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MATERIAL MANAGEMENT &LOGISTICS

LEGAL ASPECTS OF BUYING

BY S.MOHAMED FAYAS 2010606109

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INTRODUCTION

supplier Raw Material s input $ This is Business!!


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consumer s Process/ Manufacture Goods output $$$$


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INTEGRAL ASPECTS OF MATERIAL MANAGEMENT

Purchasing and procurement Production control Inbound traffic and transportation Warehousing and storage Management information system (MIS) control Inventory planning and control Salvage and scrap disposal

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LEGAL ASPECTS
As a Purchase Manager one should have awareness of the law on 1. Agency 2. Contract 3. Sale of good act 4. Carriage of goods 5.Power of attorney

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NEED
Purchase is the legal act viewed from the act of buyer and sale is the act viewed from the point of the seller. Both have the basis on contracts.Each transaction of purchase invokes the provisions of several regulations. The transactions should not be illegal or opposed to the public policy of the country

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KEY FACTORS
1.No materials can be purchased without duly authorised purchase requisition. 2.The purchase order contains the following aspects: i.Date of purchase order with reference number ii.Suppliers name iii.Complete address iv.consignees name &address.

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KEY FACTORS
3.A set of terms &conditions ,is usually printed on the back of the order ,but this should be indicated on the order. 4.Description of the quality,specifications,brand name&code number. 5.Quantity with the pricing unit. 6.The reference number &date of suppliers quotation.

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KEY FACTORS
7.Price terms,unit price,discount,sales tax&other taxes 8.Reference number & date of supplier quotations. 9.Total value of purchase order including breakdown 10.Packing size &packing charges 11.Detailed shipping instruction on the method of dispatch,name of port/airport/railway station.

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KEY FACTORS
12.Insurance details such as name of the insurance company if the supplier arranges or to be arranged by buyer. 13.Method of payment. 14.Loading&unloading mechanism. 15.List of recommended spares

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BID EVALUATION CRITERIA


Bid evaluation is an important prerequisite before purchase order placing. The analysis of the investment and return on major equipment has slightly different ingredients from regularly purchased items Technical engineer with the buyer should evaluate the bids of all aspects.

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BID EVALUATION :11 PHASES


1.Pre-select vendors. 2.Prepare detaoled inquiry. 3.Receive bids. 4.Make preliminary evaluation. 5.Make technical evaluation. 6.Make commercial evaluation(both are done simultaneousl) 7.Conduct pre-award meetings. 8.Condition bids by service factors. 9.Select prospective vendors. 10.Conduct pre-committee meetings& 11.Award the order to lowest responsible bitter.

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LEGAL ASPECTS
As a Purchase Manager one should have awareness of the law on 1. Agency. 2. Contract. 3. Sale of good act . 4. Carriage of goods. 5.Power of attorney. 6.Arbitration.

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LAW OF AGENCY
INTRODUCTION:
When people do business, they often deal with each other directly Buyer Seller However, sometimes they deal with each other using a middleman (or representative or intermediary) Buyer Middleman Seller The legal relationship between the middleman and the businessperson is governed by the law of agency

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INTRODUCTION
The legal term for a middleman or representative is an agent The person who is represented by the agent is called the principal Therefore, in our example Buyer Middleman Seller If the middleman represents the buyer Principal Agent Seller

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DEFINITION
An agent is a person who is authorised to represent another person, who is called the principal. The agent creates a legal relationship between the principal and a third party. The agent does not usually get any rights or responsibilities under the contract Therefore, it is the principal who must have the capacity to contract and not the agent

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The Principal-Agent Relationship

Principal Principals obligation to perform the contract Agency Contract

Agent Contract with third party on behalf of principal


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Third Party

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AGENT POWERS
To enter into a binding contract with a third party. To buy goods. To hire. To sell goods or property.& To agree contractual terms.

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DUTIES OF AGENT TO THE PRINCIPAL


To obey instructions To exercise care and skill . To avoid conflict of interest . Not to make a secret profit . No bribes! Account for actions
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TERMINATION OF THE AGGREMENT


Frustration . Death! Insanity!

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KINDS OF EMPLOYMENT RELATIONSHIPS

EmployerEmployer-Employee Relationship

PrincipalPrincipal-Agent Relationship

PrincipalPrincipal-Independent Contractor Relationship

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Employer-Employee Relationship
A relationship that results when an employer hires an employee to perform some form of physical service. An employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal employers behalf.

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Principal-Agent Relationship
An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf.

The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency.

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Principal-Independent Contractor Relationship

Principals employ persons or businesses who are not employees to perform certain tasks on their behalf.

These persons and businesses are called independent contractors contractors.


A principal can authorize an independent contractor to enter into contracts.

Principals are bound by the authorized contracts of their independent contractors.

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Kinds of Employment Relationships


Type of Relationship EmployerEmployer-Employee PrincipalPrincipal-Agent Description The employer has the right to control the physical conduct of the employee. The agent has the authority to act on behalf of the principal as authorized by the principal and implied from the agency. An employee is often the agent of his employer. The principal has no control over the details of the independent contractors conduct. An independent contractor is usually not an agent of the principal.

PrincipalPrincipal-Independent Contractor

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Formation of the Agency Relationship

Express Agency

Implied Agency

Agency by Ratification

Apparent Agency

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Express Agency
An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.

Exclusive agency contract Power of attorney


Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written.

Copyright 2004 by Prentice-Hall. All rights reserved.


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Implied Agency
An agency that occurs when a principal and an agent do not expressly create an agency. The agency is implied from the conduct of the parties. The extent of the agents authority is determined from the particular facts and circumstances of the particular situation.

Incidental authority
Copyright 2004 by Prentice-Hall. All rights reserved.
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Apparent Agency
Agency that arises when a principal creates the appearance of an agency that in actuality does not exist. When an apparent agency is established, the principal is estopped from denying the agency relationship.

It is the principals actions that create an apparent agency.


Copyright 2004 by Prentice-Hall. All rights reserved.
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Agency by Ratification
An agency that occurs when:
1.

A person misrepresents himself or herself as anothers agent when in fact he or she is not, and The purported principal ratifies (accepts) the unauthorized act.

2.

Copyright 2004 by Prentice-Hall. All rights reserved.


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LAW OF CONTRACT
REQUIRMENTS FOR A CONTRACT: Offer + Acceptance = Agreement Consideration Intention to Create Legal Relations

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LAW OF CONTRACT
DEFINITION: A legally binding agreement that means there must be some kind of agreement between two parties However, not all agreements are contracts because not all agreements are legally enforceable. legally enforceable means that a court will say that an agreement is a contract.
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SIMPLE CONTRACTS
There is no general rule in English law that a contract must be in writing Some contract can be made verbally or by actions These are known as parol or simple contracts

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Contracts which must be in Writing


Some contracts must be in writing but they dont have to be by deed Most of these requirements come from Statute. Some examples

bills of exchange contracts for the sale of land

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Legal Effect
Contracts are agreements, but not all agreements
are legally enforceable contracts

In fact, the legal effect of agreements fall into 4 categories Valid contracts Void contracts Voidable contracts Unenforceable contracts
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Valid Contracts
These are agreements which are completely binding and enforceable. Parties to valid contracts gain rights and responsibilities. The courts will make sure that the parties follow these rights and responsibilities if there is any argument

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Essentials of a Valid Contract


Offer and acceptance Intention to create legal relations Requirement of written formalities in some cases Parties must have capacity to contract Actual consent by the parties to the terms of the contract Contract must not be against public policy

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Void Contracts
In fact, these are not contracts at all They have no legal effect There are a number of things which can make a contract void eg mistake, illegality The important thing to remember is that you cannot enforce a void contract

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Voidable Contracts
This kind of contract is valid unless one of the parties has it set aside (ie declared void) This could happen where one party is tricked into entering a contract by the other party

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Unenforceable Contracts

These are agreements which are legal but which cannot be enforced in court for some reason For example, a time limit for enforcing the contract may have expired

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Why have a Law of Contract?


The Law of Contract is part of Private Law so it is concerned with relationships between parties It helps us to decide what is a valid contract The Law of Contract is also part of Civil Law so it is also concerned with remedies It helps us the other party to a contract does not keep to the agreement
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INDIAN SALES OF GOOD ACT


a.Normal sale payment term not considered as essence of contract b. If specific and time bound then it is essence of Contract c. Condition and warranty i. Condition is the stipulation as essence of contract ii. Warranty will lead to claim of damages

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INDIAN SALES OF GOOD ACT


d.Sale by description i. Producing for the end use of buyer on specification can claim damages. e.Samples If supply not equal to sample can reject the contract. f. Works contract Sale of goods plus labour - This benefits on Sales tax g.Guarantee This undertakes the primary liability of the promise

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POWER OF ATTORNEY
A power of attorney (POA) or letter of attorney in common law systems or mandate in civil law systems is an authorization to act on someone else's behalf in a legal or business matter . The person authorizing the other to act is the principal, granter or donor (of the power), and the one authorized to act is the agent or attorney-in-fact or, in many common law jurisdictions, simply the attorney

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ARBITRATION
Arbitration is legal process out of court when there is a dispute between the parties on executing the contract . A clause on Arbitration is to be included. Courts will not accept a litigation unless the arbitration process is over as per the terms of the contract. It is much quicker than going to a court of judiacature.

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REFERENCE
1.Purchasing &materials management by p.gopalakrishnan. 2Industrial engineering by R.S.khurmi. 3.Industrial engineering by Dr.B.Kumar. 4.Techniques of legal aspects by Miles,lawrence 5.Compendium of material management by Harald ,Tufty.

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ANY QUERIES???????

THANK YOU

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