Comprehensive Notes – Chapter 1 Law & Legal Reasoning

Unit One – The Foundations

(Based on Cross/Miller, The Legal Environment of Business: Text & Cases, 11th Ed.)

1-2 Sources of American Law

• Two categories of sources
  – Primary = actually create/announce the law
  – Secondary = explain, interpret, or critique the primary sources
• Primary sources
  – U.S. Constitution + 50 state constitutions
  – Statutory law (federal, state, local ordinances)
  – Administrative regulations (e.g., Federal Trade Commission rules)
  – Case law / common-law doctrines
• Secondary sources
  – Legal encyclopedias, treatises, Restatements, law review articles, etc.

1-2a Constitutional Law

• “Supreme Law of the Land” – any conflicting rule is void
• Each state constitution is supreme within state borders unless it conflicts with the U.S. Constitution or valid federal statute.
• Practical significance: Firms must screen business practices against both federal and state constitutional limits (e.g., due process, equal protection, commerce clause).

1-2b Statutory Law

• Definition: Legislation enacted by elected bodies rather than courts or agencies.
• Hierarchy / potential conflicts
  \text{U.S. Constitution} \;>\; \text{Federal Statutes} \;>\; \text{State Constitutions} \;>\; \text{State Statutes} \;>\; \text{Local Ordinances}
• Federal statutes – nationwide reach (e.g., Title VII of the Civil Rights Act).
• State statutes – territorial reach (e.g., California Consumer Privacy Act).
• Ordinances – zoning, safety codes, noise, etc.; directly affect site-specific business decisions.
• Uniform (Model) Laws
  – Drafted by NCCUSL + ALI to reduce interstate conflicts.
  – State legislature may adopt whole, part, or none.
  – Once adopted, the model become statutory within that jurisdiction.
  – Most successful model = Uniform Commercial Code (UCC) (governs sales, leases, negotiable instruments, secured transactions, etc.; allows opt-out flexibility; uniformly adopted except Louisiana’s partial adoption for sales).

1-2c Administrative Law

• Definition: Rules, orders, and decisions of administrative agencies created to implement statutes.
• Agencies = specialized mini-governments that combine legislative, executive, and judicial functions.
• Scope over business: capital structure (SEC), financing (Federal Reserve), HR policies (EEOC), environment (EPA), labeling/marketing (FTC, FDA).
• Federal agencies
  – Executive agencies (e.g., FDA in HHS) — leadership removable by President; policy change aligns closely with political agendas.
  – Independent regulatory agencies (e.g., FTC, SEC, Federal Reserve) — commissioners serve fixed terms and can only be removed “for cause.”
• Parallel state & local agencies mirror federal bodies (e.g., state OSHA, county air-quality boards).

1-2d Case Law & Common-Law Doctrines

• Case law comprises published judicial opinions; functions to
  – Interpret constitutions, statutes, and agency rules.
  – Fill gaps where no statute governs (“judge-made” law).
• Common-law tradition = heritage from England; courts still apply centuries-old principles when relevant.

1-3 The Common-Law Tradition

Early English Courts

• Post-Norman Conquest 1066: Kings unified regional customs → common law.

Courts of Law

– Granted remedies “at law”: \text{(1)\; Land,\; (2)\; Chattel,\; (3)\; Money}.
– Outcome = judgment for damages.

Courts of Equity

– Petitions to chancellor when legal remedy inadequate.
– Equity = justice/fairness > technicalities.
– Remedies in equity: injunction, specific performance, rescission & restitution, reformation.
– Key equitable concepts:
   • Breach = failure to fulfill duty; equity intervenes if damages \neq adequate.

Equitable Maxims (Exhibit 1-2)

1. “He who seeks equity must do equity.”

2. “Where equities are equal, the law prevails.”

3. “Come with clean hands.”

4. “Equity will not suffer a wrong to be without a remedy.”

5. Substance over form.

6. Equity aids the vigilant, not the slothful (doctrine of laches).
   – Laches = neglected rights for unreasonable t → barred claim; modern statutes of limitations codify the outside time frames.

Merger of Law & Equity in the U.S.

• 19th-century procedural reforms merged courts but not the remedies; parties may seek both in a single filing.
• Residual distinctions: terminology (complaint vs. petition), jury availability (equity traditionally no jury), style of decrees, etc.
• Exhibit 1-3 contrasts procedure (initiation, decision-maker, remedy type).

1-3c Doctrine of Stare Decisis

• Definition: Courts follow their own prior decisions + higher-court precedents within the same jurisdiction.
• Two pillars
  1. Court shouldn’t overturn its precedent absent compelling reason.
  2. Lower courts are bound by higher-court rulings.
• Benefits: efficiency, predictability, legal stability → businesses can rely on settled expectations when investing.
• Controlling precedent = binding authority; includes constitutions, statutes, regulations, and published opinions in the hierarchy.
• Cases of first impression → court consults persuasive authority: out-of-state precedents, legal scholarship, public policy, fairness, etc.

1-3d Legal Reasoning (IRAC)

• Issue: Identify determinative facts + legal questions.
• Rule: Extract governing statute/precedent/regulation.
• Application (a.k.a. “analysis”): Analogize/distinguish facts from prior cases (“case on point”).
• Conclusion: Reach result, often balancing policy.
• No single “right” answer → judges’ philosophies, values, interpretive methods (textualism, purposivism, etc.) influence outcome.

1-3e Common Law Today

• Statutes/Regulations dominate many fields; common law fills residual areas (torts, contracts, property not covered by UCC provisions, agency, etc.).
• Judicial role is interpretive, not legislative, yet interpretation can effectively create rules (e.g., implied warranty doctrine).
• ALI Restatements synthesize majority common-law rules; widely cited as persuasive authority.

1-5 Classifications of Law

• Substantive vs. Procedural
  – Substantive = “what” rights/duties exist.
  – Procedural = “how” to enforce them (jurisdiction, pleadings, evidence).
• Federal vs. State
• Private vs. Public
  – Private governs horizontal relationships (contracts, torts).
  – Public governs vertical citizen–government relations (constitutional, administrative, criminal).
• National vs. International
• Civil vs. Criminal
  – Civil: plaintiff (private or gov’t) seeks compensation or equitable relief for violation of right/duty.
  – Criminal: sovereign prosecutes wrongs “against society”; penalties include fines, imprisonment, death.

1-6 Locating Primary Authority

• Citation = reference telling where law/opinion is published (volume #, reporter abbreviation, page, year).

Statutory & Administrative Materials

• Codified form groups statutes by subject.
• United States Code (U.S.C.) arranges federal statutes by title (1-54).
• States publish similar topical codes (e.g., Ohio Rev. Code).
• Federal administrative rules:
  – Draft → Federal Register (daily).
  – Final → Code of Federal Regulations (C.F.R.) (updated annually by title).

Case Reporters & Court Structure

• Two parallel court systems: federal & state.
• Three typical tiers
  1. Trial court (district court / superior court) – witnesses, evidence.
  2. Intermediate appellate court – reviews for legal error.
  3. Highest court (state supreme court or U.S. Supreme Court) – discretionary review.
• Published opinions appear in regional reporters (e.g., N.E.3d), federal reporters (F. Supp. 3d, F.4th, U.S.), and online databases (Westlaw, Lexis, gov’t sites).

Practical, Ethical, & Business Implications

• Regulatory overlap (federal–state–local) = compliance matrix; businesses must perform multilevel audits to avoid pre-emption conflicts.
• Stare decisis gives predictability, but emerging tech (AI, blockchain) produce cases of first impression ⇒ strategic uncertainty.
• Equitable principles (clean hands, laches) underline corporate ethics programs; timely, fair dealing can preserve legal standing.
• Uniform laws (UCC) facilitate interstate commerce; firms expanding across state lines rely on consistent rules for sales & secured transactions.
• Administrative agencies often the front-line for social policy (environmental justice, consumer protection); stakeholder engagement in rulemaking (notice-and-comment) is a strategic necessity.

Key Terms Recap (Flash-Style)

• \text{Constitutional\ Law} – supreme, foundational.
• \text{Statute} – legislative command.
• \text{Ordinance} – local statute.
• \text{Uniform\ Law} – model act (e.g., UCC).
• \text{Administrative\ Agency} – specialist rule-maker.
• \text{Case\ Law} – judicial interpretation.
• \text{Remedy\ at\ Law} – damages.
• \text{Remedy\ in\ Equity} – injunction, specific performance, etc.
• \text{Stare\ Decisis} – precedent doctrine.
• \text{IRAC} – legal reasoning steps.
• \text{Substantive\ vs.\ Procedural} – what vs. how.
• \text{Civil\ vs.\ Criminal} – private rights vs. public wrongs.
• \text{Citation} – locator for authority.