CHAPTER 1

Law As the Foundation

of Business

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction
Law, the rule of law,
and property
provide a necessary foundation
for successful modern
business and set
maximum conditions for generating “wealth
of nations.”
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Why Nations are Weak or Strong?
 Dependency Theory
 Natural Resources- Exploitation
 Education &Technology
 Climate
 Modern Private Market
 Law & Legal System

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Law’s Role
Religion Customs Economics

One of the social forces

that hold society together.

Law
Law is most significant because it
can bind together diverse groups.
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Law-Definition

LAW

Created
Rules Enforceable
by State

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Importance of Enforcement
‘Without adequate enforcement,
the certainty and trust necessary to
make complex,
long-term business
transactions are absent.’

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Rule Of Law
Laws are made
generally and equally
applicable.
Apply to Apply to all
various or most
groups in members of
same way society
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Rule Of Law Nations
 Adopt laws supporting private
marketplace.
 Law applies to lawmakers as well as
rest of society.
 This is in everyone’s interest.
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 pop pop pop
QUIZQUIZQUIZ
Climate can lead to nations being
either weak or strong.
a.True
b.False

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 pop pop pop
QUIZQUIZQUIZ
What is rule of law?

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think think think
TANK TANK TANK
Were you
impacted by the law on the way to
class today?
a. Yes
b. No
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Property

Property Means Ownership

Private,
The legal right to exclusive
exclude or keep rights in
others from resources.
interfering.
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Property Rights
 Owners can keep others from interfering
through police and courts.

Provides incentive for development.

Western culture flourish connected to legal

recognition of property rights.

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Acquisition of Resources
Gift Exchange Accession

Acquisition of
Resources
Confusion Adverse
Possession
1st Possession Original Possession
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Property - Broad Sense

Property is the central

concept underlying
Western legal
systems.

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Property - Broad Sense

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 Property - Broad Sense
‘ Private property ‘ Property in its
begins with the larger and juster
right we have in meaning …
ourselves and in embraces
our efforts and everything to
actions.’ which a man may
attach value and
have a right.’
John Locke

James Madison
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 Property - Broad Sense

Social prosperity
and wealth of
nations
Implementing
Secret to Legal System
lies in
Property Law
adequate
foundations
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Jurisprudence

Natural Law
Jurisprudence
Positive Law
Philosophies that
explain origin, Historical School
justification,
meaning, and Sociological
essence of law.
Legal Realism
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Classifications Of Law - Overview
 Civil Law – Common Law

 Public Law – Private Law

 Civil Law – Criminal Law

 Substantive Law – Procedural Law

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Civil Law – Common Law
Classification
Two Major Legal Systems

Civil Law Common Law

Law based on Law based on
statutory codification written judicial
of law. decisions that
establish precedent.

Romano-Germanic Anglo-American

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 Civil Law – Common Law
Classification
Examples
United Kingdom
Common Law
Canada
Law based on
Jamaica written judicial
decisions that
New Zealand
establish precedent.
United States
Anglo-American
India
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Civil Law – Common Law
Classification
Examples
Continental Europe
Civil Law
Law based on Latin America
statutory codification Japan
of law. Former
French colonies
Romano-Germanic
Spain
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Public Law – Private Law
Classification
Public Law Private Law
Law dealing with Law dealing with
regulation of society. issues that concern
private resource
relationships.

•Constitutional Law •Property Law

•Administrative Law •Contract Law
•Criminal Law •Tort Law
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Cyber Law
 Software Creators =  Employers &
Property? Employee
 Internet Binding Discipline?
Agreements
 Monitor E-Mail?  Regulation Of
 Rights To Copies Of Internet?
Intellectual  Interstate
Property? Commerce?
 ISPs Liability?

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Civil Law – Criminal Law
Classification
Civil Law Criminal Law

Law dealing with Law dealing with

private rights offenses against
between people. society at large.

•Torts & Contracts •Prosecuted by gov’t

•Damages •Results in
Punishment
•No punishment
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Substantive Law – Procedural Law
Classification
Substantive Law Procedural Law

The part of the law The part of the law

creating, defining, telling the
and regulating methods/means for
rights, duties, and having rights or
powers. duties enforced.
The What The How

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Sources Of Law
Constitutions • Setforth fundamental rights
• Describe and empower
government
• Set forth limitations on power

Legislation Laws by Congress or state

legislature and local ordinances.

Administrative Rule or order by federal, state, or

Regulation local regulatory agencies.

Judicial Decisions Decisions by courts that interpret

or Case Law and enforce laws or the common
law.
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Sources Of Law
Constitutions • Set forth fundamental rights
Constitutions
•U.S. Constitution and
• Describe and empower
government
individual state
• Set forth limitations on power

constitutions.
Laws by Congress or state legislature and local
Legislation •Hierarchy
ordinances. – Federal
constitution is supreme.
Rule or order by federal, state, or local regulatory
Administrative •See Article VI.
agencies.
Regulation
Decisions by courts that interpret and enforce
Judicial Decisions laws or the common law.
or Case Law
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Sources Of Law
• Set forth fundamental rights
Constitutions
•Uniformity
• Describe and empower
government
•Federal
• Set forth limitations
LawonPreempts
State
power

•States Adopt Single Law

Legislation
Legislation Laws by Congress or state legislature and local
Interpretation
ordinances.
•General Language
•Courts
Rule or order Must Interpret-
by federal, state, or local regulatory
Administrative
Statutory Construction
agencies.
Regulation
Decisions by courts that interpret and enforce
Judicial Decisions laws or the common law.
or Case Law
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Sources Of Law
• Set forth fundamental rights
Constitutions •Rules of governmental
• Describe and empower
government
body charged with
• Set forth limitations on power
implementing law.
•EPA
Laws by Congress or state legislature and local
Legislation
•Consumer Product Safety
ordinances.

Commission.
Administrative
Admin. Rules and Regulations Rule or order by federal, state, or local regulatory
•Allow government to
agencies.
Regulation
work bymore
courts thateffectively
Judicial Decisions laws or the common law.interpret and enforce
Decisions

or Case Law – bodies with expertise.

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Sources Of Law
• Set forth fundamental rights
Constitutions • Describe and empower
•Opinions
government – Reasons
• Set forth limitations on power

•Precedents – Similar
Laws•Facts
by Congress or state legislature and local
Legislation •Legal Issues
ordinances.

•Stare Decisis
Rule or order by federal, state, or local regulatory
Administrative •Precedent
agencies. and Dicta
Regulation •Conflict of Laws
Judicial Decisions Decisions by courts that interpret and enforce
Judicial laws or the common law.
Decisions or
Case Law
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Case Law
Advantages — Disadvantages
 Stare Decisis  Volume of cases
◼ Judges follow  Conflicting
precedents. precedents
◼ Gives certainty &  Conflicts of law
predictability.

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Legal Sanctions
 Encourage/Force Compliance
 Punishment & Prevention
 Benefit Of Society
 Punish Someone
 Benefit Of Another - Remedy

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 Criminal Conduct
Crime Punishment
•Public Wrong
•Court Punishes on
•Death
Behalf of Society
•Imprisonment
•Fine
•Removal
•Disqualification
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Breach Of Contract
Remedies Breach of
Contract
•Damages (Money) •Private Wrong
•Compensatory •Failure to Perform
•Consequential
•Rescission
•Specific
Performance
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 Tortious Conduct

Tort Remedies
•Civil Wrong (other
than breach of
contract) •Compensatory
Damages (Money)
•Intentional
•Negligence •Punitive Damages
•Strict Liability (exemplary damages)

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Violation of Statutes or Regulations
 May impose sanctions to accomplish statutory
purposes.
 Similar to crimes, torts, and breach of
contract.

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 pop pop pop
QUIZQUIZQUIZ
Statutory law comes into
existence through
a. the courts
b. the legislature

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think think think
TANK TANK TANK
Would you be comfortable to enter
into a business deal if you knew that
the contract you signed would not or
could not be adequately enforced?
a. Yes
b. No
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Legal System &
Corporate Governance
 Corporation – Legal Person
 Ownership – Shareholders
 Resource Control
◼ Board Of Directors
◼ Managers
 Corporate Governance – Rules Protecting
Owners’ Property Interest

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