SOLUTION MANUAL FOR
The Legal and Regulatory Environment of Business, 19th Edition By Marisa
Pagnattaro, Daniel Cahoy, Julie Manning Magid, Peter Shedd
Chapter 1-22
Chapter 1
Law as a Foundation for Business
Learning Objectives
The purpose of this chapter is to introduce the students to the subject of law and to some
classifications of its subject matter. In addition, it is designed to instill in them respect for the
role of the ―rule of law‖ in the society and that the judicial system is the most important
stabilizing force in society. It should create an awareness that law is a foundation for the private
market and ―property‖ as a legal concept underpins that market and contributes to the maximum
wealth of nations through productivity. This chapter also describes stare decisis, basic sources of
the American law, and sanctions that can be imposed when the law is not followed.
References
Bethell, Tom, The Noblest Triumph (1999).
Bernstein, William J., The First of Plenty. McGraw-Hill (2004).
Driegel, Blandine, The State and the Rule of Law. Princeton U. Press (1995).
Friedman, Lawrence M., American Law, 2d ed. Norton (1998).
Harnett, Bertram, Law, Lawyers and Laymen: Making Sense of the American Legal
System. San Diego: Harcourt Brace Jovanovich (1984).
Helpman, Elhanan, The Mystery of Economic Growth. Belknap Press (2004).
Holmes, The Common Law. Little, Brown and Company (1922).
Kelman, M., A Guide to Critical Legal Studies. Harvard (1988).
Pound, An Introduction to the Philosophy of Law. Yale University Press (1922).
Reed, O. Lee, ―Law, the Rule of Law, and Property,‖ American Business Law Journal, Vol.
38 (2001).
Reed, O. Lee, ―Nationbuilding 101: Reductionism in Property, Liberty, and Corporate
Governance,‖ 36 Vanderbilt Journal of Transitional Law 673 (2003).
The Spirit of the Common Law. Marshall Jones Co. (1921).
,Teaching Outline
I. Introduction
A. Why Law and Regulations Are Fundamental Foundations for Business (LO 1-1)
Emphasize:
That by studying the legal and regulatory environment of business, students will gain an
understanding of basic legal vocabulary and gain the ability to identify problematic
situations that could result in liability.
That because of the positive role lawyers can play, they are increasingly being asked to
join corporate boards.
Sidebar 1.1 titled ‗Sustainability and Integrity: Cautionary Tales of Legal Liability.‘
II. Law, the Rule of Law, and Property
A. Law
Emphasize:
The simple definition of law. It can be elaborated by observing that law is a rule-based,
state-enforced formal ordering system with moral elements.
That adequate law and legal institutes promote the certainty and trust necessary for
complex, long-term business arrangements. In an economic sense, they lower the costs
of transacting business.
Additional Matters for Discussion:
Discuss that law formalizes values and traditions and that law is more needed in a large,
heterogeneous modern nation than in a smaller, homogeneous nation. Compare the U.S.
and Japan.
It is not too early in this chapter to ask students whether or not lack of law and strict
regulation facilitated the economic crash and recession that began in 2008.
Ask students to comment on how mistrust of law and lawmakers precipitated the
―Occupy Wall Street‖ and other ―Occupy…‖ movements that arosein 2011.
Discuss how the law impacts the COVID 19 restrictions on businesses opening in 2020.
B. The Rule of Law
Emphasize:
That under a rule of law, laws are generally and equallyapplicable.
That lack of the rule of law internationallyhas produced hundreds of calls for it in the
, last several years by business and political leaders. Get students to search for rule-of-
lawreferences in computer databases.
That the complete rule of law is an ideal rather than a fact in even the most democratic
societies.
Additional Matters for Discussion:
Get students to discuss why the managing director of J.P. Morgan and Co. called the
rule of law ―a cornerstone of free trade.‖
Ask students why the rule of law tends to produce rules that benefit everyone. Answer:
Because laws apply generally and equallyto everyone, the only waylawmakers can
benefit themselves is by benefitting everyone. This answer is theoretical, of course.
Lawmakers are often benefited individuallyfor makinglaws that favor special interests.
Ask students to imagine how society would be with no laws. What if the governor of
one‘s state announced that tomorrow would be no-law day and that nothing would be
penalized or enforced, no police would be present and no penalties would result from
anyone‘s actions. What would the students do? One is likely to find that after a few
fleeting and whimsical thoughts, they would agree that they would primarily act to
protect their real and personal property.
C. Property (LO 1-2)
Emphasize:
The two meanings of property.
That propertyis not the resource or thing itself. It is a right (or series of rights).
That the propertyright gives a major incentive to develop resources.
That the exclusionary right of propertyprovides a basis for the private market and
modernbusiness.
Additional Matters for Discussion:
Ask students to discuss the incentive to grow and prosper and the incentive to innovate
and progress under a system with a right to private property ownership and a communist
system where private ownership of propertyis greatly diminished for most. Would they
even be in school if accumulation of propertyrights were not attainable?
D. Property in its Broadest Sense
Emphasize:
Howinitsbroadestsense―property‖isthecentral conceptofWesternlegalsystems.
How property can be thought of as the hub of a wheel and the various legal topics
studied in the text as spokes of the wheel. Law and the rule of law provide the unifying
, rima2ofa2thea2wheel.a2(Refera2toa2Figurea21.1)
Thata2fora2Madisona2anda2othera2constitutionala2framers,a2propertyprotecteda2nota2onlyp
hysicala2resourcesa2likea2landa2buta2alsoa2humana2rightsa2likea2freedoma2ofa2speech,a2fr
eedoma2ofa2religion,a2anda2freedoma2froma2unreasonablea2intrusiona2bythea2govern
ment.
Additionala2Mattersa2fora2Discussion:
Askstudentstodiscussthestatement:―Bill Gatesand yourprofessorhave equala2property
q q q q
.‖Thepoint istoexaminetheconfusionbetween―resources‖and ―property.‖a2Arguably,a
q q
2althougha2Billa2Gatesa2anda2thea2studenta2maya2havea2vastlydifferenta2amountsa2ofa2
resources,a2hea2anda2thea2studenta2havea2exactlythea2samea2righta2toa2thesea2respectivea
2resources,a2thusa2thea2samea2―property.‖
InFederalistPaper10,Madison wrote:―Property…in itsparticularapplicationmeansa 2 a
q q q q
2 thata2‗dominationa2whicha2onea2mana2claimsa2anda2exercisesa2overa2thea2externala2t
hingsa2ofa2thea2world,a2ina2exclusiona2ofa2everya2othera2individual.‘a2Ina2itsa2largera2an
da2justera2meaning,a2ita2embracesa2everythinga2toa2whicha2aa2mana2maya2attacha2aa2val
uea2anda2havea2aa2right;a2anda2whicha2leavesa2toa2everyonea2elsea2aa2likea2advantage.a2
Ina2thea2formera2sense,a2aa2man‘sa2land,a2ora2merchandise,a2ora2moneya2isa2calleda2hisa2
property.a2Ina2thea2lattera2sense,a2aa2mana2hasa2propertya2ina2hisa2opinionsa2anda2thea2fre
ea2communicationa2ofa2them.a2Hea2hasa2aa2propertya2ofa2peculiara2valuea2ina2hisa2religiou
sa2opinions,a2anda2ina2thea2professiona2anda2practicea2dictateda2bya2them.a2Hea2hasa2pr
opertya2verya2deara2toa2hima2ina2thea2safetya2anda2libertya2ofa2hisa2person.a2Hea2hasa2ana
2equala2propertya2ina2thea2freea2usea2ofa2hisa2facultiesa2anda2freea2choicea2ofa2thea2objec
tsa2ona2whicha2toa2employa2them.a2Ina2aa2word,a2asa2aa2mana2isa2saida2toa2havea2aa2right
a2toa2hisa2property,a2hea2maya2bea2equallysaida2toa2havea2aa2propertyina2hisa2rights.‖
Madison‘s―largerand justermeaning‖ofpropertyopensupa2allsortsofopportunities for
q
discussiona2witha2students.a2Notea2thata2althougha2aa2systema2ofa2propertya2isa2basica2toa2pri
vatea2businessa2ina2thea2moderna2nation,a2ita2doesa2nota2precludea2redistributiona2ofa2reso
urcesa2fora2education,a2health,a2anda2reliefa2ofa2povertya2anda2adversity,a2etc.a2Evena2asa2
thea2Americana2revolutionariesmaintained―notaxation(ofourindividualresources)withou
q
t
representation,‖a2theya2appreciateda2thea2necessityofa2appropriatea2taxationa2(ofa2one‘sa2re
sources) witha2democratica2representation.
q
Thea2importancea2ofa2thea2broadera2sensea2ofa2privatea2propertyina2thea2commona2lawa
2growsa2outa2ofa2thea2Magnaa2Carta.a2Froma2thea213tha2througha2thea218tha2centuries,a2th
ea2importancea2ofa2privatea2propertycreateda2constitutionala2tensiona2betweena2thea2Engli
sha2monarchsa2anda2theira2subjects.
Thea2monarchsa2oftena2claimeda2ina2essencea2thata2theya2owneda2thea2nation,a2itsa2lan
d,a2anda2itsa2produce,a2yeta2ina2oppositiona2toa2thisa2therea2wasa2aa2growinga2sensea2thata2
peoplea2owneda2thingsa2privatelya2anda2coulda2bea2taxeda2ona2thisa2privatea2ownershipa
2onlya2througha2theira2owna2representativea2consent.a2Thus,a2thea2Britisha2colonistsa2ina2t
hea2newa2worlda2claimeda2theya2coulda2nota2bea2taxeda2withouta2representation.a2Thea2So
nsa2ofa2liberty,a2onea2ofa2thea2firsta2revolutionarya2groups,hadas theirslogana2―Liberty,P
q
roperty,a2anda2noStamps.‖
The Legal and Regulatory Environment of Business, 19th Edition By Marisa
Pagnattaro, Daniel Cahoy, Julie Manning Magid, Peter Shedd
Chapter 1-22
Chapter 1
Law as a Foundation for Business
Learning Objectives
The purpose of this chapter is to introduce the students to the subject of law and to some
classifications of its subject matter. In addition, it is designed to instill in them respect for the
role of the ―rule of law‖ in the society and that the judicial system is the most important
stabilizing force in society. It should create an awareness that law is a foundation for the private
market and ―property‖ as a legal concept underpins that market and contributes to the maximum
wealth of nations through productivity. This chapter also describes stare decisis, basic sources of
the American law, and sanctions that can be imposed when the law is not followed.
References
Bethell, Tom, The Noblest Triumph (1999).
Bernstein, William J., The First of Plenty. McGraw-Hill (2004).
Driegel, Blandine, The State and the Rule of Law. Princeton U. Press (1995).
Friedman, Lawrence M., American Law, 2d ed. Norton (1998).
Harnett, Bertram, Law, Lawyers and Laymen: Making Sense of the American Legal
System. San Diego: Harcourt Brace Jovanovich (1984).
Helpman, Elhanan, The Mystery of Economic Growth. Belknap Press (2004).
Holmes, The Common Law. Little, Brown and Company (1922).
Kelman, M., A Guide to Critical Legal Studies. Harvard (1988).
Pound, An Introduction to the Philosophy of Law. Yale University Press (1922).
Reed, O. Lee, ―Law, the Rule of Law, and Property,‖ American Business Law Journal, Vol.
38 (2001).
Reed, O. Lee, ―Nationbuilding 101: Reductionism in Property, Liberty, and Corporate
Governance,‖ 36 Vanderbilt Journal of Transitional Law 673 (2003).
The Spirit of the Common Law. Marshall Jones Co. (1921).
,Teaching Outline
I. Introduction
A. Why Law and Regulations Are Fundamental Foundations for Business (LO 1-1)
Emphasize:
That by studying the legal and regulatory environment of business, students will gain an
understanding of basic legal vocabulary and gain the ability to identify problematic
situations that could result in liability.
That because of the positive role lawyers can play, they are increasingly being asked to
join corporate boards.
Sidebar 1.1 titled ‗Sustainability and Integrity: Cautionary Tales of Legal Liability.‘
II. Law, the Rule of Law, and Property
A. Law
Emphasize:
The simple definition of law. It can be elaborated by observing that law is a rule-based,
state-enforced formal ordering system with moral elements.
That adequate law and legal institutes promote the certainty and trust necessary for
complex, long-term business arrangements. In an economic sense, they lower the costs
of transacting business.
Additional Matters for Discussion:
Discuss that law formalizes values and traditions and that law is more needed in a large,
heterogeneous modern nation than in a smaller, homogeneous nation. Compare the U.S.
and Japan.
It is not too early in this chapter to ask students whether or not lack of law and strict
regulation facilitated the economic crash and recession that began in 2008.
Ask students to comment on how mistrust of law and lawmakers precipitated the
―Occupy Wall Street‖ and other ―Occupy…‖ movements that arosein 2011.
Discuss how the law impacts the COVID 19 restrictions on businesses opening in 2020.
B. The Rule of Law
Emphasize:
That under a rule of law, laws are generally and equallyapplicable.
That lack of the rule of law internationallyhas produced hundreds of calls for it in the
, last several years by business and political leaders. Get students to search for rule-of-
lawreferences in computer databases.
That the complete rule of law is an ideal rather than a fact in even the most democratic
societies.
Additional Matters for Discussion:
Get students to discuss why the managing director of J.P. Morgan and Co. called the
rule of law ―a cornerstone of free trade.‖
Ask students why the rule of law tends to produce rules that benefit everyone. Answer:
Because laws apply generally and equallyto everyone, the only waylawmakers can
benefit themselves is by benefitting everyone. This answer is theoretical, of course.
Lawmakers are often benefited individuallyfor makinglaws that favor special interests.
Ask students to imagine how society would be with no laws. What if the governor of
one‘s state announced that tomorrow would be no-law day and that nothing would be
penalized or enforced, no police would be present and no penalties would result from
anyone‘s actions. What would the students do? One is likely to find that after a few
fleeting and whimsical thoughts, they would agree that they would primarily act to
protect their real and personal property.
C. Property (LO 1-2)
Emphasize:
The two meanings of property.
That propertyis not the resource or thing itself. It is a right (or series of rights).
That the propertyright gives a major incentive to develop resources.
That the exclusionary right of propertyprovides a basis for the private market and
modernbusiness.
Additional Matters for Discussion:
Ask students to discuss the incentive to grow and prosper and the incentive to innovate
and progress under a system with a right to private property ownership and a communist
system where private ownership of propertyis greatly diminished for most. Would they
even be in school if accumulation of propertyrights were not attainable?
D. Property in its Broadest Sense
Emphasize:
Howinitsbroadestsense―property‖isthecentral conceptofWesternlegalsystems.
How property can be thought of as the hub of a wheel and the various legal topics
studied in the text as spokes of the wheel. Law and the rule of law provide the unifying
, rima2ofa2thea2wheel.a2(Refera2toa2Figurea21.1)
Thata2fora2Madisona2anda2othera2constitutionala2framers,a2propertyprotecteda2nota2onlyp
hysicala2resourcesa2likea2landa2buta2alsoa2humana2rightsa2likea2freedoma2ofa2speech,a2fr
eedoma2ofa2religion,a2anda2freedoma2froma2unreasonablea2intrusiona2bythea2govern
ment.
Additionala2Mattersa2fora2Discussion:
Askstudentstodiscussthestatement:―Bill Gatesand yourprofessorhave equala2property
q q q q
.‖Thepoint istoexaminetheconfusionbetween―resources‖and ―property.‖a2Arguably,a
q q
2althougha2Billa2Gatesa2anda2thea2studenta2maya2havea2vastlydifferenta2amountsa2ofa2
resources,a2hea2anda2thea2studenta2havea2exactlythea2samea2righta2toa2thesea2respectivea
2resources,a2thusa2thea2samea2―property.‖
InFederalistPaper10,Madison wrote:―Property…in itsparticularapplicationmeansa 2 a
q q q q
2 thata2‗dominationa2whicha2onea2mana2claimsa2anda2exercisesa2overa2thea2externala2t
hingsa2ofa2thea2world,a2ina2exclusiona2ofa2everya2othera2individual.‘a2Ina2itsa2largera2an
da2justera2meaning,a2ita2embracesa2everythinga2toa2whicha2aa2mana2maya2attacha2aa2val
uea2anda2havea2aa2right;a2anda2whicha2leavesa2toa2everyonea2elsea2aa2likea2advantage.a2
Ina2thea2formera2sense,a2aa2man‘sa2land,a2ora2merchandise,a2ora2moneya2isa2calleda2hisa2
property.a2Ina2thea2lattera2sense,a2aa2mana2hasa2propertya2ina2hisa2opinionsa2anda2thea2fre
ea2communicationa2ofa2them.a2Hea2hasa2aa2propertya2ofa2peculiara2valuea2ina2hisa2religiou
sa2opinions,a2anda2ina2thea2professiona2anda2practicea2dictateda2bya2them.a2Hea2hasa2pr
opertya2verya2deara2toa2hima2ina2thea2safetya2anda2libertya2ofa2hisa2person.a2Hea2hasa2ana
2equala2propertya2ina2thea2freea2usea2ofa2hisa2facultiesa2anda2freea2choicea2ofa2thea2objec
tsa2ona2whicha2toa2employa2them.a2Ina2aa2word,a2asa2aa2mana2isa2saida2toa2havea2aa2right
a2toa2hisa2property,a2hea2maya2bea2equallysaida2toa2havea2aa2propertyina2hisa2rights.‖
Madison‘s―largerand justermeaning‖ofpropertyopensupa2allsortsofopportunities for
q
discussiona2witha2students.a2Notea2thata2althougha2aa2systema2ofa2propertya2isa2basica2toa2pri
vatea2businessa2ina2thea2moderna2nation,a2ita2doesa2nota2precludea2redistributiona2ofa2reso
urcesa2fora2education,a2health,a2anda2reliefa2ofa2povertya2anda2adversity,a2etc.a2Evena2asa2
thea2Americana2revolutionariesmaintained―notaxation(ofourindividualresources)withou
q
t
representation,‖a2theya2appreciateda2thea2necessityofa2appropriatea2taxationa2(ofa2one‘sa2re
sources) witha2democratica2representation.
q
Thea2importancea2ofa2thea2broadera2sensea2ofa2privatea2propertyina2thea2commona2lawa
2growsa2outa2ofa2thea2Magnaa2Carta.a2Froma2thea213tha2througha2thea218tha2centuries,a2th
ea2importancea2ofa2privatea2propertycreateda2constitutionala2tensiona2betweena2thea2Engli
sha2monarchsa2anda2theira2subjects.
Thea2monarchsa2oftena2claimeda2ina2essencea2thata2theya2owneda2thea2nation,a2itsa2lan
d,a2anda2itsa2produce,a2yeta2ina2oppositiona2toa2thisa2therea2wasa2aa2growinga2sensea2thata2
peoplea2owneda2thingsa2privatelya2anda2coulda2bea2taxeda2ona2thisa2privatea2ownershipa
2onlya2througha2theira2owna2representativea2consent.a2Thus,a2thea2Britisha2colonistsa2ina2t
hea2newa2worlda2claimeda2theya2coulda2nota2bea2taxeda2withouta2representation.a2Thea2So
nsa2ofa2liberty,a2onea2ofa2thea2firsta2revolutionarya2groups,hadas theirslogana2―Liberty,P
q
roperty,a2anda2noStamps.‖
