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Principles Of Business Law - CHAPTER I
























































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 un-
affected 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 con-
duct necessarily causes friction, and some plan governing and regu-
lating 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 re-
sult 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 firms 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 advice.

Sec. 2. Origin and source of law. These rules of conduct dis-
cussed above, known as rules of law, are formulated by an ever-
developing 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 gen-
eral 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 deter-
mine 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 legis-
latures, 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 "com-
mon law" has several meanings. In the section above the term is
used to distinguish the law developed by the courts from that en-
acted by legislatures. The term is also used, probably in its larg-
est sense, to distinguish between the English 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 their
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.


Sec. 5. Public and private law. Anglo-American
divided into twj> main divisions publi^dw an^pnvateTa^ Pub-
lic 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 Commis-
sion, the National Labor Relations Board, and so forth, fall within
the field of administrative law. The term also includes the reme-
dies 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 relation-
ships 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

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 charac-
ter. 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 con-
spiracy are illustrations. By statute, "a crime or public offense is
an act or omission forbidden by law, and punishable upon convic-
tion by either of the following punishments: 1. Death; 2. Im-
prisonment; 3. Fine; 4. Removal from office; 5. Disqualification to
hold and enjoy any office of honor, trust, or profit under the con-
stitution or laws of this state." In the absence of complete codifi-
cation, common law crimes are still recognized, and incomplete stat-

utes are supplemented by common law as to mode of indictment
and punishment. Crimes against the United States are enumer-
ated 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 com-
fort/' 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 im-
prisonment as a penalty are crimes. Violation of traffic ordinances,
building codes, and similar municipal ordinances, where prosecu-
tion 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 en-
forcement 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. A breach of such duties may be both a tort
and a crime; foF example, assault and battery, trespass, and nui-
sances. 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 interfer-
ence 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 negli-
gent; 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 ig-
nite 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 im-
material. Manufacturers of chattels which are likely to be danger-
ous because of hidden defects are liable for personal injury caused by rea-
son 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 cer-
tain 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 per-
sonal, 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 gen-
erally 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 inter-
feres 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-
erty so as not to unreasonably interfere with the health and com-
fort of his neighbors, or to their right to the enjoyment of their
property." Trade, business, and industrial activities are often nui-
sances 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 ad-
jacent landowners. Likewise, garages, filling stations, rock crush-
ers, 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 nui-
sance 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 legislation
may declare what activities of a trade or business constitute a nui-
sance 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 char-
acter are (1) consent; (2) self-defense; (3) authority of the law
given sheriffs, firemen, public health officials, and other special of-
ficers; (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 negli-
gence, which conduct is as much the cause of the injury as the pre-
vious tortious conduct of the other person. A complete presenta-
tion 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 disposi-
tion 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 con-
version. 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.
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 un-
der 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 com-
mitted if a person or his goods are accidentally placed upon an-
other'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 wa-
ters of this state is declared to be vested in the several owners of the
surface beneath, subject to the right of flight. . . . Flight in air-
craft 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 nec-
essary. Although such forced landing is not a trespass, neverthe-
less, 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. Con-
sequently, 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


sought redress from the King in person. Since the appeal was to
the King's conscience, he referred such matters to his spiritual ad-
viser, the Chancellor. Such an individual was usually a church of-
ficial, 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
epecifijLUgrformance 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 tres-
pass 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

Further, a trustee, having legal advice 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 organ-
ized 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 "com-
plaint." The first pleading by the defendant is called the "an-

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 de-
rived? 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, va-
grancy, 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 com-
mitted both a tort and crime?

9. A, a patent medicine manufacturer, without B's permission, pub-
lishes 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 invita-
tion 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 lia-
ble 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 fac-
tory 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?

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