Chapter 1: Business and

Its Legal Environment

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a part of South-Western Cengage Learning.
 §1: Schools of
Jurisprudential Thought
• At a minimum, law consists of enforceable
rules governing relationships among
persons and between persons and society.
• There are several different “schools” of law:
– Natural Law.
– Positivist view.
– Historical view.
– Legal Realism view.
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 The Natural Law School

• Assumes that law, rights and ethics are

based on universal moral principals
inherent in nature discoverable through
the human reason.
• The oldest view of jurisprudence dating
back to Aristotle.
• The Declaration of Independence
assumes “the Laws of Nature.”
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 Natural Law: Rev.
Martin Luther King, Jr.

Letter from the Birmingham Jail, April 16,

1963 “[T]here are two types of laws: just
and unjust laws. . . . A just law is a man-
made code that squares with the moral
law . . . . An unjust law is a code that is
out of harmony with the moral law. . . .
An unjust law is a human law that is not
rooted in eternal and natural law.”
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 The Positivist School

• Law is the supreme will of the State that

applies only to the citizens of that nation at
that time.
• Law, and therefore rights and ethics, are
not universal. The morality of a law, or
whether the law is “bad or good”, is
irrelevant.

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 The Historical School

• Emphasizes the evolutionary process of

law.
• Concentrates on the origin and history of
the legal system.
• Law derives its legitimacy from the
principles and standards that have
proved historically workable.

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 Legal Realism

• Jurisprudence that holds law is not

simply a result of the written law, but a
product of the views of judicial decision
makers, as well as social, economic, and
contextual influences.
• Law is a tool to promote social justice.

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 § 2: Business Activities and
the Legal Environment
• Law regulates many different areas of
business.
• Study of business law also involves a
knowledge of ethics in decision-making.
• Many different laws may affect a single
business transaction. 

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 Areas of Law that May Affect
Business Decision-Making

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 §3: Sources of American Law

• U.S. and State

Constitutions.
• Statutory Law--federal and
state statutes.
– Uniform Commercial Code.
– Restatements of the Law.
• Administrative Law.
• Case Law and Common
Law Doctrines.
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 § 4: The Common Law Tradition

• American law is based

largely on English Common
Law originating in medieval
England.
• The common law was
based largely on traditions,
social customs, rules and
cases developed over
hundreds of years after the
Norman conquest in 1066.
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 Early English Courts

• At common law, there were two

separate court systems with two
different types of remedies:
– COURTS OF LAW (monetary relief).
– COURTS OF EQUITY (non-monetary
relief), based on “notions of justice and
fair dealing.”

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 Courts of Law

• Also called “king’s courts” where judges

were appointed by the king.
• Remedies limited to those provided at
law, i.e., land, chattel, money.
• Judges resolved disputes by application
of rules of law to the facts of the case
before the court.

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 Courts of Equity

• Equitable relief was sometimes

available in instances where a strict
application of the law to the facts of the
case compelled a result that was legal
but unjust.
• Equitable maxims.

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 Legal and Equitable
Remedies Today

• Today federal and state courts of

general jurisdiction have consolidated
remedies at law and remedies at equity.
• Generally, the same court can fashion a
remedy that includes both damages and
equitable or injunctive relief.

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 The Doctrine of Stare Decisis

• Stare decisis is a Latin phrase meaning

“to stand on decided cases.”
– Makes the law stable and predictable.
– Increases judicial efficiency by relieving
courts of having to reinvent legal principles
for each case brought before them.
• Stare decisis is “judge made law” based
on precedent.
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 Case Precedents and
Case Reporters
• Precedents are judicial decisions that give
rise to legal principles that can be applied in
future cases based upon similar facts.
• Precedents and other forms of positive law,
such as statutes, constitutions, and regulations
are referred to as binding authorities and must
be followed.
• Today, cases are published or ‘reported’ in
books called reporters (see Appendix).

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 Departure from Precedent

• In cases of “first impression” where there

is no precedent, the court may refer to
positive law, public policy, and widely
held social values in order to craft the
best new precedent.

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 Stare Decisis and Legal
Reasoning
• Method used by judges to reach a decision.
• Basic Steps: Many courts and attorneys
frame decisions and briefs using the IRAC
format: Issue, Rule, Application (Analysis)
and Conclusion.
– What are the key facts and issues?
– What rules or laws apply?
– How do the rules of law apply to these facts?

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 Forms of Legal Reasoning

• Deductive Reasoning: Makes use of syllogism,

a type of logical relationship involving a major
premise and a minor premise
• Linear Reasoning: Proceeds from point to
point, with the final point being the conclusion
• Reasoning by Analogy: Analysis that compares
facts of present case with facts of similar
previously-decided cases.

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 § 5: The Common Law Today

• Common law today governs transactions

not covered by statutory law.
• Restatements of the Law:
– By the American Law Institute,
– Summarize the common law of most states.

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 §6: Classifications of Law

• Every type of law will be either:

– Civil or Criminal (and either),
– Substantive or Procedural (and either),
– Public or Private.
• “Cyberlaw” is traditional law applied in
the online forums.

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 Civil vs. Criminal Law

• Civil law defines the rights between

individuals or individuals and
governments.
• Criminal law defines an individual’s
obligations to society as a whole.

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 Substantive vs. Procedural

• Substantive law defines or creates the

rights and obligations of persons and
governments.
• Procedural law provides the steps one
must follow in order to avail oneself of
one’s legal rights or enforce another’s
legal obligations.

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 §7: How to Find Primary
Sources of Law
• Finding Statutory Law.
– United States Code (USC).
– State Statutes (Texas).
• Finding Administrative Law.
– Code of Federal Regulations (CFR).
• Finding Case Law.
– Supreme Court Cases at Findlaw.com.
– Federal Court Cases at Findlaw.com.
– State Court Cases at Findlaw.com.
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 §8: How to Read &
Understand 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.

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 §8: How to Read &
Understand 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).
The case is found in the Federal 3rd
Reporter, Volume 512, page 582.

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 §8: How to Read &
Understand 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).
The case was decided by the Ninth
Circuit Federal Court of Appeals in
2008.

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a part of South-Western Cengage Learning. 28