Fundamentals of Business Law Summarized Cases, 8 th Ed., and Excerpted Cases, 2 nd Ed. ROGER LeROY MILLER Institute for University Studies Arlington, Texas GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2 Learning Objectives What is the Uniform Commercial Code? What is the common law tradition? What is a precedent? When might a court depart from precedent? What are some important differences between civil law and criminal law? How does the U.S. Constitution affect business activities in the United States?

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 At a minimum law consists of: –Enforceable rules governing relationships, –Among and between individuals and –Their society. Different views of law have one thing in common: –Duties, rights, and privileges that are consistent with the values and traditions of that culture.Introduction

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Knowledge of “black letter” law is not enough. Many different laws affect a single business transaction. Ethics and business decision making: what constitutes right or wrong behavior? Business Activities and The Legal Environment

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Business Activities and the Legal Environment Many Different Activities May Affect a Single Business Transaction

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Sources of American Law Constitutional Law. –Found in text and cases arising from federal and state constitutions. –U.S. Constitution is the supreme law of the land. Statutory Law. –Laws enacted by federal and state legislatures. –Local ordinances. –Uniform Laws (e.g.,Uniform Commercial Code).

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Sources of American Law Administrative Law. –Rulemaking--Rules, orders and decisions of administrative agencies, federal, state and local. –Adjudication--agencies make rules, then investigate and enforce the rules in administrative hearings. Case Law and Common Law Doctrines.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Sources of American Law Case Law and Common Law Doctrines –Much of the common law is still used today. –Common law governs all areas not specifically covered by statutory or constitutional law. –Restatements of the Law: modern compilations of common law principles found, e.g., in contracts, torts, property and agency.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 The Common Law Tradition Early English Courts. –King’s courts started after Norman conquest of –Established the common law—body of general legal principles applied throughout the English empire. –King’s courts used precedent to build the common law.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 The Common Law Tradition Stare Decisis. –Importance of Precedent: Practice of deciding new cases based on precedent. –A higher court’s decision based on certain facts and law, is a binding authority on lower courts. –Helps courts stay efficient. –Departures from Precedent. –When there is No Precedent.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 The Common Law Tradition Equitable Remedies and Courts of Equity. –Remedy: means to enforce a right or compensate for injury to that right. –Remedy at Law: in king’s courts, remedies were restricted to damages in either money or property. –Remedies in Equity: based on justice and fair dealing a chancery court does what is right. –Today, legal and equitable remedies are found in the same court.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Classifications of Law Substantive vs. Procedural Law. –Substantive: laws that define and regulate rights and duties. –Procedural: laws that establish methods for enforcing and protecting rights. Civil Law and Criminal Law. –Civil: private rights and duties between persons and government. –Criminal: public wrongs against society.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Classifications of Law National and International Law –National: laws of a particular nation. –Civil vs. Common Law: Civil law countries based on Roman code (e.g., Latin America). –International: body of written and unwritten laws observed by nations when dealing with each other. Cyberlaw: governs internet transactions.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 The Constitutional as It Affects Business A Federal Form of Government: the federal constitution was a political compromise between advocates of state sovereignty and central government. Separation of Powers: Executive, Legislative and Judicial. Provides checks and balances. –Legislative: enacts laws. –Executive: enforces laws. –Judicial: declares laws/actions unconstitutional.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 The Commerce Clause U.S. Constitution gives Congress the power to: “regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes” (Art. 1 § 8). Greatest impact on business than any other Constitutional provision.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 The Commerce Clause Gibbons v. Ogden (1824). –To Chief Justice Marshall, commerce meant all business dealings that substantially affected more than one state. –The national government had the exclusive power to regulate interstate commerce. Today: Commerce Clause applies to e- commerce internet transactions.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 The Commerce Clause Expansion of Federal Regulatory Powers under Commerce Clause: –Wickard v. Filburn (1942). Purely local production, sale and consumption of wheat was subject to federal regulation. CASE 1.1 Heart of Atlanta Motel v. U.S. (1964).

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 The Commerce Clause Commerce Power Today: –Theoretically the federal government has unlimited control over all business transactions. However, Supreme Court has curbed federal regulatory powers in U.S. v. Lopez (1995) and U.S. v. Morrison (2000). –Recent: Regulation of “medical marijuana” states.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Regulatory Powers of the States Tenth Amendment reserves all powers to the states that have not been expressly delegated to the national government. State have inherent “police powers.” –Police powers include right to regulate health, safety, morals and general welfare. –Includes licensing, building codes, parking regulations and zoning restrictions. “Dormant” Commerce Clause. 

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 Dormant Commerce Clause U.S Supreme Court has interpreted commerce clause to give national government exclusive power to regulate. States only have a “dormant” (negative) power to regulate interstate commerce. Dormant power comes into play when courts balance state’s interest vs. national interest, e.g., internet transactions

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning : Ten written guarantees of protection of individual liberties from government interference. Originally, Bill of Rights only applied to the federal government. Recently, the Bill of Rights was “incorporated” and applied to the States as well. Some protections apply to businesses. Business and the Bill of Rights

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 Free Speech is the basis for our democratic government. Free speech also includes “symbolic” speech, including gestures, movements, articles of clothing. Reasonable Restrictions. First Amendment: Freedom of Speech

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23 Corporate Political Speech Corporations also have protected political speech (although not to the degree of a natural person). In 2003 and 2007, Supreme Court struck down provisions in campaign-finance reform laws that constituted an unreasonable restraint on corporate political speech.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 24 Commercial Speech Commercial speech (advertising) is given substantial protection. Government restrictions must: –Seek to implement substantial government interest, –Directly advance that interest, and –Must go no further than necessary to accomplish. CASE 1.2 Bad Frog Brewery, Inc. v. New York State Liquor Authority (1998).

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 25 Unprotected Speech U.S. Supreme Court has held that certain speech is NOT protected: –Defamatory speech. –Threatening speech that violates criminal laws. –Fighting Words. –Obscene Speech is patently offensive, violates community standards and has no literary, artistic, political or scientific merit.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 26 Online Obscenity Protected or Unprotected? –Some of Congress’ attempts to protect children from online pornography have been ruled unconstitutional restriction on free speech. Communications Decency Act (1996). COPA (1998-challenged, in court). Children’s Internet Protection Act-CIPA-(2000) requires filters for computers in public libraries and public schools. Court held it is constitutional. –What about “hate” speech on the web?

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 27 First amendment guarantees that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…” Establishment clause: no state-sponsored religion or preference for one religion over another. Free Exercise clause: person can believe what he wants, but actions may be unconstitutional. First Amendment: Freedom of Religion

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 28 Fourth Amendment: Searches & Seizures Fourth amendment protects the right to “be secure” from government intrusion into their personal lives. Generally, government must have a search warrant based on probable cause. There are a few limited exceptions, such as when items can be removed quickly and easily. Consent also waives warrant requirement.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 29 Search of Businesses Generally, a warrant is not necessary to search businesses to ensure compliance with federal and state regulations, especially to protect the public. No warrant is necessary to seize contaminated foods, or search businesses that are in highly regulated industries such as liquor or guns. But what about health care? CASE 1.3 United States v. Moon (2008).

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 30 Due Process Due Process is both procedural and substantive. Procedural: any government decision to take life, liberty or property must be fair. Requires: Notice and Fair Hearing. Substantive: focuses on the content or the legislation (the right itself). –Fundamental Right: requires compelling state interest. –Non-Fundamental: rational relationship to state interest.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 31Appendix Finding Statutory Law. –United States Code (USC). –State Statutes. Finding Administrative Law. –Code of Federal Regulations (CFR). Finding Case Law (Case Citations). –Supreme Court Cases at Findlaw.com.Supreme Court Cases –Federal Court Cases at Findlaw.com.Federal Court Cases –State Court Cases at Findlaw.com.State Court Cases

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 32Appendix Reading & Understanding Case Law –Legal cases are identified by a “legal citation” (or a “cite”) as the example below: Berger v. City of Seattle, 512 F.3d 582 (9th Cir. 2008). Title: First Party is Plaintiff, second party is Defendant. The parties are either italicized or underlined.

Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 33Appendix Reading & Understanding Case Law –Legal cases are identified by a “legal citation” (or a “cite”) as the example below: Berger v. City of Seattle, 512 F.3d 582 (9th Cir. 2008). This is a federal court case from the Ninth Circuit Court of Appeals, found in Volume 512, Page 582 of the Federal Supplement 3rd. This case was decided in 2008.

Fundamentals of Business Law Summarized Cases, 8 th Ed., and Excerpted Cases, 2 nd Ed. ROGER LeROY MILLER Institute for University Studies Arlington, Texas GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

Learning Objectives What is business ethics and why is it important? How can business leaders encourage their companies to act ethically? How do duty based ethical standards differ from outcome-based ethical standards?

Learning Objectives What are six guidelines that an employer can use to evaluate whether his or her actions are ethical? What types of ethical issues might arise in the context of international business transactions?

Ethics is the study of right and wrong behavior; whether an action is fair, right or just. In business, ethical decisions are the application of moral and ethical principles to the marketplace and workplace. Business Ethics

Directors and Officers owe a complex set of ethical duties to the company, shareholders, customers, community, employees, and suppliers. When these duties conflict, ethical dilemmas are created. Why is Business Ethics So Important?

Attitude of Top Management. –Management must be committed to creating an ethical company. –Management must set realistic goals for production. –Management must deal with unethical issues quickly (Unethical) Behavior of Owners and Managers. –CASE 3.1 Baum v. Blue Moon Ventures, LLC (5 th Circuit, 2008). Importance of Ethical Leadership

Duty Based Ethics - derived from religious and philosophical principles. –Religious Ethical Standards  –Kantian Ethics  –Rights Principles  Outcome-Based Ethics - seek to ensure a given outcome. –Utilitarianism. Approaches to Ethical Reasoning

The rightness or wrongness of an action is usually judged according to its conformity to an absolute rule that commands a particular form of behavior. The motive of the actor is irrelevant in judging the rightness or the wrongness of the action. These rules often involve an element of compassion. Religious Ethical Standards

Premised on the belief that general guiding principles for moral behavior can be derived from human nature. The categorical imperative is a central postulate of Kantian ethics. –The rightness or wrongness of an action is judged by estimating the consequences that would follow if everyone in a society performed the act under consideration. Kantian Ethics

This principle derives from the belief that every duty gives rise to a corresponding right. The belief in fundamental rights is a deeply embedded feature of Western culture. The ethicality of an action is judged by how the consequences of the action will affect the rights of others. Rights Principle

An action is ethical based on whether it produces the greatest good for the greatest number of people upon which it has an effect. A cost-benefit analysis must be performed to determine the effects of competing alternatives on the persons affected. The best alternative is the one that produces the greatest good for the greatest number. Utilitarianism

Corporate Social Responsibility Corporations should be interested in impact on civil rights, environment, consumer protection, employee safety and welfare. –Stakeholder Approach. –Corporate Citizenship. –CASE 3.2 Fog Cutter Capital Group, Inc. v. Securities Exchange Commission (2007).

Creating Ethical Codes of Conduct Codes Must be Well-Written. Companies Should Provide Ethics Training to Employees. Sarbanes-Oxley Act and Web-Based Reporting. –SO requires confidential ethics reporting systems to “raise red flags” about practices.

Moral Minimum: Legal compliance is the moral (ethical) minimum. –Simply obeying the law does not necessarily make the business practice ethical. –What about Excessive Executive Pay? –Determining the Legality of a Given Action. How the Law Influences Business Ethics

The Law Cannot Control All Business Behavior. –Breaking the Law: Backdating Stock Options. –When is Backdating Illegal? –The consequences of Illegal Backdating. –Misleading Regulators: Oxycontin. “Gray Areas” in the Law. –CASE 3.3 Guin v. Brazos Higher Education Service Corp. (Minnesota, 2006). How the Law Influences Business Ethics

Making Ethical Business Decisions Six Guidelines: –1. The Law. –2. Rules and Procedures. –3. Values. –4. Conscience. –5. Promises. –6. Heroes.

American companies must be trained in cross-cultural business practices. Monitoring the Employment Practices of Foreign Suppliers. –Corporate Watch groups can disseminate information instantly around world. Foreign Corrupt Practices Act. –Bribes and Accounting Practices. Business Ethics on A Global Level