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PRINCIPLES OF BUSINESS LAW

CHAPTER I THE NATURE AND CLASSIFICATION OF THE LAW


Sec. 1. In general. Law may be said to consist of rules for the guidance of man in his relations with other men and in his relation to organized society. A single person, if isolated, would be unaffected by such rules, since they operate only in the presence of other persons. Of course, there are laws pertaining to physical matter, such as the laws of chemistry and physics, but with these we are not concerned. There are also many rules controlling human conduct which have no legal significance, such as rules with respect to manners and social conduct in the restricted sense. Human conduct necessarily causes friction, and some plan governing and regulating uniformity of action is required. In order to produce the result desired in playing a game, certain rules must be followed. A departure from any of these rules defeats the purpose of the game. With every breach of these rules of control, there follows some result detrimental to all the participants and to the violator of the rule. To the violator of the rule, it is the condemnation of the other players. To the other players, it is the loss of the desired result. In organized society a breach of the rules which form the law produces a like result.

In an organized state, agencies, such as courts, sheriffs, and other public officials, are created to punish persons for violating the rules of conduct determined by organized society. Whether the rule violated is one determined by organized society as a whole is not always clearly defined. If, however, agents of society, such as the courts, the sheriffs, and the public officials, will act at the request of the public or of the injured party for its or his benefit, the rule violated is a rule of law in the strict legal sense. Sec. 2. Origin and source of law. These rules of conduct discussed above, known as rules of law, are formulated by an everdeveloping process. The first source of the law is the customary conduct of community life. Group life creates customs, and when these customs become stabilized to the extent that each member of society is justified in assuming that every other member of society will respect them and will act in conformity with them, it can be said that rules of conduct have been formulated. When these rules of conduct have received the recognition of the community in general and have become formally expressed in legislative enactments or in judicial decisions, the "Law" is made. Conflicts between members of society arise from time to time as to the application of these rules of conduct, and, in order to determine whether a member of society has violated a rule, or whether a

member of society has a right to be recompensed for an injury by reason of the violation, courts are set up to settle the dispute. The court, by its decision, lays down a principle based upon a custom or convenience, and thus creates a precedent which will be controlling in similar future controversies. The leports of such controversies are published in books known as "reported cases." In these books will be found the unwritten law, or the common lay). Although the common law is written, itls called unwrittenTaw7 in contradistinction to those rules which have been formulated into law by legislative action. These legislative enactments are called wrUtenJaw ? orstatutori/ law.

Sec. 3. Written, or statutory, law. The constitution of the United States and the constitutions of the various states are the fundamental written law. All other law must conform to, or be in harmony with, these constitutions. The constitutions define and limit the powers of government for the purpose of giving protection to the individual who lives under the government, and for whose benefit government is formed. Legislative enactments by Congress, by the various state legislatures, by cities and towns, and by other smaller governmental units must conform to the constitutions and find in them their authority, either express or implied. Such legislative enactments, called statutes, form a greater part of the written law. Sec. 4.

The common law and the civil law. The term "common law" has several meanings. In the section above the term is used to distinguish the law developed by the courts from that enacted by legislatures. The term is also used, probably in its largest sense, to distinguish between the English system of law and the systems of law developed in other sections of the world. The sources of the American common law for the most part are found in the English law. The colonists were governed by charters granted by the King of England. These charters were general in their nature and left much to be worked out by the people of thei colonies. Since most of the colonists were of English origin, they naturally were controlled by the customs of their mother country. In Louisiana, and, to some extent, in Texas and California, the Civil law or the Roman law is the basis of the legal system, because these states were founded by French and Spanish peoples. The law of Continental Europe is based more directly upon the Roman law.

THE NATURE AND CLASSIFICATION OF THE LAW Sec. 5. Public and private law. Anglo-American divided into twj> main divisions publi^dw an^pnvateTa^ Public law is the liw 'pertaining to the public as a whole, and may be divided into tjlfcee general classes. (1) Constitutional law concerns itself with tne^jfaowers of the federal and state governments which are exercised through legislation and executive orders. The extent

of the powers of Congress and state legislatures to pass laws and of the executives oLthe federal government and the states to issue orders involves questions of constitutional law. (2) Administrative law is concerned with officials, boards, and commissions created by legislative enactments for the purpose of carrying out legislative functions. Orders and decrees of administrative boards, such as the Interstate Commerce Commission, the Federal Trade Commission, the National Labor Relations Board, and so forth, fall within the field of administrative law. The term also includes the remedies granted to an individual who is injured by the illegal acts of administrative officers, boards, and commissions. (3) Criminal law consists of statutes and general maxims which forbid certain conduct as detrimental to the welfare of the state and which provide punishment therefor. Private law is all that body of law which pertains to the relationships between individuals as such in organized society. It may be broken down into certain fields, such as contracts, agency, sales, negotiable instruments, business organizations, and so forth. The law in these areas and others pertaining to business law are fully treated in the flavin text material of this book. The law of crimes and torts will, therefore, be briefly discussed in the sections to follow* Sec. 6. Criminal law. Actions between persons are called civil suits, or actions. Criminal actions are prosecuted by the state as

the moving party (plaintiff) against any citizen for the violation of a duty ^prescribed by the common or statutory law. Crimes are either common law crimes or statutory crimes and in states where a criminal code has been adopted, all crimes are statutory in character. Conduct which violated custom or Christian principles and shocked the community sense of propriety constituted a crime at common law. Blasphemy, murder, rape, riot, adultery, and conspiracy are illustrations. By statute, "a crime or public offense is an act or omission forbidden by law, and punishable upon conviction by either of the following punishments: 1. Death; 2. Imprisonment; 3. Fine; 4. Removal from office; 5. Disqualification to hold and enjoy any office of honor, trust, or profit under the constitution or laws of this state." In the absence of complete codification, common law crimes are still recognized, and incomplete stat-

4 INTRODUCTION utes are supplemented by common law as to mode of indictment and punishment. Crimes against the United States are enumerated and defined by federal statute. Crimes are classified as treason, felonies, and misdemeanors. Treason is defined by the federal constitution as follows: "Treason against the United States shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort/' A like provision is found in state constitutions.

. Eglomgg are offenses usually defined by statute to include all crimes punishable by death or by imprisonment in the state prison. Examples are murder, grand larceny, arson, rape, and so forth. Crimes of lesser importance than felonies, such as petty larceny, simple assault, drunkenness, trespass, disorderly conduct, vagrancy, and so forth, are called misdemeanors, and are usually defined as any crimes not punishable by death or by imprisonment in the state prison, but are punishable by fine or confinement in the local jail. It is sometimes said that every statute for the breach of which there is a penalty by way of fine or imprisonment in the local jail is a criminal statute. There is a difference of opinion as to whether acts in violation of city ordinances which provide for fine and imprisonment as a penalty are crimes. Violation of traffic ordinances, building codes, and similar municipal ordinances, where prosecution takes place before a city magistrate, are sometimes termed "petty offenses," or "public torts," and are not included within the term "crime." Sec. 7. Law of torts. The law of contracts deals with the enforcement of rights and duties arising out of agreements created by the mutual assent of the parties. The law of crimes deals with the enforcement of duties imposed by the state with the .enforcement of duties e^dstin^betwee^ members of society. A breach of such duties may be both a tort and a crime; foF example, assault and battery, trespass, and nuisances. Each member of society is entitled to have certain in-

terests protected. Somejpf^ these interests are ( 1 ) Freedom from bodily harm or Apprehension of Jxxjily harm. Invasions of these interests are called assault, bat tery,_and false imj3iso^^ Fieedum 'from injury tcTpfopertyl Invasions of this interest are called trespass to goods, conversion of chattels, and trespass to land. (3) Freedom from disparagement of reputation. Invasions of this interest are called defamation, libel, and slander. (4) Freedom from invasion of the right of privacy. (5) Freedom from interference with business relationships. Invasions of this interest are called deceit, threats and intimidations to customers, inducement of breach of contract, slander of title, and trade name. For a more complete discussion of the law of business torts, see Book VIII. If any member of society invades such protected interests of another, the party injured has a right to be reimbursed in damages for the wrong committed. This wrong is called a "tort." Sec. 8. Tortious conduct. Conduct is tortious if any of the following elements are present: (1) If it is intentional; that is, if the actor intends his conduct to result in injury to another. A strikes B accidentally while mingling in a crowd. A here intends no harm. A's conduct is not tortious. A must intend harm. (2) If it is in such "reckless and wanton disregard of the safety of others" that the actor should know or should have reason to know that harm will likely result. A recklessly and knowingly drives through a stop light. B is injured. A's conduct is tortious. (3) If it is negligent; that is, if there is failure to exercise due care. Due care is what a reasonable man, guided by those circumstances which ordi-

narily regulate the conduct of human beings, would do or would not do under the circumstances. A, a garage owner, or his employees, leave oil-soaked rags and waste near J3's stored cars. The rags ignite and burn the cars and adjacent buildings. A is liable for loss of the cars and adjacent buildings. A was negligent in leaving the highly inflammable material where it might cause damage. A's lack of knowledge of the dangerous quality of the oily rags is immaterial. Manufacturers of chattels which are likely to be dangerous because of hidden defects are liable for injury caused by reason of the defective materials used. B is injured by reason of the collapse of an automobile wheel. The manufacturer of the car is liable because he was negligent in using defective material and in providing improper inspection. (4) Conduct is tortious under certain unusual situations where absolute liability is imposed, even though the actor is innocent and exercises reasonable care. Harm caused by dangerous or trespassing animals, blasting operations, and escape of fire are examples. Strict liability is also imposed by workmen's compensation statutes. (5) "The unreasonable and unlawful use by a person of his own property, either real or personal, or from his own unlawful, improper, or indecent activity, which causes harm to another's person, or the use of his property, or the public generally" is tortious conduct. This conduct is generally described as a nuisance. Nuisances may be either private or public. A private nuisance is one that disturbs the interest of some

private individual, whereas the public nuisance disturbs or interferes with the public in general and is in violation of some penal statute, and hence is a crime. "An owner of property, although conducting a lawful busiflfess thereon, is subject to reasonable limitations and must use his prop-

6 INTRODUCTION erty so as not to unreasonably interfere with the health and comfort of his neighbors, or to their right to the enjoyment of their property." Trade, business, and industrial activities are often nuisances by reason of their location, and liability is imposed even in the absence of negligence. For example, slaughterhouses, stables, chemical works, refineries, and tanneries, because of their offensive odors, may interfere with the peaceful enjoyment of property of adjacent landowners. Likewise, garages, filling stations, rock crushers, and skating rinks may be nuisances because of noise ; factories and smelters by reason of the escape of noxious gases. Whether a particular trade, business, or industrial activity constitutes a nuisance depends upon the locality in which it is conducted and the nature and extent of the harm resulting from its operation. The principle of law here involved is the basis of the zoning ordinances by which cities regulate the location of business enterprises. Like-

wise, under the power of the state to protect health, morals, and general welfare of its citizens, known as police power, the legislature may declare what activities of a trade or business constitute a nuisance and may destroy or limit such activities. Sec. 9. Privilege and justification. A person committing a harm may be excused or have a justification by way of defense. Excuses or justifications that will deprive an act of its tortious character are (1) consent; (2) self-defense; (3) authority of the law given sheriffs, firemen, public health officials, and other special officers; (4) recapture of chattels by the true owner on the land of another; (5) abandonment of nuisances and military restraints. Likewise, one may have a defense in an action for tort because the injured party by his own conduct is guilty of contributory negligence, which conduct is as much the cause of the injury as the previous tortious conduct of the other person. A complete presentation of the law of torts is not here attempted. Two of the more frequent torts, trespass to goods and trespass to land, are discussed in the following sections. Sec. 10. Trespass to goods. Unlawful interference by one person with the property of another is a trespass. One is entitled to have exclusive possession and control of his personal property and may recover for any physical harm to his goods by reason of the wrongful conduct of another. Conversion is the wrongful disposition and detention of goods of one person by another. A party in possession of the goods of another, who upon demand wrongfully

or for insufficient cause refuses to return the same, is guilty of conversion. Any exercise of dominion by another of the true owner's goods is a tortious act entitling the owner to recover either the goods or damages. For example, the wrongful sale of goods by a bailee, by an agent, or by a pledgee of goods is trespass to goods.

THE NATURE AND CLASSIFICATION OF THE LAW 7 Sec. 11. Trespass to land. The one in exclusive possession of land is entitled to enjoy the use of the land free from interference of others, either by direct interference or by indirect interference through instrumentalities placed upon the land. Entry upon the land of another is a trespass even though the one who enters is under the mistaken belief that he is the owner by purchase, or has a right, license, or privilege to enter thereon. Intention to enter or invade the premises of another without consent of the owner is a trespass. In absence of negligent conduct, no trespass is committed if a person or his goods are accidentally placed upon another's land; thus, property placed upon another's land without negligence on the part of the owner does not make the owner of property a trespasser. At common law, the owner owns the air space above the land. Consequently, stretching telephone and high-tension wires above one's property without consent is a trespass. Whether airplanes flying over the land of another is a trespass raises some doubt. The interference with the right of exclusive possession is the basis of trespass. It is doubtful whether an owner of land has exclusive

possession of the atmosphere above the land. The United States Air Commerce Act of 1926 and the Regulations of the Secretary of Commerce, 1928, as well as the Uniform State Law for Aeronautics, provide that the "navigable air space" above the "minimum safe altitudes of flight" shall be "subject to a public right of freedom of interstate and foreign air navigation." The Uniform State Law provides that "The ownership of the space above the land and waters of this state is declared to be vested in the several owners of the surface beneath, subject to the right of flight. . . . Flight in aircraft over the lands and waters of this state is lawful, unless at such a low altitude as to interfere with the then existing use to which the land or water, or space over the land or water, is put by the owner, or unless so conducted as to be imminently dangerous to persons or property lawfully ,on the land or water beneath." Landing aircraft on another's land is unlawful, except where a forced landing is necessary. Although such forced landing is not a trespass, nevertheless, the owner of the aircraft is liable for all damages caused by such landing. Sec. 12. Law and equity. The term "equity" is peculiar to Anglo-American law. Equity arose because of the failure of the law to give adequate and proper remedy. In early English law, the courts could not give remedies for injuries received unless the King's original writs covered the particular remedy sought. Consequently, the proceedings at law were so limited that it was often

impossible to obtain justice in the King's Court. In order that justice might be done, the person seeking a remedy

8 INTRODUCTION sought redress from the King in person. Since the appeal was to the King's conscience, he referred such matters to his spiritual adviser, the Chancellor. Such an individual was usually a church official, and in giving a remedy he usually favored the Ecclesiastical law and the Civil law. By such method there developed a new system of procedure and new rules. Actions involving these rules were said to be brought in "Chantry" or in "Equity." in contradistinction to suit "at law" in the King's Courts. Many rights not recognized in the common law were created and enforced. For example, trusts in lands were recognized; Rescission was allowed on contracts created through fraud; injunction and performance were developed. Law as a remedy gives only money damages, whereas equity gives the plaintiff what he bargains for. Thus, A, by contract, agrees to deliver to B, for a consideration, a very valuable article, something that cannot be duplicated. Upon A's breach B's only remedy in law is money damages, which are not adequate, because it is the specific article that B desires. In equity, however, B can, by specific performance, force A to deliver the article.

Again, if A persists in trespassing upon J3's land, B's remedy in law is damages for injury done. A may pay the damages and trespass again. In equity, however, B may enjoin A from going on his land, and, if A continues, he is subject to arrest for contempt of court. Further, a trustee, having legal title and the right to manage and control an estate, may sell the estate or employ it for his own use. By a bill in equity, however, the beneficiary may enjoin the trustee from further misuse and may force him to give an accounting. In a few states, courts of equity are separate and distinct from courts of law. In most states the equity and law courts are organized under a single judge who has two dockets one in law, the other in equity. Whether the case is in equity or law is determined by the remedy desired. Modern Civil Practice Acts have abolished the common law names heretofore used to distinguish different forms of actions at law and in equity. The first pleading in civil actions, whether at law or in equity, usually is called the "complaint." The first pleading by the defendant is called the "answer."
Review Questions and Problems 1. Give a definition of law. Is there law or the need of it where there is only one inhabitant in a locality? 2. What is the source of the common law? How are its principles derived? From what country did we receive it?

3. Distinguish between public and private law. Name three general classes of public law; private law.

4. Who are the parties in a criminal action; in a contract action? 5. What kind of crimes are burglary, arson, and rape; trespass, vagrancy, and petty larceny? 6. A receives a ticket from a traffic policeman for over-parking. Has he committed a crime? 7. Distinguish between the law of contracts, crimes, and torts. 8. A hits and slightly injures B during a friendly scuffle. Is A guilty of a tort? A throws a brick in a crowded street intending to break B's window, but h?ts and injures C. Is A liable to B and C? Has A committed both a tort and crime? 9. A, a patent medicine manufacturer, without B's permission, publishes an advertisement including B's picture, with laudatory statements by B of the value of the medicine. B is a doctor. Is A liable to B? 10. A is invited as a guest to come upon B's land. C without invitation enters B's land with A. Is C a trespasser? 11.5 has A's permission to place his automobile upon A's lot for three weeks. After three weeks have elapsed, B goes upon A's lot to get his car. Is B guilty of trespass? 12. Ay while engaged in blasting stumps upon his land, exercises every reasonable caution, places warning signs, and so forth. However, rocks and debris are thrown upon B's adjoining land. Is A liable to B? 13. A, driving his car in a reckless manner, collides with 5, causing B's car to enter C's yard, throwing out D, who lands in C's yard, causing damage to C's property. Is A liable to 5? Is B liable to C? Is D liable to C? 14. A parks his car upon a dark street without parking lights. B r while negligently driving down the street, hits and damages A's car. Has B a defense in an action by A? 15. A, an aviator, while flying above the prescribed statutory height above B's land, is compelled because of engine trouble to land upon B's property. Is A liable as a trespasser? In landing, A damages growing crops. What liability has the owner of the aircraft?

16. A has owned and operated for a number of years a smelter and foundry. A large residential district has developed near the factory. A small stream adjacent to the factory passes through a park created within the residential district. Pollution of this stream by the factory has become obnoxious to the residents. Fumes and noises from the factory are harmful and disturbing to the people of the vicinity. What remedy, if any, has a resident of the community against A? 17. Where did equity law have its origin? When are the laws of equity applicable? Who usually presides at the equity courts? 18. What is the written law? What forms the foundation of the written law?