1 Foundations of Business Law and Legal Reasoning

Sources of U.S. law

U.S. law comes from several sources. Constitutions establish government powers and protect rights. Statutes are laws enacted by legislatures, while regulations are rules issued by government agencies under authority delegated by statutes. Judicial decisions, also called case law, interpret and apply constitutions, statutes, regulations, and common-law principles. Court rules govern procedure, and local ordinances may govern matters within a city or county.

Federal and state law

The United States has federal and state governments, each with its own laws and courts. The Supremacy Clause makes the U.S. Constitution, valid federal statutes, and treaties supreme over conflicting state law. However, federal law governs only within its constitutional and statutory authority. Many business disputes, including most contract and personal-injury cases, are heard in state courts.

Primary authority includes constitutions, statutes, regulations, and court decisions. Secondary authority, such as legal encyclopedias, treatises, and law-review articles, explains or analyzes the law but generally does not itself bind a court. Check that any authority is current and applies in the relevant jurisdiction.

Courts and jurisdiction

A court must have Jurisdiction to hear a case. Federal courts have limited jurisdiction and commonly hear cases involving federal law or qualifying disputes between citizens of different states. State courts hear most other disputes and generally have broader jurisdiction. The precise rules depend on the governing law and facts.

Both systems commonly include trial and appellate courts. Trial courts determine facts and apply law. Appellate courts review claimed legal or procedural errors; they ordinarily do not retry a case or receive new evidence. In the federal system, U.S. district courts are trial courts, courts of appeals review most district-court decisions, and the U.S. Supreme Court is the highest court. State court structures and names vary.

Precedent and judicial decisions

Precedent is a prior judicial decision used to resolve a later case with a similar legal issue. Under stare decisis, courts generally follow applicable precedent to promote consistency and predictability.

A decision is binding when it comes from a court whose rulings the deciding court must follow. For example, a federal court of appeals generally binds lower federal courts within its circuit. A decision from another jurisdiction may be persuasive but is not necessarily binding.

When reading an opinion, identify its Holding, the rule or conclusion necessary to decide the case. Distinguish the holding from dicta: comments not necessary to the decision that may be persuasive but generally are not binding precedent. Compare the earlier case’s material facts and issue with the present problem; precedent may not control if the relevant facts or legal question differ.

Interpreting statutes

Courts interpreting statutes typically begin with the enacted text, considering the words’ ordinary meaning in context. They read a provision alongside the rest of the statute and related laws. If uncertainty remains, courts may consider statutory structure, established canons of construction, the law’s purpose, and—depending on the court and interpretive approach—legislative history. No single tool automatically resolves every ambiguity, and the weight given to each can vary.

For example, suppose a city ordinance prohibits “vehicles” in a public park but does not define the word. A court might examine the ordinance’s full text, related provisions, and the context of the restriction to decide whether an electric scooter is covered. The court should explain how the relevant language applies rather than relying only on a preferred policy outcome.

Analyzing and arguing a legal problem

IRAC is a practical method for analyzing a legal problem:

1. Issue: State the focused legal question.

2. Rule: Identify the governing statute, regulation, precedent, or legal test.

3. Application: Compare each element of the rule with the facts. Address facts that support and weaken each side, and note important uncertainties.

4. Conclusion: Give a reasoned, appropriately qualified answer.

For the electric-scooter example, the issue is whether the ordinance covers an electric scooter. The rule is that the ordinance bars vehicles, interpreted according to its text and context. In applying the rule, a scooter transports a person, but the ordinance’s examples or purpose may indicate a narrower meaning. The conclusion is that coverage depends on the ordinance’s wording and controlling local decisions.

Strong legal argument connects authority to facts. It identifies the jurisdiction and whether the authority is binding, states the rule fairly, applies the rule step by step, responds to the opposing interpretation, and avoids claiming more certainty than the law supports. Keep separate what the law requires and what a party thinks the law should be.