Do Buyers and Sellers Have Equal Negotiation Authority?

Purchasing and sales pros alike are fascinated by commercial law. We should be; it is part of our daily experience and we need to be masters of it. The purchase and sale of goods is a matter of contract law and a PO is a contract. Yet very few of us have any formal education or training in purchasing law.
Let’s look at a basic question of buyer and seller authority, a frequent bone of contention. Most of the facts cited in this story can be found in the Purchasing Manager’s Desk Book of Purchasing Law (Prentice Hall). It was written by lawyers who specialize in purchasing and sales a must-have reference for any merchant. The Uniform Commercial Code (UCC), the body of law covering purchases and sales of goods within the US, is almost universally applicable in 49 states, Louisiana being the exception. The UCC addresses the issue of buyer and seller authority in this fashion.

Agent is a term that applies to buyers and sellers in mercantile transactions. For buyers, there are four types of authority in Agency Law.
---Express or Actual Limits are expressed by Principal (employer) and agent
---Implied Derived from Express authority
---Emergency All would be lost otherwise
---Apparent or ostensible created unintentionally by actions

These four types of purchasing authority have no corresponding application to sellers. For instance, the Desk Book notes the legal principal that “he who deals with an agent has the responsibility to ascertain the scope of authority that agent possesses.” It goes on further to say that, “the law has taken the position that the average sales person, or drummer… has very limited authority…In short, the average sales person does not have the authority to enter into a contract. In that ‘competent parties’ are one of the four essentials of a contract, were a buyer to engage in serious buy/sell negotiations with an unauthorized party, he or she would be setting up the seller to pull the justified ‘higher authority’ tactic so well know in auto sales show rooms.

Moral of the story: buyers have the authority sellers don’t. Qualify the seller’s authority before you engage in serious bargaining. Get it in writing. And by the way, make sure the buyer has the express authority in writing so there are clear guidelines and practices. Plus, it is just good business.