Directions

Submit one MSWord document with clear labeling and distinctions for each response. To obtain full points you must apply the concepts we’ve studied to date and use the tools and skills studied in your response. Always cite any paraphrasing and quotes from your textbook, lecture, or other sources.

• Find a copy of a local ordinance that has affected you. Attach it and discuss.
• Answer: Chapter 1 – Questions 3, 7.
• 3. The U.S. Golf Association put a new rule (effective January 1, 2016) that prohibits players from anchoring their putters to their chests. Tim Clark, a golfer from South Africa, who has won ten championships, anchors his putter to his chest and reacted, “We are not going to roll over and just accept this. We have been put in a position where we have to fight for our livelihoods.”7 Explain what source of law is involved. How can the rule be challenged? Where would the golfers go to court?
• 7. Around 5:00 a.m. on January 1, 2004, Matthew Schmucker, who was 18 at the time, was traveling alone in a horse and buggy near the intersection of Indiana State Road 37 and Notestine Road in Harlan, Indiana. He was intoxicated at the time and failed to stop at an inter- section, thereby colliding with the side of a 2003 Dodge Stratus carrying David Candon and Monica Young, who is now paralyzed from the neck down as a result of the accident. Schmucker was charged with being a minor in possession of alcohol and failing to stop at a through- way. Candon, Young, and their children, who were in the car at the time of the auto/buggy collision, brought suit against Schmucker. Schmucker declared bankruptcy and asked to be discharged from his obligations to Candon and Young. Candon and Young argued that the injury was a “willful and malicious injury by a vessel” under the bankruptcy code and was thus a nondischargeable debt. Schmucker said a horse and buggy is not a vessel. Discuss the role of the court in this case. What would the court look to in making its decision? What is the impact of the court’s decision on the ability of the family to recover for injuries? [Young v Schmucker, 409 B.R. 477 (N.D. Ind. 2008)]
• The Parable of the Sadhu p. 47-50 Discussion Question.
• Answer: Chapter 2 – Questions 1, 9.
• 1. E. & J. Gallo, the world’s largest winery, announced that it would stop selling its Thunderbird and Night Train Express wines in the Tenderloin, the skid row of San Francisco, for six months. Gallo took the action after meeting with an activist group called Safe and Sober Streets, which has asked grocers to remove the high- alcohol wine from the district, where citizens say drunks create a menace. One retailer in the district said, “If I don’t sell this, I will have to close my doors and go home.”
• Discuss the actions of E. & J. Gallo and the dilemma of the retailers in the district. Be sure to discuss the type of philosophy each of them holds with respect to social responsibility and ethical dilemmas.

9. Heinz Ketchup holds 54% of the U.S. ketchup market, and nine of every 10 restaurants feature Heinz ketchup. However, Heinz has learned that many restaurant owners simply refill Heinz bottles with cheaper ketchup, thereby capitalizing on the Heinz name without the cost. One restaurant owner explains, “It’s just ketchup. The custom- ers don’t notice.” There are no specific health regulations that apply, and owners are not breaking the law by refill- ing the bottles. Do you think this practice is ethical?

 https://mbsdirect.vitalsource.com/#/books/9781337514392/pageid/99

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part 1 Business: Its Legal, Ethical, and Judicial Environment

For the Manager’s Desk

Re: the parable of the Sadhu

Business ethics is really nothing more than a standard of personal behavior applied to a group of people working together to make a profit. Some people are ethical because it enables them to sleep better at night. Some people are ethical because of the fear of getting caught. But being personally ethical is a justification for business ethics—it is simply the correct thing to do. Bowen McCoy’s “The Parable of the Sadhu” focuses on business ethics for personal reasons.

[In 1982], as the first participant in the new six-month sabbatical program that Morgan Stanley has adopted, I enjoyed a rare opportunity to collect my thoughts as well as do some traveling. I spent the first three months in Nepal, walking 600 miles through 200 villages in the Himalayas and climbing some 1,20,000 vertical feet. On the trip my sole Western companion was an anthropologist who shed light on the cultural patterns of the villages we passed through.

During the Nepal hike, something occurred that has had a powerful impact on my thinking about corporate ethics. Although some might argue that the experience has no relevance to business, it was a situation in which a basic ethical dilemma suddenly intruded into the lives of a group of individuals. How the group responded I think holds a lesson for all organizations no matter how defined.

The Sadhu

The Nepal experience was more rugged and adventuresome than I had anticipated. Most commercial treks last two or three weeks and cover a quarter of the distance we traveled.

My friend Stephen, the anthropologist, and I were halfway through the 60-day Himalayan part of the trip when we reached the high point, an 18,000-foot pass over a crest that we’d have to traverse to reach the village of Mukinath [sic], an ancient holy place for pilgrims.

Six years earlier I had suffered pulmonary edema, an acute form of altitude sick- ness, at 16,500 feet in the vicinity of Everest

base camp, so we were understandably concerned about what would happen at 18,000 feet. Moreover, the Himalayas were having their wettest spring in 20 years; hip- deep powder and ice had already driven us off one ridge. If we failed to cross the pass, I feared that the last half of our “once in a lifetime” trip would be ruined.

The night before we would try the pass, we camped at a hut at 14,500 feet. In the photos taken at the camp, my face appears wan. The last village we’d passed through was a sturdy two-day walk below us, and I was tired.

During the late afternoon, four backpackers from New Zealand joined us, and we spent most of the night awake, anticipating the climb. Below we could see the fires of two other parties, which turned out to be two Swiss couples and a Japanese hiking club.

To get over the steep part of the climb before the sun melted the steps cut in the ice, we departed at 3:30 a.m. The New Zealanders left first, followed by Stephen and myself, our porters and Sherpas, and then the Swiss. The Japanese lingered in their camp. The sky was clear, and we were confident that no spring storm would erupt that day to close the pass.

At 15,500 feet, it looked to me as if Stephen were shuffling and staggering a bit, which are symptoms of altitude sickness. (The initial stage of altitude sickness brings a headache and nausea. As the condition worsens, a climber may encounter difficult breathing, disorientation, aphasia, and paralysis.) I felt strong, my adrenaline was flowing, but I was very concerned about my ultimate ability to get across. A couple of our

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porters were also suffering from the height, and Pasang, our Sherpa sirdar (leader), was worried.

Just after daybreak, while we rested at 15,500 feet, one of the New Zealanders, who had gone ahead, came staggering down toward us with a body slung across his shoulders. He dumped the almost naked, barefoot body of an Indian holy man—a sadhu—at my feet. He had found the pilgrim lying on the ice, shivering and suffering from hypothermia. I cradled the sadhu’s head and laid him out on the rocks. The New Zealander was angry. He wanted to get across the pass before the bright sun melted the snow. He said, “Look, I’ve done what I can. You have porters and Sherpa guides. You care for him. We’re going on!” He turned and went back up the mountain to join his friends.

I took a carotid pulse and found that the sadhu was still alive. We figured he had probably visited the holy shrines at Mukinath [sic] and was on his way home. It was fruitless to question why he had chosen this desperately high route instead of the safe, heavily traveled caravan route through the Kali Gandaki gorge. Or why he was almost naked and with no shoes, or how long he had been lying in the pass. The answers were not going to solve our problem.

Stephen and the four Swiss began strip- ping off outer clothing and opening their packs. The sadhu was soon clothed from head to foot. He was not able to walk, but he was very much alive. I looked down the mountain and spotted below the Japanese climbers marching up with a horse.

Without a great deal of thought, I told Stephen and Pasang that I was concerned about withstanding the heights to come and wanted to get over the pass. I took off after several of our porters who had gone ahead.

On the steep part of the ascent where, if the ice steps had given way, I would have slid down about 3,000 feet, I felt vertigo. I stopped for a breather, allowing the Swiss to catch up with me. I inquired about the sadhu and Stephen. They said that the sadhu was fine and that Stephen was just behind. I set off again for the summit.

Stephen arrived at the summit an hour after I did. Still exhilarated by victory, I ran down the snow slope to congratulate him.

He was suffering from altitude sickness, walking fifteen steps, then stopping, walking fifteen steps, then stopping. When I reached them, Stephen glared at me and said: “How do you feel about contributing to the death of a fellow man?”

I did not fully comprehend what he meant.

“Is the sadhu dead?” I inquired.

“No,” replied Stephen, “but he surely will be!”

After I had gone, and the Swiss had departed not long after, Stephen had remained with the sadhu. When the Japanese had arrived, Stephen had asked to use their horse to transport the sadhu down to the hut. They had refused. He had then asked Pasang to have a group of our porters carry the sadhu. Pasang had resisted the idea, saying that the porters would have to exert all their energy to get themselves over the pass. He had thought they could not carry a man down 1,000 feet to the hut, reclimb the slope, and get across safely before the snow melted. Pasang had pressed Stephen not to delay any longer.

The Sherpas had carried the sadhu down to a rock in the sun at about 15,000 feet and had pointed out the hut another 500 feet below. The Japanese had given him food and drink. When they had last seen him he was listlessly throwing rocks at the Japanese party’s dog, which had frightened him.

We do not know if the sadhu lived or died.

For many of the following days and evenings Stephen and I discussed and debated our behavior toward the sadhu. Stephen is a committed Quaker with deep moral vision. He said, “I feel that what happened with the sadhu is a good example of the break- down between the individual ethic and the corporate ethic. No one person was willing to assume ultimate responsibility for the sadhu. Each was willing to do his bit just so long as it was not too inconvenient. When it got to be a bother, everyone just passed the buck to someone else and took off. Jesus was relevant to a more individualist stage of society, and how do we interpret his teaching today in a world filled with large, impersonal organizations and groups?”

I defended the larger group, saying, “Look, we all cared. We all stopped and (Continued)

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gave aid and comfort. Everyone did his bit. The New Zealander carried him down below the snow line. I took his pulse and suggest- ed we treat him for hypothermia. You and the Swiss gave him clothing and got him warmed up. The Japanese gave him food and water. The Sherpas carried him down to the sun and pointed out the easy trail toward the hut. He was well enough to throw rocks at a dog. What more could we do?”

“You have just described the typical affluent Westerner’s response to a problem. Throwing money—in this case food and sweaters—at it, but not solving the fundamentals!” Stephen retorted.

“What would satisfy you?” I said. “Here we are, a group of New Zealanders, Swiss, Americans, and Japanese who have never met before and who are at the apex of one of the most powerful experiences of our lives. Some years the pass is so bad no one gets over it. What right does an almost naked pilgrim who chooses the wrong trail have to disrupt our lives? Even the Sherpas had no interest in risking the trip to help him beyond a certain point.”

Stephen calmly rebutted, “I wonder what the Sherpas would have done if the sadhu had been a well-dressed Nepali, or what the Japanese would have done if the sadhu had been a well-dressed Asian, or what you would of done, Buzz, if the sadhu had been a well-dressed Western woman?”

“Where, in your opinion,” I asked instead, “is the limit of our responsibility in a situation like this? We had our own well-being to worry about. Our Sherpa guides were unwilling to jeopardize us or the porters for the sadhu. No one else on the mountain was willing to commit himself beyond certain self-imposed limits.”

Stephens aid,“ As individual Christians or people with a Western ethical tradition, we can fulfill our obligations in such a situation only if (1) the sadhu dies in our care, (2) the sadhu demonstrates to us that he could undertake the two-day walk down to the village, or (3) we carry the sadhu for two days down to the village and convince someone there to care for him.”

“Leaving the sadhu in the sun with food and clothing, while he demonstrated hand- eye coordination by throwing a rock at a dog, comes close to fulfilling items one and two,”

I answered. ?“And it wouldn’t have made sense to take him to the village, where the people appeared to be far less caring than the Sherpas, so the third condition is impractical. Are you really saying that, no matter what the implications, we should, at the drop of a hat, have changed our entire plan?”

The Individual versus the Group Ethic

Despite my arguments, I felt and continue to feel guilt about the sadhu. I had literally walked through a classic moral dilemma without fully thinking through the consequences. My excuses for my actions include a high adrenaline flow, a superordinate goal, and a once-in-a-lifetime opportunity—factors in the usual corporate situation, especially when one is under stress.

Real moral dilemmas are ambiguous, and many of us hike right through them, unaware that they exist. When, usually after the fact, someone makes an issue of them, we tend to resent his or her bringing it up. Often, when the full import of what we have done (or not done) falls on us, we dig into a defensive position from which it is very difficult to emerge. In rare circumstances we may contemplate what we have done from inside a prison.

Had we mountaineers been free of physical and mental stress caused by the effort and the high altitude, we might have treated the sadhu differently.? Yet isn’t stress the true test of personal and corporate values? The instant decisions executives make under pressure reveal the most about personal and corporate character. Among the many questions that occur to me when pondering my experience are: What are the practical limits of moral imagination and vision? Is there a collective or institutional ethic beyond the ethics of the individual? At what level of effort or commitment can one discharge one’s ethical responsibilities?

Not every ethical dilemma has a right solution. Reasonable people often disagree; otherwise there would be no dilemma. In a business context, however, it is essential that managers agree on a process for dealing with dilemmas.

The sadhu experience offers an interesting parallel to business situations. An immediate response was mandatory. Failure

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to act was a decision in itself. Up on the mountain we could not resign and submit our résumé to a headhunter. In contrast to philosophy, business involves action and implementation—getting things done. Man- agers must come up with answers to problems based on what they see and what they allow to influence their decision-making processes. On the mountain, none of us but Stephen realized the true dimensions of the situation we were facing.

One of our problems was that as a group we had no process for developing a consensus. We had no sense of purpose or plan. The difficulties of dealing with the sadhu were so complex that no one person could handle it. Because it did not have a set of preconditions that could guide its action to an acceptable resolution, the group reacted instinctively as individuals. The cross-cultural nature of the group added a further layer of complexity. We had no leader with whom we could identify and in whose purpose we believed. Only Stephen was willing to take charge, but he could not gain adequate sup- port to care for the sadhu.

Some organizations do have a value system that transcends the personal values of the managers. Such values, which go beyond profitability, are usually revealed when the organization is under stress. People throughout the organization generally accept its values, which, because they are not presented as a rigid list of commandments, may be somewhat ambiguous. The stories people tell, rather than printed mate- rials, transmit these conceptions of what is proper behavior.

For twenty years I have been exposed at senior levels to a variety of corporations and organizations. It is amazing how quickly an outsider can sense the tone and style of an organization and the degree of tolerated openness and freedom to challenge management.

Organizations that do not have a heritage of mutually accepted, shared values tend to become unhinged during stress, with each individual bailing out for himself. In the great takeover battles we have witnessed during past years, companies that had strong cultures drew the wagons around them and fought it out, while other companies saw executives,

supported by their golden parachutes, bail out of the struggles.

Because corporations and their members are interdependent, for the corporation to be strong the members need to share a preconceived notion of what is correct behavior, a “business ethic,” and think of it as a positive force, not a constraint.

As an investment banker I am continually warned by well-meaning lawyers, clients, and associates to be wary of conflicts of interest. Yet if I were to run away from every difficult situation, I wouldn’t be an effective investment banker. I have to feel my way through conflicts. An effective manager can’t run from risk either; he or she has to confront and deal with risk. To feel “safe” in doing this, managers need the guidelines of an agreed-on process and set of values within the organization.

After my three months in Nepal, I spent three months as an executive-in-residence at both Stanford Business School and the Center for Ethics and Social Policy at the Graduate Theological Union at Berkeley. These six months away from my job gave me time to assimilate twenty years of business experience. My thoughts turned often to the meaning of the leadership role in any large organization. Students a the seminary thought of themselves as antibusiness. But when I questioned them they agreed they distrusted all large organizations, including the church. They perceived all large organizations as impersonal and opposed to individual values and needs. Yet we all know of organizations where people’s values and beliefs are respected and their expressions encouraged. What makes the difference? Can we identify the difference and, as a result, manage more effectively?

The word “ethics” turns off many and confuses more. Yet the notions of shared values and an agreed-on process for dealing with adversity and change—what many people mean when they talk about corporate culture—seem to be at the heart of the ethical issue. People who are in touch with their own core beliefs and the beliefs of others and are sustained by them can be more comfortable living on the cutting edge.

At times, taking a tough line or a decisive stand in a muddle of ambiguity is the only ethical thing to do. If a manager is

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indecisive and spends time trying to figure out the “good” thing to do, the enterprise may be lost.

Business ethics, then, has to do with authenticity and integrity of the enterprise. To be ethical is to follow the business as well as the cultural goals of the corporation, its owners, its employees, and its customers. Those who cannot serve the corporate vision are not authentic business people and, therefore, are not ethical in the business sense.

At this stage of my own business experience I have a strong interest in organization- al behavior. Sociologists are keenly studying what they call corporate stories, legends, and heroes as a way organizations have of transmitting the value system. Corporations such as Arco have even hired consultants to perform an audit of their corporate culture. In a company, the leader is the person who understands, interprets, and manages the corporate value system. Effective managers are then action-oriented people who resolve conflict, are tolerant of ambiguity, stress, and change, and have a strong sense of purpose for themselves and their organizations.

If all this is true, I wonder about the role of the professional manager who moves from company to company. How can he or she quickly absorb the values and culture of different organizations? Or is there, indeed, an art of management that is totally trans- portable? Assuming such fungible managers do exist, is it proper for them to manipulate the values of others?

What would have happened had Stephen and I carried the sadhu for two days back to the village and become involved with the villagers in his care? In four trips to Nepal my most interesting experiences occurred in 1975 when I lived in a Sher- pa home in the Khumbu for five days recovering from altitude sickness. The high point of Stephen’s trip was an invitation to participate in a family funeral ceremony in Manang. Neither experience had to do with climbing the high passes of the Himalayas. Why were we so reluctant to try the lower path, the ambiguous trail? Perhaps because we did not have a leader who could reveal the greater purpose of the trip to us.

Why didn’t Stephen with his moral vision opt to take the sadhu under his

personal care? The answer is because, in part, Stephen was hard stressed physically himself, and because, in part, without some support system that involved our involuntary and episodic community on the mountain, it was beyond his individual capacity to do so.

I see the current interest in corporate culture and corporate value systems as a positive response to Stephen’s pessimism about the decline of the role of the individual in large organizations. Individuals who operate from a thoughtful set of personal values provide the foundation of a corporate culture. A corporate tradition that encourages freedom of inquiry, supports personal values, and reinforces a focused sense of direction can fulfill the need for individuality along with the prosperity and success of the group. Without such corporate support, the individual is lost.

That is the lesson of the sadhu. In a complex corporate situation, the individual requires and deserves the support of the group. If people cannot find such support from their organization, they don’t know how to act. If such support is forthcoming, a person has a stake in the success of the group and can add much to the process of establishing and maintaining a corporate culture. It is the management’s challenge to be sensitive to individual needs, to shape them, and to direct and focus them for the benefit of the group as a whole.

For each of us the sadhu lives. Should we stop what we are doing and comfort him; or should we keep trudging up toward the high pass? Should I pause to help the derelict I pass on the street each night as I walk by the Yale Club enroute to Grand Central Station? Am I his brother? What is the nature of our responsibility if we consider ourselves to be ethical persons? Perhaps it is to change the values of the group so that it can, with all its resources, take the other road.

Discussion Question

Consider the closing questions Mr. McCoy poses. How do they apply to you personally and to businesses?

Source: Reprinted by permission of Harvard Business Review. From “The Parable of the Sadhu”, by Bowen H. McCoy, May–June 1997. Copyright © 1997 by Harvard Business School Publishing Corporation; all rights reserved.

This country’s planted thick with laws from coast to coast . . . and if you cut them down… d’you really think you could stand upright in the winds that would blow then?

A MAn for All SeASonS, Act I

Consider . . . 1.1

John Yates, a commercial fisherman, caught undersized red grouper in federal waters in the Gulf of Mexico. To prevent federal authorities from confirming that he had harvested undersized fish, Yates ordered a crew member to toss the suspect fish into the sea. Yates was charged with, and convicted of, violating 18 U.S.C. § 1519,

“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation . . . or

any case filed . . . or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”

Mr. Yates says that the statute applies to financial records and not fish. The statute was passed after Enron collapsed and its financial records and audit papers had been shredded to deter such actions by businesses. Who decides whether the law applies to hurling fish overboard? What should the court decide?

1-1

Definition of Law

Philosophers and scholars throughout history have offered definitions of law. Aristotle, the early Greek philosopher, wrote that “the law is reason unaffected by desire” and “law is a form of order, and good law must necessarily mean good order.” Oliver Wendell Holmes Jr., a U.S. Supreme Court justice of the early twentieth century, said, “[L]aw embodies the story of a nation’s development through many centuries.” Sir William Blackstone, the English philosopher and legal scholar, observed that law was “that rule of action which is prescribed by some superior and which the inferior is bound to obey.” Black’s Law Dictionary defines law as “a body of rules of action or conduct prescribed by the controlling authority, and having legal binding force.”1 Law has been defined at least once by every philosopher, statesman, and police officer.

Law is simply the body of rules governing individuals and their relationships. Most of these rules become law through a recognized governmental authority. Laws give us basic freedoms, rights, and protections. Law also offers a model of conduct for members of society in their business and personal lives and gives them certainty of expectation. Plans, businesses, contracts, and property ownership are based on the expectation that the law will provide consistent protection of rights. Without such constancy in legal boundaries, society would be a mass of chaos and confusion.

1-2

Classifications of Law

1-2a public versus private Law

Public law includes those laws enacted by some authorized governmental body. State and federal constitutions and statutes are all examples of public laws, as are the state incorporation and partnership procedures, county taxation statutes, and local zoning laws.

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part 1

Business: Its Legal, Ethical, and Judicial Environment

Private law, on the other hand, is developed between two individuals. For example, landlords usually have regulations for their tenants, and these regulations are private laws. Homeowners’ associations have developed an important body of private law that regulates everything from the type of landscaping for homes in a sub- division to whether homeowners can erect basketball hoops in their driveways. The terms of a contract are a form of private law for the contracting parties. Although the requirements for forming and the means for enforcing that contract may be a matter of public law, the terms for performance are the private law the parties agree to as the rules for governing their relationships. Employer rules in a corporation are also examples of private law; as long as those rules do not infringe any public rights or violate any statutory or constitutional protections, those rules define a private law relationship between employer and employee. For example, most companies now have Twitter and Facebook policies that limit the type of information and comments employees can post about their employers in social media outlets. Interestingly, both state legislatures and the U.S. Congress have proposed legislation that would control employer restrictions on employees’ posts. Public law is being changed to reflect technological areas that are not yet addressed in employment law.

1-2b Criminal versus Civil Law

A violation of a criminal law is a wrong against society. A violation of a civil law is a wrong against another person or persons. Criminal violations have penalties such as fines and imprisonment. When you run a red light, you have committed a criminal violation and owe society a penalty, such as a fine or imprisonment. Violations of civil laws, on the other hand, require restitution: someone who violates a civil law must compensate the harmed party. If you do run a red light and strike and injure a pedestrian, your criminal case is society’s remedy. The civil wrong in the same action requires you to pay damages to that pedestrian.

If you drive while intoxicated, you are breaking a criminal law and are subject to a fine, jail term, or license suspension. If you have an accident while driving intoxicated, you commit a civil wrong against anyone you injure. People who are injured as a result of your driving while intoxicated can file a civil suit against you to recover for injuries to their persons and property (cars).

Other differences also distinguish civil laws from criminal laws and their enforcement. For example, different rights and procedures are used in the trials of criminal cases (see Chapter 8 for more details).

1-2c Substantive versus procedural Law

Substantive laws are those that give rights and responsibilities. Procedural laws provide the means for enforcing substantive rights. For example, if Zeta Corporation has breached its contract to buy 3,000 microchips from Yerba Corporation, Yerba has the substantive right to expect performance and may be able to collect damages for breach of contract by bringing suit. The laws governing how Yerba’s suit is brought and the trial process are procedural laws. Procedural laws are also used in criminal cases, such as grand jury proceedings or arraignments and pleas (see Chapter 8 for more information).

1-2d Common versus Statutory Law The term common law has been in existence since 1066, when the Normans conquered England and William the Conqueror sought one common set of laws for

governing a then-divided England. The various customs of each locality were con- glomerated so that all fiefdoms could operate under a “common” system of law. The common law came about as judges in different areas settled disputes in similar ways by consulting their fellow judges on their previous decisions before making decisions. This principle of following other decisions is referred to as stare decisis, meaning “let the decision stand.” This process of legal reasoning is still followed today. The courts use the judicial decisions of the past in making their judgments in order to provide the consistency and constancy of the law.

As much of an improvement as it was, the common law was still just uncodified law. Because of increased trade, population, and complexities, the common law needed to be supplemented. As a result, statutory law, which is passed by some governmental body and written in some form, was created.

Today, in the United States, we have common law and statutory law. Some of our common law still consists of principles from the original English common law. For example, how we own and pass title to real property are areas largely developed from English common law. The body of common law continues to grow, however: the judicial system’s decisions constitute a form of common law that is used in the process of stare decisis. Courts throughout the country look to other courts’ decisions when confronted with similar cases.

Statutory law exists at all levels of government—federal, state, county, city, borough, and town. Our statutory law varies throughout our nation because of the cultural heritages of various regions. For example, the southwestern states have marital property rights statutes—often referred to as community property laws—that were influenced by the Spanish legal system implemented in Mexico. The northeastern states have different marital property laws that were influenced by English laws on property ownership. Louisiana’s contract laws are based on French principles because of the early French settlements there.

1-2e Law versus equity

Equity is a body of law that attempts to do justice when the law does not provide a remedy, when the remedy is inadequate, or when the application of the law is terribly unfair. Equity, which originated in England, came into being because the technicalities of the common law often resulted in unresolved disputes or unfair resolutions. The monarchy allowed its chancellor to hear those cases that could not be resolved in the common law courts; eventually, a separate set of equity courts developed that were not bound by rigid common law rules. These courts could get more easily to the heart of a dispute. Over time, they developed remedies not available under common law. Common law, for example, usually permitted only the recovery of monetary damages. Courts of equity, on the other hand, could issue orders, known as injunctions, prohibiting certain conduct or ordering certain acts. The equitable remedies available in the courts of chancery were gradually com- bined with the legal remedies of the common law courts so that now parties can have their legal and equitable remedies determined by the same court.

Today’s courts award equitable remedies when the legal remedy of money damages would be inadequate. For example, the copyright infringement cases brought by the recording and motion picture industries sought injunctions against the individuals and companies that provided the technological means for making unauthorized individual copies of movies and songs. The record companies, the movie producers, and the artists could never be adequately compensated with

money for these forms of infringement because the continued activity caused the loss of their exclusive copyrights. The remedy that they sought and were given were injunctions that, within certain parameters, ordered a halt to the sites and programs that facilitated the unauthorized downloading of copy- righted materials.

1-3

Purposes of Law

1-3a Keeping Order

Laws carry some form of penalty for their violation. Violations of securities laws carry a fine or imprisonment or both. Violations of civil laws also carry sanctions. If an employer discriminates against you by refusing to give you a raise or promotion because of your age, gender, or race, you can seek money damages. A driver who injures another while driving intoxicated can be prosecuted but must also pay for the damages and the costs of the injuries the other person experiences. These civil and criminal penalties for violations of laws prevent feuds and the use of primitive methods for settling disputes, such as force.

During the summer of 2016, a number of U.S. cities experienced protests and riots because of concerns about particular police officers’ conduct. These cities imposed curfews in order to bring quiet to the city streets as well as preventing damages to and looting of businesses. A simple curfew law helped to bring order to those cities.

1-3b Influencing Conduct

Laws also influence conduct in a society. For example, securities laws require companies to make certain disclosures about those securities before they can be sold to the public. The antitrust laws passed in the early twentieth century prohibited some methods of competition, such as price fixing, and limited others, such as mergers (see Chapter 14). These types of laws continue to change the way businesses operate. For example, Google recently agreed to stop restricting its advertisers from working with other search engines.

1-3c Honoring expectations

Businesses commit resources, people, and time to ventures, expansion, and product development with the expectation that the contracts for those commitments will be honored and enforced according to existing law. Investors buy stock with the knowledge that they will enjoy some protection of that investment through the laws that regulate both the securities themselves and the companies in which they have invested. Laws allow prior planning based on the protections inherent in the law.

1-3d promoting equality

Laws have been used to achieve equality in those aspects of life in which equality is not a reality. For example, the equal-right-to-employment acts (see Chapter 20) were passed to bring greater equality to the job market. The social welfare pro- grams of state and federal governments were created to further the cause of eco- nomic justice. The antitrust laws attempt to level the playing field for the free enterprise system to operate efficiently.

1-3e Law as the Great Compromiser

A final and important purpose of law is to act as the great compromiser. Few people, groups, or businesses agree philosophically on how society, business, or government should be run. Law serves to mesh different views into one united view so that all parties are at least partially satisfied. When disputes occur, the courts apply the law to the parties’ situation in an attempt to strike a compromise between two opposing views. The U.S. Supreme Court has provided compromises for the rights of businesses to be involved in the political process and make donations to candidates (see Chapter 5). In the relationship between freedom of speech and advertising regulation, the law serves as the mediator.

1-4

Characteristics of Law

1-4a Flexibility

As society changes, the law must change with it. When the United States was an agricultural nation, the issues of antitrust, employment discrimination, and securities fraud rarely arose. However, as the United States became an industrialized nation, those areas of law expanded, and they continue to expand today. As the United States further evolves into a technological and information-based society, still more areas of law will be created and developed. Computer fraud and identity theft, for example, were unknown issues 35 years ago; today, both state and federal laws address these issues through criminal statutes (see Chapter 8). The introduction of document attachments and electronic signature programs required the courts to re-examine how offers and acceptances of contracts are made, with electronic signatures now legislatively sanctioned as having the same force and effect as signatures on paper (see Chapter 11).

Circumstances change through technology, sociology, and even biology. The law must address those changes. What are the rights of copyright holders when an Internet company creates a system that allows users to post videos that are copy- righted? With billions of users and millions of videos, how do we protect copy- righted materials?

1-4b Consistency

Although the law must be flexible, it still must be predictable. Law cannot change so suddenly that parties cannot rely on its existence or protection. Being able to predict the outcome of a course of conduct allows a party to rely on a contract or dissuades a party from the commission of a crime. For a contract, a judicial remedy can be ordered for breach or non-performance; for a crime, a prescribed punishment is the result.

1-4c pervasiveness

The law must be pervasive and cover all necessary areas, but at the same time, it cannot infringe on individual freedoms or become so complex that it is difficult to enforce. For example, laws cover the formation, operation, and dissolution of corporations. Laws govern corporate management decisions on expanding, developing, and changing the nature of the corporation. Laws also ensure that share- holders’ rights are protected. The corporation has great flexibility in management, as long as it stays within these legal boundaries.

1-5

The Theory of Law: Jurisprudence

Law is the compromise of conflicting ideas. Not only do people differ in their thinking on the types of specific laws, they also differ on the theory behind the law or the values a legal system should try to advance or encourage. Many can agree on the definition of law and its purposes but still differ on how those purposes are best accomplished. The incorporation of theories or values into the legal process is, perhaps, what makes each society’s laws different and causes law to change as society changes its values. These different theories or value bases for law are found in an area of legal study called jurisprudence, a Latin term meaning “wisdom of the law.” In many cases, how the law should work is unclear. Conflicting philosophical views often come together in litigation. Judges and lawmakers must struggle to do the best good for the most members of society.

1-5a the theory of Law: positive Law

There are some who see law as simply written orders that we must keep. Known as the positive law school of thought, those who subscribe to it believe that the critical part of the law is obedience so that we can have an orderly society.

1-5b the theory of Law: Natural Law

Another theory of jurisprudence is that of natural law, a theory that holds that we have certain rights that cannot be taken away by law. The United States of America’s form of government was grounded in the natural law theorists’ views that we have certain unalienable rights that cannot be taken away by any law. Any law that purports to take away those rights is invalid and must be challenged, either through the courts or through civil disobedience. An example would be slavery. While slavery was legal in the United States and other countries for many years, it was constantly met with dissent, disobedience, and eventually civil war. Natural law trumped the positive law, and slavery was eliminated because it was a violation of natural law, and laws were changed to make it illegal.

1-5c the theory of Law: the protection of Individuals and Relationships

Justice Oliver Wendell Holmes, in “Natural Law,” his famous essay written in 1918 at the height of World War I, rejected the notion of natural law. His essay began with the famous phrase, “The life of the law has not been logic; it has been experience.” Holmes’s opinion is that our interactions with each other constitute the foundation of law.

If I do live with others they tell me what I must do if I wish to remain alive. If I do live with others they tell me what I must do and abstain from doing various things or they will put the screws to me.2

In other words, the law is what keeps the peace among us, and should we choose to ignore it, those around us will take control and bring us into compliance.

1-5d the theory of Law: the Social Contract

Roscoe Pound, another legal philosopher and dean of Harvard Law School for 20 years, had a different view of jurisprudence from Justice Holmes. His view was that law exists as the result of those who happen to be in power, that there is a type

of social contract that we mutually honor. In 1941, Pound wrote his famous credo, called “My Philosophy of Law.”

Consider . . . 1.3

Apply the theories of jurisprudence to the following situations.

1. Major General Antonio M. Taguba led an investigation of the conduct of U.S. soldiers in the Abu Ghraib prison in Iraq. The 54-page report documented brutal treatment of Iraqi prisoners, torture, and humiliation, all in violation of either the Geneva Convention for the treatment of prisoners of war or the standards of the Red Cross. General Taguba referred to the treatment of the prisoners as consisting of “egregious acts and grave violations of international law.”4 One of the findings of

the report is that the soldiers serving as prison guards had little training. General Taguba recommended training for soldiers in when to disobey orders. A fellow officer said of General Taguba, “If you want the truth; he’s going to tell you the truth. He’s a stand-up guy.”5

General Taguba’s father was Staff Sergeant Tomas Taguba, a man who fought in the Battle of Bataan and was taken prisoner by the Japanese. He

escaped from prison there and joined the fighters in Japan who opposed the government.

Based on these brief descriptions of these two men, what philosophy of law do you think they would follow?

2. A supervisor has ordered an employee to inflate the company’s earnings for the quarter so that their unit can meet their goals and attain their bonuses. Must the employee obey?

3. Is a businessperson who believes the tax system to be unconstitutional justified in refusing to pay taxes? How will society react to such a position?

4. Is there any example of a law that is accepted by everyone in society? What about the laws against speeding? What happens, according to the philosophers, when there is no common agreement on what the law should be?

5. Refer back to the Yates case. What school of thought on jurisprudence do you think Mr. Yates followed?

1-6

I think of law as in one sense a highly specialized form of social control in a developed politically organized society—a social control through the systematic and orderly application of the force of such a society. Moreover, it operates through a judicial process and an administrative process, which also go by the name of law. . . .3

1-6
I think of law as in one sense a highly specialized form of social control in a developed politically organized society—a social control through the systematic and orderly application of the force of such a society. Moreover, it operates through a judicial process and an administrative process, which also go by the name of law. . . .3

Sources of Law

Laws exist in different forms at every level of government. As discussed earlier, law exists not only in statutory form but also in its common law form through judicial decisions. Statutory law exists at all levels of government. Statutes are written laws enacted by some governmental body with the proper authority—legislatures, city governments, and counties—and published and made available for public use and knowledge. These written statutes are sometimes referred to as codified law, and their sources, as well as constitutions, are covered in the following sections.

1-6a Constitutional Law The U.S. Constitution and the constitutions of the various states are unique forms

of law. Constitutions are not statutes because they cannot be added to, amended

part 1
Business: Its Legal, Ethical, and Judicial Environment

Exhibit

1.2

Sources of Law

Private Law

City or Borough Ordinances

County Ordinances

State Administrative Regulations

State Legislative Enactments State Constitutions Federal Administrative Regulations Federal Legislative Enactments U.S. Constitution Court Decisions

or repealed with the same ease as can statutes. Constitutions are the law of the people and are changed only by lengthier and more demanding procedures than those used to repeal statutes.

Constitutions tend to protect general rights, such as speech, religion, and property (see Chapter 5 for a more complete discussion). They also provide a frame- work for all other forms of laws. The basic rights and protections afforded in them cannot be abridged or denied by the other sources of law. In other words, a statute’s boundaries are formed by constitutionally protected rights. Exhibit 1.2 is an illustration of the sources of law; constitutional law is at the base of the pyramid diagram because of its inviolate status.

1-6b Statutory Law at the Federal Level

Congressional Law

Congress is responsible for statutory law at the federal level. The laws passed by Congress become part of the United States Code (U.S.C.). Examples of such laws are the 1933 and 1934 Securities Acts (see Chapter 18), the Sherman Act and other antitrust laws (see Chapter 14), the Equal Employment Opportunity Act (see Chapter 20), the National Labor Relations Act (see Chapter 19), the Truth-in-Lending Act (see Chapter 11), the USA Patriot Act (see Chapters 8 and 18), and the Internal Revenue Code (see Chapter 19).

Statutes from the U.S.C. are referenced or cited by a standard form of legal short- hand, often referred to as a cite or citation. The number of the title is put in front of “U.S.C.” to tell which volume of the Code to go to. For example, “15 U.S.C.” refers to Title 15 “of the U.S. Code (Title 15 happens to cover securities). There may be more than one volume that is numbered “15,” however. To enable you to find the volume you need, the reference or cite has a section (§) number following it. This section number is the particular statute referenced, and you must look for the volume of Title 15 that contains that section. For example, the first volume of Title 15 contains §§ 1–11. A full reference or cite to a United States Code statute looks like this: 15 U.S.C. §77. When a U.S.C. cite is given, the law cited will be a federal law passed by Congress.

executive Orders

Executive orders are laws of the executive branch of the federal government and deal with those matters under the direct control of that branch. For example, on his second day in office, President Barack Obama issued an executive order prohibiting the use of waterboarding in questioning military combatants who are in U.S. custody. In 2015, President Obama issued an executive order that increased back- ground checks on private gun sales, including those sales at gun shows.

Federal administrative Regulations

The federal government has administrative agencies that serve the functions of promulgation of rules (called regulations) for developing specifics such as forms and time requirements for carrying out the legislative enactments of Congress, in addition to enforcing both the laws and regulations (see Chapter 6 for more details). Examples of federal agencies include the Environmental Protection Agency (EPA), the Equal Employment Opportunity Commission (EEOC), and the Securities and Exchange Commission (SEC).

Federal regulations are found in the Code of Federal Regulations (CFR), a set of paperback volumes that is published once each year. A citation from the CFR has a structure similar to that of a U.S.C. cite. For example, 12 C.F.R. §226 is volume 12 of the CFR, and §226 is a section that deals with credit disclosure rights.

1-6c Statutory Law at the State Level

As noted on p. 13–14, each state has its own constitution. State constitutions cannot circumvent or cancel any of the rights afforded under the U.S. Constitution. These state constitutions provide the authority for the state statutory law structure.

Legislative Law and State Codes

Each state has its own code containing the laws passed by its legislature. State codes contain the states’ criminal laws, laws for incorporation, laws governing partnerships, and contract laws. Much of the law that affects business is found in these state codes. Some of the laws passed by the states are uniform laws, which are drafted by groups of businesspeople, scholars, and lawyers in an effort to make interstate business less complicated. For example, the Uniform Commercial Code (UCC), which has been adopted in 49 states, governs contracts for the sale of goods, commercial paper, security interests, and other types of commercial transactions. Having this uniform law in the various states gives businesses the opportunity to deal across state lines with some certainty. Other uniform acts passed by many state legislatures include the Uniform Partnership Act (Revised), the Uniform Residential Landlord and Tenant Act, the Model Business Corporation Act, and the Uniform Probate Code.

State administrative Law

Just as at the federal level, state governments have administrative agencies with the power to pass regulations dealing with the statutes and powers given by the state legislatures. For example, most states have an agency to handle incorporations and the status of corporations in the state. Most states also have a tax agency to handle income or sales taxes in the state.

1-6d Local Laws of Cities, Counties, and townships

In addition to federal and state statutes, local governments can pass ordinances or statutes within their areas of power or control. For example, cities and counties have the authority to handle zoning issues, and the municipal code outlines the zoning system and whatever means of enforcement and specified penalties apply. These local laws govern lesser issues, such as dog licensing, curfews, and loitering. However, local governments are often responsible for national legal trends. For example, city and county bans on Styrofoam containers have resulted in the transformation of the fast-food industry by the use of new types of containers. City ordinances often affect national companies, and the companies make changes nationwide to comply with local ordinances.

1-6e private Laws

Private laws are a final source of written law and are found, for example, in con- tracts and landlord regulations. These private laws are enforceable provided they are not inconsistent with rights and protections afforded under the other sources of law (see Chapters 3 and 4).

1-6f Court decisions

Looking at Exhibit 1.2, you can see that all of the sources of law just covered are surrounded in the pyramid by the term “Court Decisions.” Often the language in a statute is unclear, or perhaps whether the statute or ordinance applies in a particular situation is unclear. When these ambiguities or omissions occur in the statutory language, courts provide interpretation or clarification of the law when disputing parties bring suit. These court decisions are then read along with the statutory language in order to give a complete analysis of the scope and intent of the statute. The Yates case is an example of how laws are interpreted and applied as factual twists arise.

Business Strategy

Strategy for Small Businesses and Legal Issues

From the Yates case and the extent of the sources of law, it is easy to see that a small businessman landed in a great deal of legal difficulty. In fact, his court battle began in 2011 and did not end until the 2015 U.S. Supreme Court decision. It also took two years, from the boat inspection in 2009 until 2011, for the criminal charges to be brought against him. How does a small business keep up with legal issues and potential

pitfalls? Small businesses are not always able to have lawyers on call or following all the potential pitfalls they might face. To ensure that they are keeping abreast of the law, changes, and development in their business areas, many small businesses belong to trade associations. Those associations provide members with information about court decisions, pending legislations, and cautions about business practices.

1-7

Introduction to International Law

Business is global. Companies headquartered in Japan have factories in the United States, and U.S. firms have manufacturing plants in South America and subcontractors and suppliers in China. Trade and political barriers to economic development no longer exist. Businesses must be adept at trading across country boundaries, and such trade requires an understanding of international law.

International law is not a neat body of law like contract law or the UCC. Rather, it is a combination of the laws of various countries, international trade customs, and international agreements. Article 38(1) of the Statute of the International Court of Justice (a court of the United Nations that countries consent to have resolve disputes) is a widely recognized statement of the sources of international law:

(a) international conventions, whether general or particular, establishing rules expressly recognized by the contesting states;

(b) international custom as evidence of a general practice accepted as law;

(c) the general principles of law recognized by civilized nations;

(d) judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.

1-7a Custom

Every country has its boundaries for allowable behavior, and these boundaries are unwritten but recognized laws. The standards of behavior are reflected in statements made by businesspeople and government officials. Custom develops over time and through repeated conduct. For example, working conditions in factories around the world have improved over the past 20 years not through changes in laws but through the business custom of inspections, monitors, and transparent disclosure of supply chain resources. Business custom is now one of assuming responsibility for the conditions in factories that supply parts and labor for goods produced around the world.

In addition to operations, businesses must develop a knowledge of and sensitivity to individual country customs related to negotiations and relationships. For example, unlike the United States, most countries do not offer a warranty protection on goods and instead follow a philosophy of caveat emptor, “Let the buyer beware.” Other countries also do not recognize the extensive rules of insurance and risk followed here with respect to the shipment of goods. Multinational firms must make provisions for protection of shipments in those countries with different standards. Differing laws can affect product content and quality. For example, lead-based paint is not permitted for use on children’s toys in the United States, but in China, at one point, lead-based paint was standard in toy production. A toy manufacturer must learn to specify legal standards for suppliers because custom and laws in that country may find the suppliers assuming the same standards they use apply to production for businesses outside their country.

At one time, the customs of China with respect to intellectual property, most particularly computer software, lagged behind those of Europe and the United States. Chinese custom was to separate infringement into two categories: ordinary acts and serious acts. Ordinary infringement was not regarded as a legal issue and requires only that the party apologize, destroy the software, and not engage in infringement again. Courts were rarely involved in ordinary infringement cases.

However, the U.S. government demanded more protection for its copyright holders by imposing trade sanctions, and China eventually agreed to revise its customs and laws to afford protection. In this case, China’s customs had to be changed to provide protection similar to that afforded in other countries.

1-7b treaties

A treaty is an agreement between or among nations on a subject of international law signed by the leaders of the nations and ratified by the nations’ governing bodies. In the United States, treaties are ratified by the Senate and are included in the pyramid (Exhibit 1.2) as federal legislative enactments.

Treaties can be between two nations—bilateral treaties—or multilateral treaties—those that are made among several nations. Other treaties, recognized by almost all nations, are called general or universal treaties. Universal treaties are a reflection of widely followed standards of behavior. For example, the Geneva Convention is a universal treaty covering the treatment of prisoners of war. The Vienna Convention is a universal treaty covering diplomatic relations. The Warsaw Convention is a treaty that addresses issues of liability for injuries to passengers and property during inter- national air travel. For more discussion on trade treaties, see Chapter 7.

1-7c private Law in International transactions

Those businesses involved in multinational trade and production rely heavily on private law to ensure performance of contractual obligations. Even though each country has a different set of laws, all of them recognize the autonomy of parties in an international trade transaction and allow the parties to negotiate contract terms that suit their needs, as long as none of the terms is illegal. Party autonomy allows firms to operate uniformly throughout the world if their contracts are recognized as valid in most countries. For example, most international trade contracts have a choice-of-law clause whereby the parties decide which country’s law will apply to their disputes under the contract.

1-7d International Organizations

Some international organizations provide the means for facilitating multinational commercial transactions. For example, the World Trade Organization (WTO) (see Chapter 7 for more details) provides a Dispute Settlement Body (DSB), a forum for resolving trade disputes related to multilateral treaties.

1-7e the doctrines of International Law

There are a number of principles of international law that are widely accepted and honored by most countries. These include the act of state doctrine, a theory that protects governments from reviews of their actions by courts in other countries. In any action in which the government of a country has taken steps to condemn or confiscate property, the courts of other countries will not interfere (see Chapter 7 for a full discussion of this and other doctrines of international law).

1-7f trade Law and policies

The importance of trade laws, tariffs, and policies has increased directly with the rising numbers of international business transactions. Chapter 7 provides additional details on trade laws, tariffs, restrictions, and trade agreements.

1-7g Uniform International Laws

Because trade barriers have been largely eliminated, contracts have been and are being formed between and among businesses from virtually all nations. How- ever, not all nations have the same approach to contracts. Indeed, some nations have no contract laws or commercial codes. In an attempt to introduce uniformity in international contract law, the United Nations developed its Contracts for the International Sale of Goods (CISG), which has been adopted widely and allows businesses to opt in or out of its application in adopting countries. Similar to the UCC (see Chapter 11), the CISG has provisions on contract formation, performance, and damages. More information on the CISG can be found in Chapters 7, 11, and 12.

1-7h the European Union

Once referred to as the Common Market and later known as the European Com- munity (EC), the European Union (EU) is a tariff-free group of European countries that have joined together to enjoy the benefits of barrier-free trade. Formed in 1992, the single economic community requires member nations to subscribe to the same monetary standard, the elimination of immigration and customs controls, universal product and job safety standards, uniform licensing of professionals, and unified taxation schedules. The EU has been experiencing tension because of the weaker economies of some of its members and the need for other members to provide economic support for failing government finances. Great Britain’s vote to withdraw (Brexit) from the EU in 2016 signals more tension and change. More details on the governance of the EU can be found in Chapter 7.

This country’s planted thick with laws from coast to coast . . . and if you cut them down… d’you really think you could stand upright in the winds that would blow then?

A MAn for All SeASonS, Act I

Consider . . . 1.1

John Yates, a commercial fisherman, caught undersized red grouper in federal waters in the Gulf of Mexico. To prevent federal authorities from confirming that he had harvested undersized fish, Yates ordered a crew member to toss the suspect fish into the sea. Yates was charged with, and convicted of, violating 18 U.S.C. § 1519,

“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation . . . or

any case filed . . . or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”

Mr. Yates says that the statute applies to financial records and not fish. The statute was passed after Enron collapsed and its financial records and audit papers had been shredded to deter such actions by businesses. Who decides whether the law applies to hurling fish overboard? What should the court decide?

1-1

Definition of Law

Philosophers and scholars throughout history have offered definitions of law. Aristotle, the early Greek philosopher, wrote that “the law is reason unaffected by desire” and “law is a form of order, and good law must necessarily mean good order.” Oliver Wendell Holmes Jr., a U.S. Supreme Court justice of the early twentieth century, said, “[L]aw embodies the story of a nation’s development through many centuries.” Sir William Blackstone, the English philosopher and legal scholar, observed that law was “that rule of action which is prescribed by some superior and which the inferior is bound to obey.” Black’s Law Dictionary defines law as “a body of rules of action or conduct prescribed by the controlling authority, and having legal binding force.”1 Law has been defined at least once by every philosopher, statesman, and police officer.

Law is simply the body of rules governing individuals and their relationships. Most of these rules become law through a recognized governmental authority. Laws give us basic freedoms, rights, and protections. Law also offers a model of conduct for members of society in their business and personal lives and gives them certainty of expectation. Plans, businesses, contracts, and property ownership are based on the expectation that the law will provide consistent protection of rights. Without such constancy in legal boundaries, society would be a mass of chaos and confusion.

1-2

Classifications of Law

1-2a public versus private Law

Public law includes those laws enacted by some authorized governmental body. State and federal constitutions and statutes are all examples of public laws, as are the state incorporation and partnership procedures, county taxation statutes, and local zoning laws.

4

part 1

Business: Its Legal, Ethical, and Judicial Environment

Private law, on the other hand, is developed between two individuals. For example, landlords usually have regulations for their tenants, and these regulations are private laws. Homeowners’ associations have developed an important body of private law that regulates everything from the type of landscaping for homes in a sub- division to whether homeowners can erect basketball hoops in their driveways. The terms of a contract are a form of private law for the contracting parties. Although the requirements for forming and the means for enforcing that contract may be a matter of public law, the terms for performance are the private law the parties agree to as the rules for governing their relationships. Employer rules in a corporation are also examples of private law; as long as those rules do not infringe any public rights or violate any statutory or constitutional protections, those rules define a private law relationship between employer and employee. For example, most companies now have Twitter and Facebook policies that limit the type of information and comments employees can post about their employers in social media outlets. Interestingly, both state legislatures and the U.S. Congress have proposed legislation that would control employer restrictions on employees’ posts. Public law is being changed to reflect technological areas that are not yet addressed in employment law.

1-2b Criminal versus Civil Law

A violation of a criminal law is a wrong against society. A violation of a civil law is a wrong against another person or persons. Criminal violations have penalties such as fines and imprisonment. When you run a red light, you have committed a criminal violation and owe society a penalty, such as a fine or imprisonment. Violations of civil laws, on the other hand, require restitution: someone who violates a civil law must compensate the harmed party. If you do run a red light and strike and injure a pedestrian, your criminal case is society’s remedy. The civil wrong in the same action requires you to pay damages to that pedestrian.

If you drive while intoxicated, you are breaking a criminal law and are subject to a fine, jail term, or license suspension. If you have an accident while driving intoxicated, you commit a civil wrong against anyone you injure. People who are injured as a result of your driving while intoxicated can file a civil suit against you to recover for injuries to their persons and property (cars).

Other differences also distinguish civil laws from criminal laws and their enforcement. For example, different rights and procedures are used in the trials of criminal cases (see Chapter 8 for more details).

1-2c Substantive versus procedural Law

Substantive laws are those that give rights and responsibilities. Procedural laws provide the means for enforcing substantive rights. For example, if Zeta Corporation has breached its contract to buy 3,000 microchips from Yerba Corporation, Yerba has the substantive right to expect performance and may be able to collect damages for breach of contract by bringing suit. The laws governing how Yerba’s suit is brought and the trial process are procedural laws. Procedural laws are also used in criminal cases, such as grand jury proceedings or arraignments and pleas (see Chapter 8 for more information).

1-2d Common versus Statutory Law The term common law has been in existence since 1066, when the Normans conquered England and William the Conqueror sought one common set of laws for

governing a then-divided England. The various customs of each locality were con- glomerated so that all fiefdoms could operate under a “common” system of law. The common law came about as judges in different areas settled disputes in similar ways by consulting their fellow judges on their previous decisions before making decisions. This principle of following other decisions is referred to as stare decisis, meaning “let the decision stand.” This process of legal reasoning is still followed today. The courts use the judicial decisions of the past in making their judgments in order to provide the consistency and constancy of the law.

As much of an improvement as it was, the common law was still just uncodified law. Because of increased trade, population, and complexities, the common law needed to be supplemented. As a result, statutory law, which is passed by some governmental body and written in some form, was created.

Today, in the United States, we have common law and statutory law. Some of our common law still consists of principles from the original English common law. For example, how we own and pass title to real property are areas largely developed from English common law. The body of common law continues to grow, however: the judicial system’s decisions constitute a form of common law that is used in the process of stare decisis. Courts throughout the country look to other courts’ decisions when confronted with similar cases.

Statutory law exists at all levels of government—federal, state, county, city, borough, and town. Our statutory law varies throughout our nation because of the cultural heritages of various regions. For example, the southwestern states have marital property rights statutes—often referred to as community property laws—that were influenced by the Spanish legal system implemented in Mexico. The northeastern states have different marital property laws that were influenced by English laws on property ownership. Louisiana’s contract laws are based on French principles because of the early French settlements there.

1-2e Law versus equity

Equity is a body of law that attempts to do justice when the law does not provide a remedy, when the remedy is inadequate, or when the application of the law is terribly unfair. Equity, which originated in England, came into being because the technicalities of the common law often resulted in unresolved disputes or unfair resolutions. The monarchy allowed its chancellor to hear those cases that could not be resolved in the common law courts; eventually, a separate set of equity courts developed that were not bound by rigid common law rules. These courts could get more easily to the heart of a dispute. Over time, they developed remedies not available under common law. Common law, for example, usually permitted only the recovery of monetary damages. Courts of equity, on the other hand, could issue orders, known as injunctions, prohibiting certain conduct or ordering certain acts. The equitable remedies available in the courts of chancery were gradually com- bined with the legal remedies of the common law courts so that now parties can have their legal and equitable remedies determined by the same court.

Today’s courts award equitable remedies when the legal remedy of money damages would be inadequate. For example, the copyright infringement cases brought by the recording and motion picture industries sought injunctions against the individuals and companies that provided the technological means for making unauthorized individual copies of movies and songs. The record companies, the movie producers, and the artists could never be adequately compensated with

money for these forms of infringement because the continued activity caused the loss of their exclusive copyrights. The remedy that they sought and were given were injunctions that, within certain parameters, ordered a halt to the sites and programs that facilitated the unauthorized downloading of copy- righted materials.

1-3

Purposes of Law

1-3a Keeping Order

Laws carry some form of penalty for their violation. Violations of securities laws carry a fine or imprisonment or both. Violations of civil laws also carry sanctions. If an employer discriminates against you by refusing to give you a raise or promotion because of your age, gender, or race, you can seek money damages. A driver who injures another while driving intoxicated can be prosecuted but must also pay for the damages and the costs of the injuries the other person experiences. These civil and criminal penalties for violations of laws prevent feuds and the use of primitive methods for settling disputes, such as force.

During the summer of 2016, a number of U.S. cities experienced protests and riots because of concerns about particular police officers’ conduct. These cities imposed curfews in order to bring quiet to the city streets as well as preventing damages to and looting of businesses. A simple curfew law helped to bring order to those cities.

1-3b Influencing Conduct

Laws also influence conduct in a society. For example, securities laws require companies to make certain disclosures about those securities before they can be sold to the public. The antitrust laws passed in the early twentieth century prohibited some methods of competition, such as price fixing, and limited others, such as mergers (see Chapter 14). These types of laws continue to change the way businesses operate. For example, Google recently agreed to stop restricting its advertisers from working with other search engines.

1-3c Honoring expectations

Businesses commit resources, people, and time to ventures, expansion, and product development with the expectation that the contracts for those commitments will be honored and enforced according to existing law. Investors buy stock with the knowledge that they will enjoy some protection of that investment through the laws that regulate both the securities themselves and the companies in which they have invested. Laws allow prior planning based on the protections inherent in the law.

1-3d promoting equality

Laws have been used to achieve equality in those aspects of life in which equality is not a reality. For example, the equal-right-to-employment acts (see Chapter 20) were passed to bring greater equality to the job market. The social welfare pro- grams of state and federal governments were created to further the cause of eco- nomic justice. The antitrust laws attempt to level the playing field for the free enterprise system to operate efficiently.

1-3e Law as the Great Compromiser

A final and important purpose of law is to act as the great compromiser. Few people, groups, or businesses agree philosophically on how society, business, or government should be run. Law serves to mesh different views into one united view so that all parties are at least partially satisfied. When disputes occur, the courts apply the law to the parties’ situation in an attempt to strike a compromise between two opposing views. The U.S. Supreme Court has provided compromises for the rights of businesses to be involved in the political process and make donations to candidates (see Chapter 5). In the relationship between freedom of speech and advertising regulation, the law serves as the mediator.

1-4

Characteristics of Law

1-4a Flexibility

As society changes, the law must change with it. When the United States was an agricultural nation, the issues of antitrust, employment discrimination, and securities fraud rarely arose. However, as the United States became an industrialized nation, those areas of law expanded, and they continue to expand today. As the United States further evolves into a technological and information-based society, still more areas of law will be created and developed. Computer fraud and identity theft, for example, were unknown issues 35 years ago; today, both state and federal laws address these issues through criminal statutes (see Chapter 8). The introduction of document attachments and electronic signature programs required the courts to re-examine how offers and acceptances of contracts are made, with electronic signatures now legislatively sanctioned as having the same force and effect as signatures on paper (see Chapter 11).

Circumstances change through technology, sociology, and even biology. The law must address those changes. What are the rights of copyright holders when an Internet company creates a system that allows users to post videos that are copy- righted? With billions of users and millions of videos, how do we protect copy- righted materials?

1-4b Consistency

Although the law must be flexible, it still must be predictable. Law cannot change so suddenly that parties cannot rely on its existence or protection. Being able to predict the outcome of a course of conduct allows a party to rely on a contract or dissuades a party from the commission of a crime. For a contract, a judicial remedy can be ordered for breach or non-performance; for a crime, a prescribed punishment is the result.

1-4c pervasiveness

The law must be pervasive and cover all necessary areas, but at the same time, it cannot infringe on individual freedoms or become so complex that it is difficult to enforce. For example, laws cover the formation, operation, and dissolution of corporations. Laws govern corporate management decisions on expanding, developing, and changing the nature of the corporation. Laws also ensure that share- holders’ rights are protected. The corporation has great flexibility in management, as long as it stays within these legal boundaries.

1-5

The Theory of Law: Jurisprudence

Law is the compromise of conflicting ideas. Not only do people differ in their thinking on the types of specific laws, they also differ on the theory behind the law or the values a legal system should try to advance or encourage. Many can agree on the definition of law and its purposes but still differ on how those purposes are best accomplished. The incorporation of theories or values into the legal process is, perhaps, what makes each society’s laws different and causes law to change as society changes its values. These different theories or value bases for law are found in an area of legal study called jurisprudence, a Latin term meaning “wisdom of the law.” In many cases, how the law should work is unclear. Conflicting philosophical views often come together in litigation. Judges and lawmakers must struggle to do the best good for the most members of society.

1-5a the theory of Law: positive Law

There are some who see law as simply written orders that we must keep. Known as the positive law school of thought, those who subscribe to it believe that the critical part of the law is obedience so that we can have an orderly society.

1-5b the theory of Law: Natural Law

Another theory of jurisprudence is that of natural law, a theory that holds that we have certain rights that cannot be taken away by law. The United States of America’s form of government was grounded in the natural law theorists’ views that we have certain unalienable rights that cannot be taken away by any law. Any law that purports to take away those rights is invalid and must be challenged, either through the courts or through civil disobedience. An example would be slavery. While slavery was legal in the United States and other countries for many years, it was constantly met with dissent, disobedience, and eventually civil war. Natural law trumped the positive law, and slavery was eliminated because it was a violation of natural law, and laws were changed to make it illegal.

1-5c the theory of Law: the protection of Individuals and Relationships

Justice Oliver Wendell Holmes, in “Natural Law,” his famous essay written in 1918 at the height of World War I, rejected the notion of natural law. His essay began with the famous phrase, “The life of the law has not been logic; it has been experience.” Holmes’s opinion is that our interactions with each other constitute the foundation of law.

If I do live with others they tell me what I must do if I wish to remain alive. If I do live with others they tell me what I must do and abstain from doing various things or they will put the screws to me.2

In other words, the law is what keeps the peace among us, and should we choose to ignore it, those around us will take control and bring us into compliance.

1-5d the theory of Law: the Social Contract

Roscoe Pound, another legal philosopher and dean of Harvard Law School for 20 years, had a different view of jurisprudence from Justice Holmes. His view was that law exists as the result of those who happen to be in power, that there is a type

of social contract that we mutually honor. In 1941, Pound wrote his famous credo, called “My Philosophy of Law.”

Consider . . . 1.3

Apply the theories of jurisprudence to the following situations.

1. Major General Antonio M. Taguba led an investigation of the conduct of U.S. soldiers in the Abu Ghraib prison in Iraq. The 54-page report documented brutal treatment of Iraqi prisoners, torture, and humiliation, all in violation of either the Geneva Convention for the treatment of prisoners of war or the standards of the Red Cross. General Taguba referred to the treatment of the prisoners as consisting of “egregious acts and grave violations of international law.”4 One of the findings of

the report is that the soldiers serving as prison guards had little training. General Taguba recommended training for soldiers in when to disobey orders. A fellow officer said of General Taguba, “If you want the truth; he’s going to tell you the truth. He’s a stand-up guy.”5

General Taguba’s father was Staff Sergeant Tomas Taguba, a man who fought in the Battle of Bataan and was taken prisoner by the Japanese. He

escaped from prison there and joined the fighters in Japan who opposed the government.

Based on these brief descriptions of these two men, what philosophy of law do you think they would follow?

2. A supervisor has ordered an employee to inflate the company’s earnings for the quarter so that their unit can meet their goals and attain their bonuses. Must the employee obey?

3. Is a businessperson who believes the tax system to be unconstitutional justified in refusing to pay taxes? How will society react to such a position?

4. Is there any example of a law that is accepted by everyone in society? What about the laws against speeding? What happens, according to the philosophers, when there is no common agreement on what the law should be?

5. Refer back to the Yates case. What school of thought on jurisprudence do you think Mr. Yates followed?

1-6

I think of law as in one sense a highly specialized form of social control in a developed politically organized society—a social control through the systematic and orderly application of the force of such a society. Moreover, it operates through a judicial process and an administrative process, which also go by the name of law. . . .3

1-6
I think of law as in one sense a highly specialized form of social control in a developed politically organized society—a social control through the systematic and orderly application of the force of such a society. Moreover, it operates through a judicial process and an administrative process, which also go by the name of law. . . .3

Sources of Law

Laws exist in different forms at every level of government. As discussed earlier, law exists not only in statutory form but also in its common law form through judicial decisions. Statutory law exists at all levels of government. Statutes are written laws enacted by some governmental body with the proper authority—legislatures, city governments, and counties—and published and made available for public use and knowledge. These written statutes are sometimes referred to as codified law, and their sources, as well as constitutions, are covered in the following sections.

1-6a Constitutional Law The U.S. Constitution and the constitutions of the various states are unique forms

of law. Constitutions are not statutes because they cannot be added to, amended

part 1
Business: Its Legal, Ethical, and Judicial Environment

Exhibit

1.2

Sources of Law

Private Law

City or Borough Ordinances

County Ordinances

State Administrative Regulations

State Legislative Enactments State Constitutions Federal Administrative Regulations Federal Legislative Enactments U.S. Constitution Court Decisions

or repealed with the same ease as can statutes. Constitutions are the law of the people and are changed only by lengthier and more demanding procedures than those used to repeal statutes.

Constitutions tend to protect general rights, such as speech, religion, and property (see Chapter 5 for a more complete discussion). They also provide a frame- work for all other forms of laws. The basic rights and protections afforded in them cannot be abridged or denied by the other sources of law. In other words, a statute’s boundaries are formed by constitutionally protected rights. Exhibit 1.2 is an illustration of the sources of law; constitutional law is at the base of the pyramid diagram because of its inviolate status.

1-6b Statutory Law at the Federal Level

Congressional Law

Congress is responsible for statutory law at the federal level. The laws passed by Congress become part of the United States Code (U.S.C.). Examples of such laws are the 1933 and 1934 Securities Acts (see Chapter 18), the Sherman Act and other antitrust laws (see Chapter 14), the Equal Employment Opportunity Act (see Chapter 20), the National Labor Relations Act (see Chapter 19), the Truth-in-Lending Act (see Chapter 11), the USA Patriot Act (see Chapters 8 and 18), and the Internal Revenue Code (see Chapter 19).

Statutes from the U.S.C. are referenced or cited by a standard form of legal short- hand, often referred to as a cite or citation. The number of the title is put in front of “U.S.C.” to tell which volume of the Code to go to. For example, “15 U.S.C.” refers to Title 15 “of the U.S. Code (Title 15 happens to cover securities). There may be more than one volume that is numbered “15,” however. To enable you to find the volume you need, the reference or cite has a section (§) number following it. This section number is the particular statute referenced, and you must look for the volume of Title 15 that contains that section. For example, the first volume of Title 15 contains §§ 1–11. A full reference or cite to a United States Code statute looks like this: 15 U.S.C. §77. When a U.S.C. cite is given, the law cited will be a federal law passed by Congress.

executive Orders

Executive orders are laws of the executive branch of the federal government and deal with those matters under the direct control of that branch. For example, on his second day in office, President Barack Obama issued an executive order prohibiting the use of waterboarding in questioning military combatants who are in U.S. custody. In 2015, President Obama issued an executive order that increased back- ground checks on private gun sales, including those sales at gun shows.

Federal administrative Regulations

The federal government has administrative agencies that serve the functions of promulgation of rules (called regulations) for developing specifics such as forms and time requirements for carrying out the legislative enactments of Congress, in addition to enforcing both the laws and regulations (see Chapter 6 for more details). Examples of federal agencies include the Environmental Protection Agency (EPA), the Equal Employment Opportunity Commission (EEOC), and the Securities and Exchange Commission (SEC).

Federal regulations are found in the Code of Federal Regulations (CFR), a set of paperback volumes that is published once each year. A citation from the CFR has a structure similar to that of a U.S.C. cite. For example, 12 C.F.R. §226 is volume 12 of the CFR, and §226 is a section that deals with credit disclosure rights.

1-6c Statutory Law at the State Level

As noted on p. 13–14, each state has its own constitution. State constitutions cannot circumvent or cancel any of the rights afforded under the U.S. Constitution. These state constitutions provide the authority for the state statutory law structure.

Legislative Law and State Codes

Each state has its own code containing the laws passed by its legislature. State codes contain the states’ criminal laws, laws for incorporation, laws governing partnerships, and contract laws. Much of the law that affects business is found in these state codes. Some of the laws passed by the states are uniform laws, which are drafted by groups of businesspeople, scholars, and lawyers in an effort to make interstate business less complicated. For example, the Uniform Commercial Code (UCC), which has been adopted in 49 states, governs contracts for the sale of goods, commercial paper, security interests, and other types of commercial transactions. Having this uniform law in the various states gives businesses the opportunity to deal across state lines with some certainty. Other uniform acts passed by many state legislatures include the Uniform Partnership Act (Revised), the Uniform Residential Landlord and Tenant Act, the Model Business Corporation Act, and the Uniform Probate Code.

State administrative Law

Just as at the federal level, state governments have administrative agencies with the power to pass regulations dealing with the statutes and powers given by the state legislatures. For example, most states have an agency to handle incorporations and the status of corporations in the state. Most states also have a tax agency to handle income or sales taxes in the state.

1-6d Local Laws of Cities, Counties, and townships

In addition to federal and state statutes, local governments can pass ordinances or statutes within their areas of power or control. For example, cities and counties have the authority to handle zoning issues, and the municipal code outlines the zoning system and whatever means of enforcement and specified penalties apply. These local laws govern lesser issues, such as dog licensing, curfews, and loitering. However, local governments are often responsible for national legal trends. For example, city and county bans on Styrofoam containers have resulted in the transformation of the fast-food industry by the use of new types of containers. City ordinances often affect national companies, and the companies make changes nationwide to comply with local ordinances.

1-6e private Laws

Private laws are a final source of written law and are found, for example, in con- tracts and landlord regulations. These private laws are enforceable provided they are not inconsistent with rights and protections afforded under the other sources of law (see Chapters 3 and 4).

1-6f Court decisions

Looking at Exhibit 1.2, you can see that all of the sources of law just covered are surrounded in the pyramid by the term “Court Decisions.” Often the language in a statute is unclear, or perhaps whether the statute or ordinance applies in a particular situation is unclear. When these ambiguities or omissions occur in the statutory language, courts provide interpretation or clarification of the law when disputing parties bring suit. These court decisions are then read along with the statutory language in order to give a complete analysis of the scope and intent of the statute. The Yates case is an example of how laws are interpreted and applied as factual twists arise.

Business Strategy

Strategy for Small Businesses and Legal Issues

From the Yates case and the extent of the sources of law, it is easy to see that a small businessman landed in a great deal of legal difficulty. In fact, his court battle began in 2011 and did not end until the 2015 U.S. Supreme Court decision. It also took two years, from the boat inspection in 2009 until 2011, for the criminal charges to be brought against him. How does a small business keep up with legal issues and potential

pitfalls? Small businesses are not always able to have lawyers on call or following all the potential pitfalls they might face. To ensure that they are keeping abreast of the law, changes, and development in their business areas, many small businesses belong to trade associations. Those associations provide members with information about court decisions, pending legislations, and cautions about business practices.

1-7

Introduction to International Law

Business is global. Companies headquartered in Japan have factories in the United States, and U.S. firms have manufacturing plants in South America and subcontractors and suppliers in China. Trade and political barriers to economic development no longer exist. Businesses must be adept at trading across country boundaries, and such trade requires an understanding of international law.

International law is not a neat body of law like contract law or the UCC. Rather, it is a combination of the laws of various countries, international trade customs, and international agreements. Article 38(1) of the Statute of the International Court of Justice (a court of the United Nations that countries consent to have resolve disputes) is a widely recognized statement of the sources of international law:

(a) international conventions, whether general or particular, establishing rules expressly recognized by the contesting states;

(b) international custom as evidence of a general practice accepted as law;

(c) the general principles of law recognized by civilized nations;

(d) judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.

1-7a Custom

Every country has its boundaries for allowable behavior, and these boundaries are unwritten but recognized laws. The standards of behavior are reflected in statements made by businesspeople and government officials. Custom develops over time and through repeated conduct. For example, working conditions in factories around the world have improved over the past 20 years not through changes in laws but through the business custom of inspections, monitors, and transparent disclosure of supply chain resources. Business custom is now one of assuming responsibility for the conditions in factories that supply parts and labor for goods produced around the world.

In addition to operations, businesses must develop a knowledge of and sensitivity to individual country customs related to negotiations and relationships. For example, unlike the United States, most countries do not offer a warranty protection on goods and instead follow a philosophy of caveat emptor, “Let the buyer beware.” Other countries also do not recognize the extensive rules of insurance and risk followed here with respect to the shipment of goods. Multinational firms must make provisions for protection of shipments in those countries with different standards. Differing laws can affect product content and quality. For example, lead-based paint is not permitted for use on children’s toys in the United States, but in China, at one point, lead-based paint was standard in toy production. A toy manufacturer must learn to specify legal standards for suppliers because custom and laws in that country may find the suppliers assuming the same standards they use apply to production for businesses outside their country.

At one time, the customs of China with respect to intellectual property, most particularly computer software, lagged behind those of Europe and the United States. Chinese custom was to separate infringement into two categories: ordinary acts and serious acts. Ordinary infringement was not regarded as a legal issue and requires only that the party apologize, destroy the software, and not engage in infringement again. Courts were rarely involved in ordinary infringement cases.

However, the U.S. government demanded more protection for its copyright holders by imposing trade sanctions, and China eventually agreed to revise its customs and laws to afford protection. In this case, China’s customs had to be changed to provide protection similar to that afforded in other countries.

1-7b treaties

A treaty is an agreement between or among nations on a subject of international law signed by the leaders of the nations and ratified by the nations’ governing bodies. In the United States, treaties are ratified by the Senate and are included in the pyramid (Exhibit 1.2) as federal legislative enactments.

Treaties can be between two nations—bilateral treaties—or multilateral treaties—those that are made among several nations. Other treaties, recognized by almost all nations, are called general or universal treaties. Universal treaties are a reflection of widely followed standards of behavior. For example, the Geneva Convention is a universal treaty covering the treatment of prisoners of war. The Vienna Convention is a universal treaty covering diplomatic relations. The Warsaw Convention is a treaty that addresses issues of liability for injuries to passengers and property during inter- national air travel. For more discussion on trade treaties, see Chapter 7.

1-7c private Law in International transactions

Those businesses involved in multinational trade and production rely heavily on private law to ensure performance of contractual obligations. Even though each country has a different set of laws, all of them recognize the autonomy of parties in an international trade transaction and allow the parties to negotiate contract terms that suit their needs, as long as none of the terms is illegal. Party autonomy allows firms to operate uniformly throughout the world if their contracts are recognized as valid in most countries. For example, most international trade contracts have a choice-of-law clause whereby the parties decide which country’s law will apply to their disputes under the contract.

1-7d International Organizations

Some international organizations provide the means for facilitating multinational commercial transactions. For example, the World Trade Organization (WTO) (see Chapter 7 for more details) provides a Dispute Settlement Body (DSB), a forum for resolving trade disputes related to multilateral treaties.

1-7e the doctrines of International Law

There are a number of principles of international law that are widely accepted and honored by most countries. These include the act of state doctrine, a theory that protects governments from reviews of their actions by courts in other countries. In any action in which the government of a country has taken steps to condemn or confiscate property, the courts of other countries will not interfere (see Chapter 7 for a full discussion of this and other doctrines of international law).

1-7f trade Law and policies

The importance of trade laws, tariffs, and policies has increased directly with the rising numbers of international business transactions. Chapter 7 provides additional details on trade laws, tariffs, restrictions, and trade agreements.

1-7g Uniform International Laws

Because trade barriers have been largely eliminated, contracts have been and are being formed between and among businesses from virtually all nations. How- ever, not all nations have the same approach to contracts. Indeed, some nations have no contract laws or commercial codes. In an attempt to introduce uniformity in international contract law, the United Nations developed its Contracts for the International Sale of Goods (CISG), which has been adopted widely and allows businesses to opt in or out of its application in adopting countries. Similar to the UCC (see Chapter 11), the CISG has provisions on contract formation, performance, and damages. More information on the CISG can be found in Chapters 7, 11, and 12.

1-7h the European Union

Once referred to as the Common Market and later known as the European Com- munity (EC), the European Union (EU) is a tariff-free group of European countries that have joined together to enjoy the benefits of barrier-free trade. Formed in 1992, the single economic community requires member nations to subscribe to the same monetary standard, the elimination of immigration and customs controls, universal product and job safety standards, uniform licensing of professionals, and unified taxation schedules. The EU has been experiencing tension because of the weaker economies of some of its members and the need for other members to provide economic support for failing government finances. Great Britain’s vote to withdraw (Brexit) from the EU in 2016 signals more tension and change. More details on the governance of the EU can be found in Chapter 7.