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Foundations of Law and the Role of Ethics in Business


  • Law is a legally enforceable set of rules established by a government to regulate the conduct of people in a society.

  • Sources of law in the United States include constitutions, statutes, case law (court decisions), and administrative regulations.

  • Case law is a modern version of the common law of England. Then, as now, court decisions became precedents. A precedent is a standard that judges use for deciding later cases. The practice of following precedents (previously decided cases) is called stare decisis.

  • Law can be classified as civil or criminal law. Civil law protects the rights and property of individuals from harm by other individuals. Criminal law protects society from the harmful acts of individuals.

  • Those who violate criminal laws are punished, whereas those who violate civil laws pay money damages or are required to perform an act (specific performance) or to refrain from certain conduct (injunction).

  • Law is constantly changing to reflect the changes in society. Technology has had a major impact on the way we conduct our personal and business affairs.

  • Ethics has assumed a greater role as businesses carry on their day-to-day operations. Business owners can no longer minimize moral dilemmas in their role as decision makers. A lack of solutions to ethical issues could be a pathway to disaster.

  • Unethical behavior may be serious enough to be considered criminal in nature and therefore subject a violator to a fine or incarceration.


On the line at the right of each statement, write the word true if the statement is true. If the statement is false, write the word or expression that should be substituted for the underlined word or expression to make the statement correct.

10. T F One of the purposes of a legal system is to protect society. __________

20. T F The Uniform Commercial Code makes the laws of commercial transactions uniform from one state to another. __________

30. T F Administrative regulations are court rulings that are used as a basis for deciding later cases. __________

40. T F No law enacted either by Congress or by a state legislature may conflict with the U.S. Constitution. __________

50. T F The system that grants relief for a wrongdoing based on what is fair and just rather than on legal principles is called criminal law. __________

60. T F As society changes, laws change to reflect the changes in society. __________

70. T F Statute law refers to decisions made by English courts on the basis of local customs. __________

80. T F At the federal level, legislation passed by Congress is called opinions. __________

90. T F An important concept in our legal system is that the law protects people and at the same time imposes legal duties on them. __________

100. T F A person harmed because of a violation of civil law by another person may sue that person and ask for money damages. __________


Circle the letter next to the most appropriate answer.

01. Unwritten law based on previous court decisions is known as 0

a0. statute law.

b0. common law.

c0. moral law.

d0. constitutional law.

20. Ethics is the study of 0

a0. the way business has changed since the Industrial Revolution.

b0. profit from a business dealing.

c0. business law.

d0. what is right or good for human beings in their everyday living.

30. Laws passed by cities, towns, and villages are called 0

a0. decrees.

b0. ordinances.

c0. acts.

d0. moral laws.

40. The fundamental written law of a state or nation that defines the rights and duties of individuals and describes the powers and limitations of government is called 0

a0. business law.

b0. common law.

c0. constitutional law.

d0. an ordinance.

50. Laws enacted by legislative bodies that protect society from the harmful acts of individuals and that impose fines or imprisonment for violations are called 0

a0. moral laws.

b0. civil laws.

c0. natural laws.

d0. criminal laws.

60. Laws that protect the rights and property of individuals from harm by other individuals and that provide remedies for any harm caused are called 0

a0. civil laws.

b0. criminal laws.

c0. constitutional laws.

d0. administrative laws.

70. The term business ethics refers to the study of 0

a0. a company’s balance sheet.

b0. what is legally required of a company in the business world,.

c0. what is right, just or fair in business settings.

d0. all of these answers.

80. Tate maliciously broke into her neighbor’s house. Tate’s action is governed by 0

a0. criminal law.

b0. natural law.

c0. equity law.

d0. administrative law.

90. After common law is revised and adopted by a state legislature, it is known as 0

a0. administrative law.

b0. commercial law.

c0. federal law.

d0. statute law.

100. The Social Security Act is an example of a 0

a0. local ordinance.

b0. state statute.

c0. federal act.

d0. constitutional amendment.

110. A Federal Communications Commission restriction on cigarette advertising on television is an example of 0

a0. administrative law.

b0. constitutional law.

c0. criminal law.

d0. statute law.

120. The first kind of law, other than Roman law, to come into existence was 0

a0. constitutional law.

b0. administrative law.

c0. statute law.

d0. common law.

130. The type of action indicated by the case title William Beebe v. Katherine Coyle is 0

a0. civil.

b0. criminal.

c0. punitive.

d0. bankruptcy.

140. A person who violates criminal law is subject to 0

a0. punishment.

b0. a ruling in equity.

c0. stare decisis.

d0. a moral action in a court of law.

150. In law, equity means 0

a0. what is fair and just.

b0. to stand by a decision.

c0. a violation of the law.

d0. precedent.


Answer each of the following questions in the space provided.

10. What ethical considerations might arise for a sales representative who is working with the purchasing department of a large corporation interested in buying several computers? How should he or she handle these considerations?



20. Discuss the significance of the stare decisis concept.



30. Under what circumstances is a remedy in equity available to an injured party seeking relief in court?



40. When engaging in corporate decision making about whether to undertake a given course of action, what questions should businesspersons typically consider?



50. Discuss the significance of the case of Robinson v. California (370 U.S. 660).



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