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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
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Foundations of American Law

• The Nature of Law
• The Resolution of Private Disputes
• Business and The Constitution
• Business Ethics, Corporate Social
Responsibility, Corporate Governance,
and Critical Thinking

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 C H A P T E R
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The Nature of Law
“The sacred rights of mankind . . . are written, as with a sun
beam in the whole volume of human nature, . . . and can
never be erased or obscured by mortal power.”
Alexander Hamilton, 1775

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 Learning Objectives

• Identify sources and types of law

• Identify the law that has precedence
when laws conflict
• Differentiate criminal law from civil law
• Differentiate schools of jurisprudence
• Describe precedent (stare decisis)
• Explain major techniques of statutory
interpretation
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Types and Classifications of Law

At the federal, state, and tribal level:

•Constitutions: establish governmental
structure, specific rights and duties
– Example: U.S. Constitution
•Statutes: enacted by legislative body
to regulate conduct
– Example: Clean Air Act, 42 U.S.C. §§ 7401
et seq. (1970)

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Types and Classifications of Law
• Common law or case law is made and
applied by judges at the state level as
judges decide cases according to the
doctrine of precedent or stare decisis
(let the decision stand)
– Example: in the negligence case of Young
v. Beck, the court reviewed applicable law
and concluded that a long-standing
common law rule should remain in effect

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Types and Classifications of Law

• Equity is applied by state level judiciary

to achieve justice when common law
rules would produce unfair results
– Injunction: court forbids a party to do some
act or orders a party to perform an act
– Specific performance: party is ordered to
perform according to contract terms
– Reformation: court rewrites contract to reflect
intention of parties
– Recission: cancellation of the contract

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Types and Classifications of Law
• Administrative Regulations & Decisions:
made by state and federal agencies
that were created by statute and hold
delegated (granted) power
• Treaty: made with other nations, by the
U.S. president on behalf of the nation,
approved (ratified) by the U.S. Senate
– Example: The Antarctic Treaty

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Types and Classifications of Law
• Ordinance: made by subunits of state
governments (e.g., counties, cities) for
local issues, such as zoning
• Executive Order: issued by the U.S.
President or a state governor under
limited powers
– Example:
Executive Orders Disposition Tables Index

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 Priority Rules
• Federal supremacy: a rule of priority for
conflicts between laws stating that the
U.S. Constitution is the supreme law
– Supremacy Clause, Article VI, Section 2, of
the U.S. Constitution
• Practical meaning:
– Federal law defeats state law
– State constitution defeats state legislation
– Statute defeats administrative regulation
– Statute or regulation defeats common law
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 Trentadue v. Gorton
• Facts & Procedural History:
– Trial court decided that common law discovery
rule applied to claims against corporate
defendants for the crime of an employee rather
than a statute of limitations. Appellate court
affirmed and case appealed.
• Issue: Does a legislated rule (statute of
limitations) abrogate a common law rule?
• Holding: Yes. Plain language of statute
indicates a legislative intent to exclude
common law rules.
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 Classification of Law
• Criminal law establishes
duties to society
– Government charges
and prosecutes
defendant, who will be
found guilty or innocent
– A convicted defendant
will be imprisoned or
fined

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 Classification of Law
• Civil law establishes
duties and obligations
between private
parties
– Plaintiff sues defendant
for monetary damages
or equitable relief
– A defendant will be
held liable or not liable
for the plaintiff’s injury
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 Classification of Law
• Substantive law establishes rights and
duties of people in society
– Example: A statute making murder a
crime is a substantive law
• Procedural law establishes how to
enforce those rights and duties
– Example: Rules for the proper conduct of
a trial are rules of procedural law

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 Classification of Law
• Public law refers to the relationship
between governments and private
parties
– Examples: constitutional, statutory, and
administrative law
• Private law refers to the regulation of
conduct between private parties
– Examples: contract, tort, property, and
agency laws
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 Jurisprudence
• Jurisprudence refers to the philosophy
of law as well as the collection of laws
• Legal positivism: law is the command
of a recognized political authority
– Just or unjust, law must be obeyed
• Natural law: universal moral rules bind
all people whether written or unwritten
– Unjust positive laws are invalid

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 Jurisprudence
• American legal realism defines law as
the behavior of the judiciary as they
rule on matters within the legal system
– Thus law in action dominates positive law
• Sociological jurisprudence unites
theories that examine law within its
social context

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 Functions of Law
• Peacekeeping
• Checking government power and
promoting personal freedom
• Facilitating planning and the realization of
reasonable expectations
• Promoting economic growth through free
competition
• Promoting social justice
• Protecting the environment
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 Legal Reasoning
• Basically deductive, with legal rule as
major premise and facts as the minor
premise
– Result is product of the two
• Case law reasoning: Court may stand
on precedent or distinguish prior case
from current case
– If precedent inapplicable, new rule
developed
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 Hagan v. Coca-Cola Bottling Co.

• Facts & Procedural History:

– Florida plaintiffs drank from bottle of Coke,
found foreign object, suffered emotional
distress, and brought suit for negligence
– Jury returned verdict for plaintiffs, judge
reduced jury award, & both parties appealed
– Certified question sent to Florida Supreme Court
• Question: Should the impact rule (physical injury
required to state a claim) be abolished or
amended in Florida?

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 Hagan v. Coca-Cola Bottling Co.

• Court’s Reasoning:
– Reviewed facts and arguments of parties
– Reviewed application of impact rule within
Florida, including modifications to the rule
– Discussed public policy recognized by the
Florida Supreme Court in Doyle v. Pillsbury Co.
– Noted court decisions in other states
• Holding: Impact rule does not apply where
emotional damages are caused by conduct that
is a freestanding tort (e.g., contaminated food)
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Reasoning by Statutory Interpretation

• Plain meaning rule: court applies statute

according to usual meaning of the words
• Courts examine legislative history and
purpose when plain meaning rule is
inadequate
– Example A: Why does the Communications
Decency Act offer immunity for some entities?
– Example B: What is meant by a prohibition
against discrimination “because of an
individual’s age?”
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Federal Communications Commission v.

• Facts:
– Corporation challenged a Freedom of
Information Act request arguing that
Exemption 7(C), an unwarranted
invasion of personal privacy, applied to
the request and prevented disclosure
• Issue: whether corporations have
“personal privacy” for the purposes of this
exemption?

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Federal Communications Commission
v. AT&T, Inc.
• Reasoning:
– “Personal” not defined by the statute,
but “personal privacy” ordinarily refers
to individuals and the ordinary meaning
of the phrase should apply
• Holding:
– Corporations do not have “personal
privacy” for purposes of Exemption 7(C)

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 Statutory Interpretation
• Courts may interpret a statute in light of
a general public purpose or public
policy
• Courts follow prior interpretation of a
statute (precedent) to promote
consistency
• Maxims may be used to assist in
statutory interpretation

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 Statutory Interpretation
• Example of a maxim:
– Ejusdem generis (things of the same type)
– When general words follow specific
words, the general words are limited to
the same things as specific words
• “Automobiles and other vehicles” does
not include airplanes

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 Limitations on Judicial Power
• Courts limited to deciding existing
cases or controversies
– In other words, the dispute must be
current and not yet resolved
– However, a declaratory judgment allows
parties to determine rights and duties
prior to harm occurring

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 Limitations on Judicial Power
• Parties must have standing (direct
interest in the outcome) to sue

 Whales, for example,

do not have standing
 The Cetacean
Community v.
Bush, 386 F.3d
1169 (9th Cir. 2004)

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 Global Business Environment
• Courts may faced with
treaty interpretation “The carrier shall be
liable for damage
sustained in the event of
• U.S. Supreme Court the death or wounding
of a passenger or any
interpreted The Warsaw other bodily injury
suffered by a passenger,
Convention in if the accident which
caused the damage so
Olympic Airways v. sustained took place on
board the aircraft or in
Husain the course of the
operations of embarking
• How would you have or disembarking.”
Warsaw Convention,
interpreted the treaty Art. 17
language?
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 Test Your Knowledge
• True=A, False = B
– The Constitution, statutes, and case law
are sources of law in the United States
– Agency regulations, presidential orders,
and treaties are sources of law in the
United States
– Stare decisis refers to the doctrine of equity
– The Supremacy Clause states that the U.S.
Constitution is the supreme law of the land

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 Test Your Knowledge
• True=A, False = B
– Civil law establishes the duties an
individual has to keeping a civil society
– Substantive law establishes how to
enforce the rights and duties of people in
society
– Jurisprudence refers to the philosophy of
law as well as the collection of laws
– Legal reasoning is basically inductive

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 Test Your Knowledge
• Multiple Choice
– The plain meaning rule means that the
court applies a statute
a) according to the unique or special
meaning of words
b) according to usual meaning of the
words
c) according to public policy and
legislative purpose

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 Test Your Knowledge
• Multiple Choice
– Courts are:
a) Limited to hearing existing cases or
controversies
b) Limited to hearing cases in which plaintiff
has standing (a direct interest in the
outcome)
c) Unlimited in types of cases they may hear
d) All of the above
e) Both A & B
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 Thought Question
• What do you think the authors of the
U.S. Constitution would think about
current legal issues in our society?

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