Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 1 Our System of Law
LESSON OVERVIEW
Part 1 of the text addresses the system of law, ethics, criminal law, tort law, and administrative law.
Chapter 1 deals with the system of law—the relevance of law in today’s world and the impact of law in
all facets of an individual’s life. We will identify the principal sources of law in the United States—
constitutional law, executive order, treaties, common law, precedent, case law, statutory law, and
administrative law. The chapter examines the foundations of the Uniform Commercial Code in detail
and lists the classifications of major laws. We will briefly touch upon the importance of moral law and
legal obligations. Finally, the chapter describes the system of courts and the powers vested in the
supreme, federal, and state courts. Instructors can test their students’ learning using the end-of-chapter
discussion and case study questions.
CHAPTER OUTLINE
A. THE LAW IN OUR WORLD (p. 4)
B. APPLICATIONS OF LAW (p. 4)
1. Personal Applications of Law (pp. 4-5)
2. Business Applications of Law (p. 5)
3. Government Applications of Law (p. 5)
C. SOURCES OF LAW (p. 5)
1. Constitutional Law (p. 5)
2. Executive Orders (p. 6)
3. Treaties (p. 6)
4. Common Law (p. 6)
5. Precedent (p. 6)
6. Case Law (pp. 6-7)
7. Statutory Law (p. 7)
8. Administrative Law (pp. 7-8)
D. UNIFORM COMMERCIAL CODE (p. 8)
E. CLASSIFICATION OF LAWS (p. 8)
F. MORAL LAW (p. 9)
G. A SYSTEM OF COURTS (pp. 9)
1. Court Jurisdiction (p. 10)
2. Federal Courts (pp. 10 -11)
3. State Courts (p. 11)
H. CHAPTER SUMMARY (pp. 11-12)
I. CHAPTER ONE ASSESSMENT
1. Matching Legal Terms (pp. 12-13)
2. True/False Quiz (pp. 13-14)
3. Discussion Questions (pp. 14-15)
4. Thinking Critically About the Law (p. 15)
5. Case Questions (p. 16)
6. Case Analysis (pp. 16-17)
7. Legal Research (p.17)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ plaintiff (p. 4)
§ defendant (p. 4)
§ stare decisis (p. 6)
§ common law (p. 6)
§ precedent (p. 6)
§ case law (pp. 6-7)
§ statutory law (p. 7)
§ ordinance (p. 7)
§ administrative law (pp. 7-8)
§ Uniform Commercial Code (UCC) (p. 8)
§ moral law (p. 9)
§ jurisdiction (p. 10)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 1 when you begin the study of the chapter and discuss each Learning
Outcomes. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 1. The corresponding text
page numbers and PPT slides are listed next to each outcome. These slides should be used to reinforce
the main points of the lecture.
After completing this chapter, the students will be able to:
1. Discuss the application of law in today’s world. (pp. 4-5, PPT slide 3)
2. Provide examples of how the application of law affects (a) one’s personal or social life, (b)
business or business operations, and (c) governments. (pp. 4-5, PPT slide 3)
3. Identify the principal sources of law in the United States. (pp. 5-8, PPT slides 4-12)
4. Explain the reasons for the preparation of the Uniform Commercial Code. (p. 8, PPT slide 13)
5. Cite and describe the major classifications of law. (p. 8, PPT slide 14)
6. Distinguish moral law from legal obligations. (p. 9, PPT slides 15-16)
7. Describe the structure of our federal and state court systems. (pp. 9-11, PPT slides 17-23)
nLECTURE OUTLINE
A. THE LAW IN OUR WORLD
Justice and law are hallmarks of a free society in today’s world. Every business day, in every city, town,
and village in this country, courts are in session, juries are being selected, and attorneys are busy
seeking favorable decisions for their clients, who might be either a plaintiff, the person who brings a
lawsuit against another, or a defendant, the person against whom a lawsuit is brought or who is
charged with a violation of the law.
The law presented in this text deals primarily with the general principles of law and their applications
to business. Some chapters focus on personal applications of the law, however, and others treat ethical
aspects of personal and business behavior.
B. APPLICATIONS OF LAW
Some aspects of the law apply to all persons, institutions, and organizations.
1. Personal Applications of Law
The law affects an individual in all aspects of his or her life. Examples include the
following: (a) time is regulated by a law establishing standard time zones; (b) federal
and state laws regulate the purity and wholesomeness of foods; (c) clothing labels are in
compliance with governmental regulations; and (d) driving and speed limitations are
regulated by state laws.
2. Business Applications of Law
Every business must comply with many federal, state, and local laws that are primarily
aimed at regulating business activity. A firm that wishes to set up business in a particular
community may find that there are laws that prohibit such activities. For example, local
zoning ordinances might prohibit the operation of a noisy factory in a residential area.
3. Government Applications of Law
Legislatures at all levels of government pass many laws that apply only to businesses
and individuals, but some laws apply specifically to governments.
C. SOURCES OF LAW
The ever-changing body of law that affects all persons in our country has arisen from a number of
sources. As a result, laws sometimes conflict with one another.
1. Constitutional Law
The principles and ideals that protect individual liberty and freedom are incorporated in
the Constitution of the United States (the federal Constitution). This historic document
gives the federal government certain reasonable powers and, at the same time, clearly
limits the use of those powers. In addition, each state has a constitution of its own that
gives certain powers to the various levels of government within that state. Like the
federal Constitution, state constitutions provide safeguards for the rights of individuals
within that particular state.
2. Executive Orders
An executive order is a legally binding directive issued by the president with the intent
to change the manner in which federal agencies and officials operate to improve the
practice of the federal government.
3. Treaties
A treaty is a written agreement between two or more countries that serves to establish
terms of an international relationship. Treaties become legally binding when approved
by two-thirds of the Senate.
4. Common Law
The practice of relying on previous decisions is known as stare decisis, which means
“to stand on decided cases.” The English system is known as the common law and still
influences legal decisions in the United States today.
5. Precedent
A precedent is a court decision on which later courts rely in similar cases. Whether a
court follows a precedent, or decides to overrule it, depends on the court that has ruled
on the case and whether the previous case was decided by the highest court in the same
state.
Court decisions are recorded in writing, and published in books called reporters. Each
case decision is identified by a citation, which includes the names of the parties involved
followed by the volume number, the name of the reporter, and the beginning page
number of the case.
6. Case Law
An existing statute or an accepted precedent may be based on outmoded standards of
justice. In such cases, a court may disregard earlier interpretations of a statute or a
principle of common law, or it may interpret them differently. The court’s decisions in
these cases influence later cases because they, too, become precedents that may be
followed in similar cases. The effects of these decisions have been called case law.
7. Statutory Law
The laws passed by Congress and by state legislatures are called statutes, and the field of
the law that deals with these statutes is known as statutory law. A law that is passed by
a local government, such as a city council, is often called an ordinance.
8. Administrative Law
Administrative law is the body of rules, regulations, and decisions created by
administrative agencies. The practice of establishing specialized administrative agencies
has several advantages. Administrative agencies include federal agencies such as the
National Labor Relations Board, state agencies such as public service commissions, and
local agencies such as boards of health. These agencies have in common the authority to
establish rules that have the force of law, to maintain “courts” that are often called
appeal boards, and to conduct “trials” that are often called hearings.
D. UNIFORM COMMERCIAL CODE
When business was conducted with customers in many states, individuals had to know the law in all of
them. To solve this problem, the Uniform Commercial Code (UCC) was prepared in 1952 by the
National Conference of Commissioners on Uniform State Laws. The UCC is a set of laws that govern
various commercial transactions and are designed to bring uniformity to the laws of the states.
E. CLASSIFICATION OF LAWS
The various laws, regardless of origin, can be grouped into several broad classifications, each of which
represents a legal specialty.
i. Constitutional law is the study of the federal Constitution, its interpretation by
the federal courts, and its relationship to existing laws.
ii. Civil law is the study of the rights and obligations of individuals and includes the
law of property, the law of contracts, and the law of torts.
iii. Criminal law is concerned with acts against society (criminal acts) and the
regulation of criminal activity.
iv. Administrative law is concerned with the conduct of governmental administrative
agencies and their regulations.
v. International law is concerned with the conduct of nations in their relations with
other nations.
F. MORAL LAW
Moral law is the “law” concerned with the unenforceable obligations that people have to one another.
Many legal obligations are based on moral obligations, but not all moral obligations are legally
enforceable; a person’s conscience is often the only means of enforcement.
G. A SYSTEM OF COURTS
In this country, courts and governmental agencies have been established to administer the law. The
federal and state constitutions and the entire body of written law would be of little value to individuals
and businesses if there were no provision for enforcing the law. Police alone cannot fulfill this function.
The federal and state constitutions provide for the establishment of a system of courts that ensure
citizens’ rights and enforce federal and state statutes.
1. Court Jurisdiction
The authority or power of a court to hear cases, as granted by a constitution or
legislative act, is known as the court’s jurisdiction. A court has original jurisdiction if it
is authorized to hear and decide a case when it is first presented. If a court has the power
to review the decisions of another court, it has appellate jurisdiction (the authority to
hear appeals). Courts that are given the power to hear only certain kinds of cases have
special jurisdiction.
2. Federal Courts
The U.S. Constitution provides for a federal court system: “The judicial power of the
United States shall be vested in one Supreme Court and in such inferior courts as the
Congress may from time to time ordain and establish.” The court system that has
developed has various levels. The Supreme Court of the United States is the highest
court in the federal system. The federal district courts have original jurisdiction in cases
involving federal statutes and in cases when the parties are citizens of different states
and the amount involved is greater than $75,000. Most appeals from the district courts
go to one of the 13 circuit courts of appeals. The federal court system also includes
specialized courts that hear only certain kinds of cases. Three of these specialized courts
are the U.S. Tax Court, the U.S. Bankruptcy Court, and the U.S. Claims Court.
3. State Courts
State court systems vary, but there are certain basic similarities in all state court systems.
All states have general trial courts, which are courts of original jurisdiction, authorized
to hear cases not otherwise restricted to specialized courts. If one of the parties in a case
feels that he or she did not have a fair trial in the court of original jurisdiction, he or she
can, with the aid of an attorney, seek an appeal in a state appellate court, which hears
appeals from the trial courts.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcomes in Chapter 1. Every
Outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Discuss the application of law in today’s world.
Effects of law are felt throughout society, and apply to all persons, institutions, and organizations.
Text Pages: 4-5
PowerPoint: Slide 3
Discussion Questions: 31
LO2. Provide examples of how the application of law affects (a) one’s personal or social life, (b)
business or business operations, and (c) governments.
Examples of how the application of law affects a person’s personal and social life can be seen
everywhere from the foods eaten, the medicines used, the goods purchased, to the clothing worn.
Examples of how the law affects business can be seen in zoning ordinances, regulation of
environmental pollution, and licensing laws.
Text Pages: 4-5
PowerPoint: Slide 3
Discussion Questions: 32
Thinking Critically About the Law: 37-39
LO3. Identify the principal sources of law in the United States.
The sources of law in the United States are the Constitution, executive orders, treaties, common law,
precedent, case law, statutory law, and administrative law.
Text Pages: 5-8
PowerPoint: Slides 4-12
Discussion Questions: 33, 36
Thinking Critically About the Law: 40
Case Questions: 42
Case Analysis: 45-46
LO4. Explain the reasons for the preparation of the Uniform Commercial Code.
To address conflicts in business law between states, the UCC was prepared in 1952. The UCC is a set
of laws that govern various commercial transactions and are designed to bring uniformity to the laws of
the states.
Text Pages: 8
PowerPoint: Slide 13
Case Questions: 43-44
LO5. Cite and describe the major classifications of law.
Law in the United States is typically classified as constitutional law, civil law, criminal law,
administrative law, and international law.
Text Pages: 8
PowerPoint: Slide 14
Discussion Questions: 34
Case Questions: 44
LO6. Distinguish moral law from legal obligations.
Moral law is concerned with the unenforceable obligations that people have to one another; legal
obligations are those required by enacted statutes and other laws.
Text Pages: 9
PowerPoint: Slides 15-16
Discussion Questions: 35
Thinking Critically About the Law: 41
LO7. Describe the structure of our federal and state court systems.
The structure of the federal and state court systems includes courts of original jurisdiction (federal
district courts and state courts) and appeals courts (federal circuit courts of appeals, the U.S. Supreme
Court, and state appellate courts).
Text Pages: 9-11
PowerPoint: Slides 17-23