1
Chapter 1
Introduction to Law
and Legal Reasoning
See Separate Lecture Outline System
INTRODUCTION
The first chapters in Unit 1 provide the background for the entire course. Chapter 1 sets the stage. At this point, it is
important to establish goals and objectives. For your students to benefit from this course, they must understand that (1) the
law is a set of general rules, (2) that, in applying these general rules, a judge cannot always fit a case to suit a rule, so must fit (or
find) a rule to suit the case, (3) that, in fitting (or finding) a rule, a judge must also supply reasons for the decision.
The tension in the law between the need for stability, predictability, and continuity, and the need for change is one of
the major concepts introduced in this chapter. The answer to the question, “What is the law?,” includes how jurists have an–
swered it, how common law courts originated, and the rationale for the doctrine of stare decisis.
2 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ADDITIONAL RESOURCES—
 VIDEO SUPPLEMENTS 
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 1.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. These clips bring business law alive, particularly for visual learners, to apply legal concepts to
common experiences, ignite discussions, and illustrate core concepts.
Topics indexed under more than twenty links are covered in the following series—
• Ask the Instructor
A business law instructor gives straightforward explanations of legal concepts for student review.
• Real World Legal
Modern business scenarios illustrate legal conflicts at an ad agency and a dot.com company.
Modern business scenarios illustrate legal conflicts at an ad agency and a dot.com company.
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 3
Classic legal business scenarios feature scenes in a supermarket and at a car dealership.
4 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
CHAPTER OUTLINE
I. Business Activities and the Legal Environment
The text presents and illustrates an example of how various areas of the law can affect a business decision (such as
whether to enter into a contract). It is also explained that ethics can influence business decisions.
II. Sources of American Law
A. CONSTITUTIONAL LAW
The federal constitution is a general document that distributes power among the branches of the government. It
is the supreme law of the land. Any law that conflicts with it is invalid. The states also have constitutions, but the
federal constitution prevails if their provisions conflict.
B. STATUTORY LAW
Statutes and ordinances are enacted by Congress, state legislatures, and local legislative bodies. Much of the
work of courts is interpreting what lawmakers meant when a law was passed and applying that law to a set of
ADDITIONAL BACKGROUND—
National Conference of Commissioners on Uniform State Laws,
Co-sponsor of the Uniform Commercial Code
As explained in the text, the Uniform Commercial Code (UCC) is an ambitious codification of commercial common
law principles. The UCC has been the most widely adopted, and thus the most successful, of the many uniform and
model acts that have been drafted. The National Conference of Commissioners on Uniform State Laws is
responsible for many of these acts. The National Conference of Commissioners on Uniform State Laws is an
organization of state commissioners appointed by the governor of each state, the District of Columbia, and Puerto Rico.
C. ADMINISTRATIVE LAW
Administrative law consists of the rules, orders, and decisions of administrative agencies. At the federal level, the
executive branch can exert control over agencies through the president’s power to appoint federal officers. Just
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 5
as federal statutes take precedence over conflicting state statutes, so federal agency regulations take precedence
over conflicting state regulations.
D. CASE LAW AND COMMON LAW DOCTRINES
Another basic source of American law consists of the rules of law announced in court decisions. These rules
include judicial interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations
created by administrative agencies.
III. The Common Law Tradition
American law is based on the English common law legal system. Knowledge of this tradition is necessary to students’
understanding of the nature of our legal system.
A. EARLY ENGLISH COURTS
The English system unified its local courts in 1066. This unified system, based on the decisions judges make in
cases, is the common law system.
2. Courts of Equity and Remedies in Equity
Equity is a branch of unwritten law, which was founded in justice and fair dealing, and seeks to supply a
B. LEGAL AND EQUITABLE REMEDIES TODAY
Today, in most states, a plaintiff may request both legal and equitable remedies in the same action, and the trial
court judge may grant either form—or both forms—of relief.
C. THE DOCTRINE OF STARE DECISIS
1. Case Precedents and Case Reporters
2. Stare Decisis and the Common Law Tradition
The use of precedent forms the basis for the doctrine of stare decisis.
3. The Importance of Precedents in Judicial Decision Making
A court’s application of a specific principle to a certain set of facts is binding on that court and lower courts,
which must then apply it in future cases. A controlling precedent is binding authority. Other binding
authorities include constitutions, statutes, and rules.
6 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ENHANCING YOUR LECTURE—
  IS AN 1875 CASE PRECEDENT STILL BINDING?
 
In a suit against the U.S. government for breach of contract, Boris Korczak sought compensation for services that
he had allegedly performed for the Central Intelligence Agency (CIA) from 1973 to 1980. Korczak claimed that the
government had failed to pay him an annuity and other compensation required by a secret oral agreement he had
made with the CIA. The federal trial court dismissed Korczak’s claim, and Korczak appealed the decision to the U.S.
Court of Appeals for the Federal Circuit.
At issue on appeal was whether a Supreme Court case decided in 1875, Totten v. United States,a remained the
controlling precedent in this area. In Totten, the plaintiff alleged that he had formed a secret contract with President
Lincoln to collect information on the Confederate army during the Civil War. When the plaintiff sued the government
THE BOTTOM LINE
Supreme Court precedents, no matter how old, remain controlling until they are overruled by a subsequent
decision of the Supreme Court, by a constitutional amendment, or by congressional legislation.
a. 92 U.S. 105 (1875).
b. Korczak v. United States, 124 F.3d 227 (Fed.Cir. 1997).
4. Stare Decisis and Legal Stability
5. Departures from Precedent
6. When There Is No Precedent
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 7
D. STARE DECISIS AND LEGAL REASONING
1. Basic Steps in Legal Reasoning
Legal reasoning is briefly defined, and the “Issue-Rule-Apply-Conclude” format is outlined.
2. Forms of Legal Reasoning
Forms of legal reasoning include deductive reasoning (major and minor premises leading to a conclusion),
linear reasoning (logically connected points leading to a conclusion), and reasoning by analogy (compare
facts in different cases).
E. THERE IS NO ONE “RIGHT” ANSWER
Of course, there is no one “right” answer to every legal question.
F. THE COMMON LAW TODAY
1. Courts Interpret Statutes
2. Restatements of the Law Clarify and Illustrate the Common Law
The common law principles are summarized in the American Law Institute’s Restatements of the Law,
which do not have the force of law but are an important secondary source on which judges often rely.
ADDITIONAL BACKGROUND—
Restatement (Second) of Contracts
the section.
Chapter 1
MEANING OF TERMS
* * * *
Introductory Note: A persistent source of difficulty in the law of contracts is the fact that words often have
by an attempt to give a word a single definition and to use it only as defined. But where usage varies widely, definition
§ 1. Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of
which the law in some way recognizes as a duty.
Comment:
* * * *
c. Set of promises. A contract may consist of a single promise by one person to another, or of mutual promises by
two persons to one another; or there may be, indeed, any number of persons or any number of promises. One person
may make several promises to one person or to several persons, or several persons may join in making promises to one
or more persons. To constitute a “set,” promises need not be made simultaneously; it is enough that several promises
are regarded by the parties as constituting a single contract, or are so related in subject matter and performance that
they may be considered and enforced together by a court.
IV. Schools of Jurisprudential Thought
A. THE NATURAL LAW SCHOOL
Adherents of the natural law school believe that government and the legal system should reflect universal moral
and ethical principles that are inherent in the nature of human life.
B. THE POSITIVIST SCHOOL
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 9
Followers of the legal positivism believe that there can be no higher law than a nation’s positive law (the law
created by a particular society at a particular point in time).
C. THE HISTORICAL SCHOOL
Those of the historical school emphasize legal principles that were applied in the past.
D. LEGAL REALISM
Legal realists believe that judges are influenced by their unique individual beliefs and attitudes, that the
V. Classifications of Law
Substantive law defines, describes, regulates, and creates rights and duties. Procedural law includes rules for
enforcing those rights. Other classifications include splitting law into federal and state divisions or private and public
categories. One of the broadest classification systems divides law into national law and international law.
A. CIVIL LAW AND CRIMINAL LAW
Civil law regulates relationships between persons and between persons and their governments, and the
B. CYBERLAW
Cyberlaw is an informal term that describes the body of case and statutory law dealing specifically with issues
raised in the context of the Internet.
VI. How to Find Primary Sources of Law
A brief introduction to case reporting systems and legal citations is included in the text. Also discussed are publications
collecting statutes and administrative regulations.
ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE—
INSIGHT INTO E-COMMERCE
Now that the Supreme Court is allowing unpublished decisions to form persuasive precedent in federal
courts, should state courts follow? Why or why not? Yes, because categorizing some decisions, unpublished or
10 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
To assist students in reading and analyzing the court opinions digested in the text, the format is dissected, terms are
defined, and a sample case is annotated.
ADDITIONAL BACKGROUND—
West’s Federal Reporter
West Publishing Company publishes federal court decisions unofficially in a variety of publications. West organizes
these reports by court level and issues them chronologically. Opinions from the United States Court of Appeals, for
example, are reported in West’s Federal Reporter. West publishes these decisions with headnotes condensing
important legal points in the cases. The headnotes are assigned key numbers that cross-reference the points to similar
points in cases reported in other West publications. The following are excerpts from Ferguson v. Commissioner of
Internal Revenue, as published with headnotes in West’s Federal Reporter.
Betty Ann FERGUSON, Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Taxpayer filed petition. The United States Tax Court, Korner, J., dismissed for lack of prosecution, and appeal was
taken. The Court of Appeals held that court abused its discretion in refusing testimony of taxpayer, who refused, on
religious grounds, to swear or affirm.
Reversed and remanded.
1. Constitutional Law 92K84(2)
2. Witnesses 410K227
Court abused its discretion in refusing testimony of witness who refused, on religious grounds, to swear or affirm,
and who instead offered to testify accurately and completely and to be subject to penalties for perjury. U.S.C.A. Const.
Amend. 1; Fed.Rules Evid.Rule 603, 28 U.S.C.A. Ferguson v. C.I.R. 921 F.2d 588, 67 A.F.T.R.2d 91-459, 91-1 USTC P
50,052
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 11
Betty Ann Ferguson, Metairie, La., pro se.
Before JOLLY, HIGGINBOTHAM, and JONES, Circuit Judges.
PER CURIAM:
Betty Ann Ferguson appeals the Tax Court’s dismissal of her petition for lack of prosecution after she refused to
swear or affirm at a hearing. We find the Tax Court’s failure to accommodate her objections inconsistent with both
Fed.R.Evid. 603 and the First Amendment and reverse.
I.
This First Amendment case ironically arose out of a hearing in Tax Court. Although the government’s brief is
replete with references to income, exemptions, and taxable years, the only real issue is Betty Ann Ferguson’s refusal to
“swear” or “affirm” before testifying at the hearing. Her objection to oaths and affirmations is rooted in two Biblical
passages, Matthew 5:33-37 and James 5:12. * * *
Ms. Ferguson, proceeding pro se, requested that Judge Korner consider the following statement set forth by the
(1982); and United States v. Ballard, 322 U.S. 78, 86-87, 64 S.Ct. 882, 886-887, 88 L.Ed. 1148 (1944). Fed.R.Evid. 603,
applicable in Tax Court under the Internal Revenue Code, 26 U.S.C. § 7453, requires only that a witness “declare that
[she] will testify truthfully, by oath or affirmation administered in a form calculated to awaken the witness’ conscience
and impress the witness’ mind with the duty to do so.” As evidenced in the advisory committee notes accompanying
Rule 603, Congress clearly intended to minimize any intrusion on the free exercise of religion:
12 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
The rule is designed to afford the flexibility required in dealing with religious adults, atheists, conscientious
objectors, mental defectives, and children. Affirmation is simply a solemn undertaking to tell the truth; no special
verbal formula is required. Accord Wright and Gold, Federal Practice and Procedure § 6044 (West 1990).
exercise objections. In Moore v. United States, 348 U.S. 966, 75 S.Ct. 530, 99 L.Ed. 753 (1955) (per curiam), for
* * * *
[2] The government offers only two justifications for Judge Korner’s refusal to consider the Staton statement. First,
the government contends that the Tax Court was not bound by a Louisiana decision. This argument misses the point
entirely; Ms. Ferguson offered Staton as an alternative to an oath or affirmation and not as a precedent.
The government also claims that the Staton statement is insufficient because it does not acknowledge that the
government may prosecute false statements for perjury. The federal perjury statute, 18 U.S.C. § 1621, makes the
taking of “an oath” an element of the crime of perjury. Accord Smith v. United States, 363 F.2d 143 (5th Cir.1966).
However, Ms. Ferguson has expressed her willingness to add a sentence to the Staton statement acknowledging that
she is subject to penalties for perjury. The government has cited a number of cases invalidating perjury convictions
where no oath was given, but none of the cases suggest that Ms. Ferguson’s proposal would not suffice as “an oath”
for purposes of § 1621. See Gordon, 778 F.2d at 1401 n. 3 (statement by defendant that he understands he must
accurately state the facts combined with acknowledgment that he is testifying under penalty of perjury would satisfy
Fed.R.Civ.P. 43(d)).
The parties’ briefs to this court suggest that the disagreement between Ms. Ferguson and Judge Korner might have
been nothing more than an unfortunate misunderstanding. The relevant portion of their dialogue was as follows:
MS. FERGUSON: I have religious objections to taking an oath.
THE COURT: All right. You may affirm. Then in lieu of taking an oath, you may affirm.
MS. FERGUSON: Sir, may I present this to you? I do not—
THE COURT: Just a minute. The Clerk will ask you.
THE CLERK: You are going to have to stand up and raise your right hand.
MS. FERGUSON: Then let the record show that because of my religious objections, I will not be allowed to testify.
Ms. Ferguson contends that Judge Korner insisted that she use either the word “swear” or the word “affirm”; the
CHAPTER 1: INTRODUCTION TO LAW AND LEGAL REASONING 13
government suggests instead that Judge Korner only required an affirmation which the government defines as “an
alternative that encompasses all remaining forms of truth assertion that would satisfy [Rule 603].” Even Ms.
Ferguson’s proposed alternative would be an “affirmation” under the government’s definition.
If Judge Korner had attempted to accommodate Ms. Ferguson by inquiring into her objections and considering her
ADDITIONAL BACKGROUND—
United States Code
Until 1926, federal statutes were published in one volume of the Revised Statutes of 1875 and in each subsequent
volume of the Statutes at Large. In 1926, these laws were rearranged into fifty subject areas and republished as the
United States Code. In the United States Code, all federal laws of a public and permanent nature are compiled
according to subject. Subjects are assigned titles and title numbers. Within each title, subjects are further subdivided,
and each statute is given a section number. The following is the text of Section 1 of Title 15 of the United States Code
(15 U.S.C. § 1).
TITLE 15. COMMERCE AND TRADE
CHAPTER 1—MONOPOLIES AND COMBINATIONS IN RESTRAINT OF TRADE
§ 1. Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or
engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on
conviction thereof, shall be punished by fine not exceeding one million dollars if a corporation, or, if any other person,
(July 2, 1890, c. 647, § 1, 26 Stat. 209; Aug. 17, 1937, c. 690, Title VIII, 50 Stat. 693; July 7, 1955, c. 281, 69 Stat. 282.)
(As amended Dec. 21, 1974, Pub.L. 93-528, § 3, 88 Stat. 1708; Dec. 12, 1975, Pub.L. 94-145, § 2, 89 Stat. 801.)
14 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ADDITIONAL BACKGROUND—
Corpus Juris Secundum
Because the body of American case law is huge, finding relevant precedents would be nearly impracticable were it not for case digests, legal encyclopedias, and
similar publications that classify decisions by subject. Like case digests, legal encyclopedias present topics alphabetically, but encyclopedias provide more detail. The legal
encyclopedia Corpus Juris Secundum (or C.J.S.) covers the entire field of law. It has been cited or directly quoted more than 50,000 times in federal and state appellate
court opinions. The following is an excerpt from C.J.S.—Section 47 of the category “Theaters & Shows” (86 C.J.S. Theaters & Shows § 47).
f. Assumption of Risk
A patron assumes the ordinary and natural risks of the character of the
premises, devices, and form of amusement of which he has actual or im–
puted knowledge; but he does not assume the risk of injury from the neg–
ligence of the proprietor or third persons.
While it has been said that, strictly speaking, the doctrine of assumed
risk is applicable only to the relationship of master and servant,3 patrons of
places of public amusement assume all natural and inherent risks pertaining to the
character of the structure,4 or to the devices located therein,5 or to the form of
amusement,6 which are open and visible. Patrons of places of public amusement
assume such risks as are incident to their going without compulsion to some part of
the premises to which patrons are not invited and where they are not expected to
be, and which risks
Other statements of rule
should be obvious to reasonable and prudent person in
exercise of due care under circumstances.
Minn.—Modec v. City of Eveleth, 29 N.W.2d 453, 224
Minn. 556.
(2) One participating in a race assumes the risk of
injury from natural hazards necessarily incident to, or
which inhere in, such a race, under maxim “volenti non
fit injuria,” which means that to which a person assents
is not esteemed in law an injury.—Hotels El Rancho v.
Pray, 187 P.2d 568, 64 Nev. 591.
(3) Patrons of a place of amusement assume the risk
Liability of proprietor of sports arena
Generally, the proprietor of an establishment where
contests of baseball, hockey, etc., are conducted, is not
liable for injuries to its patrons.—Zeitz v. Cooperstown
(1) Baseball.
Cal.—Quinn v. Recreation Park Ass’n, 46 P.2d 141, 3
Cal.2d 725—Brown v. San Francisco Ball Club, 222
P.2d 19, 99 Cal.App.2d 484—Ratcliff v. San Diego
Ind.App. 197.
La.—Jones v. Alexandria Baseball Ass’n, App., 50 So.2d
93.
Mo.—Hudson v. Kansas City Baseball Club, 164 S.W.2d
318, 349 Mo. 1215—Grimes v. American League
140, 187 Misc. 37—Blackball v. Albany Baseball &
Amusement Co., 285 N.Y.S.2d 695, 157 Misc. 801—
56.
N.C.—Cates v. Cincinnati Exhibition Co., 1 S.E.2d 131, 215
N.C. 64.
Ohio.—Hummel v. Columbus Baseball Club, 49 N.E.2d
Tex.—Williams v. Houston Baseball Ass’n, Civ.App., 154
S.W.2d 874—Keys v. Alamo City Baseball Co., Civ.App.,
150 S.W.2d 368.
Utah.—Hamilton v. Salt Lake City Corp., 237 P.2d 841.
62 C.J. p 877 note 63 [a].
(2) Basketball.—Paine v. Young Men’s Christian
(4) Diving.—Hill v. Merrick, 31 P.2d 663, 147 Or. 244.
(5) Hockey.
Minn.—Modec v. City of Eveleth, 29 N.W.2d 453, 224
Minn. 556.
(6) Horse racing.
Nev.—Hotels El Rancho v. Pray, 187 P.2d 568, 64 Nev.
591.
N.Y.—Futterer v. Saratoga Ass’n for Improvement of
(7) Ice skating.
Neb.—McCullough v. Omaha Coliseum Corporation, 12
N.W.2d 639, 144 Neb. 92.
N.D.—Filler v. Stenvick, 56 N.W.2d 798.
Pa.—Oberheim v. Pennsylvania Sports & Enterprises, 55
A.2d 766, 358 Pa. 62.