Chapter 5: Sources of Law

There are numerous sources of law, including constitutions, legislatures, executives, judiciaries, administrative agencies, and international organizations.
5.1      Constitutions
The United States is governed by the US Constitution, which was ratified in 1789. Each of its constituent states also has its own constitution.[1] The Constitution is the fundamental law of the country; according to Article VI, Clause 2 of the Constitution, the Constitution (and federal statutes and other federal laws made in furtherance of the Constitution) is “the supreme Law of the Land.”
How is the Constitution structured? The Constitution is divided into seven articles followed by amendments. Articles I through III establish the legislative, executive, and judicial branches of the federal government, respectively. Article IV covers the relationship between the states and the federal government. Article V outlines the method by which the Constitution may be amended. Article VI deals with several unrelated matters including the well known Supremacy Clause. Article VII, the final article, discusses the procedures used in ratifying the Constitution. After the seven articles, there are twenty-seven amendments, including the Bill of Rights, which are the first ten amendments.
You may review the Constitution here. And the various state constitutions are available here.
The Constitution is a source of law in at least three ways. First, it is a source of law in and of itself; after all, it’s the Constitution, “the supreme Law of the Land.” Second, the Constitution is a source of law because it creates and allocates power between the legislative, executive, and judicial branches of the federal government, which are other sources of law. And third, the Constitution is a source of law because it allocates power between the federal government and the states. In chapter 11 we will discuss in more detail each of these ways in which the Constitution is a source of law; at that time, we will also analyze various clauses in the articles and amendments and discuss the many ways constitutional law issues affect business organizations.
5.2     Legislatures
The United States and each of the states has its own legislature. The federal legislature derives its powers from Article I of the Constitution. The federal legislature is called the US Congress and is composed of two chambers—the House of Representatives and the Senate. The House of Representatives has 435 members[2], each of whom represents a congressional district and is elected to a two year term. Representatives are apportioned throughout the United States by population; consequently, more populous states have more representatives than less populous states. In fact, there are seven states with only one representative—Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont, and Wyoming. The Senate has 100 members, two members from each state. Senators are elected to six year terms. Originally, the Senate was considered to represent the states, and its members were appointed by the governors directly, while the House was meant to represent the people and its members were elected. That distinction has largely disappeared since every state now holds direct elections for its Senators as well as its Representatives.
The federal legislature is a source of law because it enacts statutes or statutory law. A statute is a law passed by a legislature; and statutory law is the body of law resulting from statutes. A statute—or the statutory law—may also be referred to as legislation. An example of a federal statute is the Occupational Safety and Health Act of 1970 (OSH Act). Congress enacted the OSH Act to support its mission of assuring safe and healthful working conditions for working men and women.
You may access the federal statutes—called the United States Code (USC)—here.
Forty-nine of the fifty states also have legislatures with two chambers—a lower chamber called an Assembly, House of Delegates, or House of Representatives, and an upper chamber called a Senate. Nebraska is the only state to have only one chamber, which is the Nebraska Unicameral Legislature. Like their federal counterpart, the various state legislatures typically receive their power and direction from a state constitution. We will learn in chapter 20 that much of the law regarding business entities—for example, the laws of corporations, partnerships, and limited liability companies—is state statutory law.
The various state codes are available here.
5.3     Executives
The highest officer of the federal executive branch is the President. The President derives his powers from Article II of the Constitution. The President is a source of law because he can sign or veto bills passed by the federal legislature (i.e., Congress), issue executive orders, and make treaties. Executive orders are binding edicts issued by the President for the purpose of interpreting or implementing a provision of the federal laws or policies; they are usually directed to a federal administrative agency and its officials. For example, in January 2008 President George W. Bush issued Executive Order (EO) 13457, “Protecting American Taxpayers from Government Spending on Wasteful Earmarks.” It provided in relevant part that “[f]or appropriations laws and other legislation enacted after the date of this order, executive agencies should not commit, obligate, or expend funds on the basis of earmarks included in any non-statutory source . . . .”
You may review the Executive Orders issued since 1937 here.
Treaties are agreements between the United States and one or more other countries. Under Article II, Section 2 of the Constitution, the President has authority to make treaties, with the “advice and consent” of the Senate. An example of a treaty is the Vienna Convention on Consular Relations (Vienna Convention), which the United States ratified with the advice and consent of the Senate in 1969. According to the terms of the Vienna Convention, one of its functions is “furthering the development of commercial, economic, cultural and scientific relations” between member countries and “otherwise promoting friendly relations between them.” At that time, the United States also ratified a related, second treaty, the Optional Protocol Concerning the Compulsory Settlement of Disputes to the Vienna Convention (Optional Protocol).
The Optional Protocol is a helpful treaty to discuss for two reasons. First, the United States withdrew from the Optional Protocol in 2005. Thus, it illustrates that a country may withdraw from a treaty if the treaty no longer serves the country’s interests. Second, the US Supreme Court ruled recently that the Optional Protocol is “non-self-executing”; this means that the even though the treaty may constitute an international law obligation on the part of the United States, it is not by itself a federal law enforceable in the United States.[3] A non-self-executing treaty creates binding federal law only if Congress implements the treaty through legislation. A “self-executing” treaty, on the other hand, is a federal law enforceable in the United States automatically upon ratification; it is equivalent to an act of the legislature. Whether a treaty is self-executing or non-self-executing depends on the language of the treaty.
Each of the states also has an executive—that is, a governor. Governors have similar powers and duties in their state governments as the President does in the federal government.
5.4     Judiciaries
The judiciaries are the courts. A court is a governmental body of one or more judges who preside over cases and resolve disputes by issuing judgments. In the United States, there is a dual court system. There is a federal court system and each state (and territory) has its own court system. The federal courts, including the US Supreme Court, derive their powers from Article III of the Constitution. We will learn the structure of the federal and state court systems in chapters 6 and 7, respectively.
The courts are a source of law for two reasons. First, courts may engage in judicial review. Judicial review is the power of a court to decide on the constitutionality of a statute or other governmental action; US Supreme Court Chief Justice John Marshall stated in 1803 that “[i]t is emphatically the province and duty of the Judicial Department to say what the law is.”[4] Second, courts make law when they resolve disputes by deciding cases. This judge-made law—called common law—is the body of law resulting from cases. The common law in the United States is a holdover from the English common law, which originated during the Anglo-Saxon period in England and developed further after the Norman conquest of England by William the Conqueror and his troops in 1066. In the mid- to late 12th century, William’s great-grandson Henry II constructed a unified court system that was “common” to England. He brought local custom (including some that predated the Norman conquest) to the national level, put an end to local control, and reinstated the citizen jury system. In addition, judges began to travel “circuits” around the country, taking a common system of law with them, and eventually issuing written decisions.
A discussion of judicial review and the common law leads to the concepts of precedent and stare decisis. When a case is decided, the decision is thereafter a precedent, that is, a reason for deciding a similar case the same way. There are two types of precedent—binding and persuasive. Binding precedent is precedent that must be applied or followed by a court. It applies when a lower court is considering a case similar to a case previously decided by higher court in its jurisdiction. For example, a South Carolina Circuit Court is bound by a decision of the South Carolina Supreme Court, the highest court in the state. Persuasive precedent, on the other hand, is precedent that is not binding on a court, but may be relevant and used when considering a case. For example, a South Carolina Circuit Court is not bound by a decision of the Georgia Supreme Court, but may take it into consideration when deciding a similar case. Stare decisis is the practice or policy of using precedent to decide cases; it means “let the decision stand.” Someone who supports stare decisis believes that courts should look to past cases to decide present controversies. US Supreme Court Justice Kennedy stated in a 2010 landmark case that “[the US Supreme Court’s] precedent is to be respected unless the most convincing of reasons demonstrates that adherence to it puts us on a course that is sure error.”[5] This is consistent with the Court’s long held view that “stare decisis is a principle of policy and not a mechanical formula of adherence to the latest decision.”[6]
5.5     Administrative Agencies
Administrative agencies exist at the federal, state, and local levels of government; they may be referred to by a number of names, including agencies, boards, bureaus, commissions, departments, and services. Administrative agencies are governmental bodies usually created by a legislature to administer a specific statute or other law. This is because legislatures cannot possibly oversee the day-to-day demands of all of the laws that they pass; and legislatures often do not have the expertise even to do so. Therefore, legislatures delegate oversight responsibility to administrative agencies; they do this by way of an enabling statute, which is a statute that sets forth an agency’s powers and duties. Administrative agencies are not a branch of government created by the Constitution, although sometimes it seems so because of their long reach into the business environment.
Administrative agencies are a source of law because they enact, enforce, and adjudicate violations of rules and regulations. A rule is an agency statement that: (1) describes the agency’s organization, procedure, or practice requirements; (2) interprets a policy, statute, or other law; or (3) implements a statute or other law. Consequently, there are three types of agency rules—procedural, interpretive, and substantive. Substantive rules are commonly referred to as regulations. Regulations are the rules where an agency adds detail, expertise, or standards to a statute passed by Congress and delegated to the agency.
The following is a specific example of how the enabling statute process works. Earlier in this chapter, we learned that Congress enacted the OSH Act to support its mission of assuring safe and healthful working conditions for working men and women. As part of the statute, Congress created the Occupational Safety and Health Administration, a federal agency known simply as “OSHA.” Congress delegated to OSHA the authority to enact, enforce, and adjudicate violations of rules and regulations that OSHA deems necessary to fulfill Congress’s intent. We will learn more about administrative law in chapter 12.
5.6     International Organizations
International organizations may also be a source of law. The most recognizable international organization is the International Court of Justice (ICJ). The ICJ is the judicial branch of the United Nations (UN) and is sometimes referred to as the “World Court.” The ICJ was established in June 1945 and is located in The Hague (Netherlands). The ICJ is composed of 15 judges, who are elected for terms of office of nine years by the UN General Assembly and Security Council. Its official languages are English and French.
The ICJ hears legal disputes submitted to it by member countries and gives advisory opinions on legal questions referred to it by authorized UN organizations and specialized agencies. But only countries, not persons, may seek ICJ decisions. In addition, the ICJ does not have the authority to enforce its decisions. As a result, the ICJ receives very few disputes from member countries. In fact, the United States withdrew from compulsory jurisdiction in 1986, and therefore accepts the ICJ’s jurisdiction only on a case-by-case basis. Moreover, the UN Charter does not provide that the United States “shall” or “must” comply with an ICJ decision; the US Supreme Court recently ruled that ICJ decisions are not automatically enforceable in US courts and that an aggrieved country’s sole remedy for noncompliance is referral to the UN Security Council, where the United States retains the unqualified right to veto any resolution.[7]
Other international organizations include regional trade communities. The European Union (EU) is an economic and political partnership between 27 democratic European countries. The EU countries have set up bodies to run the EU and adopt its legislation. These bodies are the European Parliament (representing the people of Europe), the Council of the European Union (representing national governments), and the European Commission (representing the common EU interest). To date, the EU’s main legislation has been in the areas of frontier-free travel and trade and in establishing the euro (the single European currency).
The North American Free Trade Agreement (NAFTA) is also a regional trade community. It is a trilateral partnership between the United States, Canada, and Mexico, who desired to form a “free trade area” consistent with the provisions of the General Agreement on Tariffs and Trade (GATT). Two main objectives of NAFTA are eliminating trade barriers and facilitating the cross-border movement of goods and services, and promoting fair competition and increased investment opportunities between the member countries. We will learn more about international law in chapter 13.

[1] Several of the unincorporated territories of the United States, including Puerto Rico, Guam, the Northern Mariana Islands, the US Virgin Islands, and American Samoa, each have either a Constitution of their own or an Organic Act that serves the same function and establishes separate executive, legislative, and judicial divisions of government. Similarly, most Indian reservations, which enjoy sovereignty in some areas of law, have their own constitutions or similar organizing documents.
[2] That number has varied over the course of the nation’s history but was fixed at 435 by law under the Apportionment Act of 1911, Pub. L. 62-5, 37 Stat. 13.
[3] Medellín v. Texas, 552 U.S. 491 (2008).
[4] Marbury v. Madison, 5 U.S. 137 (1803).
[6] Helvering v. Hallock, 309 U.S. 106, 119 (1940).
[7] Medellín v. Texas, 552 U.S. 491 (2008).