Professional Documents
Culture Documents
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the economics of some nations much stronger than rhe economies of'
oth er nations.
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2. To grasp that "property" in the law refers nQt to something that ~s
owned but tq the right of ownership'itself; which gives mc\x imum
incentive for ,wealth creatio n.
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3.To apprec'iatt what legal sources lawyers turrl to in answering legal
questions from their cHents, and the hierarchy of those sources . "
4. , To be able tol explain why ;, tar~ decisis is 'dicremin commo n lavy
, nations than (n civil la\v nations .
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1. To understarid why the1egal systems of nations contribute to
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dedi catio n into gi iing i:he gUt~sts an c)(f1 erlencr to ru n . (1)(-, 1'.
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WEAK OR STRONG
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Wealthy Singapore
has almost no natural'
resources or fertile la~d.
Its wealth comes from'
shipping and financial
services ..
In economically weaker
countries. like Egypt,
many college graduates
can get jobs only
with the government
because there are fevv
jobs available in private
business that require
education.
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CHAPTER 1
;th<.inthe
primary
cause:f of strong economies.
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o Climate. Some geographers have thought that climate helps explain whether
'tures average too hot, !people are less able to work, especially outdoors.
However, st(Orrg ecorrqmies can exist in hot climates, Sing<).pore lies near
the equator and has one of the "vodd 's most prosperous economies and
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actions among strangeis. No nations with weak economies have adequate , '.'.h.?l(~J..~VOliK, Z1re'ie;l(erl~;1i,\,tr
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. A bundant natural resourc~s, ecluca tion and technology, a teV1per~ te clima te, ~::o}gai~jz~ti6ii')%ceY~Qf:~T.~1~~j;j\:r::::,;:;
and the institutions of th'e priva te market all contribute to'strong na tiona] K~~y$fiili6~foft~~;;agf.ktf~~i~t.:\,~f:$.~t\~S
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2, LAW
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In the last 10,000 yeal's, ruman society has 'moved from roving bands' of
of millions. The social fores that hold together societies range from cllstom
and reli.gion to law and economic ties. In the modern nation, however, t,he
most significant of thesqcial forces is law beca llse law can glue together
they can or cannot do. Strdngecs to a society may not understand or appreei-.
ate complex and subtle CLtstoms of behavior,. ;but thc)' can observe the for
mal laws governing what \<inds of activities a~e permitted and prohibited.in
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Introduction to Law
,society, Liwyers, judges; and other trained interpreters of the rules can help
them in this process,
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f.. simple definition of law foll ows:
' .Law is a forma l 'social force, meaning th~t laws:come from the stateanc:l
are usually \vrittendown and accessible so those who need to uri.derstancl and
tions such
'. the countries of the former Soviet Union are findin~ out, written laws mean
little unless they can be promptly and fairly enfGrced, \'\iithout adequate
enforcement, resources can be taken from those wHo have them, anJ agr'ee
ments can be disregarded, The certainty and trust netessary to make complex,
long-term business arrangements are absent. People muse spend much of their
time guarding their resources ra ther than d~veloping l them.
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;;.?,-, 'J;rfi r:l:~NJtip9ntLh,'a'si:k[.::~ In a modern nation, law is important to implement ~ither the comrl13ncis ofa
;;:;I~fi!(f;dr:@,9ta.W!is ': ~"'!~ k~:i:j~~t;~ ) dlcea.tor or the w dl of the pcoplelll:l democracy. Ho\ovever, only 1I1 democraCIes
: ~"'.:'I';'>:0~ri~)~ffi,0:r:~[!n"iQ'~ ~r>"~l]tq,i.: -~:A IS there true concern for the rule of law, whlch gOC$ beyond merely thUlkJl1g
,:i;,:_:,'jr~t:l~~~~!~;9;~~;!~~K~:,~'&:j of law as governmental commanels backeel \lp by for\=c, U:lder the rule of law,
-:>~:~.~~,ov.E;n.\lr;,eJ:~2}Ila,:lYl;:;(~!F:f;1 laws that aremade are generqlly and equally appllC~blc, fhey apply to all or
1,,}(~;In~. qt~e r:r\?~F~j~)~,f!t~'~~;'~f::j mostmembers of socIety and they apply to vanOL1S groups lD the same way.
;:,,:.~ ec,qilo l::-;:';li(;g ula ~or;y:i.,<~. ,j
Under the rule of Jaw, la w applJes to l;rwmakers as well as to the rest of
t:'>:>:~~'IJ.1 _rjj.~ll~~41}:;;t~r~i~t;~~.{\ society. Thus, lawmakers have an incentive to make laws that benefit every
{~~;?:;:~~0~\~J!~J!f.!'1?~~~~nlc.r. lrc~/~1 one. Rule-of-law nations adopt laws supporting the private market because it
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e seCL'ctaryg; nera '0 t 1e mte 1 atlons
1;'.:/::f:Y~;~;~?~r~lp,Q].a,\~~Sr-f;~W,~0~i,.j says that "witlW~t confiden<:e based on the rule o~ law; wit~out trust and
' ''' ;1:;c ,.P\:~,~Y?:r't[?,f l)]?C,f'fRY;\1 transparency-the re could be no well-funct!omng: markets.' The manag
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(:?,Sr;;~:,\")l1te~'~.atiq~~I:';P~~S:~)l "lodestar ,~or all countnes." . 0 bserves the managlDg dIrector of J, P. Morgan
."~" ", -,,."' L:,,_ ~' ;U',_ and Co.: An envuonment 1ll wl1Jch courts cannot be relIed upon to,adhere
to the ru\eo law is an environment in which businesses will be reluctant to
invest and in which development will be stunted," He calls th e'ru le of Iav{
"a cornerstone of free trade.".
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Unfortuna tely, the ~llleof la w is an ideal rather; than a' complete fact in .
i'>;:"li-:;~aQ:qeC';J~: tn:tW.:.$Jil?jX'~ Gji;~ii even the most deniocratic nation. Special interest groups attempt to persuade
':C;~ ::= vi !):~(!lo.~r:.a~ib'l:egJ ii~esfj/~i lawmakers to benefit these groups at the expense of others. And it is not
. '"<;-: ~; lf)ng-rl:Jli e'(: bl.\()mi o&ro;:ilt).~ always clear wha t it mea os toap ply laws generally and equally. Still, i 11 a
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Law as the Fo~ndation or Gusiness
CHAPTER i
tq
4.PROPEBTY
The third concept necessiry fora successful private market in the modern
nation is property. Propertyis the legal right to exclude or keep others from
interfering with what Y00 own, with your resources. "The legal right to
exclude" means that you can turn to public authorities like the police or the
courtS to help you keep others from interfeiir:g with what you own. Three
ways of applying the exclqsionary right of property a r e .
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I ntroduction
PART 1
to Law
general word me aning land; em; widget, or banana, and you do not see a new .
thing for the first time,' for example, a ne,v automo'bile, ~llld ask, "\Vhat kind.
of property is th8t?"
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To understand property, think of the word as tpt;aning owncrship, If-you
owna piecc of lane! you enjoy the right of property to lt, The legal significance
, of property is that al). owner of la,nd (one who has property in tt) can exclLlcie or
keep others from interfering with the lancJ. Owners! can exercise their right of.
property by having the poli~e or c ourts keep others from interfering with wha t '
the)' own . You may also understand property as a type of fence, not an actual
fence but rather a legal fence that keeps others out b)' announcing private OWll
.ership and enforcing it. The enforcement of the pr~pcrty fence is enorniollsl), ,
,important to thegrowtb of national economies. Mahy nations claim they have
private property systems, but the)'. still.remajn poor because the)' cannot or do
not adequately enforce the legal fence with police ana institutions like courts to
settre disputes.
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The enforcement of the propert), right under tile rule of law gives people
human beings encourages them to exert the greatest productive effort only
when they can prevent others from taking the reso'urces they produce. Only
when people control vihat th c)' pioduce will they give production their maxi
mum dfort: It is a property-based legal system th,~t ena bies such conerol by
allowing people to exclude others from interfering with wha t their efforrs
produce. Imp ortantly, such a system protects a nd assists the poor as weJl ~l S
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Many people Ililve difficulty grasping how proPert')\ protects . gran in g of tile right of proper tY to tile "averdge squatter
the poor. After all, do the poor even have "property"? Legally, family" was associated "'vith a 17 percent total hou se hold
the qnswer is "yes ,:' becaus~ property is an exclu sive right work increa se, a 47 percent increase in the nrobability of
to keep others from interfering vI/ith one's resources, not vlOrking out-side the home: rind a 28 percent decline in the
the resources :hemse lves, and. under the rule of law, this . likelihood of child labor in t~e family. Her 2002 study con- .
right protec ts the resources of the poor as VI/ell as those '. cluded that formal ownershi ~ means the families no longer
I
er ty sys tems, poor "squatters" lack formally' recognized
' Iess poor.
. owner hip of Lhe land they live on. They spend much of
The ownership progr.arn in Peru was initiated foll ow
their time defending their possession and cannot use their ing the ideas of economist Hern ando de Soto. De Soto's
houses and land to secure ' Ioans that Ii/auld allow them to ideas and work have spreCjd'to 0 her countrie s, and he
start small businesses . Peru, however. has begun recogniz
has gained support from many world leaders, including
ing and registering the le gal ownership of he se squatters Presidents .George W. Bush apd Bill Clinton. De Soto believes
iii their homes,
. that Western and Pacific Rinl nations are lheworld's most
. PI'inceton graduate stulient Erica Field compJred Jreas . wealthy bec ause they have had the ru le of law and theiavi
of Peru 'Nhere legal property bas been forma lly secured of property the longest. He maintains that law is ttle: "hidden
With areas wl1ere It ISyet to be recognized . She found tile architecture" of the modern private market.
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CHAPTER 1- Law
as the Foundation
of Busin ess
, Sta teccontrolled prociuqion does not' comc ~lose to matching t11t na tional
levels of goods and services' produced under private propertY ,sysrelus (capi
talism); Thisillustrates that ithe incentive to maximum effort comes from the
properly right. The countrics that have enjoyed strong property systems for
the past several centuriesupiformly have the. highest national incomes, an'd
those countries that do not 'protect private productive effofts under a strong
property system .are the world's poorest. The exclusionary right of property
. provides a basis for the private, market and modern business., Scholars have
traced the ~conomic flourishIng of Western civigzation during the last several
hundred years to the lncreasing recognition of the right of property jn 'the'
na tions of the Wes~, .
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Consider the following ; If a nation with a' property-based legal system
such a system, in 34,5 years;the first nation has tWice the annual total income
(called Gross National Incqme or GNI) of the second nation. In 206 years,
the first nation has 64 times the annllal GNI of the second nation, NOtethat
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Property can be thought ofl as the central concept underlying Western legal
.. systems, (See,Figure 1.1.) Most of the' topics discussed in this book relate to
th~ exclusionary right of property. Contract law enab les an owner to exchange
resources (Chapters 8 and 9 ), especially at a future date. Tort Jaw compen
sates owners whose resourc~s a're wrongfully harmed by the actions of others
, (Chapter 10). Criminal la';' punishes those who harm an owner's resources
in particular \,vays, for example, by theft (Chapter 12). The law of business
organizations identifies hO\~ individuals can own and use pt:ivate resources in
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PART 1
10
Introduction to Law
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Figure 1.1
The wheel of property
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witJl the rightwe have in ourselves and in our efforts and actions. He saic1 that
an ind ividual is'the "proprietor [o\vner] of his own .person,.and the actions or ,
labour of it;) and that this is "the great foundatiOn of property." Later, Jamcs
Madison wrote th::tt property" in its larger and juster meaning . . . embi'aces
everything to which a man may'attach value and have a right. . " [A] man
has property in his opinions 'and free communication of them, ... In a word,
as a man issaid to have a right to hisproperry, he may be equally said.to
have a propeny in his rights." for Madison and other constitutional fram
ers, property protected not only physical resources: like bnd but also human
, rights like freedom of speech, freedom of religion, :and, freeclom frorn unrea
sona bie intrusion by the government. The ind ividual's very relationship to
'society was defined by the wotd property. Scholars' have pointed out that the
modern understanding of hum,an rights began with; the concept of property.
Nearly two million students study business in the United States; one hun- .
,dred thousand of them are from other countries . f\s' necessary as it is for them.
'to grasp ,business subjects involving computers; debits and credits, balance
sheets, fina'ncial statements, employee and consumeJ behavior, and stake-.
holder theory, it is equ~JJy vilal for them to apprec\ate how law and the legal
concept of property esta blish condittons for the private market in society, The.
secret to economic prosperity and the wealth of nations lies in the fOL1nclation
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CHAPTER 1
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Law as the FOJ.-lndation of Business
11
of property law anel the k;gal.system to implement it under the rufe of Iavir.
MQdetll;~p.r,ivate markets ''7itilin riations simply do not work,~,~ell withollt
generally and cquJlly applkd property law.
When the former Soviet Union col lapsed, many observers land can be used. \Nhen disputes over (lgn:em ents arise,
LholJght that the new private market would promptly improve businesses cannot depend on the courts to resolve issues
Russia's economy. However, that economy went into a s:eri
justly and impartially. Recently, the Russian economy has.
ous decline from which it has b'een slow to recover. Why? . been strengthened by t!le sa le of oil to v\lealthy countries,'
r ost now Consider that Russia's: lack of the rule of law and but per person income in Russia re ma in s low. In cornpjri:
th e law of property accolmts for its poor. economy. . .-.
son, per person income in the United States is still ap;x oxi
The government still controls over half of the resources mately 10 times that in Russia ..
.
jn Russia. Much of what private control of resources exi..;ts
Generally ahd equal ly applied property rigl1ts, Iheir
transfer by contr;)ct, and the support of adequate en force
in Russia has been gotten through force, frau d, and corrup
tion. One study in Moscow found that sma!1 business owners ment institutions like courts wili provide i:l necessary basis. .
must pay over $30,000 a year in' bribes to corrupt officials to move the Russian economy tovvard prosperity. But the
and extortionists. Developing property law in Russia orten RusSian people 'Nil I have to be educated about the legal'
does not allow a single individual'to control all tile ways that foundation of the wealth of nations.
6. JUmSPRUDENCE
Over the centuries, several philosophies have developed that explain the ori- .
gin, justification, meaning, and essence of law.' We call these philosophies
of law jurisprudence. Briefly, the main type~; or "sch~ols" of jurisprudence Jtll",ispl"u(:lence is
the philosophy of law.
include the ollo\~jng:
.
" Natural law. Going back to Aristotle and other ancient philos'ophers,
natural law theory asserts that law contaills universal moral principles.
ing influenced the fraIJ).ers of tbe U.S. Constitution, thought that "prop
erty" was part of natnrallaw. '.Merely human lavys that contradict the
PosItive law. Positive law jurisprudence belie;res that law is simply the
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P ,~U:tT
Introduclion to Law
:: Classifieations of La~vv
Even w hen you understand jurisprudence and grasp the significance of our
property-based legal system to the pri vate marketplace, you still have much
left to kno;;v about the legal and regulatory envi[Q~ment 'of business. In la rge
part, learning about law demands an extensive vo:c:1bulary of lega l terms ai)d
concepts. It will be us eful in organizillg this vocabulary to examine several
. m <ljor cbssific:1tions of law.
.
7.
COMMO '~
The w orld h:1s two major legal systems: common l~w and civil law. TheUnited
Kingdonl, the United States, Canada, J amaica, India, Nigeria, New Z ealand,
and a few other coun tr ies-elll colonized by EnGland-follow the cornni.on
law. The common law. lega l system emphasizes the role of judges in de termine
iog the m ea ning of laws and hovv they apply, It aro'se begiunillg in the eleventh
and twelfth centuries as the English inonarch appointed rOYdl judges to ride
circuits around the English cOLlf)tryside and to rcs61ve disputes in the name of
the king (or queen). As there was little formal.law to apply to many disputes ,
the decisions handed down by the judges literally made the law.'
By the time the EIlglishlegislature (Parliament) em~rged, a huge body.
of written judicial decisions "vas "common" to ~ll of England. The role of
judges -in making and interprecing law was in place . Engli sh colonists then
brought the common law to what became the United States :1nd nrioL1s other
countries. The common law co'ntinues its development CiCil today, arrd so
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significant is the role of judges in the UnitedSt'ates that they determine the
meaning'of the Constitntiop. and can declare void the lcgisLitio~ of Congress
and the acts of tbe president.
.
'. ' . .
The worlel's nations not: colonized by Engbnd generally observec ivillaw
legal systems. Tk civil law relies more Oll legislation than judicial decisions
to determ ine wh,'1 the Jaw is. like common lhw couns, cou'rts in civil La\",
. nations decide the facts in ? disputed case (for example, who did what, who
committed a crime or breached a contract), but civil law courts do not make
law nor ~o their judges think themselves obligated to follow prior judicial
decisions, called precedents; as they do in Common law nations, although they
do rdeno "settled" cases. Essentially, judges playa much more importantrole
in determining la w and its meaning in common law nations than in civil law
nations. Only .Louisiana among the U.S. states, follows a partial civil law sys
tem. This is due to Louisiana's historical ties with France, a civiIlaw nation: '
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goods, copyrights,
patent&, a8d trademarks.
Property law, which involves the recog~ition of exclusive right ir\ both
tangible (p hysically touchable ) and intangible resources. Special areas of
property law concern land, goods, copyrights, trademarks, patents, anel
trade secrets'.
.
.
. " Contract law, which CQvers the rules of llciw .owners transfer resources
by exchanging them. Contracts often involve enforceable promises 'to
exchange resources in tpe future .
. Tort law, whici. establishes rules for corriptr).sation when an owner's legal
boundaries arc V'irongf),llly crossed by another. Tort law ofren but not
always requires actual ip.jury to the owner's resources.
We live in a time of th~ rapid generation ancldistribution of rie~ infor
mation through computers and technology. This elevelopmentraises many
issues of property, contract, andlort la"v. The text contains chapters on each
of these areas of the priva te law. For examples o new questions of public and
priv'ate la,v see Sidebar 1.4. .
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PART 1
Introduction to Lavv
9~ CIV~ l
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Another means of classifying tbe law is to divide it into civil iJW and crirni
Don't confuse our
,nallaw. For administrative purposes, courts usually sep:1rate crim'inal actions
reference to civil (or
noncrimine!) IJwsuitswith from all other lawsuits. Civil cases mllY include suitsfor breach of contract or
a civil la,v legal system,
tort cases, such as suits for pers~nal il1juries. TypicaHy, they involve a request
\vhich is one emphasizing, for damages o~ other appropriate relief that does not involve punishment
,h:: importance of the
of, the wrongdo~r. Criminal cases involv e a reprcsclllativ:. of government
legislJture in determining
attempting to prove the wrong commItted against society and seekil1g to have
the meaning of I 'NS,
.the 'vvrongdoer punished by the court system.
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CHAPTER 1
15
The U.S. Constitution is t1~~ s upreme law of the nation. Your laV'qer, 111
answering yo ur lega l ques tion, knows that as a source of law the U.S. Con
stitutio n overrides all other sources of la w. The Constitution establishes the
fe dera l government, and its :-)melldments gLlarantee basic ri ghts and lib erties
to th e people of th ' nation. States also ha ve coristitutions but their author
ityas a source of law applies only to th e particular states that have adopted
th em. If state constitutional provisions conflict w ith the U.S. Constitution or
with fec1 cwl walls at all, the provisi ons .arc vo id <l S a sou rce of b 'Ai, meaning
that they do not apply to yo ur ques tion about pollutants .
In consulting constitutiortal SOllrCCS of law, your attorney 'A;,jlllookclosely
to determine if regula tions 0/ legis htion that' 2Jfec ts you viob'tes yo ur con
stitution <ll righ ts. If your .r:ights are violated , the laws viola ting them are void
(i.e., these laws have no legal effect on yo u ). Chapter 6 examines more closely '
how the
Constitution in 'particular applies to business practice. .
u.s.
12. LEGISLATION
After the constitntions, your kttorney will consu lt fo:mal written law~ known
as legislation as the mo st significant source of.law. Our elected ~epresenta
tiv es serving in the legisla ti ve branch of government create <lnd adop.t leg
isla tion. Legislative. bod ies exist <It all levels of government, including n ot'
only the federarCongress but also state general assemblies, ci ty councils, and
ma ny other local govel:nmen~bodies that adopt pr enact la ws. Legislation in .
its broad sense a lso inclu des':treaties entered into by the exec utive branch of
governmen t and 1'a tified by theSenate .
Legislation adopted by Congress or a state legisla tu re is us uall y referred
An ordi na nce of Athens ,
toas a statute or act. Laws passed by local governments are frequently called
. Georgia, prohibits the
ordinances. Compilations oflegisiation at aJllevels or government a re called. carrying of alcoholic
codes. For example, we have local traffic cocles covering such matters <l's beverages in open
speed limits, <lnel st:\ te laws, such as the Uniform Commercial Code, th at contain~ r s 6n public
cover all aspects of commercial transactions. The sta tutes of o m fecle1'algo v - sidewalks and other
ernment are compiled in the United States Cock:,
'
. pub lic areas.
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PART 1
16
Introduction to Law
busines s is the Uniform Commercial Code (UCel. It collects in one body the
law that ;'cleais with aJl the phases which may ordinarily arise in th e handling
of commercial tLll1Saccions from start to .finish." Ie' <::overs the law [ela ring to
the ~ale of goods, the llse of chec ks and other forms of "commercial paper,"
and the giving of seCL;rity to ensure the buyer will pay tbe purchase price of
. goods .
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The UCC <!ppiies only to purchases and sales ,of personal property like
goods, It does not J[)ply to contracts to \cllland 'or contracts f6Y p ersonal
rr
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~ n verp'ff'(;~:u:n u.n-a.t:::, ff-.JfJg! t:.' tCrt'l,07,-c,
~~tattitory
c(lnstniction
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CHAPTER 1
17 .
h ,nie occu rred. Other agencies criminally pro;;ecute illegal vio latio ns of some
l
Cbapter 14 f ,.)yides additional cl et<lils on the creation, operation, and
impact 01 ad mini~, lrative agencies . For now, it,'is enough to say that federal,
state, or loed agen cies regulate 1:0 some ucgrcc alm ost every business ilctivily.
cases involving simil ar facts and legal issues . To locate prior precedents, i t
is helpul to know the citation for the case where a precedent is found. For
syste m. Accordin g to
the U,S, Dep artment 01
State, more th an 31,000
judges natio nwide make' ,
numerous dec isions.
every year, adding to the ,"
volume of case law,
decided in 19 82, Knmving a case citati0n, YOLl can eas ily locate the case in
, lib rary or throu gh computer databases.
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- ' The Latin
Stare decisis.is the doctrine of prior preceq~nt~:
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m ea ning of these VJords is ",\(';nhe pri()! decision stano," Under stare decisis,
judges in current cases follow whenever possible the interpretati,()Q of law
de termi ne d by juciges in p rior cases. This doctrine arese from the desire for
cerraintv a nd precl icta bil ity in the law. One inlp ortant aclvan t8ge o stm'c
A baseball ian is hurt by
decisis \~as pe~ple became secure in their right of propert y. They then became a foul ball and .sues the
willing to in'.'cst .ccso urces in fixed locations for, factories and other immovable ba seball team's owner,
val uabies, beca use they were cert3in the state would not se ize these resources' The court\Nrites, "Whether'
for its own use. Case law helps specify in great det8il the boundaries 'o f our a fan is injured by a foul '
properry- b8secl legal syste'!l1, and it protects w hat is "proper': to p eople from bail or an accidentally .
, Disadvm~:;;a.,,! !~ &
Several disadvantages, ot: cas e law are also important recover. damages against
to know. Keep i~ mind, however, th at we do n ot believe these dis3 dv:l nta ges the team because the fan
assumes the risk," The
destroy the benefits of cer tainty, predictability, and stability provided 'by case ,comment about "thrown
law and stare decisis . Disadvantages of case law include:
bat" is dicta because the
, , " Vohime of cas es, Even wi th computers, sea rching through hu'ndreds of
tbollsancls of ca'ses ,and then iJ entifying and reading the significan t ones is
often a vcry great ta sk. At the very least, it is both time consuming for the
attorney and expensive for the client.
'
,
~ Confl icting precedents . Sometimes in sea ~'ching prior cases, a tto rneys
find cases in which judicial decisions conflict with each other. Conflicting
precede nts do no t create confidence in the cer tainty of law.
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PART 1
18'
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'"P
OL'tl inails
is the
opposite of constitutional
rel ativi ty, It stands for the
idea lhat courts should
interpret the Constitution
only according tothe
i il~en tio ns 0 ' those \I\;ho
wrote it.
ti
was made ,
Dicta, Increas ing the difficulty ot determining ho\.\' LJ follow prior p rec
edent is the clistinctioil between the hc!ding in a prior ca:;e and mere dicta.
The holdings ill pr ior cases arc precisely what was neceSS:HY to the deci- '
sion reached. Dicta are wllate\re r else the court said. Judges jn future Case,;
arc not s? likd )' to follow the dic ta in prior cases as they Jrc tlle holdings.
~ Rejecrion of precedent. Becau,se of stal,'C decisis, con1';s uSLlally hesit:: tl:
to reject the precedents of prior cases, but sometimes they, clo. They may
thiJlk that prior cases \verc>wrongly decided, or they may ~hillk that times
have changed, In constitutional Jaw the id ea that co urts sho uld under
stand the meJning of the Constitution rciativ c. r-o rhe ti mes ill ',vl:idl they
r
I
., Conflicts of law. A buyer in Geor ' i;1 orclers equipn1ent by telephone from
a seller's representative in Illin o is . The bLiycr '(;fi['ects the .seller to shirl the
equipmeilt to New York. When the equipment breaks down whik being us'ed in Pennsylvania, the buyer sues the se ller in Ohio wher e the seller
. is incorporatcd. \X1hat s tate's iJw aprlies? Courts rr.solve slIch problems
by applying conflicts of law rules, but l ven these [uks JnJy V<lry fr o m
StrIte to sta te, A b;;tter solutiOn is for: the OllYcr :C1'._rI Sel !Cl- to specify iilthe
contract which state's law w ill apply in case of Jdispllce . In a tOrt C:l.se"
the usual conflicts of law rule applies the law of the state wh ere ,he ini','fv
occuHed, Ill) m2 tte:- ,,-here tne inj my oeclined,
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, So YO,ur lavvyer has to know many SOllfces of la\\' ;'rld ho',v ~hc:y ir;teraCL iii. order
to J,J1s\ver your question about the pol).utants from YOLlr cle.aning business, It is
mistaken to think th:!t lawyers know all of the b'.'! theit :J.ppli(;s to evcry legct l
queE:tior, that you rna Y 8skthen" T-Iowevel; they sholLld know hO\v to go about
answering your questions, including the faG th at some questions may not have
answers thJtcan be known in advance and that require form:1 l dlSfJute n:solu
tion, that is, thC'y require th~lt a judge, or pC'rhaps an arbitrJtOl; decide them,
The hierarch'y of the sources of law, however~ is well l.il1der5tood, Th,",
bicrar::hy i~ as foilows. Remem ber that each higher so urce of law voids, or
prevails, over every lower source of 1:)\v in th,:; hicra,::hy, eX(; '~p L lhatin mallY
imullceS" there will be no conflict between bigher .and lO\vu sources .of bw
and in other instance:s it m.l )' not be clear ',,\,h et11e[' or not ahighc[source of
bw (such as a constitutional ri gh t of speech) COi1fjicts with a lower source of
bw (such as a law regulating aclvertisipg expression).
Hier8l'chy of sources of law from highest to lowest:
" U.S. Constitution and Amendments.
'" Statutes (also calle d "acts" or "legislation") of Congres s,
'" S[,ltC
. ~. u
~ Local ordinances (apply only in cities, towns , and o.ther such areas) .
.,; Case 1:1w (coun cases, as they interpret all of the other sources, mayor
may not void sOurces lower th all the source being interpreted).
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:: Legal Sanctions
Tlle eJ~i;rcement .of the hiw is vital to the Lule of layv and a "proper" legal
system. Liw enforcement offlcials and the courts use several nkthods to
encourage or to force compliance wi th' the 0 beclience to the 13w. These meth
ods, often called sanctions, may be used again st a person who has failed to
comply wi th the law. The: sanctions are in effect a form of punishment for
violating the law. Sanctions also ha ve a preventive function. The threa t of
sa!1ttiollS usu ally res ults in compliance wi til. the requirements of law.
I '
~ecause punishment is used to ~ecure obedience to tbe law, the FOt.l[-,
teenth Amenclffil~tt to the Constitu tion of the United Sta tes provides in part:
"No State shall ... deprive any person of life, liberty or proper ty without du e
process of law." This provision recognizes that the law is enforced by taking
a person's life, freedom, or the resources tha t he or she owns. The taking of .
an owner's resources may be (1) for the benefit 'of society generally, as when
land taken through eminent domJin; (2) to punish someone, as w ith traf
fic finc; or (3) for the benefit of another person,as an award of damages. The'
right of an individ ual. t6 take ano ther person's reso urces (especiaU y mon ey)
because that person ha s failed to meet the requirements of the law (e.g., the
breach of a contract) is known as a remedy. AE! you study the follo wing sec
tions, identify the remedies a va ila ble to those seeking through [he COutts
what belon gs to another, imd keep in mind how importan t that adequately
ari el fairly el1forceci sanctions are to a pr oper ty-based lega l sys tem and how
nation s lacklngaJ.cqua te enforcement sanc tions tend to be poor even when
they claim to believe in private proper ty.
is.
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A crime is a public vvrong against society. C riminal cases arC- brought by the
governmen t on behalf of the people. The peopJe are represented by a stare's .
attorney or U.S.3ttomey orother p,ublic offiCial. \\1hen 3 person is convicted
of a _crime, one of the fo llowing punishments may be imposed:
Do remember that
the law divides crimes
into misdemeanors 2nd
felonies.
* Death.
.. Fine.
I'
Amo ng the purposes of such punishments are to protect the public and to
OF CONTRACT
. Compensatory
damages awarded
Legall y enfor ce::tble agreements, called contracts (s ee Chapter 8'), arc vitally
for breach of contract
impo rtant to business because they allow b~yers anel sellers to exchange attempt to make a
resources and sh2pe their agreements any kgal way they wish. When o ne . plaintiff "whole/' as
party to a contr a~t fails t o dowha t he 0.[ she Cl-greed to do, a breach of con
th ough in aneco nomic
tract occurs.. Th e :s ual remedy for a breJch is a suit fordollar damages. These sense h1e defendant
damages, called compensatory damages, are awarded to make the victim of had not breached the
the breach "whole" in the economic sense. Such dama ges compensate the contract.
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party for all losses th,n a re the direct and foreseei ble result of the breach of
would have been in hid the contract been performed. Darnages do no t make
most parties totally "whole," however, because they donor as a genera l fll ie
ing the oth er party actually to perform a bargain. as agreed . The single l<lrges t .
Do make sure
to
include a provision
for the payment of
attorney's fees in any
contract loaning money .
or extendin2 cretiit to .
someone.
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.. Intentional torts. These LOrts aJl require the plaiotiff (thO' person who initi
ates i1 lawsuit) to prove the deendanc intended to cross the boundaoes pro
tecting the plaintiff. Intentional torts in clude assal1lt (intentiona lly placing
'" Negligence. This tort requires the pi3intiff to show that the defendant
'" Strict liability. Strict lia bility torts usually require the plaintiff to prove
In law, ~he sanction (or remedy) for tortious conduct is money damages.
The damages compensate injured plaintiffs for medica l expenses, lost wages or
earning poWCl~ pain and sufering,an d damages to other own ed goocls and land ..
Punitivo d(]rr.~'1g e ;3
Jre a cil il pu:,i silment for
inten tional or extremely
negligent wrongdoing.
Their purpose is to
de'cr other's from such
conduct in tile luture.
19.
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Co,'p6ratior,s
are businesses
chartered by the state
to do bu siness as legal
persons.
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PART 1
22
Introduction to Law
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sccicty.
In. general sense, corpOfJ. te govel'nance also applies to the legal rela tion
ships that businesses have with each other, with their customers, and with
society. For instance, in 2008 the collapse of many financialil1stitutions led
to a major economic recession . In par't, the recession may have. been caused
by the government's encouragemel1t of mortgage loan s to expand housing.
However, ;l,major actor in the collapse was the ri sky lending practices of
banks and other financial institutions that repadCJ gecl, solei, and resold hun
dreds of biJlions of dollars of hOLlsin g loans that w ere in3clequatc!y securee!.
As long as housing prices were rising, mallY people made gre:1t deed of money,
but when the housing bllbble :b urst aJld prices began to decline, economic
collapse occurred, affectirig not on ly d~c financial institutions but als-o the
entire economy because credit was too expensive or unavaibble. It has been
suggested that lack of adeqllat~ corpOfJte governance has allowed the risky
lending practices that ultimately ha vc led to the biggest recession since the
Great Dqjression of the 1930s, 1\ numlJer of the chapters that follow discuss
the general corporate governance tbat klS followed this recession.
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15
Administrative law
B~eachofconrract
13
19
Citation 17
Civil law 13
Codes 15
Common law 12
. Compensatory damages 19
Conflicts ~f law 18
Constitutional law 13
Constitutional relativity 18
Contract law 13 '
Corporate governance 22
Corporation 21
Criminal law 13
Dicta 18
Exemplary carnages 20
. Holding 13
Intentional torts 20
Jurisprudence 11
Law 5
Legislation IS
N egligence 'F )
Opinion 17 '
Ordinances 15
Precedent 17
Private law 13
Pro'ced uralla w 14
Property 7
hoperty law 13 ,
(b) What does this section say is the foundation of the private market andprosperityl
. . La'N,the Rule of Law, and Property
2.
Law
(al Define law. Compare and contrast law and Custom.
(b) What role do the courts and police play in the legal system? ,
3. . The Rule of
[-law
.
.
.
(a) Define the rule of la,v, How does the rule of law differ fro'm law as the commands of
the state?
(b) Explain why the rule of law is " an i0eal rather than a comp lete fact."
4. Property
(a) What is p.copcrty? How does property differ from "resources"?
(b) Why is prope'rtyimportant to society? T? priyatc enterprise?
5.
6. Jurisprudence
(a ) Definc jurispruclence ancl namc four schools of jurisprudence. . . .
. ..
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(b) Describe the main difference betvvcen th~'jurispruclcnces of natural law arid sociological
jurisprudence.
.i
Classifications of Law
7. ComnlOn Law and Civil Law
(a) \XTh~t is "corruno~Jaw"?Whyis the United States a "commol1Iaw cOlU1tr)' ''?
(b) What is the primary distinction between common la w ancl civil law legalsystems) ,
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11. Constitutions
(a) Explain what it means to say that constitutions are the "highest laws of the nation"?
(b) Expbi.n the important distinctions between
12, Le~islatiori
(a) ,Give two additional terms for kgislatiou,
(b) ' Why is uniformit? 6 law important to business) How con legislators ~chieve uniformity of
. th~ laws affecting business? \\!hat is the most significant uniform law ,affecting business? .
(c) What is statutory construction)
(b) \Vhat is the distinction between a precedent and dicta in judicialckcisions, and how does
.
this 'distinction relate to stare decisis?
(c) Alexwas on a coast-to-coast trip by automobile,.While passing through' Ohio, Alex had 3
flat tire. It was fixed by Sam's Turnpike Service Station, and later, while Alex was driving
in Indiana, the tire came off anclAiex was injured. Alex was hospitalized in Indiana, so he
sued Sam in Indiana for the injuries, What rules of substantiv'e Jaw.willlhe Indiana court
llse to determine if Sam is ;\fault? Explain.
.
Legal Sanctions
16, Fo/Criminal Conduct
. (3) Wlut is a sanction? A remedy?
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As the vice president of finance for a company producing and selling ele.ctronic switch:
boards, you are considering foreign investment to build a plant to assemb le electronic com- .
ponents. A source in Russia advises you that a town near Moscow may be an excellent
location fora newplan'. Russ ians are we ll educated and willing to work for reasonable v~ages.
Projected co nstruction costs are acceptable. Both rail lines 'and airports are nearby; and the
current Russian government seems politically stable. The town even has a technical college
that will bean exce llent source for skilled employees. Tre plant v'fill ship most of the finished.
electronic components back to' the United State s.
Do you know everything you need to make an inve stment decision?
If not, what else do you need to know abo ut inves tment in foreign countries?
\.VhJt does it mean :0 say ti."t law.is the foundation of the priVate enterprise system?
2. Three years ago the Da rden Corporation bought a thousand acres of land that borders
the Potowac River in Wa'sham County, While waiting on development opportunities, Darden
cut timber to help repay the mortgage loan it took out to buy the land. On Marc h 2, the
Washam County Commi ssion proposed an ordinance to establish a 2S0-foot-vyide greenway
along the south side of the Potowac that will effectivelY.ba n both deve lopm~t ~~d timbering
on nearly 80 acres of Darden's la8d. The same day In an unrelated aCCIdent'(j Darden truck,
. ran over a hunter who was hunting without permission on the company's land. Darden imme
. diately contacted an attorney in Washam City.
.
What is..IClW?
.
What 'does it mean to say that Darden has "property" in the land? That the hunter has
"property" in himself? '
' .
.
_
.
. What sources of law will the attorney have to understaQd in .orderto advise Darden about
the proposed
greenway? The company's
potential respo nsibility to the hunter?
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