Type
Solution Manual
Book Title
Business Law with UCC Applications 14th Edition
ISBN 13
978-0077733735

978-0077733735 Chapter 2 Lecture Notes

April 10, 2019
Chapter 02 - Sources of the Law
Chapter 2
Sources of the Law
I. Key Terms
Administrative law (p. 47) Federal Register (p. 48)
Articles of Confederation (p. 35) Judicial review (p. 47)
Binding precedent (p. 46) Law (p. 31)
Code (p. 42) Persuasive precedent (p. 48)
Code of Federal Regulations Precedent (p. 46)
(CFR) (p. 48) Preemption (p. 41)
Common law (p. 45) Statutes (p. 42)
Constitution (p. 35) Statutory interpretation (p. 46)
Constitutional law (p. 35) Titles (p. 42)
Cyber-commerce (p. 44) Uniform Commercial Code
Devolution (p. 41) (UCC) (p. 43)
II. Learning Objectives
1. List the objectives of the law.
2. Clarify the duality of the law.
3. Outline the content of the U.S. Constitution.
4. Explain several central constitutional principles and powers.
5. Explain the role of statutory law in the legal system.
6. Defend the need to set up a system of uniform laws.
7. State the role of common law in the legal system.
8. Describe how the principle of stare decisis provides stability within the law.
9. Differentiate between statutory interpretation and judicial review.
10. Account for the legislature’s need to establish administrative agencies.
III. Major Concepts
2-1 The Purpose and Operation of the Law
The law consists of rules of conduct established by the government to maintain harmony,
stability, and justice within a society. Ideally, the primary objectives of the law are to
promote harmony, stability, and justice. In everyday life, the balance is not easy to main-
tain. The law or, more properly, the entire legal framework consists of a series of dualities
that must be resolved somehow.
2-2 Constitutional Law
A constitution is the basic law of a nation or state. The United States Constitution
provides the organization of the national government. Each state also has a constitution
that determines the state’s governmental structure. The body of law that forms a
constitution and its interpretation is known as constitutional law.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
2-3 Statutory Law
The laws passed by a legislature are known as statutes. At the federal level, these are the
laws made by Congress and signed by the president. At the state level, statutes are
enacted by state legislatures. Statutes must be arranged, cataloged, and indexed for easy
reference by compiling state and federal codes. Because many different statutes are
passed each year by the 50 state legislatures, there are important differences in state
statutory law throughout the nation. One solution to the problem of inconsistent statutory
law is for the legislatures of all the states to adopt the same statutes. The National
Conference of Commissioners on Uniform State Laws (NCCUSL) was founded to write
these uniform laws.
2-4 Court Decisions
Courts make law through common law, the interpretation of statutes, and judicial review.
Common law is the body of previously recorded legal decisions made by the courts in
specific cases. Statutory interpretation is the process by which the courts analyze those
aspects of a statute that are unclear or ambiguous or that were not anticipated at the time
that the legislature passed the statute, and judicial review is the process by which the
courts determine the constitutionality of various legislative statutes, administrative
regulations, or executive actions.
2-5 Administrative Regulations
Federal administrative agencies administer statutes enacted by Congress in specific areas,
such as commerce, communication, aviation, labor relations, and working conditions.
Similar agencies have been designated by the states to supervise intrastate activities.
These agencies create rules, regulate and supervise, and render decisions. To help prevent
any conflict of interest that could arise from these overlapping responsibilities, Congress
passed the federal Administrative Procedures Act. Similarly, most states have adopted a
uniform law known as the Model State Administrative Procedures Act.
IV. Outline
I. The Purpose and Operation of the Law (2-1)
A. The Law as a Balancing Act
1. The law is often a balancing act.
2. Generally, the objectives of order, stability and justice are kept in mind; but the law is
not perfect.
B. The Dualities within the Law
1. Balancing is part of the law’s fundamental nature.
2. The legal system is shaped by several dualities.
a. The spirit versus the letter of the law is an obvious duality.
b. The written word versus its interpretation is a duality addressing ambiguity.
c. The abstract versus the concrete involves application of a principle to a concrete
issue.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
d. The uncertainty principle involves duality between the way a decision is intended
and the way it is actually executed.
II. Constitutional Law (2-2)
A. The Articles of Confederation
1. The first constitution was known as the Articles of Confederation.
2. The Articles of Confederation had certain weaknesses.
a. The Congress could not impose taxes.
b. All delegates to Congress were appointed by state legislatures.
c. The states retained the power to issue their own currency.
B. Reengineering the Articles
1. Madison attempted to provide for a strong central government.
2. The Constitution displays a general structural orientation toward insulating the
leadership of the new republic from the influence of the people.
C. The Structure of the United States Constitution
1. The first fundamental principle supports a separation of nation powers among three
distinct branches of government, the executive branch, the legislative branch, and the
judicial branch.
2. The second fundamental principle supports a system of checks and balances that
allows each branch to oversee the operation of the other two branches.
3. The articles of the Constitution establish the organization of the national government.
4. The amendments change provisions in the original articles and add ideas that the
framers did not include in the articles.
5. Structurally, the Bill of Rights should have been part of the original Constitution, but
from a political and pragmatic perspective, that was not advisable.
6. Outside the Bill of Rights, the Constitution has been amended 17 times.
D. State Law, Supremacy, Preemption, and Devolution
1. Each state adopts its own constitution.
2. Preemption is the process by which the courts decide that a federal statute must take
precedence over a state statute.
3. Devolution occurs when the courts redefine a right and shift the obligation to enforce
a right from an upper-level authority to a lower one.
III. Statutory Law (2-3)
A. Codes and Titles
1. Codes are compilations of all the statutes of a particular state or the federal
government.
2. Codes are generally further subdivided into titles which are often then subdivided into
chapters and sections.
B. Uniform Laws
1. Statutory law differs from state to state which can cause problems.
2. The National Conference of Commissions on Uniform State Laws (NCCUSL) was
founded to write uniform laws.
C. The Uniform Commercial Code
1. The UCC is the most significant development in uniform state law.
2. The UCC is designed to govern almost all commercial transactions.
3. It has not been uniformly adopted by all states.
D. Cyber-Law Statutes
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
1. Cyber-commerce is the term applied to all cyber-transactions.
2. The NCCUSL has created several new uniform laws in the area of e-commerce.
a. The Uniform Computer Information Transaction Act deals with contracts that
involve the sale or licensing of digital information.
b. The Uniform Electronic Transactions Act points out principles which should be
used to make certain cyber-contracts are enforceable.
IV. Court Decisions (2-4)
A. Common Law
1. The term common law comes from attempts of early English kings to establish a body
of law that all courts in the kingdom would hold in common.
2. Common law is the body of previously recorded legal decisions.
3. The process of relying on previous legal decisions is called stare decisis.
4. The legal system of the U.S., except for Louisiana, is rooted in the common law of
England.
5. Over time, English common law has been eroded in the U.S. by passing of statutes
and court decisions; but parts of the common law as practiced in England still exist in
the laws of the U.S.
6. Today’s judges still rely on precedent which is a model law that a court can follow
when facing a similar situation.
a. One type of precedent is binding precedent.
b. A second type of precedent is persuasive precedent.
c. Generally, whether a precedent is binding or persuasive is determined by the
court’s location.
B. Statutory Interpretation
1. Court decisions may make law through the interpretation of statutes.
2. Statutory interpretation is the process by which courts analyze aspects of a statute that
are unclear, ambiguous, or unanticipated when the statute was passed.
3. In interpreting a statute, the court looks, for example, at the legislative history of the
statute; the old statute that the new statute replaced, if any; and binding precedent
interpreting the statute.
C. Judicial Review
1. Courts may make law through judicial review.
2. Judicial review is the process of determining the constitutionality of legislative
statutes, administrative regulations, or executive actions.
3. In exercising the power of judicial review, a court will compare the statute,
regulation, or action with the Constitution.
4. The U.S. Constitution is the supreme law of the land; therefore, any inconsistent
statute, regulation, or action is unconstitutional.
5. In exercising judicial review, the court must review binding precedent.
6. The final word on issues of constitutionality lies with the U.S. Supreme Court.
V. Administrative Regulations (2-5)
A. Administrative Agencies
1. Federal administrative agencies administer statutes enacted by Congress in specific
areas.
2. States have designated agencies to supervise intrastate activities.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
3. Agencies create rules, regulate and supervise, and render decisions that have the force
of law.
4. Decrees and decisions of agencies are known as administrative law.
B. Administrative Procedures Act
1. Congress passed the Administrative Procedures Act to regulate federal agencies.
2. Most states have adopted the Model State Administrative Procedures Act to regulate
state agencies.
3. The Administrative Procedures Act and the Model State Administrative Procedures
Act provide for notification to affected parties, hearings, and judicial review.
C. The Federal Register and the Code of Federal Regulations
1. New regulations issued by federal administrative agencies are published in the
Federal Register.
2. When a rule is finalized, it appears in the Code of Federal Regulations.
D. The Legal Ecosystem
1. It is helpful to consider the legal ecosystem in terms of a complex adaptive system.
2. A complex adaptive system (CAS) is a network of interacting conditions that
reinforce one another while at the same time adjust to change from agents outside and
inside the system.
V. Background Information
A. Cross-Cultural Notes
1. Legal systems in many Latin American countries have been shaped by the
colonial history of the region. Since gaining independence, Brazil, Mexico,
Venezuela, and Argentina, for example, have each retained a strong
centralized government that is molded after colonial rule. Claiming to be
democratic, these governments, like their colonial predecessors, often
disregard or change the law when it becomes inconvenient.
2. Unlike the United States Constitution, the British Constitution cannot be
found in a single document. Rather, it is based upon a group of implicit
traditions that arise from a number of diverse laws.
3. The separation of governmental powers into the legislative, executive, and
judicial branches marks a key difference between the American and British
legal systems. In Britain, the Prime Minister is a part of the Parliament.
Should the Prime Minister lose the official support of the House of Commons,
he or she must leave office. This is not true of the President. See Tony
Honore. About Law: An Introduction (Oxford: Clarendon Press 1995), p. 31.
4. Sweden was the first country to establish the office of ombudsman, a
nonpartisan agency appointed by the Rikstag (parliament) that protects people
from illegal or incompetent abuses of power by government officials and
agencies. The office of ombudsman initiates its own investigation and
responds to citizens’ complaints. It ordinarily resolves problems through a
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
combination of persuasion and publicity; however, it sometimes uses its
authority to press charges.
5. One of the medieval common law’s most important contributions to modern
times is the concept of the supremacy of law. Under common law, no ruler or
government agency had the authority to overturn the decisions of the past,
thus limiting their powers. Today, economics and social justice are protected
by courts that look to precedent rather than solely to statutes.
B. Historical Notes
1. Only eight times in its entire history has the United States Senate exercised its
authority under the Constitution and actually removed public officials from office.
Those seven officials are: John Pickering, a district court judge (1804); West
Humphreys, district court judge (1862); Robert Archbald, commerce court judge
(1912–13); Halsted Ritter, district court judge (1936); Harry Claiborne, district court
judge (1986); Alcee Hastings, district court judge (1989); Walter Nixon, Jr., district
court judge (1989); and Thomas Porteous Jr., district court judge (2010).
2. Article XI of the Articles of Confederation provided for the direct admission of
Canada to the confederation. Congress retained control over the admission of any
other colony by requiring a super majority vote of nine states.
4. One of the medieval common law’s most important contributions to modern times is
the concept of the supremacy of law. Under common law, no ruler or government
agency had the authority to overturn the decisions of the past, thus limiting their
powers. Today, economics and social justice are protected by courts that look to
precedent rather than solely to statutes.
C. State Variations
1. California’s constitution has been amended over 480 times. The constitution
of several states along with other state laws may be found at
https://www.law.cornell.edu/statutes.html. https://www.law.cornell.edu/statutes.html.
2. Nebraska is the only state with a unicameral (one-house) legislature. An effort
in Minesota advocating that the state adopt a unicameral legislature has to
date been unsuccessful. The Minnesota Legislative Reference Library has
information on the effort at
http://www.leg.state.mn.us/lrl/issues/issues.aspx?issue=uni.
D. Quotations
1. From what has been said, it is manifest, that this provision must be of a character
calculated to prevent any one interest, or combination of interests, from using the
powers of government to aggrandize itself at the expense of the others. “This, too,
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
can be accomplished only in one way, and that is, by such an organism of the
government—and, if necessary for the purpose, of the community also,—as will, by
dividing and distributing the powers of government, give to each division or interest,
through its appropriate organ, either a concurrent voice in making and executing the
laws, or a veto on their execution.”
—John C. Calhoun. “A Disquisition on Government.” In Philosophy in
America: From The Puritans to James.
2. Our Constitution is an experiment, as all life is an experiment.
—Oliver Wendell Holmes (1841–1935), Supreme Court Justice
VI. Terms
1. The word code comes from the Latin codex, referring to the trunk of a tree. In
ancient times, laws were carved into wooden tablets made from tree trunks.
VII. Related Cases
1. The Supreme Court in Roe v. Wade, 410 U.S. 113 (1973), used previous decisions to
find the constitutional right to privacy involving the right to abortions. First the Court
decided a person has a right to choose whom to marry, then it ruled on a person’s right
to birth control, then a person’s right to procreate. From this precedent, the Court found
the right to privacy.
VIII. Teaching Tips and Additional Resources
1. Additional information from the U.S. Department of Health & Human Services
regarding the Affordable Care Act can be found at
http://www.hhs.gov/healthcare/rights/.
2. Information regarding the Magna Carta, referenced in the text in relation to the
principles involved with the British system of government can be found on the website
of the BBC at http://www.bbc.co.uk/history/british/middle_ages/magna_01.shtml.
3. For information regarding the powers of the U.S. Senate, go to its official web site at
http://www.senate.gov/pagelayout/history/one_item_and_teasers/powers.htm. Click on
the “origins & development” tab for further information.
4. For additional information regarding the U.S. Constitution and its background including
information on the Declaration of Independence and the Bill of Rights, go
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 02 - Sources of the Law
to the site of the National Archives at
http://www.archives.gov/exhibits/charters/charters.html.
5. Go to http://www.uscourts.gov/Home.aspx for detailed information regarding the
federal court system.
6. Additional information regarding how laws are made can be found by clicking on the
tab “the legislative process” on the web site for the U.S. House of Representatives at
http://www.house.gov/content/learn/officers_and_organizations/.
7. For further information regarding the U.S. Code and the ability to search the Code, go to
http://uscode.house.gov/.
8. Florida State University sponsors an administrative procedure database archive available
at http://www.law.fsu.edu/library/admin/.
9. A very practical work on the U.S. Constitution is The Constitution of the United States
with the Declaration of Independence and the Articles of Confederation by R. B.
Bernstein (New York: Barnes and Noble, 2002). Another book that discusses such
concepts as the separation of powers in its original form is The Second Treatise of
Government by John Locke (Mineola, NY: Dover 2002).
10. Have students write a short paper about the advantages and disadvantages of separating
federal and state statutes. Encourage students to explore topics such as the uniformity of
federal law and the responsiveness of state legislation.
11. Discuss with students the political argument over activist versus strict constructionist
judges. Divide the class into two groups and then ask them to prepare a debate based on
the following question: Should judges follow the letter of the law or should they be free
to make law from the bench?
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distribution without the prior written consent of McGraw-Hill Education.

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