The Legal Environment
and Business Law
v. 1.0


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Table of Contents
About the Authors................................................................................................................. 1
Acknowledgments................................................................................................................. 5
Preface..................................................................................................................................... 6
Chapter 1: Introduction to Law and Legal Systems ....................................................... 8
What Is Law?................................................................................................................................................... 9
Schools of Legal Thought ............................................................................................................................ 11
Basic Concepts and Categories of US Positive Law ................................................................................... 17
Sources of Law and Their Priority.............................................................................................................. 23
Legal and Political Systems of the World .................................................................................................. 32
A Sample Case............................................................................................................................................... 34

Summary and Exercises .............................................................................................................................. 40

Chapter 2: Corporate Social Responsibility and Business Ethics ............................. 44
What Is Ethics? ............................................................................................................................................. 46
Major Ethical Perspectives.......................................................................................................................... 52
An Ethical Decision Model........................................................................................................................... 63
Corporations and Corporate Governance.................................................................................................. 66
Summary and Exercises .............................................................................................................................. 78

Chapter 3: Courts and the Legal Process ....................................................................... 83
The Relationship between State and Federal Court Systems in the United States ...............................85
The Problem of Jurisdiction ........................................................................................................................ 92
Motions and Discovery .............................................................................................................................. 111
The Pretrial and Trial Phase ..................................................................................................................... 114
Judgment, Appeal, and Execution ............................................................................................................ 120
When Can Someone Bring a Lawsuit?...................................................................................................... 124
Relations with Lawyers.............................................................................................................................. 127
Alternative Means of Resolving Disputes ................................................................................................ 130
Cases ............................................................................................................................................................ 133

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Chapter 4: Constitutional Law and US Commerce ..................................................... 141
Basic Aspects of the US Constitution ....................................................................................................... 142
The Commerce Clause ............................................................................................................................... 147
Dormant Commerce Clause....................................................................................................................... 154
Preemption: The Supremacy Clause ........................................................................................................ 159
Business and the Bill of Rights.................................................................................................................. 163
Cases ............................................................................................................................................................ 173

Summary and Exercises ............................................................................................................................ 195

Chapter 5: Administrative Law ...................................................................................... 200
Administrative Agencies: Their Structure and Powers ......................................................................... 201
Controlling Administrative Agencies....................................................................................................... 209
The Administrative Procedure Act .......................................................................................................... 212
Administrative Burdens on Business Operations ................................................................................... 215
The Scope of Judicial Review .................................................................................................................... 219
Cases ............................................................................................................................................................ 224
Summary and Exercises ............................................................................................................................ 231

Chapter 6: Criminal Law .................................................................................................. 236
The Nature of Criminal Law ...................................................................................................................... 237
Types of Crimes .......................................................................................................................................... 240
The Nature of a Criminal Act .................................................................................................................... 250
Responsibility ............................................................................................................................................. 254
Procedure.................................................................................................................................................... 257
Constitutional Rights of the Accused....................................................................................................... 260
Cases ............................................................................................................................................................ 264
Summary and Exercises ............................................................................................................................ 271

Chapter 7: Introduction to Tort Law............................................................................. 276
Purpose of Tort Laws ................................................................................................................................. 277
Intentional Torts ........................................................................................................................................ 283
Negligence .................................................................................................................................................. 292
Strict Liability............................................................................................................................................. 300
Cases ............................................................................................................................................................ 304
Summary and Exercises ............................................................................................................................ 316

Chapter 8: Introduction to Contract Law..................................................................... 320

General Perspectives on Contracts .......................................................................................................... 321
Sources of Contract Law ............................................................................................................................ 325
Basic Taxonomy of Contracts ................................................................................................................... 330
Cases ............................................................................................................................................................ 336
Summary and Exercises ............................................................................................................................ 345

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Chapter 9: The Agreement .............................................................................................. 351
The Agreement in General ........................................................................................................................ 352
The Offer ..................................................................................................................................................... 355
The Acceptance .......................................................................................................................................... 366
Cases ............................................................................................................................................................ 372
Summary and Exercises ............................................................................................................................ 380

Chapter 10: Real Assent ................................................................................................... 386
Duress and Undue Influence ..................................................................................................................... 387
Misrepresentation...................................................................................................................................... 391
Mistake........................................................................................................................................................ 400
Capacity....................................................................................................................................................... 403
Cases ............................................................................................................................................................ 409
Summary and Exercises ............................................................................................................................ 420

Chapter 11: Consideration .............................................................................................. 426
General Perspectives on Consideration ................................................................................................... 427
Legal Sufficiency ........................................................................................................................................ 430
Promises Enforceable without Consideration......................................................................................... 439
Cases ............................................................................................................................................................ 445
Summary and Exercises ............................................................................................................................ 453


Chapter 12: Legality.......................................................................................................... 459
General Perspectives on Illegality............................................................................................................ 460
Agreements in Violation of Statute ......................................................................................................... 463
Bargains Made Illegal by Common Law ................................................................................................... 468
Effect of Illegality and Exceptions............................................................................................................ 474
Cases ............................................................................................................................................................ 477
Summary and Exercises ............................................................................................................................ 486

Chapter 13: Form and Meaning ..................................................................................... 492
The Statute of Frauds ................................................................................................................................ 493
The Parol Evidence Rule............................................................................................................................ 505
Interpretation of Agreements: Practicalities versus Legalities ............................................................ 510
Cases ............................................................................................................................................................ 514
Summary and Exercises ............................................................................................................................ 522

v


Chapter 14: Third-Party Rights ..................................................................................... 527
Assignment of Contract Rights ................................................................................................................. 528
Delegation of Duties................................................................................................................................... 536
Third-Party Beneficiaries.......................................................................................................................... 540
Cases ............................................................................................................................................................ 544
Summary and Exercises ............................................................................................................................ 553

Chapter 15: Discharge of Obligations ........................................................................... 559
Discharge of Contract Duties .................................................................................................................... 560
Cases ............................................................................................................................................................ 577
Summary and Exercises ............................................................................................................................ 586


Chapter 16: Remedies....................................................................................................... 592
Theory of Contract Remedies ................................................................................................................... 593
Promisee’s Interests Protected by Contract............................................................................................ 595
Legal Remedies: Damages.......................................................................................................................... 597
Equitable Remedies.................................................................................................................................... 602
Limitations on Contract Remedies ........................................................................................................... 607
Cases ............................................................................................................................................................ 616
Summary and Exercises ............................................................................................................................ 628

Chapter 17: Introduction to Sales and Leases............................................................. 634
Commercial Transactions: the Uniform Commercial Code ................................................................... 635
Introduction to Sales and Lease Law, and the Convention on Contracts for the International Sale of
Goods ........................................................................................................................................................... 639
Sales Law Compared with Common-Law Contracts and the CISG ........................................................ 645
General Obligations under UCC Article 2 ................................................................................................ 650
Cases ............................................................................................................................................................ 655
Summary and Exercises ............................................................................................................................ 668

Chapter 18: Title and Risk of Loss ................................................................................. 673
Transfer of Title ......................................................................................................................................... 674
Title from Nonowners ............................................................................................................................... 681
Risk of Loss.................................................................................................................................................. 687
Cases ............................................................................................................................................................ 694
Summary and Exercises ............................................................................................................................ 703

vi


Chapter 19: Performance and Remedies...................................................................... 709

Performance by the Seller......................................................................................................................... 710
Performance by Buyer............................................................................................................................... 716
Remedies ..................................................................................................................................................... 722
Excuses for Nonperformance.................................................................................................................... 737
Cases ............................................................................................................................................................ 741
Summary and Exercises ............................................................................................................................ 754

Chapter 20: Products Liability ....................................................................................... 763
Introduction: Why Products-Liability Law Is Important ....................................................................... 764
Warranties .................................................................................................................................................. 769
Negligence .................................................................................................................................................. 782
Strict Liability in Tort................................................................................................................................ 786
Tort Reform ................................................................................................................................................ 795
Cases ............................................................................................................................................................ 799
Summary and Exercises ............................................................................................................................ 810

Chapter 21: Bailments and the Storage, Shipment, and Leasing of Goods........... 818
Introduction to Bailment Law .................................................................................................................. 819
Liability of the Parties to a Bailment ....................................................................................................... 825
The Storage and Shipping of Goods ......................................................................................................... 832
Negotiation and Transfer of Documents of Title (or Commodity Paper)............................................. 845
Cases ............................................................................................................................................................ 850
Summary and Exercises ............................................................................................................................ 864

Chapter 22: Nature and Form of Commercial Paper ................................................. 873
Introduction to Commercial Paper .......................................................................................................... 874
Scope of Article 3 and Types of Commercial Paper and Parties ........................................................... 881
Requirements for Negotiability ................................................................................................................ 888
Cases ............................................................................................................................................................ 894
Summary and Exercises ............................................................................................................................ 903


Chapter 23: Negotiation of Commercial Paper ........................................................... 909
Transfer and Negotiation of Commercial Paper ..................................................................................... 910
Indorsements.............................................................................................................................................. 915
Problems and Issues in Negotiation ......................................................................................................... 922
Cases ............................................................................................................................................................ 928
Summary and Exercises ............................................................................................................................ 944

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Chapter 24: Holder in Due Course and Defenses ........................................................ 949
Holder in Due Course ................................................................................................................................. 950
Defenses and Role in Consumer Transactions ........................................................................................ 958
Cases ............................................................................................................................................................ 965
Summary and Exercises ............................................................................................................................ 979

Chapter 25: Liability and Discharge.............................................................................. 984
Liability Imposed by Signature: Agents, Authorized and Unauthorized ............................................. 985
Contract Liability of Parties ...................................................................................................................... 989
Warranty Liability of Parties .................................................................................................................... 996
Discharge .................................................................................................................................................. 1001
Cases .......................................................................................................................................................... 1006
Summary and Exercises .......................................................................................................................... 1023

Chapter 26: Legal Aspects of Banking ........................................................................ 1029
Banks and Their Customers .................................................................................................................... 1030
Electronic Funds Transfers ..................................................................................................................... 1041
Wholesale Transactions and Letters of Credit ...................................................................................... 1047
Cases .......................................................................................................................................................... 1054

Summary and Exercises .......................................................................................................................... 1068

Chapter 27: Consumer Credit Transactions .............................................................. 1073
Entering into a Credit Transaction ........................................................................................................ 1075
Consumer Protection Laws and Debt Collection Practices .................................................................. 1084
Cases .......................................................................................................................................................... 1090
Summary and Exercises .......................................................................................................................... 1100

Chapter 28: Secured Transactions and Suretyship.................................................. 1105
Introduction to Secured Transactions................................................................................................... 1106
Priorities ................................................................................................................................................... 1125
Rights of Creditor on Default and Disposition after Repossession ..................................................... 1133
Suretyship................................................................................................................................................. 1138
Cases .......................................................................................................................................................... 1146
Summary and Exercises .......................................................................................................................... 1156

Chapter 29: Mortgages and Nonconsensual Liens ................................................... 1163
Uses, History, and Creation of Mortgages ............................................................................................. 1164
Priority, Termination of the Mortgage, and Other Methods of Using Real Estate as Security........1171
Nonconsensual Lien ................................................................................................................................. 1179
Cases .......................................................................................................................................................... 1183
Summary and Exercises .......................................................................................................................... 1200

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Chapter 30: Bankruptcy................................................................................................. 1205
Introduction to Bankruptcy and Overview of the 2005 Bankruptcy Act ........................................... 1206
Case Administration; Creditors’ Claims; Debtors’ Exemptions and Dischargeable Debts; Debtor’s
Estate ......................................................................................................................................................... 1212

Chapter 7 Liquidation .............................................................................................................................. 1225
Chapter 11 and Chapter 13 Bankruptcies .............................................................................................. 1231
Alternatives to Bankruptcy..................................................................................................................... 1237
Cases .......................................................................................................................................................... 1240
Summary and Exercises .......................................................................................................................... 1251

Chapter 31: Introduction to Property: Personal Property and Fixtures ............ 1257
The General Nature of Property Rights ................................................................................................. 1258
Personal Property .................................................................................................................................... 1262
Fixtures ..................................................................................................................................................... 1269
Case............................................................................................................................................................ 1273
Summary and Exercises .......................................................................................................................... 1276

Chapter 32: Intellectual Property................................................................................ 1281
Patents....................................................................................................................................................... 1283
Trade Secrets ............................................................................................................................................ 1290
Copyright .................................................................................................................................................. 1295
Trademarks............................................................................................................................................... 1302
Cases .......................................................................................................................................................... 1307
Summary and Exercises .......................................................................................................................... 1316

Chapter 33: The Nature and Regulation of Real Estate and the Environment .. 1320
Estates ....................................................................................................................................................... 1321
Rights Incident to Possession and Ownership of Real Estate .............................................................. 1326
Easements: Rights in the Lands of Others ............................................................................................. 1329
Regulation of Land Use............................................................................................................................ 1333
Environmental Law.................................................................................................................................. 1341
Cases .......................................................................................................................................................... 1351
Summary and Exercises .......................................................................................................................... 1359


Chapter 34: The Transfer of Real Estate by Sale ...................................................... 1364
Forms of Ownership................................................................................................................................. 1365
Brokers, Contracts, Proof of Title, and Closing..................................................................................... 1371
Adverse Possession .................................................................................................................................. 1388
Cases .......................................................................................................................................................... 1391
Summary and Exercises .......................................................................................................................... 1399

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Chapter 35: Landlord and Tenant Law ....................................................................... 1403
Types and Creation of Leasehold Estates............................................................................................... 1404
Rights and Duties of Landlords and Tenants ........................................................................................ 1408
Transfer of Landlord’s or Tenant’s Interest .......................................................................................... 1416
Landlord’s Tort Liability.......................................................................................................................... 1419
Cases .......................................................................................................................................................... 1422
Summary and Exercises .......................................................................................................................... 1428

Chapter 36: Estate Planning: Wills, Estates, and Trusts ......................................... 1433
Wills and Estate Administration............................................................................................................. 1435
Trusts......................................................................................................................................................... 1445
Factors Affecting Estates and Trusts...................................................................................................... 1451
Cases .......................................................................................................................................................... 1454
Summary and Exercises .......................................................................................................................... 1465

Chapter 37: Insurance .................................................................................................... 1469
Definitions and Types of Insurance ....................................................................................................... 1470
Property Insurance, Liability Insurance, and Life Insurance .............................................................. 1475
Insurer’s Defenses .................................................................................................................................... 1483
Case............................................................................................................................................................ 1486

Summary and Exercises .......................................................................................................................... 1489

Chapter 38: Relationships between Principal and Agent ....................................... 1493
Introduction to Agency and the Types of Agents ................................................................................. 1494
Duties between Agent and Principal...................................................................................................... 1505
Cases .......................................................................................................................................................... 1518
Summary and Exercises .......................................................................................................................... 1533

Chapter 39: Liability of Principal and Agent; Termination of Agency ................ 1538
Principal’s Contract Liability .................................................................................................................. 1539
Principal’s Tort and Criminal Liability .................................................................................................. 1545
Agent’s Personal Liability for Torts and Contracts; Termination of Agency..................................... 1553
Cases .......................................................................................................................................................... 1559
Summary and Exercises .......................................................................................................................... 1571

Chapter 40: Partnerships: General Characteristics and Formation..................... 1576
Introduction to Partnerships and Entity Theory ................................................................................. 1577
Partnership Formation............................................................................................................................ 1583
Cases .......................................................................................................................................................... 1592
Summary and Exercises .......................................................................................................................... 1605

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Chapter 41: Partnership Operation and Termination ............................................ 1610
Operation: Relations among Partners.................................................................................................... 1611
Operation: The Partnership and Third Parties ..................................................................................... 1622
Dissolution and Winding Up ................................................................................................................... 1628
Cases .......................................................................................................................................................... 1640
Summary and Exercises .......................................................................................................................... 1656


Chapter 42: Hybrid Business Forms ............................................................................ 1663
Limited Partnerships ............................................................................................................................... 1665
Limited Liability Companies ................................................................................................................... 1673
Other Forms.............................................................................................................................................. 1680
Cases .......................................................................................................................................................... 1685
Summary and Exercises .......................................................................................................................... 1694

Chapter 43: Corporation: General Characteristics and Formation ...................... 1700
Historical Background ............................................................................................................................. 1701
Partnerships versus Corporations.......................................................................................................... 1705
The Corporate Veil: The Corporation as a Legal Entity ....................................................................... 1708
Classifications of Corporations ............................................................................................................... 1713
Corporate Organization........................................................................................................................... 1716
Effect of Organization.............................................................................................................................. 1723
Cases .......................................................................................................................................................... 1725
Summary and Exercises .......................................................................................................................... 1737

Chapter 44: Legal Aspects of Corporate Finance...................................................... 1744
General Sources of Corporate Funds...................................................................................................... 1745
Bonds ......................................................................................................................................................... 1748
Types of Stock........................................................................................................................................... 1751
Initial Public Offerings and Consideration for Stock ........................................................................... 1757
Dividends .................................................................................................................................................. 1761
The Winds of Change ............................................................................................................................... 1766
Cases .......................................................................................................................................................... 1769
Summary and Exercises .......................................................................................................................... 1776

Chapter 45: Corporate Powers and Management .................................................... 1781
Powers of a Corporation.......................................................................................................................... 1782

Rights of Shareholders ............................................................................................................................ 1787
Duties and Powers of Directors and Officers......................................................................................... 1794
Liability of Directors and Officers .......................................................................................................... 1798
Cases .......................................................................................................................................................... 1810
Summary and Exercises .......................................................................................................................... 1819

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Chapter 46: Securities Regulation ............................................................................... 1825
The Nature of Securities Regulation ...................................................................................................... 1826
Liability under Securities Law ................................................................................................................ 1835
Cases .......................................................................................................................................................... 1842
Summary and Exercises .......................................................................................................................... 1850

Chapter 47: Corporate Expansion, State and Federal Regulation of Foreign
Corporations, and Corporate Dissolution.................................................................. 1854
Corporate Expansion ............................................................................................................................... 1855
Foreign Corporations............................................................................................................................... 1863
Dissolution ................................................................................................................................................ 1867
Cases .......................................................................................................................................................... 1870
Summary and Exercises .......................................................................................................................... 1876

Chapter 48: Antitrust Law ............................................................................................. 1881
History and Basic Framework of Antitrust Laws in the United States ............................................... 1882
Horizontal Restraints of Trade ............................................................................................................... 1894
Vertical Restraints of Trade.................................................................................................................... 1901
Price Discrimination: The Robinson-Patman Act ................................................................................. 1909
Exemptions ............................................................................................................................................... 1919
Sherman Act, Section 2: Concentrations of Market Power ................................................................. 1922

Acquisitions and Mergers under Section 7 of the Clayton Act............................................................ 1930
Cases .......................................................................................................................................................... 1940
Summary and Exercises .......................................................................................................................... 1959

Chapter 49: Unfair Trade Practices and the Federal Trade Commission ........... 1969
The Federal Trade Commission: Powers and Law Governing Deceptive Acts ................................... 1970
Deceptive Acts and Practices .................................................................................................................. 1974
Unfair Trade Practices............................................................................................................................. 1981
Remedies ................................................................................................................................................... 1985
Cases .......................................................................................................................................................... 1988
Summary and Exercises .......................................................................................................................... 1995

Chapter 50: Employment Law....................................................................................... 2000
Federal Employment Discrimination Laws ........................................................................................... 2001
Employment at Will ................................................................................................................................. 2017
Other Employment-Related Laws........................................................................................................... 2021
Cases .......................................................................................................................................................... 2027
Summary and Exercises .......................................................................................................................... 2050

xii


Chapter 51: Labor-Management Relations ................................................................ 2057
A Brief History of Labor Legislation....................................................................................................... 2059
The National Labor Relations Board: Organization and Functions .................................................... 2064
Labor and Management Rights under the Federal Labor Laws........................................................... 2066
Case............................................................................................................................................................ 2079
Summary and Exercises .......................................................................................................................... 2084

Chapter 52: International Law ..................................................................................... 2089

Introduction to International Law ......................................................................................................... 2090
Sources and Practice of International Law ........................................................................................... 2093
Important Doctrines of Nation-State Judicial Decisions...................................................................... 2099
Regulating Trade...................................................................................................................................... 2110
Cases .......................................................................................................................................................... 2113
Summary and Exercises .......................................................................................................................... 2130

Chapter 53: Contracts .................................................................................................... 2134
General Perspectives on Contracts ........................................................................................................ 2135
Contract Formation ................................................................................................................................. 2146
Remedies ................................................................................................................................................... 2154
Cases .......................................................................................................................................................... 2160
Summary and Exercises .......................................................................................................................... 2168

xiii


About the Authors
Don Mayer
Don Mayer teaches law, ethics, public policy, and
sustainability at the Daniels College of Business,
University of Denver, where he is professor in
residence. His research focuses on the role of business
in creating a more just, sustainable, peaceful, and
productive world. With James O’Toole, Professor Mayer
has coedited and contributed content to Good Business:
Exercising Effective and Ethical Leadership (Routledge,
2010). He is also coauthor of International Business Law:
Cases and Materials, which is in its fifth edition with
Pearson Publishing Company. He recently served as the

first Arsht Visiting Ethics Scholar at the University of
Miami.
After earning a philosophy degree from Kenyon College and a law degree from Duke
University Law School, Professor Mayer served as a Judge Advocate General’s (JAG)
Corps officer in the United States Air Force during the Vietnam conflict and went
into private practice in North Carolina. In 1985, he earned his LLM in international
and comparative law at the Georgetown University Law Center. Later that year, he
began his academic career at Western Carolina University and proceeded to become
a full professor at Oakland University in Rochester, Michigan, where he taught for
many years before moving to the University of Denver. He has taught as a visitor at
California State Polytechnic University, the University of Michigan, the Manchester
Business School Worldwide, and Antwerp Management School.
Professor Mayer has won numerous awards from the Academy of Legal Studies in
Business, including the Hoeber Award for best article in the American Business Law
Journal, the Maurer Award for best article on business ethics (twice), and the Ralph
Bunche Award for best article on international business law (three times). His work
has been published in many journals and law reviews but most often in American
Business Law Journal, the Journal of Business Ethics, and the Business Ethics Quarterly.

1


About the Authors

Daniel M. Warner
Daniel M. Warner is a magna cum laude graduate of the
University of Washington, where—following military
service—he also attended law school. In 1978, after
several years of civil practice, he joined the faculty at
the College of Business and Economics at Western

Washington University, where he is now a professor of
business legal studies in the Accounting Department. He
has published extensively, exploring the intersection of
popular culture and the law, and has received the
College of Business Dean’s Research Award five times for
“distinguished contributions in published research.”
Professor Warner served on the Whatcom County
Council for eight years (two years as its chair). He has
served on the Faculty Senate and on various university and college committees,
including as chairman of the University Master Plan Committee. Professor Warner
has also been active in state bar association committee work and in local politics,
where he has served on numerous boards and commissions for over thirty years.

George J. Siedel
George J. Siedel’s research addresses legal issues that
relate to international business law, negotiation, and
dispute resolution. Recent publications focus on
proactive law and the use of law to gain competitive
advantage. His work in progress includes research on
the impact of litigation on large corporations and the
use of electronic communication as evidence in
litigation.
Professor Siedel has been admitted to practice before
the United States Supreme Court and in Michigan, Ohio,
and Florida. Following graduation from law school, he
worked as an attorney in a professional corporation. He has also served on several
boards of directors and as associate dean of the University of Michigan Business
School.
The author of numerous books and articles, Professor Siedel has received several
research awards, including the Faculty Recognition Award from the University of

Michigan and the following awards from the Academy of Legal Studies in Business:
the Hoeber Award, the Ralph Bunche Award, and the Maurer Award. The Center for

2


About the Authors

International Business Education and Research selected a case written by Professor
Siedel for its annual International Case Writing Award. His research has been cited
by appellate courts in the United States and abroad, including the High Court of
Australia.
Professor Siedel has served as visiting professor of business law at Stanford
University, visiting professor of business administration at Harvard University, and
Parsons fellow at the University of Sydney. He has been elected a visiting fellow at
Cambridge University’s Wolfson College and a life fellow of the Michigan State Bar
Foundation. As a Fulbright scholar, Professor Siedel held a distinguished chair in
the humanities and social sciences.

Jethro K. Lieberman
Jethro K. Lieberman is professor of law and vice
president for academic publishing at New York Law
School, where he has taught for more than twenty-five
years. He earned his BA in politics and economics from
Yale University, his JD from Harvard Law School, and his
PhD in political science from Columbia University. He
began his teaching career at Fordham University School
of Law. Before that, he was vice president at what is now
the International Institute for Conflict Prevention and
Resolution (CPR). For nearly ten years, he was legal

affairs editor of Business Week magazine. He practiced
antitrust and trade regulation law at a large Washington
law firm and was on active duty as a member of the
Navy’s Judge Advocate General’s (JAG) Corps during the Vietnam era. He is the
author of The Litigious Society (Basic Books), the winner of the American Bar
Association’s top literary prize, the Silver Gavel, and the author of A Practical
Companion to the Constitution: How the Supreme Court Has Ruled on Issues from Abortion to
Zoning (University of California Press), among many other books. He is a long-time
letterpress printer and proprietor of The Press at James Pond, a private press, and
owner of the historic Kelmscott-Goudy Press, an Albion handpress that was used to
print the Kelmscott Press edition of Geoffrey Chaucer’s Canterbury Tales in the
1890s.

Alyssa Rose Martina (Contributing Author)
Alyssa Rose Martina is an entrepreneur, businesswoman, professional writer, and
educator. She started her first company, Metro Parent Magazine, in 1986, after
serving for five years as legal counsel for Wayne County Circuit Court, one of the

3


About the Authors

nation’s largest state judicial circuits. As a dedicated entrepreneur, she saw an
opportunity to fill a void for parents and established a family magazine. Today,
more than 263,000 readers rely on Metro Parent as their “parenting bible.” Alyssa’s
company, Metro Parent Publishing Group, also produces several ancillary
publications: Metro Baby, a biannual pregnancy resource guide; Going Places, a
biannual guide to family fun in Southeast Michigan; Party Book, an event planning
resource guide; and Special Edition, a resource for parents regarding children with

special needs. To offer support and resources to African American families, Alyssa
saw an opportunity to establish a second publishing company catered to the African
American market. In 1999, the company was launched and today, BLAC Magazine,
which covers “Black Life, Arts and Culture,” reaches over sixty thousand readers in
the Detroit region. This monthly lifestyle publication explores and celebrates the
rich cultural fabric of African American life in southeast Michigan, under the
guidance of African American community leaders and educators and a
distinguished panel of advisors who form an advisory council.
Alyssa presents lectures and workshops to various business and community groups
around the country on topics such as innovation, strategy, entrepreneurship, and
next-level thinking. She also serves as a consultant on events marketing for several
of her sister publications throughout the country. In April 2010, Alyssa received her
MBA with highest distinction from the University of Michigan’s Ross School of
Business. She has guest-lectured on entrepreneurial/legal issues at Ross and has
also served as a teaching assistant. She has written a number of parenting articles
and a children’s book, and she was a weekly columnist for the Detroit News. Alyssa
has served as an editor and reviewer for several business law articles and
manuscripts. Alyssa teaches at Walsh School of Business as an adjunct professor.
Her course is focused on legal issues in business for MBA students.

4


Acknowledgments
The authors would like to thank the following colleagues who have reviewed the
text and provided comprehensive feedback and suggestions for improving the
material:
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Jennifer Barger Johnson, University of Central Oklahoma
Dawn M. Bradanini, Lincoln College
Larry Bumgardner, Pepperdine University
Michael Edward Chaplin, California State University–Northridge
Nigel Cohen, University of Texas–Pan American
Mark Edison, North Central College
Mark Gideon, University of Maryland
Henry J. Hastings, Eastern Michigan University
Henry Lowenstein, Coastal Carolina University
Tanya Marcum, Bradley University
Harry McCracken, California Lutheran University

Robert Miller, Dominican University
Leon Moerson, George Washington University
Tonia Hat Murphy, University of Notre Dame
Bart Pachino, California State University–Northridge
Kimber J. Palmer, Texas A&M University–International
Lawrence Price, Saint Mary’s University of Minnesota
Kurt Saunders, California State University–Northridge
Ron Washburn, Bryant University
Ruth Weatherly, Simpson College
Eric Yordy, Northern Arizona University

5


Preface
Our goal is to provide students with a textbook that is up to date and
comprehensive in its coverage of legal and regulatory issues—and organized to
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This textbook provides context and essential concepts across the entire range of
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example, the chapters on contract law incorporate discussion of

6


Preface

various sections of the Uniform Commercial Code, which is available at
/>• Likewise, many sample legal forms are readily available online. For
example, the chapter on employment law refers to the type of terms
commonly found in a standard employment agreement, examples of
which can be found at />Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=1
2516463025&docCategoryId=none&gclid=

CI3Wgeiz7q8CFSoZQgodIjdn2g.
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and audio study guides.

7


Chapter 1
Introduction to Law and Legal Systems
LEARNING OBJECTIVES
After reading this chapter, you should be able to do the following:
1. Distinguish different philosophies of law—schools of legal thought—and
explain their relevance.
2. Identify the various aims that a functioning legal system can serve.
3. Explain how politics and law are related.
4. Identify the sources of law and which laws have priority over other laws.
5. Understand some basic differences between the US legal system and
other legal systems.

Law has different meanings as well as different functions. Philosophers have
considered issues of justice and law for centuries, and several different approaches,
or schools of legal thought, have emerged. In this chapter, we will look at those
different meanings and approaches and will consider how social and political
dynamics interact with the ideas that animate the various schools of legal thought.

We will also look at typical sources of “positive law” in the United States and how
some of those sources have priority over others, and we will set out some basic
differences between the US legal system and other legal systems.

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Chapter 1 Introduction to Law and Legal Systems

1.1 What Is Law?
Law is a word that means different things at different times. Black’s Law Dictionary
says that law is “a body of rules of action or conduct prescribed by controlling
authority, and having binding legal force. That which must be obeyed and followed
by citizens subject to sanctions or legal consequence is a law.”Black’s Law Dictionary,
6th ed., s.v. “law.”

Functions of the Law
In a nation, the law can serve to (1) keep the peace, (2) maintain the status quo, (3)
preserve individual rights, (4) protect minorities against majorities, (5) promote
social justice, and (6) provide for orderly social change. Some legal systems serve
these purposes better than others. Although a nation ruled by an authoritarian
government may keep the peace and maintain the status quo, it may also oppress
minorities or political opponents (e.g., Burma, Zimbabwe, or Iraq under Saddam
Hussein). Under colonialism, European nations often imposed peace in countries
whose borders were somewhat arbitrarily created by those same European nations.
Over several centuries prior to the twentieth century, empires were built by Spain,
Portugal, Britain, Holland, France, Germany, Belgium, and Italy. With regard to the
functions of the law, the empire may have kept the peace—largely with force—but it
changed the status quo and seldom promoted the native peoples’ rights or social
justice within the colonized nation.

In nations that were former colonies of European nations, various ethnic and tribal
factions have frequently made it difficult for a single, united government to rule
effectively. In Rwanda, for example, power struggles between Hutus and Tutsis
resulted in genocide of the Tutsi minority. (Genocide is the deliberate and
systematic killing or displacement of one group of people by another group. In
1948, the international community formally condemned the crime of genocide.) In
nations of the former Soviet Union, the withdrawal of a central power created
power vacuums that were exploited by ethnic leaders. When Yugoslavia broke up,
the different ethnic groups—Croats, Bosnians, and Serbians—fought bitterly for
home turf rather than share power. In Iraq and Afghanistan, the effective blending
of different groups of families, tribes, sects, and ethnic groups into a national
governing body that shares power remains to be seen.

Law and Politics
In the United States, legislators, judges, administrative agencies, governors, and
presidents make law, with substantial input from corporations, lobbyists, and a

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Chapter 1 Introduction to Law and Legal Systems

diverse group of nongovernment organizations (NGOs) such as the American
Petroleum Institute, the Sierra Club, and the National Rifle Association. In the fifty
states, judges are often appointed by governors or elected by the people. The
process of electing state judges has become more and more politicized in the past
fifteen years, with growing campaign contributions from those who would seek to
seat judges with similar political leanings.
In the federal system, judges are appointed by an elected official (the president) and
confirmed by other elected officials (the Senate). If the president is from one party

and the other party holds a majority of Senate seats, political conflicts may come up
during the judges’ confirmation processes. Such a division has been fairly frequent
over the past fifty years.
In most nation-states1 (as countries are called in international law), knowing who
has power to make and enforce the laws is a matter of knowing who has political
power; in many places, the people or groups that have military power can also
command political power to make and enforce the laws. Revolutions are difficult
and contentious, but each year there are revolts against existing political-legal
authority; an aspiration for democratic rule, or greater “rights” for citizens, is a
recurring theme in politics and law.

KEY TAKEAWAY
Law is the result of political action, and the political landscape is vastly
different from nation to nation. Unstable or authoritarian governments
often fail to serve the principal functions of law.

EXERCISES

1. The basic entities that
comprise the international
legal system. Countries, states,
and nations are all roughly
synonymous. State can also be
used to designate the basic
units of federally united states,
such as in the United States of
America, which is a nationstate.

1.1 What Is Law?


1. Consider Burma (named Myanmar by its military rulers). What political
rights do you have that the average Burmese citizen does not?
2. What is a nongovernment organization, and what does it have to do with
government? Do you contribute to (or are you active in) a
nongovernment organization? What kind of rights do they espouse,
what kind of laws do they support, and what kind of laws do they
oppose?

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Chapter 1 Introduction to Law and Legal Systems

1.2 Schools of Legal Thought
LEARNING OBJECTIVES
1. Distinguish different philosophies of law—schools of legal thought—and
explain their relevance.
2. Explain why natural law relates to the rights that the founders of the US
political-legal system found important.
3. Describe legal positivism and explain how it differs from natural law.
4. Differentiate critical legal studies and ecofeminist legal perspectives
from both natural law and legal positivist perspectives.

2. The philosophy of law. There
are many philosophies of law
and thus many different
jurisprudential views.
3. A jurisprudence that focuses
on the law as it is—the
command of the sovereign.

4. A jurisprudence that
emphasizes a law that
transcends positive laws
(human laws) and points to a
set of principles that are
universal in application.
5. The authority within any
nation-state. Sovereignty is
what sovereigns exercise. This
usually means the power to
make and enforce laws within
the nation-state.
6. Legislative directives, having
the form of general rules that
are to be followed in the
nation-state or its subdivisions.
Statutes are controlling over
judicial decisions or common
law, but are inferior to (and
controlled by) constitutional
law.

There are different schools (or philosophies) concerning what law is all about.
Philosophy of law is also called jurisprudence2, and the two main schools are legal
positivism3 and natural law4. Although there are others (see Section 1.2.3 "Other
Schools of Legal Thought"), these two are the most influential in how people think
about the law.

Legal Positivism: Law as Sovereign Command
As legal philosopher John Austin concisely put it, “Law is the command of a

sovereign.” Law is only law, in other words, if it comes from a recognized authority
and can be enforced by that authority, or sovereign5—such as a king, a president,
or a dictator—who has power within a defined area or territory. Positivism is a
philosophical movement that claims that science provides the only knowledge
precise enough to be worthwhile. But what are we to make of the social phenomena
of laws?
We could examine existing statutes6—executive orders, regulations, or judicial
decisions—in a fairly precise way to find out what the law says. For example, we
could look at the posted speed limits on most US highways and conclude that the
“correct” or “right” speed is no more than fifty-five miles per hour. Or we could
look a little deeper and find out how the written law is usually applied. Doing so, we
might conclude that sixty-one miles per hour is generally allowed by most state
troopers, but that occasionally someone gets ticketed for doing fifty-seven miles
per hour in a fifty-five miles per hour zone. Either approach is empirical, even if not
rigorously scientific. The first approach, examining in a precise way what the rule
itself says, is sometimes known as the “positivist” school of legal thought. The
second approach—which relies on social context and the actual behavior of the

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Chapter 1 Introduction to Law and Legal Systems

principal actors who enforce the law—is akin to the “legal realist” school of thought
(see Section 1.2.3 "Other Schools of Legal Thought").
Positivism has its limits and its critics. New Testament readers may recall that King
Herod, fearing the birth of a Messiah, issued a decree that all male children below a
certain age be killed. Because it was the command of a sovereign, the decree was
carried out (or, in legal jargon, the decree was “executed”). Suppose a group seizes
power in a particular place and commands that women cannot attend school and

can only be treated medically by women, even if their condition is life-threatening
and women doctors are few and far between. Suppose also that this command is
carried out, just because it is the law and is enforced with a vengeance. People who
live there will undoubtedly question the wisdom, justice, or goodness of such a law,
but it is law nonetheless and is generally carried out. To avoid the law’s impact, a
citizen would have to flee the country entirely. During the Taliban rule in
Afghanistan, from which this example is drawn, many did flee.
The positive-law school of legal thought would recognize the lawmaker’s command
as legitimate; questions about the law’s morality or immorality would not be
important. In contrast, the natural-law school of legal thought would refuse to
recognize the legitimacy of laws that did not conform to natural, universal, or
divine law. If a lawmaker issued a command that was in violation of natural law, a
citizen would be morally justified in demonstrating civil disobedience. For example,
in refusing to give up her seat to a white person, Rosa Parks believed that she was
refusing to obey an unjust law.

Natural Law
The natural-law school of thought emphasizes that law should be based on a
universal moral order. Natural law was “discovered” by humans through the use of
reason and by choosing between that which is good and that which is evil. Here is
the definition of natural law according to the Cambridge Dictionary of Philosophy:
“Natural law, also called the law of nature in moral and political philosophy, is an
objective norm or set of objective norms governing human behavior, similar to the
positive laws of a human ruler, but binding on all people alike and usually
understood as involving a superhuman legislator.”Cambridge Dictionary of Philosophy,
s.v. “natural law.”
Both the US Constitution and the United Nations (UN) Charter have an affinity for
the natural-law outlook, as it emphasizes certain objective norms and rights of
individuals and nations. The US Declaration of Independence embodies a naturallaw philosophy. The following short extract should provide some sense of the deep
beliefs in natural law held by those who signed the document.


1.2 Schools of Legal Thought

12