Definition of Law
Black's Law Dictionary defines law as a "body of rules of action or conduct prescribed by controlling authority, and having binding legal force. That which must be obeyed by citizens subject to sanctions or legal consequence is a law." Law, in other words, exists to create order and resolve disputes.
The way that you and I view the law, and consequently study and learn it, depends to some extent on our worldview, perspective, or ideology. As you have probably noticed, the lens through which individuals view the law may vary.
For example, you may know someone who thinks in terms of black and white; the “law is the law.” You likely know others who find that context is everything, blurring the lines between different viewpoints. A quick example. I have a particular member of my extended family concerned with undocumented immigrants. To her, all such individuals should be deported. Others in the proverbial family tree disagree. They perhaps know some individuals that came to the United States to escape persecution at home or for other reasons that would justify the immigrant’s unauthorized entry into the United States.
Beyond making family reunions more lively, these varied viewpoints illustrate in a simple way, the more complicated legal theories. While a detailed analysis of the different legal schools of thought is unnecessary for this course, a quick summary of a few can be beneficial.
- Natural Law. The natural law lens emphasizes that law is tied to morals and ethics. An objective norm or set of objective norms act to govern human behavior. Civil disobedience, in the tradition of Martin Luther King, Jr., becomes a matter of morality over "unnatural" law.
- Legal Positivism. This legal theory espouses that law is merely a set of rules developed and enforced by the governing authority. To be law, it must both exist and be enforced. Whether or not it is enforced will depend on a number of social facts that live outside the law. Through this lens, we might view the speed limit sign on the highway and discern that 70 miles per hour is the correct or right speed to drive. However, you're probably already realizing some potential issues with this train of thought. For example, will you get a speeding citation if you drive 71 miles per hour? And if you don’t get a citation for driving 71 miles per hour, was that speed limit really law? You have moved into the positivism line of thinking.
- Law and Economics. This legal view is the application of economic theory to the analysis of law that began with scholars from the Chicago School of Economics. Economic principles are used to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules should be promoted.
- Critical Race Theory. CRT is a movement that challenges the ability of the conventional legal structure to deliver social and economic justice. It was born as
- activists claimed that advances of the Civil Rights Era had slowed or stopped. Some tenets of CRT claim that racism is a fundamental part of American society and that in the United States, minorities' interests are subservient to the system's self-interest. CRT scholars are particularly skeptical of free speech, arguing that there is no societal value in protecting speech that targets oppressed groups, and have proposed laws that punish hate speech.
Law and Morality
Laws generally reflect the common morality of a society. Government seeks to ally itself with the prevailing customs. As a result, there is a close, though never perfectly-aligned, relationship between law and society's prevailing moral trends. This benefits those in political power in that they don't have to educate every citizen on each and every law. However, you can likely think of numerous laws that failed to uphold what we now consider to be the moral right. The laws will often get there, but sometimes lag significantly behind society's changing sense of right and wrong.
Throughout this class, you will read and discuss cases and hypotheticals which have been specifically chosen because they are frequently faced by those in business. You will analyze these situations based on the law you have learned. I challenge you to also consider the ethical dilemmas involved in these business decisions. The law clearly does not influence all business decisions. When facing an ethical decision, you may ask "what should I do?" as opposed to a legal decision where you typically ask, "what must I do?"
As with the law, ethical considerations can be viewed using various theories. These theories may help you organize your thoughts as you work through difficult situations. For example, you may consider an ethical choice using the following:
- Utilitarianism. Utilitarianism requires that actors make a decision by what would benefit society as a whole. A person must consider the benefits and costs of decisions to society as a whole.
- Shareholder Theory. Often derided today, this theory indicates that business people should make decisions that benefit the shareholders or owners of a business. This profit-maximization theory was popularized by Adam Smith who famously stated in Wealth of Nations the following: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." Smith believed that when a business promotes its own self-interest, it indirectly promotes the benefit of society (known as the "invisible hand.")
- Virtue Theory. This theory challenges individuals to promote personal character and values. While subjective (because every individual may have slightly varying values), this theory promotes internal motivation from a sense of charity. Rather than promoting Black Lives Matter because it will improve sales to keep a business from being canceled, a business adhering to this theory would do so because of a sincere belief that it is the right thing to do.
When analyzing ethical dilemmas, a framework may be helpful. First, gather facts and decide what legal concerns are at issue. Next, determine what parties are involved and how a decision will affect those parties and society as a whole. Determine your values and compare those to the business and other stakeholders. Finally, reflect on the outcomes of the decision and determine the best course of action.
Business law consists of enforceable rules of conduct that govern commercial relationships. Understanding these rules is vital, not only for attorneys, but for all those engaged in business. Each area of business sits on a foundation of business law that we will discuss this semester.
A theme of this class will be a surprising number of legal implications that result from what on the surface might look like simple, everyday business decisions.
Let's take an example of a student looking to start a small business renting gaming consoles in the Rexburg, Idaho area. He visits an attorney seeking quick (and often free) advice, yet the legal issues facing him are too numerous for a quick office visit. For example, he will need to:
- Have an agreement with those who seek to rent his video game consoles and must understand what constitutes a binding agreement under contract law.
- Understand Issues of risk of loss. What can he do to protect his investment? How much insurance should he purchase?
- Think about tort risks. What if another student is injured using one of his consoles? What can he do to mitigate those risks?
- Name his company and understand how he protects that trademark all while refraining from violating others’s intellectual property.
There are numerous other considerations, including advertising laws, hiring practices, and whether his current lease permits him to run a business out of his apartment. Understanding these issues, which we will cover in this book, will help business law students protect their interests and enjoy greater success as employees, entrepreneurs, and managers.
Sources of Business Law
Business owners often worry that there are too many laws and regulations to know, let alone understand. To be honest, there are a lot of them. Let’s start with the basics.
- Constitutions. The United States Constitution and the constitutions of each state establish the general limits and powers of a government. The U.S. Constitution is the supreme law of the land and is foundational to all laws established in the country. State law may grant rights and protections in addition to the U.S. Constitution. For example, our neighbor state of Washington provides that "no person shall be disturbed in his private affairs." This right of privacy has been used by employees where employers were overly intrusive into their personal lives. In one case, IBM fired an employee for dating someone that worked for a competitor. This intrusion into private affairs violated her right to privacy, which we will discuss later in this course.
- Statutes. Legislative acts are an assortment of laws established by Congress or state legislatures. A federal statute applies to all states. A state statute applies only within that state’s borders. We often combine statutes into collections of laws called codes. For example, the collection of laws passed by the Idaho legislature is called the Idaho Code.
- Cases/Judicial Decisions. Case law is the collection of legal decisions of laws made by judges. We also call this common law. Judges are often called on to interpret the law and apply it to the specific facts of the cases brought to court.
- Regulations. Federal and state agencies exist to assist legislative or executive branches as they perform specific functions. On the federal level, you have likely come across the Environmental Protection Agency (EPA), the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), and the Federal Trade Commission (FTC). For more information about these agencies and the process they use to create and enforce regulations, review this summary.
A Note on Equity Claims. Throughout this course, you will read cases and review situations in which the legal remedy seems unfair or inadequate. In such a case, the plaintiff may request equitable remedies. Equitable claims derive from medieval equitable courts, which existed separate from legal courts. In legal courts, plaintiffs requested money. In equitable courts, plaintiffs requested something else (i.e., the defendant to do something). In the United States, this distinction between courts no longer exists. Courts in the US can grant both legal and equitable remedies. Common types of equitable relief include injunctions (court orders for a person to do or not do something) and specific performance (when a court orders a party to perform its obligations).
By way of a simplified example, consider that James and Jill marry while at BYU-Idaho. Following graduation, James enrolls at Harvard Law School. During the three years of law school, Jill works to support the family and pays all housing and tuition costs. At last, James graduates and accepts a job at a prestigious law firm in New York earning $210,000 per year. On the night of graduation, James hands Jill the divorce papers. In a divorce proceeding, the court distributes the marital assets equally. But in our hypothetical, James and Jill have no assets other than $20 in the jointly owned bank account. As a result, the legal remedy is to divide the $10 among the pair and sign off on the divorce. But you may rightly think, “that’s not fair - he’s about to have a huge paycheck coming while Jill paid all her earnings to his education.”
In such a case, the court may award equitable remedies, noting that it would be unfair for one spouse to receive nothing after spending so much time and effort in the furtherance of a spouse’s degree. Equitable remedies may also be appropriate if money just can’t make the plaintiff “whole,” because money simply is not sufficient (i.e., one party contracts to buy a very rare item and the defendant breaches or commits fraud...in that case the plaintiff doesn’t want money, she wants the thing that the other party agreed to sell!).
A Note on Private Contracts (Public v Private Law). When an individual or business is wronged, it will often initiate legal proceedings against the party that committed the wrongdoing using the sources of law mentioned above. Yet these sources of law are not the only sources that offer recourse for wrongs. For example, let’s say that you enter into a contract with a classmate to mow the classmate’s lawn in return for $20. Before you are paid, you refuse to mow the yard. Although you have not violated any local, federal, or constitutional law (as far as I can tell), your classmate may still initiate a lawsuit against you because you breached your agreement. This is an example of private law, which also includes other similar agreements between individual parties such as employment contacts, rental agreements, homeowner association agreements, and purchase agreements. Note that the US court system will enforce these private agreements just as they enforce constitutional violations listed above.
Causes of Action, Precedent, Stare Decisis
In order to bring a lawsuit, a claimant must have a cause of action. For example, you may enter into an agreement with your teacher under which you would receive an A on an assignment if you bring her a box of Crumbl cookies (preferably the peanut butter cookies). If she fails to give you an A after you deliver the cookies, you may feel wronged, but you cannot bring a lawsuit unless you can show that your teacher's actions violated the law governing contracts.
Even if your teacher's actions constituted an actionable breach of contract, she may have a legal excuse as to why she does not have to give you an A. Moreover, some wrongs committed against you are not actionable because the harm is not recognized by our legal system - such as being stood up for a date.
Precedent involves how courts have decided similar cases that occurred in the past. Because our legal system was handed down to us from English law, we place a great deal of deference on those earlier cases and therefore judges are unlikely to rule differently. Stare decisis is a principle stating that rulings made in higher courts are binding precedent for lower courts. For example, if a state's highest court ruled that there is no cause of action for being jilted at the altar, a judge hearing your case for this same complaint would likely dismiss your lawsuit. You may be able to convince the judge otherwise, however, if you can show that your lawsuit is different in important ways from the earlier case.
When businesses or individuals retain (hire) an attorney, they may benefit from an evidentiary protection known as the attorney-client privilege. This means that the attorney cannot divulge statements made by the client to the attorney. This protection exists because the law recognizes the importance of honesty and candor between a client and the attorney.
That being said, this privilege is not absolute. For example, the privilege requires an actual attorney-client relationship. This means that if you initiate a conversation with an attorney, the attorney immediately declines to represent you, and you continue to divulge confidential information to that attorney, the information is not privileged and the attorney may be compelled to divulge your statements in court.
Note that the privilege is that of the client. If the client waives this privilege, the attorney cannot then claim attorney-client privilege. The client may do this through any action that a reasonable person would interpret as waiving the privilege. For example, remember that the privilege protects confidential information. If the client publishes that information to others (i.e., speaking very loudly in a crowded subway), the privilege may be lost.
It’s also extremely important to identify who the client is. This sounds simple, but can be difficult. For example, an attorney may be hired to represent a corporation. A corporation has many owners, directors, and managers. These individuals often incorrectly believe that the attorney represents them. They are, after all, running the corporation. However, these individuals may take actions or make decisions that negatively affect the corporation. In the course of these decisions, these individuals may make statements to the corporate attorney (known as corporate counsel) that they incorrectly believe are privileged. But as you might guess, because the attorney represents the business and not the individuals, no such privilege exists and the attorney may divulge what was said.