ISQA 439/539

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ISQA 439/539

• Legal Issues
• Ethics

2
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

3
Legal Issues in Purchasing

• Uniform Commercial Code
• 49 0f 50 States
• Section 2 Law of Sales
• Section 2A Law of Leases
• Key Provisions
• Definitions
• Remedies

4
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

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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

6
Contract Issues

• Mistakes
• Bilateral
• Unilateral
• Modification
• Force-Majeure

7
Electronic Transactions

• By Themselves,
• Email NOT Satisfactory for In Writing Provision
• EDI Also Not Satisfactory
• BUT Buyer and Supplier Can Form Separate
  Agreement
• Recognize Each Others
• Email
• EDI Transmittals
• Other Computer Order Releases (Automated)
• Trading Partner Agreements

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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

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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
  sellers disposition

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Rejection of Goods

• CAN NOT just rework and backcharge without
  sellers concurrence
• Must follow reasonable instructions from seller
  for disposition
• After reasonable time, may sell and recover
  expensed, returning balance to seller

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Battle of the Forms

• UCC 2-207
• Conflicting terms
• Different, non-conflicting terms
• Materially altering terms
• Terms limiting to just those included

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Buyers 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

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Sellers 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

14
Sellers Remedies for Breach of Contract

• Incidental Damages 2-710
• Reasonable Charges, Expenses
• Transportation
• Care and Custody
• Return Costs

15
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

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Warranties

• Warranties Can Be Modified By Course of Dealing
• Remedies Can Be Limited By Contract

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FOB and INCO Terms

• Older Version of UCC
• FOB
• FAS
• CIF
• CF
• Latest Edition All Removed
• INCO Terms to Apply

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UN Convention on Contracts for International Sale
of Goods

• Similar Objectives to Uniform Commercial Code
• Similar to UCC in Function
• Five Significant Differences

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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 Countrys Laws

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Conclusions

• Intent is to STAY OUT OF TROUBLE
• Clear, Concise Communication
• Frequent Communication
• Careful Record-keeping
• Understand Rights and Obligations Under the Law

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Ethics

• More than Gifts and Gratuities
• Cialdinis Influence
• Appearances

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Unethical Sales Practices

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

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Unethical Purchasing Practices

• Shopping Bids
• Shopping Ideas
• Samples
• Favoritism
• Payment Terms
• Contract Quantities
• Conflict of Interest
• International Ethics Issues
• Cultural Issues
• Reciprocity

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Foreign Corrupt Practices Act

• Illegal to Make Payments Influencing Purchase
  Decisions
• Exempts Processing Payments
• Accounting Requirements
• Applies to ALL Publicly Traded Companies

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Purchasing and Back Door Selling

• Definition
• Why it Happens
• Remedies

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Ethical Guidelines

• ISM Ethical Standards
• Policies and Procedures
• Ts and Cs
• Annual Supplier Letter
• Business vs. Social Relationships
• Defining Some

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