and court decisions created by modern legislative and
judicial bodies, as in the United States. Regardless of how
such rules are created, they all have one thing in common:
they establish rights, duties, and privileges that are consis-
tent with the values and beliefs of their society or its rul-
ing group. In the study of law, often referred to as
this broad statement about the nature of
law is the point of departure for all legal scholars and
and the Legal Environment
As those entering the world of business will learn, laws
and government regulations affect virtually all business
activities—from hiring and firing decisions to workplace
safety, the manufacturing and marketing of products, and
business financing, for example. To make good business
decisions, a basic knowledge of the laws and regulations
governing these activities is beneficial, if not essential. In
today’s world, though, a knowledge of “black-letter” law
is not enough. Businesspersons are also pressured to make
ethical decisions. Thus, the study of business law necessar-
ily involves an ethical dimension.
The Legal and
Environment of Business
After reading this chapter, you should be able to answer the following questions:
What is the Uniform Commercial Code?
What is the common law tradition?
What is a precedent? When might a court depart from precedent?
What are some important differences between civil law and criminal law?
How does the U.S. Constitution affect business activities in the United States?
he law is of interest to all persons, not just to
lawyers. Those entering the world of business will
find themselves subject to numerous laws and gov-
ernment regulations. A basic knowledge of these laws and
regulations is beneficial—if not essential—to anyone con-
templating a successful career in today’s business world.
In this introductory chapter, after a brief look at the
nature of law, we describe the relationship between busi-
ness activities and the legal environment, the basic sources
of American law, the common law tradition, and some
important classifications of law. We conclude the chapter
with a discussion of the U.S. Constitution as it affects
The Nature of Law
There have been, and will continue to be, different defini-
tions of law. Although the definitions vary in their partic-
ulars, they all are based on the general observation that,
at a minimum,
enforceable rules governing
relationships among individuals and between individuals
and their society.
These “enforceable rules” may consist
of unwritten principles of behavior established by a
nomadic tribe. They may be set forth in an ancient or a
contemporary law code. They may consist of written laws