ISQA 439/539

Legal Issues

Ethics

Legal Issues in Purchasing Agency: Definition

One who is legally empowered to act for another. An agent has the legal authority to bind his or her

principal to a contract. Duties

Loyalty Obedience Reasonable Care Accounting Information

Actual and Apparent Authority

Legal Issues in PurchasingUniform Commercial Code

49 0f 50 States Section 2: Law of Sales Section 2A: Law of Leases

Key Provisions Definitions Remedies

Contract Formation Offer Acceptance Consideration Competent Parties For Legal Purpose

Sales Authority Battle of the Forms and UCC 2-207 Oral and Written Contracts

UCC 2-201 Now $5,000

Contract Formation Contracts Formed By Any Means That Shows

Agreement 2-204 Firm Offers 2-205

Irrevocable to stated term or max 3 months Acceptance of Offer 2-206

In form required If no requirement, any reasonable manner By performance

Silence CAN NOT CONSTITUTE ACCEPTANCE

Contract IssuesMistakes

Bilateral Unilateral

ModificationForce-Majeure

Electronic Transactions By Themselves,

Email NOT Satisfactory for “In Writing” Provision EDI Also Not Satisfactory

Verifiable Signature Documents BUT… Buyer and Supplier Can Form Separate

Agreement Recognize Each Other’s

Email EDI Transmittals Other Computer Order Releases (Automated)

Trading Partner Agreements

Acceptance of Goods Right of Inspection 2-513 Acceptance of Goods 2-606

Notification to seller that goods are conforming, or willing to accept in spite of non-conformity

Buyer fails to inspect in reasonable time Revocation of Acceptance 2-608

Supplier fails to cure defects Discovery of latent defects Must occur within reasonable time after discovery

Rejection of Goods Improper Delivery 2-601

Reject the whole, Accept the whole Accept part, reject rest

Rejection 2-602, 3, 4 Reasonable time Notify seller in reasonable time Hold rejected goods with reasonable care

for seller’s disposition

Rejection of GoodsCAN NOT just rework and backcharge

without seller’s concurrenceMust follow reasonable instructions

from seller for dispositionAfter reasonable time, may sell and

recover expensed, returning balance to seller

Battle of the FormsUCC 2-207

Conflicting terms Different, non-conflicting terms Materially altering terms Terms limiting to just those included

Buyer’s Remedies for Breach of Contract

Contract Assignment 2-210 Incidental and Consequential Damages 2-715 Cost to “cover” 2-712 Liquidated Damages 2-718 Anticipatory Repudiation 2-610 Deduction of Damages From Price 2-717

Notify Supplier of Intention to Do So Must be Deduction From Same Contract

Seller’s Remedies for Breach of Contract

If Buyer: Wrongfully Rejects Wrongfully Revokes Acceptance Fails To Pay Repudiates Agreement

In General 2-703 Withhold Delivery Stop Delivery Resell and Recover Damages Recover Damages for Non-Acceptance Cancel

Seller’s Remedies for Breach of Contract

Seller’s Incidental Damages 2-710 Reasonable Charges, Expenses Transportation Care and Custody Return Costs

Warranties Aside From Manufacturer Warranties Express Warranties 2-313 Implied Warranties

Title 2-312 Merchantability 2-314 Fitness for Particular Purpose 2-315

Exclusion or Modification 2-316 Conspicuous Writing As Is, Where Is, With All Faults If Inspection Should Disclose Defects OR If Inspection Is Declined, NO IMPLIED WARRANTY

WarrantiesWarranties Can Be Modified By Course

of DealingRemedies Can Be Limited By Contract

FOB and INCO TermsOlder Version of UCC

FOB FAS CIF C&F

Latest Edition: All Removed INCO Terms to Apply

UN Convention on Contracts for International Sale of GoodsSimilar Objectives to Uniform

Commercial CodeSimilar to UCC in FunctionFive Significant Differences

UN Convention on Contracts for International Sale of Goods Five Significant Differences

Acceptance of Offer: Mirror Image or No Contract Contract Price: No Contract Without Firm Price Revocation of Offer: May Be Revoked At Any

Time Prior to Acceptance Formation of Contract: At Time of Acceptance Oral Contracts: Valid and Enforceable

CISG May be Preferable to Another Country’s Laws

Foreign Corrupt Practices Act

Illegal to Make Payments Influencing Purchase Decisions

From Lockheed ScandalApplies to ALL Publicly Traded Firms

Even if No International BusinessAccounting for Disposal of All AssetsExempts “Processing Payments”

Sarbanes Oxley Compliance "adequate internal control structures and

procedures for financial reporting." Document Everything

Bids, Awards Purchase Approvals

Assure Compliance With Policies and Procedures Contracts and Corporate Agreements

Assess and Mitigate Risk In Supply Chains In Business Processes

Conclusions Intent is to STAY OUT OF TROUBLEClear, Concise CommunicationFrequent CommunicationCareful Record-keepingUnderstand Rights and Obligations

Under the Law

EthicsMore than Gifts and Gratuities

Cialdini’s Influence Appearances

Unethical Sales Practices Commercial Bribery False Shortages False Price Breaks Market Allocation False Delivery Promises Quotation vs. Invoice False Representation Counterfeit

Unethical Purchasing Practices

Shopping Bids Shopping Ideas Samples Favoritism Payment Terms Contract Quantities Conflict of InterestInternational Ethics Issues

Cultural Issues Reciprocity

Purchasing and Back Door Selling

Definition

Why it Happens

Remedies

Ethical Guidelines ISM Ethical Standards Policies and Procedures T’s and C’s Annual Supplier Letter Business vs. Social Relationships Defining “Some”