Yes, Teasle did say not to shoot that they wanted Rambo alive, however, as the highest ranking officer in charge of Gault and the other officers Teasle is responsible for his underlings failures. Typically you see a police chief or an officers immediate supervisor resign after they've been convicted of a crime. (This provides an incentive to cover the crime up, if they don't their own ability to be promoted is damaged by the actions of their subordinate, whose actions reflect on their ability to lead.)

You are legally allowed to defend yourself against a unlawful or improper arrest, however, due to the danger in it, and the fact that it takes proof that the arrest was unlawful, it's generally accepted that you let the arrest take place, then immediately sue for your release and reparations for the unlawful arrest. What amount of force is "acceptable" in preventing a false arrest is debated. Whether not giving your name, ID or any identifying information, or just refusing to answer or move without being physically dragged etc.