Solution Manual for Business Law and the Legal Environment, Version 2.0

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BUSINESS LAW1Chapter1Introduction to Law and LegalSystems1.What Is Law?•Distinguish different philosophies of law—schools of legal thought—and explaintheir relevance.•Identify the variousaims that a functioning legal system can serve.•Explain how politics and law are related.•Identify the sources of law and which laws have priority over other laws.•Understand some basic differences between the US legal system and other legalsystems.Section Outline•According to Black’s Law Dictionary:oLaw is a body of rules of action or conductthat areprescribed byacontrolling authority, andhave binding legal force.oLaw has to be obeyed and followed by citizens subject to sanctions orlegal consequence.•In a nation law serves to:oKeep the peaceoMaintain the status quooPreserve individual rightsoProtect minorities against majoritiesoPromote social justiceoProvide for orderly social change

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BUSINESS LAW2•In the United States, legislators, judges, administrativeagencies, governors, andpresidents make law, with substantial input from corporations, lobbyists, and adiverse group of nongovernment organizations (NGOs).oIn the 50states,judges are often appointed by governors or elected bypeople.oIn the federal system, judges are appointed by the president and confirmedby the Senate.oIn most nation-states, knowing who hasthepower to make and enforce thelaws is a matter of knowing who has political power.oIn many places, the people or groups that have military power can alsocommand political power to make and enforce the laws.Key TakeawayLaw is the result of political action, and the political landscape is vastly different fromnation to nation. Unstable or authoritarian governments often fail to serve the principlefunctions of law.ExercisesSection 1–What Is Law?1. ConsiderNorth Korea.What political rights do you have that theaverageNorthKoreancitizenhasnotenjoyed?Answer:Student answers may differ.Answersshould contain a general comparisonbetween the political situationsinNorth Korea with its hereditary, authoritarian rule,andtheU.S.(Republic/Democracy)and how these situations affect the political rights of thecitizens of both the countries.2. What is a nongovernment organization, and what does it have to do with government?Do you contribute to (or are you active in) a nongovernment organization? What kind ofrights do they espouse, what kind of laws do they support, and what kind of laws do theyoppose?

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BUSINESS LAW3Answer:Non-governmental organization, or NGO, is a legally constituted organizationcreated by natural or legal persons that operates independently from any government. Theterm originated from the United Nations (UN), and is normally used to refer toorganisations that do not form part of the government and are not conventional for-profitbusiness. In the cases in which NGOs are funded totally or partially by governments, theNGO maintains its non-governmental status by excluding government representativesfrom membership in the organization. The term is usually applied only to organizationsthat pursue some wider social aim that has political aspects, but that are not overtlypolitical organizations such as political parties.The rest of the answer will vary for each student.TeachingSuggestions1.Theinstructormaystart the sessionby asking thestudents what they understand bytheterm ‘law’and what they think the functions of .law are.2. Theinstructormay ask the studentsto explainwho makesthelaws in the UnitedStates.Suggested Activities1.Theinstructormay ask the students to discuss the consequences that will arise if thelegal system of a country fails to perform its functions efficiently.2.Schools of Legal Thought•Distinguish different philosophies of law—schools of legal thought—and explaintheir relevance.•Explain why natural law relates to the rights that the founders of the US politicallegal system found important.•Describe legal positivism and explain how it differs from natural law.•Differentiate critical legal studies and ecofeminist legal perspectives from bothnatural law and legal positivist perspectives.

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BUSINESS LAW4Section Outline•Philosophy of law is calledjurisprudence.oThe two main schools of jurisprudence arelegal positivismandnaturallaw.•The school oflegal positivismconsiders law as the command of asovereign—such as a king, a president, or a dictator—who has power within a defined area orterritory.oJohn Austin was a supporter of legal positivism.oPositivism is a philosophical movement that claims that science providesthe only knowledge precise enough to be worthwhile.oExamining in a precise way what the rule itself says is sometimes knownas the“positivist”school of legal thought.oThe“legal realist”school of thought relies on social context and theactual behavior of the principal actors who enforce the law.oThe disadvantage of thepositive-law schoolof legal thoughtisthatbecause itrecognizesthe lawmaker’s command as legitimate, questionsabout the law’s morality orimmorality loses theirimportance.oThenatural-lawschoolof legal thoughtrefusesto recognize thelegitimacy of laws thatdonot conformto natural, universal, or divine law.oAccording to thenatural-law school, if a lawmaker issues a commandthat is in violation of natural law, a citizen is morally justified indemonstrating civil disobedience.•Thenatural-law schoolof thoughtemphasizes that law should be based on auniversal moral order.oNatural lawwas“discovered”by humans through the use of reason andby choosing between that which is good and that which is evil.oTheCambridgeDictionary of Philosophydefinesnatural lawas anobjective norm or set of objective norms governing human behavior,similar to the positive laws of a human ruler, but binding on all peoplealike and usually understood as involving a superhuman legislator.

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BUSINESS LAW5oBoth the US Constitution and the United Nations (UN) Charter have anaffinity for the natural-law outlook, as it emphasizes certain objectivenorms and rights of individuals and nations.oThe US Declaration of Independence embodies a natural-law philosophy.•Thehistorical schoolof law believes that societies should base their legaldecisions today on the examples of the past.Precedent would be more importantthan moral arguments.•Thelegal realistschool that flourished in the 1920s and 1930s believed thatbecause life and society are constantly changing, certain laws and doctrines haveto be altered or modernized in order to remain current.•Thecritical legal schoolof thought believed that the social order and the lawwasdominated by those with power, wealth, and influence.•Theecofeminist schoolof legal thoughtemphasizes—and would modify—thelong standing domination of men over both women and the rest of the naturalworld.Key TakeawayEach of the various schools of legal thought has a particular view of what a legal systemis or what it should be. The natural-law theorists emphasize the rights and duties of bothgovernment and the governed. Positive law takes as a given that law is simply thecommand of a sovereign, the political power that those governed will obey. Recentwritings in the various legal schools of thought emphasize long-standing patterns ofdomination of the wealthy over others (the CLS school) and of men over women(ecofeminist legal theory).ExercisesSection 2–Schools of Legal Thought1.Vandana Shiva draws a picture of a stream in a forest. She says that in our society thestream is seen as unproductive if it is simply there, fulfilling the need for water ofwomen’s families and communities, until engineers come along and tinker with it,perhaps damming it and using it for generating hydropower. The same is true of a forest,

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BUSINESS LAW6unless it is replaced with a monoculture plantation of a commercial species. A forest mayvery well be productive—protecting groundwater; creating oxygen; providing fruit, fuel,and craft materials for nearby inhabitants; and creating a habitat for animals that are alsoa valuable resource. She criticizes the view that if there is no monetary amount that cancontribute to gross domestic product (GDP), neither the forest nor the river can be seen asa productive resource. Which school of legal thought does her criticism reflect?Answer:Natural law2.Anatole France said, “The law, in its majesty, forbids rich and poor alike from sleepingunder bridges.” Which school of legal thoughtis represented by this quote?Answer:Legal positivism3. Adolf Eichmann was a loyal member of the National Socialist Party in the Third Reichand worked hard under Hitler’s government during World War II to round up Jewishpeople for incarceration—and eventual extermination—at labor camps like Auschwitzand Buchenwald. After an Israeli “extraction team” took him from Argentina to Israel, hewas put on trial for “crimes against humanity.” His defense was that he was “justfollowing orders.” Explain why Eichmann was not an adherent of the natural-law schoolof legal thought.Answer:The natural-law school of thought emphasizes that law should be based on auniversal moral order.But, Adolf Eichmann’s defense thathe was “just following orders”shows that he was a follower of legal positivism.Legal positivism is a jurisprudence thatfocuses on the law as itis—thecommand of the sovereign.Teaching Suggestions1. Theinstructorcouldask students to define the term sovereign.Suggested Activities1. Theinstructorcouldask the students to read the extractof“The UnanimousDeclaration of the Thirteen United States of America”containedin thechapter anddiscuss how it reflects the beliefs of the natural-law philosophy.

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BUSINESS LAW72.Theinstructorcouldask students to read Martin Luther King Jr.’s “Letter fromBirmingham Jail” and then discusscivil disobedience in context with natural law.3.Basic Concepts and Categories of US Positive Law•In a general way, differentiate contract law from tort law.•Consider the role of law in supporting ethical norms in our society.•Understand the differing roles of state law and federal law in the US legal system.•Know the difference between criminal cases and civil cases.Section Outline•Law does not correct every wrong that occurs in society but aims to curb theworst kinds of wrongs that violate the “moral minimums” that a communitydemands of its members.•The “moral minimums” include not only violations of criminal law but also tortsand broken promises.•The use ofprecedentin common-law cases came into being, and the doctrine ofstare decisisbecame accepted in English courts.•Precedentis a rule of law established for the first time by a court for a particulartype of case and thereafter referred to deciding similar cases.•Stare decisismeans in, Latin, “let the decision stand.”•Most judicial decisions that don’t apply legislative actswill involve one of threeareas of law—property, contract, or tort.•Property lawdeals with the rights and duties of those who canlegally own land,how that ownership can be legally confirmed and protected, how property can bebought and sold, whatthe rights of tenantsare, and what the various kinds of“estates” in land are.•Contract lawdeals with what kinds of promises courts should enforce.

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BUSINESS LAW8•Tort lawdeals with the types of cases that involve some kind of harm and orinjury between the plaintiff and the defendant when no contract exists.•Typically, if the supreme court in a particular statehas already ruled on a certainkind of case, lower courts in that state will always follow the rule set forth bytheir highest court.•The power of state law has historically included governing the following kinds ofissues and claims:ocontracts, including sales, commercial paper, letters of credit, andsecured transactionsotortsoproperty, including real property, bailments of personal property,trademarks, copyrights, and the estates of decedentsocorporationsopartnershipsodomestic matters, including marriage, divorce, custody, adoption, andvisitationosecurities lawoenvironmental lawoagencyobankingoinsurance•Over the past eighty years, however federal law has become increasinglyimportant in many of these areas, including banking, securities, andenvironmental law.•Acriminal caseinvolves a governmental decision—whether state or federal—toprosecute someone (named as a defendant) for violating society’s laws.•The law establishes a moral minimum and does so especially in the area ofcriminal laws; if you break a criminal law, youcan lose your freedom or your life.•In acivil action, you would not be sent to prison; in the worst case, you can loseproperty

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BUSINESS LAW9•The main differences between civil cases and criminal cases can be summed up inthe following table:Civil CasesCriminal CasesPartiesPlaintiff brings the case;Defendant must answer or loseby defaultProsecutor brings the case;Defendant may remain silentProofPreponderance of evidenceBeyond a reasonable doubtReasonTo settle disputes peacefully,usually between private partiesTo maintain order in societyRemediesMoney damages (legal remedy)Injunctions (equitable remedy)Specific performance (equity)Fines, jails, forfeitures•Rules and regulations in law aresubstantiveorprocedural.•Substantive lawsrefer torules of conduct or behaviorthat is called for orsome action that is prohibited. They tell us how to act with one anotherand with the government.•Procedural lawsare the rules of courts and administrative agencies. Theytell us how to proceed if there is a substantive-law problem.•In the United States, all state procedural laws must be fairaccording tothedue process clause of the Fifth and Fourteenth Amendment.Key TakeawayIn most legal systems, like that in the United States, there is a fairly firm distinctionbetween criminal law (for actions that are offenses against the entire society) and civillaw (usually for disputes between individuals and corporations). Basic ethical norms forpromise-keeping and not harming others are reflected in the civil law of contracts andtorts. In the United States, both the states and the federal government have roles to play,and sometimes these roles will overlap, as in environmental standards set by both statesand the federal government.

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BUSINESS LAW10ExercisesSection 3–Basic Concepts and Categories of US Positive Law1. Jenna gets a ticket for careless driving after the police come to investigate a caraccident she had with you on Hanover Boulevard. Your car is badly damaged through nofault of your own. Is Jenna likely to face criminal charges, civil charges, or both?Answer:Jennais likely to face civil charges in addition to the traffic ticket for carelessdriving (a misdemeanor or infraction in criminal law).2. Jenna’s ticket says that she has thirty days in which to respond to the charges againsther. The thirty days conforms to a state law that sets this time limit. Is the thirty-day limitprocedural law or substantive law?Answer:The thirty-day limit is procedural law.Teaching Suggestions1. Theinstructorcouldtry and find out if the students know the basic difference betweencriminal cases and torts by asking themrelevantquestions.2. Theinstructorcouldexplain the conceptof precedent andstare decisisin detail.Suggested Activities1. The instructor can ask the students to identify which of the following is a substantivelaw and which is a procedural law:a. laws which define the various degrees of murderb. laws which protect the right to a speedy trial for people accused of murder4.Sources of Law and Their Priority•Describe the different sources of law in the US legal system and the principalinstitutions that create those laws.•Explain in what way a statute is like a treaty, and vice versa.

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BUSINESS LAW11•Explain why the Constitution is “prior” and has priority over the legislative actsof a majority, whether in the US Congress or in a state legislature.•Describe the origins of the common-law system and what common law means.Section Outline•In the United States, the main sources of law are:oconstitutions—bothstate and federalostatutes and agency regulationsojudicial decisions•Chief executives (the president and various governors) can issue executive ordersthat have the effect of law.•In international legal systems, sources of law include treaties, agreements betweenstates or countries, and judicial decisions from national court systems whereparties from two or more nations are in a dispute.•Constitutions are the foundation for a state or nation’s other laws, providing thecountry’s legislative, executive, and judicial framework.They are thefoundingdocuments ofany nation-state’s legalsystem.oIn case of amendments, two-thirds of the House and Senate must passamendments, and three-fourths of the states must approve them.oThe nation’s states also have constitutions that along with providing forlegislative, executive, and judicial functions, also prescribe various rightsof citizens.•In Washington, DC, the federal legislature is known asCongressand has both aHouse of Representativesand aSenate.oThe House is composed of representatives elected every two years fromvarious districts in each state.oThese districts are established by Congress according to population asdetermined every ten years by the census, a process required by theConstitution.oEach state has at least one district.

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BUSINESS LAW12oIn the Senate, there are two senators from each state, regardless of thestate’s population.oThe House of Representatives, on the other hand, is directly proportionedby population, though no state can have less than one representative.oEach Congressional legislative body has committees for various purposes.oIn these committees, proposed bills are discussed, hearings are sometimesheld, and bills are either reported out (brought to the floor fora vote) orkilled in committee.oIf a bill is reported out, itmay be passed by majority vote.oA conference committee will then be held to try to match the two versions.oIf the two versions differ widely enough, reconciliation of the twodiffering versions into one acceptable to both chambers (House andSenate) is more difficult.oIf the House and Senate can agree on identical language, the reconciledbill will be sent to the president for signature or veto.oThe Constitution prescribes that the president will have veto power overany legislation.But the two bodies can override a presidential veto with atwo-thirds vote in each chamber.oIn the case of treaties, the Constitution specifies that only the Senate mustratify them.When the Senate ratifies a treaty, it becomes part of federallaw, with the same weight and effect as a statutepassed by the entireCongress.•Although the Constitution does not expressly provide for administrative agencies,the US Supreme Court has upheld delegation of power to create federal agencies.oThe Congress must delegate its authority with some guidelines for theagency and cannot altogether avoid its constitutional responsibilities.oAgencies propose rules in the Federal Register, published each workingday of the year.oRules that are formally adopted are published in the Code of FederalRegulations.•Statutes are passed by legislatures and provide general rules for society.

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BUSINESS LAW13oStates have legislatures (sometimes called assemblies), which are usuallymade up of both a senate and a house ofrepresentatives.oState legislaturesagree on the provisions of a bill, which is then sentto thegovernor for signature.oGovernors often have a veto power.oThe process of creating and amending, or changing, laws is filled withpolitical negotiation and compromise.•Common law consists of decisions by courts that do not involve interpretation ofstatutes, regulations, treaties, or the Constitution.•United States law comes primarily from the tradition of English common law.•The US Constitution takes precedence over all statutes and judicial decisions thatare inconsistent.•Statutes generally have priority, or take precedence, over case law.•A treaty or convention is considered of equal standing to a statute.•No matter how wrong someone’s actions may seem to you, the only wrongs youcan right in a court are those that can be tied to one or more causes of action.•Not every wrong you may suffer in life will be a cause to bring a court action.•Your cause of action is based on existing laws, including decided cases.Key TakeawayThere are different sources of law in the US legal system. The US Constitution isfoundational; US statutory and common law cannot be inconsistent with its provisions.Congress creates statutory law (with the signature of the president), and courts willinterpret constitutional law and statutory law. Where there is neither constitutional lawnor statutory law, the courts function in the realm of common law. The same is true oflaw within the fifty states, each of which also has a constitution, or foundational law.Both the federal government and the states have created administrative agencies. Anagency only has the power that the legislature gives it. Within the scope of that power, anagency will often create regulations (see Chapter 5), which have the same force andeffect as statutes. Treaties are never negotiated and concluded by states, as the federalgovernment has exclusive authority over relations with other nation-states. A treaty, once

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BUSINESS LAW14ratified by the Senate, has the same force and effect as a statute passed by Congress andsigned into law by the president.Constitutions, statutes, regulations, treaties, and court decisions can provide a legal basisin the positive law. You may believe you have been wronged, but for you to have a rightthat is enforceable in court, you must have something in the positive law that you canpoint to that will support a cause of action against your chosen defendant.ExercisesSection 4–Sources of Law and Their Priority1. Give one example of where common law was overridden by the passage of a federalstatute.Answer:Under commonlaw, employers could hire young children for difficult work,offer any wage they wanted, and not pay overtime work at a higher rate. But the federalFair Labor Standards Act (1938) forbid the use of oppressive child labor and establisheda minimum pay wage and overtime pay rules.2. How does common law change or evolve without any action on the part of alegislature?Answer:Unless the legislature acts to over-ride common law, judges themselves mayalter or abandon some aspects of commonlaw.For example, if a judicial doctrine inNorth Carolina dating back to the 1800s were to say that a breach of a promise to marrycreates a cause of action in civil courts in that state, a 20thcentury (or later) appellate casein that state could decide that such a cause of action would no longer be recognized in thestate’s courts. The legislature could (but likely would not) create a statute that re-affirmed the right of a jilted betrothed to sue for damages in civil court.3. Lindsey Paradise is not selected for her sorority of choice at the University of Kansas.She has spent all her time rushing that particular sorority, which chooses some of herfriends but not her. She is disappointed and angry and wants to sue the sorority. What areher prospects of recovery in the legal system? Explain.Answer:Lindsey Paradiseprobablycannotrecover.It is highly unlikely that Kansas has

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BUSINESS LAW15judicial or statutory law that confers a cause of action for this kind of disappointment. Ifa sorority member effectively blocked her from joining by defaming her (see Torts,Chapter 7), she might have a cause of action for defamation. But if she just wasn’tconsidered to have the right look, or was considered a bit socially awkward, there wouldbe no right to recover. Anindividual, no matter how wronged she may feel,canonlythatwrongin a courtby using an established cause of action in the positive law.Teaching Suggestions1. Before starting this section, theinstructormay ask a few students toexplainwhat theyknow about theUS Constitution.2. Theinstructorcan ask the students to share what they know about the composition ofthe House of Representatives and the Senate.Suggested Activities1.Theinstructorcan ask the students to visit the sitehttp://uscode.house.govHe can then ask them to discuss what they got to know about the Office of the LawRevision Counsel and the United States Code and the codification legislation.2.Theinstructorcould ask the students to visit the sitehttp://www.access.gpo.gov/nara/cfr/cfr-table-search.htmlHe can then ask them to writean assignment on the definitions that they come across inthe Administrative Committee of the Federal Register mentioned under the title, GeneralProvisions2011.5.Legal and Political Systems of the World Learning Objective•Describe how thecommon-law system differs from the civil-law system.Section Outline•The common-law tradition is unique to England, the United States, and former

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