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THE LEGAL ENVIRONMENT

OF BUSINESS

A Critical Thinking Approach


Fourth Edition

Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
2006 Prentice Hall

Ch. 2-1
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THE LEGAL ENVIRONMENT OF BUSINESS

CHAPTER 2
Introduction to Law and the Legal
Environment of Business

2006 Prentice Hall

Ch 2-2
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THE LEGAL ENVIRONMENT OF BUSINESS

Chapter 2 Overview
Definition of the legal environment of business
Definition of law and jurisprudence
Sources of law
Classifications of law
International dimensions of the legal environment
of business
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THE LEGAL ENVIRONMENT OF BUSINESS

Why study the legal environment of law?


It develops critical thinking skills.
It helps to establish legal literacy.
It develops an understanding that the law is
dynamic not static.
It deals with real-world problems.
It is interdisciplinary.
2006 Prentice

Ch. 2-4

Top Ten Reasons for Studying the Legal


Environment
of
Business
Becoming aware of the rules of doing business.

EXHIBIT
2-1

1.

2. Familiarizing yourself with the legal limits on business


freedom.
3. Forming an alertness to potential misconduct of
competitors.
4. Appreciating the limits of entrepreneurship.
5. Being able to communicate with your lawyer.
6. Making you a more fully informed citizen.
7. Developing an employment-related skill.
8. Exploring the fascinating complexity of business decisions.
9. Providing a heightened awareness of business ethics.
10. Opening your eyes to the excitement of the law and
business.
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THE LEGAL ENVIRONMENT OF BUSINESS

Definition of the Legal Environment of Business


It develops critical thinking skills.
The study of legal reasoning, critical thinking skills, ethical norms, and
schools of ethical thought that interact with the law.
The study of the legal process and our present legal system, as well as
alternative dispute resolution systems.
The study of the administrative law process and the role of
businesspeople in that process.
The study of selected areas of public and private law, consumer law,
and environmental law.
The examination of the international dimensions of the legal
environment of law.

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THE LEGAL ENVIRONMENT OF BUSINESS

Definition of Law and Jurisprudence


Jurisprudence
Jurisprudence is
is the
the science
science or
or philosophy
philosophy of
of
law,
law, or
or law
law in
in its
its most
most generalized
generalized form.
form.
We have been told by:
Plato that law is a form of social control;
Aristotle that it is a rule of conduct, a contract, an ideal of reason;
Cicero that it is the agreement of reason and nature, the
distinction between the just and the unjust;
Aquinas that it is an ordinance of reason for the common good;
Bacon that certainty is the prime necessity of law;
Hobbes that law is the command of the sovereign;
Hegel that it is an unfolding or realizing of the idea of right.

2006 Prentice

Ch. 2-7

TABLE
2-1

Schools of Jurisprudence

SCHOOL

SOME CHARACTERISTICS

Natural Law

Source of law is absolute (Nature, God, or Reason).

Positivist

Source of law is the sovereign.

Sociological

Source of law is contemporary community opinion and customs.

American Realist

Source of law is actors in the legal system and scientific analysis


of their actions.

Critical Legal Theory

Source of law is a cluster of legal and nonlegal beliefs that must


be critiqued to bring about social and political change.

Feminist

Jurisprudence reflects a male-dominated executive, legislative,


and judicial system in which womens perspectives are ignored
and women are victimized.

Law and Economics

Applies classical economic theory and empirical methods to all


areas of law in order to arrive at decisions.

2006 Prentice Hall

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THE LEGAL ENVIRONMENT OF BUSINESS

Natural Law School


For adherents of the natural law school, which has existed
since 300 B.C., law consists of the following concepts:
(1) There exist certain legal values or value judgments (e.g., a
presumption of innocence until guilt is proved);
(2) these values or value judgments are unchanging because
their source is absolute (e.g., Nature, God, or Reason);
(3) these values or value judgments can be determined by
human reason; and
(4) once determined, they supersede any form of human law.

2006 Prentice

Ch. 2-9

Martin Luther King Jr.


There
There are
are just
just laws
laws and
and there
there are
are unjust
unjust laws.
laws. II
would
would be
be the
the first
first to
to advocate
advocate obeying
obeying just
just laws.
laws.
One
One has
has not
not only
only aa legal
legal but
but moral
moral responsibility
responsibility
to
to obey
obey just
just laws.
laws. Conversely,
Conversely, one
one has
has aa moral
moral
responsibility
responsibility to
to disobey
disobey unjust
unjust laws.
laws. II would
would
agree
agree with
with Saint
Saint Augustine
Augustine that
that An
An unjust
unjust law
law is
is
no
no law
law at
at all.
all.
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THE LEGAL ENVIRONMENT OF BUSINESS

Positivist School
Early in the 1800s, followers of positivism developed a school
of thought in opposition to the natural law school. Its chief
tenets are:
(1) Law is the expression of the will of the legislator or
sovereign, which must be followed;
(2) morals are separate from law and should not be considered
in making legal decisions (thus judges should not take into
consideration extralegal factors such as contemporary
community values in determining what constitutes a
violation of law); and
(3) law is a closed logical system in which correct legal
decisions are reached solely by logic and the use of
precedents (previous cases decided by the courts).

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THE LEGAL ENVIRONMENT OF BUSINESS

Sociological School
Followers of the sociological school propose three steps
in determining law:
(1) A legislator or a judge should make an inventory of
community interests;
(2) judges and legislators should use this inventory to
familiarize themselves with the communitys
standards and mores; and
(3) they should rule or legislate in conformity with those
standards and mores.
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THE LEGAL ENVIRONMENT OF BUSINESS

American Realist School


The American realist school, though close to the sociological
school in its emphasis on people, focuses on the actors in the
judicial system instead of on the larger community to determine
the meaning of law.
This school sees law as a part of society and a means of
enforcing political and social values. In a book entitled The
Bramble Bush, Karl Llewellyn wrote:

This
This doing
doing of
of something
something about
about disputes,
disputes, this
this doing
doing itit reasonably,
reasonably,
is
is the
the business
business of
of the
the law.
law.And
And the
the people
people who
who have
have the
the doing
doing of
of itit
are
are in
in charge,
charge, whether
whether they
they be
be judges,
judges, or
or clerks,
clerks, or
or jailers,
jailers, or
or
lawyers,
lawyers, they
they are
are officials
officials of
of the
the law.
law. What
What these
these officials
officials do
do
about
about disputes
disputes is,
is, to
to my
my mind,
mind, the
the law
law itself.
itself.
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THE LEGAL ENVIRONMENT OF BUSINESS

Critical Legal Studies School


A contemporary extension of American legal realism,
critical legal studies seeks to connect what happens in
the legal system to the political-economic context
within which it operates.
Adherents of critical legal jurisprudence believe that
law reflects a cluster of beliefs that convinces human
beings that the hierarchal relations that they live and
work under are natural and must be accommodated.
According to this school, this cluster of beliefs has
been constructed by elitists to rationalize their
dominant power.
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THE LEGAL ENVIRONMENT OF BUSINESS

Feminist School
Most adherents of this school, believing that significant
rights have been denied to women, advocate lobbying
legislatures and litigating in courts for changes in laws
to accommodate womens views.
They argue that our traditional common law reflects a
male emphasis on individual rights, which at times is at
odds with womens views that the law should be more
reflective of a culture of caring.
To other adherents of this school of jurisprudence, the
law is a means of male oppression.
2006 Prentice

Ch. 2-15

TABLE
2-2

Where to Find the Law

Level of
Government

Legislative
Law

Executive
Orders

FEDERAL

United States Code


(U.S.C.)
United States Code
Annotated (U.S.C.A.)
United States Statutes
at Large (Stat.)

Title 3 of the
Code of Federal
Regulations
Codification of
Presidential
Proclamations
and Executive
Orders

STATE

LOCAL

2006 Prentice Hall

Common
Law/Judicial
Interpretations

Administrative
Regulations

United States Reports (U.S.)


Supreme Court Reporter (S.
Ct.)
Federal Reporter (F., F.2d)
Federal Supplement (F.
Supp.)
Federal agency reports (titled
by agency; e.g., F.C.C.
Reports)
Regional reporters
State reporters

Code of Federal
Regulations (C.F.R.)
Federal Register
(Fed. Reg.)

State code or state


statutes (e.g., Ohio
Revised Code
Annotated, Baldwins)

Regional reporters
State reporters

State administrative
code or state
administrative
regulations

Municipal ordinances

Varies; often difficult to find.


Many municipalities do not
publish case decisions but do
preserve them on microfilm.
Interested parties usually
must contact the clerks office
at the local courthouse.

Municipality
administrative
regulations

Ch. 2-16
2-16

EXHIBIT
2-2

How a Bill Becomes a Law

Committee Action

Introduction

Introduction

Committee Action

Referred to House
committee

HR 1
Introduced
in House

S2
Introduced
in Senate

Referred to Senate
committee

Referred to
subcommittee

Referred to
subcommittee

Reported by full
committee

Reported by full
committee

Compromise
Version

Rules committee
action
Floor

Action

House debate,
vote on passage
2006 Prentice Hall

Rules committee
action
Floor

Conference Action

Action

Senate debate,
vote on passage
Ch. 2-17
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THE LEGAL ENVIRONMENT OF BUSINESS

Sources of U.S. Law


The Judicial Branch
The Executive Branch
Treaty Making
Executive Orders

Administrative Agencies
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Classifications of Law
Statutory Law - made by the legislative branch of government.
Case Law - results from judicial interpretations of
constitutions and statutes.
Criminal Law - composed of federal and state statutes
prohibiting wrongful conduct ranging from murder to fraud.
Civil Law - governs litigation between two private parties.
Public Law - deals with the relationship of government to
individual citizens.
Private Law - deals with the enforcement of private duties.

2006 Prentice

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THE LEGAL ENVIRONMENT OF BUSINESS

Global Dimensions of the Legal Environment


of Business
Variables that have an impact on business
decision making:

Legal
Financial
Economic
Legal
2006 Prentice

Ch. 2-20

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