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Table of ContentsAbout the Authors................................................................................................................. 1Acknowledgments ................................................................................................................. 5Preface..................................................................................................................................... 6Chapter 1: Introduction to Law and Legal Systems ....................................................... 8

What Is Law?................................................................................................................................................... 9Schools of Legal Thought ............................................................................................................................ 11Basic Concepts and Categories of US Positive Law ................................................................................... 17Sources of Law and Their Priority.............................................................................................................. 23Legal and Political Systems of the World .................................................................................................. 32A Sample Case............................................................................................................................................... 34Summary and Exercises .............................................................................................................................. 40

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

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

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Chapter 4: Constitutional Law and US Commerce ..................................................... 141Basic Aspects of the US Constitution ....................................................................................................... 142The Commerce Clause ............................................................................................................................... 147Dormant Commerce Clause....................................................................................................................... 154Preemption: The Supremacy Clause ........................................................................................................ 159Business and the Bill of Rights.................................................................................................................. 163Cases ............................................................................................................................................................ 173Summary and Exercises ............................................................................................................................ 195

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

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

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

Chapter 8: Contracts......................................................................................................... 320General Perspectives on Contracts .......................................................................................................... 321Contract Formation ................................................................................................................................... 332Remedies ..................................................................................................................................................... 340Cases ............................................................................................................................................................ 346Summary and Exercises ............................................................................................................................ 354

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Chapter 9: Relationships between Principal and Agent ........................................... 359Introduction to Agency and the Types of Agents ................................................................................... 360Duties between Agent and Principal........................................................................................................ 371Cases ............................................................................................................................................................ 384Summary and Exercises ............................................................................................................................ 399

Chapter 10: Liability of Principal and Agent; Termination of Agency .................. 404Principal’s Contract Liability .................................................................................................................... 405Principal’s Tort and Criminal Liability .................................................................................................... 411Agent’s Personal Liability for Torts and Contracts; Termination of Agency....................................... 419Cases ............................................................................................................................................................ 425Summary and Exercises ............................................................................................................................ 437

Chapter 11: Partnerships: General Characteristics and Formation....................... 442Introduction to Partnerships and Entity Theory ................................................................................... 443Partnership Formation.............................................................................................................................. 449Cases ............................................................................................................................................................ 458Summary and Exercises ............................................................................................................................ 471

Chapter 12: Partnership Operation and Termination .............................................. 476Operation: Relations among Partners...................................................................................................... 477Operation: The Partnership and Third Parties ....................................................................................... 488Dissolution and Winding Up ..................................................................................................................... 494Cases ............................................................................................................................................................ 506Summary and Exercises ............................................................................................................................ 522

Chapter 13: Hybrid Business Forms .............................................................................. 529Limited Partnerships ................................................................................................................................. 531Limited Liability Companies ..................................................................................................................... 539Other Forms................................................................................................................................................ 546Cases ............................................................................................................................................................ 551Summary and Exercises ............................................................................................................................ 560

Chapter 14: Corporation: General Characteristics and Formation ........................ 566Historical Background............................................................................................................................... 567Partnerships versus Corporations............................................................................................................ 571The Corporate Veil: The Corporation as a Legal Entity ......................................................................... 574Classifications of Corporations................................................................................................................. 579Corporate Organization............................................................................................................................. 582Effect of Organization................................................................................................................................ 589Cases ............................................................................................................................................................ 591Summary and Exercises ............................................................................................................................ 603

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Chapter 15: Legal Aspects of Corporate Finance ........................................................ 610General Sources of Corporate Funds........................................................................................................ 611Bonds ........................................................................................................................................................... 614Types of Stock............................................................................................................................................. 617Initial Public Offerings and Consideration for Stock ............................................................................. 623Dividends .................................................................................................................................................... 627The Winds of Change ................................................................................................................................. 632Cases ............................................................................................................................................................ 635Summary and Exercises ............................................................................................................................ 642

Chapter 16: Corporate Powers and Management ...................................................... 647Powers of a Corporation............................................................................................................................ 648Rights of Shareholders .............................................................................................................................. 653Duties and Powers of Directors and Officers........................................................................................... 660Liability of Directors and Officers ............................................................................................................ 664Cases ............................................................................................................................................................ 676Summary and Exercises ............................................................................................................................ 685

Chapter 17: Securities Regulation ................................................................................. 691The Nature of Securities Regulation ........................................................................................................ 692Liability under Securities Law .................................................................................................................. 701Cases ............................................................................................................................................................ 708Summary and Exercises ............................................................................................................................ 716

Chapter 18: Corporate Expansion, State and Federal Regulation of ForeignCorporations, and Corporate Dissolution.................................................................... 720

Corporate Expansion ................................................................................................................................. 721Foreign Corporations................................................................................................................................. 728Dissolution .................................................................................................................................................. 732Cases ............................................................................................................................................................ 735Summary and Exercises ............................................................................................................................ 741

Chapter 19: Nature and Form of Commercial Paper ................................................. 746Introduction to Commercial Paper .......................................................................................................... 747Scope of Article 3 and Types of Commercial Paper and Parties ........................................................... 754Requirements for Negotiability ................................................................................................................ 761Cases ............................................................................................................................................................ 767Summary and Exercises ............................................................................................................................ 776

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Chapter 20: Negotiation of Commercial Paper ........................................................... 782Transfer and Negotiation of Commercial Paper ..................................................................................... 783Indorsements.............................................................................................................................................. 788Problems and Issues in Negotiation......................................................................................................... 795Cases ............................................................................................................................................................ 801Summary and Exercises ............................................................................................................................ 817

Chapter 21: Holder in Due Course and Defenses ........................................................ 822Holder in Due Course................................................................................................................................. 823Defenses and Role in Consumer Transactions ........................................................................................ 831Cases ............................................................................................................................................................ 838Summary and Exercises ............................................................................................................................ 852

Chapter 22: Liability and Discharge.............................................................................. 857Liability Imposed by Signature: Agents, Authorized and Unauthorized ............................................. 858Contract Liability of Parties ...................................................................................................................... 862Warranty Liability of Parties .................................................................................................................... 869Discharge .................................................................................................................................................... 874Cases ............................................................................................................................................................ 879Summary and Exercises ............................................................................................................................ 896

Chapter 23: Legal Aspects of Banking .......................................................................... 902Banks and Their Customers ...................................................................................................................... 903Electronic Funds Transfers ....................................................................................................................... 914Wholesale Transactions and Letters of Credit ........................................................................................ 920Cases ............................................................................................................................................................ 927Summary and Exercises ............................................................................................................................ 941

Chapter 24: Consumer Credit Transactions ................................................................ 946Entering into a Credit Transaction .......................................................................................................... 948Consumer Protection Laws and Debt Collection Practices .................................................................... 957Cases ............................................................................................................................................................ 963Summary and Exercises ............................................................................................................................ 973

Chapter 25: Secured Transactions and Suretyship.................................................... 978Introduction to Secured Transactions..................................................................................................... 979Priorities ..................................................................................................................................................... 998Rights of Creditor on Default and Disposition after Repossession ..................................................... 1006Suretyship................................................................................................................................................. 1011Cases .......................................................................................................................................................... 1019Summary and Exercises .......................................................................................................................... 1029

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Chapter 26: Mortgages and Nonconsensual Liens ................................................... 1036Uses, History, and Creation of Mortgages ............................................................................................. 1037Priority, Termination of the Mortgage, and Other Methods of Using Real Estate as Security........1044Nonconsensual Lien ................................................................................................................................. 1052Cases .......................................................................................................................................................... 1056Summary and Exercises .......................................................................................................................... 1073

Chapter 27: Bankruptcy................................................................................................. 1078Introduction to Bankruptcy and Overview of the 2005 Bankruptcy Act ........................................... 1079Case Administration; Creditors’ Claims; Debtors’ Exemptions and Dischargeable Debts; Debtor’sEstate ......................................................................................................................................................... 1085Chapter 7 Liquidation .............................................................................................................................. 1098Chapter 11 and Chapter 13 Bankruptcies .............................................................................................. 1104Alternatives to Bankruptcy..................................................................................................................... 1110Cases .......................................................................................................................................................... 1113Summary and Exercises .......................................................................................................................... 1124

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About the Authors

Don Mayer

Don Mayer teaches law, ethics, public policy, andsustainability at the Daniels College of Business,University of Denver, where he is professor inresidence. His research focuses on the role of businessin creating a more just, sustainable, peaceful, andproductive world. With James O’Toole, Professor Mayerhas 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 withPearson Publishing Company. He recently served as thefirst Arsht Visiting Ethics Scholar at the University ofMiami.

After earning a philosophy degree from Kenyon College and a law degree from DukeUniversity 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 wentinto private practice in North Carolina. In 1985, he earned his LLM in internationaland comparative law at the Georgetown University Law Center. Later that year, hebegan his academic career at Western Carolina University and proceeded to becomea full professor at Oakland University in Rochester, Michigan, where he taught formany years before moving to the University of Denver. He has taught as a visitor atCalifornia State Polytechnic University, the University of Michigan, the ManchesterBusiness School Worldwide, and Antwerp Management School.

Professor Mayer has won numerous awards from the Academy of Legal Studies inBusiness, including the Hoeber Award for best article in the American Business LawJournal, the Maurer Award for best article on business ethics (twice), and the RalphBunche Award for best article on international business law (three times). His workhas been published in many journals and law reviews but most often in AmericanBusiness Law Journal, the Journal of Business Ethics, and the Business Ethics Quarterly.

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Daniel M. Warner

Daniel M. Warner is a magna cum laude graduate of theUniversity of Washington, where—following militaryservice—he also attended law school. In 1978, afterseveral years of civil practice, he joined the faculty atthe College of Business and Economics at WesternWashington University, where he is now a professor ofbusiness legal studies in the Accounting Department. Hehas published extensively, exploring the intersection ofpopular culture and the law, and has received theCollege of Business Dean’s Research Award five times for“distinguished contributions in published research.”Professor Warner served on the Whatcom CountyCouncil for eight years (two years as its chair). He hasserved on the Faculty Senate and on various university and college committees,including as chairman of the University Master Plan Committee. Professor Warnerhas 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 thatrelate to international business law, negotiation, anddispute resolution. Recent publications focus onproactive law and the use of law to gain competitiveadvantage. His work in progress includes research onthe impact of litigation on large corporations and theuse of electronic communication as evidence inlitigation.

Professor Siedel has been admitted to practice beforethe United States Supreme Court and in Michigan, Ohio,and Florida. Following graduation from law school, heworked as an attorney in a professional corporation. He has also served on severalboards of directors and as associate dean of the University of Michigan BusinessSchool.

The author of numerous books and articles, Professor Siedel has received severalresearch awards, including the Faculty Recognition Award from the University ofMichigan 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

About the Authors

2

International Business Education and Research selected a case written by ProfessorSiedel for its annual International Case Writing Award. His research has been citedby appellate courts in the United States and abroad, including the High Court ofAustralia.

Professor Siedel has served as visiting professor of business law at StanfordUniversity, visiting professor of business administration at Harvard University, andParsons fellow at the University of Sydney. He has been elected a visiting fellow atCambridge University’s Wolfson College and a life fellow of the Michigan State BarFoundation. As a Fulbright scholar, Professor Siedel held a distinguished chair inthe humanities and social sciences.

Jethro K. Lieberman

Jethro K. Lieberman is professor of law and vicepresident for academic publishing at New York LawSchool, where he has taught for more than twenty-fiveyears. He earned his BA in politics and economics fromYale University, his JD from Harvard Law School, and hisPhD in political science from Columbia University. Hebegan his teaching career at Fordham University Schoolof Law. Before that, he was vice president at what is nowthe International Institute for Conflict Prevention andResolution (CPR). For nearly ten years, he was legalaffairs editor of Business Week magazine. He practicedantitrust and trade regulation law at a large Washingtonlaw firm and was on active duty as a member of theNavy’s Judge Advocate General’s (JAG) Corps during the Vietnam era. He is theauthor of The Litigious Society (Basic Books), the winner of the American BarAssociation’s top literary prize, the Silver Gavel, and the author of A PracticalCompanion to the Constitution: How the Supreme Court Has Ruled on Issues from Abortion toZoning (University of California Press), among many other books. He is a long-timeletterpress printer and proprietor of The Press at James Pond, a private press, andowner of the historic Kelmscott-Goudy Press, an Albion handpress that was used toprint the Kelmscott Press edition of Geoffrey Chaucer’s Canterbury Tales in the1890s.

Alyssa Rose Martina (Contributing Author)

Alyssa Rose Martina is an entrepreneur, businesswoman, professional writer, andeducator. She started her first company, Metro Parent Magazine, in 1986, afterserving for five years as legal counsel for Wayne County Circuit Court, one of the

About the Authors

3

nation’s largest state judicial circuits. As a dedicated entrepreneur, she saw anopportunity 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’scompany, Metro Parent Publishing Group, also produces several ancillarypublications: Metro Baby, a biannual pregnancy resource guide; Going Places, abiannual guide to family fun in Southeast Michigan; Party Book, an event planningresource guide; and Special Edition, a resource for parents regarding children withspecial needs. To offer support and resources to African American families, Alyssasaw an opportunity to establish a second publishing company catered to the AfricanAmerican market. In 1999, the company was launched and today, BLAC Magazine,which covers “Black Life, Arts and Culture,” reaches over sixty thousand readers inthe Detroit region. This monthly lifestyle publication explores and celebrates therich cultural fabric of African American life in southeast Michigan, under theguidance of African American community leaders and educators and adistinguished panel of advisors who form an advisory council.

Alyssa presents lectures and workshops to various business and community groupsaround the country on topics such as innovation, strategy, entrepreneurship, andnext-level thinking. She also serves as a consultant on events marketing for severalof her sister publications throughout the country. In April 2010, Alyssa received herMBA with highest distinction from the University of Michigan’s Ross School ofBusiness. She has guest-lectured on entrepreneurial/legal issues at Ross and hasalso served as a teaching assistant. She has written a number of parenting articlesand a children’s book, and she was a weekly columnist for the Detroit News. Alyssahas served as an editor and reviewer for several business law articles andmanuscripts. Alyssa teaches at Walsh School of Business as an adjunct professor.Her course is focused on legal issues in business for MBA students.

About the Authors

4

Acknowledgments

The authors would like to thank the following colleagues who have reviewed thetext and provided comprehensive feedback and suggestions for improving thematerial:

• 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

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Preface

Our goal is to provide students with a textbook that is up to date andcomprehensive in its coverage of legal and regulatory issues—and organized topermit instructors to tailor the materials to their particular approach. This bookengages students by relating law to everyday events with which they are alreadyfamiliar (or with which they are familiarizing themselves in other business courses)and by its clear, concise, and readable style. (An earlier business law text by authorsLieberman and Siedel was hailed “the best written text in a very crowded field.”)

This textbook provides context and essential concepts across the entire range oflegal issues with which managers and business executives must grapple. The textprovides the vocabulary and legal acumen necessary for businesspeople to talk inan educated way to their customers, employees, suppliers, governmentofficials—and to their own lawyers.

Traditional publishers often create confusion among customers in the text selectionprocess by offering a huge array of publications. Once a text is selected, customersmight still have to customize the text to meet their needs. For example, publishersusually offer books that include either case summaries or excerpted cases, but someinstructors prefer to combine case summaries with a few excerpted cases so thatstudents can experience reading original material. Likewise, the manner in whichmost conventional texts incorporate video is cumbersome because the videos arecontained in a separate library, which makes access more complicating forinstructors and students.

The Unnamed Publisher model eliminates the need for “families” of books (such asthe ten Miller texts mentioned below) and greatly simplifies text selection.Instructors have only to select between our Legal Aspects of Corporate Management andFinance volumes of the text and then click on the features they want (as opposed totrying to compare the large number of texts and packages offered by otherpublishers). In addition to the features inherent in any Flat World publication, thisbook offers these unique features:

• Cases are available in excerpted and summarized format, thus enablinginstructors to easily “mix and match” excerpted cases with casesummaries.

• Links to forms and uniform laws are embedded in the text. Forexample, the chapters on contract law incorporate discussion of

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various sections of the Uniform Commercial Code, which is available athttp://www.law.cornell.edu/ucc/ucc.table.html.

• Likewise, many sample legal forms are readily available online. Forexample, the chapter on employment law refers to the type of termscommonly found in a standard employment agreement, examples ofwhich can be found at http://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2g.

• Every chapter contains overviews that include the organization andcoverage, a list of key terms, chapter summaries, and self-testquestions in multiple-choice format (along with answers) that arefollowed by additional problems with answers available in theInstructors’ Manual.

• In addition to standard supplementary materials offered by othertexts, students have access to electronic flash cards, proactive quizzes,and audio study guides.

Preface

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http://www.law.cornell.edu/ucc/ucc.table.htmlhttp://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2ghttp://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2ghttp://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2ghttp://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2ghttp://www.rocketlawyer.com/popular-legal-forms.rl?utm_source=103&campaign=Alpha+Search&keyword=online%2520legal%2520forms&mtype=e&ad=12516463025&docCategoryId=none&gclid=CI3Wgeiz7q8CFSoZQgodIjdn2g

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—andexplain 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 haveconsidered 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 thosedifferent meanings and approaches and will consider how social and politicaldynamics 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 howsome of those sources have priority over others, and we will set out some basicdifferences between the US legal system and other legal systems.

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1.1 What Is Law?

Law is a word that means different things at different times. Black’s Law Dictionarysays that law is “a body of rules of action or conduct prescribed by controllingauthority, and having binding legal force. That which must be obeyed and followedby 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) promotesocial justice, and (6) provide for orderly social change. Some legal systems servethese purposes better than others. Although a nation ruled by an authoritariangovernment may keep the peace and maintain the status quo, it may also oppressminorities or political opponents (e.g., Burma, Zimbabwe, or Iraq under SaddamHussein). Under colonialism, European nations often imposed peace in countrieswhose 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 thefunctions of the law, the empire may have kept the peace—largely with force—but itchanged the status quo and seldom promoted the native peoples’ rights or socialjustice within the colonized nation.

In nations that were former colonies of European nations, various ethnic and tribalfactions have frequently made it difficult for a single, united government to ruleeffectively. In Rwanda, for example, power struggles between Hutus and Tutsisresulted in genocide of the Tutsi minority. (Genocide is the deliberate andsystematic killing or displacement of one group of people by another group. In1948, the international community formally condemned the crime of genocide.) Innations of the former Soviet Union, the withdrawal of a central power createdpower vacuums that were exploited by ethnic leaders. When Yugoslavia broke up,the different ethnic groups—Croats, Bosnians, and Serbians—fought bitterly forhome turf rather than share power. In Iraq and Afghanistan, the effective blendingof different groups of families, tribes, sects, and ethnic groups into a nationalgoverning body that shares power remains to be seen.

Law and Politics

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

Chapter 1 Introduction to Law and Legal Systems

9

diverse group of nongovernment organizations (NGOs) such as the AmericanPetroleum Institute, the Sierra Club, and the National Rifle Association. In the fiftystates, judges are often appointed by governors or elected by the people. Theprocess of electing state judges has become more and more politicized in the pastfifteen years, with growing campaign contributions from those who would seek toseat judges with similar political leanings.

In the federal system, judges are appointed by an elected official (the president) andconfirmed by other elected officials (the Senate). If the president is from one partyand the other party holds a majority of Senate seats, political conflicts may come upduring the judges’ confirmation processes. Such a division has been fairly frequentover the past fifty years.

In most nation-states1 (as countries are called in international law), knowing whohas power to make and enforce the laws is a matter of knowing who has politicalpower; in many places, the people or groups that have military power can alsocommand political power to make and enforce the laws. Revolutions are difficultand contentious, but each year there are revolts against existing political-legalauthority; an aspiration for democratic rule, or greater “rights” for citizens, is arecurring theme in politics and law.

KEY TAKEAWAY

Law is the result of political action, and the political landscape is vastlydifferent from nation to nation. Unstable or authoritarian governmentsoften fail to serve the principal functions of law.

EXERCISES

1. Consider Burma (named Myanmar by its military rulers). What politicalrights do you have that the average Burmese citizen does not?

2. What is a nongovernment organization, and what does it have to do withgovernment? Do you contribute to (or are you active in) anongovernment organization? What kind of rights do they espouse,what kind of laws do they support, and what kind of laws do theyoppose?

1. The basic entities thatcomprise the internationallegal system. Countries, states,and nations are all roughlysynonymous. State can also beused to designate the basicunits of federally united states,such as in the United States ofAmerica, which is a nation-state.


1.1 What Is Law? 10

1.2 Schools of Legal Thought

LEARNING OBJECTIVES

1. Distinguish different philosophies of law—schools of legal thought—andexplain their relevance.

2. Explain why natural law relates to the rights that the founders of the USpolitical-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.

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 legalpositivism3 and natural law4. Although there are others (see Section 1.2.3 "OtherSchools of Legal Thought"), these two are the most influential in how people thinkabout the law.

Legal Positivism: Law as Sovereign Command

As legal philosopher John Austin concisely put it, “Law is the command of asovereign.” Law is only law, in other words, if it comes from a recognized authorityand 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 aphilosophical movement that claims that science provides the only knowledgeprecise enough to be worthwhile. But what are we to make of the social phenomenaof laws?

We could examine existing statutes6—executive orders, regulations, or judicialdecisions—in a fairly precise way to find out what the law says. For example, wecould 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 couldlook a little deeper and find out how the written law is usually applied. Doing so, wemight conclude that sixty-one miles per hour is generally allowed by most statetroopers, but that occasionally someone gets ticketed for doing fifty-seven milesper hour in a fifty-five miles per hour zone. Either approach is empirical, even if notrigorously scientific. The first approach, examining in a precise way what the ruleitself says, is sometimes known as the “positivist” school of legal thought. Thesecond approach—which relies on social context and the actual behavior of the

2. The philosophy of law. Thereare many philosophies of lawand thus many differentjurisprudential views.

3. A jurisprudence that focuseson the law as it is—thecommand of the sovereign.

4. A jurisprudence thatemphasizes a law thattranscends positive laws(human laws) and points to aset of principles that areuniversal in application.

5. The authority within anynation-state. Sovereignty iswhat sovereigns exercise. Thisusually means the power tomake and enforce laws withinthe nation-state.

6. Legislative directives, havingthe form of general rules thatare to be followed in thenation-state or its subdivisions.Statutes are controlling overjudicial decisions or commonlaw, but are inferior to (andcontrolled by) constitutionallaw.


11

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 KingHerod, fearing the birth of a Messiah, issued a decree that all male children below acertain age be killed. Because it was the command of a sovereign, the decree wascarried out (or, in legal jargon, the decree was “executed”). Suppose a group seizespower in a particular place and commands that women cannot attend school andcan only be treated medically by women, even if their condition is life-threateningand women doctors are few and far between. Suppose also that this command iscarried out, just because it is the law and is enforced with a vengeance. People wholive 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, acitizen would have to flee the country entirely. During the Taliban rule inAfghanistan, from which this example is drawn, many did flee.

The positive-law school of legal thought would recognize the lawmaker’s commandas legitimate; questions about the law’s morality or immorality would not beimportant. In contrast, the natural-law school of legal thought would refuse torecognize the legitimacy of laws that did not conform to natural, universal, ordivine law. If a lawmaker issued a command that was in violation of natural law, acitizen 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 wasrefusing to obey an unjust law.

Natural Law

The natural-law school of thought emphasizes that law should be based on auniversal moral order. Natural law was “discovered” by humans through the use ofreason and by choosing between that which is good and that which is evil. Here isthe 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 anobjective norm or set of objective norms governing human behavior, similar to thepositive laws of a human ruler, but binding on all people alike and usuallyunderstood 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 forthe natural-law outlook, as it emphasizes certain objective norms and rights ofindividuals and nations. The US Declaration of Independence embodies a natural-law philosophy. The following short extract should provide some sense of the deepbeliefs in natural law held by those who signed the document.


1.2 Schools of Legal Thought 12

The Unanimous Declaration of the Thirteen United Statesof America

July 4, 1776

When in the Course of human events, it becomes necessary for one people todissolve the political bands which have connected them with another, and toassume among the powers of the earth, the separate and equal station to whichthe Laws of Nature and of Nature’s God entitle them, a decent respect to theopinions of mankind requires that they should declare the causes which impelthem to the separation.

We hold these truths to be self-evident, that all men are created equal, thatthey are endowed by their Creator with certain unalienable Rights, that amongthese are Life, Liberty and the Pursuit of Happiness. That to secure these rights,Governments are instituted among Men, deriving their just powers from theconsent of the governed.…

The natural-law school has been very influential in American legal thinking. Theidea that certain rights, for example, are “unalienable” (as expressed in theDeclaration of Independence and in the writings of John Locke) is consistent withthis view of the law. Individuals may have “God-given” or “natural” rights thatgovernment cannot legitimately take away. Government only by consent of thegoverned is a natural outgrowth of this view.

Civil disobedience—in the tradition of Henry Thoreau, Mahatma Gandhi, or MartinLuther King Jr.—becomes a matter of morality over “unnatural” law. For example,in his “Letter from Birmingham Jail,” Martin Luther King Jr. claims that obeying anunjust law is not moral and that deliberately disobeying an unjust law is in fact amoral act that expresses “the highest respect for law”: “An individual who breaks alaw that conscience tells him is unjust, and who willingly accepts the penalty ofimprisonment in order to arouse the conscience of the community over itsinjustice, is in reality expressing the highest respect for law.…One who breaks anunjust law must do so openly, lovingly, and with a willingness to accept thepenalty.”Martin Luther King Jr., “Letter from Birmingham Jail.”

Legal positivists, on the other hand, would say that we cannot know with realconfidence what “natural” law or “universal” law is. In studying law, we can most



effectively learn by just looking at what the written law says, or by examining howit has been applied. In response, natural-law thinkers would argue that if we careabout justice, every law and every legal system must be held accountable to somehigher standard, however hard that may be to define.

It is easier to know what the law “is” than what the law “should be.” Equalemployment laws, for example, have specific statutes, rules, and decisions aboutracial discrimination. There are always difficult issues of interpretation anddecision, which is why courts will resolve differing views. But how can we know themore fundamental “ought” or “should” of human equality? For example, how do weknow that “all men are created equal” (from the Declaration of Independence)?Setting aside for the moment questions about the equality of women, or that ofslaves, who were not counted as men with equal rights at the time of thedeclaration—can the statement be empirically proven, or is it simply a matter of apriori knowledge? (A priori means “existing in the mind prior to and independent ofexperience.”) Or is the statement about equality a matter of faith or belief, notreally provable either scientifically or rationally? The dialogue between natural-lawtheorists and more empirically oriented theories of “what law is” will raise similarquestions. In this book, we will focus mostly on the law as it is, but not without alsoraising questions about what it could or should be.

Other Schools of Legal Thought

The historical school of law believes that societies should base their legal decisionstoday on the examples of the past. Precedent would be more important than moralarguments.

The legal realist school flourished in the 1920s and 1930s as a reaction to thehistorical school. Legal realists pointed out that because life and society areconstantly changing, certain laws and doctrines have to be altered or modernized inorder to remain current. The social context of law was more important to legalrealists than the formal application of precedent to current or future legal disputes.Rather than suppose that judges inevitably acted objectively in applying an existingrule to a set of facts, legal realists observed that judges had their own beliefs,operated in a social context, and would give legal decisions based on their beliefsand their own social context.

The legal realist view influenced the emergence of the critical legal studies (CLS)school of thought. The “Crits” believe that the social order (and the law) isdominated by those with power, wealth, and influence. Some Crits are clearlyinfluenced by the economist Karl Marx and also by distributive justice theory (seeChapter 2 "Corporate Social Responsibility and Business Ethics"). The CLS school



believes the wealthy have historically oppressed or exploited those with less wealthand have maintained social control through law. In so doing, the wealthy haveperpetuated an unjust distribution of both rights and goods in society. Law ispolitics and is thus not neutral or value-free. The CLS movement would use the lawto overturn the hierarchical structures of domination in the modern society.

Related to the CLS school, yet different, is the ecofeminist school of legal thought.This school emphasizes—and would modify—the long-standing domination of menover both women and the rest of the natural world. Ecofeminists would say that thesame social mentality that leads to exploitation of women is at the root of man’sexploitation and degradation of the natural environment. They would say that maleownership of land has led to a “dominator culture,” in which man is not so much asteward of the existing environment or those “subordinate” to him but is chargedwith making all that he controls economically “productive.” Wives, children, land,and animals are valued as economic resources, and legal systems (until thenineteenth century) largely conferred rights only to men with land. Ecofeministswould say that even with increasing civil and political rights for women (such as theright to vote) and with some nations’ recognizing the rights of children and animalsand caring for the environment, the legacy of the past for most nations stillconfirms the preeminence of “man” and his dominance of both nature and women.

KEY TAKEAWAY

Each of the various schools of legal thought has a particular view of what alegal system is or what it should be. The natural-law theorists emphasize therights and duties of both government and the governed. Positive law takesas a given that law is simply the command of a sovereign, the political powerthat those governed will obey. Recent writings in the various legal schools ofthought emphasize long-standing patterns of domination of the wealthyover others (the CLS school) and of men over women (ecofeminist legaltheory).



EXERCISES

1. Vandana Shiva draws a picture of a stream in a forest. She says that inour society the stream is seen as unproductive if it is simply there,fulfilling the need for water of women’s families and communities, untilengineers come along and tinker with it, perhaps damming it and usingit for generating hydropower. The same is true of a forest, unless it isreplaced with a monoculture plantation of a commercial species. Aforest may very well be productive—protecting groundwater; creatingoxygen; providing fruit, fuel, and craft materials for nearby inhabitants;and creating a habitat for animals that are also a valuable resource. Shecriticizes the view that if there is no monetary amount that cancontribute to gross domestic product, neither the forest nor the rivercan be seen as a productive resource. Which school of legal thought doesher criticism reflect?

2. Anatole France said, “The law, in its majesty, forbids rich and poor alikefrom sleeping under bridges.” Which school of legal thought isrepresented by this quote?

3. Adolf Eichmann was a loyal member of the National Socialist Party inthe Third Reich and worked hard under Hitler’s government duringWorld War II to round up Jewish people for incarceration—and eventualextermination—at labor camps like Auschwitz and Buchenwald. After anIsraeli “extraction team” took him from Argentina to Israel, he was puton trial for “crimes against humanity.” His defense was that he was “justfollowing orders.” Explain why Eichmann was not an adherent of thenatural-law school of legal thought.



1.3 Basic Concepts and Categories of US Positive Law

LEARNING OBJECTIVES

1. In a general way, differentiate contract law from tort law.2. Consider the role of law in supporting ethical norms in our society.3. Understand the differing roles of state law and federal law in the US

legal system.4. Know the difference between criminal cases and civil cases.

Most of what we discuss in this book is positive law—US positive law in particular.We will also consider the laws and legal systems of other nations. But first, it will beuseful to cover some basic concepts and distinctions.

Law: The Moral Minimums in a Democratic Society

The law does not correct (or claim to correct) every wrong that occurs in society. Ata minimum, it aims to curb the worst kind of wrongs, the kinds of wrongs thatviolate what might be called the “moral minimums” that a community demands ofits members. These include not only violations of criminal law (see Chapter 6"Criminal Law") but also torts (see Chapter 7 "Introduction to Tort Law") andbroken promises (see Chapter 8 "Contracts"). Thus it may be wrong to refuse toreturn a phone call from a friend, but that wrong will not result in a viable lawsuitagainst you. But if a phone (or the Internet) is used to libel or slander someone, atort has been committed, and the law may allow the defamed person to becompensated.

There is a strong association between what we generally think of as ethicalbehavior and what the laws require and provide. For example, contract law upholdssociety’s sense that promises—in general—should be kept. Promise-breaking is seenas unethical. The law provides remedies for broken promises (in breach of contractcases) but not for all broken promises; some excuses are accepted when it would bereasonable to do so. For tort law, harming others is considered unethical. If peopleare not restrained by law from harming one another, orderly society would beundone, leading to anarchy. Tort law provides for compensation when seriousinjuries or harms occur. As for property law issues, we generally believe thatprivate ownership of property is socially useful and generally desirable, and it isgenerally protected (with some exceptions) by laws. You can’t throw a party at myhouse without my permission, but my right to do whatever I want on my own


17

property may be limited by law; I can’t, without the public’s permission, operate anincinerator on my property and burn heavy metals, as toxic ash may be depositedthroughout the neighborhood.

The Common Law: Property, Torts, and Contracts

Even before legislatures met to make rules for society, disputes happened andjudges decided them. In England, judges began writing down the facts of a case andthe reasons for their decision. They often resorted to deciding cases on the basis ofprior written decisions. In relying on those prior decisions, the judge would reasonthat since a current case was pretty much like a prior case, it ought to be decidedthe same way. This is essentially reasoning by analogy. Thus the use of precedent7in common-law cases came into being, and a doctrine of stare decisis8 (pronouncedSTAR-ay-de-SIGH-sus) became accepted in English courts. Stare decisis means, inLatin, “let the decision stand.”

Most judicial decisions that don’t apply legislative acts (known as statutes) willinvolve one of three areas of law—property, contract, or tort. Property law dealswith the rights and duties of those who can legally own land (real property), howthat ownership can be legally confirmed and protected, how property can bebought and sold, what the rights of tenants (renters) are, and what the variouskinds of “estates” in land are (e.g., fee simple, life estate, future interest, easements,or rights of way). Contract law deals with what kinds of promises courts shouldenforce. For example, should courts enforce a contract where one of the parties wasintoxicated, underage, or insane? Should courts enforce a contract where one of theparties seemed to have an unfair advantage? What kind of contracts would have tobe in writing to be enforced by courts? Tort law deals with the types of cases thatinvolve some kind of harm and or injury between the plaintiff and the defendantwhen no contract exists. Thus if you are libeled or a competitor lies about yourproduct, your remedy would be in tort, not contract.

The thirteen original colonies had been using English common law for many years,and they continued to do so after independence from England. Early cases from thefirst states are full of references to already-decided English cases. As years went by,many precedents were established by US state courts, so that today a judicialopinion that refers to a seventeenth- or eighteenth-century English common-lawcase is quite rare.

Courts in one state may look to common-law decisions from the courts of otherstates where the reasoning in a similar case is persuasive. This will happen in “casesof first impression,” a fact pattern or situation that the courts in one state havenever seen before. But if the supreme court in a particular state has already ruled

7. A prior judicial decision that iseither binding or persuasive,and as such, provides a ruleuseful in making a decision inthe case at hand.

8. Latin, for “let the decisionstand.” By keeping within therule of a prior judicial decision,a court follows “precedent” byletting the prior decisiongovern the result in the case athand.


1.3 Basic Concepts and Categories of US Positive Law 18

on a certain kind of case, lower courts in that state will always follow the rule setforth by their highest court.

State Courts and the Domain of State Law

In the early years of our nation, federal courts were not as active or important asstate courts. States had jurisdiction (the power to make and enforce laws) over themost important aspects of business life. The power of state law has historicallyincluded governing the following kinds of issues and claims:

• Contracts, including sales, commercial paper, letters of credit, andsecured transactions

• Torts• Property, including real property, bailments of personal property

(such as when you check your coat at a theater or leave your clotheswith a dry cleaner), trademarks, copyrights, and the estates ofdecedents (dead people)

• Corporations• Partnerships• Domestic matters, including marriage, divorce, custody, adoption, and

visitation• Securities law• Environmental law• Agency law, governing the relationship between principals and their

agents.• Banking• Insurance

Over the past eighty years, however, federal law has become increasingly importantin many of these areas, including banking, securities, and environmental law.

Civil versus Criminal Cases

Most of the cases we will look at in this textbook are civil cases. Criminal cases arecertainly of interest to business, especially as companies may break criminal laws. Acriminal case involves a governmental decision—whether state or federal—toprosecute someone (named as a defendant) for violating society’s laws. The lawestablishes a moral minimum and does so especially in the area of criminal laws; ifyou break a criminal law, you can lose your freedom (in jail) or your life (if you areconvicted of a capital offense). In a civil action, you would not be sent to prison; inthe worst case, you can lose property (usually money or other assets), such as whenFord Motor Company lost a personal injury case and the judge awarded $295 million



to the plaintiffs or when Pennzoil won a $10.54 billion verdict against Texaco (seeChapter 7 "Introduction to Tort Law").

Some of the basic differences between civil law9 and criminal law10 cases areillustrated in Table 1.1 "Differences between Civil and Criminal Cases".

Table 1.1 Differences between Civil and Criminal Cases

Civil Cases Criminal Cases

Parties Plaintiff brings case; defendant mustanswer or lose by defaultProsecutor brings case; defendantmay remain silent

Proof Preponderance of evidence Beyond a reasonable doubt

Reason To settle disputes peacefully, usuallybetween private parties To maintain order in society

To punish the most blameworthy

To deter serious wrongdoing

Remedies Money damages (legal remedy) Fines, jail, and forfeitures

Injunctions (equitable remedy)

Specific performance (equity)

Regarding plaintiffs and prosecutors, you can often tell a civil case from a criminalcase by looking at the caption of a case going to trial. If the government appearsfirst in the caption of the case (e.g., U.S. v. Lieberman, it is likely that the UnitedStates is prosecuting on behalf of the people. The same is true of cases prosecutedby state district attorneys (e.g., State v. Seidel). But this is not a foolproof formula.Governments will also bring civil actions to collect debts from or settle disputeswith individuals, corporations, or other governments. Thus U.S. v. Mayer might be acollection action for unpaid taxes, or U.S. v. Canada might be a boundary dispute inthe International Court of Justice. Governments can be sued, as well; peopleoccasionally sue their state or federal government, but they can only get a trial ifthe government waives its sovereign immunity and allows such suits. Warner v. U.S.,for example, could be a claim for a tax refund wrongfully withheld or for damagecaused to the Warner residence by a sonic boom from a US Air Force jet flyingoverhead.

9. In contrast to criminal law, thelaw that governs noncriminaldisputes, such as in lawsuits (asopposed to prosecutions) overcontract disputes and tortclaims. In contrast to commonlaw, civil law is part of thecontinental European traditiondating back to Roman law.

10. That body of law in any nation-state that defines offensesagainst society as a whole,punishable by fines,forfeitures, or imprisonment.



Substance versus Procedure

Many rules and regulations in law are substantive, and others are procedural. Weare used to seeing laws as substantive; that is, there is some rule of conduct orbehavior that is called for or some action that is proscribed (prohibited). Thesubstantive rules tell us how to act with one another and with the government. Forexample, all of the following are substantive rules of law and provide a kind ofcommand or direction to citizens:

• Drive not more than fifty-five miles per hour where that speed limit isposted.

• Do not conspire to fix prices with competitors in the US market.• Do not falsely represent the curative effects of your over-the-counter

herbal remedy.• Do not drive your motor vehicle through an intersection while a red

traffic signal faces the direction you are coming from.• Do not discriminate against job applicants or employees on the basis of

their race, sex, religion, or national origin.• Do not discharge certain pollutants into the river without first getting

a discharge permit.

In contrast, procedural laws are the rules of courts and administrative agencies.They tell us how to proceed if there is a substantive-law problem. For example, ifyou drive fifty-three miles per hour in a forty mile-per-hour zone on Main Street ona Saturday night and get a ticket, you have broken a substantive rule of law (theposted speed limit). Just how and what gets decided in court is a matter ofprocedural law. Is the police officer’s word final, or do you get your say before ajudge? If so, who goes first, you or the officer? Do you have the right to berepresented by legal counsel? Does the hearing or trial have to take place within acertain time period? A week? A month? How long can the state take to bring itscase? What kinds of evidence will be relevant? Radar? (Does it matter what kind oftraining the officer has had on the radar device? Whether the radar device had beentested adequately?) The officer’s personal observation? (What kind of training hashe had, how is he qualified to judge the speed of a car, and other questions arise.)What if you unwisely bragged to a friend at a party recently that you went ahundred miles an hour on Main Street five years ago at half past three on a Tuesdaymorning? (If the prosecutor knows of this and the “friend” is willing to testify, is itrelevant to the charge of fifty-three in a forty-mile-per-hour zone?)

In the United States, all state procedural laws must be fair, since the due processclause of the Fourteenth Amendment directs that no state shall deprive any citizenof “life, liberty, or property,” without due process of law. (The $200 fine plus courtcosts is designed to deprive you of property, that is, money, if you violate the speed



limit.) Federal laws must also be fair, because the Fifth Amendment to the USConstitution has the exact same due process language as the FourteenthAmendment. This suggests that some laws are more powerful or important thanothers, which is true. The next section looks at various types of positive law andtheir relative importance.

KEY TAKEAWAY

In most legal systems, like that in the United States, there is a fairly firmdistinction between criminal law (for actions that are offenses against theentire society) and civil law (usually for disputes between individuals orcorporations). Basic ethical norms for promise-keeping and not harmingothers are reflected in the civil law of contracts and torts. In the UnitedStates, both the states and the federal government have roles to play, andsometimes these roles will overlap, as in environmental standards set byboth states and the federal government.

EXERCISES

1. Jenna gets a ticket for careless driving after the police come toinvestigate a car accident she had with you on Hanover Boulevard. Yourcar is badly damaged through no fault of your own. Is Jenna likely toface criminal charges, civil charges, or both?

2. Jenna’s ticket says that she has thirty days in which to respond to thecharges against her. The thirty days conforms to a state law that setsthis time limit. Is the thirty-day limit procedural law or substantive law?



1.4 Sources of Law and Their Priority

LEARNING OBJECTIVES

1. Describe the different sources of law in the US legal system and theprincipal institutions that create those laws.

2. Explain in what way a statute is like a treaty, and vice versa.3. Explain why the Constitution is “prior” and has priority over the

legislative acts of a majority, whether in the US Congress or in a statelegislature.

4. Describe the origins of the common-law system and what common lawmeans.

Sources of Law

In the United States today, there are numerous sources of law. The main ones are(1) constitutions—both state and federal, (2) statutes and agency regulations, and(3) judicial decisions. In addition, chief executives (the president and the variousgovernors) can issue executive orders that have the effect of law.

In international legal systems, sources of law include treaties11 (agreementsbetween states or countries) and what is known as customary international law(usually consisting of judicial decisions from national court systems where partiesfrom two or more nations are in a dispute).

As you might expect, these laws sometimes conflict: a state law may conflict with afederal law, or a federal law might be contrary to an international obligation. Onenation’s law may provide one substantive rule, while another nation’s law mayprovide a different, somewhat contrary rule to apply. Not all laws, in other words,are created equal. To understand which laws have priority, it is essential tounderstand the relationships between the various kinds of law.

Constitutions

Constitutions12 are the foundation for a state or nation’s other laws, providing thecountry’s legislative, executive, and judicial framework. Among the nations of theworld, the United States has the oldest constitution still in use. It is difficult toamend, which is why there have only been seventeen amendments following the

11. Formal agreements concludedbetween nation-states.

12. The founding documents ofany nation-state’s legal system.


23

first ten in 1789; two-thirds of the House and Senate must pass amendments, andthree-fourths of the states must approve them.

The nation’s states also have constitutions. Along with providing for legislative,executive, and judicial functions, state constitutions prescribe various rights ofcitizens. These rights may be different from, and in addition to, rights granted bythe US Constitution. Like statutes and judicial decisions, a constitution’s specificprovisions can provide people with a “cause of action” on which to base a lawsuit(see Section 1.4.3 "Causes of Action, Precedent, and " on “causes of action”). Forexample, California’s constitution provides that the citizens of that state have aright of privacy. This has been used to assert claims against businesses that invadean employee’s right of privacy. In the case of Virginia Rulon-Miller, her employer,International Business Machines (IBM), told her to stop dating a former colleaguewho went to work for a competitor. When she refused, IBM terminated her, and ajury fined the company for $300,000 in damages. As the California court noted,“While an employee sacrifices some privacy rights when he enters the workplace,the employee’s privacy expectations must be balanced against the employer’sinterests.…[T]he point here is that privacy, like the other unalienable rights listedfirst in our Constitution…is unquestionably a fundamental interest of oursociety.”Rulon-Miller v. International Business Machines Corp., 162 Cal. App.3d 241, 255(1984).

Statutes and Treaties in Congress

In Washington, DC, the federal legislature is known as Congress and has both aHouse of Representatives and a Senate. The House is composed of representativeselected every two years from various districts in each state. These districts areestablished by Congress according to population as determined every ten years bythe census, a process required by the Constitution. Each state has at least onedistrict; the most populous state (California) has fifty-two districts. In the Senate,there are two senators from each state, regardless of the state’s population. ThusDelaware has two senators and California has two senators, even though Californiahas far more people. Effectively, less than 20 percent of the nation’s population cansend fifty senators to Washington.

Many consider this to be antidemocratic. The House of Representatives, on theother hand, is directly proportioned by population, though no state can have lessthan one representative.

Each Congressional legislative body has committees for various purposes. In thesecommittees, proposed bills are discussed, hearings are sometimes held, and bills areeither reported out (brought to the floor for a vote) or killed in committee. If a bill


1.4 Sources of Law and Their Priority 24

is reported out, it may be passed by majority vote. Because of the proceduraldifferences between the House and the Senate, bills that have the same languagewhen proposed in both houses are apt to be different after approval by each body. Aconference committee will then be held to try to match the two versions. If the twoversions differ widely enough, reconciliation of the two differing versions into oneacceptable to both chambers (House and Senate) is more difficult.

If the House and Senate can agree on identical language, the reconciled bill will besent to the president for signature or veto. The Constitution prescribes that thepresident will have veto power over any legislation. But the two bodies can overridea presidential veto with a two-thirds vote in each chamber.

In the case of treaties, the Constitution specifies that only the Senate must ratifythem. When the Senate ratifies a treaty, it becomes part of federal law, with thesame weight and effect as a statute passed by the entire Congress. The statutes ofCongress are collected in codified form in the US Code. The code is available onlineat http://uscode.house.gov.

Delegating Legislative Powers: Rules by Administrative Agencies

Congress has found it necessary and useful to create government agencies toadminister various laws (see Chapter 5 "Administrative Law"). The Constitutiondoes not expressly provide for administrative agencies, but the US Supreme Courthas upheld the delegation of power to create federal agencies.

Examples of administrative agencies would include the Occupational Safety andHealth Administration (OSHA), the Environmental Protection Agency (EPA), and theFederal Trade Commission (FTC).

It is important to note that Congress does not have unlimited authority to delegateits lawmaking powers to an agency. It must delegate its authority with someguidelines for the agency and cannot altogether avoid its constitutionalresponsibilities (see Chapter 5 "Administrative Law").

Agencies propose rules in the Federal Register, published each working day of theyear. Rules that are formally adopted are published in the Code of Federal Regulations,or CFR, available online at http://www.access.gpo.gov/nara/cfr/cfr-table-search.html.


1.4 Sources of Law and Their Priority 25

http://uscode.house.govhttp://www.access.gpo.gov/nara/cfr/cfr-table-search.htmlhttp://www.access.gpo.gov/nara/cfr/cfr-table-search.html

State Statutes and Agencies: Other Codified Law

Statutes are passed by legislatures and provide general rules for society. States havelegislatures (sometimes called assemblies), which are usually made up of both asenate and a house of representatives. Like the federal government, statelegislatures will agree on the provisions of a bill, which is then sent to the governor(acting like the president for that state) for signature. Like the president, governorsoften have a veto power. The process of creating and amending, or changing, laws isfilled with political negotiation and compromise.

On a more local level, counties and municipal corporations or townships may beauthorized under a state’s constitution to create or adopt ordinances. Examples ofordinances include local building codes, zoning laws, and misdemeanors orinfractions such as skateboarding or jaywalking. Most of the more unusual laws thatare in the news from time to time are local ordinances. For example, in LoganCounty, Colorado, it is illegal to kiss a sleeping woman; in Indianapolis, Indiana, andEureka, Nebraska, it is a crime to kiss if you have a mustache. But reportedly, somestates still have odd laws here and there. Kentucky law proclaims that every personin the state must take a bath at least once a year, and failure to do so is illegal.

Judicial Decisions: The Common Law

Common law13 consists of decisions by courts (judicial decisions) that do notinvolve interpretation of statutes, regulations, treaties, or the Constitution. Courtsmake such interpretations, but many cases are decided where there is no statutoryor other codified law or regulation to be interpreted. For example, a state courtdeciding what kinds of witnesses are required for a valid will in the absence of arule (from a statute) is making common law.

United States law comes primarily from the tradition of English common law. Bythe time England’s American colonies revolted in 1776, English common-lawtraditions were well established in the colonial courts. English common law was asystem that gave written judicial decisions the force of l

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