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. . ' .

'0 "Learning Obj ectives

In this chapter you will Je3'rn : '

~1aking , "
the economics of some nations much stronger than rhe economies of'
oth er nations.
'
,
2. To grasp that "property" in the law refers nQt to something that ~s
owned but tq the right of ownership'itself; which gives mc\x imum
incentive for ,wealth creatio n.
'
3.To apprec'iatt what legal sources lawyers turrl to in answering legal
questions from their cHents, and the hierarchy of those sources . "
4. , To be able tol explain why ;, tar~ decisis is 'dicremin commo n lavy
, nations than (n civil la\v nations .
.'
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','.
1. To understarid why the1egal systems of nations contribute to

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iI

PART 1 . IntroductIon to Law

"':./ ...

.I

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1, WHY NATlpNS ARE ECONOMICALLY

WEAK OR STRONG

Why some nations 3 re economically weak apd others' econon}lCllly strong .

is of great impor~ance in the w<jl rlc1 today. Accordin~ to the United Nations,
30,000 children yvorldwide die every day from malnourishment and, largely
preventable diseaks:Most of these children are 10ca ted in economically \:veak
coun tries. In eco'l~omic poverty lies the roots of much hunger, disease, discon
tent, despair, revolution,
and terr"orism.
'
.
I
.
According tO INobel economist Douglass North, 500 years ago all nations
. of the world \'vert . poor. Today, however, some are much wealthier than oth
ers. A recent \'(/o~ld Bank study shows that 22 nations have average national
incomes per person above $20,000 a year, with the fjgure in the United 5ta tes '
bcing$41,400 . In contrast 21 cqmntries have av\rage per person incomes of a'
dollar a day or less, under $365 annua:lly. ~The economically stronger nations
tend to be in Eur9pe, North America, and along the P3cific Rim, with the eco
nomicallyweakyu nations being found in the rest of the world. 13Ltt sometimes
they are side by side. For. instance, although the United States and Mexico
share acommon 1border, the former has seven times the national incon'le per
perSOn of the latter. Also sharing a common border are Singa pore and Indo
nesia, with the fo rmer nat.ion enjoying per person almost 20 times the income
of the .latter. . II .
. .
.
.

Severa! explanations attempt to show why national economies are 'weak

or strong.
.
,

. '.

Wealthy Singapore
has almost no natural'
resources or fertile la~d.
Its wealth comes from'
shipping and financial
services ..

In economically weaker
countries. like Egypt,
many college graduates
can get jobs only
with the government
because there are fevv
jobs available in private
business that require
education.

. Dependency theory. This theory argues that economically strong nations

. exploit the reso'urces and 1a bor of weaker nations through trade. It asserts
that sOlne n 'tions grow and flourish at the expense 'of keeping others
economically poor. Yet nations with stronger economies invest and trade
much more with each other than they do with nations having ~eaker
economies, a~~d international trade usually accounts for only a small frac
tion of natio4al income in even the poorest countries. Lack of conditions .
encouraging"ipternal. economic activity rather than overdependence on
international irrade causes weak na tional economies.
'
.
Nal:ral resources. V/hether or not a nation has' abundant natural'
i
resources has been offered to eip!ain ~conomic prosperity. Yet economi
cally wealthyJapan has relatively few natural resources and little fertile
land ",;hile esonomically weak Russia has ana bundance of both. Many
economically' poor regions of South America and Africa possess much
fertile land, ,iariolls minerids, and considerable other natural resources.
EVeJl those small na.tions that are comparatively well-off because they
have a large! amount of a .single natural resource like oil are wealthy
only because Ithey are able'to ~ell to other, na tions ~ith strong, di'ver-se
economies.
Education ano technology.:Economically strong nations usually have more
schools and ifnplement technology more quickly than .economically weak
nations. Technology and education are certainly important to the continu- .
ing economic :strength of "vealthy na tions, but in some parts of the world,
well-educated people have few job opportunities, and powerful technolo c
gies are easily transferred betw'een countries. \\lidespread education and
1

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foundation fo r the p rivate m arke t. Note that

I

v~ o und erstand the lega l an d reglliatory

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. enviro nment of business, you mllst appre

cia te therole of Jaw as the fOUIldation for

business practice in the private market system. The

p urpose of thi s book is to expb in the legal sys

. Ch apter ~ maintai ns, h owever, that not just a ny

kind of l~w creates a basis for mo dem ~) \I ~; jIlCS$
I

pr actice. iO nly a p roperty-based

b. 0ra I syste m docs. .
.
,this. To ~pp rec iatr: law as the fo und3.[ioll of bust-:
ness and., the privCl te marke t, ,\'e.. first CXa Il1lOe
,

'

some poss ible causes of national weal th .

. tern 3J1cl:its rules and reg ulations that provide the

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,;s.
CHAPTER 1

Law as the Fo~nd.::ttion of Gusiness

l~apicl technology jrriple~ncntation in nations seem to be more a ~esujt rather

;th<.inthe
primary
cause:f of strong economies.
..,
. .
. '
" .
.
o Climate. Some geographers have thought that climate helps explain whether

?,ations are econo[lllcaily strong or \veal<:. They believe that Wllcn.'t~mpera

'tures average too hot, !people are less able to work, especially outdoors.

However, st(Orrg ecorrqmies can exist in hot climates, Sing<).pore lies near

the equator and has one of the "vodd 's most prosperous economies and

, "

highestnational per pets on incomes.

" Private market. Accor1ing.to many economists, the presence or a bsence "'C" .';~ ' r"':- ;; '.Alc,~, ";1 -, ' .;C:-{' "' f '
, of a modern pr'ivate m~rket is the siJ~gle most significant rcason why some ':~:~D!~l:1.\iz,<I ti~n :wi, Q~ou,\'-":>t.;},::;.,:,;t ~~,l '
. cconomies are strong ~nd others are wea k. Yet the mere existence of a ~;Q~,~$~s ~rij'J~.s tlW.l io~afi,,::;:i~)'f." ~:>::~;
,
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prIvate marzet may nolt e enoug 1 to create an economica y prosperous ;,~ . 12\
" ,,~:
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'pla,tile I'M' Itlbn j' ~;\,,\~ .,~.,~~; , i.',:
economy. After the former
Soviet
Union
collapsed,
Russia
ended
much
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. sta.te 1:I)bnninO'"., leav.ing individuals free to cap'V/ on business privately. ;,;,st[lDPIJ,lg
lli1n >,'.. ~.,"i J":.:'" ':
Many econo.~ists expcted the Russian 'economy to take off. Instead, it \\lealth:-crea tJoi1..r.',.:', ';/',;;":-') ',,A'(:-:s;" ;:
declinecl41 percent ov~r the next seven yea r s . '
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~ Law and the leo baa] system. An adequatel.y enforced system of equ.ally applied (. '.',',:'","",;;,:
,\~,"",ll.,t ,.e..-._1'
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"ttl-(
conomlS
'J . . fo., -,'i l' "'
law is increasingly rec9gnized as a necessa ry, foundation fOr'sttong, pro- . <:,-"::,,, , ~"p~~:;: .,>;: :51" ":;:.~." ,'. :.:.;) - ,,:-: .:,-
cluctive economies. A q:rt"in framework of law is necessary for maximum
1:," " le'"

r'" <,.

~~~t~~i:t~ ~~r~,n~~d~~~~~s;
gi~::~~;~natnf~gi~~ae:~~:sp.;~~~~,:;vafo~~:~~'~~ f~:~*;~~~m~;~~!~~~~~~~1~~:t~~i:
.jH~

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;~~J~::i~~~i~~~~:~~~ ~~~~l~;to:~~~~~~a~~~)~~~h:~~rsee~~~~~~ :~~~~~1~s~:;~~~ rf~~1~~~tt~t~1~~~%~~),~:9.~~~3i0,~if;1l~

actions among strangeis. No nations with weak economies have adequate , '.'.h.?l(~J..~VOliK, Z1re'ie;l(erl~;1i,\,tr

;;.<~,J

~~;~~;~~t~:~p:~~o~~ ~ations that have these systems are economically ;~t~;1~~;~~1~~~~~~t~$,I,~~~~;i~~~~y~~

k I)il"~{") n.dp1ve,sJmt\nt and :2: .\~~~~i'tl '

. A bundant natural resourc~s, ecluca tion and technology, a teV1per~ te clima te, ~::o}gai~jz~ti6ii')%ceY~Qf:~T.~1~~j;j\:r::::,;:;
and the institutions of th'e priva te market all contribute to'strong na tiona] K~~y$fiili6~foft~~;;agf.ktf~~i~t.:\,~f:$.~t\~S

~~~~On~!~;e~t~'~~~~ii;n~"taintypc of legal, system is .most fundamental. to !;~~II~f~~t~~~~~j

:: L a'Vv, the R.ule.- ofLavv, an
.' d Property

_

f".. ell a e.avo " S':;,~"." , ..~. .....: I :~...V \" "e> ,lh'

,1~f:M)t
~tji7: 1;f.~- +;r:; i;w,: ,'.(\:~~f';~::;~):.:~;':~:~
,.~, 'ii;;Wllliam ,:Jefferson ..."."~,,,<,, . ,.

<.

~~'~~~;:~lel~:: ~tt~~li~ho~::~c~~t~~)~~~::,e~~.rrkuf~~~.~~~~~~de~~~~::!;: ~~~~. ~j~~1~~J~i1~~~~~~~;iii~~j;j;~~,~~r~

. ho w they connect to each other.

2, LAW

'

' .

'

In the last 10,000 yeal's, ruman society has 'moved from roving bands' of

hunter-gatherers to large ipoclern nations with populations in the hundreds

of millions. The social fores that hold together societies range from cllstom

and reli.gion to law and economic ties. In the modern nation, however, t,he

most significant of thesqcial forces is law beca llse law can glue together

di.verse peoples of differeri,t backgrounds into very large, organized groups .

Law is known by everyon~ as being intended to tell members of society what

they can or cannot do. Strdngecs to a society may not understand or appreei-.

ate complex and subtle CLtstoms of behavior,. ;but thc)' can observe the for

mal laws governing what \<inds of activities a~e permitted and prohibited.in

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rI

P{.\RT 1

!,

Introduction to Law

,society, Liwyers, judges; and other trained interpreters of the rules can help
them in this process,
.
.'
f.. simple definition of law foll ows:

The first known written

. set of la"vs' was the Code
of Hamrnurabi, named
after the Babylonian king
of the 18th centuryBC,

" Law is made up of rules,

~ ,These rules are laid down by the state,and backed up by enforcement.

' .Law is a forma l 'social force, meaning th~t laws:come from the stateanc:l

are usually \vrittendown and accessible so those who need to uri.derstancl and

obey them can. To ~aintain oreler in society, adeqbte enforcement institu

courts an el the police are a necessary p~rt of the legal syste'll1. As

tions such
'. the countries of the former Soviet Union are findin~ out, written laws mean
little unless they can be promptly and fairly enfGrced, \'\iithout adequate
enforcement, resources can be taken from those wHo have them, anJ agr'ee
ments can be disregarded, The certainty and trust netessary to make complex,
long-term business arrangements are absent. People muse spend much of their
time guarding their resources ra ther than d~veloping l them.

as

: .~ ~J\\;}~~,1~~TY:i!~~~}l!i;~?dff~!i~,~~ 3..THE U E OF LAW

; J''''::i~:' la ,\

.~,

ralDr ie Cc nOilllC' :,;",.,1'

;;.?,-, 'J;rfi r:l:~NJtip9ntLh,'a'si:k[.::~ In a modern nation, law is important to implement ~ither the comrl13ncis ofa

;;:;I~fi!(f;dr:@,9ta.W!is ': ~"'!~ k~:i:j~~t;~ ) dlcea.tor or the w dl of the pcoplelll:l democracy. Ho\ovever, only 1I1 democraCIes
: ~"'.:'I';'>:0~ri~)~ffi,0:r:~[!n"iQ'~ ~r>"~l]tq,i.: -~:A IS there true concern for the rule of law, whlch gOC$ beyond merely thUlkJl1g
,:i;,:_:,'jr~t:l~~~~!~;9;~~;!~~K~:,~'&:j of law as governmental commanels backeel \lp by for\=c, U:lder the rule of law,
-:>~:~.~~,ov.E;n.\lr;,eJ:~2}Ila,:lYl;:;(~!F:f;1 laws that aremade are generqlly and equally appllC~blc, fhey apply to all or
1,,}(~;In~. qt~e r:r\?~F~j~)~,f!t~'~~;'~f::j mostmembers of socIety and they apply to vanOL1S groups lD the same way.
;:,,:.~ ec,qilo l::-;:';li(;g ula ~or;y:i.,<~. ,j
Under the rule of Jaw, la w applJes to l;rwmakers as well as to the rest of
t:'>:>:~~'IJ.1 _rjj.~ll~~41}:;;t~r~i~t;~~.{\ society. Thus, lawmakers have an incentive to make laws that benefit every
{~~;?:;:~~0~\~J!~J!f.!'1?~~~~nlc.r. lrc~/~1 one. Rule-of-law nations adopt laws supporting the private market because it
, , ', ' "'!}:IOHC l a y_pf)lw\f-.,an~L\t!?,!O ,qf "
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i" "" , ; - hk('c.. wQul.d,be' unl:all('fjir.,,~" '
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n to ay S mternatJona
us mess enVlronment,more an more VOKes
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n~\?:\i" {::~">:.:.i,:; ,:~'(;;;<tJ/:~~~::iW~S!~ are ca lUg or t lC ru e. 0 - aw.
e seCL'ctaryg; nera '0 t 1e mte 1 atlons
1;'.:/::f:Y~;~;~?~r~lp,Q].a,\~~Sr-f;~W,~0~i,.j says that "witlW~t confiden<:e based on the rule o~ law; wit~out trust and
' ''' ;1:;c ,.P\:~,~Y?:r't[?,f l)]?C,f'fRY;\1 transparency-the re could be no well-funct!omng: markets.' The manag
~ :,;,,:. '.:.c." ',' " 'i,! anct:' Rul ,e " ,of,'l~aw,:~ ',
"
. .
,.
,.
" '
.. "
';;',"'. . \",' . ;!:;:in" ,.:,~ ..". ".: :1, : ".~"., ';,,;;,il JUg dIrector of the Intern:ltlonal iVlonetary hll1d asserts that high quahty
;';', ';,:r, ." ",; "" . ,:.J;>roJect,.:C,at:n,egle" j
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t f .o;,:~" economK growt}
epen
s In partlcuar o n tle
rue 0 aw WllCllS a
,."",..",: ,, 'b:; "':' ..' . :,II, qwmen , ,or.,),
.
"
,
(:?,Sr;;~:,\")l1te~'~.atiq~~I:';P~~S:~)l "lodestar ,~or all countnes." . 0 bserves the managlDg dIrector of J, P. Morgan
."~" ", -,,."' L:,,_ ~' ;U',_ and Co.: An envuonment 1ll wl1Jch courts cannot be relIed upon to,adhere
to the ru\eo law is an environment in which businesses will be reluctant to
invest and in which development will be stunted," He calls th e'ru le of Iav{
"a cornerstone of free trade.".
.
:>':~'L:" : ' ;~~{c.d1J~fu;gJ;'~1t;:;~~
Unfortuna tely, the ~llleof la w is an ideal rather; than a' complete fact in .
i'>;:"li-:;~aQ:qeC';J~: tn:tW.:.$Jil?jX'~ Gji;~ii even the most deniocratic nation. Special interest groups attempt to persuade
':C;~ ::= vi !):~(!lo.~r:.a~ib'l:egJ ii~esfj/~i lawmakers to benefit these groups at the expense of others. And it is not
. '"<;-: ~; lf)ng-rl:Jli e'(: bl.\()mi o&ro;:ilt).~ always clear wha t it mea os toap ply laws generally and equally. Still, i 11 a
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;'ref
Law as the Fo~ndation or Gusiness

CHAPTER i

The Chief Justice and .'

."

Before someone can become a justice of the U.S. Supreme

little guy should win, the little guy's going to win in court before
me. Blit if the Constitution says that the big guy should win, well,
Court the' president must nom)nate and the U.S. Senate
then the big guy's going to ,win, because my obligation is to the .
must confirm that person. Th:e Senate must also con
.
Constitution.
.
firm the president's choice
be chief justice. During
the confirmation,. the senators always ask questions Compare Chief Justice Roberts's statement to \,yhat Justice
about the rule of law. Here is how Chief Justice John . Anthony Kennedy wrote in Texas V. Johnson, 491 U.S: 397 .
Roberts responded to a confirmation question about the '. (1989), a case about how the First Amendment protects
rule of law.
I. .'
,t; flag burning: "The hard fact is that sometimes we must
make decisions live do not' like, We make 'hem because
Somebody asked me.. " "Are you going to be on the side Or the
they are right, right in the sense that the law and the Consti
little guy," he said. And you obviously want to give an irpmediate
answer, but. as you reflect on' itiif the Cbnstitutio'n says that the
tution, as we see them, compel the result."

tq

4.PROPEBTY

The third concept necessiry fora successful private market in the modern
nation is property. Propertyis the legal right to exclude or keep others from
interfering with what Y00 own, with your resources. "The legal right to
exclude" means that you can turn to public authorities like the police or the
courtS to help you keep others from interfeiir:g with what you own. Three
ways of applying the exclqsionary right of property a r e .
.

b~

;.:

Prope rty is a legal

right thatallows you to
exclude others from your'
resources. It makes what i
is yours "yours."

gov~rnment

Public property, which :appliesto public resources owned

the
(or" state") like roads,:p ublic buildings, public lands, and monuments . .
.. Private property, which applies. to resourc~s that you own as an individual.
Common pr:'-.perty, which applies to resources like land that more than
one inclivieiu;d owns jointly.
. .
So importantis the ~-ight of priva te property tha t in thi s book we often iust refer
to priv~te property as "property." We v,;ill specifically say "public property~' or
"common property "if we imean those application~ of exclusionar/ right. . .
It IS through the law of property that mdlvlduals and busmess orgaDl
zations can possess, use, land transfer their private resources. Without law
that guarantees property in resources, ther~ is little incentive fOJ anyon~ to
develop resources since th~)' may be seized by the sta te or by others who want
. them. Where there is inadequate property law, individuals either /lave few'
resources or must guard the;r resources by force, and the conduct of modern '
business is almost imposs ~ble.due to lack of trust.
. .
..
..
Evep attorneys sometimes confuse the right of property with the resource~,
. especially the pbysicnl res9urces, that property guarantees . We think of "iny
land" as being the same tl;J.'ing as "my property," but in a legal sense it is not.
Cons ider the fol1o"ving e~ample: Tree is a gderal word that can describe all
sorts of specific things like oak, lJine, elm, or maple. You may even sc;e a new
leafy thing and ask,"\vrh~t kind of tree is th1lP" However, property is not a
'.

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Don't think of property

as.the things owned.
In law property means
"ownership," .

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8

Do remember that the

property right gives
a meljOr incentive to
develop re s.oLirces.

Property righ t helps the.

poor as much as the
wealthy. Why?

I ntroduction

PART 1

to Law

general word me aning land; em; widget, or banana, and you do not see a new .
thing for the first time,' for example, a ne,v automo'bile, ~llld ask, "\Vhat kind.
of property is th8t?"
, I
.
'
.
.
To understand property, think of the word as tpt;aning owncrship, If-you
owna piecc of lane! you enjoy the right of property to lt, The legal significance
, of property is that al). owner of la,nd (one who has property in tt) can exclLlcie or
keep others from interfering with the lancJ. Owners! can exercise their right of.
property by having the poli~e or c ourts keep others from interfering with wha t '
the)' own . You may also understand property as a type of fence, not an actual
fence but rather a legal fence that keeps others out b)' announcing private OWll
.ership and enforcing it. The enforcement of the pr~pcrty fence is enorniollsl), ,
,important to thegrowtb of national economies. Mahy nations claim they have
private property systems, but the)'. still.remajn poor because the)' cannot or do

not adequately enforce the legal fence with police ana institutions like courts to

settre disputes.
.

The enforcement of the propert), right under tile rule of law gives people

incerltlve to develop' the reSOUl'ces th ey own. Something d eeply natural to

human beings encourages them to exert the greatest productive effort only

when they can prevent others from taking the reso'urces they produce. Only

when people control vihat th c)' pioduce will they give production their maxi

mum dfort: It is a property-based legal system th,~t ena bies such conerol by

allowing people to exclude others from interfering with wha t their efforrs

produce. Imp ortantly, such a system protects a nd assists the poor as weJl ~l S

. the wealth y. (See Sidebar 1.2:)

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Many people Ililve difficulty grasping how proPert')\ protects . gran in g of tile right of proper tY to tile "averdge squatter

the poor. After all, do the poor even have "property"? Legally, family" was associated "'vith a 17 percent total hou se hold

the qnswer is "yes ,:' becaus~ property is an exclu sive right work increa se, a 47 percent increase in the nrobability of

to keep others from interfering vI/ith one's resources, not vlOrking out-side the home: rind a 28 percent decline in the

the resources :hemse lves, and. under the rule of law, this . likelihood of child labor in t~e family. Her 2002 study con- .

right protec ts the resources of the poor as VI/ell as those '. cluded that formal ownershi ~ means the families no longer

of the ,',lea lilY.

.
have to spend as ~uchtirn e protecting lIlCir ho nes and

In many parts of the world that have 110 adequate prop

can engage in more productive work. which n:akes 'heln

I
er ty sys tems, poor "squatters" lack formally' recognized
' Iess poor.
. owner hip of Lhe land they live on. They spend much of
The ownership progr.arn in Peru was initiated foll ow
their time defending their possession and cannot use their ing the ideas of economist Hern ando de Soto. De Soto's
houses and land to secure ' Ioans that Ii/auld allow them to ideas and work have spreCjd'to 0 her countrie s, and he
start small businesses . Peru, however. has begun recogniz
has gained support from many world leaders, including
ing and registering the le gal ownership of he se squatters Presidents .George W. Bush apd Bill Clinton. De Soto believes
iii their homes,
. that Western and Pacific Rinl nations are lheworld's most
. PI'inceton graduate stulient Erica Field compJred Jreas . wealthy bec ause they have had the ru le of law and theiavi
of Peru 'Nhere legal property bas been forma lly secured of property the longest. He maintains that law is ttle: "hidden
With areas wl1ere It ISyet to be recognized . She found tile architecture" of the modern private market.

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'low Property Protects the Poor

"'

, "

CHAPTER 1- Law

as the Foundation

of Busin ess

, Sta teccontrolled prociuqion does not' comc ~lose to matching t11t na tional
levels of goods and services' produced under private propertY ,sysrelus (capi
talism); Thisillustrates that ithe incentive to maximum effort comes from the
properly right. The countrics that have enjoyed strong property systems for
the past several centuriesupiformly have the. highest national incomes, an'd
those countries that do not 'protect private productive effofts under a strong
property system .are the world's poorest. The exclusionary right of property
. provides a basis for the private, market and modern business., Scholars have
traced the ~conomic flourishIng of Western civigzation during the last several
hundred years to the lncreasing recognition of the right of property jn 'the'
na tions of the Wes~, .
.
.
Consider the following ; If a nation with a' property-based legal system

averages only 2 percent a year greater produ~tivity than a nation without

such a system, in 34,5 years;the first nation has tWice the annual total income

(called Gross National Incqme or GNI) of the second nation. In 206 years,

the first nation has 64 times the annllal GNI of the second nation, NOtethat

abundant goods and service~, educational excell~nce? rapidly developing te~h

nology, food availability, and sufficient medical service are l1suallyrelated to

the economic \vealth of GN!.

-.

5. PROPERTY IN ITS IOROADEST

SENSE
,
.

'.

Property can be thought ofl as the central concept underlying Western legal
.. systems, (See,Figure 1.1.) Most of the' topics discussed in this book relate to
th~ exclusionary right of property. Contract law enab les an owner to exchange
resources (Chapters 8 and 9 ), especially at a future date. Tort Jaw compen
sates owners whose resourc~s a're wrongfully harmed by the actions of others
, (Chapter 10). Criminal la';' punishes those who harm an owner's resources

in particular \,vays, for example, by theft (Chapter 12). The law of business

organizations identifies hO\~ individuals can own and use pt:ivate resources in

groups (Chapter 14). . .

.
,
Regulatory .la vv botb protects ownership and sets limits on private resource
use (Chapter H) , Antitrust h w forbids owners from monopolizing classes of
resources a'nd sets rules for how businesses can compete to acquire ownership in
new resources (Chapter 16). Securities laws regulate the transfer of ownership in,
certain profit~malcing opportunities (Ch 4pter 15) , Environmental law controls
how owners can use their r'esources when creating pollution (Chapter 18). EVGn
labor laws and antidiscrimination laws involve property in the sense they pro- .
tect tbe employees' right to exclude employers from interfering, with certain self, ownership interests of theerriployees (Chapters 20 and 21). Finally, a theme of
the entire book, corporate gov.ernance, specifically concerns the law protecting
the owners oIa business organization from the managers who run it for them,
Generally speaking, corpor8,te governance .als,:o refers to any law regulating and
limiting private owners' productive resourceS and their use,
In its broadest sense, property includes an ownership of individual consti
tutional and human rights inoursdves that exdlJdes the state from interfering
with these rights . Today, we usually call Ollr rel~tionship to theserlghts "lib
erty," but liberty and property in this sense hci,":e almost identical meanings.
John Locke, ' th e seventeenth-century English philosopher who greatlyinflu
enced the framers of the Constituti,on, ass e rte~l th~t private propertybegiris

" ' 11.

i:~:o1~~1

'Property is the central

concept of Western legal
systems,

To say that you have a

"right" means that legally
you can keep others
frominterfering with
that right To be able to
exclude others is the .
. essence of property, .
Without any opposition
to iheir statements by
the others, 4 of the 55
members of the U,S,
'Constitutional Convention
were quoted by James
Madison, t he, secretary
of the convention, as .
saying that the reason
that governmentis
formed is to protect what
is privately proper to
peop le, that is, private
property fence s,

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(V

PART 1

10

Introduction to Law
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The wheel of property

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witJl the rightwe have in ourselves and in our efforts and actions. He saic1 that
an ind ividual is'the "proprietor [o\vner] of his own .person,.and the actions or ,
labour of it;) and that this is "the great foundatiOn of property." Later, Jamcs
Madison wrote th::tt property" in its larger and juster meaning . . . embi'aces
everything to which a man may'attach value and have a right. . " [A] man
has property in his opinions 'and free communication of them, ... In a word,
as a man issaid to have a right to hisproperry, he may be equally said.to
have a propeny in his rights." for Madison and other constitutional fram
ers, property protected not only physical resources: like bnd but also human
, rights like freedom of speech, freedom of religion, :and, freeclom frorn unrea
sona bie intrusion by the government. The ind ividual's very relationship to
'society was defined by the wotd property. Scholars' have pointed out that the
modern understanding of hum,an rights began with; the concept of property.
Nearly two million students study business in the United States; one hun- .
,dred thousand of them are from other countries . f\s' necessary as it is for them.
'to grasp ,business subjects involving computers; debits and credits, balance
sheets, fina'ncial statements, employee and consumeJ behavior, and stake-.
holder theory, it is equ~JJy vilal for them to apprec\ate how law and the legal
concept of property esta blish condittons for the private market in society, The.
secret to economic prosperity and the wealth of nations lies in the fOL1nclation

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CHAPTER 1

,
Law as the FOJ.-lndation of Business

11

of property law anel the k;gal.system to implement it under the rufe of Iavir.
MQdetll;~p.r,ivate markets ''7itilin riations simply do not work,~,~ell withollt
generally and cquJlly applkd property law.

Russia's Property Problems

When the former Soviet Union col lapsed, many observers land can be used. \Nhen disputes over (lgn:em ents arise,
LholJght that the new private market would promptly improve businesses cannot depend on the courts to resolve issues
Russia's economy. However, that economy went into a s:eri
justly and impartially. Recently, the Russian economy has.
ous decline from which it has b'een slow to recover. Why? . been strengthened by t!le sa le of oil to v\lealthy countries,'
r ost now Consider that Russia's: lack of the rule of law and but per person income in Russia re ma in s low. In cornpjri:
th e law of property accolmts for its poor. economy. . .-.
son, per person income in the United States is still ap;x oxi
The government still controls over half of the resources mately 10 times that in Russia ..
.
jn Russia. Much of what private control of resources exi..;ts
Generally ahd equal ly applied property rigl1ts, Iheir
transfer by contr;)ct, and the support of adequate en force
in Russia has been gotten through force, frau d, and corrup
tion. One study in Moscow found that sma!1 business owners ment institutions like courts wili provide i:l necessary basis. .
must pay over $30,000 a year in' bribes to corrupt officials to move the Russian economy tovvard prosperity. But the
and extortionists. Developing property law in Russia orten RusSian people 'Nil I have to be educated about the legal'
does not allow a single individual'to control all tile ways that foundation of the wealth of nations.

6. JUmSPRUDENCE
Over the centuries, several philosophies have developed that explain the ori- .
gin, justification, meaning, and essence of law.' We call these philosophies
of law jurisprudence. Briefly, the main type~; or "sch~ols" of jurisprudence Jtll",ispl"u(:lence is
the philosophy of law.
include the ollo\~jng:
.
" Natural law. Going back to Aristotle and other ancient philos'ophers,

natural law theory asserts that law contaills universal moral principles.

These principles are observable in nnture, and we cart determine them

through hum an reason'. John Locke, the Brir'ishphilosopher whose writ

ing influenced the fraIJ).ers of tbe U.S. Constitution, thought that "prop

erty" was part of natnrallaw. '.Merely human lavys that contradict the

principl es of natural laY' are improper. Compare natural law to "formal

ism," discusse d in ChaRter 2 .

PosItive law. Positive law jurisprudence belie;res that law is simply the

cOnln1.ands of the state backed up by force and punishmen ts. It is contrary

to the philosoph y of natural law. Eighteenth-century philosopher Jeremy

Bentham ridiculed the , idea of natural la\V as "nonsense upon stilts."

Compare positive law to "consequentia lisn't," discussed in Chapter 2 .
o HistOrical school. The historical school of jurisprudence emphasizes that
contemporary law shouldfocus 011 Jegal piinciplesthat have withstood the
test of timein a nation.: Thehistorieal school believes that law reflects the
cultural traditions of a p~ople ancl recognjzesthatdifferentnations may have
cliHerenttraditions ancl;consequently, different laws. Fried.cich Savigny,a
prominent German lega;l philosopher, helped develop this jurisp!.'Udence .

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at the beginning of
this chapter is take n
from positive law
lurisprudence.

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12

P ,~U:tT

Introduclion to Law

Sociological jurisprudence. Sociological jurisprudence supports the idea

that law can and sho.ulcJ change to meet new developments ill society.
From this point of view, the Second Amendmerit to the U.S. Constitution,
which asserts the right to "bear arms," or weapons, should not be inter
preted today to allo\\1 citizens to 'own andcariy ligbrweight full y auto
matic rifles that can firc hundreds of rounds J minute . \'Xfhcn tile Second
Amendment ,~ras written ,. ~J highly trained person carrying a 25 -p~)Und
rifle could {ireonly abouttwo rounds a minute.
o Legal realism. Legal realism tries to go beyond just the words of law to
examine what polic'c, administrators) prosecut,ors, and judges are actually
doing as they enforce, interpret, and apply .l~ws . \X1hCJl Supreme Court
Justice Oliver Wendell Holmes, Jr., said thal! "law is what officials do
about it, " he reflected the jurisprudence of legal realism. for instJnce, the
po sted speed limit around the Atlanta periple~er highwd)', Interstate 285,
is 55 mph. However, almost no one'drives within the posted speed limit
and traffic police I'arely ticket drivers \.lI1ti! they go faster than 75 mp~l. In
termso legal realism, what is tbe actu al speed limit on Atla!1r;:t's perim
eter highway?
.
.
Se,;eral' of these types of jurisprudence overlap.: For instance, sociologIcal
jurisprudence and legal realisrn a re types of legal positivism. Jurisprudence
Illay also certainly influence the actu;)l rules of [;1\V, but jurisprudence is a phi
losophy about law rather than the law itself. Ho\ve\rer, complicating matters
is tha t the word jurisprudence also refcrs to tile general body of law inrnpre
tatiollS by judges as different from legislation passed by legislators.

:: Classifieations of La~vv
Even w hen you understand jurisprudence and grasp the significance of our
property-based legal system to the pri vate marketplace, you still have much
left to kno;;v about the legal and regulatory envi[Q~ment 'of business. In la rge
part, learning about law demands an extensive vo:c:1bulary of lega l terms ai)d
concepts. It will be us eful in organizillg this vocabulary to examine several
. m <ljor cbssific:1tions of law.
.

7.

Comm on. law

emphasize::; lhe role of
judge s in determining the
meaning of laws ..

COMMO '~

LAiJV AI'!D CIVIL LAW '

The w orld h:1s two major legal systems: common l~w and civil law. TheUnited
Kingdonl, the United States, Canada, J amaica, India, Nigeria, New Z ealand,
and a few other coun tr ies-elll colonized by EnGland-follow the cornni.on
law. The common law. lega l system emphasizes the role of judges in de termine
iog the m ea ning of laws and hovv they apply, It aro'se begiunillg in the eleventh
and twelfth centuries as the English inonarch appointed rOYdl judges to ride
circuits around the English cOLlf)tryside and to rcs61ve disputes in the name of
the king (or queen). As there was little formal.law to apply to many disputes ,
the decisions handed down by the judges literally made the law.'
By the time the EIlglishlegislature (Parliament) em~rged, a huge body.
of written judicial decisions "vas "common" to ~ll of England. The role of
judges -in making and interprecing law was in place . Engli sh colonists then
brought the common law to what became the United States :1nd nrioL1s other
countries. The common law co'ntinues its development CiCil today, arrd so

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13

CHAPTER 1. Law as the Foundation of Business

significant is the role of judges in the UnitedSt'ates that they determine the
meaning'of the Constitntiop. and can declare void the lcgisLitio~ of Congress
and the acts of tbe president.
.
'. ' . .
The worlel's nations not: colonized by Engbnd generally observec ivillaw
legal systems. Tk civil law relies more Oll legislation than judicial decisions
to determ ine wh,'1 the Jaw is. like common lhw couns, cou'rts in civil La\",
. nations decide the facts in ? disputed case (for example, who did what, who
committed a crime or breached a contract), but civil law courts do not make
law nor ~o their judges think themselves obligated to follow prior judicial
decisions, called precedents; as they do in Common law nations, although they
do rdeno "settled" cases. Essentially, judges playa much more importantrole
in determining la w and its meaning in common law nations than in civil law
nations. Only .Louisiana among the U.S. states, follows a partial civil law sys
tem. This is due to Louisiana's historical ties with France, a civiIlaw nation: '

Civi! law relies more

on legislation than judicial
decisions for law.

8. PUBLIC ANID PRIVATE LA~V

Another way of cbssifyi~lg: the law is to divide it into matters of public law . Public law
:md matters of priva te law. public law includes those matters that involve the includes constitutional
regulation of society as opposed to individuals interacting. In each of these law, administrative lay'J~
ma tters,. a government official represents socie ty, or "the people,~' and the and crimlnallaw.
'official is responsible for seeking justice to achieve the ends of society. The .
.
. main types of public law inClude:

.je
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....

.. Constitutional law, whi.ch involves the interpretation and applica tion of

either the federal orsta te conStitutions .
.. Administrative law, whichcov(l[s the legal principles that apply to go v
c;rnment agencies, bureaus; boards, or commissions ..
.. Criminal law, which specifi~s various offenses.against the proper order of 'Special areas of .
the state.
. .
property concern land,
Private law covers those legal problcmsand issues th at concern your
private resource relationships with other people. Private law traditionally
includes:
.

goods, copyrights,
patent&, a8d trademarks.

Property law, which involves the recog~ition of exclusive right ir\ both
tangible (p hysically touchable ) and intangible resources. Special areas of
property law concern land, goods, copyrights, trademarks, patents, anel
trade secrets'.
.
.
. " Contract law, which CQvers the rules of llciw .owners transfer resources
by exchanging them. Contracts often involve enforceable promises 'to
exchange resources in tpe future .
. Tort law, whici. establishes rules for corriptr).sation when an owner's legal
boundaries arc V'irongf),llly crossed by another. Tort law ofren but not
always requires actual ip.jury to the owner's resources.
We live in a time of th~ rapid generation ancldistribution of rie~ infor
mation through computers and technology. This elevelopmentraises many
issues of property, contract, andlort la"v. The text contains chapters on each
of these areas of the priva te law. For examples o new questions of public and
priv'ate la,v see Sidebar 1.4. .

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. '14 '

PART 1

Introduction to Lavv

Internet Law Connection

New developments in socie~' raise fresh issues'of law because
law is the principal.social force o'rdering socie.ly. Consider the
following questions of public and private law raised by com
puters, th~ Internet, arid the Information Age ,
'

Do employers violal federal labor 12w by monitorin,~

employee email and disciplinin g employees for tnti
cizing the employers?'
CJn Congr'css c'onstitulionaliy regulate sexual ly explicit
mJterials transmitted over the Internet?
~ Can states prohibit in-state cJelivery of untaxed alcb
holic beverages ,ordered from out-Ok:ldW sellers over
the Interne t?
., Are Internet providers like Ame rica Onlin;; OVel liabJe
fOI' vlh' ~ us ers say over their se rvic es!

Do the creators of software have a prorerty interest in ,

the "Iool( cJnd feei" of the software? A property interest
, in ,Alat it oes (i.e., in its functionality)7 '
o 1
1ow do we create legally b:nding agreements over the
Internet?
'Is it unc o n s ti~utiona lfor 'the FBI to monitor email
transmissions without a sCJrch warrant th rou gh sof
The cll ap ters ol lh is textbook discuss ', f, ese and ;;l:wr
ware that can detect possible evidence of crilll'nal questions of laN. An swers to these questions will come
communication?
,through a series of court cases th at interproJ and apply
.. Do the purchasers of copyrigllted music and video existing public and private law, wior case precedents, and
have a legal right to give copies of that expr ssion to nev" legi slation and regulations, Thisemph,l sis on the courts
'
, . others7 '
is key to understanding our cOlllmon law legill system.
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9~ CIV~ l

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LAW AND CRI v1INAL LAW

Another means of classifying tbe law is to divide it into civil iJW and crirni
Don't confuse our
,nallaw. For administrative purposes, courts usually sep:1rate crim'inal actions
reference to civil (or
noncrimine!) IJwsuitswith from all other lawsuits. Civil cases mllY include suitsfor breach of contract or
a civil la,v legal system,
tort cases, such as suits for pers~nal il1juries. TypicaHy, they involve a request
\vhich is one emphasizing, for damages o~ other appropriate relief that does not involve punishment
,h:: importance of the
of, the wrongdo~r. Criminal cases involv e a reprcsclllativ:. of government
legislJture in determining
attempting to prove the wrong commItted against society and seekil1g to have
the meaning of I 'NS,
.the 'vvrongdoer punished by the court system.

10. SUBSTANTIVE LAW AND PROCEDURAL LAW

, '1 hJ[ a pla in iff III U::; l
prove th e defen dant
fa iled to ,use re asonable
care in order to establish
the tort of negligence
is an example of
, substantive law,

Another imponant classification or distinction in law is between substance

and. procedure. Sub stantive law defines the legal relationship o.peopJe \-vith
other people or between them and the state. Thus, the rules of law governing
the creation or enforcement of d contractual' promise are substJl1tive 111 llJ ture.
Procedura l law deals with the method ~lDd means by which substJlltive law is
made and administered. The time allowed [or one pany,to sue another and the
rules. of law governing the process o[ the lawsuit iodeexamples of proceciural
laws. Thus, substantive rules of law define rights and duties, while procedural
rules of law provide the machinery for enforcing those rights and dmies.
" Judi<;ial procedures involve the conduct of lawsuits and appeals and the
enforcement of jucigments. The rules for conductirig civil trials are different
from those for criminal trials. For example( each party may call the other party
to the witness stand tor cross-examination in a civil trial, but tb e defendant

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CHAPTER 1

law. as the Foundation of l3usiness

15

m<ly not be required to testify in a criminal casco Procedural problems some

tim es . ariseoc6ncerning papefs filed in la\,vsuits, the admiss ion. of evidcnce,
ilnd vario us other technique~ involved in tryiri g .the case. Theyarc. the rules
of the game . Tn Chapter 4 , you w ill study these procedural aspects ot'law in
grea ter depth.

The U.S. Constitution is t1~~ s upreme law of the nation. Your laV'qer, 111
answering yo ur lega l ques tion, knows that as a source of law the U.S. Con
stitutio n overrides all other sources of la w. The Constitution establishes the
fe dera l government, and its :-)melldments gLlarantee basic ri ghts and lib erties
to th e people of th ' nation. States also ha ve coristitutions but their author
ityas a source of law applies only to th e particular states that have adopted
th em. If state constitutional provisions conflict w ith the U.S. Constitution or
with fec1 cwl walls at all, the provisi ons .arc vo id <l S a sou rce of b 'Ai, meaning
that they do not apply to yo ur ques tion about pollutants .
In consulting constitutiortal SOllrCCS of law, your attorney 'A;,jlllookclosely
to determine if regula tions 0/ legis htion that' 2Jfec ts you viob'tes yo ur con
stitution <ll righ ts. If your .r:ights are violated , the laws viola ting them are void
(i.e., these laws have no legal effect on yo u ). Chapter 6 examines more closely '
how the
Constitution in 'particular applies to business practice. .

u.s.

12. LEGISLATION
After the constitntions, your kttorney will consu lt fo:mal written law~ known
as legislation as the mo st significant source of.law. Our elected ~epresenta
tiv es serving in the legisla ti ve branch of government create <lnd adop.t leg
isla tion. Legislative. bod ies exist <It all levels of government, including n ot'
only the federarCongress but also state general assemblies, ci ty councils, and
ma ny other local govel:nmen~bodies that adopt pr enact la ws. Legislation in .
its broad sense a lso inclu des':treaties entered into by the exec utive branch of
governmen t and 1'a tified by theSenate .
Legislation adopted by Congress or a state legisla tu re is us uall y referred
An ordi na nce of Athens ,
toas a statute or act. Laws passed by local governments are frequently called
. Georgia, prohibits the
ordinances. Compilations oflegisiation at aJllevels or government a re called. carrying of alcoholic
codes. For example, we have local traffic cocles covering such matters <l's beverages in open
speed limits, <lnel st:\ te laws, such as the Uniform Commercial Code, th at contain~ r s 6n public
cover all aspects of commercial transactions. The sta tutes of o m fecle1'algo v - sidewalks and other
ernment are compiled in the United States Cock:,
'
. pub lic areas.

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PART 1

16

Introduction to Law

Unif ormity of Legislation

Because Congress, SO srate legislatures,

and countless local gO\-ernments enact statutes and orcill1allCeS, there 1S con
cernabour the lack of uniformity in the law. If the 1a \V lacks uniformity from
tOwn to town anel state to Selle across the nation, it decreases the certainty
necessary for the conduct of il~terstatc business and thc gencral ordering of
sociecy. I-IO\.\[ clo businesses, or citizens for Lhatmatter, follow a ll laws' which
. may vary from place to place?
. Legislators can achieve uniformity in the law through .two methods. First,
. Congress can enact a single la'vv tbat preempts (overrides) varying state laws .
. Second, the state legislatures Gln all adopt a single uniform law in a particular
,area. The latter method has been attempted by a:legislative drafting group
known as the Nationa l Conference of Commissioners on Uniform Sta le LaVIS.
These commi~sioners endeavor to promote unifonnity by drafting model acts.
When approved by the National Conference, prol)osed uniform acts are rec
ommended to the state legislatures for adopeion,
"Goods" are tangible
(toLlc lldble) things like
clotl1 ing , food,electronic
items , and jewelry.

Vn ~for-rn -'Cmn.'inen;,'ial Code The most significant llniform law for

busines s is the Uniform Commercial Code (UCel. It collects in one body the

law that ;'cleais with aJl the phases which may ordinarily arise in th e handling

of commercial tLll1Saccions from start to .finish." Ie' <::overs the law [ela ring to

the ~ale of goods, the llse of chec ks and other forms of "commercial paper,"

and the giving of seCL;rity to ensure the buyer will pay tbe purchase price of

. goods .
.
.
.
The UCC <!ppiies only to purchases and sales ,of personal property like

goods, It does not J[)ply to contracts to \cllland 'or contracts f6Y p ersonal

services. Chapter 8 oJlcont~'ac[s discllsses the DCC further.

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~ n verp'ff'(;~:u:n u.n-a.t:::, ff-.JfJg! t:.' tCrt'l,07,-c,

~~tattitory

c(lnstniction

concerns how courts

interpret and apply the
meaning of legislation

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Leglslallcin oltel1.1S wfltten In gen

er:rl terms. The, precise rne;1ning of the la w often i~ unclear. In our legal ?ys
tern, it i.s up to the judiciary to determine the meaning of general language in
a leg isl ative enactmerit zllid apply it to the limited facts of a case. The court's
purpose in in"fervreting a statute or an ordinance is:to determine the inrentof
the legisla ture when the sea tu te was enacted. Such 3. process is c~dled statutory
construction. Considering the legislative history Qf statutes, applying rules
for interpreting specific types of legislation, and using rules for i.nterpreting
various kinds of statutory words are alJa part of statutQ ry construction.

13. J.\DMINISTRATIVE R-GULATIO

'\X/hatcver legal problem your business has, your atto'mey muse eon;ider admin
istrative regulation as Zl major source of Ln\!. As previously stared, lcgisbtures
often enact ~tatutes in broJ.l,i,[',cl:..:ral ccrms .Legisbtive bodies, recognizing
,the need for greater specificity, often :lUthorize thecreJtion of administrative
agencies to provide clarity andenforcernent of alegal area . Examples of such
,actions inc1ude the establishmen t of the Environmental l)rotectionAge"ncy .
(EPA) , lllc Securities and Exchange Commission (SEC), and the Occupational
Safety and HeZllth Administration (OSHA) .
.
Each of these agencies and hundreds more regub te business activities
through the adoption of rules and rq:'lliations. Many administrative agencies
also investigate businesses tei clei:ermine if they have violated Il1lcs and regu
lations . The agencies hold their own hearings to determine 'if civil violatio ns

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Law as the Found"tion of Bu sin ess

17 .

h ,nie occu rred. Other agencies criminally pro;;ecute illegal vio latio ns of some

ad m inistr iti,'c rub and regulati ons .

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Cbapter 14 f ,.)yides additional cl et<lils on the creation, operation, and

impact 01 ad mini~, lrative agencies . For now, it,'is enough to say that federal,

state, or loed agen cies regulate 1:0 some ucgrcc alm ost every business ilctivily.

14 . JUm CU\ L DECISIONS ot{ CP~SE Lf\

Finally, yo ur attomey must consult the decisions of judges as a source o la\-v.
Even after considering comr'i tuti ona l la nguage, re ading legislation, and refer
rin g to administrative regulation, your attorney must still know the judicial
decisions, called case law, tha t app ly to yo ur Lgal problem. These decisions
inte rpret the rclennt constitutional, legislativ e; and regu lato ry laws. As pre
viously discussed, judges also make and interpret the commou law.
When judges, esp ecially judges who deci de appea ls fro m trial courts,
rna lee decis ions on legal iss1Jes, th ey write their decisions, or opinions, setting
out rea sons . Th ese case opinions arc coll ec ted and published in book volumes
known as "repor'refs," and these opinions now bec ome precedents for future

cases involving simil ar facts and legal issues . To locate prior precedents, i t

is helpul to know the citation for the case where a precedent is found. For

Don't forget that there

are court systems in ill!

50 states p!u s a federal

syste m. Accordin g to
the U,S, Dep artment 01
State, more th an 31,000
judges natio nwide make' ,
numerous dec isions.
every year, adding to the ,"
volume of case law,

~~~1~be{ ~fc\~~fU~~~i;it~~~t~~e %~:;L:;~;:~ldR~;~i'~~;'~~~~~~ ebdeitli~~~ t~~a~~ ;~;;~t;;i:;',d ~~;>i~,;f~,~0i";6j~;:~:~~~:\:.:~ 3}::

decided in 19 82, Knmving a case citati0n, YOLl can eas ily locate the case in
, lib rary or throu gh computer databases.
,

a ~i;3~!;ft1~2$~;~:~N~~,~1;~1~1::, " r~1~i~::L"::;~ ,

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,d, ;;;::g~~t:~~i~~'~;I~;~~';:s~~t'i~'~:~J~~~t~~"~n,,;;~1~~i:~~:;' ,la whas both. !\~,~~~'1~fl~~~~~i,rf1 .

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- ' The Latin
Stare decisis.is the doctrine of prior preceq~nt~:
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m ea ning of these VJords is ",\(';nhe pri()! decision stano," Under stare decisis,
judges in current cases follow whenever possible the interpretati,()Q of law
de termi ne d by juciges in p rior cases. This doctrine arese from the desire for
cerraintv a nd precl icta bil ity in the law. One inlp ortant aclvan t8ge o stm'c
A baseball ian is hurt by
decisis \~as pe~ple became secure in their right of propert y. They then became a foul ball and .sues the
willing to in'.'cst .ccso urces in fixed locations for, factories and other immovable ba seball team's owner,
val uabies, beca use they were cert3in the state would not se ize these resources' The court\Nrites, "Whether'

for its own use. Case law helps specify in great det8il the boundaries 'o f our a fan is injured by a foul '

properry- b8secl legal syste'!l1, and it protects w hat is "proper': to p eople from bail or an accidentally .

thmvvn bat. the result is

the interfere nce of others.

a

the same, The fan cannot .

, Disadvm~:;;a.,,! !~ &

Several disadvantages, ot: cas e law are also important recover. damages against

to know. Keep i~ mind, however, th at we do n ot believe these dis3 dv:l nta ges the team because the fan
assumes the risk," The
destroy the benefits of cer tainty, predictability, and stability provided 'by case ,comment about "thrown
law and stare decisis . Disadvantages of case law include:
bat" is dicta because the

, , " Vohime of cas es, Even wi th computers, sea rching through hu'ndreds of
tbollsancls of ca'ses ,and then iJ entifying and reading the significan t ones is
often a vcry great ta sk. At the very least, it is both time consuming for the
attorney and expensive for the client.
'
,
~ Confl icting precedents . Sometimes in sea ~'ching prior cases, a tto rneys
find cases in which judicial decisions conflict with each other. Conflicting
precede nts do no t create confidence in the cer tainty of law.
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case involved only a foul

ball, Bats are heavier
and more d2ngerous
than ball s. and a judge
in a future case may not

feel obligated to follo\N

the dicta in tilis case

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PART 1

18'

tto,'

Intro duction to Lavv

.1

'"P

OL'tl inails

is the
opposite of constitutional
rel ativi ty, It stands for the
idea lhat courts should
interpret the Constitution
only according tothe
i il~en tio ns 0 ' those \I\;ho
wrote it.
ti

If the contract specifies

no parlicularstate's
, law, a court interpreting
the contract viill usually
apply the law of the.
state where the contract

was made ,

Dicta, Increas ing the difficulty ot determining ho\.\' LJ follow prior p rec
edent is the clistinctioil between the hc!ding in a prior ca:;e and mere dicta.
The holdings ill pr ior cases arc precisely what was neceSS:HY to the deci- '
sion reached. Dicta are wllate\re r else the court said. Judges jn future Case,;
arc not s? likd )' to follow the dic ta in prior cases as they Jrc tlle holdings.
~ Rejecrion of precedent. Becau,se of stal,'C decisis, con1';s uSLlally hesit:: tl:
to reject the precedents of prior cases, but sometimes they, clo. They may
thiJlk that prior cases \verc>wrongly decided, or they may ~hillk that times
have changed, In constitutional Jaw the id ea that co urts sho uld under
stand the meJning of the Constitution rciativ c. r-o rhe ti mes ill ',vl:idl they

. interpret it i s known as constitutional relativity.

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., Conflicts of law. A buyer in Geor ' i;1 orclers equipn1ent by telephone from

a seller's representative in Illin o is . The bLiycr '(;fi['ects the .seller to shirl the
equipmeilt to New York. When the equipment breaks down whik being us'ed in Pennsylvania, the buyer sues the se ller in Ohio wher e the seller
. is incorporatcd. \X1hat s tate's iJw aprlies? Courts rr.solve slIch problems
by applying conflicts of law rules, but l ven these [uks JnJy V<lry fr o m
StrIte to sta te, A b;;tter solutiOn is for: the OllYcr :C1'._rI Sel !Cl- to specify iilthe
contract which state's law w ill apply in case of Jdispllce . In a tOrt C:l.se"
the usual conflicts of law rule applies the law of the state wh ere ,he ini','fv
occuHed, Ill) m2 tte:- ,,-here tne inj my oeclined,

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, So YO,ur lavvyer has to know many SOllfces of la\\' ;'rld ho',v ~hc:y ir;teraCL iii. order
to J,J1s\ver your question about the pol).utants from YOLlr cle.aning business, It is
mistaken to think th:!t lawyers know all of the b'.'! theit :J.ppli(;s to evcry legct l
queE:tior, that you rna Y 8skthen" T-Iowevel; they sholLld know hO\v to go about
answering your questions, including the faG th at some questions may not have
answers thJtcan be known in advance and that require form:1 l dlSfJute n:solu
tion, that is, thC'y require th~lt a judge, or pC'rhaps an arbitrJtOl; decide them,
The hierarch'y of the sources of law, however~ is well l.il1der5tood, Th,",
bicrar::hy i~ as foilows. Remem ber that each higher so urce of law voids, or
prevails, over every lower source of 1:)\v in th,:; hicra,::hy, eX(; '~p L lhatin mallY
imullceS" there will be no conflict between bigher .and lO\vu sources .of bw
and in other instance:s it m.l )' not be clear ',,\,h et11e[' or not ahighc[source of
bw (such as a constitutional ri gh t of speech) COi1fjicts with a lower source of
bw (such as a law regulating aclvertisipg expression).
Hier8l'chy of sources of law from highest to lowest:
" U.S. Constitution and Amendments.
'" Statutes (also calle d "acts" or "legislation") of Congres s,

., federal administration regubtiori,

State constilUtions (apply only in incli\'idu~l sta tes) .

'" S[,ltC

. ~. u

stat utes (apply only i'l inclividu al s tates i . .

.. Sta te ac!m illistra ti{e regula tiOll. (;1 p plies 'only

in indi viciUJ l states),

~ Local ordinances (apply only in cities, towns , and o.ther such areas) .

.,; Case 1:1w (coun cases, as they interpret all of the other sources, mayor

may not void sOurces lower th all the source being interpreted).

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CHAPTER l' Law

a~

the Foundation of Business

19

:: Legal Sanctions
Tlle eJ~i;rcement .of the hiw is vital to the Lule of layv and a "proper" legal
system. Liw enforcement offlcials and the courts use several nkthods to
encourage or to force compliance wi th' the 0 beclience to the 13w. These meth
ods, often called sanctions, may be used again st a person who has failed to
comply wi th the law. The: sanctions are in effect a form of punishment for
violating the law. Sanctions also ha ve a preventive function. The threa t of
sa!1ttiollS usu ally res ults in compliance wi til. the requirements of law.
I '
~ecause punishment is used to ~ecure obedience to tbe law, the FOt.l[-,
teenth Amenclffil~tt to the Constitu tion of the United Sta tes provides in part:
"No State shall ... deprive any person of life, liberty or proper ty without du e
process of law." This provision recognizes that the law is enforced by taking
a person's life, freedom, or the resources tha t he or she owns. The taking of .
an owner's resources may be (1) for the benefit 'of society generally, as when
land taken through eminent domJin; (2) to punish someone, as w ith traf
fic finc; or (3) for the benefit of another person,as an award of damages. The'
right of an individ ual. t6 take ano ther person's reso urces (especiaU y mon ey)
because that person ha s failed to meet the requirements of the law (e.g., the
breach of a contract) is known as a remedy. AE! you study the follo wing sec
tions, identify the remedies a va ila ble to those seeking through [he COutts
what belon gs to another, imd keep in mind how importan t that adequately
ari el fairly el1forceci sanctions are to a pr oper ty-based lega l sys tem and how
nation s lacklngaJ.cqua te enforcement sanc tions tend to be poor even when
they claim to believe in private proper ty.

is.

16. FOR .CRIMINAL CO 'DUCT

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A crime is a public vvrong against society. C riminal cases arC- brought by the
governmen t on behalf of the people. The peopJe are represented by a stare's .
attorney or U.S.3ttomey orother p,ublic offiCial. \\1hen 3 person is convicted
of a _crime, one of the fo llowing punishments may be imposed:

Do remember that
the law divides crimes
into misdemeanors 2nd
felonies.

* Death.

" Imprisonmen t..

.. Fine.

~ Removal from office.

. .. Disqualiflca lion fr om holding any office and from voting.

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Amo ng the purposes of such punishments are to protect the public and to

deter persons from wrongful conduct.

17. FOR BREACH

OF CONTRACT

. Compensatory

damages awarded

Legall y enfor ce::tble agreements, called contracts (s ee Chapter 8'), arc vitally
for breach of contract
impo rtant to business because they allow b~yers anel sellers to exchange attempt to make a
resources and sh2pe their agreements any kgal way they wish. When o ne . plaintiff "whole/' as

party to a contr a~t fails t o dowha t he 0.[ she Cl-greed to do, a breach of con
th ough in aneco nomic

tract occurs.. Th e :s ual remedy for a breJch is a suit fordollar damages. These sense h1e defendant

damages, called compensatory damages, are awarded to make the victim of had not breached the

the breach "whole" in the economic sense. Such dama ges compensate the contract.

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PART::;' . Ir i ro duction to Law

20

party for all losses th,n a re the direct and foreseei ble result of the breach of

contract. The objective is that the part)' be in as good a position as he or she

would have been in hid the contract been performed. Darnages do no t make

most parties totally "whole," however, because they donor as a genera l fll ie

illclude attorney's fees. Unless'rhe contract or sonlc speci.l1 la\',1 provid es to

the contrary, parties LO th e contrac t litigation pay their own 3tLOrneys. .

In addi ti on to compensatory damages, breach-of-cofltL'act cases may'

award consequenLial damages when the breaching party knew 'or had reason
to know tho. t s peci.t! circumsta:iKes existed that would co. llse tbe other party
to suffer additional losses if the contract were breached.
There are o ther remedies available for a .breach of cootraCL If a breach'
b), one' party is serious enough, the other party may be permitted to rescind

or cancel the contract. In some circumstances, the remedy of an injured party

rnay be a decree of specific performance-ailorder by the court command

ing the oth er party actually to perform a bargain. as agreed . The single l<lrges t .

number of lawsuits today, especi::dly in th e federal courts, involves one busi-

ness suing another business for breach of contract.

Do make sure

to
include a provision
for the payment of
attorney's fees in any
contract loaning money .
or extendin2 cretiit to .
someone.

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18. FOR TORTIOUS CONDUCT

A tort is a civil wrong othe1:th;1n a breach of contract. Torts involve improper

Tort law helps protect

property boundaries by.
p'roviding compe nsation .
whe'l someon~
wrongfully crosses such .
bounda:ies.

crqssing of property boundaries, usually causing injury to opr person or other

things we own. The boundarles may be physical as v"hen someone trespasses'

'across the boundaries of anorher's lanJ. Boundaries may ;1lso be behavioral

as wh en someone acts unreasonably an.d injures another.

The law divides torts into the following three categories :

.. Intentional torts. These LOrts aJl require the plaiotiff (thO' person who initi

ates i1 lawsuit) to prove the deendanc intended to cross the boundaoes pro

tecting the plaintiff. Intentional torts in clude assal1lt (intentiona lly placing

. someone in apprehension of his physical'safety), battery (i ntentionally mak

ing offensive, unconsented to physical con tact with someone), conversion

(inteDtioi1::111y. cieprivingsQmeone of goods owned), and trespass (intention

ally crossing someone else's land boundaries without permission).

'" Negligence. This tort requires the pi3intiff to show that the defendant

injured what was proper to the plaintif(through unreasonable behavior.

'" Strict liability. Strict lia bility torts usually require the plaintiff to prove

only that the defendallt h as i11jured something proper to

the plaintiff.
Injury caused by an ul.trahazardous activity like bbsting is an exampl~:

In law, ~he sanction (or remedy) for tortious conduct is money damages.

The damages compensate injured plaintiffs for medica l expenses, lost wages or

earning poWCl~ pain and sufering,an d damages to other own ed goocls and land ..

'Punitive damages-also called exemplary damages-are also appropriate

. when the tort is intentional or the unreasonableconcluct is extremely severe .

Punitivo d(]rr.~'1g e ;3
Jre a cil il pu:,i silment for
inten tional or extremely
negligent wrongdoing.
Their purpose is to
de'cr other's from such
conduct in tile luture.

19.

FO~

VIOLATING STJHUTES AND. RE U ATIONS

Statutes a t both th e federal and sta te levels of government impose a variety of

sanctions for violating the s ta tu tes or regulations of administi'3.ti vc 3gencies

adopted [0 accomplish sta(Utor~ purposes. These sanctions arc often simil'ar

--\ "~. ,:;:.q?:-~'~"~'i:~:~ ::~"~.~{,:~~;i}j~t;n~lT>{S:~ ,:,,:.~c~: ~~C;.:'. ~:r .;47"

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ctlAPTER 1 , Law as the Foundation of [3usiness

21

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to those imposed for criminal conduct, breach of contract, ' or tortious co n

duct. Many statutes, for example, imp ose a fine for a vio lation and autho
rized damages to inj urecl parties as welL Although commo n law did not make
a defendant pa ya pla intiff's attorncy fees, many,sta tutes do rcquirC'So in vari
ous Circumstances.
.,
.
. Yau sha uld keep in mind that the sa ncti ons impased fer via lating sta t
'. utes .or administrative agency regulations are an importan t part .of enfarc
ing .the praperty-based lega l sys tem. Thes e laws help define baundaries and
. pratect u s from the baun dar y infringements: of .others. Re gulatians .often
set boundaries .of wha t it is proper for businesses to do in. praducing and
se lling goads and :c ampeting w ith ather praducers in .the market. Many cif
. the chap ters in this baak exami ne the baund ari es se t by variaus business
regul ations. .
.

1. Person s and bu, ;r)esses conviCted of criminal co nduct

may be fined, impri soned, or brth.
2. A pa r ~1 who breaches a con tract may be required to pay
as compensatory damages to the other party the sum
of money required to (llake the victim ,.,.hole . In add i
tion, special circum stanctos may ju stify conseqliential
damages.
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3. A tort victim is entitled to collect as damages the

amount of money neces sa ry to compensate th e injured

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party for the total harm caused by the intentio nal or

, negligent conduct of the wrongdoer;
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4. Puni tive damages may be awarded in the case of inten-;
tional torts.
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5. Statutes and regu lation s' issued by gove rnm ent age n
cies often authorize sanctions similar to those used (n
tile criminal law, contracts, and torts. They usually go .
further by using a multiplier for damages and avvard
attorney's fees as well.

. At -r oper :y-Based l,eg~ll Sy t e]ll

and Corpo ~ate, Gove r nance

Under the rule of law in a praperty-based legal'system, all persans have an
equal right to their resources. Praperty prablems arise when .one persan harms
anath er 's resaurce:.; or takes th em witho ut permissian or autharization. \Xfhen
a s tranger takes yaur' car ~o\I ithau t permissian, :vye ca.ll this "theft," and it is
easy ta appreciate how itvialates ya ur right .of praperty under the rule afla w.
Hawever, mare complex property problems can arise.
lv1uch, jf not most, .Dusiness in the United States is transac ted thro ugh
large carparate business orga nizatians. A corporation is a business chartered
by the state to da busin ess as a legal 'Person ina certain form of orga nization.
Chap ter 11 will exp lainta yo u the detai ls .of corparate legal .ownership but,
briefly, a corporati on is owned by shareholders who have stock in the busi
ness. They vote to elect the board of director~ w h o legally run the business
but wha .often hire managers ta be in 'charge
day-ta-day business .opera
tions. In large corporatians, few shareholders sit an the baard .of directors .or
are managers .of tbese bllsinesscs,and thus .ownership is llsnall Y,separate from'
reso urce control.

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Co,'p6ratior,s
are businesses
chartered by the state
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PART 1

22

Introduction to Law

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g't~\J:~ rn~ l G8 . defll ics the le gal

relationship be lween.
corporate agents like
ma ilc;gers or boards.
of direc tors and the
slia rp. ilolc!er owners
of he corp ola tion.

SP C'FIC ;;)ENSE OF CO PO.,,\AT - GOVEr!NA~ ~CE

. Because of the seinration of owncrs hil) and control, corporate governance is

very imponant. Corporate governance refers to the iet',al rules that structure,
empO\\cr, and regulate the agents (primarily the board of directors and man
agers) of corporations and define their relationship to the owners (sharehold
'ers). Specifically, corporate governance rules protect the property interest that
the owners have in corpol:ations. .
.
Becausc of the complexity of modern corporations, there arc' so'm etimes
breakdo'vvns in corporate gove(nance . lvranagers like the p res ident, vice presi
'. dents, or chief financial officer of a corJ?oratiOIl can abuse their control of .
its rcso nrccs to benefit themselves in ways tha.t impair or even des troy the
corporation's value to the shareholders. For example, often these top manag
ers have salaries, bonuses, or stock options that are tied to the corpor:ltiol1's
profitabili ty or stock price. If they mani pula te the corpora tion\; jxofit by
puffing up assets or concealing debts, they lllay be :a ble to raise their incomcs
by millions of dollars. even as they mislead the owqers about the true value'
of the corporation and risk corporate collapse when the tr:le situation is dis
closed. Other examples of corpo rate misgovernal1ce include managers' engag
ing in insider trading of stock, running up stock pcices in order to exercise
s[Qck options, and taking adv:lI1tage of business opportunities that rightflllly
belong to the corporation and its shareho ld ers.
All of these corporate governal1ce failures adversely affect the owners of the
corporation, especiaily when the misgovernance becomes publicly known . Only
a relatively few busil1ess leaders may enr;age in such illegal conduct, but in recent
years some spectacular failures of corporate governance have occurred. IvIanag
efS at companies like Emon, Qwest, Global Crossing; Tyco, HealthSouth, KIDart~
\VorldCom, Adelphia, and ImClone have been crimil1alty prosecuted andlor civ
,illy sued. Tens of billions of dollars in shareholder value h:lVe been destroyed.
At Enron alone,thousands of workers whose reti!l~ments "vere based on stock
ownership of that mismanaged corpmation hav,,: lost their entil"C pensions.

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21. THE GENERAL

SEI\ SE OFCORPORAT
GOVERNANCE
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.

rn a broad general sense,

corporate governance
includes the legal
property relations that
lar!.'. .. businesses have
with each oth el', 't:ith
theil' cu~; :o rn er s,and
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sccicty.

In. general sense, corpOfJ. te govel'nance also applies to the legal rela tion
ships that businesses have with each other, with their customers, and with
society. For instance, in 2008 the collapse of many financialil1stitutions led
to a major economic recession . In par't, the recession may have. been caused
by the government's encouragemel1t of mortgage loan s to expand housing.
However, ;l,major actor in the collapse was the ri sky lending practices of
banks and other financial institutions that repadCJ gecl, solei, and resold hun
dreds of biJlions of dollars of hOLlsin g loans that w ere in3clequatc!y securee!.
As long as housing prices were rising, mallY people made gre:1t deed of money,
but when the housing bllbble :b urst aJld prices began to decline, economic
collapse occurred, affectirig not on ly d~c financial institutions but als-o the
entire economy because credit was too expensive or unavaibble. It has been
suggested that lack of adeqllat~ corpOfJte governance has allowed the risky
lending practices that ultimately ha vc led to the biggest recession since the
Great Dqjression of the 1930s, 1\ numlJer of the chapters that follow discuss
the general corporate governance tbat klS followed this recession.

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.:: Key Ten:,1

Act

15

Administrative law

B~eachofconrract

13
19

Citation 17
Civil law 13
Codes 15
Common law 12
. Compensatory damages 19
Conflicts ~f law 18
Constitutional law 13
Constitutional relativity 18
Contract law 13 '
Corporate governance 22
Corporation 21
Criminal law 13

. Public law. 13.

Punitive damages ' 20
Remedy 19 '
'RLJle of law 6
Sanctions . 19
Specific performance 20
Stare decisis 17
.
Statute 15
, Statutory 'construction 16
Substantive law . 14
Tort 20'
Tort law 13
Uniform Com~lerci a l Code '
(DCC) 16

Dicta 18
Exemplary carnages 20
. Holding 13
Intentional torts 20
Jurisprudence 11
Law 5
Legislation IS
N egligence 'F )
Opinion 17 '
Ordinances 15
Precedent 17
Private law 13
Pro'ced uralla w 14
Property 7
hoperty law 13 ,

:: Review Questions and Problems '

Introduction

Why Nations Are Economically Weak or Strong

(a) ,Identify several reas~nsput forth to explain why nations arepros'p erous or poor,

(b) What does this section say is the foundation of the private market andprosperityl
. . La'N,the Rule of Law, and Property

2.

Law
(al Define law. Compare and contrast law and Custom.
(b) What role do the courts and police play in the legal system? ,

3. . The Rule of
[-law
.
.

.
(a) Define the rule of la,v, How does the rule of law differ fro'm law as the commands of
the state?
(b) Explain why the rule of law is " an i0eal rather than a comp lete fact."

4. Property
(a) What is p.copcrty? How does property differ from "resources"?
(b) Why is prope'rtyimportant to society? T? priyatc enterprise?

5.

Property in 11:' Broadest Sense

' .
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.
(a) Explain why property can be tbought of as the central concept underlying Western legalsystems.
(b) What does James :M adison mean when he says 'we have property in our opinions "ancl free ,
communication of them.'"
.

6. Jurisprudence
(a ) Definc jurispruclence ancl namc four schools of jurisprudence. . . .
. ..
..
(b) Describe the main difference betvvcen th~'jurispruclcnces of natural law arid sociological
jurisprudence.
.i

Classifications of Law
7. ComnlOn Law and Civil Law
(a) \XTh~t is "corruno~Jaw"?Whyis the United States a "commol1Iaw cOlU1tr)' ''?
(b) What is the primary distinction between common la w ancl civil law legalsystems) ,

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8. Pub'iic and Private Law

(a ) What is public law? Give three examples of public law.
(b) Explain private law. Give three examples.

9. Civil Law and Crimil1C!1 Law

(a) W h a t is the difference between civil law and criminal law?
(b) Explain t,he['::vo \.yays that the words civil law arensed ill this chapter.
10, Substantive'Law and Pro c ed~.tl'al Law
(a) Define suGstantive .law anel pr~~,edLlral law..
.
(b) Is controct law substantive law, or procedural' law ) How J.bout a rule specif?Jllg that a
~eendant has 30 days to respond co a complaint?
.
Sources

of LJ.w

11. Constitutions
(a) Explain what it means to say that constitutions are the "highest laws of the nation"?
(b) Expbi.n the important distinctions between

sta~e and 'ederJI constitutions,

12, Le~islatiori
(a) ,Give two additional terms for kgislatiou,
(b) ' Why is uniformit? 6 law important to business) How con legislators ~chieve uniformity of
. th~ laws affecting business? \\!hat is the most significant uniform law ,affecting business? .
(c) What is statutory construction)

13,. Admiriis trative Regulation

(a). Where do administrative agencies come from?'
(b) For what pu.rposes do a dministrative ag.encies exist?'
14, Judicial Decisions or Case Law
(J) Define stare decisis. What are its advantages? Disadvantages)

(b) \Vhat is the distinction between a precedent and dicta in judicialckcisions, and how does
.
this 'distinction relate to stare decisis?
(c) Alexwas on a coast-to-coast trip by automobile,.While passing through' Ohio, Alex had 3
flat tire. It was fixed by Sam's Turnpike Service Station, and later, while Alex was driving
in Indiana, the tire came off anclAiex was injured. Alex was hospitalized in Indiana, so he
sued Sam in Indiana for the injuries, What rules of substantiv'e Jaw.willlhe Indiana court
llse to determine if Sam is ;\fault? Explain.
.

15 . Sources of Law Hierarchy 'in Review

(a) Explain tbe telationship of case law to t he other sources of la\v.

Legal Sanctions
16, Fo/Criminal Conduct
. (3) Wlut is a sanction? A remedy?

(b) WhJt are the crimina l sanctions)

17. For Breach of Contract
(a) . \V'hat is the purpose of compensatory cl am:1ges ?

(b) What isspe~ific performance of a contract?

18, For TortiousCoJ[lduct
(a) What are

tllC

two premises of tort liabilit)l ?

(b) When arc punitive damages appropriate in a tort c:l.se ?

19, For Violating Statutes and Reg/,ilations
(a) \Vhat I)'pes of sanctions axe used for the violation of staLU t~ and regulations?
(b) What is an injunction?

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~5

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Pr~perty-Based Legal Systerp. ar.d Corporate Go~el-'nance .

20. The Specific Sense of Corljorate Governance ' .

(a) \V hat is the --"specific" sense of corporate governance?
.
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. ('b) Why might som~ ina!1agers try to artificially raise OJ; "puff up" the market p.rice of their
. .stocks? Desc ribe seve'ral ways they could do this.
.
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21. The General Sense of COl -porate Govemanc~

(a) .What is the "general" sens e of corporate go.vernance?

(b) Discuss how effective corporate governanceI contributes to the creation of economic .wealth.

1.

As the vice president of finance for a company producing and selling ele.ctronic switch:
boards, you are considering foreign investment to build a plant to assemb le electronic com- .
ponents. A source in Russia advises you that a town near Moscow may be an excellent
location fora newplan'. Russ ians are we ll educated and willing to work for reasonable v~ages.
Projected co nstruction costs are acceptable. Both rail lines 'and airports are nearby; and the
current Russian government seems politically stable. The town even has a technical college
that will bean exce llent source for skilled employees. Tre plant v'fill ship most of the finished.
electronic components back to' the United State s.
Do you know everything you need to make an inve stment decision?

If not, what else do you need to know abo ut inves tment in foreign countries?

\.VhJt does it mean :0 say ti."t law.is the foundation of the priVate enterprise system?

2. Three years ago the Da rden Corporation bought a thousand acres of land that borders
the Potowac River in Wa'sham County, While waiting on development opportunities, Darden
cut timber to help repay the mortgage loan it took out to buy the land. On Marc h 2, the
Washam County Commi ssion proposed an ordinance to establish a 2S0-foot-vyide greenway
along the south side of the Potowac that will effectivelY.ba n both deve lopm~t ~~d timbering
on nearly 80 acres of Darden's la8d. The same day In an unrelated aCCIdent'(j Darden truck,
. ran over a hunter who was hunting without permission on the company's land. Darden imme
. diately contacted an attorney in Washam City.
.
What is..IClW?
.
What 'does it mean to say that Darden has "property" in the land? That the hunter has
"property" in himself? '
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. What sources of law will the attorney have to understaQd in .orderto advise Darden about
the proposed
greenway? The company's
potential respo nsibility to the hunter?
.
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