THE LEGAL ENVIRONMENT OF BUSINESS

EXAM #1 REVIEW SHEET

CHAPTERS: 1, 4 & 19

INSTRUCTOR: Wambui Mungai, Assistant Professor of Business

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CHAPTER 1: INTRODUCTION

 The Nature of Law

What is law: The law is a body of enforceable rules, governing relationships among individuals
and between individuals and the society.
o Natural Law Tradition (The law is universal)
There is a higher, or universal law exists that applies to all human beings and that
written laws should imitate these inherent principles. Have nothing to do with your
geographic location or what country you are living.
o Legal Positivism (The law is relative)
There can be no higher law than a nation’s own law. Wherever you live, the law of
the country is the law that apply to you.
o Legal Realism
The law should reflect current moral codes that exist in society. The law should
change to reflect the need of moral or economic circumstances in current society.
 Sociological School – Law should promote “justice”
If the law is going to change to reflect the current society needs, then
the law should change for the better and promote the justice for all.
We don’t want to regress or go backwards.
o The Historical School
Law should be based on what has worked throughout history. There is no need to
change the law to contemporary time.
 Sources of American Law
o Constitutional Law
The supreme law of the land.
o Statutory Law
On federal level: laws passed by congress or federal legislatures
On state level: laws passed by state legislatures
This is why there are different laws in different states
o Administrative Law
Laws that come from administrative agencies.
o Case Law and Common Law Doctrines
Case law: laws coming from decisions of judges.
Common law: old laws that came from the British Empire. It relies on repeated
application of principles. The “common” application made this possible because it
applies to everyone, establishing a principle was possible.
o Common Law Tradition
 Precedents/Stare Decisis
 Precedents
The final decision that established a new law that need to be
followed. Example or authority for deciding subsequent cases.
 Stare Decisis
 Lower court must follow the established laws of higher courts.
Judges are obligated to follow the precedents established in prior
decisions.
 Persuasive Authority / Binding Authority
 Binding Authority
Any source of law that a court must follow when deciding a case
 Persuasive Authority
Source of law that a court may look for guidance but need not follow
when making decisions.
what line divides binding and persuasive? Jurisdiction – the boundary for a
court’s power; also means that any decision by another court within the boundary is binding;
may be either by geography or subject matter
 Civil Law Systems do not apply the Common Law: Legislation is the source of
law, not a judicial decision

o Remedies in Equity v. Remedies in Law

Remedy in law (Ask the court for something): Monetary damages (Money)
Remedy in equity (Ask the court to do something):
 Injunction: Ask the court to stop a specific action
 Specific performance: Ask the court to give you what was promised in
the contract (Land is a good example)
 Recession: Ask the court to stop a contract
Courts of Equity apply “maxims”:
- Whoever seeks equity must do equity. (Anyone who wished to be treated fairly must treat
other fairly.)
- Where there is equal equity, the law must prevail. (The law will determine the outcome of a
controversy in which the merits of both sides are equal.)
- One seeking the aid of an equity court must come to the court with clean hands. (the plaintiff
must have acted fairly and honestly.)
- Equity will not suffer a wrong to be without a remedy. (equitable relief will be awarded when
there is a right to relief and there is no adequate remedy at law.)
- Equity regards substance rather than form. (Equity is more concerned with fairness and
justice than with legal technicalities.)
- Equity aids the vigilant, not those who rest on their rights. (Equity will not help those who
neglect their rights for an unreasonable period of time.)
 Schools of Legal Thought:
- Natural law - standards of justice exist separate from what statutes or judges (or kings)
provide
- Legal Positivism – only those rights granted by government exist
- Historical School – legal doctrines that withstand the test of time are most
authoritative
- Legal Realism – social and economic realities are likely to be more important than
legal principles
- Sociological School – law is a means to achieve goals in society
 Classification in Law
o Substantive & Procedural
Substantive: What is the content of the law. Laws defines, describes,
regulates and creates legal rights and obligations.
Procedural: The law that establishes the methods of enforcing the rights
established by substantive laws.
 o Civil law vs. Criminal Law
Civil law: Duties owed to other persons. Civil litigation seeks compensation
for damages from a failure to fulfill a duty.
Criminal law: Wrongs committed against society and punished by society.
Criminal prosecution seeks to penalize: fine, imprisonment, or death.
o Public Law v. Private Law
Private law: Interchangeable definition of civil law. When a private party
sues another private party.
Public law: Criminal law is an example of public law. When a private party
sues the public party (government) or the opposite. Whenever you see one
party is the government. Include administrative law and criminal law.
o National vs. International
National: laws established by a country
International: norms among nations.

CHAPTER 19: POWERS & FUNCTIONS OF ADMINISTRATIVE AGENCIES

 Regulation vs. Legislation: both set policy – balance tradeoff of costs and benefits
o Legislation – law passes by a representative body. Provide general direction
o Regulation – rule issues by a government agency providing details on how legislation
will be implemented. Comprehensive and specific.  derivative
 Agency powers:
o Rulemaking: exempt from APA
 Legislative rules - passed by an agency
 Interpretive rules – opinion of the agency
o Enforcement:
 Investigation
 Informal rules and informal adjudication
o Formal adjudication:
 Administrative action
 Answer by party
 Hearing before an administrative law judge
 Appeal to governing board of agency
 Final agency order
 Appealable to federal court
 Agency Creation and Powers
o Enabling Legislation (Substantive law)
A statute passed by congress that specify the name, composition, and powers of the
agency being created.
o Different Types of Agencies: Federal, State, Municipal ( 市政的，地方的)
 Executive: Part of cabinet-level department. Part of executive branch of
government.
 Independent: Agencies that outside the executive branch.
 Agency Powers & the Constitution
o Delegation Doctrine & Enabling Legislation
Delegation doctrine: A doctrine that allow congress to delegate some of its power to
administrative agencies to make and implement laws. Substantive law is the enabling
legislation.
o Legislative & Judicial Controls (Ripeness & Exhaustion Doctrines)
Legislative controls:
Judicial controls:
 Ripeness Doctrines: A party seeking court review must demonstrate
standing to sue (the complaining part must be the one that has the issue),
 there must be actual controversy (The issue must already happend) at
issue.
 Exhaustion Doctrines: The complaining party normally must have gone
through the administrative process (complaint – hearing – final order)
before seeking court review.
 Administrative Procedures Act (Procedural law) and Judicial Review
o Arbitrary and Capricious Test.
 FCC v. Fox Television Case
 Hemp Industries v. DEA
o Notice & Comment Rulemaking
 Enforcement & Adjudication
 Investigation; Inspections; Adjudication
 Role of Administrative Law Judge;
 Hearing Procedure & Agency Orders

CHAPTER 4: CONSTITUTIONAL AUTHORITY

 Constitutional Powers of Government
 Federalism & Separation of Powers:
o Separation of powers: 3 branches: Create law, Enforce law, Interpret law
o Checks and Balances
The principle of each branch of government exercises a check on the actions
of the others.
 The Commerce Clause (ARTICLE 1 SECTION 8)
o Expansion of the Commerce Clause
 Gibbons v. Ogden–The federal government has the power to regulate
commerce within a state (intrastate commerce) that substantially affects
interstate commerce.
 Wickard v. Filburn – Expansion of the Commerce Clause - The Supreme
Court held that wheat production by an individual farmer intended wholly for
consumption on his own farm was subject to federal regulation.
o US v. Lopez, 1995 – This is an example of the Supreme Court restricting the reach of
the commerce clause. The Supreme Court struck down an Act of Congress on the
basis that the Act attempted to regulate an area that had nothing to do with
commerce. (The Act prohibited the possession of guns within 1000 ft of any school
zone). This was the first time in 60 years that Courts restricted congressional use
of the commerce clause. An example of “checks and balances”
 Supremacy Clause: ARTICLE 6
Requires the constitution, laws and treaties of the US are the “supreme law of the land”.
The judges in every state shall be bound thereby, anything in the constitution or laws of
any state to the contrary notwithstanding.
- Federal law is supreme.
o Preemption: Occurs when congress choses to act exclusively in a concurrent area. A
valid federal statute or regulation takes precedence over a conflicting state or local
law on the same general subject.
 Bill of Rights (FIRST 10 AMENDMENTS) apply to business entities as well as natural
persons.
 RESTRICTIONS: must be content neutral. Regulate time, manner, place (but not
content).
o Freedom of Speech
 Reasonable Restrictions
Content-Neutral laws: not about the content of speech
 Laws that restrict the content of speech: the restriction must have
compelling government interest to be act.
 Corporate Political Speech
Political speech by corporations also falls within the protection of the
first amendment.
 Commercial v. Non-Commercial Speech protection.
 Commercial: advertising and marketing by a business. Protection not
as extensive.
 3 part test:
o Implement a substantial government interest
o Directly advances that interest
o Goes no further than necessary (narrowly tailored)
 Bad Frog Brewery, Inc. v. New York State Liquor Authority, 1998
 Unprotected Speech:
o Defamatory (slander & libel)
o Criminal violations (threats)
o Fighting words.
 Hate speech
 Obscene speech
o Freedom of Religion
 Establishment Clause: no state sponsored religion. Primary effect cannot be
to favor one religion over another.
 Truck v. City of San Diego, 2011
 Free Exercise Clause
 Due Process & Equal Protection (5TH AND 14TH AMENDMENTS RESPECTIVELY)
o Substantive & Procedural Due process
 Substantive due process: Focus on the content of legislation, limits what the
government may do in its legislative and executive capacities.
 Procedural due process: Requires that any government decisions to take life,
liberty, or property must be made fairly, using fair procedural.
 Equal Protection Clause (14TH AMENDMENT)
o Require states governments to treat similarly situated individuals in a similar manner.
 Three Tests of Scrutiny (审查) on Government’s interference with individual rights under the
Constitution:
o Strict Scrutiny (applies to restrictions of fundamental rights)
 Necessary to promote a necessary and compelling (必要的和令人信服的)
government interest
 Examples: Freedom of speech, freedom of religion
o Intermediate Scrutiny (applies to discrimination & illegitimacy)
 Substantially related to an important (重要的) government interest
 Example: discrimination, illegitimacy
o Rational Basis Test (applies to matters of economic and social welfare)
 Rationally related to a legitimate (合法的) government interest.
 Example: tax regulations, parking policy, speed limit, etc.
 Constitutional Protection of Privacy Rights
o Griswold v. Connecticut Case: A right to privacy is not written in the Constitution
however, the U.S. Supreme Court found a right to privacy in the “penumbras” of the
Constitution based on the First, Third, Fourth, Fifth, and Ninth amendments.