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Questions are about Law for business (MBA COURSES)
1.You have been given the responsibility to implement processes and procedures to reduce the risk to your company based on contract liability. Discuss systems, processes and procedures you can implement to reduce your company’s liability for contracts.
Typically 350~400 words. Answer questions as 1.... 2 .... 3.....

2.You have a new customer, Arisco, LLC, that is a start up business.The start-up has three principal investors, ACME, Inc., John Smith, and Janice Perkins. John and Janice are the principal employees of the company that have just graduated from Anna Maria College. Acme, Inc. is a billion dollar multinational business.Arisco, LLC sends you an order for two million dollar pieces of equipment. Each piece of equipment has eight hundred thousand dollars in parts that you would need to acquire before filing the order. Discuss steps you can take to reduce your risk of non-payment and default by Arisco.
Typically 350~400 words.

3.You have a growing interest in thoroughbred horseracing. Through an online internet forum, you meet three other people who share your interest. Two are located in the United States and a third is located in Great Britain. Together, you decide to buy a horse. Discuss the different advantages and disadvantages for each type of potential business entity you could create to buy the horse.
Typically 350~400 words

4.You and your friends from Discussion Five decide to form an LLC to buy the horse. What can you do to ensure effective management of the company? What can you do to ensure that you have enough money for expenses?
Typically 300~350 words

Law for Business TEXTBOOK.pdf

Rev. Confirming Pages

Law for
Eleventh Edition

A. James Barnes, J.D.
Terry Morehead Dworkin, J.D.
Eric L. Richards, J.D.
All of Indiana University

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Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of
the Americas, New York, NY, 10020. Copyright © 2012, 2009, 2006, 2003, 2000, 1997, 1994, 1991, 1987,
1983, 1980 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may
be reproduced or distributed in any form or by any means, or stored in a database or retrieval system,
without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in
any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside
the United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4 3 2 1
ISBN 978-0-07-337771-1
MHID 0-07-337771-6
Vice president and editor-in-chief: Brent Gordon
Editorial director: Paul Ducham
Executive editor: John Weimeister
Executive director of development: Ann Torbert
Development editor: Megan Richter
Editorial coordinator: Jane Beck
Vice president and director of marketing: Robin J. Zwettler
Senior marketing manager: Sarah Schuessler
Marketing specialist: Meredith Desmond
Vice president of editing, design, and production: Sesha Bolisetty
Senior project manager: Diane L. Nowaczyk
Buyer II: Debra R. Sylvester
Lead designer: Matthew Baldwin
Media project manager: Suresh Babu
Typeface: 10/12 Times New Roman
Compositor: Laserwords Private Limited
Printer: Quad/Graphics
Library of Congress Cataloging-in-Publication Data
Barnes, A. James.
Law for business / A. James Barnes, Terry Morehead Dworkin, Eric L. Richards.—11th ed.
p. cm.
Includes index.
ISBN-13: 978-0-07-337771-1 (alk. paper)
ISBN-10: 0-07-337771-6 (alk. paper)
1. Commercial law—United States. 2. Trade regulation—United States. 3. Business law—
United States. I. Dworkin, Terry Morehead. II. Richards, Eric L. III. Title.
KF889.B28 2012

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For more than 30 years, Law for Business has set the standard as an easy-to-read textbook that provides students with the tools for understanding the legal environment of
business. This, the 11th edition, has not strayed from that winning formula. The text
goes well beyond merely identifying the current legal rules and regulations affecting
business by offering insights into new developments and trends that promise to greatly
affect the future of both domestic and international businesses. The result is a comprehensive, yet concise, treatment of the legal issues of fundamental importance to
business students and the business profession.
We are extremely pleased with the number of institutions and instructors that continue to adopt Law for Business. They represent a wide range of programs in business
in both two-year and four-year colleges and universities throughout the country and
the world. Feedback from faculty and students alike confirms that they particularly
like the clear exposition, the careful selection and editing of high-interest cases, and
the text’s attractive and readable design.
In preparing this latest edition of Law for Business, we have tried to maintain the
strengths of the past editions while updating the material and cases. In this edition, there
are many new cases, the text has been thoroughly updated, and a good number of problem cases have been replaced with new ones. The cases continue to include both hypothetical cases and real-life cases so that we can target particular issues that deserve emphasis.
Simultaneously, we have made a conscious effort to slightly reduce each chapter’s overall
length in order to enhance its manageability as a teaching and learning device.
Other features—maintained from previous editions—that keep Law for Business
on the cutting edge of business law/legal environment textbooks include the following:

We have employed a number of proven pedagogical devices to aid students in their
comprehension and critical analysis of the often complex topics raised in any business
law course.
Chapter Openers—Most chapters begin with high-interest vignettes that provide
a context for the law in the upcoming chapter. They generally take the form of a
real-life case and are followed by a list of questions or issues that introduce the
reader to the concepts presented in the chapter.
Learning Objectives—Succinct, crisply written learning objectives follow the Chapter
Openers at the beginning of each chapter. The numbered objectives describe what the
students can expect to learn as a result of completing the chapter. Each objective is
identified by a unique symbol in the margin where the material appears in the text.
Concept Summaries—Each chapter contains numerous outlines, figures, or
drawings that reinforce important or complex legal rules, issues, or concepts.
Visual Illustrations—Flowcharts and other visual illustrations are inserted in each
chapter to facilitate student comprehension of key topics.

Textual material is supplemented by recent, high-interest cases decided by state and federal courts. Cases have been selected to illustrate practical applications of the important
legal concepts introduced in each chapter. Although the cases are brief, they provide

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iv Preface

sufficient facts and analysis to clearly explain the law in action. To enhance understanding of the material, each case is placed immediately after the textual point it discusses.

Most chapters contain one or more e-commerce boxes, cases, or sections that introduce important e-commerce and Internet law topics related to the chapter material.
This key feature should enable students to more accurately identify future regulatory
efforts and their implications for business.

Ethics in Action
Ethics in Action boxes are interspersed throughout each chapter. Appearing in the
form of questions or commentaries, they should assist students in recognizing the
ethical issues confronting business people on a daily basis. In many chapters, these
features introduce and explore various features of the Sarbanes-Oxley Act of 2002.
These supplements to the regular textual material will permit students to more fully
appreciate the complex and pervasive nature of ethical issues they will encounter in
their professional lives. Finally, our increased focus on ethics is demonstrated by the
continued inclusion of Chapter 3—“Business Ethics and Corporate Social Responsibility.” This chapter clearly explains the predominant theories of ethical reasoning
and provides guidelines for making ethical decisions.

International Focus
Where relevant, the authors have inserted cases and textual material introducing
the legal and business risks that often attend global operations. Through this global
approach, students are taught that international issues are an integral part of business.

AACSB Standards
McGraw-Hill Companies is a proud corporate member of AACSB International.
Understanding the importance and value of AACSB accreditation, the authors of Law
for Business have sought to recognize the curricula guidelines detailed in the AACSB
standards for business accreditation by connecting selected questions in the Test Bank
to the general knowledge and skill guidelines found in the AACSB standards.
The statements contained in Law for Business are provided only as a guide for the
users of this text. The AACSB leaves content coverage and assessment clearly within
the realm and control of the individual school, the mission of the school, and the faculty. The AACSB does charge schools with the obligation of doing assessment against
their own content and learning goals. While Law for Business and the teaching package make no claim of any specific AACSB qualification or evaluation, we have, within
the book, labeled selected questions according to the six general knowledge and skill
areas. The labels or tags within Law for Business are as indicated. There are, of course,
many more within each Test Bank, the text, and the teaching package that may be
used as a standard for your course.

Online Learning Center at
The Online Learning Center (OLC) is a website that follows the text chapter by
chapter. The 11th edition OLC contains resources for both instructors and students:
• PowerPoint Slides. PowerPoint slide sets for every chapter, updated by Chuck
Bowles, Professor Emeritus of Pikes Peak Community College, are for use in the

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Preface v

classroom or for studying. These slides refer back to figures and concept summaries from the text as well as introduce original material not found anywhere else.
Student Study Guide. A printed Student Study Guide, updated by Bridget Petzold
of Fayetteville Tech Community College, provides students with additional practice reviewing the major concepts in each chapter so they may be better prepared
for exams. It includes learning objectives, learning hints, and true/false, multiple
choice, and short essay questions.
You Be the Judge Online ( You Be the Judge Online video
segments include 18 hypothetical business law cases. All of the cases are based on
real cases from our Business Law texts. Each case allows you to watch interviews of
the plaintiff and defendant before the courtroom argument, see the courtroom proceedings, view relevant evidence, read other actual cases relating to the issues in the
case, and then create your own ruling. After your verdict is generated, view what
an actual judge ruled (unscripted) in the case and then get the chance to defend or
change your ruling.
Instructor’s Manual. The authors of Law for Business have prepared an instructor’s
manual providing insights into the major topics introduced in each chapter. Each
case is briefly summarized and accompanied by a “Points for Discussion” section
that poses ideas for stimulating classroom dialogue. This manual also includes the
answers to all of the Questions and Problem Cases that appear in the text, as well
as references to appropriate places within the chapter to discuss particular end-ofchapter cases.
Test Bank. The Test Bank consists of true/false, multiple choice, and short essay
questions in each chapter. We’ve aligned our Test Bank with new AACSB guidelines, tagging each question according to its learning objective, knowledge, and skill
EZ Test Online. McGraw-Hill’s EZ Test Online is a flexible and easy-to-use electronic testing program. The program allows instructors to create tests from
book-specific items, accommodates a wide range of question types, and enables
instructors to add their own questions. Multiple versions of the test can be created, and any test can be exported for use with course management systems such
as WebCT, Blackboard, or any other course management system. EZ Test Online
is accessible to busy instructors virtually anywhere via the Web, and the program
eliminates the need for them to install test software. Utilizing EZ Test Online also
allows instructors to create and deliver multiple-choice or true/false quiz questions
using iQuiz for iPod. For more information about EZ Test Online, please see the
website at
The Business Law Newsletter, Proceedings. We have developed this resource to help
keep your classes interesting and current. One electronic newsletter is e-mailed to
you per month. Instructors across the country have told us they are looking for
ways to include current examples and cases, and we hope this newsletter provides
you with just that. It is meant to be an easy and effective place to turn for some new
discussion topics for your business law courses. Each edition includes:

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Article abstracts with critical thinking questions
Video links with discussion questions and answers
Case hypotheticals and ethical dilemmas (with answers)
Teaching tips to help you incorporate this newsletter into your class
Chapter key that integrates all of the above with each of our McGraw-Hill
Business Law texts

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We wish to thank the many adopters of our prior editions; we have greatly profited
from their suggestions. Of course, we have had to use our judgment in determining
which ones to follow. Accordingly, responsibility for any shortcomings in this edition
remain ours. We do solicit the comments and criticism of instructors and students
who use this edition.
The following reviewers provided ideas and insights for this edition. We appreciate
their contributions.
Robert Arnold
Thomas More College
Susan E. Beasley
Community College of Baltimore
W. Michael Becker
University of San Francisco
Richard J. Bennett
Three Rivers Community College
Jeffrey G. Comen, Esq.
Stevenson University
Marsha Cooper,
California State University–Long Beach
Tammy W. Cowart
University of Texas at Tyler
Shoshana Dennis
San Diego City College
Christopher Giles
Virginia Tech

Joe Gula
Community College System of
New Hampshire
Myrna L. Gusdorf
Linn-Benton Community College
Greg Lauer
North Iowa Area Community College
Marian Matthews
Central New Mexico Community
Mary Sheila McDonald
Philadelphia University
Marcianne Schusler
Prairie State College
Kathryn A. Seeberger
Kansas State University
Kim Wong
Central New Mexico Community

We also acknowledge the assistance of the following individuals at Indiana University who facilitated the preparation of the manuscript: Sarah Jane Hughes and Dennis Long of the Indiana University Maurer School of Law; Desma Jones, Lori Kale,
and Thomas Snider; as well as Winfield Martin of Seattle University Law School and
Andy Dworkin of OHSU.
A. James Barnes, J.D.
Terry Morehead Dworkin, J.D.
Eric L. Richards, J.D.


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About the Authors
A. James Barnes, J.D.
Professor of Public and Environmental Affairs and Professor of Law at Indiana University, Bloomington. He previously served as Dean of the School of Public and Environmental Affairs and has taught business law at Indiana University and Georgetown
University. His teaching interests include commercial law, environmental law, alternative dispute resolution, law and public policy, and ethics and the public official. He is
the co-author of several leading books on business law.
From 1985 to 1988, Professor Barnes served as the deputy administrator of the
U.S. Environmental Protection Agency. From 1983 to 1985, he was the EPA general
counsel, and in the early 1970s served as chief of staff to the first administrator of
EPA. Professor Barnes also served as a trial attorney in the U.S. Department of Justice and as general counsel of the U.S. Department of Agriculture. For six years, from
1975 to 1981, he had a commercial and environmental law practice with the firm of
Beveridge and Diamond in Washington, D.C.
Professor Barnes is a member of the Department of Energy’s Environmental Management Board, a Fellow in the American College of Environmental Lawyers, and
a Fellow of the National Academy of Public Administration. From 1992 to 1998,
he was a member of the Board of Directors of the Long Island Lighting Company
(LILCO). From 2004 to 2010, he chaired the Environmental Protection Agency’s
Environmental Finance Advisory Board.

Terry Morehead Dworkin, J.D.
The Jack R. Wentworth Emerita Professor, Business Law, Kelley School of Business,
and Visiting Professor, Seattle University School of Law. She previously served as
Dean of the Office of Women’s Affairs, Indiana University, and as President of the
Academy of Legal Studies in Business. She also served as the co-director of the I.U.
Center for International Business Education and Research (CIBER) and as the Director for the Program in European Studies at the Center for European Studies, Rijksuniversiteit Limburg in Maastricht, The Netherlands.
Professor Dworkin’s primary research interests focus on employment and women’s
issues, particularly discrimination, whistleblowing, privacy, and leadership. She is the
author of numerous articles on employment law, corporate compliance, and product
liability law, and of books on business law and whistleblowing. Several of her publications have an international focus.
Professor Dworkin has significant international experience, including invited
lectures on international ethics and management in various countries, teaching in
Germany and The Netherlands, being a scholar at the Institute for Advanced Legal
Studies in England, and presenting a workshop at the UN/NGO Forum on Women
in Beijing. In 2010, she was a Fulbright Senior Specialist in Australia. She has also
presented papers at a variey of international conferences.

Eric L. Richards, J.D.
Professor of Business Law at Indiana University’s Kelley School of Business and
Chair of Kelley Direct, the Kelley School’s online graduate business program. He also

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viii About the Authors

has served as the Resident Director for the Program in European Studies at the Center
for European Studies, Rijksuniversiteit Limburg in Maastricht, The Netherlands.
Professor Richards teaches a wide variety of law courses at both the graduate and
undergraduate levels, including personal law, international business law, the legal environment of business, commercial law, and business ethics. His research interests have
resulted in scholarly publications exploring antitrust law, the First Amendment and
campaign finance law, international trade law, and environmental issues. For the past
30 years, he has been on the faculty of the Kelley School of Business at Indiana University. Prior to that, he was on the faculty of the Kansas University School of Business for two years.
During his academic career, Professor Richards has been awarded numerous
school, university, and national awards for both his teaching and his research. He also
is a martial arts grand master who has taught martial arts for more than 35 years.

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Contents in Brief
Preface iii




19 Formation and Terms of Sales
Contracts 328

Introduction to the Law

20 Warranties and Product Liability


1 Law, Legal Reasoning, and the Legal
Profession 3

21 Performance of Sales Contracts

2 Dispute Settlement 28


22 Remedies for Breach of Sales
Contracts 391

3 Business Ethics and Corporate Social
Responsibility 52



4 Business and the Constitution 81
5 Crimes


6 Intentional Torts


7 Negligence and Strict Liability


Agency and Employment

23 The Agency Relationship—Creation,
Duties, and Termination 410
24 Liability of Principals and Agents to
Third Parties 433
25 Employment Laws

8 Licensing and Intellectual
Property 146


Business Organizations




26 Which Form of Business
Organization? 476


9 The Nature and Origins of
Contracts 170
10 Creating a Contract: Offers

27 Partnerships


28 Formation and Termination of
Corporations 522

11 Creating a Contract:
Acceptances 204

29 Management of the Corporate
Business 546

12 Consideration

30 Financing the Corporation and the
Role of the Shareholders 569


13 Capacity to Contract
14 Voluntary Consent
15 Illegality


31 Securities Regulation 594


32 Legal Liability of Accountants 620



16 The Form and Meaning of
Contracts 279


17 Third Parties’ Contract Rights
18 Performance and Remedies




33 Personal Property and Bailments
34 Real Property



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x Contents in Brief

35 Landlord and Tenant
36 Estates and Trusts
37 Insurance


Government Regulation


45 The Antitrust Laws



46 Consumer Protection Laws

Commercial Paper

47 Environmental Regulation



38 Negotiable Instruments



39 Negotiation and Holder in Due
Course 791

A The Constitution of the United States
of America 1025

40 Liability of Parties

B Glossary of Legal Terms and
Definitions 1041


41 Checks and Electronic Fund
Transfers 846

C Spanish–English Equivalents for
Important Legal Terms 1062

Credit Transactions




42 Introduction to Security 868
43 Security Interests in Personal
Property 886
44 Bankruptcy 914

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Table of Contents
Preventive Law

Preface iii

Chapter 1
Law, Legal Reasoning, and the Legal
Profession 3


Law in Business 4
Chapter Overview 4

The Nature of Law
Legal Rules 4
Functions of Law


Checks and Balances 8
Constitutional Powers 8
Constitutional Limitations
Federalism 9









The Functions of Procedure
Pleadings 40
Discovery 46
The Trial 47

Appellate Procedure



Basis for Appeal 49
The Appeal 49
Results of Appeal 49

Court Problems and Proposed Solutions


Law and Orderly Change








Chapter Overview


The Adversary System 21
Professional Responsibilities
Confidentiality 22
Competence and Care 24

Some Criticisms
Proposals 50

Chapter 3
Business Ethics and Corporate Social
Responsibility 52


Legal Positivism 19
Natural Law 20
Sociological Jurisprudence
Legal Realism 20

The Legal Profession


District Court 38
Special Courts 38
Court of Appeals 38
The Supreme Court 39



Procedural Safeguards
Stare Decisis 16


The Function of the Judge 40
Advantages and Disadvantages 40

Constitutions 9
Treaties 10
Statutes 10
Administrative Rules and Decisions
Executive Orders 11
Judicial Decisions 12
Private Law 12

Legal Jurisprudence

Negotiation 29
Alternative Dispute Resolution
The Courts 33
Jurisdiction 34

The Adversary System


Legal Interpretation


Means of Dispute Settlement

Federal Courts


Constitutional Foundations

Legal Reasoning

Chapter 2
Dispute Settlement

Inferior Courts 36
Trial Courts 36
Appeals Courts 37

Substantive versus Procedural Law
Criminal versus Civil Law 6

Sources of Law


State Courts

Classifications of Law


Objectives of Preventive Law 24
Roles of Lawyers and Clients 25



Predominant Ethical Theories

Rights Theory 54
Justice Theory 56
Utilitarianism 56
Profit Maximization



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xii Table of Contents

The Law as a Corporate Control Device


Corporate Influence on the Content of the Law
Conscious Lawbreaking 61
Unknown Harms 62
Irrational Corporate Behavior 62

Defining Ethical Corporate Behavior

The Corporate Governance Agenda



The Payments Prohibition 75
Permissible Payments 75
Recordkeeping and Internal Controls 76
Liability for Actions of Foreign Agents 77
Ensuring Compliance 77

Introduction 82
State Regulation of Business
State Power 82
Federal Preemption 82
Dormant Commerce Clause



Federal Regulation of Business 84
Constitutional Checks on Governmental
Power 85

Administrative Agencies


Breadth of Agency Regulation 94
Characteristics of Agencies 94
Agency Powers 95



Intentional Torts 118
Interference with Personal Rights


Battery 119
Assault 120
False Imprisonment 120
Intentional Infliction of Mental Stress
Defamation 122
Invasion of Privacy 125
Misuse of Legal Proceedings 126

Interference with Property Rights


State Action 85
The Takings Clause 86
The Due Process Clause 88
Equal Protection 89
The First Amendment 92

Chapter 6
Intentional Torts


Guidelines for Ethical Decision Making

Chapter 4
Business and the Constitution



The Electronic Communications Privacy Act 113
The Computer Fraud and Abuse Act 114
Recent Developments in Cybercrime 114
International Efforts to Combat Cybercrime 115


Greater Shareholder Power 69
Changing the Composition of the Board
Changes in Management Structure 70

Foreign Corrupt Practices Act

The Sarbanes-Oxley Act of 2002 110
RICO 110
The Foreign Corrupt Practices Act 112
Global Anticorruption Initiatives 113



Values That Find Wide Acceptance 66
Corporate or Industry Codes of Ethical Co...

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