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 arose in 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 equally applicable.
That lack of the rule of law internationally has produced hundreds of calls for it in the
, last several years by business and political leaders. Get students to search for rule-of-
law references 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 equally to everyone, the only way lawmakers can
benefit themselves is by benefitting everyone. This answer is theoretical, of course.
Lawmakers are often benefited individually for making laws 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 property is not the resource or thing itself. It is a right (or series of rights).
That the property right gives a major incentive to develop resources.
That the exclusionary right of property provides a basis for the private market and
modern business.
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 property is greatly diminished for most. Would they
even be in school if accumulation of property rights were not attainable?
D. Property in its Broadest Sense
Emphasize:
How in its broadest sense ―property‖ is the central concept of Western legal systems.
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
, rim of the wheel. (Refer to Figure 1.1)
That for Madison and other constitutional framers, property protected not only physical
resources like land but also human rights like freedom of speech, freedom of religion,
and freedom from unreasonable intrusion by the government.
Additional Matters for Discussion:
Ask students to discuss the statement: ―Bill Gates and your professor have equal
property.‖ The point is to examine the confusion between ―resources‖ and ―property.‖
Arguably, although Bill Gates and the student may have vastly different amounts of
resources, he and the student have exactly the same right to these respective resources,
thus the same ―property.‖
In Federalist Paper 10, Madison wrote: ―Property… in its particular application means
that ‗domination which one man claims and exercises over the external things of the
world, in exclusion of every other individual.‘ In its larger and juster meaning, it
embraces everything to which a man may attach a value and have a right; and which
leaves to everyone else a like advantage. In the former sense, a man‘s land, or
merchandise, or money is called his property. In the latter sense, a man has property in
his opinions and the free communication of them. He has a property of peculiar value in
his religious opinions, and in the profession and practice dictated by them. He has
property very dear to him in the safety and liberty of his person. He has an equal
property in the free use of his faculties and free choice of the objects on which to
employ them. In a word, as a man is said to have a right to his property, he may be
equally said to have a property in his rights.‖
Madison‘s ―larger and juster meaning‖ of property opens up all sorts of opportunities
for discussion with students. Note that although a system of property is basic to private
business in the modern nation, it does not preclude redistribution of resources for
education, health, and relief of poverty and adversity, etc. Even as the American
revolutionaries maintained ―no taxation (of our individual resources) without
representation,‖ they appreciated the necessity of appropriate taxation (of one‘s
resources) with democratic representation.
The importance of the broader sense of private property in the common law grows out
of the Magna Carta. From the 13th through the 18th centuries, the importance of private
property created constitutional tension between the English monarchs and their subjects.
The monarchs often claimed in essence that they owned the nation, its land, and its
produce, yet in opposition to this there was a growing sense that people owned things
privately and could be taxed on this private ownership only through their own
representative consent. Thus, the British colonists in the new world claimed they could
not be taxed without representation. The Sons of liberty, one of the first revolutionary
groups, had as their slogan ―Liberty, Property, and no Stamps.‖
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 arose in 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 equally applicable.
That lack of the rule of law internationally has produced hundreds of calls for it in the
, last several years by business and political leaders. Get students to search for rule-of-
law references 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 equally to everyone, the only way lawmakers can
benefit themselves is by benefitting everyone. This answer is theoretical, of course.
Lawmakers are often benefited individually for making laws 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 property is not the resource or thing itself. It is a right (or series of rights).
That the property right gives a major incentive to develop resources.
That the exclusionary right of property provides a basis for the private market and
modern business.
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 property is greatly diminished for most. Would they
even be in school if accumulation of property rights were not attainable?
D. Property in its Broadest Sense
Emphasize:
How in its broadest sense ―property‖ is the central concept of Western legal systems.
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
, rim of the wheel. (Refer to Figure 1.1)
That for Madison and other constitutional framers, property protected not only physical
resources like land but also human rights like freedom of speech, freedom of religion,
and freedom from unreasonable intrusion by the government.
Additional Matters for Discussion:
Ask students to discuss the statement: ―Bill Gates and your professor have equal
property.‖ The point is to examine the confusion between ―resources‖ and ―property.‖
Arguably, although Bill Gates and the student may have vastly different amounts of
resources, he and the student have exactly the same right to these respective resources,
thus the same ―property.‖
In Federalist Paper 10, Madison wrote: ―Property… in its particular application means
that ‗domination which one man claims and exercises over the external things of the
world, in exclusion of every other individual.‘ In its larger and juster meaning, it
embraces everything to which a man may attach a value and have a right; and which
leaves to everyone else a like advantage. In the former sense, a man‘s land, or
merchandise, or money is called his property. In the latter sense, a man has property in
his opinions and the free communication of them. He has a property of peculiar value in
his religious opinions, and in the profession and practice dictated by them. He has
property very dear to him in the safety and liberty of his person. He has an equal
property in the free use of his faculties and free choice of the objects on which to
employ them. In a word, as a man is said to have a right to his property, he may be
equally said to have a property in his rights.‖
Madison‘s ―larger and juster meaning‖ of property opens up all sorts of opportunities
for discussion with students. Note that although a system of property is basic to private
business in the modern nation, it does not preclude redistribution of resources for
education, health, and relief of poverty and adversity, etc. Even as the American
revolutionaries maintained ―no taxation (of our individual resources) without
representation,‖ they appreciated the necessity of appropriate taxation (of one‘s
resources) with democratic representation.
The importance of the broader sense of private property in the common law grows out
of the Magna Carta. From the 13th through the 18th centuries, the importance of private
property created constitutional tension between the English monarchs and their subjects.
The monarchs often claimed in essence that they owned the nation, its land, and its
produce, yet in opposition to this there was a growing sense that people owned things
privately and could be taxed on this private ownership only through their own
representative consent. Thus, the British colonists in the new world claimed they could
not be taxed without representation. The Sons of liberty, one of the first revolutionary
groups, had as their slogan ―Liberty, Property, and no Stamps.‖
