PART ONE: The Legal Environment of Business 1
Part One:
The Legal Environment of Business
CONTENTS
Chapter 1 Introduction to Law
Chapter 2 Business Ethics and the Social Responsibility of Business
Chapter 3 Civil Dispute Resolution
Chapter 4 Constitutional Law
Chapter 5 Administrative Law
Chapter 6 Criminal Law
Chapter 7 Intentional Torts
Chapter 8 Negligence and Strict Liability
ETHICS QUESTIONS RAISED IN THIS PART
1. Are all laws moral? Should all laws be moral? How should morality be determined?
2. Are laws always just?
3. Which is more important, morality or justice?
4. Why is there a difference between the treatment of cases brought under civil law and those brought under
criminal law? Should there be a difference?
5. In some cultures being involved in a lawsuit is something about which to be ashamed. Our society has been
criticized for being overly litigious. In fact, we even go on television to sue in "Judge Judy" and other
similar shows. Is our culture “sue-happy?” Should access to the court system be restricted?
6. From an ethical perspective, what obligations does a person who has been harmed by another person or by a
business have to attempt settlement of the matter through negotiation before resorting to a lawsuit?
7. The Bill of Rights was drafted to protect individuals from their own government, not from criminals.
Because of this, the defendant in a criminal case has rights that are constitutionally protected. The victims of
the crime do not have as many rights in the criminal trial as does the defendant. Should our legal system pay
more attention to the victims of crime? How should the victim's rights be protected in a criminal trial?
8. Is a no-fault system covering torts ethically preferable to the fault-based negligence system we now have?
9. Are businesses morally responsible for injuries that are caused by products they sell or manufacture? What
about copy-cat injuries?
ACTIVITIES AND RESEARCH PROBLEMS
1. Have students draw a diagram of two overlapping circles, with one circle labeled “Moral” and the other
labeled “Legal.” The area of overlap would be both moral and legal. Then list several controversial topics
of current interest (e.g., abortion, capital punishment, marijuana smoking, etc.) for students to place within
an area of the diagram (or outside the circles if it is neither moral nor legal). Can any of these issues be
absolutely determined to be moral or immoral?
2. Are there any laws in our country’s history that have been repealed on the basis of their immorality? Are
there any laws still in existence that should be repealed? Have students discuss their opinions.
3. How does American common law differ from English common law?
4. Have students write a fictitious case involving questionable ethics in a business decision.
5. For a general discussion of law, or preceding the study of criminal law and procedure recruit someone
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
,2 PART ONE: The Legal Environment of Business
outside the class to rush in and commit a "crime" such as stealing the professor's textbook. After the stranger
leaves, have the students write a description of what happened. Then compare the details of the
eyewitnesses and discuss the legal implications of the event.
6. Have students make a list of the key events in their lives, then have them list and discuss laws that relate to
those events.
7. Research the historic legal codes of other civilizations, such as the Hebrews and Babylonians, or of other
societies around the world today, and compare the crimes, punishments, and criminal procedures to those in
the United States today.
8. Have students prepare a survey form on crimes affecting businesses. The form could include types of crime
that affect the business (such as customer theft, employee theft, and bad checks); the amount of loss; the cost
of the crimes; and the cost of security. Then have the whole or part of the class interview the managers of
businesses. Have the students report to the class and compare the results with local and national statistics
available from law enforcement professionals.
9. In recent years many states have instituted victim's assistance programs and crime victim's restitution
programs. Investigate to find whether your state has such programs. Compare programs in various states.
Chapter 1
INTRODUCTION TO LAW
Nature of Law [1-1] Sources of Law [1-3]
Definition of Law [1-1a] Constitutional Law [1-3a]
Functions of Law [1-1b] Judicial Law [1-3b]
Law and Morals [1-1c] Common Law
Law and Justice [1-1d] Equity
Classification of Law [1-2] Restatements of Law
Substantive and Procedural Law [1-2a] Legislative Law [1-3c]
Public and Private Law [1-2b] Treaties
Civil and Criminal Law [1-2c] Executive Orders
Administrative Law [1-3d]
Legal Analysis [1-4]
Cases in This Chapter
Ryan v. Friesenhahn (Given as an example of how to brief a case)
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Identify and describe the basic functions of law.
Distinguish between (1) law and justice and (2) law and morals.
Distinguish between (1) substantive and procedural law, (2) public and private law, and (3) civil
and criminal law.
Identify and describe the sources of law.
Explain the principle of stare decisis.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
,PART ONE: The Legal Environment of Business 3
TEACHING NOTES
Law concerns the relations between and among individuals as those relations affect social and economic
order. It affects the rights and duties of every citizen and many non-citizens.
Law is both prohibitory, meaning certain acts must not be committed, and mandatory, meaning certain
acts must be done, sometimes in a set way. Additionally, law is permissive: certain acts are allowed, but
not required by the law.
1-1 NATURE OF LAW
The law is a continuously changing process of developing a workable set of rules that balance the individual
and group rights of an evolving society.
1-1a Definition of Law
Legal scholars have defined law in various ways, including:
• “predictions of the way that a court will decide specific legal questions”
• “a rule of civil conduct prescribed by the supreme power in a state, commanding what is right, and
prohibiting what is wrong”
• a general command that a state or sovereign makes to those who are subject to its authority by
laying down a course of action enforced by judicial or administrative tribunals.
Most legal scholars would agree with Rosco Pound, that the term “law” has multiple meanings and that
defining it is not a simple task.
*** Chapter Outcome ***
Identify and describe the basic functions of law.
1-1b Functions of Law
The functions of law are to maintain stability in the social, political, and economic system through (1)
dispute resolution, (2) protection of property, and (3) the preservation of the state while at the same time
permitting ordered change.
1. Disputes are inevitable in a complex society and may involve criminal or non-criminal matters.
Law provides rules to resolve disputes and avoid personal revenge.
2. Law protects ownership of property and allows for agreements (contracts) to exchange property.
(This text deals with many aspects of this including contracts, sales, commercial paper, and
business associations.)
3. Law preserves the state. It ensures that changes are result of elections, legislation, and referenda
rather than revolution, sedition, and rebellion.
1-1c Legal Sanctions
Sanctions are the means by which the law enforces the decisions of the court, such as fines, imprisonment
and capital punishment.
*** Chapter Outcome ***
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
, 4 PART ONE: The Legal Environment of Business
Distinguish between law and justice. Distinguish between law and morals.
1-1d Law and Morals
Though law is affected by morals, law and morality are not the same. Some actions have no moral
implications but have legal sanctions, whereas other actions have no legal sanctions but do have moral
implications. Some actions have both moral impact and legal sanction.
NOTE: See Figure 1-1: Law and Morals.
1-1e Law and Justice
Law and justice are distinct but interrelated concepts.
• Justice may be defined as “the fair, equitable, and impartial treatment of the competing interests
and desires of individuals and groups, with due regard for the common good.”
• Justice depends on the law, but the law does not guarantee justice, since laws can be unjust.
(Think back to “legal” slavery and the “legal” actions of Nazi Germany or of the South African
apartheid government.)
1-2 CLASSIFICATION OF LAW
Because the law is vast, it is helpful to organize it into categories such as: (1) substantive and procedural, (2)
public and private, and (3) civil and criminal.
Basic to understanding these classifications are the terms right and duty. A right is the ability of a person,
with the aid of the law, to require another person to perform or to refrain from performing a certain act. A
duty is the obligation the law imposes upon a person to perform or to refrain from performing a certain
act. Duty and right exist together: a person cannot have a right without some other person (or all persons)
having the corresponding duty.
NOTE: See textbook Figure 1-2 which outlines the classifications of law.
*** Chapter Outcome ***
Distinguish between (1) substantive and procedural law, (2) public law and private law,
and (3) civil law and criminal law.
1-2a Substantive and Procedural Law
Substantive law creates, defines, and regulates legal rights and duties. Procedural law sets forth rules for
enforcing those rights that are created by the substantive law.
1-2b Public and Private Law
Public law is the branch of substantive law that deals with the government's rights and powers and its
relationship to individuals or groups.
Private law is that part of substantive law governing individuals and legal entities (such as corporations) in
their relationships with one another.
1-2c Civil and Criminal Law
Civil law defines duties and deals with the rights and duties of individuals among themselves. (It is part of
private law.)
NOTE: Civil law is not the same as a civil law system, discussed later in this chapter.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
Part One:
The Legal Environment of Business
CONTENTS
Chapter 1 Introduction to Law
Chapter 2 Business Ethics and the Social Responsibility of Business
Chapter 3 Civil Dispute Resolution
Chapter 4 Constitutional Law
Chapter 5 Administrative Law
Chapter 6 Criminal Law
Chapter 7 Intentional Torts
Chapter 8 Negligence and Strict Liability
ETHICS QUESTIONS RAISED IN THIS PART
1. Are all laws moral? Should all laws be moral? How should morality be determined?
2. Are laws always just?
3. Which is more important, morality or justice?
4. Why is there a difference between the treatment of cases brought under civil law and those brought under
criminal law? Should there be a difference?
5. In some cultures being involved in a lawsuit is something about which to be ashamed. Our society has been
criticized for being overly litigious. In fact, we even go on television to sue in "Judge Judy" and other
similar shows. Is our culture “sue-happy?” Should access to the court system be restricted?
6. From an ethical perspective, what obligations does a person who has been harmed by another person or by a
business have to attempt settlement of the matter through negotiation before resorting to a lawsuit?
7. The Bill of Rights was drafted to protect individuals from their own government, not from criminals.
Because of this, the defendant in a criminal case has rights that are constitutionally protected. The victims of
the crime do not have as many rights in the criminal trial as does the defendant. Should our legal system pay
more attention to the victims of crime? How should the victim's rights be protected in a criminal trial?
8. Is a no-fault system covering torts ethically preferable to the fault-based negligence system we now have?
9. Are businesses morally responsible for injuries that are caused by products they sell or manufacture? What
about copy-cat injuries?
ACTIVITIES AND RESEARCH PROBLEMS
1. Have students draw a diagram of two overlapping circles, with one circle labeled “Moral” and the other
labeled “Legal.” The area of overlap would be both moral and legal. Then list several controversial topics
of current interest (e.g., abortion, capital punishment, marijuana smoking, etc.) for students to place within
an area of the diagram (or outside the circles if it is neither moral nor legal). Can any of these issues be
absolutely determined to be moral or immoral?
2. Are there any laws in our country’s history that have been repealed on the basis of their immorality? Are
there any laws still in existence that should be repealed? Have students discuss their opinions.
3. How does American common law differ from English common law?
4. Have students write a fictitious case involving questionable ethics in a business decision.
5. For a general discussion of law, or preceding the study of criminal law and procedure recruit someone
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
,2 PART ONE: The Legal Environment of Business
outside the class to rush in and commit a "crime" such as stealing the professor's textbook. After the stranger
leaves, have the students write a description of what happened. Then compare the details of the
eyewitnesses and discuss the legal implications of the event.
6. Have students make a list of the key events in their lives, then have them list and discuss laws that relate to
those events.
7. Research the historic legal codes of other civilizations, such as the Hebrews and Babylonians, or of other
societies around the world today, and compare the crimes, punishments, and criminal procedures to those in
the United States today.
8. Have students prepare a survey form on crimes affecting businesses. The form could include types of crime
that affect the business (such as customer theft, employee theft, and bad checks); the amount of loss; the cost
of the crimes; and the cost of security. Then have the whole or part of the class interview the managers of
businesses. Have the students report to the class and compare the results with local and national statistics
available from law enforcement professionals.
9. In recent years many states have instituted victim's assistance programs and crime victim's restitution
programs. Investigate to find whether your state has such programs. Compare programs in various states.
Chapter 1
INTRODUCTION TO LAW
Nature of Law [1-1] Sources of Law [1-3]
Definition of Law [1-1a] Constitutional Law [1-3a]
Functions of Law [1-1b] Judicial Law [1-3b]
Law and Morals [1-1c] Common Law
Law and Justice [1-1d] Equity
Classification of Law [1-2] Restatements of Law
Substantive and Procedural Law [1-2a] Legislative Law [1-3c]
Public and Private Law [1-2b] Treaties
Civil and Criminal Law [1-2c] Executive Orders
Administrative Law [1-3d]
Legal Analysis [1-4]
Cases in This Chapter
Ryan v. Friesenhahn (Given as an example of how to brief a case)
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Identify and describe the basic functions of law.
Distinguish between (1) law and justice and (2) law and morals.
Distinguish between (1) substantive and procedural law, (2) public and private law, and (3) civil
and criminal law.
Identify and describe the sources of law.
Explain the principle of stare decisis.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
,PART ONE: The Legal Environment of Business 3
TEACHING NOTES
Law concerns the relations between and among individuals as those relations affect social and economic
order. It affects the rights and duties of every citizen and many non-citizens.
Law is both prohibitory, meaning certain acts must not be committed, and mandatory, meaning certain
acts must be done, sometimes in a set way. Additionally, law is permissive: certain acts are allowed, but
not required by the law.
1-1 NATURE OF LAW
The law is a continuously changing process of developing a workable set of rules that balance the individual
and group rights of an evolving society.
1-1a Definition of Law
Legal scholars have defined law in various ways, including:
• “predictions of the way that a court will decide specific legal questions”
• “a rule of civil conduct prescribed by the supreme power in a state, commanding what is right, and
prohibiting what is wrong”
• a general command that a state or sovereign makes to those who are subject to its authority by
laying down a course of action enforced by judicial or administrative tribunals.
Most legal scholars would agree with Rosco Pound, that the term “law” has multiple meanings and that
defining it is not a simple task.
*** Chapter Outcome ***
Identify and describe the basic functions of law.
1-1b Functions of Law
The functions of law are to maintain stability in the social, political, and economic system through (1)
dispute resolution, (2) protection of property, and (3) the preservation of the state while at the same time
permitting ordered change.
1. Disputes are inevitable in a complex society and may involve criminal or non-criminal matters.
Law provides rules to resolve disputes and avoid personal revenge.
2. Law protects ownership of property and allows for agreements (contracts) to exchange property.
(This text deals with many aspects of this including contracts, sales, commercial paper, and
business associations.)
3. Law preserves the state. It ensures that changes are result of elections, legislation, and referenda
rather than revolution, sedition, and rebellion.
1-1c Legal Sanctions
Sanctions are the means by which the law enforces the decisions of the court, such as fines, imprisonment
and capital punishment.
*** Chapter Outcome ***
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
, 4 PART ONE: The Legal Environment of Business
Distinguish between law and justice. Distinguish between law and morals.
1-1d Law and Morals
Though law is affected by morals, law and morality are not the same. Some actions have no moral
implications but have legal sanctions, whereas other actions have no legal sanctions but do have moral
implications. Some actions have both moral impact and legal sanction.
NOTE: See Figure 1-1: Law and Morals.
1-1e Law and Justice
Law and justice are distinct but interrelated concepts.
• Justice may be defined as “the fair, equitable, and impartial treatment of the competing interests
and desires of individuals and groups, with due regard for the common good.”
• Justice depends on the law, but the law does not guarantee justice, since laws can be unjust.
(Think back to “legal” slavery and the “legal” actions of Nazi Germany or of the South African
apartheid government.)
1-2 CLASSIFICATION OF LAW
Because the law is vast, it is helpful to organize it into categories such as: (1) substantive and procedural, (2)
public and private, and (3) civil and criminal.
Basic to understanding these classifications are the terms right and duty. A right is the ability of a person,
with the aid of the law, to require another person to perform or to refrain from performing a certain act. A
duty is the obligation the law imposes upon a person to perform or to refrain from performing a certain
act. Duty and right exist together: a person cannot have a right without some other person (or all persons)
having the corresponding duty.
NOTE: See textbook Figure 1-2 which outlines the classifications of law.
*** Chapter Outcome ***
Distinguish between (1) substantive and procedural law, (2) public law and private law,
and (3) civil law and criminal law.
1-2a Substantive and Procedural Law
Substantive law creates, defines, and regulates legal rights and duties. Procedural law sets forth rules for
enforcing those rights that are created by the substantive law.
1-2b Public and Private Law
Public law is the branch of substantive law that deals with the government's rights and powers and its
relationship to individuals or groups.
Private law is that part of substantive law governing individuals and legal entities (such as corporations) in
their relationships with one another.
1-2c Civil and Criminal Law
Civil law defines duties and deals with the rights and duties of individuals among themselves. (It is part of
private law.)
NOTE: Civil law is not the same as a civil law system, discussed later in this chapter.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
protected website or school-approved learning management system for classroom use.
