Deck 15: Purchasing Law and Ethics

Question 1

If the primary purpose of the contract is legal, but some terms contained within the contract are not, then the contract may or may not itself be illegal depending on the seriousness of the illegal terms and the degree to which the legal and illegal terms can be separated.

Answer 1

True

Question 2

Accepting gifts and favors from a supplier is the most common ethical infraction involving buyers.

Answer 2

True

Question 3

Purchasing activities are concerned with the laws regarding contracts and the laws regarding agency, the majority of which concern contract laws.

Answer 3

True

Question 4

Under the UCC, the risk of loss is with the buyer until the title passes to the seller.

Question 5

When the contract is reduced to writing, the written document itself is the actual contract and not simply hard evidence of the existence of the underlying contractual relationship.

Question 6

Resources as diverse as formulas, supplier and customer lists, procedures, and training programs could all be regarded as trade secrets.

Question 7

Exceeding both actual and apparent authority can have dire consequences; an individual may be held directly liable by the supplier or other third party.

Question 8

The use of force or coercion to reach an agreement is acceptable in signing a contract, because both parties do not have to enter into the agreement on their own free will.

Question 9

If the terms of the buyer's purchase order and the supplier's acceptance or acknowledgement conflict, all of the terms of both the purchase order and the acceptance become part of the resulting contract including the conflicting terms and conditions.

Question 10

A breach of contract may entitle the offended party to certain remedies or damages.

Question 11

Contractual mistakes are covered under the UCC.

Question 12

Executive management sets the ethical code of behavior within a firm.

Question 13

Since people make agreements every day, every agreement can be considered a contract.

Question 14

The UCC allows the purchaser to reject the entire shipment, but not a part of the shipment, for cause.

Question 15

A firm should not encourage suppliers to report instances of unethical behavior by anyone within the buying firm.

Question 16

Buyers should avoid the practice of routinely tolerating suppliers that breach purchase contracts because doing so may result in the buyer forfeiting the right to legal action.

Question 17

Contract law is concerned with governing the relationship of principals and agents.

Question 18

A contract can exist only when there is an agreement resulting from both an offer and an acceptance.

Question 19

Suppliers seldom attempt to influence the decisions of supply professionals.

Question 20

In agreeing to perform the purchasing duties for the employer, purchasing managers imply that they will never make a mistake.

Question 21

It is illegal for sellers to exaggerate the merits of their products during their sales pitch.

Question 22

The Federal Trade Commission Act makes price discrimination illegal and prohibits sellers from exclusive arrangements with purchasers or product distributors.

Question 23

The concept of damages in the UCC is based on the remedy of a party being "made whole."

Question 24

A good rule of thumb is to remember that purchasers must always act in the best interests of their employer.

Question 25

The purchasing agency relationship is created between the employer and employee when the company hires an individual to perform the purchasing job.

Question 26

When the goods delivered by the supplier are actually rejected by the purchaser because of nonconformance, the purchaser must provide notice to the supplier within 24 hours.

Question 27

If both parties mutually agree to terminate the contract, then they have, in effect, created another contract with the intent of nullifying the first agreement.

Question 28

Because the UCC calls for full compensation for a party that is a victim of breach of contract, attorney fees are collectible.

Question 29

In order for a firm to recover lost profits in a breach of contract, the firm must produce credible evidence that it would have made such profits.

Question 30

Purchasing managers cannot be held personally liable for their damaging and illegal activities even if they perform them with the authority of their firm.

Question 31

Ethics have their basis in the field of philosophy and identify common principles associated with appropriate versus inappropriate actions, moral duty, and obligation.

Question 32

Unless the parties specify differently, the term "FOB" delineates the point at which the supplier is responsible for freight charges and where the purchaser assumes title to the shipment.

Question 33

Inventors seeking to expand their patent protection to other countries must file appropriate patent applications in each country in which protection is desired.

Question 34

The purchasing agent is generally considered to be a general agent for the buying firm with broad authority to change prices, terms, and conditions.

Question 35

Copyright is automatically assumed.

Question 36

Price fixing, dividing territories among competitors, and agreements that limit the supply of a commodity are violations of the Foreign Corrupt Practices Act.

Question 37

For the most part, the UCC is a "gap filler" and is only pertinent if the parties themselves do not supply a contract term or the term is left open.

Question 38

Accepting a supplier's outside gifts and favors in exchange for special treatment is not a form of corruption.

Question 39

Acceptance of the contracted goods by the purchaser means that ownership of the goods has been transferred.

Question 40

Contracts between two or more parties do not allow the shifting of risk between the entities and do not constitute the foundation and fabric for every type of supply chain relationship.

Question 41

All of the following are requirements to receive trade secret protection under law except _____.

A)almost every one outside the company is aware of it
B)the organization must take steps to minimize or preclude the distribution of sensitive information
C)it is economically valuable
D)it is not generally known
E)it is kept as a secret

Question 42

Which of the following is not a category of contract cancellation?

A)Cancellation for default.
B)Cancellation for convenience of the purchaser.
C)Cancellation by mutual assent.
D)Liquidated damages.
E)Anticipatory breach.

Question 43

The _____ is an attempt by the United Nations to facilitate international trade by removing legal barriers.

A)U.C.C.
B)CISG
C)FCPA
D)FTCA
E)UNICEF

Question 44

Either buyers or sellers can arbitrarily cancel or default on their contracts with impunity.

Question 45

_____ involves giving preferential treatment to suppliers that are also customers of the buying organization.

A)Personal buying
B)Reciprocity
C)Sharp practices
D)Accepting supplier favors
E)Conflicts of interest

Question 46

A/An _____ is a person or entity who has been authorized to act on behalf of some other person or entity.

A)principal
B)manager
C)agent
D)employee
E)sales representative

Question 47

A purchase order can be an offer, acceptance, or counteroffer, depending on the circumstances.

Question 48

_____ is money the plaintiff was hoping to gain from the contract.

A)Reliance
B)Restitution
C)Mutual assent
D)Expectancy
E)None of these answers.

Question 49

A/An _____ is a set of promises between two or more parties the performance of which the law expects, the breach of which the law provides remedies.

A)offer
B)agreement
C)acceptance
D)contract
E)breach

Question 50

In most cases, the sales representative is a general agent who can solicit orders and change price, terms, or conditions as well.

Question 51

On _____, the freight bill is presented on the effective date of the shipment.

A)FOB origin shipments
B)collect shipments
C)prepaid shipments
D)FOB destination shipments
E)None of these answers.

Question 52

From a legal perspective, purchasing managers do not have a fiduciary obligation to act in the best interests of their employer.

Question 53

_____ indicates that the supplier is responsible for transportation, and the purchaser assumes title of the goods at his or her own shipping dock.

A)F.O.B.origin
B)F.O.B.shipping point
C)F.O.B.destination
D)F.O.B.carrier
E)None of these answers.

Question 54

Copyright law requires a formal application, as does patent law.

Question 55

Generally, honest mistakes by a single party to the contract will void the contract.

Question 56

The costs and penalties for patent infringement are so mild that most standard purchasing agreements do not contain an appropriate patent indemnification clause.

Question 57

_____ is money the plaintiff actually paid to the defendant in connection with the contract.

A)Reliance
B)Restitution
C)Expectancy
D)Due diligence
E)None of these answers.

Question 58

Cancellation by mutual consent indicates that the cancellation of a previously agreed-upon contract automatically leads to legal action.

Question 59

_____ is money the plaintiff lost because he or she was relying on the contract, depending on the defendant to live up to his or her obligations under the contract.

A)Expectancy
B)Restitution
C)Due diligence
D)Mutual assent
E)Reliance

Question 60

In its most basic form, a _____ is defined as a promise or representation made by the seller, which, if necessary, can be legally enforced.

A)statement of fact
B)verbal agreement
C)contract
D)warranty
E)buyer's right of rejection

Question 61

According to the UCC, any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates a/an _____ that the goods shall conform to the affirmation or promise.

A)implied warranty
B)express warranty
C)general warranty
D)warranty of merchantability
E)warranty of title

Question 62

The implied warranty of _____ means when the seller at the time of contracting has reason to know of any particular purpose for which the goods are required, and the buyer is relying on the seller's skill or judgment to select or furnish suitable goods.

A)fitness for use
B)merchantability
C)express warranty
D)general warranty
E)warranty of infringement

Question 63

_____ deals with the role of managers as individual representatives acting on behalf of their organizations.

A)Contract law
B)Civil law
C)Mediation
D)Agency law
E)None of these answers.

Question 64

_____ essentially indicates that the supplier warrants that it has title to the goods and that they are not stolen or subject to any security interest or liens.

A)Warranty of infringement
B)Implied warranty of merchantability
C)Implied warranty of fitness for use
D)Warranty of title
E)None of these answers.

Question 65

_____ refers the standard terms and conditions that are usually preprinted on the back of forms used by the purchaser (and the seller).

A)RFQ
B)PO
C)RFI
D)Boilerplate
E)None of these answers.

Question 66

Which of the following is not one of the essential elements to an enforceable contract?

A)Offer.
B)Acceptance.
C)Consideration.
D)Due diligence.
E)None of these answers.

Question 67

In order to be valid, freight claims must be filed within _____ of the date of actual or reasonable date of delivery.

A)10 days
B)30 days
C)9 months
D)2 years
E)There is no time limit for filing freight claims.

Question 68

_____ are equal to the difference between the value of the purchased goods at the time of delivery and the goods' value at the time of specified delivery.

A)General damages
B)Consequential damages
C)Liquidated damages
D)Incidental damages
E)Specified damages

Question 69

_____ can be defined as failure of one of the parties to live up to the terms and conditions of the contract.

A)Cancellation for default
B)Cancellation for convenience of the seller
C)Cancellation for convenience of the purchaser
D)Cancellation by mutual assent
E)None of these answers.

Question 70

_____ stems from the instructions and granting of authority to the purchasing manager via the job description provided by the employer.

A)Apparent authority
B)Fiduciary responsibility
C)Mutual assent
D)Personal liability
E)Actual authority

Question 71

_____ is defined as the power that somebody has to affect other people's thinking or actions by means of argument, example, or force of personality.

A)Negotiation
B)Influence
C)Ethics
D)Sharp practice
E)Reciprocity

Question 72

[A/An] _____ is any misrepresentation by a buyer that falls just short of actual fraud.

A)Ethics
B)sharp practice
C)Bribery
D)conflict of interest
E)None of these answers.

Question 73

Which of the following is not one of the actions a firm can take to enhance ethical behavior?

A)Wiretapping and security cameras.
B)Developing a statement of ethics.
C)Closer buyer-seller relationships.
D)Internal reporting of unethical behavior.
E)Commodity rotation and limits of authority.

Question 74

When a non-agent, such as a maintenance supervisor, engineer, or finance analyst makes a commitment with a supplier, this is termed _____.

A)implied authority
B)actual authority
C)apparent authority
D)limited authority
E)None of these answers.

Question 75

_____ involves the buyer seeking a court order forcing the seller to deliver the goods.

A)Arbitration
B)Specific performance
C)An implied warranty of merchantability
D)An express warranty
E)None of these answers.

Question 76

Which of the following is not a form of sharp practice?

A)Willful use of misinformation.
B)Exaggerating problems.
C)Sharing information on competitive quotations.
D)Knowingly withholding information during a negotiation.
E)Taking unfair advantage of a supplier's financial situation.

Question 77

_____ indicates that the purchaser is responsible for payment of transportation costs and assumes title of the goods at the supplier's shipping dock.

A)F.O.B.origin
B)F.O.B.delivered
C)F.O.B.carrier
D)F.O.B.intermediate storage point
E)F.O.B.destination

Question 78

The doctrine of _____ holds that if one or more parties made a promise, even orally, he or she cannot renege on that promise if the other party acted on reliance on the promise.

A)caveat emptor
B)promissory estoppel
C)anticipatory breach
D)consideration
E)None of these answers.

Question 79

_____ is that level of authority perceived by the seller to be available to the purchasing manager.

A)Actual authority
B)Apparent authority
C)Consideration
D)Personal liability
E)Transparent authority

Question 80

On _____, the freight bill is presented on the effective day of delivery.

A)prepaid shipments
B)FOB origin shipments
C)FOB destination shipments
D)collect shipments
E)all shipments, regardless of terms