Introduction to Business Law

Common Law

The common law developed over time, based primarily on custom and judicial decisions. The common law is reactive, not proactive.
Common law is the second source of U.S. and state laws. This term refers to law that comes from judicial decisions and customs rather than from statutes. For example, while there is no federal statute stating the definition of general negligence, state common law principles, doctrines, and rules developed over time to define that term as the failure of someone to act as a reasonably prudent person would act in similar circumstances.

Justifications for Precedent

Precedence is the use of prior decisions to make new decisions in U.S. courts. Justifications for the use of precedent are equality, judicial efficiency, predictability, and separation of powers.
Common law comes when someone brings a case in court to address a particular claim. The courts decide these issues by making judicial decisions. These decisions become precedent. Precedent means that future courts should look to these prior decisions to guide them in making future decisions. Stare decisis is the concept that prior judicial decisions become the basis for future judicial decisions through the courts' following of precedent. Under stare decisis, the court decisions on record stand as precedent, and lower courts must adhere to the decisions of higher courts when deciding issues before them. Over time, courts modify or reinterpret decisions given new facts and circumstances, and this body of decisions and rules is common law.

Justifications for the use of precedent are equality, judicial efficiency, predictability, and separation of powers. A judge decides a case based on decisions that have come before (predictability) and ensures that principles of the 4th Amendment are applied in the same way in all cases, regardless of the people involved in the case (equality). Because of the separation of powers, judges cannot steer the direction of laws and will uphold precedent. Judicial efficiency results from the use of precedent, because in cases with similar fact patterns to those that have come before, a decision can be reached quickly.

Other sources of law include those that the executive branch makes, such as treaties and executive orders. In addition, administrative agencies (both federal and state) may implement regulations that govern particular industries. Examples of federal administrative agencies include the Internal Revenue Service and the Environmental Protection Agency. State agencies often mirror the functions of federal agencies—collecting taxes and protecting the environment, for instance.