This OpenStax ancillary resource is © Rice University under a CC BY 4.0 International license; it may be reproduced or modified but must be
attributed to OpenStax, Rice University and any changes
APPENDIX
LEARNING OUTCOMES
1. How does the legal system govern business transactions and settle business disputes?
Laws are the rules governing a society’s conduct that are created and enforced by a
controlling authority. The U.S. court system governs the legal system and includes both
federal and state courts, each organized into three levels. The courts settle disputes by
applying and interpreting laws. Most cases start in trial courts. Decisions can be
appealed to appellate courts. The U.S. Supreme Court is the nation’s highest court and
the court of final appeal. To avoid the high costs of going to court, many firms now use
private arbitration or mediation as alternatives to litigation.
2. What are the required elements of a valid contract; and what are the key types of
business law?
A contract is an agreement between two or more parties that meets five requirements:
mutual assent, capacity, consideration, legal purpose, and legal form. If one party
breaches the contract terms, the remedies are damages, specific performance, or
restitution. Tort law settles disputes involving civil acts that harm people or their
property. Torts include physical injury, mental anguish, and defamation. Product-
liability law governs the responsibility of manufacturers and sellers for product defects.
Bankruptcy law gives businesses or individuals who cannot meet their financial
obligations a way to be relieved of their debts. Some laws are designed to keep the
marketplace free from influences that would restrict competition such as price fixing
and deceptive advertising. Laws protecting consumer rights are another important area
of government control.
3. What are the most common taxes paid by businesses?
Income taxes are based on the income received by businesses and individuals. Congress
determines the income taxes that are to be paid to the federal government. In addition
to income taxes, individuals and businesses also pay property taxes (assessed on real
and personal property), payroll taxes (the employer’s share of Social Security taxes and
federal and state unemployment taxes), sales taxes (levied on goods), and excise taxes
(levied against specific products such as gasoline, alcoholic beverages, and tobacco).
APPENDIX
I. Understanding the Legal Environment > Learning Outcome 1
September 5, 2018 1
, This OpenStax ancillary resource is © Rice University under a CC BY 4.0 International license; it may be reproduced or modified but must be
attributed to OpenStax, Rice University and any changes
The smooth function of society depends on the law, which protects the
rights of people and businesses. Laws are rules governing a society’s
conduct that are created and enforced by a controlling authority.
The Main Sources of Law
The legal system in the United States are the result of a long and
continuing process and consists of many types of law.
Common law is the body of unwritten law that has evolved out of judicial
decisions rather than being enacted by legislatures. Statutory law is
written law enacted by a legislature (local, state, or federal).
Administrative law refers to rules, regulations, and orders passed by
boards, commissions, and agencies of government (local, state, and
federal). Business law is the body of law that governs commercial dealings.
These laws provide a protective environment within which businesses can
operate.
Lecture Tidbit: Common law derives from the doctrine of state decisis (Latin for to
stand by decisions). State decisis means judges’ decisions establish a precedent for
deciding future cases of a similar nature. In other words, that decision becomes the
example for future cases.
Source: Oyen, Timothy. “Stare Decisis.” LII / Legal Information Institute, Legal
Information Institute, 5 June 2017, www.law.cornell.edu/wex/stare_decisis.
The Court System
The judiciary branch of government is responsible for settling disputes by
applying and interpreting points of law. The U.S. court system includes both
state and federal courts, each organized into three levels.
A. Trial Courts
Trial courts are the lowest level of courts, where most cases begin. Trail
courts are also called courts of general jurisdiction.
B. Appellate Courts
September 5, 2018 2
attributed to OpenStax, Rice University and any changes
APPENDIX
LEARNING OUTCOMES
1. How does the legal system govern business transactions and settle business disputes?
Laws are the rules governing a society’s conduct that are created and enforced by a
controlling authority. The U.S. court system governs the legal system and includes both
federal and state courts, each organized into three levels. The courts settle disputes by
applying and interpreting laws. Most cases start in trial courts. Decisions can be
appealed to appellate courts. The U.S. Supreme Court is the nation’s highest court and
the court of final appeal. To avoid the high costs of going to court, many firms now use
private arbitration or mediation as alternatives to litigation.
2. What are the required elements of a valid contract; and what are the key types of
business law?
A contract is an agreement between two or more parties that meets five requirements:
mutual assent, capacity, consideration, legal purpose, and legal form. If one party
breaches the contract terms, the remedies are damages, specific performance, or
restitution. Tort law settles disputes involving civil acts that harm people or their
property. Torts include physical injury, mental anguish, and defamation. Product-
liability law governs the responsibility of manufacturers and sellers for product defects.
Bankruptcy law gives businesses or individuals who cannot meet their financial
obligations a way to be relieved of their debts. Some laws are designed to keep the
marketplace free from influences that would restrict competition such as price fixing
and deceptive advertising. Laws protecting consumer rights are another important area
of government control.
3. What are the most common taxes paid by businesses?
Income taxes are based on the income received by businesses and individuals. Congress
determines the income taxes that are to be paid to the federal government. In addition
to income taxes, individuals and businesses also pay property taxes (assessed on real
and personal property), payroll taxes (the employer’s share of Social Security taxes and
federal and state unemployment taxes), sales taxes (levied on goods), and excise taxes
(levied against specific products such as gasoline, alcoholic beverages, and tobacco).
APPENDIX
I. Understanding the Legal Environment > Learning Outcome 1
September 5, 2018 1
, This OpenStax ancillary resource is © Rice University under a CC BY 4.0 International license; it may be reproduced or modified but must be
attributed to OpenStax, Rice University and any changes
The smooth function of society depends on the law, which protects the
rights of people and businesses. Laws are rules governing a society’s
conduct that are created and enforced by a controlling authority.
The Main Sources of Law
The legal system in the United States are the result of a long and
continuing process and consists of many types of law.
Common law is the body of unwritten law that has evolved out of judicial
decisions rather than being enacted by legislatures. Statutory law is
written law enacted by a legislature (local, state, or federal).
Administrative law refers to rules, regulations, and orders passed by
boards, commissions, and agencies of government (local, state, and
federal). Business law is the body of law that governs commercial dealings.
These laws provide a protective environment within which businesses can
operate.
Lecture Tidbit: Common law derives from the doctrine of state decisis (Latin for to
stand by decisions). State decisis means judges’ decisions establish a precedent for
deciding future cases of a similar nature. In other words, that decision becomes the
example for future cases.
Source: Oyen, Timothy. “Stare Decisis.” LII / Legal Information Institute, Legal
Information Institute, 5 June 2017, www.law.cornell.edu/wex/stare_decisis.
The Court System
The judiciary branch of government is responsible for settling disputes by
applying and interpreting points of law. The U.S. court system includes both
state and federal courts, each organized into three levels.
A. Trial Courts
Trial courts are the lowest level of courts, where most cases begin. Trail
courts are also called courts of general jurisdiction.
B. Appellate Courts
September 5, 2018 2
