Canadian Business And The Law 5th Edition By Dorothy Duplessis

Canadian Business And The Law 5th Edition By Dorothy Duplessis –

Table of Contents
Chapter 1: Knowledge of Law as a Business Asset…………………………………………………… 1
Chapter 2: The Canadian Legal System…………………………………………………………………. 34
Chapter 3: Managing Legal Risks…………………………………………………………………………. 65
Chapter 4: Dispute Resolution……………………………………………………………………………… 97
Chapter 5: An Introduction to Contracts………………………………………………………………. 132
Chapter 6: Forming Contractual Relationships……………………………………………………… 154
Chapter 7: The Terms of a Contract ……………………………………………………………………. 196
Chapter 8: Non-Enforcement of Contracts…………………………………………………………… 234
Chapter 9: Termination and Enforcement of Contracts………………………………………….. 282
Chapter 10: Introduction to Tort Law………………………………………………………………….. 316
Chapter 11: The Tort of Negligence ……………………………………………………………………. 346
Chapter 12: Other Torts…………………………………………………………………………………….. 393
Chapter 13: The Agency Relationship…………………………………………………………………. 434
Chapter 14: Business Forms and Arrangements……………………………………………………. 472
Chapter 15: The Corporate Form: Organizational Matters……………………………………… 523
Chapter 16: The Corporate Form: Operational Matters………………………………………….. 565
Chapter 17: Personal Property ……………………………………………………………………………. 614
Chapter 18: Intellectual Property………………………………………………………………………… 641
Chapter 19: Real Property………………………………………………………………………………….. 689
Chapter 20: The Employment Relationship ………………………………………………………….. 723
Chapter 21: Terminating the Employment Relationship ………………………………………… 778
Chapter 22: Professional Services ………………………………………………………………………. 825
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Enriched Instructor’s Manual to accompany Canadian Business and the Law, 5th edition Contents
Chapter 23: Sales and Marketing: The Contract, Product, and Promotion……………….. 858
Chapter 24: Sales and Marketing: Price, Distribution, and Risk Management ………….. 889
Chapter 25: Business and Banking ……………………………………………………………………… 918
Chapter 26: The Legal Aspects of Credit …………………………………………………………….. 948
Chapter 27: Bankruptcy and Insolvency………………………………………………………………. 978
Chapter 28: Insurance ……………………………………………………………………………………… 1009
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Chapter 1
Knowledge of Law as a Business Asset
by Shannon O’Byrne
DETAILED TABLE OF CONTENTS
Business Law in Practice …………………………………………………………………. 2
Law in the Business Environment …………………………………………………….. 3
Rules and Principles…………………………………………………………………… 5
How and Why the Law Works………………………………………………………… 13
Knowledge of the Law as a Business Asset…………………………………. 14
Law and Business Ethics ……………………………………………………………….. 15
Business Law in Practice Revisited …………………………………………………. 16
Chapter Summary …………………………………………………………………………..18
Key Terms and Concepts………………………………………………………….. 19
Questions for Review……………………………………………………………….. 19
Questions for Critical Thinking …………………………………………………. 19
Situations for Discussion ……………………………………………………………20
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I. TEACHING OBJECTIVES
After studying this chapter, students should have an understanding of
the role of law in guiding conduct
the importance of legal knowledge in the business environment
the challenges posed by business ethics and their relationship to legal requirements
This chapter provides an introduction to the role and purpose of the Canadian legal system
within a business context. It endeavours to put forth a corrective or alternative to the view that the
legal system is obstructionist in the sense of “getting in the way” of commercial activity. Instead,
the chapter advances the perspective that the law facilitates business planning, offers protection
mechanisms, provides general rules of commerce, and allows businesspeople to manage their
exposure to risk. In this way, the chapter defends the central proposition that informs the whole
text: knowledge of the law is a business asset.
The teaching objective of this chapter is to establish why it is important to study law in a
business program. It is helpful to convey to students that the whole course is centred on the
practical application of legal ideas and principles, and will therefore likely resonate throughout
their careers.
To provide a foundation for the subsequent discussion of specific legal subject areas,
Chapter 1 is an account of the basic ideas that inform the Canadian legal system. By relying on the
exaggerated persona of the incompetent and oblivious Louella (whose business suffers from a
series of tribulations), the chapter also illustrates the pitfalls of legal ignorance. Beyond this, it
demonstrates the wide range of laws that affect Louella’s operations and how Louella should
proactively endeavour to understand and use the law to her advantage.
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Through class discussion, the instructor can try to tap into whatever legal knowledge
students may have and then gently advance it. For example, a student may think that the law is
simply a set of rules—which it is, from a certain perspective—but it is also a process by which
disputes are resolved. Furthermore, the law does not concern a process that resolves disputes in any
old way; it embodies important principles, such as the idea that the laws and how they are applied
should be fair and free from bias. Though no justice system can achieve such a standard of
perfection, the Canadian legal system is dedicated to trying to reach it.
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II. TEACHING STRATEGIES
Although some students may have a general sense of the legal system, it can be difficult to elicit
class discussion on such a broad topic. In short, students may be too intimidated to share their
thoughts on the subject. Since the tone of the class is established early in the term, it is important to
find ways of securing student participation at the outset.
Students (at least some) will have read Chapter 1 and already be familiar with the Business
Law in Practice scenario involving Louella and her disastrous business venture. During class, it
may therefore be preferable to present a new, but parallel, example to facilitate discussion.
The following example has been classroom tested, with success. A businessperson has come
up with a new product—say, a computer that translates English into other languages. This
entrepreneur believes that her product has numerous applications, in both the public and private
sectors. She needs to work up a business plan. What business decisions must she make to bring
the product to market?
This example encourages discussion because it is straightforward. Students will quickly
identify a number of areas requiring attention—the entrepreneur needs to choose a business
name, hire employees, get financing in place, and so on. After general discussion subsides, the
instructor can then zero in on two or three of the business decisions identified and illustrate how the
law affects those decisions and provides mandatory parameters. For example, when choosing a
name, the entrepreneur must be sure not to commit the tort of passing off, nor violate someone else’s
trademark. In hiring employees, the entrepreneur must abide by the dictates of human
rights legislation prohibiting discrimination, as well as comply with occupational health and
safety legislation during operations. Before beginning production, the entrepreneur must be sure
that his idea does not involve someone else’s patent, and so on.
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From there, the instructor can ask the class to consider
what the purpose of these laws might be
whether they are positive or negative forces for this entrepreneur specifically
whether they are positive or negative forces for business generally
After discussing these points, the instructor can then steer debate to the text’s account of the
general purposes of law.
An alternative approach—which has also proven successful in the classroom—is to follow
through with the Business Law in Practice scenario. By highlighting the legal difficulties
experienced by Louella, an instructor can focus on this chapter’s themes, namely:
the three purposes of the law (i.e., protecting persons and their property, facilitating
interactions, providing mechanisms for dispute resolution)
how and why the law works
how knowledge of the law is a business asset, including the importance of legal risk
management
the relationship between law and business ethics
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III. STUDENT ACTIVITIES
Task 1: One way to help students prepare for class discussion about the role of the law in the
business world is to ask them to find a news story, in a local or national paper, involving
business and the law. Ask students to come to class having summarized the story and identified the
main legal question or legal issue to be resolved.
Task 2: Chapter 1 of the DVD supplement (supporting the Instructor’s Manual) includes a CBC
Marketplace update (called “Faking It”) about San Francisco Gifts Ltd. and its owner, Barry
Slawsky. This video builds on the Business Application of the Law: Fraud on the Public (page 4
of the text), which kicks off the story of San Francisco Gifts placing fake UL (Underwriters
Laboratories) labels on table lamps being sold in its retail outlets. The lamps had not been UL
inspected and, in fact, were a potential fire hazard. The video discusses the fire hazard created by
another San Francisco Gifts product—specifically, a dolphin lamp—which also bore a fake UL
label. In this latter case, the product in question began to catch on fire but the family was home
and the appliance was quickly unplugged, thereby averting a potential tragedy. See too: CBC
News, “Fake labels give consumers false sense of safety: CBC report” (7 April 2007) at
http://www.cbc.ca/canada/story/2006/04/07/labels060407.html.
After showing the CBC Marketplace video to the class, the instructor might pose the
question in Task 1 above (“What is the main legal question or legal issue to be resolved?”) and the
following questions as well:
What is the purpose of the law that requires UL inspection and prohibits counterfeit UL
labels?
How does such a law fit within the definition of law set out on page 5 of the text?
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Is the law failing in the San Francisco Gifts case?
Is enforcement failing in the San Francisco Gifts case?
What do you think should happen next?
On a related front, students could be asked to consider the video in light of Questions for
Review 1, 2, 3, 10, and 12.
Task 3: The DVD (supporting the Instructor’s Manual) also includes several short news clips
reporting on an emerging legal issue or problem. “Sled Dog Repo” concerns the killing of sled
dogs in British Columbia (which is also the focus of Ethical Considerations: Inhumane Killing of
Sled Dogs in British Columbia, page 7). “Facebook Privacy” concerns privacy issues on
Facebook (which is also the focus of Technology and the Law: University of Ottawa Law
Students Help Challenge Facebook, page 6). “Victoria Tanning” concerns underage tanning
(which is also the focus of Business and Legislation: Regulating the Tanning Industry, page 10).
The instructor could show these clips in succession and ask the class to discuss the role of law in
modern Canadian society. To what extent should the law mandate protection (for animals, for
underage tanners, for those who use Facebook) and to what extent should people (including
those in the sled dog industry, corporations like Facebook, and those who choose to tan) be left
free from government constraint or control. One common theme that unites the clips is that those
whom the law seeks to protect are vulnerable in that they cannot choose their own course (such
as sled dogs) or might be too immature to do so rationally (underage tanners) or do not know that
their rights may be being violated to begin with (such as when social media share information
with third party vendors).
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IV. EXPLANATION OF SELECTED FEATURES
Page 4
Business Application of the Law: Fraud on the Public
Critical Analysis: What are the alternatives to market regulation by government?
Absent market regulation by government in relation to product safety standards, for example,
consumers would presumably be left to discover for themselves what products are safe.
Businesses that supply shoddy products would develop poor reputations and end up out of
business. Relying on the market to drive such individuals out of business, however, is a slow
process and needless injury and loss could arise in the interim. Market regulation by government is
therefore generally seen as preferable.
Page 5
International Perspective: US Spam Laws
Critical Analysis: Should American judgments be enforceable in Canada? Why or why
not? What is objectionable about spamming? How is it different from marketing?
(Note: Though the question above raises the more complicated matter of when foreign judgments
should be domestically recognized, there is no need to take a technical approach to the matter—
especially so early in the course. It is preferable to approach the question conceptually but within the
context offered by the Guerbuez narrative.)
If Facebook were unable to enforce its judgment in Canada, Guerbuez would essentially be able
to break US laws with impunity. That is, assuming that Guerbuez has no assets in the United
States, the only way that Facebook will see a dime of its award is to seize Guerbuez’s property in
Quebec. This it can do only by getting its US judgment recognized in Quebec. So long as the US
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court’s decision has been reached on a fair and legitimate basis, there is no reason for Canadian
courts not to assist Facebook. Beyond this, and as the Quebec Superior Court points out,
Guerbuez would have faced similar sanctions under Canada’s then-proposed spam legislation. It
advances justice to permit Facebook to satisfy its judgment in Quebec. As Daniel Bourque notes,
these Quebec decisions demonstrate that “as a matter of international courtesy,” Canadian courts
will enforce, not lightly set aside, foreign judgements absent important reasons mandating them to.
See Daniel Bourque, “Quebec court enforces U.S. court’s $873 million judgement against
Facebook spammer” (2011-201) 11 I.E.C.L.C. at
http://www.mcmillan.ca/Files/129163_article.pdf.
Spamming is objectionable for a multitude of reasons. For example, it wastes employee time,
hurts the reputation of legitimate Internet marketers, and puts a strain on Internet services
providers. According to the 2005 National Task Force on Spam:
[t]he new mutations of spam undermine consumer confidence in the Internet as a
platform for commerce and communications. Because of this, the potential of
information and communications technology to buttress productivity, and the
ability of e-commerce to attract investment, create jobs and enrich our lives, is
constrained not only by the torrents of spam, but by the deception, fraudulent and
malicious activities that sometimes accompany it.
For more analysis from this Canadian task force, see “Stopping spam: Creating a stronger, safer
Internet: Report of the task force on spam” (May 2005) at http://www.ic.gc.ca/eic/site/ecicceac.nsf/eng/h_gv00317.html.
Spamming is a form of marketing but of an inherently objectionable variety. Spammers
typically purchase email lists of potential customers and then inundate those email addresses
with advertisements for products and services. There has been no consent by the recipients to
receiving such communication—the ads are unsolicited and therefore particularly intrusive.
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The question concerning the difference between spam and marketing can usefully be
revisited in Chapter 6, where the textbook provides a basic introduction to Canada’s new
antispamming legislation (which is anticipated to be proclaimed in force in 2013). When this
legislation is in place, the difference between spam and simple e-marketing will be
straightforward. E-marketing communications will be legislatively compliant. Spam will not be.
For more discussion, see too Chapter 6 of this Instructor’s Manual.
Page 6
Technology and the Law: University of Ottawa Law Students Help Challenge Facebook
Critical Analysis: In what way does PIPEDA protect people and their property? Do you
think that the legislation puts too much responsibility on business?
PIPEDA requires businesses to be accountable in how they gather, secure, disclose, and discard
the personal information of customers, including credit card numbers, photographs, business
email addresses, and computer internet protocol (IP) addresses. (For analysis, see Office of the
Privacy Commissioner of Canada, “Leading by example: Key developments in the first seven
years of the Personal Information Protection and Electronic Documents Act (PIPEDA)” (2008)
at http://www.priv.gc.ca/information/pub/lbe_080523_e.asp.) PIPEDA’s legislative requirements
seek to protect persons and their property by acknowledging the importance of privacy,
regulating how business is to manage the personal information of customers, and endeavouring
to prevent such crimes as identity theft.
In its report entitled “Leading by example: Key developments in the first seven years of
PIPEDA” (2008) at http://www.priv.gc.ca/information/pub/lbe_080523_e.asp, the Office of the
Privacy Commissioner of Canada provides many illuminating examples of privacy breaches that
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could be used by an instructor in the classroom. For example, the report recounts the
inappropriate disposal of personal information by a bank, in the following terms:
The Assistant Commissioner has found that disposing of sensitive personal
banking information in a recycling bin is a violation of PIPEDA. In this case, the
complainant learned that his personal banking information—including the
complainant’s and his wife’s names, address, social insurance numbers, account
number and transaction history—was found by a third party in an unattended
recycling bin in a parking garage. The bank determined that two of its employees
had inadvertently put the information in a recycling bin rather than in a shredding
bin when cleaning out the desk of a former employee. In addition to finding that
the organization had violated PIPEDA’s safeguards provision, the Assistant
Commissioner was troubled by the fact that the information had been left in the
desk of the former employee for a year. The Assistant Commissioner stated that
such information should be shredded as part of a systematic approach to dealing
with any confidential information in the custody of a departing employee.
[footnotes deleted]
Although privacy legislation inevitably does place burdens on business, it has a strong
justification for doing so. Customers are entitled to expect that their personal data will be
properly stored and protected. As then-industry minister John Manley stated in 2000, “The
protection of our personal privacy is a basic right which Canadians cherish” (quoted in “Leading
by example” at http://www.priv.gc.ca/information/pub/lbe_080523_e.asp).
For a news clip concerning Facebook’s privacy issues, see the DVD supplement entitled The
National: “Facebook Privacy.”
Page 7
Ethical Considerations: Inhumane Killing of Sled Dogs in British Columbia.
Critical Analysis: What is the role of business to ensure the ethical treatment of
animals? Is it acceptable to kill sled dogs with a shotgun? What is the role of
government to ensure the ethical treatment of animals?
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Working animals must rely on the business responsible for their care to provide adequate food,
water, shelter, and other forms of protection. Common humanity requires no less. Beyond this,
provincial animal protection laws, as well as the Criminal Code of Canada, mandate minimum
standards of treatment. More specifically for the purposes to this question, causing unnecessary
distress to an animal is contrary to law; therefore, when an animal has to be “put down,” it must
be done humanely. On this point, Tracy Sherlock, “Sled dog bodies exhumed,” Vancouver Sun
(9 May 2011) at http://www2.canada.com/edmontonjournal/news/story.html?id=e25c4365-57a4-
419a-a71a-621fd777ea6e relies on the analysis of Marcie Moriarty of the BC SPCA when she
writes, “A single, fatal gun shot does not constitute animal cruelty, but throat slashing,
bludgeoning or multiple gun shot wounds when the first is not fatal do.” Since this news report,
the British Columbia government approved (in January 2012) the Sled Dog Code of Practices,
which, at page 40, offers the follow recommended best practices in the context of sled dog
euthanasia:
Work with a practicing veterinarian to develop a euthanasia plan.
Ensure sled dogs are euthanized by a practicing veterinarian using a
barbiturate overdose with prior sedation.
In an emergency situation (i.e. critical distress) AND when a practicing
veterinarian is not available, euthanasia should be performed by a competent
person (see glossary), and undertaken by a single bullet of an appropriate
calibre to the brain (see Appendix “G”, Guidelines for euthanasia of domestic
animals by firearms, Longair et al.).
Use appropriate restraint if required.
Do not use euthanasia for population control.
Undertake euthanasia out of the sight of other sled dogs to minimize distress.
To read the Code, go to http://www.gov.bc.ca/agri/down/sled_dog_code_of_practice.pdf. For a
news clip concerning this story, see the DVD supplement entitled “Sled Dog Repo.”
Page 9
Ethical Considerations: The Subprime Mortgage Crisis
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Critical Analysis: Even though the lenders may not have acted illegally at the time, do
you think that they had any ethical responsibility to ensure that mortgage applicants
were financially able to afford the loan in question? Do you think it is better for
borrowers who overextend themselves to simply bear the consequences of their own
actions? Is government to blame for not doing more to protect naïve borrowers?
As this chapter notes, no set of regulations can prevent fraud; however, there seems to be
reasonably wide acknowledgment that government needs a stronger presence in the subprime
mortgage market to reduce the likelihood of future abuses. Though borrowers and investors are
responsible, to an important degree, for their own decisions, subprime borrower looked to the
lender and broker as experts. According to the Federal Reserve Board, with implicit concern
about the practice,
[loan] originators may sometimes encourage borrowers to be excessively
optimistic about their ability to refinance should they be unable to sustain
repayment. For example, they sometimes offer reassurances that interest rates will
remain low and house prices will increase; borrowers may be swayed by such
reassurances because they believe the sources are experts.
From 44522 Federal Register/Vol. 73, No. 147/Wednesday, July 30, 2008/Rules and Regulations
at
http://www.federalreserve.gov/reportforms/formsreview/RegZ_20080730_ffr.pdf.
As well, academics, such as Oren Bar-Gill (“The law, economics and psychology of
subprime mortgage contracts” (2009), NYU Law and Economics Research Paper No. 08-59 at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1304744), have shown how the subprime
mortgage industry designed their mortgage products to be unduly complex. This prevented
unsophisticated mortgagors from understanding what they were getting into.
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Though investors who purchased products backed by subprime mortgages are sophisticated,
they certainly did not expect such egregious conduct from the mortgage industry and were taken
by surprise.
Concern about deception in the mortgage practices and the moral risk resulting from
securitization are at the core of analysis offered by Elizabeth Warren, chair of the Congressional
Oversight Panel:
[f]or years, Wall Street CEOs have thrown away customer trust like so much
worthless trash. Banks and brokers have sold deceptive mortgages for more than a
decade. Financial wizards made billions by packaging and repackaging those
loans into securities. And federal regulators played the role of lookout at a bank
robbery, holding back anyone who tried to stop the massive looting from
middleclass families. When they weren’t selling deceptive mortgages, Wall
Street invented new credit card tricks and clever overdraft fees.
See Warren, “Wall Street’s race to the bottom,” Wall Street Journal (8 February 2010) at
http://online.wsj.com/article/SB10001424052748703630404575053514188773400.html?mod=
WSJ_Opinion_LEFTTopOpinion (last accessed Feb. 2010).
In response to the egregious practices identified by Warren and others, the US House of
Representatives passed a 2009 financial reform bill that created the Consumer Financial
Protection Agency (CFPA). Under the bill, the CFPA is given oversight powers over a variety of
financial products, including mortgages, and, on a related front, requires lenders to retain a
portion of their loans in a securitization context. For discussion, see Paul Krugman, “Good and
Boring,” New York Times (31 January 2010) at
http://www.nytimes.com/2010/02/01/opinion/01krugman.html (last accessed Feb. 2010). The
bill’s fate in the Senate remains uncertain at date of writing.
Note too that the Canadian federal minister of finance has continued the process of mortgage
reform in this country, which is described in the press release at http://www.fin.gc.ca/n10/10-
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011-eng.asp. For example, even if a borrower intends to take a variable rate mortgage, the
borrower must qualify for a fixed five-year mortgage. Most recently, the federal government has
dropped the maximum amortization period from 30 years to 25 years and the maximum
refinancing amount from 85% to 80%. According the minister of finance, the goal is to “ensure
that households do not become overextended.” See RBC “Canada’s Mortgage Rules to Tighten
Again” (21 June 2012) at http://www.rbc.com/economics/market/pdf/mortgagerules.pdf.
Page 9
Photo caption: What are the costs of foreclosure to the homeowner?
As Chairman Ben Bernanke noted before the Committee on Financial Services, U.S. House of
Representatives (September 20, 2007) at
http://www.federalreserve.gov/newsevents/testimony/bernanke20070920a.htm:
The consequences of default may be severe for homeowners, who face the
possibility of foreclosure, the loss of accumulated home equity, and reduced
access to credit. In addition, clusters of foreclosures can lead to declines in the
values of nearby properties and do great damage to neighbourhoods.
See too Elizabeth Warren’s comment in “Unsafe at any rate,” Democracy: a Journal of Ideas
(Summer 2007) at http://www.democracyjournal.org/article.php?ID=6528:
for a growing number of families who are steered into over-priced credit products,
risky subprime mortgages, and misleading insurance plans, trust in a creditor
turns out to be costly. And for families who get tangled up with truly dangerous
financial products, the result can be wiped-out savings, lost homes, higher costs
for car insurance, denial of jobs, troubled marriages, bleak retirements, and
broken lives.
Page 10
Business and Legislation: Regulating the Tanning Industry
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Critical Analysis: Should the government try to protect young people from the dangers of
tanning beds, or should that should the matter be left up to the individual consumer?
What is the role of government in such a context?
Given the inherent dangers of tanning beds—including disease, disfigurement, and death—there
is a strong argument that regulating their use is an appropriate use of government power. As Dr.
Jeffrey C. Salomon (assistant clinical professor of plastic surgery at Yale University School of
Medicine), states: “UV radiation [from tanning beds] damages the DNA in the skin and while it
may take years for that DNA damage to manifest itself as a skin cancer, it is still a preventable
risk, similar to smoking.” Salomon also stated that “[as with] smoking, we have an obligation as
a society to protect our youngest citizens from a known cancer risk by any legal means.” See
Skin Cancer Foundation, “FDA panel weighs new restrictions on tanning beds” (25 March 2010)
at http://www.skincancer.org/news/tanning/FDA-Panel-Weighs-New-Restrictions-on-TanningBeds.
Even the Joint Canadian Tanning Association acknowledges the need for some regulation
and has been requesting provincial standards requiring:
parental consent for tanners under 18
mandatory protective eyewear
correct skin typing for every client
salon operator training and certification
control of equipment by certified operators
barring of customers that are skin type 1 (always burn, never tan)
banning of self-serve tanning equipment
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Note that the Association seeks parental consent for everyone under 18, as opposed to a ban, and
some students may agree that such a limitation is more than adequate. See statement from Steve
Gilroy, “Regulating the Indoor Tanning Industry” (26 April 2012) at
http://www.newswire.ca/en/story/962371/regulating-the-indoor-tanning-industry.
For a news clip concerning the tanning industry and regulation, see the DVD supplement entitled
“Victoria Tanning.”
Page 13
Photo caption: How can parties resolve a business dispute without going to court?
Of course, parties can simply try to talk out an issue and come to an acceptable solution. If this
proves impossible, involving a neutral third party—such as a mediator or an arbitrator—can help
keep a business dispute out of court.
Page 14
Photo caption: This man claimed to have been locked in a car trunk over a debt owed to
his attackers. He was freed from the trunk by firefighters. How is this method of
dispute resolution inconsistent with the values informing the Canadian justice system?
The man in the trunk has presumably been locked in there by people to whom he owes money.
They want him to pay. This method of dispute resolution bears none of the hallmarks of the
Canadian justice system because the process for determining liability and the rules applied to the
dispute are not fair and are not free from bias. There is no third-party judge bringing any
objectivity to the process. The creditors are judge, jury, and executioner. That is, they decide
what the “facts” are, they decide what the “law” is, and they visit a punishment on the debtor.
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V. CHAPTER STUDY
Questions for Review, page 19
1. What is the function of law? Page 5
The function of the law is to protect persons and their property, facilitate interactions, and
provide mechanisms for dispute resolution.
2. How does the law protect members of society? Page 8
The law protects members of society in two ways: first, it sets rules with penalties to encourage
compliance, and second, it seeks to make those who break the law accountable for their
misconduct.
3. How does the law facilitate business activity? Page 10
The law facilitates business activity by establishing rules that govern the marketplace. For
example, the law of contract provides a way for parties to enter into binding agreements, thereby
creating a measure of security and certainty in their business operations.
4. In what ways does law facilitate certainty in the marketplace? Page 10
The law facilitates certainty by providing rules, particularly in the area of contracts, that allow
business enterprises to plan for the future and to enforce their expectations. In short, legal rules
provide definition and context to doing business.