Legal Issues

January 19, 2011 Staff

Purchasing law has been primarily developed from laws regarding contracts. In order for a contract to be valid, four conditions must be present: 1) Parties with full contractual capacity should willfully and in the absence of fraudulent activity have signed the contract; 2) the underlying purpose for the agreement must be legal; 3) all conditions regarding the offer and acceptance of the contract must be met; 4) the contract should have an element of mutual obligation; that is both parties must agree to do something they otherwise would not be required to do.

Another topical area of commercial law that is relevant to purchasing professionals has to do with laws regarding agency. The laws regarding agency outline the types of authority that an agent possesses in performing duties for the principal. An agent is a person, who, by express or implied agreement is authorized to act for someone else in business dealings with a third party. This is precisely what purchasing managers and buyers do. By law, a buyer operates under two types of authority – actual authority and apparent authority. Apparent authority is that level of authority perceived by outside parties to be available to the purchasing manager. The concepts of actual and apparent authority are important in terms of a buyer’s legal liability. If a purchasing manager, in carrying out normal procurement activities, exceeds his or her actual authority but not apparent authority, then the employer is still responsible for performance of the contract but could seek legal action against the purchasing manager personally. If, on the other hand, the agent exceeds both his or her actual and apparent authority, a seller cannot usually hold the buying firm liable but may be able to hold the agent personally liable for his actions.

Source: Monczka, R., Trent, R., & Handfield, R. (1998). Purchasing and Supply Chain Management. Cincinnati, OH: South Western College Publishing.

Dobler, D.W., & Burt, D.N. (1996). Purchasing and Supply Management. (6th ed.). New York: McGraw Hill.