companies avoid legal liability and exposure. Typically, an ethics code and/or a code of conduct details a
company’s requirements and guidelines, while also serving as a key corporate governance tool.
In addition to business ethics, companies must also consider their social responsibility and the laws related to
it, such as consumer and investor protections, environmental ethics, marketing ethics, and ethical issues in
financial management.
Business and the United States Constitution
Since the start of the 20th century, broad interpretations of the Constitution’s Commerce and Spending
Clauses have expanded the reach of federal law into many areas. Indeed, its reach in some areas is now so
broad that it preempts virtually all state law. Thus, the Constitution’s Commerce Clause has been interpreted
to allow federal lawmaking and enforcement that applies to many aspects of business activity. Additionally, the
Constitution’s Bill of Rights extends some protections to business entities that are also constitutionally
guaranteed to individuals
For example, on January 21, 2010, in Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), the
U.S. Supreme Court heard the issue of whether the government can ban political spending by corporations in
candidate elections. The Court ruled that corporations have the same Constitutional right to free speech as
individuals, and thus lifted the restrictions on contributions.
Criminal Liability
The imposition of criminal liability is one method used to regulate companies. The extent of corporate liability
found in an offensive act determines whether a company will be held liable for the acts and omissions of its
employees. Criminal consequences may include penalties, such as prison, fines and/or community service. In
addition to criminal liability, civil law remedies are usually available, e.g., the award of damages and
injunctions, which may include penalties. Most jurisdictions apply both criminal and civil systems.
Torts
Within the business law context, torts may involve either intentional torts or negligence. Additionally,
companies involved in certain industries should consider the risk of product liability. Product liability involves a
legal action against a company by a consumer for a defective product that caused loss or harm to the
customer. There are several theories regarding recovery under product liability. These include contract
theories that deal with the product warranty, which details the promises of the nature of the product sold to
customers. The contract product warranty theories are Express Warranty, Implied Warranty of Merchantability,
and Implied Warranty of Fitness. Tort theories deal with a consumer claim that the company was negligent,
and therefore caused either bodily harm, emotional harm, or monetary loss to the plaintiff. The tort liability
theories that can be used in this context are negligence (failure to take proper care in something), strict
liability (imposition of liability without a finding of fault), and acts committed under Restatement (Third) of
Torts (basic elements of the tort action for liability for accidental personal injury and property damage, as well
as liability for emotional harm).
Contracts
The main function of a contract is to document promises that are enforceable by law. The key to an agreement
Chapter 1 American Law, Legal Reasoning, and the Legal System
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