Shared Flashcard Set


BusFin 510
Intro, Ch. 1, 5, 7, 8
Undergraduate 3

Additional Business Flashcards




-The legal definition is a promise that the law will enforce.
-Suggests that the law does not enfore every promise.
-Most consist of exchanges of two or more promises.
-The party to whom one of the promises was made.
-The party who made the promise.
The Basic Law of Contracts
-Is common law, it is judge-made law.
The National Commission on Uniform State Laws
-Believed some common-law rules did not serve the commercial community as well as they could, and tried to write new rules that more closely reflected how most people conducted business that were codified in the Uniform Commercial Code (UCC)
Uniform Commercial Code (UCC)
-Consists of 9 articles, governing such commercial transactions as security interests in property, checks, drafts and other commercial paper, and bulk transfers.
-Has been enacted in 49 states and the District of Columbia (Louisiana has enacted part of the UCC, but not Article II)
-Article I contains general provisions
-Article II governs contracts for the sale of goods, or tangible commodity capable of being moved from place to place (Real estate, services, stocks, bonds and other securities, and intangible property- such as patents and copyrights- are not goods)
-Applies when a contract involves the sale of goods.
Intent to Contract
-Contractual intent is determined objectively by examining the parties' observable behavior- their words and conduct. The relevant legal inquiry thus becomes whether a reasonable person in the position of the promisee would conclude that the promisor intended to be legally bound.
-Companies often sign nonbinding letters of intent, expressing their expectations that after negotiations, agreements will be reached, but providing that neither party will be obligated until an agreement is reached. If the parties do not intend to be legally bound, their promises are not legally inforceable.
The Bargain Theory of Contracts
-The Law of Contracts enables parties to transact business with the knowledge that if one party pails to live up to the agreement the other party can seek redress from the courts. It is a primary guarantor of transactional integrity.
-There are costs to court enforcement of promises, inclusing the expenses of litigation and the cost to the promisor of being locked into the promise, regardless of the reasons for the breach- exchange is not honored. Courts weigh the costs and benefits of enforcing different types of promises.
-The basic type of promise that a court enforces is one that is part of a bargained-for exchange. The elements of a bargained-for exchange are offer, acceptance, and consideration.

-Made by the offeror and give the offeree the power to bind the offeror by accepting the offer.

-The objective theory is used to determine whether an offer has been made.

-The test is whether a reasonable person in the position of the offeree would interpret the offer as signifying the offeror's intent to be bound.

-Some advertisements are offers, but exceptions to the rule that an advertisement does not constitute an offer are in the instances of rewards cases, those involving a limited offer directed to a limited number of people, and when the advertiser is being deceptive.

-An offer is not effective unless it is communicated to the offeree.

Johnson vs. Capital City Ford Co.
-The court pointed out that a newspaper advertisement relating to the purchase and sale of automobiles may constitute an offer, acceptance of which will consummate a contract and create an obligation in the offeror to perform according to the terms of the published offer.
Izadi vs. Machado
-Found that sometimes fairness demands that an advertisement can be construed as an offer, especially when the advertiser is being deceptive.
Termination of an Offer

-An offer may specify its expiration date. If it does not do so, the offer terminates after passage of a reasonable time.

-Death of the offeror also terminates an offer.

-A rejection by the offeree terminates the offer.

-A counteroffer is both a rejection and a new offer, and it terminates the original offer.

-The most common method of terminating an offer is by revocation. A direct revocation occurs when the offeror advises the offeree that the offer is revoked. An indirect revocation occurs when the offeree receives truthful information from a reliable source that is inconsistent with the offer remaining open.

Irrevoocable Offers

-If an offeror states an expiration date for the offer, the offeror usually can revoke prior to that time. Even if the offeror promised not to revoke, the promise would be unenforceable unless the offeree gave consideration for it, such as the payment of money, then the offer would be part of an option contract and would be irrevocable.

-Under the UCC, a merchant's firm offer is irrevocable. A merchant is a party who regularly deals in, or otherwise has expertise in, the goods involved in the transaction. A firm offer must be in writing and must be limited to a reasonable period of time, not to exceed 90 days.


-Consists of words or actions by which an offeree signifies his/her intention to be bound by the offer.

-Binds the offeree and the offeror.

-Must occur before the offer is terminated.

-An offer may only be accepted by the offeree.

-An acceptance must signify the offeree's clear intent to be bound. Ambiguous actions or statements, such as "Sounds like a good deal," are not acceptances. An offeror cannot declare that an ambiguous action will be treated as an acceptance.

-Usually, silence by the offeree is ambiguous and cannot serve as an acceptance. Silence in the context of a prior course of dealings or silence plus acceptance of the benefits of the offer is not ambiguous and can serve as an acceptance.

The Mirror Image Rule

-At common law, the acceptance must mirror the offer.

-If it adds new terms or changes any terms, it is not an acceptance but a counteroffer.

-The mirror image rule each printed form exchanged in commercial transactions with terms that do not agree is a counteroffer, even though it is intended as an acceptance.

-The terms of the last form sent by either party govern the transaction because that counteroffer is accepted by the other party's shipment or acceptance of the goods.

(Page 190, Table 7-1)

UCC Section 2-207

-Changes the mirror image rule and provides that a document intended to be an acceptance is an acceptance even though it has terms different from or in addition to those in the offer.

-This acceptance creates a contract to the offeror's terms.

-The new terms found in the acceptance are proposals to add to the contract.

-Unless both parties are merchants, the new terms only become part of the contract when both parties expressly agree to them.

-If both parties are merchants, the new terms automatically become part of the contract unless one of 3 conditions is met:

1. The offer expressly limited acceptance to the terms of the offer

2. The offeror notifies the offeree of its objection to the new terms

3. The new terms materially change the contract.

(Page 190, Table 7-1)

Acceptance by Promise or Performance

-A bilateral contract is one in which promises are exchanged for promises. The offeree may accept by promising to do the job or by actually starting, but once they have begun performance, they are impliedly promising to do the entire job.

-A unilateral contract is one in which only the offeror makes a promise. Because the offeree makes no promise, the offeree is not obligated to perform; but if the offeree performs, the offeror is bound to perform. Because only complete performance would bind the offeror, the offeree needs protection against revocation midway through performance; when the offeree begins to perform, the offeror cannot revoke for a reasonable time in order to give the offeree a chance to complete.

Effective Date of Acceptance - The Mailbox Rule

-The offeror is the master of the offer and can set any conditions on the acceptance, such as expressly limiting the means of communicating acceptance.

-If the offeror does not restrict the method of acceptance, the offeree may use any reasonable means to accept. If the offeror does not specify otherwise, acceptance is effective on dispatch by the offeree.

-This principle is called the mailbox rule, which protects the offeree from unknown revocations. Because revocation is effective on receipt, an offeree who has no received a revocation can dispatch an acceptance knowing that a contract has been formed.


-Refers to the requirement that a promise be part of a bargained-for exchange in order for it to be enforceable. Offer and acceptance are the bargaining process. Consideration refers to the bargain itself.

-Consideration consists of 2 elements:

1. A legal detriment by the promisee that

2. is bargained for by the promisor.

-A legal detriment exists where the promisee does or promises to do something he/she was not previously obligated to do, or refrains from or promises not to do something he/she had a legal right to do. The detriment is bargained for if it is given in exchange for the promise.

(Page 191, Table 7-2)

Past Consideration
-Not bargained for and, therefore, cannot provide the consideration for a present promise.
The Preexisting Duty Rule

-A promise to perform or the performance of a preexisting legal duty is not a detriment and, therefore, is not consideration.

-The preexisting duty rule has made modifications of existing contracts unenforceable.

-The Restatement (Second) of Contracts provides that for executory contracts, those not fully performed on either side, a good faith modification in response to unanticipated conditions is enforceable without consideration.

-UCC Section 2-209 provides that any good faith modification of a contract for the sale of goods is enforceable without consideration.

Mutuality of Obligation

-When the consideration for a promise is another promise, the parties must be under mutual duties to perform.

-If one parties promise is illusory, such as a promise to perform "if I feel like it," mutuality is lacking and the other party's promise is unenforceable. This problem can arise where one party retains discretion over whether, and to what extent, he/she will perform.

Statute of Frauds

-Generally, oral contracts are enforceable, although their existence may be difficult to prove.

-Certain types of contracts are not enforceable unless they are evidenced by a writing, as required by the Statute of Frauds, are promises:

1. Made in consideration of marriage

2. For sales of goods priced $500 or more

3. For transfers of real property other than a lease of less than one year's duration

4. That cannot, by their terms, be performed within one year, refering only to those promises that expressly call for more than a year's commitment.

5. To answer for the debt of another, only if they are made to the creditor. A promise made to the debtor does not require a writing, even where the promise is made to the creditor if the promisor is also the debtor. A promise made to answer for the debt of another does not require a writing if the main purpose of the promise is to benefit the promisor.

Compliance with the Statute of Frauds

-The Statute of Frauds does not require that the contract be in writing; it requires only that there be a written evidence of the contract signed by the party to be charged with enforcement of the contract.

-Courts can also integrate several documents to arrive at the written evidence needed to satisfy the Statute of Frauds.

-The requirement of a signature is satisfied by any mark that is intended to authenticate a document. E-Sign states that a contract may not be denied legal effect, validity, or enforceability solely because an electronic signature or elevtronic record was used in its formation.

-UCC Section 2-201 permits a written confirmation of a contract in transactions between merchants to satisfy the requirement of a signed writing if the party who receives the confirmation has reason to know its contents and does not send written notice of objection to the sender of the cornfirmation within 10 days after the confirmation is received. This allows the sender to enforce the contract against the recipient of the confirmation even though the recipient's signature is not on any writing.

-Even where no writing exists at all, courts can enforce an oral contract where the parties have performed part of their obligation, and the performance is referable to the contract; If the performance can be explained only on the basis of the existence of a contract, the performance serves as a substitute for a signed writing.

Lefkowitz vs. Great Minneapolis Surplus Store

-The test of whether a binding obligation may originate in advertisements addressed to the general public is "whether the facts show that some performance was promised in positive terms in return for something requested."

-Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.

-Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances.

-While the advertiser has the right at any time before acceptance to modify his offer, he does not have the right, after acceptance, to impost new or arbitrary conditions not contained in the published offer.

Davies vs. Martel Laboratory Services, Inc.

-To be enforceable, an oral contract for permanent employment, like any other contract, must be supported by sufficient consideration.

-Any act or promise which is of benefit to one party or a disadvantage to the other is a sufficient consideration to support a contract.

-In contract cases involving consideration, "detriment" as used in determining the sufficiency of consideration to support a contract means "legal detriment as distinguished from detriment in fact. It means giving up something which immediately prior thereto the promisee was privileged to retain, or doing or refraining from something which he/she was privileged not to do, or not to refrain from doing." (Hamilton Bancshares, Inc. vs. Leroy)

-The Statute of Frauds requires that an contract that cannot be performed within one year must be in writing, and has no application where there has been part performance by one of the contracting parties in reliance upon the agreement.

Alternatives to the Bargain Theory of Contracts

-Exist for courts to provide remedies in cases not meeting classical contract law's requirement of a bargained-for exchange

-These alternative theories stem from an area of law knwon as the law of equity; Courts have drawn upon equity law to apply doctrines to do equity in a given case.

-The 3 alternative theories are:

1. Promissory Estoppel

2. The Doctrine of Moral Obligation

3. The Doctrine of Quasi Contract

Promissory Estoppel (Reliance Theory)

-Courts have enforced promises that lacked consideration and oral promises that would otherwise be unenforceable under the Statute of Frauds.

-Under this doctrine, a party is "estopped" to deny the existence of a promise.

-3 conditions must be met for the doctrine of promissory estoppel to apply:

1. There must be a promise from a promisor to a promisee.

2. There must be reliance by the promisee upon the promise.

3. The reliance must be to the promisee's substantial economic detriment.

-The promise must be one that a reasonable promisor should forsee would induce reliance.

-The promisee's reliance must be reasonable.

-The requirement of substantial economic detriment means that an injustice can be avoided only by enforcing the promise.

Allen M. Campbell Co., Inc. vs. Virginia Metal Industries, Inc.

-A promise unsupported by consideration which has occasioned reliance and change of position so that the promisor who backs away from his/her undertaking visits a real hardship on the promisee.

-The concept of promissory estoppel allows recovery even in the absense of consideration where reliance and change of position to the detriment of the promisee make it unconscionable not to enforce the promise or to award damages for its breach.

Moral Obligation

-A moral obligation to keep a promise is not sufficient to make the promise legally enforceable.

-If a promise becomes unenforceable by operation of law, a subsequent promise to keep the original promise is enforceable without new consideration.

Quasi Contract
-Where a party confers a benefit on another party with a reasonable expectation of payment, and the recipient of the benefit would be unjustly enriched if not required to pay for it, a court implies a contract as a matter of law under a quasi contract.
Policing the Bargain

-Courts generally do not get involved in reviewing the fairness of particular contracts; If an agreement has been reached, a court cannot protect a party from a bad deal.

-However, courts refuse to enforce a promise because of a party's status.

-Courts protect particularly vulnerable parties deemed to lack the capacity to contract.

-Courts may rescind or reform a contract if a party's conduct produces a defect in the bargaining process.

-Courts may refuse to enforce all or part of a contract if its substantive provisions are illegal or unconscionable.


-People so mentally infirm that they cannot understand the nature and consequences of their actions lack the capacity to contract, as well as people who have not yet attained the age of majority- usually 18 but in some states 21- also lack contractual capacity.

-Minors have the right to disaffirm their contracts at any time prior to reaching the age of majority.

-On reaching the age of majority, a party may choose to diaffirm or ratify the contract. Ratification may be implied from the party's conduct or from the party's failure to disaffirm within a reasonable time after reaching the age of majority.

-An adult has no power to disaffirm, and is bound by a contract with a minor unless the minor disaffirms.

-If a minor disaffirms, the law in most states only requires the minor to return to the adult any remaining consideration, it does nto require the minor to make restitution.

-Minors are responsible for their contracts for necessities, such as food, clothing, shelter, and medical care; A minor who disaffirms such a contract is liable in quasi contract for the reasonable value of the benefit received.

Defects in the Bargaining Process

-May result in a court rescinging, or occasionally reforming, an agreement.

-A party's consent may have been obtained through misrepresentation or under duress or may be the result of a mistake.


-Where a misrepresentation of a material fact is made and a party justifiably relies on the misrepresentation, the deceived party may rescind the transaction and receive restitution for any benefits conferred on the deceptive party.

-Misrepresentations need not be fraudulent (intentional), or even negligent, as long as they are material, or would likely influence the conduct of a reasonable person.

-A fraudulent misrepresentation is presumed to be material.

Misrepresentations of opinion are not actionable unless the deceived party is relying on the deceiver's expertise.

-Nondisclosure may amount to actionable misrepresentation; Deliberate concealment is actionable, as is deceptive partial disclosure. There is a duty to disclose latent defects and to correst misconceptions caused by the nondisclosing party. A duty to disclose also arises if the parties are in a fiduciary or other special relationship.

-Nondisclosure and misrepresentation is actionable only if justifiably relied on; Has to be material fact and reasonable reliance.

-Reliance is not justified if the deceived party knows the representation is false or could discover it through a reasonable investigation.


-Occurs when one party's wrongful act overcomes the free will of another party.

-If a party's agreement is obtained with threats or physical harm, the contract is void because of duress; The law considers the contract to have never been made.

-Duress can also result from economic pressure; Economic duress that results from a wrongful act renders a contract voidable; The victim of the duress may rescind the contract.


-The parties may allocate the risk of mistake in their contract.

-The allocation may be expressed, or it may be implied from what a reasonable person would expect under the circumstances.

-If the parties have not allocated the risk, a mutual mistake in a basic assumption allows either party to rescind the contract

-If only one party is mistaken, rescission is allowed under some circumstances.


-UCC Section 2-302 authorizes a court to deny or limit enforcement of a contract or part of a contract that it finds to be unconscionable.

-Unconscionability is determined as of the time the contract is made, exists where one party did not have a meaningful choice and where the terms are so one-sided as to be oppressive.

-Absence of meaningful choice has been found where there was a large disparity in bargaining power, the term was hidden in fine print, or the term was presented on a take-it-or-leave it basis.

-Courts have analogizes to the UCC and applied the concept of unconscionability to contracts that did not involve sales of goods.

-Most commonly found in consumer transactions, and may also apply in commercial transactions.


-A contract is illegal if its formation or performance is tortious, forbidden by statute, or contrary to public policy.

-The concept of public policy is difficult to define with precision but it enables courts to deny enforcement to contracts which they believe injure the public interest.

-Exceptions where the court will not just leave the parties where it finds them is a contract is illegal:

1. Courts enforce a contract that contravenes a statute if enforcement would be consistent with the purpose of the statute.

2. If the illegality does not involve moral turpitude, or serious misconduct, and the parties are not in pare delicto, or not equally blameworthy, courts allow the more innocent party to recover in quasi contract for benefits conferred on the other party; If the illegality does not involve moral turpitude, a party who renounces the bargain and prevents the illrgal act from taking place may recover in quasi contract.

Wiley vs. Royal Cup, Inc.

-The entire covenat not to solicit is void.

-In determining the reasonableness of a covenant not to disclose, the courts must consider:

1. Whether the employer is attempting to protect confidential information relating to the business, such as... methods of operation, names of customers, personnel data... and

2. Whether the restraint is reasonably related to the protection of the information.

Contract Interpretation

-Contract disputes focus on what the contract's provisions mean.

-In interpreting contracts, courts inquire into how a reasonable person in the position of the parties would interpret the agreement.

-In written documents, ambiguitites often are resolved against the drafter because that is the party responsible for the ambiguity.


The Parol Evidence Rule

-The parol evidence rule provides that if a contract is reduced to writing and the parties intended the writing to be the final and complete evidence of the agreement, prior representations or agreements (parol evidence) may not be used to vary or contradict the writing; The final writing is called an integration

-Parties often specify that their writings are intended to be the final expressions of their agreements to the exclusion of all prior representations; such clauses are called integration, merger, or zipper clauses.

-Even if a writing is an integraton, parol evidence may establish reasons for rescinding the contract, such a fraud, duress, mistake, or lack of capacity.

-Parol evidence may also explain the meaning of ambiguous terms contained in the writing.

-Parol evidence may establish modifications agreed to after the original written contract.

Performance and Breach

-A breach of contract occurs if a party has a duty to perform and fails to do so.

-A party may not have a duty to perform if conditions precendent to that duty have not been fulfilled.

-A party's duty to perform may be discharged by unforseen subsequent events.

Contract Conditions

-2 types of conditions contained in contracts are express and constructive.

1. Express conditions are those estblished by the parties themselves and must be literally fulfilled before a duty to perform arises.

2. Constructive conditions are implied as a matter of law from the order of performance contemplated by the parties, and need only be substantially fulfilled for a party's duty to perform to arise.

Excuses for Nonperformance

-Parties often fail to expressly or impliedly allocate the risk of inforeseen changes in circumstances in their contracts.

-Generally, if unforeseen events render performance impossible, the duty to perform is discharged.

-UCC Section 2-615 extends the doctrine of impossibility to cases of unforeseen impracticability; majority of states have confined this liberation to the sale of goods.

-A related doctrine if the rule of frustration of purpose.

Breach by Anticipatory Repudiation

-Most breaches of contract occur at the time for performance.

-A party may declare prior to the time of performance that he/she has no intention of ever performing; In such a case, the other party may treat the anticipatory repudiation as a current breach of contract and sue immediately for relief.


-The basic remedy for breach of contract is an award of money damages.

-The basic measure of damages is lost expectation:

1. Expectation damages are calculated to place the victim of the breach in the position he/she would have been in had the contract been performed.

-The 2 alternative measures of damages are reliance and restitution:

1. Reliance damages are calculated to place the victim of the breach in the position he/she would have been in had the contract never been made.

2. Restitution damages are designed to place the breaching party in the position he/she would have been in had the contract never have been made.

-Limitations on the amount of damages:

1. Damages must be calculated with reasonable certainty.

2. Damages must be reasonably foreseeable.

3. The victim of the breach must make reasonable efforts to mitigate damages, or obtain an alternative source of supply.

-Parties may specify the amount of damages in the contract with provisions called liquidated damages, and are enforceable if:

1. They are intended as remedies rather than penalties

2. Actual damages would be difficult to calculate

3. and they represent reasonable estimates of the damage done

-Orders of specific performace, when a party wants a court to order the breaching party to actually perform the contract rather than pay damages, are availale if money damaages would not provide an adequate remedy; This is subject to the court's equitable discretion.

-The party requesting specific performance must have acted promptly in asserting his/her rights and must be free of wrongdoing or bad faith.


-Concept that government power is limited by law.

-Central principle is that government officials are not free to do as they please.

U.S. Constitution

-Where the U.S. government derives its power to regulate business.

-Establishes and empowers the federal government.

-Contains a Bill of Rights in the form of its first 10 amendments.

-Establishes the federal government and distributes its powers among 2 branches: Legislative, executive, and judicial.

-enumerates (lists) the powers of the federal government.

-Expressly reserves the powers not delegated to the federal government to the states or to the people.

-Reflects certain fundamental values of American society, and limits only government conduct.

-Does not apply to purely private conduct.

-Refers only to Congress' power to "regulate Commerce among the several States," and to make laws "necessary and proper" to implement that power.

Separation of Powers

-Division and distribution of governmental powers among 3 branches: legislative, executive, and judicial.

-Each branch serves as a check and balance against eachother.


-Every power exercised by the government must be authorized by the Constitution.

Doctrine of Checks and Balances
-The interrelationship of the 3 branches of government.
Legislative Power

-The power to enact laws resides in Congress.

-Congress consists of 2 bodies, or houses: Senate and House of Representatives.

Executive Power
-The power to execute or carry out the law resides in the Office of the President.
Judicial Power
-The power to interpret the law resides in the Supreme Court and the lower courts.
-Division of governmental responsibility between the federal government and the states.
Reconstruction Era Amendments

-13th Amendment: Outlawed slavery.

-14th Amendment: Established rights of citizenship.

-15th Amendment: Protected the right to vote


-Although the Constitution was originally applied only to the federal government, after the Civil War, these were directed toward the states.

The 14th Amendment

-Interpreted by the Supreme Court as incorporating or absorbing those liberties provided in the Bill of Rights that are fundamental and necessary to the ordered liberty of a free society.

-Applies provisions of the Constitution, which are limitations on the states, to the states by a process known as the incorporations doctrine.

-Established rights of citizenship.


-Section 1: "No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."

State Action
-Government conduct, which is limited by the Constitution.
Power of Judicial Review

-The Supreme Courts power to declare laws enacted by Congress to be unconstitutional.

-The Court can prevent the enforcement of laws or other governmental decisions that it determines to be in violation of the Constidution.

-Power reserved by the Supreme Court after interpreting the Constitution in the decision of Marbury vs. Madison.

Federal Power to Regulate Commerce

-When seeking to regulate business activity, the first issue posed is... what is the constitutional basis for this regulation?

-The most common answer is the Constitution's commerce clause.


-Wickard vs. Filburn: Supreme Court decided that the federal government can regulate activity that, in the aggregate, has a substantial effect on interstate commerce.

-Shows that the federal government's power to regulate commerce under the Commerce Clause is broad.


-Heart of Atlanta Motel, Inc. vs. United States: Supreme Court upheld the constitutionality of the Civil Rights Act, which forbids racial discimination in public accommodations.


-Guideline in analysis questions:

--Does Congress have a rational basis for finding that an activity affected commerce?

--If it had such a basis, were the means it selected to eliminate that evil are reasonable and appropriate?

Commerce Clause

-Interpreted by the Supreme Court as granting Congress the power to regulate any activity that has any appreciable effect on interstate commerce, called the affectation doctrine.

 -Limits the authority of states to regulate in a manner that unduly restricts the free flow of interstate commerce.

-Without this, individual states could establish regulatory barriers against interstate commerce to give local commercial interest an economic advantage.

-In distinguishing between legitimate exercises of a state's police power and unconstitutional restraints on interstate commerce, the Court balances the need for national uniformity in law against the state's interest in protecting its people from health and safety hazards.


-Fort Gratiot Sanitary Landfill, Inc. vs. Michigan Dept. of Natural Resources: Reaffirmed that the compact agreed upon in Philadelphia 200 years earlier implied a common understanding that no state would try to solve its problems at the expense of the people of other states.

-The "negative" or "dormant" aspect of the Commerce Clause prohibits States from advancing their own commercial interests by curtailing the movement of articles of commerce, either into or out of the state.

-A state statute that clearly discriminates against interstate commerce is therefore unconstitutional unless the discrimination is distinctly justified by a valid factor unrelated to economic protectionism.


-Article 1, Section 8, Clause 3: "The Congress shall have Power to regulate Commerce within foreign Nations, and among the several states."

Affectation Doctrine

-Doctrine, developed by the Supreme Court in interpreting the Commerce Clause, whereby Congress has the power to regulate any activity that has an appreciable effect on interstate commerce.


-Applied to uphold forms of federal regulation of business:

1. Purely intrastate marketing of local products that compete with similar products moving in interstate commerce

2. Price-fixing of commodities

3. Regulation of branding

4. Regulation off manufacturing

5. Regulation of insurance

6. Regulation of real estate transactions

7. Regulation of coal mining.

United States vs. Morrison

-Petitioners' Arguments and Reasoning:

--Seek to sustain Section 13981, which provided a federal civil remedy for the victims of gender-motivated violence, as a regulation of activity that substantially affects interstate commerce.

--Congress found that gender-motivated violence affects interstate commerce "by deterring potential victims from traveling interstate, from engaging in employment in interstate business, and from transacting with business, and in places involved in interstate commerce; by diminishing national productivity, increasing medical and other costs, and decreasing the supply of and the demand for interstate products."

--If accepted, petitioners' reasoning would allow Congress to regulate any crime as long as the nationwide, aggregated impact of that crime has substantially effects on employment, production, transit, or consumption.


-Regulation and punishment of intrastate violence that is not directed at the instrumentalities, channels, or goods involved in interstate commerce has always been the province of the States.


-The majority holds that the federal commerce power does not extend to such "noneconomic" activities as "noneconomic, violent criminal conduct" that significantly affects interstate commerce only if we "aggregate" the interstate "effects" of individual instances.

-This illustrates the difficulty of finding a workable judicial Commerce Clause touchstone--a set of comprehensible interpretive rules that courts might use to impose some meaningful limit, but not too great a limit, upon the scope of the legislative authority that the Commerce Clause delegates to Congress.

Police Power

-The inherent power of a state over persons and property which enables the state to regulate the health, safety, and welfare of society.

-Two provisions of the Constitution that have been interpreted to implicitly limit state action, or exercise of their police powers: Commerce Clause, Supremacy Clause.

-May not be exercised in a manner contrary to the Constitution.

-Prime object is the suppression of violent crime.

Supremacy Clause

-Embodies the preemption doctrine.


-Article VI: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the Contrary notwithstanding."

Preemption Doctrine

-The doctrine adopted by the US Supreme Court holding that certain matters are of such a national, as opposed to local, character that federal laws take presedence over state laws.

-A state may not pass a law inconsistent with the federal law.

-Embodied by the Supremacy Clause of the Constitution.


-When Congress enters a field of regulation, the extent that a state may also regulate that field depends on whether Congress intends to preempt state law in the field.

-State law can be preempted in 2 ways:

1. If Congress indicates an intent to occupy a given field, any state law falling within that field is preempted.

2. If Congress has not entirely displaced state regulation of the field, that is, when it is impossible to compy with both state and federal law, or where the state law stands as an obstacle to the accomplishment of the congressional objectives.

Property Rights

-Economic regulation frequently restricts the use of property or lessens its value.


-To prevent such impairment of property rights, property owners sometimes resort to the Constitution's 5th and 14th Amendments

-Both Amendments contain a Due Process Clause, stating that no person shall be deprived "of life, liberty, or property, without due process of law."

Takings Clause

-Among the 5th Amendment's list of activities prohibited of government which states "not shall private property be taken for public use, without just compensation."

-Recognizes eminent domain, but requires just compensation be given to the owner. (usually the fair market value of the property)


 -Direct appropriation of private property, where government appropriates or makes use of private property, is a "taking."

-Regulatory takings, an expansion of the range of government action that can create takings from the decision of Pennsylvania Coal Co. vs. Mahon, are when the regulation of property goes too far, it then becomes a "taking." (after this case, neither a physical appropriation nor a public use has ever been a necessary component of a "regulatory taking.")

--Noted in Penn Central Transportation Co. vs. New York City, no "set formula" exists to determine when regulation becomes a taking of property, that the Court engages in essentially ad hoc, factual inquires.

--The inquirry is not standardless; The economic impact of the regulation, especially tthe degree of interference with investment-backed expectations, is of particular importance.


-Supreme Court has carved out 2 categories of regulatory takings where a case-by-case approach is not followed, called categorical or per se takings:

1. Where a regulation causes a property owner to suffer a physical invasion of the property.

-Loretto vs. Teleprompter Manhattan CATV Corp.: Supreme Court held that a New York statute authorizing the installation of cables on the property owner's building was governmental action that amounted to a permanent physical occupation of property, and therefore was a taking.

2. Where regulation denies all ecnomically beneficial or productive use of land.

-Lucas vs. South Carolina Coastal Council: A law passed by South Carolina legislature barred a property owner from erecting any permanet habitable structure on his land, making his land worthless, and therefore was a taking.

Equal Protection Clause

-Makes it unconstitutional for any state to "deny to any person within its jurisdiction the equal protection of the laws."

-Contained in the 14th Amendment.

--Essentially directs that all persons similarly situated should be treated alike.

-The level of judicial scrutiny of legislation varies with the interest affected and the recognized invidiousness of the basis on which a classification is drawn.


-Rational basis test of equal protection: General rule stating that social and economic legislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate staet interest.

-This general rule gives way when a stature classifies by race, alienage, or national origin.


-Strict scrutiny test of equal protection: Laws based on race, alienage, or national origin are subject to strict judicial scrutiny and are upheld only if they are designed to serve a compelling state interest by the least drastic means.

-This also applies when state laws impinge on personal rights protected by the Constitution.


-Heightened judicial review of equal protection: Gender-based legislative classification fails unless it is substantially related to an important governmental interest.

-They call for a heightened judicial review.

Due Process Clause

-Stating that no person shall be deprived "of life, liberty, or property, without due process of law."

-Found in both the 5th and 14th Amendments.

-Supreme Court has used it to test the constitutional validity of legislation affecting life, liberty, and property.


-Procedural due process: Some form of hearing--depending on the interests involved, the nature of the governmental action, and the likelihood of error--is required if a governmental action affects a person's life, liberty, or property.


-Substantive Due Process: Using the Due Process Clause to scrutinize the substance of legislation.

-Lochner vs. New York: The Court invalidated a state statute setting a maximjm work-week of 60 hours, reasoning that such a law restricted the liberty of an employer and an employee to contract to work more hours than the law allowed.

--The substantive due process doctrine fell into disfavor during the Great Depression and was abandoned by the Court with regard to economis legislation.

Tahoe-Sierra Preservation Council, Inc. vs. Tahoe Regional Planning Agency

-Petitioners contend that the mere enactment of a temporary regulation that, while in effect, denies a property owner all viable economic use of his/her property gives rise to an unqualified constitutional obligation to compensate him/her for the value of its use during that period.

-The Takings Clause was "designed to bar Government from forcing some people alone to bear burdens which, in all fairness and justice, should be borne by the public as a whole."

-The 5th Amendment provides a basis for drawing a distinction between physical takings and regulatory takings, requiring the payment of compensation whenever the government aquires private property for a public purpose, whether the acquisition is the result of a condemnation proceeding or a physical appropriation.

-Regulatory takings jurisprudence is characterized by "essentially ad hoc, factual inquiries," designed to allow "careful examination and weighing of all the relevant circumstances."

-Land-use regulations are ubiquitous and most of them impact property values in some tangential way, often in completely unanticipated ways.


-To view an interest in its entirety, two dimensions must be considered:

1. An interest in real property is defined by the metes and bounds that describe its geographic dimensions.

2. The term of years that describes the temporal aspect of the owner's interest.


-Palazzolo vs. Rhode Island:  A regulation has effected a temporary taking "requires careful examination and weighing of all the relevant circumstances."

-In determining when "fairness and justice" require that economic injuries caused by pubic action be compensated by the government, rather than remain disproportionately concentrated on a few persons depends largely upon the particular circumstances in that case.

Williamson vs. Lee Optical of Oklahoma, Inc.

-A provision of the law violates the Due Process Clause by arbitrarily interfering with a company's right to do business.

-The law need not be in ever respect logically consistent with its aims to be constitutional, it is enough that there is an evil at hand for correction and that it might be thought that the particular legislative measure was a rational way to correct it.

-Munn vs. State of Illinois: "For protection against abuses by legislatures the people must resort to the polls, not to the courts.

-The problem of legislative classification is a perennial one, admitting to no doctrinaire definition.

--Evils in the same field may be of different dimensions and proportions, requiring different remedies.

The 1st Amendment

-Protects freedom of speech and freedom of the press from infringement by the government.

-Guaruntee of freedom of speech is not absolute.

Commercial Speech

-Valentine vs. Chrestensen: The Court sustained the constitutionality of an ordinance that forbade the distribution of commercial material in the street, holding that commercial speech was not entitled to 1st Amendment protection, which became known as the commercial speech doctrine.

--Under this doctrine, advertisements, billboards, and other forms of commercial speech were not considered speech as that term is used in the 1st Amendment.

--Instead, such forms of expression were treated as commercial activity that could be regulated.

--The doctrine flowed from the Court's conclusion that the 1st Amendment was intended to protect political expression, which is necessary for a democracy to function, but not other forms of speech unrelated to the function of the public forum.


-Virginia Pharmacy Board vs. Virginia Citizens Consumer Council: The Court recognized that the consumers' interest in the free flow of commercial information was at least as strong as the consumers' interest in political debates.

-On the basis that comsumers' interests were also protected by the 1st Amendment, and got rid of the commercial speech doctrine.

-Reasonable restrictions on the time, place, and manner of commercial speech are permissible where such restrictions are justified by a significant governmental interest and where ample alternative channels of communication remain available, indicating there was still life in the commercial speech doctrine.


-Central Hudson Gas & Electric Corp. vs. Public Service Commision of New York: The Court held that commercial speech that was not misleading or illegal was entitled to constitutional protection.

-Government cannot regulate such commercial speech unless its reason for doing so amounts to substantial governmental interest, its regulation directly advances that interest, and its manner of regulation os not more extensive than necessary to serve the interest.


-Posadas do Puerto Rico Associates vs. Tourism Company: The Supreme Court applied the Central Hudson analysis and upheld a law restricting advertising of a lawful activity.

Thompson vs. Western States Medical Center

-Central Hudson test is used for determining whether a particular commercial speech regulation is constitutionally permissible.

1. Determine whether the commercial speech concerns unlawful activity or is misleading.

2. Determine whether the asserted governmental interest is substantial.

3. Determine whether the regulation directly advances the governmental interest asserted.

4. Determine Whether it is not more extensive than is necessary to serve that interest.


-1st Amendment means regulating speech must be a last, not first, resort.

The 4th Amendment

-Prohibits warrantless, unreasonable searches and seizures.

-Can apply to protect business against intrusive governmental investigations.


-See vs. City of Seattle: The Court recognized the constitutional right of a business premise to be free from an administrative inspection without a search warrant.

-in 1970, an exception to the See warrant requirement was created, holding that it was not applicable to a closely regulated business, such as a liquor store.


Marshall vs. Barlow's Inc.: The Supreme Court refused to extend the exception to the See warrant requirement when the business premise involved is a pervasively regulated business, such as one subject to inspection by the federal Occupational Safety and Health Administration.


-"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

The 5th Amendment's Self-Incrimination Clause

-Prohibits compelling any person "in any criminal case to be a witness against himself."

-This privilege is a personal right, and does not apply to corporations or other collective entities, is known as the collective entity doctrine.

-Somone may invoke this privilege when conducting his/her business as a sole proprietorship, but they would be treated differently if operating as corporation or other collective entity.


-"Nor shall any person be compelled in any criminal case to be a witness against himself."

Collective Entity Doctrine
-A doctrine of constitutional law holding that the 5th Amendment's privilege against self-incrimination is a personal right, and does not apply to corporations or other collective entities.

-Civil wrong or injury, other than a breach of contract, committed against the person or property of another, brought by individuals and government.

-Not a crime, although may lead to criminal proceedings.

-3 categories: Intentional torts, negligence, and strict liability torts.

Tort Duties
-Arise by operation of law and exist whether or not a person agrees to them.
Tort Law
-Reflects society's determination of which injuries should be compensated, which interests protected, and which conduct deterred.
Respondeat Superior

-Principle of vicarious liability.

-Determines the liability of a business when an employee commits a tort.

-Business is liable for the torts of an employee who is acting within the scope of his/her employment.

Intentional Torts

-Intentional wrongdoing

-Voluntary acts that invade a protected interest.

-Wrongdoer (tortfeasor) intends to do the act that causes injury and is liable for all reasonably foreseeable harm resulting from that intentional act.

-Victem is entitled to punitive damages.


-For plaintiff to prevail in a case for liability, 4 elements must be established: It must be shown..

1. Causation (all)

2. Defendant intentionally injures plaintiff (all)

3. What is tort protecting? (particular to each one)

4. Proof of damages (all)


-Defendent has 2 defenses:

1. Privelage- Defense where court sees someone as privelaged to do something. (all)

2. Consent- Give "ok" to do what law sees as battery. (example: surgery)

Punitive Damages

-Further compensate victim for wounded sensibilities.

-Damages awarded above and beyond compensatory damages.

-The amount to be awarded is normally within province of the jury.

-BMC vs. Gore: Supreme Court made it clear that excessive punitive damage awards would be a denial of Due Process, and State Farm Insurance Co. vs. Campell further defines the constitutional limits on the award.

-Aimed at deterrence and retribution.

-States possess discretion over the imposition, but there are well established procedural and sebstantive constitutional limitations.

-BMW of N. America Inc. vs. Gore: Outlined 3 principles or guideposts for courts reviewing punitive damages to consider:

1. The degree of reprehensibility of the defendant's misconduct

2. The disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award

3. The difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

Compensatory Damanges

-Those for medical expenses, loss of wages, disability and pain and suffering.

-Intended to redress the concrete loss that the plaintiff suffered by reason of the defendant's wrongful conduct.

Due Process Clause of the 14th Amendment

-Prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.

-Considered grossly excessive it furthers no legitimate purpose and constitutes an arbitrary deprivation of property.


-Unprivileged, unwanted touching of another.

-Any unwelcome contact, from a slap on the back to a punch in the face.

-Sexual harassment, when a man or woman is touched in any manner against his/her will.

-To be liable for battery, tortfeasor must intend to touch the other person, an article of clothing that person is wearing, or something the victim is carrying.

Classification of Intentional Torts

-Against a Person: Battery, Assult, Intentional infliction of emotional distress, False imprisonment, Defamation- libel or slander, Deceit, Invasion of privacy.

-Against Property: Disparagement, Palming off, Interference with contract, Trespass, Nuisance.

-Against Property and Person: Wrongful discharge.

False Imprisonment

-Interference with a victim's freedom of movement.

-Restraint that prevents a person from going where he/she pleases, even if the restraint is accomplished nonviolently.

-Victim must be consciously aware of the restriction.

-Merchant is privileged to restrain a person believed to have taken goods without paying for them for a reasonable period of time and in a reasonable manner.


-Tort that protects a person's interest in his/her reputation and good name.

-Libel is written defamation, while slander is oral defamation.

-Person who attacks another's reputation or causes another to be help up to hatred, contempt, or ridiclue, or to be avoided or shunned, may be liable for this tort.

-Truth is an absolute defense, but defendant must prove the defamatory statement to be in fact true.

-When object of statement is a public figure, the public figure must prove that the tortfeasor knew the statement was false or made the statement in reckless disregard of the truth.

-When the object of the statement is a private person, liability may exist where the tortfeasor negligently publishes statement.

-Victim of slander must establish actual damage to his/her reputation.

-Slander per se statements are presumed to cause damage, while others require proof.


-Requires proof that:

1. The tortfeasor made a defamatory statement

2. The tortfeasor intended to communicate the defamatory statement

3. The defamatory statement indentifies the victim to a reasonable reader or listener

4. The defamatory statement was communicated to a third party

5. The victim's reputation was damaged.

Slander Per Se

-Statements that are clearly defamatory and are presumed to cause damage.


-A statement adversely reflecting on a person's business, trade, or profession.

-A statement that a person is afflicted with a loathsome, communicable disease.

-A statement that a person has committed a crime or moral turpitude.

-A statement imputing unchaste behavior to a person.


-Knowing and intentional misrepresentation of a material fact.


-To recover damages, certain elements must be established:

1. A false representation of a material fact.

2. Knowledge by the person making the representation that it is false.

3. An intent to induce the listener to rely on the representation.

4. Justifiable reliance on the representation by the listener.

5. Damage to the duped party resulting from such reliance.


-Notion of caveat emptor, or "let the buyer beware" gave way to an obligation of a seller to inform a buyer of hidden defects.

Privacy Rights

1. Intrusion

2. Public disclosure of private facts

3. False light in the public eye

4. Appropriation


-Intrusion: unauthorized physical entry or peering into somone's home or other private premises, eavesdropping, repeated or unwanted phone calls, or unauthorized prying or access into someone's bank account or other personal affairs.

-Liability may occur if the nature of the intrusion is such that it would be objectionable or offensive to a reasonable person, and goes beyond the limits of decency.


-Invasion of privacy: public disclosure of private facts, involves disclosing to the public the intimate facts of one's life.

-Information revealed must not have been publicly known and the disclosure must be offensive to a person of ordinary sensibility.

-Courts protect private facts such as unpaid debt, medical pictures of one's anatomy, and details of one's sexual relations.


-False light: placing someone in false light in the public eye, a person has the right to be free of having false information publically disseminated.

-Includes acts that would be objectionable to a reasonable person even though they are not necessarily defamatory.


-Appropriation: tort law prohibits the appropriation or use of the plaintiff's name or likeness for finanial benefir without consent.

-Earliest form of privacy protection recognized by the courts.


-False statements that injure a person's interest in property, as opposed to one's reputation.

-Harder to prove than defamation.

-Plaintiffs must prove that the statements were flase and malicious and that they resulted in monetary loss.

Palming Off

-To impose by fraud; False advertising.

-To pass off a product as another product by unfair means.


-Misrepresentation of

1. Involving the trademark, labels, containers, appearance of business, or any other distinctive characteristic of the competitor.

2. Quality, price, or nature of the advertised goods.


-Intentional and wrongful interference with a contract is a tort.

-Lumley vs. Guy: Competitor convinced opera singer who was in contract with another theatre to breah her contract and liability was imposed against the competitor.

-Extends to potential contracts.


-Trespass to personal property (moveables such as merchandise)

--Tortfeasor is liable for damages if victim can prove:

1. Interference with the owner's right of possession

2. Intent by the tortfeasor to do the act that constituted the interference.

3. Interference caused damage to the owner's personal property.

--If interference with personal property is so great that it deprives owner of its value, courts find that the tortfeasor converted the property and order them to pay the fair market value of the property to the owner. (Conversion)


-Trespass to real property (land)

--Intruder need not physically set foot on the property to be liabable; may be held liable for setting events in motion that cause the intrusion.


-If interference with personal property is so great that it deprives owner of its value, courts find that the tortfeasor converted the property and order them to pay the fair market value of the property to the owner.

-Destruction of property, theft, receipt of stolen goods, and wrongful transfer or retention of propery.


-Substantial and unreasonable interference with the interest in the private use and enjoyment of land.

-Environmental litigation includes interferences in the form of smoke, odor, noise, and vibration.


-When determining existence, courts weigh various factors (balancing the equities):

--Utility of the conduct of one landholder against the gravity of the harm caused to another.

--Existence of practical means to aviod causing the harm and the location of the properties.

Wrongful Discharge
-Recoverable by emplyee when an employer fires them in a manner that contravenes public policy expressed by a constitutional provision or a statute.

-Causing another person to be apprehensive about a battery.

-Incudes intent and threatening

Intentional Infliction of Emotional Distress

-Outrageous conduct intended to unjustifiably upset the victim.

-To recover damages, plaintiff must actually suffer severe mental distress.


-For plaintiff to prevail in a case for liability, 4 elements must be established: It must be shown..

1. That the actor intended to inflict emotional distress or that he know or should have known that emotional distress was likely result of conduct, (Intentional)

2. That the conduct was "extreme and outrageous," was "beyond all possible bounds of decency" and was "utterly intolerable in civilizated community,"

3. That the actions of defendent were the cause of the plaintiff's distress, (Causation)

4. That the emotional distress sustained by plaintiff was "severe" and of a nature "that no reasonable man could be expected to endure it." (Proof of damages)


-Unintentional conduct that falls below the standard of care that is necessary to protect others against exposure to an unreasonable rick of a foreseeable injury.


-To rocover damages, plaintiff must prove:

--The existence of a duty to exercise the degree of care that a reasonable and prudent person would exercise under similar circumstances.

--A breach of that duty by a failure to edhere to the standard of reasonable conduct.

--That the unreasonable conduct was the actual and proximate cause of the plaintiff's injury.

--Actual injury to the plaintiff.

Negligence Theory
-Provides no recovery to the victims of dangerous yet reasonable activity

-In determining the existence of a duty:

--Court would weigh the nature and foreseeability of the risk of harm against the social utility of the defendant's conduct and the costs of taking precautions.

--Courts determine as a matter of policy the social value of the parties' interests.

Breach of Duty
-Determined by comparing the defendant's conduct to that of a reasonable and prudent person under the same social circumstances, known as the reasonable person standard.
Proximate Cause

-Event(s) or action which, in natural or unbroken sequence, produce an injury that would not have occurred absent the event(s) or action.

-Requires the plaintiff's injury to be the natural, probable, and foreseeable result of the defendant's conduct.


-Includes damages to property or person.

-Physical injury is entitled to recovery for damage, inclusing medical expenses, loss of wages, and pain and suffering.

-Establishment of damages often require testimony of medical experts.

Procedural Doctrines

-2 procedural doctrines help plaintiffs prove their case of negligence:

-The doctrine of negligence per se, employs a statute to establish negligence.

-The doctrine of res ipsa loquitur, employs reason to establish a presumption of negligence.

Negligence Per Se

-Employs a statute to establish negligence.

-May arise as a result of a violation of a statute or regulation.

-Means the violation, by itself, is considered unreasonable.



1. The injured person must be within the class of persons the statute or regulation was designed to protect.

2. The injury must be of a type that the statute or regulation was designed to prevent.

Res Ipsa Loquitur

-Employs reason to establish a presumption of negligence.

-Rule of evidence; The thing speaks for itself.

-Creates a presumption of negligence.

-Applied when the accident would not ordinarily occur without negligence.


1. Other causes must be sufficiently eliminated by the evidence, including conduct by the plaintiff.

2. The instrumentality causing the injury must be within the defendant's control.


-Trujeque vs. Service Merchandise Co.:For a defendant to be liable for the damages caused by the instrumentality outside of the defendant's presence, the plaintiff must provide evidence of the character of the occurence and of the exclusive control of the defendant.

 -Means that the facts of the occurence...

1. Warrant the inference of negligence, not that they compel such an inference.

2. That they call for explanation or rebuttal, not necessarily that they require it.

3. That they make a case to be decided by the jury.

Defenses of Negligence

-Contributory negligence, comparative negligence, and assumption of the rick are common defenses.

-Defeat recovery even when the plaintiff can successfully prove the elemnts constituting negligence.

Contributory Negligence

-Will bar plaintiff's recovery.

-Must be proximate, a contributing cause of the injury.

-In some states, the contribution must be substantial.

-Given way to the doctrine of comparative negligence.

Comparative Negligence

-Recovery is reduced by the percentage that the plaintiff's negligence contributed to his/her injury.

-In a few states, recovery can be prevented all together.

Assumption of the Risk

-Prevents a plaintiff from recovering against a negligent defendant, because the plaintiff is held to have assumed the risk of his/her injury.

-Consists of a voluntary exposure to a known risk, and is based on voluntariness.


Strict Liability

-Does not emphasize fault.

-Liability is strictly imposed in certain situations even if the actor does not intend to do the act or exercises all reasonable care.


-Applies where injuries...

1. Are caused by a defective product that is unreasonably dangerous because of its defect.

2. Result from the keeping of dangerous or vicious animals.

3. Result from abnormally dangerous activities, such as blasting operations, which are activities that are out of place in their locality.

-Such activities impose serious threats to human life and the integrity of property.


-Individuals or companies engaged in hazardous activities are strictly liable for any injuries arising from those activities.


-Rylands vs. Fletcher: Has come to stand for the rule that "the defendant will be liable when he/she damages another by a thing or activity unduly dangerous and inappropriate to the place where it is maintained, in the light of the character of that place and its surroundings."

-Its basic principle has been accepted by the Restatement (Second) of Torts (1977) which provides that any party carrying on an "abnormally dangerous activity" is strictly liable for ensuing damages.

Theory of Strict Liability

-Serves to reimburse victims harmed by abnormally dangerous activities carried on voluntarily.

-Treats the risk of injury as a cost of engaging in the activity.

IRAC Method
-Identify issue, Rule of law, Analysis, Conclusion
The Cost/Benefit Approach
-Analyzes ethical and legal policy issues by focusing on the costs and benefits of an action
-Any action that increases the ocerall good is considered right
--Description: The greatest good for the greatest number of people
--Application: Estimate the impact alternative actions would have on all stakeholders and select one that optimizes the benefits of all those stakeholders
-Measures the moral correctness of an action by its consequences
-Determines correctness in terms of social benefit
-Seeks to maximize benefits to the greatest number of people
-Usually extend this approach only to foreseeable consequences
-Maintain that the purpose of morality is to promote human welfare by maximizing benefits and minimizing harms
-In current economic and legal thought, the tendency to consider cost/benefit analysis in the development of regulatory policy
-In individual thought, such as considering whether to cheat on a boyfriend, girlfriend or spouse
-Many people, especially those in the business community, favor this approach
The Rights Approach
-Analyzes ethical issues by focusing on an action's impact
--Description: Stakeholders' rights to be respected
--Application: Reject any alternative that violates a stakeholder's rights
-Favor an ethical or legal policy approach grounded on moral standards that apply regardless of consequences
-Human rights are the rights all people have
-An action that maximizes respect for human rights and minimizes their violation is considered correct; the action that minimizes the violation of stakeholders rights
-Humans rational nature requires human autonomy, or freedom
-If people possess an autonomous, rational will, each person must be treated with dignity
-Respect for human dignity implies that each person possesses certain fundamental human rights
-Argue that the two necessities to be fully human are freedom and well-being, thus, two basic categories of human rights exist within this approach:
1. Rights of liberty
2. Rights of welfare
-Critics of this approach argue that it is too idealistic and abstract- impracticable in making everyday mroal choices
-However, this approach's emphasis on respect for the inherent dignity of persons has made it a major ethical approach that can be seen reflected in business and legal decisions recognizing fundamental human rights
Fiduciary Obligation
-The duty which arises whenever one person is in a special relationship of trust to another, such as the duty an attorney owes to a client
-Rule/Obligation of undivided loyalty
-Business people often refer to their "fiduciary obligation" when determining what they should do in matters affecting their relations with others
Conflict of Interest
-Exists when someone has a personal interest or a duty that conflicts with a professional interest or duty
-Creates the impression that the person in the conflict situtation cannot be fair and impartial
-The legal rule stems from the fiduciary rule and the law of agency, where the rule is that an agent owes a duty of undivided loyalty to the principle (employer), cannot allow his his/her personal interests to conflict with that of the principal, or deal with the principal as an adverse party
-In dealing with a conflict of interest situtation, someone has two options:
1. Disqualification
2. Disclosure and consent
-Policies dealing with conflicts of interest are often part of a company's code of ethics
Due Care
-Principle in the law that is based upon ethical obligation
-People and companies must be careful not to injure others
-A breach of the duty of due care can lead to liability for negligence
-Also derives from the law of agency where an agent is required to exercise skill and care in performing the agent's obligations on behalf of the principal (employer)
-In business: "be careful"
-In corporate law and securities law: "due diligence"
Good Faith
-An intangible quality encompassing honesty, sincerity, and the lack of intent to defraud or take advantage of another
-Honesty in fact in the conduct or transaction concerned; and telling the truth
Code of Ethics

-Show that companies are dealing with ethics in a systematic way .

-The combination of the Federal Sentancing Guidelines and the Sarbanes-Oxley Act provide an incentive for companies to create ethics codes .


-Written standards designed to deter wrongdoing and promote:

1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

2. Full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the company.

3. Compliance with governmental laws, rules, and regulations.

4. Prompt internal reporting of violations of the code to appropriate persons identified in the code.

5. Accountability for adherence to the code.


-Often contain policies dealing with conflicts of interest.

Compliance Programs
-Show that companies are dealing with ethics in a systematic way
-The combination of the Federal Sentancing Guidelines and the Sarbanes-Oxley Act provide an incentive for companies to create compliance programs
Ethics Officers
-Compliance officers, another level of protection against unethical business practices
-Considered experts in assessing conflicts of interest that arise within the company and outside the company; instituting and monitoring compliance programs; and providing educational programs for the various levels of company executives and employees
Human Rights
1. Rights of liberty
2. Rights of welfare
Rights of Liberty
1. Privacy
2. Free consent
3. Free speech
4. Freedom of conscience
Privacy Right
-The right to control both one's private life and what is known about it
Free Consent Right
-The right to be treated according to how one freely and knowingly consents to be treated
Free Speech Right
-The right to express one's view to the extent that such expression does not violate someone else's rights
Freedom of Conscience Right
-The right to refuse to act in any manner that violates one's moral beliefs
Rights of Welfare
1. Employment
2. Food
3. Housing
4. Education
Fundamental Ethical Principles Rooted in Law
-Guideposts to business people to determine what is appropriate and ethical business behavior
1. Exercise your fiduciary obligation to act solely in the interests of the person who property or interests you are entrusted
2. Avoid the appearance of conflicts of interest
3. Respect confidentiality
4. Exercise due care and diligence in the performance of your duties
5. Act in good faith and deal fairly with others
The Sarbanes-Oxley Act

-Regulate financial disclosure and reporting in response to major corporate accounting abuses.

-Requires a public company to have a code of ethics for financial officers and provide mechanisms for protecting whistleblowers who report financial misconduct of the company.

-Society's way of providing for the safety and security of its members by furnishing rules and ways for resolving disputes
-Works most effectively when it is supported by the moral opinion of the members of the community
-Rules of conduct
-The witness and external deposit of our moral life
-Influences the attitudes of individuals and organizations about what is right and wrong, good and mad, moral andd immoral, ethical and enethical
-When making company polidy, business people often turn to the law for the principles to include in their policy documants
-Informs the law
The Rule of Law
-Supports and is supported by the governmental, educational, religious, economic, and social institutions
The Test of Rational Justification
-The requirements a law or business practice must meet to be ethical
--What is ethical is a rationally justified determination about whether an act (or inaction), a law (or the lack or law) is good or bad, right or wrong, moral or immoral.
--Rationality is an underlying assumption in the law and in the study of business.
--Rational, sane individuals seek to live lives in peace and harmony, full of fairness, equality, love and compassion, and seek cooperation and to avoid and resolve conflict.
--Laws and business practices that further sanity, peace, harmony, fairness, equality, love, compassion and cooperation are ethically justified.
Two General Approaches of Decision Making
-When individuals and groups faces ethical issues and society looks at legal policy:
1. The Cost/Benefit Approach
2. The Rights Approach
-Often adopt these approaches subconsciously
Legal Principles
1. Exercise your fiduciary obligation to act soley in the interests of the person who property or interests you are entrusted
2. Avoid the appearance of conflicts of interest
3. Respect confidentiality
4. Exercise due care and diligence in the performance of your duties
5. Act in good faith and deal fairly with others
-Much of what is practiced by members of the business community is a reflection of what is provided by the law
Fiduciary Rule
-The highest legal duty and standard for ethical business conduct
-Whenever someone is in such a special position of trust to another, he/she is a fiduciary and the fiduciary owes a duty to that other person to act soley in the interest of that other persons' property and interests
-Means that the person who has the conflict simply avoids the conflict by disqualifying him/herself from the opportunity that is presented
Disclosure and Consent
-Disclose the conflict to both parties involved and obtain their consent to continue with the transaction
-A good praactice would also be to get an independent third party to provide an opinion on the fairness of the transaction
-When someone receives information "in confidence", or when they are said to be in a "confidential relation", or when they are held to "maintain confidentiality", they are expected to keep information secret
-The relations of attorney-client, accountant-client, and principal (employer) and agent (employee)
-Federal law requires confidentiality in certain situations
--It is a crime under the federal securities laws for those possessing material, non-publis information concerning a company to disclose such inside information
Federal Securities Law
-It is a crime for those possessing material, non-public information concerning a company to disclose such inside information
-Requires full diclosure of the details of a stock offering so investors may be fully informed
-It is also fraud under the federal securities laws to make a material misstatement or omission in connection with the sale of a security
-As a result of federal securities law, many companies have policies providing guidelines to employees, officers and directors for protecting the confidentiality of inside information
The Gramm-Leach-Bliley Act (GLB)
-Federal law requiring all financial institutions to safegaurd customer information
--Banks, Credit Card Companies, Securities firms, and Insurance companies
-Purpose is to reduce the risk of identity theft
-As a result, many companies have customer or client "confidentiality programs" designed to ensure that access to customer or client data is controlled at all times and that data breaches are identified and reported in a timely manner
Confidentiality Agreements
-To protect company information
-Entered into in situations where one company seeks to buy another, where a company enters into a joint marketing venture with another company, and where employees work with critical company information
-Failure to respect that confidentiality with your employer violates the securities law, and could result in imprisonment
Duty of Due Care
-The general rule of law in the U.S. is that one does not have a duty to go to the aid of another who is exposed to peril
-While the expectation of due care in the performance of one's job is prevalent in business, from a technical, legal perspective, the requirement that someone exercise due care requires what the law refers to as a duty of due care
-"no duty to aid"
-Special relationships which create a duty to render aid include:
1. That of a common carrier to its passengers
2. An innkeeper to his guest
3. Possessors of land who hold it open to the publis
4. One who has a custodial relationship to another
Good Samaritan Statutes
-Protect from liability people who help someone who is in need of medical help in the U.S.
-Fairness prevails when the court distinguishes the facts of the case from the ordinary "good samaritan" case
Obligation of Good Faith and Fair Dealing

-A provision in the Uniform Commercial Code (UCC) which is law in every state

-Provides: "Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement."

-The law requires disclosure in many areas

-Requires telling the truth, exceptions exist based on the motivation to benefit others, or to avoid harming others.

-Generally arises in the setting of contractual dealings.

-When contracts are deemed unconscionablee or when they are against public policy, the law employs a form of balancing of the equities to nullify the promise of the party.

-A half-truth regarding a material fact told during contract negotiations, making the agreement unenforceable
-Lying under oath or even on some documents not under oath is punishable as the offense of perjury
-It is also a crime to lie to an offical of the federal government
-Component of good faith and fair dealing
1. Federal securities regulation requires full disclosure of the details of a stock offering; it is also fraud under the federal securities laws to make a material misstatement or omission in connection with the sale of a security
2. Most states require that the seller of a house fully disclose any hidden defects which are known to the seller
3. The Federal Food and Drug Administration (FDA) mandates labeling disclosure requirements designed to fully disclose to consumers the contents of food, including calorie, sugar, protein, carbs, and fat content
4. The Federal Trade Commission Used Car Rule requires that car dealers disclose whether there is an warranty or no warranty; and if there is, to make available to written terms. However, the rule only applies to those who sell at least 5 cars in the previous 12 month period, meaning it does not apply to the casual seller of cars
Federal Sentencing Guidelines for Corporate Crime

-One motive for developing corporate ethics codes and compliance programs.

-Holds companies liable when employees are convicted of federal crimes.

-Permit dramatic reductions in penalties for companies that have in place an effective compliance and ethics program to prevent and detect violations of the law.

Sentencing Guidelines

-Set out 7 requirements of an effective compliance program:

1. Company must establish standards and procedures to prevent and detect criminal conduct.

2. Company's governing authority mustbe knowledgeable about the content and operation of the compliance and ethics program and exercise reasonable oversight to implement and ensure that it is effective.

3. Company must keep any individual the company knows or should know engaged in illegal acts from serving a high-level position.

4. Company must communicate periodically and in a practical manner its standards and procedures by conducting effective training programs and disseminating info to individual employees that is appropriate to their roles and responsibilities.

5. Company must monitor and audit its program to ensure that it is followed, evaluate periodically the effectiveness of the program, and prodive mechanisms for employees to anonymously report violations without fear of retaliation.

6. Company must provide incentives to employees to act ethically and discipline employees who engage in criminal conduct.

7. Company must take reasonable steps to respond appropriately to criminal conduct and to prevent future misconduct.

Corporate Social Responsibility
-Requires institutions to give back in the form of charitable giving, job training for minorities and environmental responsibility.
Private Law

-Dealing with the horizontal relationship between people and entities.

-The earliest of the legal protections.

-Includes contracts, torts and property law, all intended to govern the relationship of individuals and entities to promote oderliness and harmony.

-Enforced through individual lawsuits, slow case-by-case approach.

Regulatory Environment

-Dealing with the vertical relationship between the government and those it governs.

-Self-regulation is the best way to avoid government regulation for companies and industries.

Employment Law

-Ethical concerns for the freedom and dignity of the individual employee and the place of the employer in weath creation in society.

-Can be seen in laws that provide safety and security in the workplace, equal opportunity for employees and job applicants, and yet allow for employers to terminate employees at will.

-Society must determine what will be the appropriate mix between private bargaining, or the market as the regulator of employment, and government regulations.

Antitrust Laws

-Protect the efficiency of the marketplace, which ultimately promotes consumer welfare.

-Prohibits price fixing, dividing up the market, price discrimination and monopolization.

-They are all based on a notion that anti-competitive behavior is unfair and needs to be sharply regulated.

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