Chapter 1 The Legal and Constitutional Environment of Business

1. Chapter 1The Legal and Constitutional Environment of Business

2. Learning Objectives • What is the Uniform Commercial Code? • What is the common law tradition? • What is a precedent? When might a court depart from precedent? • What are some important differences between civil law and criminal law? • How does the U.S. Constitution affect business activities in the United States?

3. Nature of Law • At a minimum law consists of: • Enforceable rules governing relationships, • Among and between individuals and • Their society. • Different views of law have one thing in common: • Duties, rights, and privileges that are consistent with the values and traditions of that culture.

4. Business Activities and the Legal Environment • Knowledge of “black letter” law is not enough. • Many different laws affect a single business transaction. • Ethics and business decision making: what constitutes right or wrong behavior?

5. Sources of American Law • Constitutional Law. • Found in text and cases arising from federal and state constitutions. • U.S. Constitution is the supreme law of the land. • Statutory Law. • Laws enacted by federal and state legislatures. • Local ordinances. • Uniform Laws (e.g.,Uniform Commercial Code).

6. Sources of American Law • Administrative Law. • Rulemaking--Rules, orders and decisions of administrative agencies, federal, state and local. • Adjudication--agencies make rules, then investigate and enforce the rules in administrative hearings. • Case Law and Common Law Doctrines.

7. The Common Law Tradition • Early English Courts of Law. • King’s courts started after Norman conquest of 1066. • Established the common law—body of general legal principles applied throughout the English empire. • King’s courts used precedent to build the common law.

8. The Common Law Tradition • Stare Decisis. • Practice of deciding new cases based on precedent. • A higher court’s decision based on certain facts and law, is a binding authority on lower courts. • Helps courts stay efficient.

9. The Common Law Tradition • Equitable Remedies and Courts of Equity • Remedy: means to enforce a right or compensate for injury to that right. • Remedy at Law: in king’s courts, remedies were restricted to damages in either money or property. • Remedies in Equity: based on justice and fair dealing a chancery court does what is right. • Today, legal and equitable remedies are found in the same court.

10. Sources of American Law • Case Law and Common Law Doctrines • Much of the common law is still used today. • Common law governs all areas not specifically covered by statutory or constitutional law. • Restatements of the Law: modern compilations of common law principles found, e.g., in contracts, torts, property and agency.

11. Classifications of Law • Substantive vs. Procedural Law • Substantive: laws that define and regulate rights and duties. • Procedural: laws that establish methods for enforcing and protecting rights. • Civil Law and Criminal Law • Civil: private rights and duties between persons and government. • Criminal: public wrongs against society.

12. Classifications of Law • National and International Law • National: laws of a particular nation. • Civil vs. Common Law: Civil law countries based on Roman code (e.g., Latin America). • International: body of written and unwritten laws observed by nations when dealing with each other. • Cyberlaw:governs internet transactions.

13. The Constitutional as It Affects Business • A Federal Form of Government: the federal constitution was a political compromise between advocates of state sovereignty and central government. • Separation of Powers: Executive, Legislative and Judicial. Provides checks and balances. • Legislative: enacts laws. • Executive: enforces laws. • Judicial: declares laws/actions unconstitutional.

14. The Commerce Clause • U.S. Constitution gives Congress the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes.” (Art. 1 § 8) • Greatest impact on business than any other Constitutional provision.

15. The Commerce Clause • Gibbons v. Ogden (1824). • To Chief Justice Marshall, commerce meant all business dealings that substantially affected more than one state. • The national government had the exclusive power to regulate interstate commerce. • Today: commerce clause applies to e-commerce internet transactions.

16. The Commerce Clause • Expansion of Federal Regulatory Powers under Commerce Clause: • Wickard v. Filburn (1942). Purely local production, sale and consumption of wheat was subject to federal regulation. • CASE 1.1:Heart of Atlanta Motel v. U.S. (1964).

17. The Commerce Clause • Commerce Power Today: • Theoretically: the federal government has unlimited control over all business transactions since any enterprise (in the aggregate) can have a “substantial effect” on interstate commerce. • Practical Limits: Supreme Court has curbed federal regulatory powers in U.S. v. Lopez (1995) and U.S. v. Morrison (2000).

18. Regulatory Powers of the States • Tenth Amendment reserves all powers to the states that have not been expressly delegated to the national government. • State have inherent “police powers.” • Police powers include right to regulate health, safety, morals and general welfare. • Includes licensing, building codes, parking regulations and zoning restrictions. • “Dormant” Commerce Clause. • CASE 1.2:Granholm v. Heald (2005).

19. Dormant Commerce Clause • U.S Supreme Court has interpreted commerce clause to give national government exclusive power to regulate. • States only have a “dormant” (negative) power to regulate interstate commerce. • Dormant power comes into play when courts balance state’s interest vs. national interest, e.g., internet transactions

20. The Bill of Rights • 1791: Ten written guarantees of protection of individual liberties from government interference. • Originally, Bill of Rights only applied to the federal government. • Later, the Bill of Rights was “incorporated” and applied to the States as well. • Some protections apply to businesses.

21. First Amendment: Freedom of Speech • Right to Free Speech is the basis for our democratic government. • Free speech also includes “symbolic” speech, including gestures, movements, articles of clothing.

22. Corporate Political Speech • Commercial speech (advertising) is given substantial protection. Government restrictions must: • Seek to implement substantial government interest, • Directly advance that interest, and • Must go no further than necessary to accomplish. • Corporations also have protected political speech (although not to the degree of a natural person).

23. Unprotected Speech • U.S. Supreme Court has held that certain speech is NOT protected: • Defamatory speech. • Threatening speech that violates criminal laws. • Fighting Words. • Obscene Speech is patently offensive, violates community standards and has no literary, artistic, political or scientific merit.

24. Online Obscenity • Protected or Unprotected? • Some of Congress’ attempts to protect children from online pornography have been ruled unconstitutional restriction on free speech. • Communications Decency Act (1996). • COPA (1998-challenged, in court). • Children’s Internet Protection Act (2000) which requires filters for computers in public libraries and public schools). Challenged, in court. • What about “hate” speech on the web?

25. First Amendment: Freedom of Religion • First amendment guarantees that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…” • Establishment clause: no state-sponsored religion or preference for one religion over another. • Free Exercise clause: person can believe what he wants, but actions may be unconstitutional.

26. Due Process • Due Process is both procedural and substantive. • Procedural: any government decision to take life, liberty or property must be fair. Requires: Notice and Fair Hearing. • Substantive: focuses on the content or the legislation (the right itself). • Fundamental Right: requires compelling state interest. • Non-Fundamental: rational relationship to state interest.

27. Appendix • Finding Statutory Law. • United States Code (USC). • State Statutes. • Finding Administrative Law. • Code of Federal Regulations (CFR). • Finding Case Law (Case Citations). • Supreme Court Cases at Findlaw.com. • Federal Court Cases at Findlaw.com. • State Court Cases at Findlaw.com.

28. Appendix • Reading & Understanding Case Law • Legal cases are identified by a “legal citation” (or a “cite”) as the example below: D.A.B.E., Inc. v. City of Toledo,393 F.3d 692 (6th Cir. 2006). Title: First Party is Plaintiff, second party is Defendant. The parties are either italicized or underlined.

29. Appendix • Reading & Understanding Case Law • Legal cases are identified by a “legal citation” (or a “cite”) as the example below: D.A.B.E., Inc. v. City of Toledo,393 F.3d 692 (6th Cir. 2006). This is a federal court case from the Sixth Circuit of Appeals, found in Volume 393, Page 692 of the Federal Supplement 3rd. This case was decided in 2006.