2 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
I. The Constitutional Powers of Government
Before 1789, the Articles of Confederation defined the central federal government, which was perceived as
too weak when state laws interfered with commerce. A national convention was called to amend the Articles,
but instead the delegates drafted the U.S. Constitution.
A. A FEDERAL FORM OF GOVERNMENT
The U.S. Constitution established a federal form of government, through which the states and the na-
tional government share sovereign powers.
1. Federal Powers
The national government has specific powers and the implied power to act to carry out these
enumerated powers. All other powers are reserved to the states under the Tenth Amendment.
2. Regulatory Powers of the States
The states regulate affairs within their borders through their police powers, which derive in part from
the Tenth Amendment. These powers are exercised to protect or promote the public order, health,
safety, morals, and general welfare.
B. RELATIONS AMONG THE STATES
1. The Privileges and Immunities Clause
Under the Constitution’s Article IV privileges and immunities clause, when a citizen of one state
2. The Full Faith and Credit Clause
The Constitution’s full faith and credit clause ensures that rights established under deeds, wills,
contracts, and so on in one state will be honored by other states. It also ensures that judicial
decisions with respect to such property rights are honored and enforced in all states.
C. THE SEPARATION OF POWERS
Deriving power from the Constitution, each of the governmental branches (the executive, the legislative,
and the judicial) performs a separate function. No branch may exercise the authority of another, but
each has some power to limit the actions of the others. This is the system of checks and balances.
• Congress, for example, can enact a law, but the president can veto it.
• The executive branch is responsible for foreign affairs, but treaties with foreign governments
require the advice and consent of the members of the Senate.
• Congress determines the jurisdiction of the federal courts, but the courts have the power to hold
acts of the other branches of the government unconstitutional.
D. THE COMMERCE CLAUSE
1. The Expansion of National Powers under the Commerce Clause
The Constitution expressly provides that Congress can regulate commerce with foreign nations,
interstate commerce, and commerce that affects interstate commerce. This provision—the