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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.

2 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. If you wish to reproduce material acknowledging a rights holder other than Houghton Mifflin Company, you must obtain permission from the rights holder.

3 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.

4 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 .. 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.

5 109 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.

6 160 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.

7 210 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. 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.

8 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.

9 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). 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.

10 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.