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
, rimd4ofd4thed4wheel.d4(Referd4tod4Figured41.1)
Thatd4ford4Madisond4andd4otherd4constitutionald4framers,d4propertyprotectedd4notd4only
physicald4resourcesd4liked4landd4butd4alsod4humand4rightsd4liked4freedomd4ofd4speech,d4
freedomd4ofd4religion,d4andd4freedomd4fromd4unreasonabled4intrusiond4bythed4gover
nment.
Additionald4Mattersd4ford4Discussion:
Askstudentstodiscussthestatement:―Bill Gatesand yourprofessorhave equald4property
q q q q
.‖Thepoint istoexaminetheconfusionbetween―resources‖and ―property.‖d4Arguably,
q q
d4althoughd4Billd4Gatesd4andd4thed4studentd4mayd4haved4vastlydifferentd4amountsd4o
fd4resources,d4hed4andd4thed4studentd4haved4exactlythed4samed4rightd4tod4thesed4respecti
ved4resources,d4thusd4thed4samed4―property.‖
InFederalistPaper10,Madison wrote:―Property…in itsparticularapplicationmeansd 4 d
q q q q
4 thatd4‗dominationd4whichd4oned4mand4claimsd4andd4exercisesd4overd4thed4externald4
thingsd4ofd4thed4world,d4ind4exclusiond4ofd4everyd4otherd4individual.‘d4Ind4itsd4largerd4
andd4justerd4meaning,d4itd4embracesd4everythingd4tod4whichd4ad4mand4mayd4attachd4ad4
valued4andd4haved4ad4right;d4andd4whichd4leavesd4tod4everyoned4elsed4ad4liked4advanta
ge.d4Ind4thed4formerd4sense,d4ad4man‘sd4land,d4ord4merchandise,d4ord4moneyd4isd4called
d4hisd4property.d4Ind4thed4latterd4sense,d4ad4mand4hasd4propertyd4ind4hisd4opinionsd4andd4t
hed4freed4communicationd4ofd4them.d4Hed4hasd4ad4propertyd4ofd4peculiard4valued4ind4hisd4r
eligiousd4opinions,d4andd4ind4thed4professiond4andd4practiced4dictatedd4byd4them.d4Hed4
hasd4propertyd4veryd4deard4tod4himd4ind4thed4safetyd4andd4libertyd4ofd4hisd4person.d4Hed4
hasd4and4equald4propertyd4ind4thed4freed4used4ofd4hisd4facultiesd4andd4freed4choiced4ofd4t
hed4objectsd4ond4whichd4tod4employd4them.d4Ind4ad4word,d4asd4ad4mand4isd4saidd4tod4ha
ved4ad4rightd4tod4hisd4property,d4hed4mayd4bed4equallysaidd4tod4haved4ad4propertyind4hi
sd4rights.‖
Madison‘s―largerand justermeaning‖ofpropertyopensupd4allsortsofopportunities for
q
discussiond4withd4students.d4Noted4thatd4althoughd4ad4systemd4ofd4propertyd4isd4basicd4tod4p
rivated4businessd4ind4thed4modernd4nation,d4itd4doesd4notd4precluded4redistributiond4ofd4r
esourcesd4ford4education,d4health,d4andd4reliefd4ofd4povertyd4andd4adversity,d4etc.d4Evend
4asd4thed4Americand4revolutionariesmaintained―notaxation(ofourindividualresources)wi
q
thout
representation,‖d4theyd4appreciatedd4thed4necessityofd4appropriated4taxationd4(ofd4one‘sd4r
esources) withd4democraticd4representation.
q
Thed4importanced4ofd4thed4broaderd4sensed4ofd4privated4propertyind4thed4commond4law
d4growsd4outd4ofd4thed4Magnad4Carta.d4Fromd4thed413thd4throughd4thed418thd4centuries,d4
thed4importanced4ofd4privated4propertycreatedd4constitutionald4tensiond4betweend4thed4En
glishd4monarchsd4andd4theird4subjects.
Thed4monarchsd4oftend4claimedd4ind4essenced4thatd4theyd4ownedd4thed4nation,d4itsd4la
nd,d4andd4itsd4produce,d4yetd4ind4oppositiond4tod4thisd4thered4wasd4ad4growingd4sensed4th
atd4peopled4ownedd4thingsd4privatelyd4andd4couldd4bed4taxedd4ond4thisd4privated4owner
shipd4onlyd4throughd4theird4ownd4representatived4consent.d4Thus,d4thed4Britishd4colonists
d4ind4thed4newd4worldd4claimedd4theyd4couldd4notd4bed4taxedd4withoutd4representation.d4T
hed4Sonsd4ofd4liberty,d4oned4ofd4thed4firstd4revolutionaryd4groups,hadas theirslogand4―Li
q
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
, rimd4ofd4thed4wheel.d4(Referd4tod4Figured41.1)
Thatd4ford4Madisond4andd4otherd4constitutionald4framers,d4propertyprotectedd4notd4only
physicald4resourcesd4liked4landd4butd4alsod4humand4rightsd4liked4freedomd4ofd4speech,d4
freedomd4ofd4religion,d4andd4freedomd4fromd4unreasonabled4intrusiond4bythed4gover
nment.
Additionald4Mattersd4ford4Discussion:
Askstudentstodiscussthestatement:―Bill Gatesand yourprofessorhave equald4property
q q q q
.‖Thepoint istoexaminetheconfusionbetween―resources‖and ―property.‖d4Arguably,
q q
d4althoughd4Billd4Gatesd4andd4thed4studentd4mayd4haved4vastlydifferentd4amountsd4o
fd4resources,d4hed4andd4thed4studentd4haved4exactlythed4samed4rightd4tod4thesed4respecti
ved4resources,d4thusd4thed4samed4―property.‖
InFederalistPaper10,Madison wrote:―Property…in itsparticularapplicationmeansd 4 d
q q q q
4 thatd4‗dominationd4whichd4oned4mand4claimsd4andd4exercisesd4overd4thed4externald4
thingsd4ofd4thed4world,d4ind4exclusiond4ofd4everyd4otherd4individual.‘d4Ind4itsd4largerd4
andd4justerd4meaning,d4itd4embracesd4everythingd4tod4whichd4ad4mand4mayd4attachd4ad4
valued4andd4haved4ad4right;d4andd4whichd4leavesd4tod4everyoned4elsed4ad4liked4advanta
ge.d4Ind4thed4formerd4sense,d4ad4man‘sd4land,d4ord4merchandise,d4ord4moneyd4isd4called
d4hisd4property.d4Ind4thed4latterd4sense,d4ad4mand4hasd4propertyd4ind4hisd4opinionsd4andd4t
hed4freed4communicationd4ofd4them.d4Hed4hasd4ad4propertyd4ofd4peculiard4valued4ind4hisd4r
eligiousd4opinions,d4andd4ind4thed4professiond4andd4practiced4dictatedd4byd4them.d4Hed4
hasd4propertyd4veryd4deard4tod4himd4ind4thed4safetyd4andd4libertyd4ofd4hisd4person.d4Hed4
hasd4and4equald4propertyd4ind4thed4freed4used4ofd4hisd4facultiesd4andd4freed4choiced4ofd4t
hed4objectsd4ond4whichd4tod4employd4them.d4Ind4ad4word,d4asd4ad4mand4isd4saidd4tod4ha
ved4ad4rightd4tod4hisd4property,d4hed4mayd4bed4equallysaidd4tod4haved4ad4propertyind4hi
sd4rights.‖
Madison‘s―largerand justermeaning‖ofpropertyopensupd4allsortsofopportunities for
q
discussiond4withd4students.d4Noted4thatd4althoughd4ad4systemd4ofd4propertyd4isd4basicd4tod4p
rivated4businessd4ind4thed4modernd4nation,d4itd4doesd4notd4precluded4redistributiond4ofd4r
esourcesd4ford4education,d4health,d4andd4reliefd4ofd4povertyd4andd4adversity,d4etc.d4Evend
4asd4thed4Americand4revolutionariesmaintained―notaxation(ofourindividualresources)wi
q
thout
representation,‖d4theyd4appreciatedd4thed4necessityofd4appropriated4taxationd4(ofd4one‘sd4r
esources) withd4democraticd4representation.
q
Thed4importanced4ofd4thed4broaderd4sensed4ofd4privated4propertyind4thed4commond4law
d4growsd4outd4ofd4thed4Magnad4Carta.d4Fromd4thed413thd4throughd4thed418thd4centuries,d4
thed4importanced4ofd4privated4propertycreatedd4constitutionald4tensiond4betweend4thed4En
glishd4monarchsd4andd4theird4subjects.
Thed4monarchsd4oftend4claimedd4ind4essenced4thatd4theyd4ownedd4thed4nation,d4itsd4la
nd,d4andd4itsd4produce,d4yetd4ind4oppositiond4tod4thisd4thered4wasd4ad4growingd4sensed4th
atd4peopled4ownedd4thingsd4privatelyd4andd4couldd4bed4taxedd4ond4thisd4privated4owner
shipd4onlyd4throughd4theird4ownd4representatived4consent.d4Thus,d4thed4Britishd4colonists
d4ind4thed4newd4worldd4claimedd4theyd4couldd4notd4bed4taxedd4withoutd4representation.d4T
hed4Sonsd4ofd4liberty,d4oned4ofd4thed4firstd4revolutionaryd4groups,hadas theirslogand4―Li
q
