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© Cavico & Mujtaba, 2008 Business Law for the Entrepreneur and Manager Frank Cavico and Bahaudin G. Mujtaba Chapter 1 – Introduction to Law and the Legal System
© Cavico & Mujtaba, 2008 Business Law for the Entrepreneur and Manager (Frank Cavico & Bahaudin g. Mujtaba, 2008; ILEAD Academy, LLC) Table of Contents – Chapter Titles Chapter 1 – Introduction to Law and the Legal System Chapter 2 – Torts and Business Chapter 3 – Products Liability Chapter 4 – Contract Law Chapter 5 – Sales Law and the Uniform Commercial Code Chapter 6 – Agency and Employment Law Chapter 7 – Business Organizations Chapter 8 – Commercial Paper and Banking Transactions Chapter 9 – Creditors and debtors – Rights and Responsibilities Chapter 10 – Internet Law Chapter 11 – Intellectual Property Law Chapter 12 – Real Property Law Chapter 13 – International Business Law Chapter 14 – Liability of Accountants and Other Professionals Chapter 15 – Wills and Trusts Chapter 16 – Personal Property, Gifts, and Bailment Chapter 17 – Conclusion and Case Problems
© Cavico & Mujtaba, 2008 Chapter Topics Chapter 1 – Introduction –Sources of the Law –Classification of the Law –The Common Law v. Statutory Law –Legal Reasoning –The United States Court System –Alternative Dispute Resolution –Foundational United States Constitutional Concepts –Powers of the Federal Government and the States –Regulations of Commerce and Taxation –Privileges and Immunities –The Bill or Rights, Constitutional, Guarantees, and Business Summary Discussion Questions
© Cavico & Mujtaba, 2008 Business Laws The law is everywhere; and almost all human activity is affected by the law. In the business world, when contemplating a business transaction or decision, a manager not only must consider the physical, financial, personnel, and managerial aspects, but also the legal ramifications. Moreover, as the business and entrepreneurial “world” is now truly a global environment, a manager must be cognizant of not only his or her own country’s laws, but he or she also must be aware of the laws of the host countries where the manager’s firm does business
© Cavico & Mujtaba, 2008 Antitrust Laws Antitrust and other laws that apply to global organizations tend to vary from country to country; however, generally speaking, these laws tend to prohibit unilateral and collective agreements and actions that restrain trade; these would be inclusive of all restrictive practices that may reduce competition to an unreasonable level without providing beneficial effects to consumers. –For example, activities that are generally found to violate antitrust or competition laws are agreements among two or more competitors to fix or control prices; to boycott certain suppliers or customers; to divide or allocate markets or customers; or to limit the production or sale of products or product lines for anticompetitive purposes.
© Cavico & Mujtaba, 2008 Definition of Law “The law is the entire body of principles that govern conduct and which can be enforced by the courts or other government tribunals.”
© Cavico & Mujtaba, 2008 Sources of the Law Legislative body, such as the United States Congress or a state legislature (Statutory Law) Legislative ordinances enacted by constituent government elements of states in the United States Constitutional law, which is supreme in the U.S Regulatory law: the laws, in the forms of rules and regulations promulgated by administrative agencies Case law, called the “common law” in the Anglo- American judicial tradition Executive orders: orders from the executive branch of government (the President or the governor of a state, in the U.S)
© Cavico & Mujtaba, 2008 Classification of the Law In general, law can be divided into “public” law and “private” law: –Public law impacts the “people” as a whole who are directly involved with the law. Examples are constitutional law, administrative law, and criminal law – “Private” law deals with the legal problems, relations, and interests among private individuals; society and “the people” are not involved as a whole. Examples are contract law, torts, and property.
© Cavico & Mujtaba, 2008 Relative to Public and Private law, criminal law and the civil law are narrower in focus : –Criminal law deals with legal wrongs committed ultimately against society – Civil law deals with legal wrongs committed by one private party against another private party. It is premised on the Napoleonic Code, but harkens back even further to the Roman law. Today, most European countries and all Latin American countries have “civil law” systems
© Cavico & Mujtaba, 2008 Other Law Classification: –Substantive law: defines the legal relation of people with other people or people with the state, and sets forth their respective rights and duties –Procedural law is the legal method, means, or process by which the substantive law is administered and the parties’ and society’s rights and duties are enforced
© Cavico & Mujtaba, 2008 The Common Law v. Statutory Law Common Law: In early English days, the kings and their royal representatives officiating as courts made up the law on a case-by-case basis giving birth to common law The English common law was adopted by the U.S. Two concepts are critical to common law: “Precedent”: earlier case with the same or similar facts which has enunciated certain legal rules Doctrine of “stare decisis”: court will follow established precedents in resolving the case “at bar.”
© Cavico & Mujtaba, 2008 Statutory Law Three main areas of statutory law: 1.The process by which statutory law is created 2.The differences between statutory law and the common law 3.Statutory interpretation The U.S. Constitution grants specific powers to the federal government, called enumerated powers. All other powers are reserved to the states Two major differences between the common law and the statutory law: 1.The process of creation 2.The form after each becomes operative
© Cavico & Mujtaba, 2008 Social and political forces have more impact on the formation of statutory law A legislature can enact statutes where case law is non- existent Legislative bodies can pass laws which can expressly overrule the common law: “The legislative body, elected by the people, is “closest” to the people, and accordingly legislative laws will supersede the common law.” The scope and meaning of a statute will not be known until a statute is construed by the courts in settling actual concrete disputes under the statute In interpreting a statute, courts will adhere to the “plain meaning” rule, which holds that if the language of the statute is so clear, that only one result is logically indicated, the court will not consider any other factors, and give deference to the will of the legislative body
© Cavico & Mujtaba, 2008 Legal Reasoning Legal reasoning is the process of critical legal analysis that judges use to resolve a case Steps for legal reasoning: 1.Summarize the facts of the case, paying very close attention to the key or “operative” facts in the case 2.Ascertain the issues in the case 3.State the rules of law that will be used to decide the case 4.Apply these rules of law to the unique facts of the case and thereby to render a decision as to who prevails and who does not prevail in the case 5.Final Step, provide the reasoning for the decision
© Cavico & Mujtaba, 2008 The United States Court Systems The courts in the United States are endowed by the federal and state constitutions with the judicial power. The judicial power encompasses three powers: 1.Adjudication, that is, the application of legal and rules to factual disputes in order to settle cases and controversies; 2.Judicial review, that is, the power to evaluate statutes and other actions by the two other branches of government to ensure that they are constitutional; and 3.Statutory interpretation, that is, the power to construe and clarify legislation for exact meaning.
© Cavico & Mujtaba, 2008 State v. Federal Court Systems in the United States The state supreme court is the highest court in the state and possesses both original and primary jurisdiction Below the state supreme court, the intermediate or district courts of appeal form the next level in the state court system. The District Courts are the courts of original jurisdiction in almost all cases maintained in the federal court system Below the courts of appeal is the level of original jurisdiction courts, which are usually the first courts to hear and resolve disputes between private parties as well as criminal offenses against the state
© Cavico & Mujtaba, 2008 Courts and Jurisdiction A court is a tribunal established by government to hear and decide cases and controversies properly brought before it, to grant redress to aggrieved parties, to deter wrongdoing, and to enforce punishment against wrongdoers. This legal process ordinarily is called a “lawsuit” for civil cases and a “prosecution” for criminal cases. Jurisdiction is the power each court has to try cases and to decide certain types of controversies There are two indispensable prerequisites for a court to obtain original jurisdiction: 1.The court must have jurisdiction over the subject matter of the lawsuit 2.The court must have jurisdiction over the person against whom the lawsuit is being brought
© Cavico & Mujtaba, 2008 An action in personam is an action where the plaintiff is seeking to hold the defendant liable on a personal obligation –For example, the plaintiff is suing the defendant to recover money damages for an alleged breach of contract by the defendant An action in rem is one in which the plaintiff is seeking to enforce a right against certain property owned by the defendant –For example, a mortgage foreclosure action against real estate, which must be brought in the county court where the property is located
© Cavico & Mujtaba, 2008 There are two types of state statutes that directly impact on the courts’ jurisdiction: –Long Arm statutes: permits a cause of action to be instituted against an out-of-state resident defendant in the plaintiff’s home state if the defendant does business in the state and thereby impliedly gives his or her consent to be sued on a claim arising out of that business –Motorist Implied Consent statutes: is a state statute that maintains that when a non-resident operates a motor vehicle within the borders of the state, he or she impliedly consents to appoint the state’s Secretary of State as an agent for accepting service if the non- resident is involved in a motor vehicle accident within the state
© Cavico & Mujtaba, 2008 Conflict of Laws A problem arises in a legal system composed of sovereign legal entities, “states” in the U.S., when a legal situation occurs with acts or transactions that have contact with more than one state and/or parties from different states To solve this, the courts will apply Conflict of Laws rules. There are three main ones: 1.If the case is a contract case, as above, and if the issue is the validity of the contract, then the law of the state in which the contract was made will govern the case; but if the issue is the performance of the contract, then the law of the state where performance took place or is to take place will govern; 2.If the case is a tort case, the law applicable is the law of the state where the injury occurred 3.In all other cases, the law of the state with the “most significant relationship” to the lawsuit will apply to the case
© Cavico & Mujtaba, 2008 Law v. Equity The Courts of the Chancery and later Courts of Equity were empowered to provide relief when there was no adequate remedy at law The two most important remedies created to do justice were: 1.Decree of injunction: originated when a plaintiff asked a common law court of law to stop the defendant from doing a particular act, such as trespassing on the plaintiff’s land or committing a nuisance hindering the plaintiff’s enjoyment of his or her property 2.Decree of specific performance: started as a request by a plaintiff for an order commanding a defendant to live up to the terms of a contract made with the plaintiff Today in Anglo-American jurisprudence, there has been a fusion of courts of law and courts of equity, and as a result today the same court administers both legal and equitable remedies
© Cavico & Mujtaba, 2008 Court Personnel, Organization, and Procedure The most important personnel of the courts are the judge, clerk, and jury –The judge is the primary court officer whose function is to preside over and manage trials, maintain the order and dignity of the proceedings, to decide questions of law, and to instruct the jury on the applicable law of the case –The clerk of the court is the court officer whose function it is to keep accurate records of cases and to enter cases on the court calendar –The jury is the body of citizens sworn by the courts to decide questions of fact, to apply the law to the facts, and thereby to render a verdict
© Cavico & Mujtaba, 2008 A civil lawsuit must be commenced by a party through instituting a cause of action. Statute of Limitations establishes the time period within which a lawsuit must be brought Order of civil court events: 1.The plaintiff files a complaint with the clerk 2.The next step is service of process 3.In response, the defendant can file a motion to dismiss the lawsuit 4.If the defendant’s motion to dismiss is overruled, or if the defendant did not file one, then the defendant must respond to the complaint. The defendant’s response is called the “answer”
© Cavico & Mujtaba, 2008 “Discovery” process: starts if the lawsuit is not resolved on summary judgment motion Evidence: the basis for the jury’s factual determination Cross-examination stage: the defendant’s attorney asks the same witnesses other questions in an effort to disprove prior answers Summation: the attorneys for each side summarize the evidence, argue legal and factual points, and suggest to the jury the particular verdict that the attorneys feel is proper and just Verdict: the jury apply the law to the facts, and thereby render a decision
© Cavico & Mujtaba, 2008 Alternative Dispute Resolutions The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also called the “New York Convention”) member nations to enforce arbitration awards issued outside of their national territories, presuming certain requirements, mainly procedural ones, are met There has been a major trend globally to the use of alternative dispute resolution (ADR) mechanisms as a substitute for traditional court procedures
© Cavico & Mujtaba, 2008 Definitions and Types of Alternative Dispute Resolution The two foremost types of ADR are mediation and arbitration: – Mediation is a process by which a neutral third party acts as a conciliator and assists the parties to the controversy in reaching a compromise solution. the mediator, who is a neutral, disinterested, and objective third party, acts as a conciliator and facilitator –Arbitration is a process whereby the parties to a controversy submit the dispute for a final and binding decision to a neutral third party who is not a traditional court judge. In the United States, most union contracts include arbitration agreements; but these are negotiated by the union with employers, rather than imposed as a condition of employment
© Cavico & Mujtaba, 2008 The U.S. Federal Arbitration Act and the Uniform Arbitration Act The right to arbitrate arises from a contract between the parties. The contract can be a preexisting one in which the parties have agreed to submit all or certain issues for arbitration, or the parties can enter into a present contract to arbitrate an existing dispute Most states have statutes under which arbitration agreements will be enforced, premised on the Uniform Arbitration Act, which seeks to promote arbitration on a consistent basis on the state level as well as the enforceability of arbitration awards
© Cavico & Mujtaba, 2008 Advantages and Disadvantages of Arbitration Arbitration certainly is less expensive and less time- consuming than the traditional judicial manner of resolving disputes. Arbitration also allows the use of subject matter experts for very complex cases There is no traditional jury in an arbitration proceeding. Juries are very risky, especially for large corporations, and especially when it comes to damages Arbitration at times is criticized as “second-hand,” “second-rate,” or “second class” justice because arbitration deprives an aggrieved party of his or her “day in court” since arbitration usually is a confidential process, arbitration could keep private matters of societal concern which should perhaps be made public
© Cavico & Mujtaba, 2008 The Arbitration Process Arbitration commences with a formal arbitration “submission”; that is, the parties refer certain issues to the arbitrator for resolution Typically, disputes are arbitrated because of an arbitration clause in a contract entered into before the dispute arose The decision of the arbitrator is called the “award,” and it is binding on all parties to the dispute on all issues submitted
© Cavico & Mujtaba, 2008 Appealing and Overturning an Arbitration Award If a party to an arbitration procedure is dissatisfied with the arbitrator’s decision, he or she has the right to appeal it to a traditional court, and also may ask the court to render an order compelling the other party to comply with the arbitration award In the U.S. the scope of judicial review is much more restricted than an appellate court’s review of a trial court decision An award may be set aside by a court if there is sufficient evidence of an arbitrator’s bad faith or misconduct A court may have to get involved initially if there is a dispute as to whether a particular matter is one that must be resolved by arbitration. Such a problem is commonly called an “arbitrability” issue, and very well could be a traditional legal one.
© Cavico & Mujtaba, 2008 Arbitration of Employment Discrimination Claims in the United States Arbitration clause usually “caps” damages as well as disallows “pain and suffering” and punitive damages; and thus the monetary damages that an aggrieved and vindicated employee receives from an arbitration award are much less than what the law allows in the U.S. for civil rights discrimination claims Recent court decisions in the United States clearly reveal that arbitration can be a viable and legally permissible substitute for traditional court litigation of employment discrimination claims
© Cavico & Mujtaba, 2008 Mediation and Arbitration Services and Online Dispute Resolution Mediators are people known for their subject matter expertise, “diplomatic” skills, and fairness, and are selected by the parties to a controversy from a mediation service such as the National Mediation and Conciliation Service in the U.S., which mediates labor disputes An affiliation of the American Arbitration Service, the Virtual Magistrate Project, provides online arbitration services for the users of online systems and the resolution of online disputes, including contract, tort, and intellectual property “virtual” controversies
© Cavico & Mujtaba, 2008 Summary This chapter provided a brief introduction to the need for why professionals need to study and understand some of the challenges that global managers face today. After understanding the challenges, managers, entrepreneurs, and leaders can properly and proactively prepare their employees to effectively handle such challenges. Each chapter of the book ends with a brief summary of what was discussed in the chapter.
© Cavico & Mujtaba, 2008 Reference 1.Cavico, F. & Mujtaba, B. G., (2008). Business Law for the Entrepreneur and Manager. ILEAD Academy Publications; Davie, Florida, USA. ISBN: Cavico, F. and Mujtaba, B. G. (2008). Legal Challenges for the Global Manager and Entrepreneur. Kendal Hunt Publishing; United States.
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