in business settings. d. all of these answers. 8. Tate maliciously broke into her neighbor s house. Tate s action is governed by a. criminal law. b. natural law. c. equity law. d. administrative law. 9. After common law is revised and adopted by a state legislature, it is known as a. administrative law. b. commercial law. c. federal law. d. statute law. 10. The Social Security Act is an example of a a. local ordinance. b. state statute. c. federal act. d. constitutional amendment. 11. A Federal Communications Commission restriction on cigarette advertising on television is an example of a. administrative law. b. constitutional law. c. criminal law. d. statute law. 12. The first kind of law, other than Roman law, to come into existence was a.