Law As the Foundation of Business CHAPTER 1 Law As the Foundation of Business McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction provide a necessary foundation Law, the rule of law, and property provide a necessary foundation for successful modern business and set maximum conditions for generating “wealth of nations.”

Example: China Large population that needs to find employment to move the economy. Local resources are not sufficient to find job for everyone Experts recommend that Foreign Direct Investment (FDI) is the best solution for job creation, since labor cost is very cheap in China But, the legal system has to be created to attract businesses Within 23 years, it created a strong economy Right now it is the ultimate destination for manufacturing

Why Nations are Weak or Strong? Natural Resources- Exploitation Education &Technology Climate Modern Private Market Law & Legal System

Law is most significant because it can bind together diverse groups. Law’s Role Religion Customs Economics One of the social forces that hold society together. Law Law is most significant because it can bind together diverse groups.

Law-Definition   LAW   Enforceable   Rules Created by State

Importance of Enforcement ‘Without adequate enforcement, the certainty and trust necessary to make complex, long-term business transactions are absent.’

Rule Of Law Laws are made generally and equally applicable. Apply to various groups in same way Apply to all or most members of society

Rule Of Law Nations Adopt laws supporting private marketplace (property). Law applies to lawmakers as well as the rest of society. This is in everyone’s interest.

pop QUIZ pop QUIZ pop QUIZ What is rule of law? Answer: Laws that are generally and equally applicable to all.

Private, exclusive rights in resources. Property Property Means Ownership Private, exclusive rights in resources. The legal right to exclude or keep others from interfering.

Property Rights Owners can keep others from interfering through police and courts. Provides incentive for development. Western culture growth is connected to legal recognition of property rights.

Acquisition of Resources Gift Exchange Agreement Acquisition of Resources Adverse Possession Confusion Original Possession

Property - Broad Sense Property is the central concept underlying Western legal systems.

Property - Broad Sense Social prosperity and wealth of nations Implementing Legal System Property Law

Classifications Of Law - Overview Civil Law – Criminal Law Private Law – Public Law

Civil Law – Criminal Law Classification Law dealing with private rights between people. Criminal Law Law dealing with offenses against society at large. Contracts Damages No punishment Prosecuted by gov’t Results in Punishment

Private Law – Public Law Classification Law dealing with issues that concern private resource relationships. Public Law Law dealing with regulation of society. Property Law Contract Law Tort Law Constitutional Law Administrative Law Criminal Law

Cyber Law Software Creators = Property? Internet Binding Agreements Internet Server Monitor E-Mail? Hotmial / Yahoo / Google Rights To Copies Of Intellectual Property? Regulation Of Internet? Internet Banking Interstate Commerce? Buying / selling Exp. Amazon / Booking.com / hotels / airlines

Sources Of Law Constitutions Legislation Administrative Regulation Laws by Congress or state legislature. Describe and empower government (constitution is a set of laws as a whole) Legislation legislature. (legislation has to do with a particular area of the law) Administrative Regulation Rules or orders by federal, state. (allow government to work more effectively) Court Decisions or Case Law Decisions by courts that interpret and enforce laws.

Case Law Advantages — Disadvantages Stare Decisis* Judges follow patterns. Gives certainty & predictability. Volume of cases Conflicting examples Conflicts of law *Stare decisis: is a legal principle by which judges are obliged to respect the examples established by prior decisions.

Importance of Legal Sanctions Encourage/Force Compliance Punishment  Prevention Benefit of Society

Criminal Conduct Crime Punishment Public Wrong Court Punishes on behalf of Society Death Imprisonment Fine Removal (firing / expel) Disqualification (doctor)

Breach of Contract Breach of Contract Remedies Private Wrong Failure to Perform Damages (Money) Compensation Specific Performance

Tortious Conduct Tort Remedies Civil Wrong (other than breach of contract) Intentional Negligence Strict Liability Compensatory Damages (Money) Corrective Damages (warning damages)

pop QUIZ pop QUIZ pop QUIZ Statutory law comes into existence through the courts the legislature Answer: B

think TANK think TANK think TANK Would you be comfortable to enter into a business deal if you knew that the contract you signed would not or could not be adequately enforced? Yes No