Chapter 15 Purchasing Law and Ethics
15.1 Introduction
Contract law essentially determines the nature of agreements that are enforceable and create legal
rights between the parties.
Agency law deals with the role of managers as individual representatives acting on behalf of their
organization.
15.2 Legal Authority and Personal Liability of the Purchasing
Manager
15.2a Laws of Agency
The laws regarding agency are concerned with governing the relationship of principals and agents.
Agents: a person or entity who has been authorized to act on behalf of some other person
or entity.
Principal: the corresponding person or entity for whom agents carry out their authority.
The purchasing agent is a general agent with broad authority to change prices, terms, and
conditions.
15.2b Legal Authority
A general agent role merely implies that the guidelines provided by the employer for this individual
are quite broad and general in nature.
From a legal perspective, purchasing managers have a fiduciary obligation to act in the best interests
of their employer.
15.2c Personal Liability
Actual or express authority stems from the instructions and granting of authority to the purchasing
manager via the job description provided by the employer.
Apparent authority is that level of authority perceived by the seller to be available to the purchasing
manager. The scope of authority possessed by other purchasing managers with similar positions in
other organizations within the same industry.
Implied authority is when a non-agent such as a maintenance supervisor, engineer, or finance
analyst makes a commitment with a supplier.
Areas of activity for the purchasing manager that could lead to personal liability:
- Deception for personal gain while acting as an agent for the principal firm (including taking
bribes).
- Violating the lawful protection of items owned by others, such as patent infringement.
- Misusing proprietary information.
- Violation of antitrust laws.
- Unlawful transportation of hazardous materials and toxic waste.
These activities are related to another important aspect of purchasing law: ethical behavior.
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15.1 Introduction
Contract law essentially determines the nature of agreements that are enforceable and create legal
rights between the parties.
Agency law deals with the role of managers as individual representatives acting on behalf of their
organization.
15.2 Legal Authority and Personal Liability of the Purchasing
Manager
15.2a Laws of Agency
The laws regarding agency are concerned with governing the relationship of principals and agents.
Agents: a person or entity who has been authorized to act on behalf of some other person
or entity.
Principal: the corresponding person or entity for whom agents carry out their authority.
The purchasing agent is a general agent with broad authority to change prices, terms, and
conditions.
15.2b Legal Authority
A general agent role merely implies that the guidelines provided by the employer for this individual
are quite broad and general in nature.
From a legal perspective, purchasing managers have a fiduciary obligation to act in the best interests
of their employer.
15.2c Personal Liability
Actual or express authority stems from the instructions and granting of authority to the purchasing
manager via the job description provided by the employer.
Apparent authority is that level of authority perceived by the seller to be available to the purchasing
manager. The scope of authority possessed by other purchasing managers with similar positions in
other organizations within the same industry.
Implied authority is when a non-agent such as a maintenance supervisor, engineer, or finance
analyst makes a commitment with a supplier.
Areas of activity for the purchasing manager that could lead to personal liability:
- Deception for personal gain while acting as an agent for the principal firm (including taking
bribes).
- Violating the lawful protection of items owned by others, such as patent infringement.
- Misusing proprietary information.
- Violation of antitrust laws.
- Unlawful transportation of hazardous materials and toxic waste.
These activities are related to another important aspect of purchasing law: ethical behavior.
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