Leagal Aspects

Since the purchase or the stores in charges frequently handle outside agencies, it is very necessary for them to know the implications that their actions may have and the laws that govern them. Here, we shall not be taking up the Factory Act, Patents, Trade Marks, MRTP or the Company Act as their relevance for materials managers is to a much lesser extent. The executive must not only know his own rights and the implications of his actions but should also know that of his suppliers. 

The laws that have a direct effect on a purchase executive are the law of agency, the law of contract, the law of sale of goods, and the laws pertaining to negotiable instruments, arbitration, sales tax, customs, and central excise. 

Law of Agency 

The concept of agency gives the details of the relationship between the firm, its representative or the executive and the outside agencies like the vendors etc. Just as the firm expects unequivocal loyalty from the executive, it reciprocates by supporting his actions. 

The procurement contracts are negotiated and signed by the executive on behalf of the company. Thus, the executive is an agent whose actions are binding on the company who happen to be his principals. 

The Law of Agency details the relationship that exists between the principal and its agent. The principal enters into contracts with outsiders through the agent. This contract between the agent and the principal can be made verbally or.in writing is called the Power of Attorney. 

The duties of an agent or Power of Attorney include the following : 

• To execute the mandate as given by the principal, 
• To follow instructed or accepted customs, 
• To act with reasonable care and skill expected of a man of average prudence, 
• To avoid conflict of interest with principal, 
• To remit money wherever earned by him to the principal, and 
• Not to sub-delegate without Principal's authorisation. 

No consideration is necessary to create an agency. The fact that the principal has agreed to be represented by the agent is sufficient determinant to the principal to the contract of the agency. The purchasing executive will be liable for any loss which his firm may sustain, if he acts beyond the scope of authority given to him. Normally, in any organisation, these powers are given as authority to procure items upto certain limits in terms of value.