1-1 Chapter 1— Law as the Foundation of Business REED SHEDD PAGNATTARO MOREHEAD F I F T E E N T H E D I T I O N McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

1-2 “The United States is a nation of law.” John Adams 1-2

1-3 Introduction Law, the rule of law, and property provide a necessary foundation for successful modern business and set maximum conditions for generating “wealth of nations.”

1-4 Learning Objectives  To understand why the legal systems contribute to making the economies of some nations stronger than others.  To grasp that “property” refers to the right of ownership itself.  To appreciate the legal sources available to lawyers.  To explain why stare decisis is different in common-law nations than in civil law nations.

1-5 Why Nations are Weak or Strong?  Dependency theory  Natural resources- exploitation  Education & technology  Climate  Modern private market  Law & legal system

1-6 Law’s Role One of the social forces that hold society together. ReligionCustoms Law Law is most significant because it can bind together diverse groups. Economics

1-7 Rules Created by State Enforceable LAW Law-Definition

1-8 Importance of Enforcement ‘Without adequate enforcement, the certainty and trust necessary to make complex, long-term business transactions are absent.’

1-9 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

1-10 Almost all wealthy countries embrace the rule of law. Food for Thought…

1-11 Rule Of Law Nations  Adopt laws supporting private marketplace.  Law applies to lawmakers as well as rest of society.  This is in everyone’s interest.

1-12 pop QUIZ pop QUIZ pop QUIZ Climate can lead to nations being either weak or strong. a.True b.False

1-13 pop QUIZ pop QUIZ pop QUIZ What is the rule of law? What is the rule of law?

1-14 think TANK think TANK think TANK Were you impacted by the law on the way to impacted by the law on the way to class today? class today? a. Yes b. No

1-15 Property Ownership Property means Private, exclusive rights in resources. The legal right to exclude or keep others from interfering.

1-16 Property is a type of legal fence that keeps others out by announcing private ownership and enforcing it.

1-17 Property Rights  Owners can keep others from interfering through police and courts.  Provides incentive for development.  Western culture flourish connected to legal recognition of property rights.

1-18 Property - Broad Sense Property is the central concept underlying Western legal systems.

1-19 Property - Broad Sense

1-20 Property - Broad Sense Private property begins with the right we have in ourselves and in our efforts and actions. Property in its larger and juster meaning … embraces everything to which a man may attach value and have a right. John Locke James Madison ’ ‘‘ ’

1-21 Social prosperity and wealth of nations Secret to lies in adequate foundations Implementing legal system Property law Property - Broad Sense

1-22 Jurisprudence Philosophies that explain origin, justification, meaning, and essence of law. Natural Law Positive Law Historical School Sociological Legal Realism

1-23 Classifications Of Law - Overview  Civil Law – Common Law  Public Law – Private Law  Civil Law – Criminal Law  Substantive Law – Procedural Law

1-24 Civil Law – Common Law Classification Civil Law Law based on statutory codification of law. Common Law Law based on written judicial decisions that establish precedent. Romano-GermanicAnglo-American Two Major Legal Systems

1-25 Civil Law – Common Law Classification Examples Common Law Law based on written judicial decisions that establish precedent. Anglo-American United Kingdom Canada India Jamaica New Zealand United States

1-26 Civil Law – Common Law Classification Examples Civil Law Law based on statutory codification of law. Romano-Germanic Continental Europe Latin America Japan Former French colonies Spain

1-27 Public Law – Private Law Classification Public Law Law dealing with regulation of society. Private Law Law dealing with issues that concern private resource relationships. Constitutional Law Administrative Law Criminal Law Property Law Contract Law Tort Law

1-28  Software creators = property?  Internet binding agreements  Monitor ?  Rights to copies of intellectual property?  Employers & employee discipline?  Regulation of internet?  Interstate commerce?  ISPs liability? Internet Law

1-29 Civil Law – Criminal Law Classification Civil Law Law dealing with private rights between people. Criminal Law Law dealing with offenses against society at large. Torts & contracts Damages No punishment Prosecuted by gov’t Results in Punishment

1-30 Substantive Law – Procedural Law Classification Substantive Law The part of the law creating, defining, and regulating rights, duties, and powers. Procedural Law The part of the law telling the methods/means for having rights or duties enforced. The WhatThe How

1-31 Constitutions Set forth fundamental rights Describe and empower government Set forth limitations on power Legislation Laws by Congress or state legislature and local ordinances. Administrative Regulation Rule or order by federal, state, or local regulatory agencies. Judicial Decisions or Case Law Decisions by courts that interpret and enforce laws or the common law. Sources of Law

1-32 Constitutions Set forth fundamental rights Describe and empower government Set forth limitations on power Legislation Laws by Congress or state legislature and local ordinances. Administrative Regulation Rule or order by federal, state, or local regulatory agencies. Judicial Decisions or Case Law Decisions by courts that interpret and enforce laws or the common law. Constitutions U.S. Constitution andU.S. Constitution and individual state individual state constitutions. constitutions. Hierarchy – FederalHierarchy – Federal constitution is supreme. constitution is supreme. See Article VI.See Article VI. Sources of Law

1-33 Constitutions Set forth fundamental rights Describe and empower government Set forth limitations on power LegislationLaws by Congress or state legislature and local ordinances. Administrative Regulation Rule or order by federal, state, or local regulatory agencies. Judicial Decisions or Case Law Decisions by courts that interpret and enforce laws or the common law. Legislation UniformityUniformity Federal Law Preempts StateFederal Law Preempts State States Adopt Single LawStates Adopt Single LawInterpretation General LanguageGeneral Language Courts Must Interpret-Courts Must Interpret- Statutory Construction Sources of Law

1-34 Constitutions Set forth fundamental rights Describe and empower government Set forth limitations on power Legislation Laws by Congress or state legislature and local ordinances. Admin. Rules and RegulationsRule or order by federal, state, or local regulatory agencies. Judicial Decisions or Case Law Decisions by courts that interpret and enforce laws or the common law. AdministrativeRegulation Rules of governmentalRules of governmental body charged with body charged with implementing law. implementing law. EPAEPA Consumer Product SafetyConsumer Product Safety Commission. Commission. Allow government toAllow government to work more effectively work more effectively – bodies with expertise. – bodies with expertise. Sources of Law

1-35 Constitutions Set forth fundamental rights Describe and empower government Set forth limitations on power Legislation Laws by Congress or state legislature and local ordinances. Administrative Regulation Rule or order by federal, state, or local regulatory agencies. Judicial DecisionsDecisions by courts that interpret and enforce laws or the common law. Judicial Decisions or Case Law Opinions – ReasonsOpinions – Reasons Precedents – SimilarPrecedents – Similar FactsFacts Legal IssuesLegal Issues Stare DecisisStare Decisis Precedent and DictaPrecedent and Dicta Conflict of LawsConflict of Laws Sources of Law

1-36 Sources of Law Hierarchy U.S. Constitution Federal Legislation Federal Administrative Regulation State Constitutions State Legislation State Administrative Regulation Local Ordinances Case law

1-37 Case Law Advantages — Disadvantages  Stare Decisis Judges follow precedents. Gives certainty & predictability.  Volume of cases  Conflicting precedents  Conflicts of law

1-38 Legal Sanctions  Encourage/force compliance  Punishment & prevention  Benefit of society  Punish someone  Benefit of another - remedy

1-39 Criminal Conduct Crime Public wrong Court punishes on behalf of society Punishment Death Imprisonment Fine Removal Disqualification

1-40 Breach Of Contract Breach of Contract Private wrong Failure to perform Remedies Damages (Money) Compensatory Consequential Rescission Specific performance

1-41 Tortious Conduct Tort Civil wrong (other than breach of contract) Intentional Negligence Strict liability Remedies Compensatory damages (money) Punitive damages (exemplary damages)

1-42 Violation of Statutes or Regulations May impose sanctions to accomplish statutory purposes. Similar to crimes, torts, and breach of contract.

1-43 Statutory law comes into Statutory law comes into existence through existence through a. the courts b. the legislature pop QUIZ pop QUIZ pop QUIZ

1-44 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? a. Yes b. No

1-45 Legal System & Corporate Governance  Corporation – legal person  Ownership – shareholders  Resource control  Board of directors  Managers  Corporate governance – rules protecting owners’ property interest