1
Chapter 1
Law and Legal Reasoning
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 answered it, how common law courts originated, and the rationale for the doctrine of stare decisis.
2 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER OUTLINE
I. Business Activities and the Legal Environment
A. MANY DIFFERENT LAWS MAY AFFECT A SINGLE BUSINESS DECISION
B. ETHICS AND BUSINESS DECISION MAKING
II. Sources of American Law
A. CONSTITUTIONAL LAW
The federal constitution is a general document that distributes power among the branches of the
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 facts (a case).
1. Uniform Laws
Panels of experts and scholars create uniform laws that any state’s legislature can adopt.
2. The Uniform Commercial Code
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
CHAPTER 1: LAW AND LEGAL REASONING 3
C. ADMINISTRATIVE LAW
Administrative law consists of the rules, orders, and decisions of administrative agencies.
1. Federal Agencies
Executive agencies within the cabinet departments of the executive branch are subject to the power
2. State and Local Agencies
D. CASE LAW AND COMMON LAW DOCTRINES
Another basic source of American law consists of the rules of law announced in court decisions. These
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.
1. Courts of Law and Remedies at Law
A court of law is limited to awarding payments of money or property as compensation.
B. LEGAL AND EQUITABLE REMEDIES TODAY
Today, in most states, a plaintiff may request both legal and equitable remedies in the same action, and
C. THE DOCTRINE OF STARE DECISIS
1. Case Precedents and Case Reporters
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2. Stare Decisis and the Common Law Tradition
3. Controlling Precedents
A court’s application of a specific principle to a certain set of facts is binding on that court and lower
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.
4. Stare Decisis and Legal Stability
This doctrine permits a predictable, quick, and fair resolution of cases, which makes the application
of law more stable.
CHAPTER 1: LAW AND LEGAL REASONING 5
5. Departures from Precedent
A judge may decide that a precedent is incorrect, however, if there may have been changes in
6 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
6. When There Is No Precedent
When determining which rules and policies to apply in a given case, and in applying them, a judge
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.
E. THE COMMON LAW TODAY
1. Courts Interpret Statutes
Through the courts, the common law governs all areas not covered by statutory or administrative
law, as well as interpretations of the application of statutes and rules.
2. Restatements of the Law Clarify and Illustrate the Common Law
ADDITIONAL BACKGROUND—
Restatement (Second) of Contracts
The American Law Institute (ALI), a group of American legal scholars, is responsible for the
Restatements. These scholars also work with the National Conference of Commissioners on Uniform State
Laws on some of the uniform state laws. Members include law educators, judges, and attorneys. Their goal
is to promote uniformity in state law to encourage the fair administration of justice.
Introductory Note: A persistent source of difficulty in the law of contracts is the fact that words often have
CHAPTER 1: LAW AND LEGAL REASONING 7
different meanings to the speaker and to the hearer. Most words are commonly used in more than one
sense, and the words used in this Restatement are no exception. It is arguable that the difficulty is increased
rather than diminished by an attempt to give a word a single definition and to use it only as defined. But
where usage varies widely, definition makes it possible to avoid circumlocution in the statement of rules and
to hold ambiguity to a minimum.
The operative facts necessary or sufficient to create legal relations and the legal relations created by those
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
IV. Schools of Legal 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
Followers of the legal positivism believe that there can be no higher law than a nation’s positive law (the
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V. Classifications of Law
• Substantive law defines, describes, regulates, and creates rights and duties. Procedural law includes
rules for enforcing those rights.
A. CIVIL LAW AND CRIMINAL LAW
Civil law regulates relationships between persons and between persons and their governments, and the
B. CYBERLAW
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.
A. FINDING STATUTORY AND ADMINISTRATIVE LAW
VII. How to Read and Understand Case Law
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
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
No. 90-4430
Summary Calendar.
United States Court of Appeals,
Fifth Circuit.
Jan. 22, 1991.
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)
P 50,052
2. Witnesses 410K227
Betty Ann Ferguson, Metairie, La., pro se.
Before JOLLY, HIGGINBOTHAM, and JONES, Circuit Judges.
Court abused its discretion in refusing testimony of witness who refused, on religious grounds, to swear
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
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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 Supreme Court of Louisiana in Staton v. Fought, 486 So.2d 745 (La.1986), as an alternative to an oath
or affirmation:
Judge Korner abruptly denied her request, commenting that “[a]sking you to affirm that you will give true
testimony does not violate any religious conviction that I have ever heard anybody had” and that he did not
think affirming “violates any recognizable religious scruple.” Because Ms. Ferguson could only introduce the
relevant evidence through her own testimony, Judge Korner then dismissed her petition for lack of
prosecution. She now appeals to this court.
II.
[1] The right to free exercise of religion, guaranteed by the First Amendment to the Constitution, is one of
our most protected constitutional rights. The Supreme Court has stated that “only those interests of the
highest order and those not otherwise served can overbalance legitimate claims to the free exercise of
The courts that have considered oath and affirmation issues have similarly attempted to accommodate
free exercise objections. In Moore v. United States, 348 U.S. 966, 75 S.Ct. 530, 99 L.Ed. 753 (1955) (per
curiam), for example, the Supreme Court held that a trial judge erred in refusing the testimony of witnesses
who would not use the word “solemnly” in their affirmations for religious reasons.
* * * *
[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
CHAPTER 1: LAW AND LEGAL REASONING 11
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 contends that Judge Korner insisted that she use either the word “swear” or the word
“affirm”; the 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.
We therefore REVERSE the decision of the Tax Court and REMAND this case for further proceedings not
inconsistent with this opinion.
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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
risk is applicable only to the relationship of master and servant,3 patrons
of places of public amusement assume all natural and inherent risks
Vt.—Dusckiewicz v. Carter, 52 A.2d 788, 115 Vt.
122.
62 C.J. p 877 note 63.
Other statements of rule
(1) A spectator at game assumes risk of such
dangers incident to playing of game as are known to
him or should be obvious to reasonable and prudent
person in exercise of due care under circum-
stances.
Minn.—Modec v. City of Eveleth, 29 N.W.2d 453,
224 Minn. 556.
Neb.—Klause v. Nebraska State Board of
Agriculture, 35 N.W.2d 104, 150 Neb. 466—Tite
v. Omaha Coliseum Corporation, 12 N.W.2d 90,
144 Neb. 22.
(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 of ordinary dangers normally attendant thereon
and also the risks ensuing from conditions of which
they now or of which, in the particular
circumstances, they are charged with knowledge,
and which inhere therein.—Young v. Ross, 21 A.2d
762, 127 N.J.Law 211.
Liability of proprietor of sports arena
Generally, the proprietor of an establishment
where contests of baseball, hockey, etc., are con-
ducted, is not liable for injuries to its patrons.—Zeitz
N.Y.—Ingersoll v. Onondaga Hockey Club, 281
N.Y.S. 505, 245 App.Div.137—Jones v. Kane &
Roach, 43 N.Y.S.2d 140, 187 Misc. 37—Blackball
v. Albany Baseball & Amusement Co., 285
N.Y.S.2d 695, 157 Misc. 801—Zeitz v.
Cooperstown Baseball Centennial, 29 N.Y.S.2d
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 773, 71 Ohio App. 321—Ivory v. Cincinnati
Baseball Club Co., 24 N.e.2d 837, 62 Ohio App.
514.
Okl.—Hull v. Oklahoma City Baseball Co., 163 P.2d
982, 196 Okl. 40.
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
Ass’n, 13 A.2d 820, 91 N.H. 78.
(3) Golf. Mass.—Katz v. Gow, 75 N.E.2d 438, 321
Mass. 666.
N.J.—Young v. Ross, 21 A.2d 762, 127 N.J.Law 211.
(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.
N.Y.—Ingersoll v. Onondaga Hockey Club, 281
N.Y.S.2d 505, 245 App.Div. 137—Hammel v.
CHAPTER 1: LAW AND LEGAL REASONING 13
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
felony, and, on conviction thereof, shall be punished by fine not exceeding one million dollars if a corporation,
or, if any other person, one hundred thousand dollars, or by imprisonment not exceeding three years, or by
both said punishments, in the discretion of the court.
Stat. 282.)
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
ADDITIONAL BACKGROUND—
State Codes:
Pennsylvania Consolidated Statutes
State codes may have any of several names—Codes, General Statutes, Revisions, and so on—de–
pending on the preference of the states. Also arranged by subject, some codes indicate subjects by
PURDON’S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
DIVISION 1. GENERAL PROVISIONS
CHAPTER 11. SHORT TITLE, CONSTRUCTION, APPLICATION AND SUBJECT MATTER OF TITLE