McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All Right Reserved The Legal & Regulatory Environment of Business 16e Law as the Chapter 1 Foundation of Business Reed Pagnattaro Cahoy Shedd Moorhead 1-2 The United States is a nation of law. John Adams 1-3 1
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. 1-4 Learning Objectives To recognize why the legal systems of nations contribute to making the economies of some nations stronger than the economies of other nations. To explain that property in the law refers not to something that is owned but to the right of ownership itself which gives maximum incentive for wealth creation. 1-5 Learning Objectives To analyze why stare decisis is different in common law nations than in civil law nations. To classify what legal sources lawyers turn to in answering legal questions from their clients, and the hierarchy of those sources. 1-6 2
Why Nations are Weak or Strong? Dependency theory Natural resources- exploitation Education & technology Climate Modern private market Law & legal system 1-7 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. 1-8 Law-Definition LAW Rules Created by State Enforceable 1-9 3
Importance of Enforcement Without adequate enforcement, the certainty and trust necessary to make complex, long-term business transactions are absent. 1-10 Rule Of Law Laws are made generally and equally applicable. Apply to various groups in same way Apply to all or most members of society 1-11 Food for Thought Almost all wealthy countries embrace the rule of law. 1-12 4
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. 1-13 QUIZ QUIZ QUIZ Climate can lead to nations being either weak or strong. a.true b.false 1-14 QUIZ QUIZ QUIZ What is the rule of law? 1-15 5
think think think TANK TANK TANK Were you impacted by the law on the way to class today? a. Yes b. No 1-16 Property Property means Ownership The legal right to exclude or keep others from interfering. Private, exclusive rights in resources. 1-17 Property is a type of legal fence that keeps others out by announcing private ownership and enforcing it. 1-18 6
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. 1-19 Property - Broad Sense Property is the central concept underlying Western legal systems. 1-20 Property - Broad Sense 1-21 7
Property - Broad Sense Private property begins with the right we have in ourselves and in our efforts and actions. John Locke Property in its larger and juster meaning embraces everything to which a man may attach value and have a right. James Madison 1-22 Property - Broad Sense Social prosperity and wealth of nations Secret to lies in adequate foundations Implementing legal system Property law 1-23 Jurisprudence Jurisprudence Philosophies that explain origin, justification, meaning, and essence of law. Natural Law Positive Law Historical School Sociological Legal Realism 1-24 8
Classifications Of Law Overview Civil Law Common Law Public Law Private Law Civil Law Criminal Law Substantive Law Procedural Law 1-25 Civil Law Common Law Classification Two Major Legal Systems Civil Law Law based on statutory codification of law. Romano-Germanic Common Law Law based on written judicial decisions that establish precedent. Anglo-American 1-26 Civil Law Common Law Classification Examples United Kingdom Canada Jamaica New Zealand United States India Common Law Law based on written judicial decisions that establish precedent. Anglo-American 1-27 9
Civil Law Common Law Classification Civil Law Law based on statutory codification of law. Examples Continental Europe Latin America Japan Former French colonies Romano-Germanic Spain 1-28 Public Law Private Law Classification Public Law Law dealing with regulation of society. Constitutional Law Administrative Law Criminal Law Private Law Law dealing with issues that concern private resource relationships. Property Law Contract Law Tort Law 1-29 Internet Law Software creators = property? Internet binding agreements Monitor e-mail? Rights to copies of intellectual property? Employers & employee discipline? Regulation of internet? Interstate commerce? ISPs liability? 1-30 10
Civil Law Criminal Law Classification Civil Law Law dealing with private rights between people. Torts & contracts Damages No punishment Criminal Law Law dealing with offenses against society at large. Prosecuted by gov t Results in Punishment 1-31 Substantive Law Procedural Law Classification Substantive Law The part of the law creating, defining, and regulating rights, duties, and powers. The What Procedural Law The part of the law telling the methods/means for having rights or duties enforced. The How 1-32 Sources of Law Constitutions Legislation Administrative Regulation Judicial Decisions or Case Law Set forth fundamental rights Describe and empower government Set forth limitations on power Laws by Congress or state legislature and local ordinances. Rule or order by federal, state, or local regulatory agencies. Decisions by courts that interpret and enforce laws or the common law. 1-33 11
Sources of Law Constitutions Legislation Administrative Regulation Judicial Decisions or Case Law Set forth fundamental rights Describe and empower government Set forth limitations on power U.S. Constitution and individual state constitutions. Laws by Congress or state legislature and local ordinances. Hierarchy Federal constitution is supreme. Rule or order by federal, state, or local regulatory agencies. See Article VI. Decisions by courts that interpret and enforce laws or the common law. 1-34 Sources of Law Constitutions Legislation Administrative Regulation Judicial Decisions or Case Law Set forth fundamental rights Describe and empower Uniformity government Set forth limitations on power Federal Law Preempts State States Adopt Single Law Interpretation Laws by Congress or state legislature and local ordinances. General Language Courts Must Interpret- Statutory Construction Rule or order by federal, state, or local regulatory agencies. Decisions by courts that interpret and enforce laws or the common law. 1-35 Sources of Law Constitutions Legislation Admin. Administrative Rules and Regulations Regulation Judicial Decisions or Case Law Set forth fundamental rights Describe and empower government Set forth limitations on power Rules of governmental body charged with implementing law. EPA Laws by Congress or state legislature and local ordinances. Consumer Product Safety Commission. Rule or order by federal, state, or local regulatory agencies. Allow government to Decisions work by more courts that effectively interpret and enforce laws or the common law. bodies with expertise. 1-36 12
Constitutions Legislation Administrative Regulation Judicial Decisions Decisions or Case Law Sources of Law Set forth fundamental rights Describe and empower government Set forth limitations on power Opinions Reasons Precedents Similar Facts Laws by Congress or state legislature and local ordinances. Legal Issues Stare Decisis Rule or order by federal, state, or local regulatory agencies. Precedent and Dicta Conflict of Laws Decisions by courts that interpret and enforce laws or the common law. 1-37 Sources of Law Hierarchy U.S. Constitution Federal Legislation Federal Administrative Regulation State Constitutions State Legislation State Administrative Regulation Local Ordinances Case law 1-38 Case Law Advantages Disadvantages Stare Decisis Judges follow precedents. Gives certainty & predictability. Volume of cases Conflicting precedents Conflicts of law 1-39 13
Legal Sanctions Encourage/force compliance Punishment & prevention Benefit of society Punish someone Benefit of another - remedy 1-40 Criminal Conduct Crime Public wrong Court punishes on behalf of society Punishment Death Imprisonment Fine Removal Disqualification 1-41 Breach Of Contract Remedies Damages (Money) Compensatory Consequential Rescission Specific performance Breach of Contract Private wrong Failure to perform 1-42 14
Tortious Conduct Tort Civil wrong (other than breach of contract) Intentional Negligence Strict liability Remedies Compensatory damages (money) Punitive damages (exemplary damages) 1-43 Violation of Statutes or Regulations May impose sanctions to accomplish statutory purposes. Similar to crimes, torts, and breach of contract. 1-44 QUIZ QUIZ QUIZ Statutory law comes into existence through a. the courts b. the legislature 1-45 15
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 1-46 Legal System & Corporate Governance Corporation legal person Ownership shareholders Resource control Board of directors Managers Corporate governance rules protecting owners property interest 1-47 16