Tài liệu tiếng Anh thương mại quản lý Chapter 17 Contract formation and legal issues

Tài liệu tiếng Anh thương mại quản lý Chapter 17 Contract formation and legal issues

Chapter 17

Contract Formation and

Legal Issues

• Development of Commercial Law

• Basic Legal Considerations

• The Purchase Contract

» Order Cancellation and Breach of Contract

» Liquidated Damages Provision

» Contracts for the International Sale of Goods

» Foreign Corrupt Practices Act

Litigation Prevention

• The best way to deal with legal disputes is

to avoid them in the first place!

• Daily activities of supply managers are

subject to two major areas of the law:

» Law of Agency

– Supply professionals act as agents for their firms

» Law of Contracts

Why Most Business Firms Utilize Litigation Only

Dispute Resolution

• When attempting to resolve a dispute, it

pays to keep in mind six considerations:

• Most disputes are best resolved through

negotiation and compromise

• If negotiation fails, the disputants can

consider mediation

• Mediation involves introducing a

third-party into the discussion

• The mediator’s role is to listen,

sympathize, empathize, coax, cajole and

• Some maintain that if a commercial

dispute reaches litigation, the disputants

regardless of the outcome have

already lost

• In litigation, costs tend to be maximized

» Recall: time, money, formality of method,

stress, visibility, and relationship damage

• Arbitration vests the decision-making

authority with the arbitrator

» Purchase orders often have arbitration clauses

» It is critical to employ an impartial arbitrator

» A good source in the U.S is the American

Arbitration Association

• The arbitrator will hear testimony and

study evidence from both sides, then

make a decision based on the facts

• Litigation may be brought to state or

federal court.

» Lawsuits heard by judge or jury.

» Relevant court rules govern procedure.

» Relevant rules of evidence prescribe what may

or may not be presented.

• Best to avoid destructive legal disputes

whenever possible.

Development of Commercial Law

• National Conference of Commissioners on Uniform State Law (NCCUSL)

» Uniform Sales Act

» Uniform Commercial Code (UCC)

– Determines rights on basis of fairness and reasonableness in light of accepted business practices

– Topics treated throughout the rest of the chapter reflect the provisions of the UCC where applicable,

as well as the provisions of earlier laws not displaced by the code

Basic Legal Considerations

• Status of an Agent

» Agent - a person who, by express or implied agreement,

is authorized to act for someone else in business

dealings with a third party

» A “purchasing agent” is not a legal party to his or hers business transactions, but rather serves as an

intermediary.

» Law requires the agent to be loyal to the employer

» Law permits the employer to hold its purchasing

agent(s) personally liable for any secret advantages

» A buyer operates under two types of authority

– actual authority

Basic Legal Considerations

• The Purchase Contract

Offer and Acceptance

• Purchase order constitutes a legal offer

• Supplier’s quotation usually constitutes

an offer

» Agreement does not exist until the supplier

accepts

– Called a “meeting of the minds”

• Uniform Sales Act law requires

acceptance of an offer in terms that were

identical with the terms of the offer

Battle of the Forms

• Occurs when the terms of acceptance

differ from the terms of the offer

• Terms of Acceptance are automatically

incorporated into the contract, unless one

of three conditions exists:

1.They materially alter the intent of the offer

2.The offerer objects in writing

3.The offer explicitly states that no different

terms will be accepted

• A valid contract must also contain the

element of obligation

• Most purchase contracts are bilateral

• Important point is the “mutuality of

obligation”

• Statements regarding material quantity,

price, delivery, and so on must be specific enough to bind both the buyer’s firm and

the supplier to definable levels of

Legality of Purpose

• A contract whose purpose is illegal is

automatically illegal and void

• A contract whose primary purpose is

legal, but whose ancillary terms is illegal, may be either void or valid

The Written and the Spoken Word

• A contract is not a physical thing

• It is a relationship which exists between the

Letters of Intent

• Letters of Intent and Memorandums of

Understanding – precontracts to cover

informal agreements.

• LOI’s can be used as a planning document

to order materials with long lead times,

special tooling, or unique design work.

• A preliminary agreement with open issues

to be resolved.

Special Legal Considerations

Inspection Rights

• The law gives a reasonable period of time

to inspect material after it is received

• If the buying firm raises no objection to

the material within a reasonable period of time, he or she is deemed to have

accepted it

• Industry practice usually sets the standard for “reasonable” time

» Notification must be sent to the supplier

» The nature of the defect or default must be

specified

» The buying firm is not legally bound to return

Title and Risk of Loss

• From a legal point of view, the question of which party has title to purchased

materials is normally answered by

defining the F.O.B point of purchase

» F.O.B origin shipment: buying firm becomes

owner when the material is loaded into the

carrier’s vehicle

» F.O.B destination: supplier owns the material until it is off-loaded at the buyer’s receiving

dock

Title and Risk of Loss

• Liability for goods not determined by title passing.

• UCC designates Risk of Loss for

conforming goods passes at the FOB

point.

• Risk of Loss for nonconforming goods

does not pass until seller delivers

conforming goods or buyer accepts

• The UCC identifies two specific types of

warranties:

» Implied warranty – one which is read into the

contract as a matter of law.

» Express warranty – a promise or

representation that the goods, services, or

subject matter of the contract will have certain characteristics or qualities.

• The warranties Implied by the UCC:

» Implied Warranty of Good Title

» Implied Warranty of Non-infringement

» Implied Warranty of Merchantability

» Implied Warranty of Fitness for a Particular

Purpose

Order Cancellation and Breach of Contract

• A breach of contract has occurred if a

supplier:

» Fails to deliver by agreed delivery date

» Fails to perform in accordance with the

contract

• The buying firm has the right to cancel

• Buying firm can also sue for damages

• Liquidated damages provisions are

common

Honest Mistakes

• Honest mistakes can happen in drawing

up a contract

• The conditions surrounding each case

weigh heavily in determining whether the

contract is valid or void

• However, a mistake usually must be made

by both parties for the contract to be

voided

Patent Infringement

• The law gives a patent holder the

exclusive right to manufacture, sell, and

use the patented device for a specified

number of years

• A buying firm who engages in any of these activities during the period of patent

protection, without permission from the

patent holder, is guilty of patent

infringement and can be sued for

damages by the patent holder

Restraint of Trade Laws

• Robinson-Patman Act

» Designed to prevent price discrimination that

reduces competition in interstate commerce

• Act prevents a supplier from offering the

same quantity of a specific material to

competing buyers at different prices,

unless:

» One buyer is offered a lower price because his

or her purchases entail lower manufacturing or distribution costs for the supplier

International Considerations

• United Nations’ Convention on Contracts

for the International Sale of Goods (CISG)

» Stipulate in the purchase order or contract

which body of law is acceptable to both buyer and the seller

» Stipulate a mutually acceptable “choice of

forum” at which any lawsuit will be heard

• May want an arbitration clause also

• Created in reply to American public

• Objective was to curtail U.S corporate involvement in

foreign commercial bribery activities

• Enhance the image of the United States

» Anti-bribery issues

» Record-keeping requirements

Concluding Remarks

• The most powerful tool a supply professional has to

avoid legal problems is skill in selecting sound,

reliable suppliers

• A supply manager must understand basic legal

concepts well enough to detect potential problems

before they become realities

• Finally, this chapter presents only basic legal

considerations

» Interpretations of laws may vary significantly

» Supply professionals should seek legal counsel whenever

potential legal problems arise or the opportunity to prevent

END