LEGAL AND ETHICAL
ENVIRONMENT OF BUSINESS
LEB 320 F
When Compliance Isn’t Enough
• Does the Constitution come into play?
• EPA –is that in the Constitution?
• Social cost – what’s that?
• Are federal regulations mere guidelines?
• Was EPA supposed to stop all pollution?
• Cleaner water v. Steady jobs. Whoa?
• Can WaterClear sue SunBright?
• Managers like Rick. Trapped in
• Wasn’t Rick doing a pretty good job?
• Where does globalism come into
• What if you were a member of
Aaron Feuerstein, CEO
A fire destroyed the plant, but CEO continued
payroll until he rebuilt. His unionized plant
went strike free.
Now the firm is in bankruptcy, like Enron,
WorldCom, Adelphia, and others.
A firm should balance its profits and its good
Ethics or Morality
What’s the Difference???
Is one of them tougher than the other?
Doing the Right Thing
• The Right Thing???
• The same in U.S. Saudi Arabia,
Sources of Ethics
• Mom and Pop – Family
• School – Community
• And you keep right on learning
• The ―Myth of the Cave.‖
• Realism v. Appearance.
• The Sun illuminates everything
• The Light, Absolute, Logos.
Monday, 24 February 2003
• Woman’s right to choose.
• Religion – life is sacred; fetus is
• Platonic argument
• Secular – symbiotic/parasitic
• Socratic Dialogues.
• Women, as well as men, could hold high
• In ―The Laws,‖ he described men as
– Gold – philosopher kings
– Silver – soldiers
– Bronze- artisans and laborers
– Iron – aggies and the like
• Plato – Chariot driven by ―Reason‖ drawn
by one ―Noble‖ & one headstrong –‖Spirit‖
• Marx – Natural Self, Alienated Self, and, in
time, a Species Self.
• Freud – Ego/rationality principle, SuperEgo
(conscience and ego ideal), and Id
(aggression, power, dominance).
• Spartan King Leonitus saved Athens from
Persians at Thermoplilea
• Sparta defeated Athens in Pelopenesian War
• In defeat, Socrates and Plato introduced the
―forms‖ and ―philosopher kings‖
• British philosopher Bertrand Russell during
Battle of Britain described Plato as fashistic
• Happiness - a life of virtuous
activity in accordance with
• Virtue – neither excess nor
• Where do you get that virtue?
Stoics & Epicurians
• Detachment – apathia
• Social engagement v.
separation from public
• Greatest Good – Greatest Number
– A quantitative measure
• Bentham—Pleasure/Pain Calculus
– Stuffed - University of London.
• Mills – Examined quality of pleasures.
– On Liberty – virtues resembling Aristotle.
• By keeping her promise to Margot,
Alexis can create 500 units of utility.
• By breaking that promise, Alexis can
create 5000 units of utility with Nicole.
• Alexis wants to know what to do?
God is Dead! Do something with your
freedom; create your own values free of
Will to Power! Self-
strength/fulfillment. ―Whatever doesn’t kill
me makes me stronger.‖
Eternal Return -Affirm Life! Live it
with such love for life, that you’d do it
again, and again, forever, throughout
• Truth – look at consequences.
• Use rules, principles, utility, virtue.
• If it doesn’t work well, change it.
• This does NOT mean anything goes.
• If theory does not account for facts,
change the theory.
Theory of Justice
The Original Position
• In the Original Position, behind a Veil of
Ignorance, Rawls imagines that rational,
self-interested persons who know they will
live in the society they create, but do not
know their race, sex, abilities, religion,
interests, life plan, social position, income
or other particular attributes will choose fair
and impartial rules, such as the following:
Theory of Justice
• Equality Principle: Each person has
maximum basic liberty compatible with
others – Contracts free of force, fraud, deception.
• Difference Principle: Social/economic
inequalities should be arranged so
– All offices/positions are open to everyone
under conditions of fair equality of opportunity,
– Greatest benefit goes to least advantaged.
4. Stakeholders – includes
stockholders but also covers
everyone who impacts or is
impacted by the corporation.
B. Headline News.
C. Consequences (utility).
D. The Right thing to do--moral rights.
E. The Golden Rule--respect for others.
F. Justice – Fairness.
G. Procedural justice.
VISION & VALUES
Respect – As opposed to entrapment of 401-K
Integrity – As opposed to greed, deceitfulness,
Communication – As opposed to stonewalling
by taking the 5th amendment
Excellence – As opposed to fair-to-middling
Largest U.S. bankruptcy until
Complex off-shore partnerships kept
liabilities off Enron’s books.
Energy trading completely legal, but not
Enron – Merrill Lynch
―Sham‖ energy deal with M-L allowed
Enron to meet Wall Street expectations
and book $60 million profit (1999). Inflated
profits drove up stock price, unleashed
$$millions$$ in bonuses (Lay, Skilling . . .)
and was later cancelled as planned.
M-L denies receiving $8 from Enron for
cancellation. Still under investigation.
• Let’s don’t talk about Arthur Andersen.
• It gave Professor
Shaw an all expense paid trip to their
Business Ethics seminar in Chicago.
• Over 3 years, it spent $5,000,000
• Overstated earnings by $3.8
• Laid off 17,000 employees
• Stock dropped from $64.50 to 0.83
• Former CEO received $366 million
in low interest loans
• CEO Dennis Kozlowski charged with
evading $1 million in taxes and is accused
with destroying documents.
• Kozlowski and other executives bought art
work, and one executive bought a home. In
other words, they looted the firm (also
Adelphia) for personal gain.
• Tax avoidance with offshore incorporation.
CEO Samuel Waksal sold
stock after learning the
FDA denied certification
of cancer treatment drug.
• Martha Stewart (a director of NYSE)
allegedly sold stock on inside information
provided by Merrill Lynch. Stock in
Stewart’s Omnimedia declined 40%. (see
• M-L broker, Peter Bacanovic, allegedly
warned her of illegality.
Al Dunlap built his reputation on Wall
Street as a CEO who could ―turn around‖
failing corporations. He did it, allegedly, by
an ―employee census‖ and more efficient
operations. The SEC now believes the
―turnaround‖ at Sunbeam was engineered
by financial fraud. An Arthur Andersen
audit partner certified the results.
• In 1992, while George W. Bush was a
member of Harken’s audit committee, the
SEC forced Harken to correct an
overstatement of profit.
• Bush sold 212,140 sh. @ $4 prior to a
restatement of profit.
• U.T. Poly. Science Prof. Bruce Buchanan –
―[S]imilarity to Enron style of accounting.‖
• How Much Are They Worth?
• NYSE position is that all listed companies
be required to expense stock options.
• If options reward employees, why aren’t
they treated expensed as other forms of
What’s the use of …
• The Checklist
• Ethical Theories
• If you know the right thing,
does that mean that you will do
the right thing???
Introduction to Law
Plato – In The Laws, Plato would establish
Philosopher-Kings, and place these Men of
Gold as governors over Men of Silver
(warriors) and Men of Bronz (citizens,
workers). Women were treated equally, and
private property abolished.
Aristotle – In The Politics, Aristotle would have
rule by Aristocrats, recognize private property,
women – mothers, homemakers.
• Hobbes – life without civil government
[The Leviathan] is solitary, poor, brutish,
nasty, and short.
• Locke – Separation of power. State of
nature - private property. Caretaker
government – libertarian.
Contemporary Sources of Law
• Administrative Law
• Common Law
• Administrative Law, e.g., EPA
• Remember the Rick Wagner
hypothetical in your syllabus.
• Treaties: 2/3 Senate + President
(supreme law of the land).
Classifications of Law
1. Criminal - Justice Department
2. Civil fines – S.E.C.
3. Substantive (rights) v. Procedural
4. Public (legislation) v. Private
Element of a Crime
1. Statutory violation – no common law
2. Intent (mens rea or ―guilty mind‖).
(a) Deliberate conduct.
(b) Recklessness – conscious disregard
of substantial risk of harm.
3. Proof beyond reasonable doubt.
A New Criminal Defense?
• Jury nullification—a S. D. referendum.
• ―Sure, I violated the law - it was too
• Cruelty to animals? ―What, I was
defending myself against an attack
• Child pornography? ―I just took a
photo of my toddler in the bathtub?‖
• Federal Law on CyberCrime.
• Criminal behavior if a person harasses
someone by means of interstate
Defamation in Cyberspace
Civil Lawsuit, Not Criminal
Several state laws (not Texas) have
laws prohibiting cyber stalking.
Laws require either ―credible threat‖
or an intention to ―harass, threaten,
• Access classified • Sending viruses by
government info. hacking.
• Access info of • Fraudulent access to
financial institutions. government passwords
• Access govt.
department file to • Threat to cause
affect use. damage to computer to
• Access files to defraud extort something of
or obtain value. value
Children’s Internet Protection
• The Federal Children’s Internet Protection
Act requires libraries that receive federal
funds to install filtering software designed
to block access to adult websites.
• Constitutional after the ALCU had
successfully challenged the 1st two attempts
to get this act on the books.
Actual Federal Crimes
• Fraudulent use of 4-H symbol or pretending
to be a 4-H member.
• Unauthorized use of of ―Smoky Bear‖
• Illegal use of cremation urn.
• Interstate transportation of dentures.
• Issuing false weather reports.
• Mailing false divorce information
• Legal Positivism – look to Letter of the Law
• Natural Law – look to the Source
• Legal Realism – look to the Enforcer
• Legal Pragmatism – finding a workable
legal solution roughly in accord with the
Constitution, statutes, and cases
Natural Law – Natural Religion
• David Hume (1711-76) Scottish skeptic,
friend of Adam Smith.
• Laws of nature, discoverable through
rational inquiry, are inconsistent with
miracles of Bible.
• Natural law – a purely secular project
developed as a means of protecting and
promoting life in communities.
Examples of Tort
• Osborne v. Stages Music Hall, Inc.
– Did Music Hall owe a duty?
• Ozzie Osbourne’s ―Suicide
– Could Ozzie foresee this outcome?
• Refresh your memory - Scan the
slides chapter review.
• Examine problems at end of
• Ask a bunch of questions.
Enviro-Vision v. Coastal Ins.
Tony Caruso drowned. His partner, Beth
Smiles, tried to collect double
indemnity for accidental death. No
luck! Then she turned to Janet
Booker. . . .
Alternative Dispute Resolution,
State or Federal Court
Alternative Dispute Resolution
• Mini-Trial – panel of ―judges‖
• Summary jury trial
• Private award (secret), quicker,
cheaper compared to litigation.
• However, no class actions, no
• No appeal unless arbitrator is
Enforcement of Arbitration
Meehan v. Nassau Community College
Professor assigned to teach course; he had no proper
647 N.Y.S 2d 865 (1996)
Awards won’t be enforced if they contravene
strong public policy or corruption. An error
of judgment is not sufficient.
EEOC v. Waffle House
• Employee lost job-related
arbitration dispute with Waffle
• EEOC permitted to sue Waffle
House for employee back pay
under Americans With Disabilities
State and Federal Courts.
• Which to choose: state or federal?
• Either choice, the court must have
a. Personal Jurisdiction
b. Subject matter Jurisdiction
• Venue designates the proper court within a
state to file a lawsuit.
• Assuming the court has jurisdiction over the
case, venue will be proper . . .
– In the county where the tort happened,
– In the home county of the defendant,
– If the suit involves real estate, in the county
where the property is located.
• Federal Jurisdiction:
Diversity & Federal Question.
• Exclusive federal jurisdiction --
bankruptcy, patent-copyright law,
• Original and Exclusive.
• Original – Louisiana v. Texas.
• Federal Diversity jurisdiction
(a) Complete diversity of parties,
(b) Amount in controversy $75,000
• Out of State Motorists
• Out of State Corporations
• Plaintiff initiates suit by filing a
petition in a court with
• The petition alerts the defendant in
plain language of the facts the
lawsuit is based on.
• This is in compliance with our
notion of due process. It’s based on
A summons is served on the defendant with a
copy of the petition by a court-authorized agent.
The summons will notify the defendant of when
and where to appear to answer the petition.
Normally the defendant will have an attorney
answer the petition and appear on defendant’s
behalf. Failure to appear will result in the
defendant’s losing the the lawsuit by default.
Answer tells why defendant is
Don’t default by failing to
• Answer may respond challenging the
• Answer may respond that ―statute of
limitations‖ has expired.
• Answer may respond that ―driving while
blonde‖ in not a civil wrong.
• Answer may say that plaintiff hasn’t alleged
elements of tort or breach of contract.
Judgment of Pleadings
Court doesn’t have jurisdiction,
Statute of limitations expired,
State doesn’t give legal relief
for plaintiff‖s claim.
Motion to Dismiss
• U.S. District Court dismissed ―fat suit‖
• Parents had ―reason to know‖ that fast
food produced weight gain.
• Ads ―McChicken Everyday‖ and ―Big
N’ Tasty Everyday‖ were mere
• If there is commonality of fact and law
among plaintiffs, the judge may certify a
class. Class members will be notified and
• Caesar Barber, 5’10‖ 272#, represents a
class v. McDonald’s, Ky.Fried, Wendy’s,
and Yum on failure to warn on cholesterol,
obesity, diabetes, heart disease, high blood.
– Medical Exams
Klupt v. Krongard
• Klupt, according to trial court, ―grossly
abused‖ the discovery process. Krongard’s
motion to dismiss counter-claim was
granted and affirmed on appeal.
• Abuses: Klupt routinely objected to dates
for depositions; changed lawyers causing
delay; lied about conflicts; managed further
6 mo. delay; destroyed tapes.
• Undisputed facts.
• Outcome is a matter of law.
Jones v. Clinton
• Summary judgment for Clinton
because Jones did not show
―tangible job detriment or adverse
• Other issues – trial was postponed.
• Settled out of court.
Burden of Proof
Civil actions the 51-49%
Beyond reasonable doubt:
Motion for Directed Verdict.
At close of each party’s case, the other will
move for a directed verdict asking the
judge to take the case out of the jury’s
hands and order it to return a verdict in
Reason: The other has not introduced
evidence to prove elements of his/her
• If jury cannot decide whether death
was accidental or suicide, there is a
legal presumption that death was
• Is this a proper instruction?
Ponce v. Sandoval
• Judgment NOV (against weight of evidence) and
New Trial (error of law).
• Ponce v. Sandoval-Sandoval received $1600 jury
verdict for medical expenses. Trial judge granted
her NOV motion. Appellate court reversed NOV
and reinstated jury verdict.
• Appellate court may affirm, modify, reverse and
remand, or outright reverse.
• Chapter ending problems
Common, Statutory, &
• Stare Decisis – the doctrine of precedent.
• Res Ipsa Loquitur--1) defendant controls
instrument of harm, 2) harm not normally
occur in absence of negligence, 3) plaintiff
in no way responsible for negligence or
harm. Burden of proof shifts to defendant.
• Res Judicata.
• Common – Bystanders
• Statutory – Civil Rights Act
• Administrative –
– Chevron v. U.S. – ―bubble‖ concept was a
reasonable approach even though it may not have been
superior to another strategy. ―
– Holly Farms v. NLRB
• Ginsburg –maybe not best, but a reasonable way
• O’Connor – strict construction, plain meaning
Common Law Doctrines
• Stare decisis – stand by the decision.
– Any case influenced, controlled by earlier case.
• Res ipsa loquitur – the thing speaks for
– Suit v. surgeon who, 8 years earlier, failed to
remove IUD while doing a hysterectomy.
Going to the Rescue
• Duty to go-to-the-rescue.
• Ethical duty.
a) Ability--harm to rescuer?
b) Need—how serious?
c) Proximity—close by or not?
d) Last Resort—no one else
Going to the Rescue
• General Rule—NO legal duty to rescue
unless defendant has caused danger.
• Factors considered in exceptional cases.
– Could harm have been prevented?
– Was aid negligently administered?
– Was harm foreseeable?
– Was failure to act morally wrong?
– Was there a special relationship to victim?
Restaurants and Bars
• Restaurant served drinks to diner until he
was visibly intoxicated.
• Drove away and killed motorcyclist.
– El Chico v. Poole (Texas 1987).
– Texas per se statute.
• Per Se—What’s that???
• What if diner in your restaurant is choking?
Per Se Negligence
1) DEFENDANT WITHIN CLASS
OF PERSONS INTENDED,
2) TYPE OF HARM STATUTE
INTENDED TO PREVENT,
3) BREACH OF STATUTE
• Union Pac--duty to rescue trespasser.
• Cappier – laborer suffered ―heat
• Osterlind v. Hill – canoe renter
• Soldano v. O’Daniels – Happy Jack’s.
• Tarasoff v. California—special relation
with Poddar who confided intent to
kill; the victim was foreseeable.
• Is psychiatrist responsible?
• Psychiatrist is an agent of the
University of California.
• Special relationship.
Almonte v. Ingram
• DeMasi, a psychiatrist, confided to Ingram, a child
psychiatrist, that he was a pedophile. Ingram told
no one; 4 months later DeMasi molested Denny
• DeMasi served 5 yrs in prison. When released he
violated parole and returned to prison. When
released in 1995 he disappeared.
• Almonte experienced emotional legal & problems
and was confined to institutions himself.
Almonte v. Ingram
• Patients in therapy say all sorts of troubling
things. In fact, it’s the therapist’s job to
encourage patients to reveal deep-seated
feelings. No reason to think patient would
act on all of them. Therapist shouldn’t
breach confidentiality each time patient says
something bizarre – that would cause
patients to avoid therapist in the first place.
Rescue in Texas
• Dr. Thapar began treating Lilly in 1995; he knew
about Lilly’s paranoia and delusional attitude
toward Zezulka, his stepfather. Lilly was treated
with psychotherapy and drugs; on 6 occasions he
• Thapar testified that Lilly felt like killing Zezulka.
• Within a month after release, Lilly killed Zezulka.
Thapar is sued by Zezulka’s wife.
Thapar v. Zezulka (Texas 1999)
Rescue in Vermont
• A person who knows that another is exposed to
grave physical harm and can render aid without
peril to himself or diminished duty to dependants
must give reasonable aid if not provided by others.
• Reasonable assistance relieves one of civil
– gross negligence (slight care), or
– expects remuneration.
• Does not affect physicians in ordinary practice.
• Fine - $100. 23 Vermont Code sec. 519
• Employees of Helena Labs began
having an affair. Their spouses later
discovered the liaison, and sued Helena
Labs for carelessly failing to prevent it.
Helena Laboratories v. Snyder, Texas 1995.
The Legislative Process
• Bills--Move from Legislature to
• From there back to Legislature,
• Finally to Executive for signature or
• Two thirds vote of both houses passes
bill over president’s veto.
Griggs v. Duke Power
• Civil Rights Act of 1964 prohibits
intentional racial discrimination in hiring.
• What if hiring policy is ―fair in form,‖ but
discriminates in practice?
• After 1964 Act a new Duke rule: Executive
jobs only to those with h.s. diploma/IQ test.
• What if that discriminates on race??
Wards Cove v. Atonio
• Whites hired for skilled jobs; nonwhites-unskilled
jobs. This violated law unless employer could
show a good reason (―business necessity.‖)
• S.C. concluded that ―business necessity‖ in hiring
was NOT required despite Griggs v. Duke Power.
• Congress later restored requirement of business
necessity. President G.H.W. Bush vetoed. Failed
by one vote to pass over veto.
• 1991 Act just vague enough to pass Congress.
–(a) plain meaning,
–(b) legislative intent,
–(c) public policy.
Griggs v. Duke Power
• Title VII, based on commerce
clause, prohibits job practices
that are ―fair in form,
discriminatory in practice.‖
• Ability tests developed by
professionals are legal.
• Agencies may be executive or independent.
• Agencies gain power through a delegation
from the legislature.
• Independent - SEC, FCC, FTC, NLRB.
• Executive –IRS, FBI, NRC, EPA.
• Separation of powers.
• Formal and Informal Rules.
Subpoena duce tecum
FDIC v. Garner
―Subpoena duce tecum.‖
Subpoena duce tecum must not be
unreasonably burdensome or seek
privileged information; it must
seek only relevant documents.
• Holly Farms v. NLRB
• The S.C. found that the Board’s
interpretation, while not the only one
possible, was reasonable, therefore the
Board was affirmed.
• Majority – Ruth Bader Ginsberg
• Minority – Sandra Day O’Connor
• Separation of Powers - checks and
• Art. I - Grant of powers to
Congress. Especially important is
the Commerce and the Necessary
and Proper clauses.
• Wickard v. Filburn, 317 US. 111
(1942)—The Depression Era.
• U.S. v. Lopez, 514 U.S. 115 (1995)—
The Rehnquist Court.
• Maine tried to use10th amendment tax
power to deprive Camps of property
tax exemption. Camps attendees were
95% out-of-state. Can Camps be
penalized in comparison to in-state?
• What is the dormant aspect of the
• Camps Newfoundland/Owatana v. Maine
Taxing and Spending
• In addition to the Commerce Power, Art. 1,
Section 8 of the Constitution gives
Congress the power to ―lay and collects
Taxes . . . to pay the Debts and provide for
the Common Defence and general Welfare
of the United States.‖
• Teenage drinking was a ―general welfare‖
problem – highway funds withheld.
• The Case of the Midnight Judges
• Marbury v. Madison—Chief
Justice John Marshall saw a
judicial veto in the Constitution.
Where did he get that idea?
• Article III -- One Supreme Court and
other courts as Congress may establish.
• Article VI – Supreme Law of the Land:
– The Constitution.
– Laws in Pursuance of Constitution.
– Treaties under Authority of U.S. Treaties
are made by President and 2/3 of Senate.
• Art. II--President is commander in
chief and chief executive officer.
• Youngstown Sheet and Tube v.
Sawyer—Did President Truman
exceed his powers as Chief Executive?
• What about President Nixon fixing
The First Amendment
• Congress shall make NO law respecting . . .
– Establishment of religion or abridging free exercise
– abridging these constitutional rights:
– Peaceable Assembly, or
– Petition government to redress grievance.
• Establishes citizenship if born or
naturalized in U.S.
• States cannot deny life, liberty, or
property to ANY PERSON without
due process of law.
• States cannot deny ―any person within
its jurisdiction‖ equal protection of
Pledge of Allegiance
• ―. . . Under God . . .‖
• Do these two words in the Pledge of
Allegiance violate the Establishment Clause
of the First Amendment?
• Two religious clauses: Establishment and
• Why is this applied to states . . . ?
• Due process clause of 14th A. applies the
Bill of Rights to the states.
• Massachusetts passed statute forbidding
discrimination on basis of ethnicity.
• Porcaros awarded $1.5 million - permit for
developing real estate denied on grounds
that were not held against other groups.
• ―All you Italians are a bunch of thieves.‖
Amendment I--Texas v. Johnson
US flag was burned at Republican
Convention (1980) in Dallas.
What kind of message was that?
U.S. v. Eichman – U.S statute - flag burning
Barnes v. Glen Theater – non-obscene nude
R.A.V. v. St. Paul – hate-crime ordinance
penalized burning crosses – the Klan
Wisconsin v. Mitchell – child beaten on
account of race - symbolic speech?
• Political speech receives
• However, it may be
criminalized if ―intended and
likely to create imminent
• ―The question in every case is whether the
words used are used in such circumstances
and are of such a nature as to create a clear
and present danger that they will bring
about the substantive evils that Congress
has a right to prevent. It is a matter of
proximity and degree.‖
– Schenck v. U.S., 249U.S 47, 52 (1919).
• ―The most stringent protection of free
speech would not protect a man in falsely
shouting fire in a theatre and causing a
• The [Act] punishes conspiracies as well as
actual obstruction. No grounds for saying
that success alone makes an action a crime.
• Schenck v. U.S.
• [The] ultimate good desired is better
reached by free trade in ideas – that the best
test of truth is the power of that thought to
get itself accepted in the competition of the
market . . . . That at any rate is the theory of
– Abrams v. U.S., 250 U.S 616, 627-28 (1919)
Republican Party v. White
• Supreme Court struck down Minnesota law that
prohibited judicial candidates from announcing
position on legal and political issues.
• Strict scrutiny is applied to rules limiting speech.
– must be narrowly tailored
– must be a substantial advancment
– must be a compelling state interest.
122 S.Ct. 2528 (2002)
5 – 4 Split
Cleveland Voucher Program
By a 5 – 4 decision, the
Supreme Court concluded that
school vouchers put money into
the hands of parents who could
use it for parochial or other
Zelman v. Simmons-Harris 122 S.Ct. 2460
Freedom of Religion
• Engle v. Vitale – School Prayer.
Can it acknowledge an
• Pledge of Allegiance – 10th Circuit.
―One Nation Under God.‖
Watchtower v. Stratton
• Village ordinance required registration and
permit to engage in door-to-door advocacy.
• Ordinance covered religious proselytizing,
anonymous political speech, and
distribution of handbills.
• Violation of First Amendment??
Watchtower v. Stratton, 122 S.Ct. 2080 (2002).
8 – 1 split
Time, Place, Manner Limitations
• Park ordinance required a permit before
holding large-scale events in public parks.
• Ordinance was content neutral regulation
with adequate safeguards to guide
enforcement and judicial review.
• Not a big surprise.
Clark v. Chicago Park District, 122 S.Ct. 775 (2002).
• A city ordinance prohibited yard signs
of any kind. It was designed to foster
an aesthetically pleasing visual
• Could you be prosecuted if your sign
supported or opposed the war on
Was law prohibiting nudity a valid
exercise of 10th amendment power
to control health, safety, morals.
Was law an unconstitutional
suppression of expressive conduct.
Barnes v. Glen Theater, 501 U.S. 560 (1991)
• Would AVERAGE person applying
CONTEMPORARY community standards
find the work as a whole appeal to
• Depicts in PATENTLY OFFENSIVE way
sexual conduct defined by state law.
• Does work as a whole lacks serious literary,
artistic, political, or scientific.
• Prurient – excites lustful or lascivious thoghts. Court must
distinguish between normal and shameful interest. Look to
local community standards, not state or national.
Brockett v Spokane, 472 U.S. 491 (1985).
• Patently offensive – ultimate sex act normal or perverted,
actual or simulated.
– Miller v. Cal., 413 U.S. 15 (1973)
• Social merit – national standard/average person. Jury
– Pope v. Illinois, 481 U.S. 497 (1987).
Justice Potter Stewart
Justice Stewart concluded
that he couldn’t define
―I know it when I see it.‖
• Commercial speech may be prohibited
if false or misleading.
• Regulations must be reasonable and
must directly advance a legitimate
Fane v. Florida Institute of CPA.
(see problem #2, p. 123)
• LiquorMart v. Rhode Island--statute
prohibited truthful, non-misleading price
advertising. R.I. did not show that
regulation would materially advance
state interest without impairing an
important component of free speech.
• Further, it ignored easy alternatives.
LiquorMart v. Rhode Island, 517 US 484.
Execution of mentally retarded..
Cruel and unusual???
Atkins v. Virginia. 122 S.Ct. 2242 (2002)
Penry v. Lynaugh, 492 U.S. 302 (1989)
National consensus‖ of 29 states plus U.S.
Execution of Juveniles
• S.C. Justices Stevens, Ginsberg, and Beyer
dissented from majority which denied a stay of
execution for Texas inmate, Toronto Patterson,
who was 17 when he murdered his 3 year old
• An issue for the court to examine within the next
WHAT DO YOU THINK? CONSTITUTIONAL!
• Amendment IX--Enumeration of
rights in Constitution not deny those
reserved to people.
• Roe v. Wade – right of privacy.
• Fathers, husbands, boyfriends have
no right to veto a woman’s right to
have an abortion.
Reserved Powers of State
Amendment X Powers not delegated to the
U.S. are reserved to the states and to people.
Amendment X covers the state’s power to
incorporate or establish cities, counties,
state agencies, plus schools, roads, and all
other state laws and instrumentalities.
Supreme Court approved school district policy
requiring random drug testing (urinalysis) of high
school students in band, glee club, etc.
Interest of educators in keeping drugs out of
school outweighs privacy interests.
Board - Education v. Earls, 122 S.Ct. 2559 (2002).
• In 1991 the S.C. held that use of peyote in a
Native American church was not protected
from enforcement of Oregon criminal law.
• Congress passed the Religious Freedom
Restoration Act forbidding government
from enforcing law that substantially
burdened religion without compelling need
and in least restrictive manner.
• In City of Boerne v. Flores (1997) the S.C.
affirmed its earlier holding.
• Religious Freedom Restoration Act –
• The 14th Amendment, section 5, only gives
Congress the power to enforce Freedom of
Religion, not to define terms.
• S.C. had already said Oregon criminal law
did not violate the Constitution.
• Procedural due process.
• How much process is due?
• Depends on importance of
liberty or property affected.
• Judge must be neutral.
Attachment – hearing before
Garnishment – hearing before
In Texas - garnishment for child
support and student loans only
• Secret settlements between the parties to a lawsuit
may in fact ―do justice.‖ They also clear court
dockets quickly, and that’s a plus.
• But secrecy also keeps the settlement from the
public. Think what might be different today if the
misdeeds of Catholic priests had been revealed a
long, long time ago.
• Secrecy in the asbestos and textile industries, most
likely, cost many lives.
Taking of Private Property
• Private property taken for
public use requires government
to pay just compensation.
• Government may regulate
private property without
payment for restriction of its
use, e.g., zoning.
In 1986, Lucas paid $1 million for two lots on
the Isle of Palms in S.C. Two years later
the state passed the Beachfront
Management Act. It prohibited building
homes on the property. The barrier islands
protect shoreline from erosion.
Is this a taking, or a regulatory measure?
Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992).
Procedural Due Process
• Doehr was about to be sued for assault and
battery. DiGiovanni got a $75,000
prejudgment attachment on Doehr’s home.
• Doehr challenged the prejudgment
attachment as unconstitutional.
• Connecticutt v. Doehr, 501 U.S. 1 (1991)
Substantive Due Process
• Examines basic rights being affected
• The more important the right, the higher
scrutiny that is required
• Economic regulation demands a reasonable
relation between means and ends
• Fundamental rights – regulation presumed
invalid unless state has compelling reason
Means and Ends
• Economic regulation – some
income brackets are taxed at a
higher rate than others
• Social regulation – speed limit
and other traffic laws
• The statute (or ―the means‖) must be
necessary to promote a compelling
• Compelling Interests - Fundamental
• Examples: speech, voting, travel,
racial discrimination, privacy
Equal Protection of Law
• Minimal scrutiny – economic and
• Intermediate scrutiny – gender
classifications and legitimacy
• Strict scrutiny – race, privacy, and
• Practically always the courts can
find some reasonable connection
between ―means‖ and ―ends.‖
• NYC Transit Authority v. Beazer –
methadone users excluded from
jobs that were not safety sensitive.
• The statute (―the means) must have
a substantial relationship to an
important government objective
• Gender based discrimination.
• Government restriction must be
necessary to compelling interest.
• Abortion - women under a certain
age; parents must be given notice.
• Adults – no notice to natural father
• Motorcyclist challenged law as violation of
Equal Protection (14th).
• Law upheld. It was presumptive valid; this
means rationally related to legitimate end.
• Not unconstitutionally vague, created no
suspects classification, and violated no
Robotham v. State, 488 NW2d 533
City of Dallas v. Stanglin
• Dallas ordinance prohibited ages 14-18
from ―Class E‖ dance halls to avoid
drugs and such. They were permitted
in roller rinks and other places
• Texas S.C-distinction unconstitutional-
teens mix at roller rinks too.
• Should U.S. Supreme Court affirm or
• Plessy v. Ferguson
• Brown v. Board of Education
• Bolling v. Sharp
• Sweatt v. Painter
• Hopwood v. University of Texas
CID’s and Due Process
Common Interest Developments
CID’s: Open for private regulation?
Is this State Action?
• Torts are civil wrongs, other
than breach of contract, that law
grants compensation to injured
• Intentional Torts – Chapter 6
• Negligent Torts – Chapter 7
• Intentionally negative Theater reviews,
Movie reviews, Book reviews.
What about . . .
― . . . yellow death on duck.‖
Statute of Limitations
• Attached to every legal cause of action, there is a
period of time in which a lawsuit – tort or contract
– must be filed in a court of proper jurisdiction.
• Plaintiff’s action in tort and in contract based on
defendant’s negligent misrepresentation of
• For plaintiff couldn’t discover her claim existed
until after statute of limitations expired.
Example – Intentional Tort
• Jury verdict for $5 million v. California
cemetery for fraud. Two hundred fifty
bodies buried in roadway of cemetery.
• Unusual but jury divided amount per
plaintiffs. It took two days to read the
– Barnes v. Angles Abbey, (Sup. Ct. L.A. ).
Elements of Tort
• Fault – breach of duty
A) ―chain of dominos‖ causation (actual cause)
• Damage – physical or emotional
• DEFAMATION--intentional false statement
of fact, not opinion, harmful to reputation
and communicated to a third person.
• Third person may be secretary receiving
dictation or someone who overhears
• Sixty-eight year old Christine Melton was
stopped by security guard and accused
loudly in parking lot. Shoppers stopped and
heard: nothing was found in purse.
• No witnesses produced by Melton.
• For Melton based on reasonable inference
that other heard accusation of crime.
Forced Self Publication
Lewis was asked by employer to falsify
records. When she refused she was fired for
―gross insubordination.‖ She had to say
that in answer to prospective employer’s
question, and her explanation was not
believed. She didn’t get the new job.
When she sued original employer, the defense
was that she publicized the info herself.
Defamation per se
• Accusation of serious crime
• Incompetence in profession
• Having a sexually transmitted disease
• Being and unchaste woman
• Per se – What’s that????
• Slander – oral defamation.
– Plaintiff must show actual money damages
• Libel and defamation per se.
– Showing of non-monetary damages such as
mental anguish or humiliation is sufficient
Yeagle v. Collegiate
defamation (libel) per
Public figures must show actual
What is ―actual malice?‖
• Actual malice--knowledge of
falsity or reckless disregard
• Communication majors –
proceed with caution.
Butt Head Astronomer
• A big project at Apple was code-named
• Famous astronomer Carl Sagan filed suit to
force Apple to stop using his name.
• Apple renamed the project ―BHA.‖
• Sagan filed second suit for defamation.
Sagan v. Apple Computer (Mass. 1994).
Libel in Cyberspace
• Varian Medical Systems and two executives
won libel suit against former employees for
posting 14,000 defamatory messages, some
vulgar, on 100 internet messages boards.
• Defendants alleged extramarital affairs,
danger to children, videotaping office
bathrooms, chronic lying , and
• Texas cattle ranchers sued on basis of
―False Disparagement of Perishable Food
Products Act.‖ Statements must have basis
in ―reasonable and reliable scientific
inquire, facts or data.‖
• Statute covers agri- and aqua-culture only.
• Dismissed: No cause of action in Texas.
• Source: Texas A&M.
• Absolute privilege
–Witness in court
• Qualified privilege
–Legitimate need to know
• Texas Qualified Privilege
• Texas employer who discloses information
about a current or former employee is
immune from liability unless proven by
clear and convincing evidence that
employer spoke with actual malice.
• ―Clear and convincing evidence.‖ Huh???
• False Imprisonment--intentional restraint
without reasonable cause or consent.
• Sixty-eight year old Christine Melton
stopped by security guard and accused of
shoplifting. This is not in itself false
imprisonment. That depends on the basis
for accusation; nothing was found in purse.
Ruditys v J.C.Penny
• Woman waiting in car for two shopping
companions when asked by security guard
to return to store for questioning.
• All charged with theft and acquitted.
• Awarded $250,000 for false imprisonment
and malicious prosecution.
• Ruditys v. J.C.Penny, Co.
• No. 02-4114 Delaware (2003.
Cook v. Chrysler
• Cook was induced to test spaciousness of
trunk in new car she was shopping for.
• Salesman slammed down the trunk and
gathered others to witness.
• When Cook emerged, salesmen were ―high-
• For being 1st, salesman won $100.
• Conduct - extreme &
• Was this appropriate for
• Roe v. Lynn Mills
• Assault--an act that places
victim in fear of immediate
• Western Union Telegraph V.
Hill (Ala. 1933).
• Danny Devito???
• Unwanted or offensive
• Intentional touching
• Cattle Prod
– Caudel v. Betts, 512 So.2d 389 (1984)
• Trespass – intentionally entering
another’s land without permission, or
refusing to leave after permission
• Trespass to property – hiding
roommate’s book before final.
• Conversion--civil action that is
equivalent of theft.
• Intentional misrepresentation of
material fact on which someone
relies and suffers damage.
• Accountants liability for fraud.
– Those who hired the accountant
– Limited to known and intended beneficiaries
– Reasonably foreseeable
– Small amount to vindicate right
– Amount of money to compensate victim
– Some multiple of compensatory
• Punitive damages--damages
over and above compensation
designed to punish defendant
for conduct that is extreme and
Grubbs Nissan v. Bien, 881 SW2d 843 (1994)
Fraud and Punitive Damages
• Walston v. Monumental Life Ins.
• Deceptive insurance practices and wrongful
denial of benefits. Punitive damages
Walston v. Insurance Co., 129 Idaho 211
• Tortious interference with
contract: Texaco v. Pennzoil.
• Tortious interference with
prospective advantage: The
Barber Shop case.
b) Private Facts,
c) False light,
d) Commercial Exploitation.
• Lanham Act--a) False, misleading, b)
Commercial context, c) Likelihood-harm
• Coors v. Anheuser Busch. Natural Lite, a
beer brewed by A-B on the East Coast, was
being outsold by Coors. It televised a
parody of ―Pure Rocky Mountain Spring
Water.‖ Coors wasn’t amused.
A. Elements--falsity, harm, communication to a third
B. Defamation per se: (1) Accusation of serious
crime, (2) Sexually transmitted disease, (3)
Incompetence in profession, (4) Unchastity in
C. Actual Malice--knowledge of falsity or reckless
disregard for truth.
D. Privilege: (a) Absolute--sworn testimony in court,
(b) Qualified--good faith communication of
information to recipient who needs to know.
• False Imprisonment--reasonable basis for
suspicion and reasonable detention.
• Intentional infliction of emotional distress—
Grubbs Nissan v. Bien.
• Damages--nominal, compensatory, punitive.
• Tortious interference with contract
– Texaco v. Pennzoil.
• Privacy and Publicity:
Disclosure of embarrassing facts.
• Lanham Act--false or misleading
commercial speech which is likely to
• Plaintiff fails to prove elements of
• Written waiver of liability.
• Privilege: Absolute – Conditional.
• Self defense.
• Statute of Limitations
A Southwest Texas student secretly
video taped intercourse with a U.T.
coed. Then he circulated the tape to
friends, and the tape made its way to
both campuses. She was outraged by
this betrayal; her suit was based on
negligent infliction of emotional harm.
Boyles v. Kerr, 855 SW2d 593 (1993).
• TORTS--Fault + Causation + Injury.
• Fault --Duty of care + breach
• Causation -factual chain of causation
and foreseeability or proximate cause
• Scott Amedure was killed after revealing a
―same sex‖ crush on Jonathan Schmitz.
• Schmitz was convicted of murder.
• Amedure’s parents claimed tha Jenny Jones
―ambushed‖ Schmitz by not telling him
subject matter of program.
• Jury - $25 million for plaintiffs.
Trip and Fall
Verdict for plaintiff $21 million. She tripped over
remnant of ―no-parking‖ sign which was 3-4
inches high and 2 from curb.
NYC put on notice by complaints.
Skull fracture epidural hematoma
Cognitive dysfunction, depression, headaches
Memory loss, cognitive deficits
Fired from job
Paek v. NYC, Sup. Ct. 2002.
Palsgraf v. Long Island
• Proximate Cause
• Both mean the same thing.
• Garage (Breisig) left keys in ignition.
• Before owner came, teenagers took it.
• Left it parked on street overnight.
• Next day a friend drove and injured the
• Defendant negligent? Proximate
Brown v. P.C.O.M.
• Yvette gave birth to daughter who
tested positive for syphilis. Husband
was confronted, and admitted an affair.
• Later, husband and baby retested
• Stress - husband physically abusive.
• Wife chased him outside with her
police revolver; shot, missed, both
–760 A.2d 863 (2000)
Fault = Breach of Duty
Negligence = falling below
standard of care expected of
average reasonable person
under the circumstances.
Louisiana Civil Code, Art. 2315
• $2.5 million for N.Y. woman sexually
• Apple Tours employed supervisor with
record of assaulting another woman years
• $1 million for psychological injury and $1.5
in punitive damages.
A young woman and her employees were
guests of the circus owner.
A ―dancing horse‖ evacuated in her lap.
Everyone laughed. She was mortified, and
sued the the circus owner.
Was this the ―negligent infliction of
Jennifer Lawson, 12, contracted HIV in a
blood transfusion in 1985. Her doctor,
affiliated with UCLA, knew this and
informed the donor, but not Jennifer though
he treated her for next 5 years. Three years
later she had sex with Reisner, and in 1990
Jennifer died of AIDS. Reisner tested
HIV+ and sued UCLA. Outcome??
S.C. Connecticut held that waiver
signed by ―snowtube‖ renter not
preclude liability for damages. Ms.
Hyson released White Water Mountain
from ―inherent‖ risks, but not
Colorado law controls this issue.
• Plaintiff rented Honda ATV and signed
agreement with clause that waived liability
of defendant for harm caused directly or in-
directly by use of ATV.
• Release valid if
– Not contravene public policy
– Relates to private conduct
– Freely bargained, no adhesion
Dumont v. Shaw’s Supermarkets
• Dumont ―slipped and fell‖ on chocolate
cream that fell from Shaw’s candy bin.
• While Shaw’s didn’t know of hazard, Shaw
was aware of similar hazards in the
store and failed to address this one.
664 A 2d 846 (1995)
Mulcahy’s Roadside Pub
• Slip and Fall
• Plaintiff recovers $450,000
• Plaintiff suffered nerve and tendon
• Witness for plaintiff testified that earlier
that evening he had seen glass on floor in
area of plaintiff’s fall
Case of the Missing Finger
• Wells was sent into ―tank‖ by Durkee
without proper gear. He was overcome
by gas, and became incoherent and
• At hospital he bit off nurse’s finger.
• Foreseeable or Way too bizarre?
Widlowski v. Durkee Foods, (Illnois 1990)
Danger Invites Rescue
Sewage worker died in tunnel when gas mask
failed. Co-workers entered tunnel in
attempted rescue without masks and died.
Should manufacturer be held responsible to
Guarino v. Mine Safety Appliance Co.
Hernandez v. Univ. of Arizona
The duty to act reasonably under
circumstances is socially imposed-
Social host liability.
Affirmative duty to act--basically no
legal duty to rescue unless defendant
has caused harm.
Social Host - Texas
• Smith v. Merritt (1997)—Smith was injured
while riding with 19 year old who
consumed liquor at Merritt’s party.
• Did Merritt have duty to Smith not to serve
liquor to 19 year old driver?
• Would the result be the same if the
defendant was a bar or restaurant?
Trespasser--landowner’s only duty is not to
Licensee--guest on land with consent; social host
must warn of hidden dangers that are known
Invitee--person on property because open to public.
For example, a business customer-- owner has
duty of reasonable care to invitee.
Ann M. v. Strip Mall
Was the owner of strip mall
responsible for sexual assault
Many requests to increase
High crime area?
Negligence Per Se minimum standard of care to
protect certain groups; violation of statute that
injures group member is per se negligence.
Factual cause--chain of dominoes.
Foreseeability--can general type of harm be
Superseding cause--entirely unforeseeable; ―highly
unusual, extraordinary, bizarre.‖
Waitress’s hand badly damaged as she
was loading Cokes into cooler.
Presumption of defective bottle or
excessive pressure prevailed. Coke
employee testified that he had
seen/heard explosions in warehouse,
150 P2d 436 (1944).
What about a roach in a coke bottle???
Should summary judgment for
Repo Man be reversed and
remanded for trial?
• SECURITY INTEREST: COVERAGE
– The vehicle and all parts or goods installed in it;
– All money or goods received (proceeds) for the vehicle;
– All insurance . . . or other contracts we finance for you; and
– All proceeds from all insurance . . . or other contracts we
finance for you.
• WE MAY TAKE VEHICLE FROM YOU:
– If you default, we may take (repossess) the vehicle from you if
we do so peacefully and the law allows it.
Affirm or Reverse??
• Plaintiff’s argument. • Defendant’s argument.
• Valley owed duty to • Irresponsible owner at
everyone. fault; not repo man.
• Foreseeable because • Nighttime repo was as
repo involves hostility. safe as possible.
• Darkness and car • Alternative: Knock on
alarm evidences negl. door?
• Harrision Ford • Negl use of gun
fantasy. caused injury;not repo.
The Condom Case
Reynolds v. Highland
Injury must be genuine, not
Guest fears HIV
• Employee, fearing HIV, sues employer for
emotional harm. Co-employee who
―looked and acted gay‖ cut his hand and
blood splattered on Ms. Guest. She began
to suffer from panic attacks, depression,
insomnia – diagnosed with Post-Traumatic
Stress Disorder. Five HIV tests were
negative. 38% permanent partial disability.
Negligent infliction of emotional
harm to bystander. Example: mom
sees injury to child.
Plaintiff near scene
Distress from contemporaneous sight of accident
Plaintiff is close relative of victim
• Friends of owners/operators of an Austin
daycare center knew of child abuse and
failed to report it.
• Does the Texas Family Code which
criminalizes the conduct of the perpetrators
also impose per se tort liability on
Contributory v. Comparative
Contributory Negligence—a small degree of
negligence can prohibit plaintiff from collecting
Comparative Negligence—a jury will assess
percentage of damages attributable to each
If damages are $1000, and defendant is 80%
negligent, plaintiff can recover $800.
Texas, if plaintiff is 51% negligent, no recovery.
• Texas Rule
• Multiple Defendants
• Damages $100,000
• Plaintiff’s fault = 10%
• D-1 = 30% (judgment for $30,000)
• D-2 = 60% (judgment for $60,000)
• If plaintiff over 50%, no recovery.
Comparative or contributory
negligence is irrelevant even if
victim is negligent or reckless.
Old Island Fumigation v. Barbee
Ford Pinto, Mustang, and ―Side Saddle‖
Product liability--If manufacturer puts a
product in chain of commerce that comes
into possession of consumer and is used in
normal way, manufacturer is liable for harm
for personal injury and property loss caused
by product that is ―defective‖ and
Cost/Benefit of Ford Motor
• Cost: $11 x 12.5 million = $137 million.
• Benefits: 180 deaths @ $200,000 each + 180 burn
injuries @ $67,000 each + 2100 burned vehicle
salvage value @ $700 = $49.15 million.
• Costs outweigh Benefits by $86.85 million.
• Pennsylvania jury awarded Hutchinson
$15.5 million v. Freightliner. While
negotiating a curve on on-ramp, driver
struck guiderail and rolled over
embankment; he lost an arm and wears a
• Cab not crashworthy; cruise control poorly
designed; failed to disengage while braking.
Assumption of Risk
Plaintiff/spectator sued Chicago Cubs for
injury pursuing a foul ball. Cubs
claimed she was negligent for not
moving her season ticket seat to a
protected area of the park.
Held: For Plaintiff.
• Comparative negligence abolished assumption of risk.
• Duran v. Cubs, 1989 U.S. Dist. LEXIS 10969.
3. Pain and Suffering
Introduction to Contracts
Must Jerusalem deliver steel to Hardbody?
Does Nicole have a job with Hardbody?
Must Nicole purchase Jasper’s house?
Do Cassandra and Jasper have a contract?
Introduction to Contracts
Some MUST be in writing--Statute of Frauds.
Introduction to Contracts
Types of contracts:
Valid, Voidable, Void,
Employment at Will???
Federal Express v Dutschmann
Employment at will was
confirmed by signature of
plaintiff. It is enforced instead of
the “Hearing Policy” stated in
Dillion v. Champion JogBra
• Disclaimer of JogBra: ―PROCEDURES
CONSTITUTE GUIDELINES, NOT AN
• Linda Dillion sued for wrongful breach.
• Issue: Employee handbook promised fair
discharge procedures that were inconsistent
• Vermont Supreme Court (2003)
Winters v. Houston Chronicle
Does Texas allow a suit for wrongful
discharge of ―whistleblower‖ against
Plaintiff alleged violation of a crime:
Texas Deceptive Trade Practices Act
795 SW2d 723; 1990 Tex. Lexis 106.
Promise is made with knowledge that it will
be relied upon.
Actual reliance and change of position.
Injustice unless promise is enforced.
• Hoffman v. Red Owl Food Store
Vortt Exploration v. Chevron
a) Benefit conferred on defendant,
b) Defendant knows of plaintiff’s
reasonable expectation to be
c) Unjust enrichment.
Pyeatte v. Pyeatte
o Margrethe agreed to support husband’s law
school education if he, in turn, would
support her for a graduate degree.
o Charles got his degree and divorced
Margrethe. She sued, and Charles, a newly
minted attorney, defended saying ―No
– 661 P2d 196 (1983)
Uniform Commercial Code
Texas Bus/Comm Code and UCC.
Pittsley v. Houser--mixed goods
What happens if goods and
services are mixed in the same
Katrina and Bob
The Handshake . . .
. . . what would you enforce?
• Offer and Acceptance – ―Meeting of
• Offer - intent, terms, communication
• Intent--objective v. subjective
• Invitations - Quotes, Advertisements,
An offer shows an intent to
enter a contract.
It names reasonably definite
It is communicated to offeree.
• 9 a.m. Sharp
• 1 Black Lapin Stole
• Worth $139.50
• FIRST COME, FIRST SERVED
Duration of Offer
• An offer lasts for the specified period of
• If no time specified, lasts a reasonable time.
• It lasts until revoked or rejected.
• It expires by-operation-of-law when offeror
• If offeror dies after acceptance, what then??
• UCC 2-328
• Auctions with Reserve
• Auctions without Reserve
• Terms have to be clear enough
for a court to know what to
• Or else . . . What?
• Lemming v. Morgan
UCC and Open Terms
• UCC 2-204--‖goods‖ only
• Price: UCC 2-305
• Output v. Requirement
• Delivery, Time, Payment
– Merchantability UCC 2-314
– Fitness 2-315
– Express 2-313
• Agreement to a ShrinkWrap/ClickWrap
express warranty with arbitration term?
• P sued in N.Y – D made motion to dismiss.
• Arbitration, but . . .
– You must pay a $4000 arbitration fee,
– You must go to Chicago,
– International C.C. rules to govern process.
– Brower v. Gateway, N.Y. Appellate Division (1998)
Specht v. Netscape
• Netscape offered free software
―SmartDownLoad‖ with click of mouse.
• Specht downloaded and now sues for
violation of 2 federal statutes.
• Netscape moved to compel arbitration term
of license that became binding when Specht
– 150 F.Supp. 2d 585 (2001)
Termination of Offers
• Revoke – effective when received.
• Reject – effective when received.
• Expiration – terminated at end of
• Operation of Law – death of
EXCEPTION . . .
• Firm Offers – UCC 2-205
• Common law option contracts
Sub-part 1: Must be sale of goods.
Goods are tangible-movable things
Sub-part 2: If merchants involved on both
sides of deal, WATCH OUT!!!
Merchants are in the business of buying/selling goods
Sub-part 3: Implied contract.
Leadertex v. Morganton
• Sub-part 1: Offer may be accepted with
added or different terms.
• Whose terms control??
• Sub-part 2: Additional terms in
acceptance binding on offeror (Leadertex)
(1) Offer forbids changes, (2) Material
Alteration, (3) Objection
• Time of acceptance governed by
effective as soon as offeree
• Offers, revocations, rejections must
be communicated (made known to
addressee) to be effective
What happens if ….
1. Offeror specifies mode of acceptance?
2. Offeror requires receipt of acceptance?
3. Acceptance is sent by authorized means,
then offeree calls offeror to reject.
4. Rejection sent by mail, as authorized, then
offeree mails acceptance letter.
5. Revocation is ―on the way,‖ when
acceptance is sent.
1. Serious promise knowing
promissee would rely
2. Actual reliance by promissee
3. Enforce promise to avoid
(1) Invitations--similar to typical auction with
(2) Price quotes--Leviton’s price quote to
Litton not specific enough to be and offer,
therefore limitation on liability in Leviton’s
quote is not part of contract.
(3) Advertisements and Auctions typically
are not offers.
5. Agreement must be specific enough for
judge to know what terms to enforce.
4. Open Terms & Gap Fillers.
A. Open price, 2-305.
B. Output & Requirement Contracts, 2-306.
C. Delivery, Time, Payment: UCC 2-208, 209, 210.
6. Termination of Offers: Revocation,
Rejection, Expiration of Time,
Operation of Law.
Firm Offers: UCC 2-205.
Acceptance: Mirror Image v. 2-207.
• Leadertex v. Morganton: Morganton, the
defendant/offeree, included a new term,
―arbitration‖ in its acceptance.
• Is new term binding on Leadertex?
• Was ―arbitration‖ term a material
• Did arbitration term inflict surprise or
Mail Box Rule
Remember the mailbox rule of
Soldau v. Organon. Even if the
post office gives the letter back,
the law still rules that the
acceptance is finalized when
Stiglitz: Roaring ’90’s
• Focusing most criticism on the Clinton
Administration, Stiglitz concludes
a) Bush’s tax cuts benefiting mainly the wealthy and deficit
spending is the best way to end the recession.
b) Clinton policies fueled the unstable expansion of a stock
c) Clinton reduced economic debate to Neanderthal
d) Clinton ended massive subsidies to domestic industries,
and made global competition more equitable.
• Bargained-for exchange
• The ―price‖ each pays for
other party’s promise or
• Kelsoe v. International Wood
• Hamer v. Sidway – Nephew (15) promises
Uncle he won’t smoke, drink, swear, play
cards or pool for money for 6 years. Uncle
promises $5,000 for restraint. Outcome?
• Dahl v. HEM Pharmaceuticals – Clinical
trial for Ampligen. Dahl signed consent
form; could withdraw and was warned of
side effects. HEM didn’t pay off.
Adam and Eve
• The ―Garden Drive-In,‖ some hanky-panky.
• Eve became pregnant – Adam?
• Adam made all sorts of promises if Eve
promised not to sue. She promised.
• Turns out . . . Adam not the father.
• Mutual exchange of promises – or is there
some other issue?
Adequacy v. Illusion
• Adequacy of consideration.
– Alaska gold mine
• Illusory promise.
– Culbertson v. Brodsky
Requirement & Output
The amount to be sold can be
measured by all or part of the
requirements of the buyer or the
output of the seller.
Texas Business and Commerce Code (UCC)
• Past consideration = no
• Dementas v. Estate of Tallas.
• What about Kelsoe v. International
Wood Products, Inc.?
1. Serious promise knowing
promisee would rely
2. Actual reliance by
3. Enforce promise to avoid
• An agreement modifying a
contract for the sale of goods
needs no consideration to be
• Modification must be in writing
if original written contract so
Liquidated v. Unliquidated
• Liquidated--creditors promise to
settle for less is not binding
• Unliquidated--agreement to settle
disputed debt is binding
• Accord and Satisfaction--
agreement is settle unliquidated
debt + actual payment
Consideration--a bargained-for exchange of
promises or the price you pay for someone else’s
promise or performance. Kelsoe case--gratuitous
promise, no bargain, not enforceable.
Adequacy--courts allow the parties to decide
what is adequate, but there must be some
commitment (no illusory promises). You be the
Judge, p. 276--For Culbertson v. Brody.
Output-Requirement contracts: Must show good
Past consideration = no consideration. Such promises are
not enforceable, Dementas v. Estate of Tallas.
Promissory Estoppel--Job offer, Pittsburgh Pirates, G.M.
Performance of a contract that one was already under an
obligation to perform is not consideration for a promise to
pay extra unless a) additional work or b) unforeseen
It is possible to rescind old contract and enter new under
common law, or modify old contract without consideration
under UCC 2-209.
• Wagers • Noncompete
• Licensing • Exculpatory
• Usury • Unconscionable
Illegal unless permitted by state law.
California law makes gambling-on-
credit contracts void as public
Whatever happened to Full Faith &
Credit Clause of the Constitution
Texas in Toss
• Ryno was shopping for a BMW – $125,000.
• Tyra – Ft. Worth: ―Double or nothing.‖
• Ryno won – he got car, title, keys for $0.00.
• Tyra repossessed BMW.
• A gift, a gag, gambling, or conversion?
Ryno v. Tyra, 752 SW2d 148 (1988).
Betting on the rise and fall of stock price
Derivatives are futures--the value depends
on some underlying reference, e.g., exchange
rate, prime rate, $bl$ of oil, weather.
Jiminez v. Protective Life
Pepsi v. Coke
• Coke sued Pepsi for violation of a court order that
• S.C. response to House-Rep concluded that
promotional contests for prizes/money that did not
require consideration were legal.
If calculated to protect public interest,
fee for “professional” work without a
license cannot be enforced.
Cevern Inc. v. Furbish--contractor not
licensed when agreement was signed.
Later he became licensed. Result?
Bremmeyer v. Kiewit
• Kiewit held road building contract from
state and sub-contracted with Bremmeyer,
an unlicensed firm to remove timber.
• Kiewit lost state contract; settled with state
for $1,729,050. Offered Bremmeyer $38.
• Public protection statute not undercut by
allowing Bremmeyer to sue Kiewit.
If licenses are issued as
revenue-making measure for
government, contracts by
unlicensed person are still
Covenants Not To Compete
Covenants Not To Compete are valid if
– promisee’s need is not outweighed by harm to
promisor and to public,
– ancillary to a legitimate contract,
– no greater than necessary to protect that
• In time
• In geographic area
Non-compete clauses--ancillary to legitimate
a. Sale of a business--ancillary clause must be
reasonable in time, distance, scope.
b. Employment--enforced to protect trade screts,
confidential information, customer lists.
Metro Traffic v. Shadow—Should court issue
injunction against Shadow?
Exculpatory clauses must be clearly written
Exculpatory clauses not generally valid
(a) for intentional conduct or gross negligence,
(b) for a needed public service, or
(c) unequal bargaining power.
Clause not valid where
(a) business suitable for public
(b) business important/necessary to
(c) business open to public,
(d) party seeking exculpation holds
advantage of bargaining power.
Bailment relinquishes possession and
Exculpatory provision frequently valid
because it involves property not
a) Self-storage--exculpatory clause valid
b) Auto parking lot liable for theft of car?
• Plaintiff used Houston parking garage.
Ticket said on back, ―READ CAREFULLY.
WE CLOSE AT 6 p.m.‖ It went on to limit
to limit to $100 liability for theft occasioned
by negligence. A notice was also posted on
wall, and greater rates available with
– Schroeder v. Allright, 551 SW2d 745 (1977)
Adhesion Contract - Take it or
WorldWide Ins. V. Klopp – Was
arbitration clause unconscionable?
Bias favors of WorldWide:
low awards couldn’t be appealed,
only insurance appeals high awards.
• Court determines fairness.
– a) oppression,
– b) surprise.
EDS v. Chubb
• Unconscionability (UCC
• Limitation of liability (UCC
• Electronic Data Systems v.
Capacity & Consent
• Minority • Unilateral-Bilateral
• Mental Disability Mistake
• Fraud (silence as • Duress
fraud) • Undue Influence
Contracts of minors (defined: 18 or under)
are voidable - minor can disaffirm, but adult
Minor must return the thing that has been
purchased (or what remains) to get refund.
Ratification--after becoming 18, a person
may ratify a contract made during minority
a) express ratification, or
b) by words/action that expresses an intention to be
Minor may lie about age and
induce adult to enter
TEXAS does not allow
rescission because of the
Food, clothing, housing, medical care
No contract because minor is incapable
of creating a contract.
Minors are bound in quasi contract for
reasonable value of product or service.
Insanity--mental impairment whereby
person cannot understand nature or
consequences of transaction. Parties
Contract is voidable - it will be void if a
court had declared insanity.
Restitution must be made by insane
person if that condition NOT known or
apparent to the other party. But, if
incapacity is known . . . Hauer v. Bank.
Hauer v. Union Bank--banker was
in bad faith because he knew of
A reasonable banker would have
plenty of notice that Hauer could
not understand nature or
consequences of the transaction.
• Law – an intentional tort
– Aristotle – character, integrity
– Kant – categorical imperative
– Bentham & Mill – utility
– Neitzsche – you must be willing to live this life
over and over again throughout eternity
speaker believes statement is true.
speaker has knowledge of falsity.
Either of the above justifies
rescission by injured party. Fraud
permits plaintiff to pursue
rescission and damages.
c) Material fact
d) Justifiable reliance
e) Damage/injury to victim.
Misstatement must be of fact, not
Fraud if person intends to induce while
knowing statement was false or
statement is spoken with reckless
Materiality & Remedies
o Material fact, or materiality, means the factual
statement is important enough for plaintiff to
o Reliance must be justifiable - something that
a reasonable person would have done.
o Fraud = rescission + damages.
o UCC 2-721 = recission + damages.
Silence as Fraud
a) Correct a previous statement later
found to be untrue: “Nonrecourse
b) Correct a basic mistaken assumption:
c) Latent defect - seller knew but buyer
didn’t. Strawn v. Canuso.
Mistake-assumptions not in
accord with facts.
#1. The sell of old records to X not realizing
they had been lost in a fire.
#2. A miscalculated construction bid accepted
by X who relies on it.
Bilateral & Unilateral
– Bilateral--normal remedy is to allow injured party
– Reilley v. Richards--mutual mistake regarding
floodplain. Richards, the purchaser, was
entitled to rescind.
– Unilateral—rescission (1) if non-mistaken party
knew of the victim’s error, or (2) if enforcement
would be unconscionable.
– Example: Valuable painting sold cheaply
but without knowledge of its origin.
Plaintiff Hoggatt was injured when he lost
control of his motorcycle while passing
Jorgensen’s car. The parties settled
financially, and Hoggatt signed a release.
Hoggatt then realized the full extent of his
spinal injuries – can he set aside the release
based on mutual mistake of fact?
What is the ―single recovery rule?‖
• Success, Inc., bids on job to prime
contractor, Arango. Arango is awarded the
main bid with X.
• Success wants to withdraw because of error
• Can Success use mistake to justify
Arango v. Success Roofing, 730 P2d 720 (1996).
Duress--voidable if wrongful threat impairs free choice
and victim had no reasonable alternative. However,
a threat to do something you have a legal right to do
is not duress.
Economic Duress: Ponder v. Lincoln National Sales--
most economic duress plaintiffs lose, and so did
Ponder. Lincoln had option NOT to renew.
a) Relationship of trust/confidence &
b) improper persuasion.
Bonds v. Bonds
a) Relationship of trust/confidence &
b) improper persuasion.
Bonds v. Bonds – in 1987, while earning only
$107,000, Barry met a Montreal bartender, Sun,
and were married the next year in Las Vegas. On
Barry’s initiative they stopped in Phoenix and
signed a pre-nuptual agreement. Whoa!
Statute of Frauds
Certain Contracts MUST be in writing to be
even though there is an agreement,
consideration, legal object, and competent parties.
Statute of Frauds
• Unenforceable unless in writing:
– a) Land,
– b) Debt of another,
– c) Long duration,
– d) Executor’s promise,
– e) Marriage promise.
• UCC 2-201.
• Parol Evidence Rule.
Statute of Frauds
• Contracts that are required to be in writing,
e.g., contracts for the sale of interest in land,
will be unenforceable if made orally. These
contracts are not ―void‖ because, once they
are executed or performed, neither party can
demand a rescission.
• Contracts for the sale of any interest in land--
any legal right regarding land--must be in
writing to be enforceable.
a) Full performance by seller
b) Part performance by buyer
c) Promissory estoppel
• Hershon v. Cannon: ―Purchase‖ of 54 acre
a) Promise not to solicit other offers and ―right of
first refusal‖ were inducements to Hershon..
b) Promissory Estoppel-not enough reliance-
position/part performance by Hershon.
Year + 1 day
• Contracts that cannot be fully performed w/i one
year from time they are made must be in writing.
• Example: Contract to work for one month
beginning 2 years from now must be in writing.
• Wior v. Anchor--Wior’s employment contract was for
―20 plus years, until he retired.‖ Should have been
in writing since that cannot possibly be performed
within one year. For Anchor.
• Lifetime employment--oral contract is enforceable
since a person can die within first year.
Debts of Another
• Promise to pay debt of another has to be in writing
because, while you are normally responsible for
your own debts, it’s unusual to require you to pay
the debt of a 3rd person. Same rule, requiring
writing, if executor promises to pay debt of estate.
• Leading Object Rule--If promise to pay debt of 3rd is
mainly for promisor’s benefit, i.e., self-interest, then
an oral promise is enforceable.
• Farm Credit promised to pay Perry’s debt to Sunrise
so Perry could feed hogs and repay loan to Farm
Credit. Sunrise v. Farm Credit--held for whom?
• Sufficiency of the written agreement:
a) names of both, b) subject matter, c)
essential terms,+SIGNED BY
• Contracts for sale of goods priced
$500 or more must be written, must
specify the quantity of goods, and must
be signed by defendant.
• UCC 2-201 (2)
• GPL Treatment v. Louisiana-Pacific
• Louisiana-Pacific did not object to
GPL’s confirmation within 10 days of
UCC 2-201 (3)
• Specially manufactured goods.
• Admissions in court under oath.
– To extent seller has delivered.
– To extent buyer has paid for.
• UCC 2-202. Parol Evidence Rule. A
contract intended to be final and
complete cannot be changed by parol
• But, if it is ambiguous, the ambiguity
may be explained by parol evidence.
• Cheyenne v. Thompson - contract
unclear on payment for unused
Introduction to Sales
• Harold and Maude
Introduction to Sales
• Art. 2 of the UCC always has something to do
with transations in goods (tangible, movable
• If goods and services are mixed (e.g., If hardware
store sells and installs washing machine), the UCC
controls the transaction if goods predominate.
See, Perma Sash v. Scandinavian House.
• Merchants, UCC 2-103, ―deal‖ in particular kinds
of goods, e.g. a clothing merchant or an auto parts
Insul-Mark v. Kor-It
• Kor-It (distributors) supplied defendant with
nails to be ―rust proofed.‖ Defendant repacked
nails and shipped back to Kor-It, who then
sold to contractors. The coating did not work
and Kor-It lost customers and profit.
• Kor-It sued for breach of warranty.
• UCC supplies warranty; common law does
Introduction to Sales
• Good faith, UCC 104, = honesty (if a
merchant, honesty + reasonable
• Unconscionability: UCC 2-302--court
need not enforce if contract is shockingly
unfair and lop-sided.
• Colorado-Kansas Grain v. Reifschneider--
Farmer didn’t respond to letter of
confirmation within ten days, is he bound
on the confirmation even though he didn’t
Superior Boiler v. Sanders
• UCC 2-207--Acceptance may create a
contract even though it includes new
or different terms.
• Do both parties have to be merchants?
• In Superior Boiler v. Sanders, sub-part
(2) of UCC 2-207 applies.
• Delivery terms in contract conflicted.
• What then?
Price and Quantity
• UCC 2-305. Open price--reasonable
price at time of delivery.
• UCC 2-306. Output and Requirement
contracts. Parties must act in good
• Contract modifications need no
consideration, but get it in writing!!!
• Tennis Club v. T.J. International -
Oral modifications may be forbidden.
Between merchants, the contract may
require all modifications to be in
writing and signed.
• Roof collapsed 25 years later.
• HOW THIS CONTRACT CAN BE
– This contract contains the entire agreement
between you and us relating to this contract.
Any change to this contract must be in
writing, and both you and we must sign it. No
oral changes to this contract are binding.
– This provision must be separately signed by
• Detective • Tony Jenkins
Waterston - partner
• Sergent • Letitia
Malloy Lamour -
• Haverstock - payee
Checks and Notes
Possessor - unconditional right to
– Paper is Negotiable
– Paper is in the hands of a Holder
– Holder is Holder in Due Course
– There are no ―Real‖ defenses.
• Two types of negotiable
– Notes--two party instruments and
promises to pay
• Purchase of auto from G.M.
– Drafts--three party instruments and
orders to pay
• Payment of tuition to the Universisty.
• Legal and enforceable.
• Subject to same defenses you studied
in chapters on Agreement,
Consideration, Legal Object, and
• May be assigned, but not if contract is
for special expertise, e.g., surgeon,
Formal requirements of negotiability:
b) SIGNED by maker or drawer
c) UNCONDITIONAL promise or order to pay
d) CERTAIN AMOUNT of money
e) Payment on DEMAND or at a DEFINITE time
f) To ORDER or BEARER.
• Check – You draw a check on Hometown
Bank payable to order of U.T. (tuition)
• Note – You make note payable to order of
Cowtown Ford for a new car.
• Trade Acceptance – Sasha (seller) draws
Trade Acceptance on Circle S
(buyer/drawee) payable to order of herself
or to one of her creditors, e.g.,Citizens Bank
(payee). Circle S ―accepts‖ by signing.
Estimated time of payment not sufficient for
Must be payable on demand or at definite time
a) Words control figures,
b) Handwriting controls typed
or printed terms,
c) Typed terms controls printed.
Holder in Due Course
• Holder-in-Due-Course (HDC).
• Holder who has
– given value
– in good faith
– without notice of
• claim or
• Blank – Indorser’s name only
•Negotiated by Delivery.
•Changes Order Paper into
Bearer Paper if it’s the
last or only indorsement.
Special indorsement names indorsee
– ―Pay to Kristen, (signed) Lily‖
– Changes bearer paper into order
paper if it’s the last or only
– Order paper needs indorsement plus
delivery for negotiation.
Amy, drawer, issues check payable to order of
(a) Lindsey, payee, indorses ―For deposit,
(signed) Lindsey,‖ and deposits check
into her account in Houston 1st Fed.Bk.
(b) Lindsey’s bank credits her account and
sends check through bank channels to
drawee Hometown Bank for collection.
(c) Drawee debits Amy’s checking account.
(d) Drawee may refuse payment if ―NSF‖ or
• Indorser liability is secondary.
• For an indorser to become liable, the holder
– Present the instrument to the primary party,
– The primary party must dishonor by refusing
– The indorser must be given notice of dishonor.
• Indorsement without recourse means ―not liable as
• Qualified indorsers make transfer warranties.
– Transferor is a holder,
– All signatures are genuine,
– No material alterations,
– No defense is good against transferor, and
– No knowledge of issurer’s insolvency.
• Notice of the following prevents holder from
becoming a HDC: a) Overdue, b) Dishonor,
c) Alteration, Forgery, Incompleteness, and
d) Notice of a defense.
• Hartford Ins. Co. (Avon) v. American Express--
Dishonest employee (Skalkos) wrote company
checks to pay personal debts, but disguised
payee’s name. American Express was in good
• Real defenses – essentially this means
―no contract‖ or that the law forbids
• Personal defenses – there is a contract
but something is defective about it.
• Background: Far too many
consumer credit transactions
were for defective goods, but
consumer’s note would be
negotiated to HDC. This led
FTC to ban HDC in consumer
• NOTICE: Any holder of this consumer
credit contract is subject to all claims and
defenses which the debtor could assert
against the seller of goods or services
obtained pursuant hereto or with the
proceeds hereof. Recovery hereunder by
the debtor shall not exceed amounts paid
by the debtor hereunder.
Firms that have issued
publicly traded stock must
make current information
o SEC Act sec. 14--Proxies needed for
business meeting quorum, and for info on
officers, candidates, issues.
o If you don’t vote your proxy, the firm
will vote for its own slate of directors.
• SEC Act sec. 10(b)--prohibits fraud in
connection with purchase or sale of any
security whether or not registered under the
Elements of Inside Trading
• Misstatement or Omission of Material
• Scienter--statement must be willfully,
recklessly, or knowingly made and with
intent that it be relied on.
• Purchase or sale.
• Reliance--courts assume reliance.
Levison v. Basic, Inc.
• Secret negotiations between CEI and Basic
regarding a merger.
• Secret leaked out and stock sales +++
• Press release said ―Nothing unusual
• NYSE – alerted by Stockwatch‖ - phoned
and was told by Basic, ―No way.‖
• FUNDAMENTALLY UNFAIR--
marked cards or a stacked
• DESTROYS CONFIDENCE IN
MARKET--the insider will
always win (right up until indictment).
• Insider is someone who has fiduciary
duty to company whose stock he has
• Fiduciary must not trade company stock
while in possession of material, non-
• Tippers who pass on inside info are
liable if they know the info is confidential
and they expect some personal gain.
• Paul Thayer—Deputy Secretary of
• Tippees, having no fiduciary duty, are
(a) they know the info is confidential,
(b) know the insider is violating a duty, and
(c) the insider expects some personal gain.
• SEC v. Barry Switzer
Tipper - Tippee
• SEC v. Dirks (1983) Dirks was a stock
analyst of insurance companies. He heard
and investigated fraud at Equity Funding.
The he reported to clients who sold their
Equity Funding stock.
• Tippee’s liability for trades is derivative—
liable only if tipper is liable.
• SEC Rule 14-e. Prohibits inside trading
during tender offer if trader knows info
came from bidder or target.
• Misappropriation--liability for profitable
trades using inside information if breach
of duty is to source of information.
• Carpenter v. U.S.--Wall Street Journal.
• Foster Winans, writer of ―Heard on the
Street,‖ in WSJ bought of X-Corp.
before he wrote/published good things
about X-Corporation. Stock price +++
• Then he sold X and made profit.
• Constructive or Temporary Insiders
• U.S. v. O’Hagen—O’Hagen’s harm to
securities market was the same
as in typical inside trading case.
• Misappropriation liability: ―Fraud on the
• The ―source‖ was his law firm.
Constructive and Temporary
Insiders are treated the same way.
Herbst prepared press releases for
X-Corp and traded its stock
depending on the news and before
the news became public.
$$$$$ v. $$$$$
• Energy Efficiency--Paper v.
• East Texas lumber to paper mill to
• Strip mined lignite to power plant
to U.of T.
• Energy Efficient v. Wealth
• CLEAN AIR ACT--National Uniform
Ambient Air Quality Standards.
• PRIMARY STANDARDS--Protect public
health w/o regard to cost + adequate margin
of safety (3 yrs).
• SECONDARY STANDARDS--Protect
public welfare within reasonable period of
• STATE IMPLEMENTATION PLANS--
states were to identify polluters and issue air
• CITIZEN SUITS--citizen may sue polluter
for violating permit or sue the state or EPA
for failing to enforce.
CENTRAL ARIZONA WATER CONSERVATION
DISTRICT V. EPA.
A Citizen Suit spurred EPA into action v.
Navaho Generating Station. Was the EPA
order ―arbitrary and capricious,‖ i.e., a waste of
money in relation to air quality improvement?
PREVENTION OF SIGNIFICANT DETERIORATION
• NEW SOURCES: The CAA ―protects and
enhances‖ air quality, so new sources that
cause major increases in pollution must get
• Under the PSD program, a permit will be
granted only if (a) emissions won’t cause
an overall decline in air quality, and (b) the
applicant installs BACT -- Best Available
• Low Sulfur Coal.
• Use alternative fuels (e.g., gas).
• Trade emission allowances.
• GM built catalytic converter (1975).
• Auto travel quadrupled, 1970-2000.
• Oil companies must produce cleaner fuel.
• Auto companies must produce low-
• Highly polluted cities must arrange for car
1990 Amendments to CAA requires EPA to
set standards for 189 pollutants based on
MACT (Maximum Achievable Control
• Export Administration Act: protects
national security and conserves
resources. Secretary of Commerce
• Arms Export Control Act: President
controls list of military weaponry.
• Average duty on goods entering U.S., 1997,
was between 3-4%.
• Marubeni Corp. v. US (1994)—Nissan Pathfinder
(SUV) initially classified for transport of goods
reduced on appeal to ―transport of persons.‖ Tariff
reduced from 25% to 2.5%.
• Sales in US by a foreign firm at less than fair
value triggers a ―dumping duty‖ by the Secretary of
Commerce. Goods that are subsidized by a foreign
government will draw a ―countervailing duty.‖
• Quotas and Import Bans.
• B-West Imports v. US (1996)—
president’s authority to ―control‖ arms
imports under Arms Export Control Act
empowers ban on imports from China
because of human rights abuses.
General Agreement on Tariffs and Trade
• Between 1947 & 1994, GATT reduced tariffs
worldwide by 35%. This is expected to boost
world trade by $500 billion by 2005. WTO
resolves trade disputes; US can opt-out if ―3
unprincipled decisions are rendered against it in a
5 yr. Period.‖ Environmental and child labor
problems are exacerbated with global free trade.
Intellectual property is granted new protection.
Regional Pacts: EU, NAFTA, ASEAN, Mercosur.
World Trade Organization
• Evolved from GATT.
• WTO authorized European Union to impose
$4 billion penalty on U.S. because of tax
breaks given to corporations operating
• Penalty will be enforced by retaliatory
tariffs on American exports.
International Sales Agreements:
A. Direct Sales: UCC and CISG are similar,
but note differences.
1) CISG does not require written contracts (see
2) CISG—some offers irrevocable even if not written
(see UCC 2-205).
3) CISG—acceptances must be ―mirror images‖ (see
4) CISG authorizes specific performance in some
cases but not the UCC.
International Sales Agreements:
Parties may choose which forum (which
national court system) will hear the
case. Also, which language will be
official and which currency to use.
International Sales Agreements:
Letter of Credit: Buyer (account party) arranges with its
bank, for a fee, to issue a letter of credit to seller
(beneficiary). This obligates the buyer’s bank to pay the
seller on the basis of certain documents (bills of lading) that
will be issued by the carrier when the goods are deposited
with the airline or other freight company. If the letter of credit
is confirmed, seller’s bank, for a fee, will guarantee the
soundness of buyer’s bank and pay the seller’s draft (bill of
exchange similar to a check) when the bills of lading are
presented to it. The confirming, seller’s bank will then
collect it’s money under the letter of credit from the buyer’s
bank, and the buyer’s bank will debit the buyer’s account.
International Sales Agreements:
Centrifugal Casting Machine, Co. v. American Bank
(1992)—the buyer of Centrifugal’s goods was an
agency of the Iraqi government, and Iraqi’s assets in
the US had been frozen because of the Kuwait
invasion. The Central Bank of Iraqi issued an
irrevocable letter of credit (LOC), and it was
confirmed by the defendant bank. CCM is entitled
to payment despite Iraqi’s assets being frozen
because the obligation to pay is on the defendant,
not the Iraqi government.
International Sales Agreements:
Indirect Sales via Distributor:
Exclusive distributorships in the EU must account
for Art. 85, Treaty of Rome, forbidding
agreements that ―distort competition.‖ The
Sherman Antitrust Act will allow a domestic firm
to sue foreign firms for anti-competitive
agreements that are made overseas if they
intend to affect the US market and the harm is
direct and substantial.
International Sales Agreements:
Indirect Sales via Distributor:
Hartford Fire Insurance v. California (1993)— plaintiffs
sued insurance companies based in Britain for conduct
legal in Britain. The defendant companies, acting in
conjunction, pressured/forced US firms to change the
terms of their policies in the US. The changes were
favorable to the British firms but not to US policyholders.
The US Supreme Court allowed the suits to go forward.
There was no requirement or compulsion under British law
for the firms to take this action, even though it was
permitted. Since there was no compulsion or conflict with
US law, ―comity,‖ which would prevent US legal
proceedings, was not applicable.
International Sales Agreements:
Licensing a Foreign Manufacturer: Patents
and trademarks get protection under
GATT, but other antitrust issues may
arise in US or EU as discussed above.
A. Repatriation of Profits—US investors in foreign
countries may have difficulty getting their profits
back home in the absence of treaty guarantees.
B. Expropriation—Not considered to be illegal if just
compensation is paid (eminent domain).
C. Sovereign Immunity—The courts of each nation
lack to power/jurisdiction to hear suits v. a foreign
nation unless the foreign nation has waived the
immunity or the suit involves some commercial
D. Act of State Doctrine. Lawsuits v. foreign
nations not permitted if they interfere with
right of the President or Congress to
manage foreign affairs.
E. Overseas Private Investment Corp.—US
investors may insure against political
violence, expropriation and the like.
D. Foreign Corrupt Practices Act—Criminalizes
gifts (―anything of value‖) from US citizen to
a foreign official to influence commercial
1. Illegal for US firm to bribe foreign officials to
gain, or maintain, business.
2. All publicly traded companies must keep detailed
records to document legal/illegal transactions.
University of Texas
Thanks for stopping in. Have a lovely day.
Bill Shaw and Anna Kylie Clark, napping in the lazy