BONUS CHAPTER A- WORKING WITHIN THE LEGAL ENVIRONMENT
LEARNING GOALS
After you have read and studied this chapter, you should be able to:
1.Define business law, and distinguish between statutory and common law, and explain the role of administrative agencies.
2.Define tort law and explain the role of product liability in tort law.
3.Identify the purposes and conditions of patents, copyrights, and trademarks.
4.Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.
5.List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.
6.Summarize several laws that regulate competition and protect consumers in the United States.
7.Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.
8.Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
9.Explain the role of deregulation as a tool to encourage competition.
LEARNING THE LANGUAGE
Listed here are important terms found in this chapter. Choose the correct term for each definition below and write it in the space provided.
1
Administrative agencies / Copyright / PatentBankruptcy / Damages / Precedent
Breach of contract / Deregulation / Product liability
Business law / Express warranties / Statutory law
Common law / Implied warranties / Strict product liability
Consideration / Involuntary bankruptcy / Taxes
Consumerism / Judiciary / Tort
Contract / Negligence / Uniform Commercial Code (UCC)
Contract law / Negotiable instruments / Voluntary bankruptcy
1.Something of value, one of the requirements of a legal contract, is called ______.
2.______refers to government withdrawal of certain laws and regulations that seem to hinder competition.
3.Forms of commercial paper (such as checks) known as ______are transferable among businesses and individuals and represent a promise to pay a specified amount.
4.Rules, statutes, codes, and regulations called ______are established to provide a legal framework within which business may be conducted and that are enforceable by court action.
5.The ______is a comprehensive commercial law, adopted by every state in the United States thatcovers sales laws and other commercial laws.
6.Specific representations by the seller that buyers rely on regarding the goods they purchase are
called ______.
7.A ______is a wrongful act that causes injury to another person's body, property, or reputation.
8.The legal process of ______is one by which a person, business, or government entity unable to meet financial obligations is relieved of those obligations by a court that divides any assets among creditors, allowing creditors to get at least part of their money and freeing the debtor to begin anew.
9.A ______is a document thatprotects an individual's rights to materials such as books, articles, photos, and cartoons.
10.State and federal constitutions, legislative enactment, treaties of the federal government, and ordinances (written laws) are known as ______.
11. ______are guarantees legally imposed on the seller.
12.A social movement known as ______seeks to increase and strengthen the rights and powers of buyers in relation to sellers.
13.A ______occurs when one party fails to follow the terms of a contract.
14.A legally enforceable agreement between two or more parties is a ______.
15.A document called a ______gives inventors exclusive right to their inventions for 20 years.
16.The body of law known as ______comes from decisions handed down by judges and is also known as "unwritten law."
17.A set of laws called ______specify what constitutes a legally enforceable agreement.
18.Legal procedures called ______are initiated by a debtor.
19.The part of tort law known as______holds businesses liable for harm that results from the production, design, sale, or use of products they market.
20.Federal or state institutions and other government organizations created by Congress or state legislatures with delegated power to pass rules and regulations within their mandated area of authority areknown as ______.
21.The branch of the government called the ______oversees the legal system through the court system.
22.Bankruptcy procedures filed by a debtor’s creditors are a(n) ______.
23.Federal, state and local governments raise money through ______.
24.The monetary settlement awarded to a person who is injured by a breach of contract is known as ______.
25.Decisions judges have made in earlier cases, or ______, guide the handling of new cases.
26.In tort law, behavior is called ______when it causes unintentional harm or injury.
27.Legal responsibility for harm or injury caused by a product regardless of fault is known
as ______.
ASSSESSMENT CHECK
Learning Goal 1
The Case for Laws
1.What is the difference between criminal law and civil law?
2.The judiciary governs the activities and operations of business including:
a. ______
b. ______
c. ______
d. ______
e. ______
3.Discuss the difference between statutory and common law.
4.Why is common law often referred to as unwritten law? How does precedent relate to common law?
5.What do we mean when we say that administrative agencies hold quasi-legislative, quasi-executive and quasi-judicial powers?
Learning Goal 2
Tort Law
6.What is the difference between an intentional tort and negligence?
7.Can a company be held liable for damages from a defective product even if the company didn’t know of the defect?
8.What impact has the rule of strict liability had on businesses?
Learning Goal 3
Legally Protecting Ideas: Patents, Copyrights, and Trademarks
9.The standard of “obviousness” when referring to patents means that ______
______.
10.What are your chances of receiving a patent?
How much will you spend in fees over the life of a patent?
11.Are foreign companies eligible to file for U.S. patents?
12.What is required by the American Inventor’s Protection Act?
Why was this act passed?
What is a submarine patent?
13.How long does a patent last compared to copyright protection?
14.What are the provisions of the Copyright Act of 1978?
15.What are the rights of the holder of a copyright?
What happens if a work is created by an employee in the course of a job?
16.What is the definition of a trademark?
How long does a trademark last?
Learning Goal 4
Sales Law: The Uniform Commercial Code
17.What are the areas of law covered by the Uniform Commercial Code?
- ______f. ______
- ______g. ______
- ______h. ______
- ______i. ______
- ______
18.Describe the difference between express and implied warranties.
19.Describe the difference between a full and a limited warranty.
20.What are four conditions that must be met by a negotiable instrument?
a. ______
b. ______
c. ______
d. ______
21.What is considered an “endorsement” with regard to negotiable instruments?
Learning Goal 5
Contract Law
22.A contract is legally binding if:
a. ______
b. ______
c. ______
d. ______
e. ______
f. ______
23.An offer becomes legally binding only when: ______.
24.The principle of mutual acceptance means that: ______
______.
25.How is a person determined to be competent to enter a contract?
26.When does a contract become illegal and not enforceable?
27.What kind of contracts must be put in writing?
28.Describe three results of a breach of contract.
a. ______
b. ______
c. ______
29Identify three elements that should be present in a contract.
a. ______
b. ______
c. ______
Learning Goal 6
Promoting Fair and Competitive Practices
30.What are four important pieces of pro-competitive federal legislation?
a. ______
b. ______
c. ______
d. ______
31.What two things does the Sherman Act forbid?
a. ______
b. ______
32.The Clayton Act prohibits:
a. ______c. ______
b. ______d. ______
33.Describe:
a.exclusive dealing
b.a tying contract
c.an interlocking directorate
34.Discuss the major elements of the Federal Trade Commission Act.
35.What areas does the FTC cover?
36.The Robinson Patman Act prohibits: ______.
The Robinson-Patman Act applies to: ______
______.
The act specifically outlaws: ______
______.
Laws to Protect Consumers
37.List the major consumer protection laws and their major provision
a. ______
b. ______
c. ______
d. ______
e.______
f. ______
g. ______
h. ______
i. ______
j. ______
k. ______
l. ______
Learning Goal 7
Tax Laws
38.Traditionally governments have used taxes primarily as: ______
______.
39.What is the purpose of a sin tax?
40.A tax credit is: ______.
41.The major bases of tax revenue are:
a. ______
b. ______
c. ______
42.The federal government receives its largest share of taxes from: ______.
States and local governments make extensive use of: ______.
School districts general depend upon: ______.
43.Tax policies are important considerations when:
a. ______
b. ______
44.What area of sales taxes is being debated in Congress?
Learning Goal 8
Bankruptcy Laws
45.Identify the three major amendments to the bankruptcy code. What do they provide for?
a. ______
______
b. ______
______
c. ______
______
46.What are the provisions of a Chapter 7 bankruptcy?
47.In what order are assets distributed among creditors in a Chapter 7 bankruptcy?
First: ______
Then:
- ______
- ______
- ______
- ______
- ______
- ______
48.What does Chapter 11 bankruptcy allow?
49.What does a Chapter 13 bankruptcy permit? How does this compare to a Chapter 7? How does a Chapter 13 proceed?
Learning Goal 9
Deregulation Versus Regulation
50.The move toward deregulation began because: ______
______.
51.How has deregulation affected these industries?
Airlines:
Telecommunications:
Banking:
Utilities:
51.Corporate scandals in the early 2000s and the financial market collapse of 2008-2009
have led to:______
______.
CRITICAL THINKING EXERCISES
Learning Goal 1
1.Determine if statutory or common law is being described in the following examples.
a. ______Joe sued Susan because he was injured while using end tables Susan had given him to prop up his car while working on the muffler. The judge in the case ruled in Susan’s favor based upon past cases of implied warranties.
b. ______The CEO of a major firm in the electronics industry has refused to sign off on the financial statements for his company because they don’t meet his criteria. He is afraid of being held liable for those statements under the Sarbanes-Oxley Act.
c. ______Lane Halverson filed bankruptcy under Chapter 13 in October, 2009.
d. ______A farmer in the Midwest was sued by his neighbors because his farm animals were so smelly that the neighbors were getting sick. The neighbors sued and the judge ruled in favor of the neighbors after considerable research on similar cases.
Learning Goal 2
2.How has the definition of product liability changed, and how has that affected manufacturers?
Learning Goal 3
3.Eric has developed a new formula for the product his company manufactures, a self-darkening windshield for vehicles. Eric would like to protect this formula because he has just learned that a competitor has recently been using Eric’s process. Eric is very busy, and feels like he just doesn’t have time to deal with anything complicated right now and that he will probably wait for a while before he decides to do anything about this new formula. What would you advise him about protecting his new product?
Learning Goal 4
4.Determine if the issue described below refers to an express warranty or an implied warranty.
a. ______Shirley Glenn got severe food poisoningafter eating at a restaurant near her home and sued the restaurant for her medical expenses.
b. ______Geraldo Santino bought a drill that worked for 6 months and then quit. The paperwork that came with the drill said that the manufacturer would repair any problems the drill had for 5 years after the purchase, so Geraldo sent the drill to the manufacturer, and received it back within 7 days, fully repaired.
Learning Goal 5
5.A contract will be legally binding if it meets the following conditions:
An offer is made Both parties are competent
There is voluntary acceptance of the offer The contract is legal
Both parties give consideration The contract is in proper form
Given the information below, determine whether each contract is legally binding (assuming other conditions are met) and why or why not.
a. A resident of Tennessee signs an IOU to a casino in Las Vegas.
b. You see a newspaper ad for a used car, and after looking the car over, you agree to pay the owner $1000 on the spot, with an oral contract.
c.A 17-year-old puts a down payment on a new motorcycle.
d.A student offers to buy your well-used Understanding Business textbook for $10, and you agree.
6.Three actions that can be taken when a breach of contract occurs are:
Specific performance
Payment of damages
Discharge of obligation
Indicate which action might be taken in each of the following breach of contract situations.
a.An actor fails to show up for a scheduled theater performance, without prior warning.
b.A typist working for an author finds that she doesn't have time to finish the manuscript, and quits.
c. An art dealer fails to deliver a piece of sculpture when promised for an art show.
Learning Goal 6
7.Which of the following major pieces of federal legislation would be associated with each of the situations below?
Sherman Act Robinson--Patman Act
Clayton Act Federal Trade Commission Act
a. ______Prohibits conspiracies in restraint of trade and attempts to monopolize.
b. ______A greeting card company unsuccessfully attempted to coerce its independently owned distributors into carrying only the products it manufactures.
c. ______The agency created by this act has conducted three times as many investigations andbrought twice as many cases in the 1990s as it did in the 1980s. The legislation prohibits unfair methods of competition in commerce.
d. ______Prohibits several forms of price discrimination and applies to buyers as well as sellers.
8.Using the list of consumer protection laws in Figure A-4 in your text, identify the law associated with each of the following statements.
a. ______A package of frozen fish indicates that the fish actually comes from China.
b. ______Baby cribs are required to have slats close enough together to prevent an infant's head
from getting caught between the slats.
c. ______Fisher-Price was forced to recall a toy that had caused several injuries to young infants.
d. ______Hershey’s was charged with unethical business practices for retrieving information from children on their web site.
e. ______Visa must notify their cardholders before they are re-instituting a charge that the card holder is disputing.
f. ______The monthly statement on a Shell credit card indicates a periodic rate per month of 1.5% and an annual percentage rate of 18%.
g. ______The warranty for a Fisher-Price camera discloses that there is a three-year express
warranty, and describes the conditions.
h. ______A bankruptcy filed several years ago will not show up on a credit report needed for a
loan approval.
i. ______A toy with a mechanical arm is packaged with a warning that it is intended only for
children 8 years and older.
j. ______Anheuser-Busch brought out Michelob Ultra in 2002. The cans and bottles had to have
a warning label in a visible place on the container. This is especially important as womenare one of the target markets.
k. ______When Judith Durham buys a box of Snack-Wells cookies, she knows exactly what
ingredients are in the cookies and how much fat they contain.
l. ______When Michael Galganski buys a bag of potato chips, he knows that he is getting 16 oz of chips because that’s what the bag indicates even if the bag looks like it contains significantly more than that.
Learning Goal 7
9.As you read in this chapter, the federal government gets most of its revenue from taxes paid on income received by businesses and individuals. Review what you learned about economics in Chapter 2. Why would the government lower taxes during a period of economic difficulties, as was done in the early 2000s? Wouldn’t that action tend to reduce government revenues? Why or why not?
Learning Goal 8
10.When persons or businesses file for bankruptcy, they are relieved of their financial obligations by the courts.
Most bankruptcies are filed under one of the following three sections of the act:
Chapter 7 Chapter 11 Chapter 13
Which section of the bankruptcy law is being invoked in each of the following situations?
a. ______General Motors Corporation filed for reorganization, and continued operations after declaring bankruptcy.
b. ______When the fast-food restaurant Jim S. owned failed, he filed for bankruptcy and sold all
the assets to pay off his creditors, including his SBA loan.
c. ______Because of recent revisions in the bankruptcy law, a small dry cleaner was enabled to
declare bankruptcy and set up a three year schedule for repayment to his creditors.
Learning Goals 2, 3,4,5,8,9
11.The types of laws governing business are varied. They include:
Contract lawBankruptcy law
Sales law (Uniform Commercial Code) Tort law
Patent lawDeregulation
Match the correct type of business law to each of the following situations.
a. ______Firestone is being sued by the families of individuals injured by accidents caused by alleged defects in the Firestone tires.
b. ______A Sears Kenmore washer comes with a 12-month warranty.
c. ______United Airlines declared itself unable to meet its debt obligations, and filed for Chapter 11 reorganization.
d. ______The formula for a woman's facial moisturizer is advertised as being protected from duplication until the year 2013.
e. ______Bob and Dee Slone sued for damages when their building contractor failed to complete the building of their new home.
f. ______Southwest Airlines was able to take advantage of the opportunities presented when the government stepped away from governing the routes airlines could fly.
Learning Goal 9
12.In the last two decades as your text indicates, several industries have been deregulated, including the telecommunications industry. In the early 1980s in an effort to stimulate competition and give consumers more choices, ATT was forced to divide into several smaller companies, then called the “Baby Bells” which were allowed to compete for phone service with ATT. Since that time the “Baby Bells” have grown up, and are now large corporations. In fact Southwest Bell bought it’s former parent, AT&T. With the deregulation of the telecommunications industry in 1996, many options have been opened for phone service. How do you think you as a consumer have benefited from that deregulation?
PRACTICE TEST
MULTIPLE CHOICE – Circle the best answer
Learning Goal 1
1.In Missouri, a law was passed to allow riverboat gambling. The law has been challenged in the legislature several times by different groups. This kind of law is an example of:
a.common law.
b.statutory law.
c.tort law.
d.liability law.
Learning Goal 2
2.The fact that a company can be held liable for damages or injuries caused by a product with a defect even if the company did not know of the defect at the time of the sale is referred to as:
a.business law.
b.negligence.
c. strict product liability.
d.implied warranty.
Learning Goal 3
3.A ______is a document that gives inventors exclusive rights to their inventions for 20 years.
a.trademark
b.copyright
c.express warranty
d.patent
Learning Goal 4
4.The Uniform Commercial Code covers: